Property as a hedge against inflation

Inflation. Inflation. Inflation. We’ve heard it so much and we see the impact in our everyday lives. Someone recently reached out to me asking if buying a home could be a good hedge against inflation. Because I am not a financial professional, I can’t speak to their specific situation, but I can say that I believe home ownership is an excellent hedge against inflation.

• As inflation rises, your home value should as well. Of course, home values are subject to highs and lows like any market, but over the long term home values have historically increased.
• The loan to value of your mortgage should decrease as your home value increases over time as you pay down the principle. If you have a fixed rate mortgage, your payments will remain the same as your home equity increases.
• High inflation impacts many product categories, including those products necessary for building new homes. As the cost of building new homes increases, their sale price must also increase. Increased prices for existing homes is a knock on effect.
• If you own rental property, it is likely you will be able to increase rents in a high inflationary environment.

The median sale price for a home rose from $329,000 in the first quarter of 2020 to $428,700 in the first quarter of 2022 according to the Commerce Department- that’s an increase of about 30%. Balance that against inflation of 11.5% for the same. And you are ahead of the game.

The Federal Reserve has few levers to pull to get inflation under control. Their primary tool is manipulating interest rates to accelerate or slow down the economy. We have seen record interest rate hikes over the last several months and I expect we will continue to see them until inflation moderates.

Contact me if you are inspired to find your next home.

I am not a financial professional. Please seek a financial advisor for guidance specific to your situation.