You have likely seen, heard, and even felt the effects of high inflation in the recent years. For starters, what is inflation? Inflation is the rate at which the prices of goods and services increase over time. It is typically measured as a percentage change in the Consumer Price Index (CPI), which is a basket of goods and services that are commonly purchased by households. When inflation is high, the purchasing power of the dollar decreases. This means that you can buy less with the same amount of money. For example, if inflation is 5%, then a $100 item that you buy today will cost $105 next year. Although it is impossible to avoid inflation as a consumer, home ownership can provide a hedge against inflation. We discuss this further below.
Why is home ownership a hedge against inflation?
Home ownership can be a hedge against inflation because the value of homes tends to increase over time, especially in the long term. This is because homes are a tangible asset that is in demand, and the supply of homes is limited.
In addition, when you buy a home with a fixed-rate mortgage, your monthly mortgage payment will stay the same, even if inflation causes prices to rise. This means that your housing costs will become a smaller and smaller percentage of your overall income over time.
Other benefits of home ownership
Of course, owning a home can provide many other benefits in addition to being a hedge against inflation. Some of these benefits include:
- Potential for equity growth: As the value of your home increases, so does your equity. Equity is the difference between the market value of your home and the amount you owe on your mortgage. You can tap into your equity to finance home improvements, start a business, or pay for college tuition.
- Tax benefits: Homeowners can deduct certain mortgage interest payments and property taxes from their federal income taxes. This can save you a significant amount of money each year.
- Sense of security: Owning a home can give you a sense of security and stability. You know that you have a place to live, regardless of what happens in the economy.
If you are considering buying a home as a hedge against inflation, there are a few things that you can do to make the most out of your investment:
- Choose a location with good job growth and economic prospects. This will help to ensure that the value of your home continues to appreciate over time.
- Buy a home that is in good condition and needs minimal repairs. This will help to keep your maintenance costs down.
- Put down a large down payment. This will reduce the amount of money you have to borrow and give you more equity in your home.
- Get a fixed-rate mortgage. This will lock in your monthly mortgage payment for the term of the loan, regardless of what happens to interest rates.
Are you thinking about buying a home in the South Florida area? We can help! Contact Natasha at Live South Florida Realty, Inc. today! Also, don’t forget to download the free Florida Home Search app for your smartphone or tablet!