Real Estate as an Inflationary Safe Haven
From the grocery store to your energy bills, inflation has become a reality of everyday life. And while June’s inflation reading of 9.1% – a 40-year high – has caused many people to reexamine their budgets, hard assets like real estate are still very much in favor because they offer protection against rising prices. Here are a few reasons why real estate can serve as a hedge against inflation.
With a fixed-rate mortgage, the monthly payment (principal and interest) for your home will remain the same, whereas rental costs will rise. On top of that, mortgages become “more affordable” over time as wages increase and the value of the dollar decreases.
Home Price Appreciation
In most cases a tangible asset like real estate gets more valuable over time, increasing your equity as your monthly payment stays the same. Keep in mind, home appreciation is affected by a variety of factors including market conditions, location and home improvements, but currently, the national average appreciation rate is 2% month over month and 14.5% year over year.
Regardless of economic conditions, there will aways be a demand for real estate, because housing, whether owned or rented, is an essential need. However, beyond shelter and investment diversification, owning a home provides a sense of enjoyment too – a return that goes beyond the financial.
There are aspects of inflation that are unavoidable, from increased prices on consumer goods to a fluctuating stock market, but real estate is one of the most reliable ways to fight inflation — not just this year but any year.