Home Ownership Hedges Against Inflation

Great financial reasons to own real estate, advises Biggerpockets.com, are building equity, tax advantages that don’t exist for other asset classes, not having to pay rent, passive income from rental properties, among many others. One of the greatest advantages is that buying a home is a terrific hedge against inflation.

Since 1913, the annual inflation rate in the U.S. has averaged 3.10%. As the cost of goods and services rises, so do the costs of buying a home. Currently, mortgage interest rates, or the borrowing costs to buy a home, are at record lows. If you were to purchase a home today, you’d be able to lock in fixed-rate long-term debt (your mortgage) to buy a financial asset that promises to rise in value while you enjoy using it.   

That means that while others pay rising rents and home prices year after year, your monthly payments are cheaper and cheaper, by comparison, allowing you the freedom to reinvest in your home, invest in other asset classes, or put money toward other worthy goals such as higher education and retirement. Another way of looking at it is that the first year you own your home will also seem the most expensive, and it will get easier year after year. 

A home as an inflation hedge is important because after the pandemic the economy will improve to the point that the government needs to control inflation by raising borrowing rates to banks, mortgages. Homebuying will only become more expensive.

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