I’ve seen various thoughts on the matter of whether owning a home is a good hedge against inflation, specifically a home with a fixed rate mortgage. Many economists are predicting that rising inflation is inevitable over the next few years.
A simple example uses the following as a basis to say yes:
- Your payment will stay the same. If you have a home and lock in a 30 year mortgage with a $1,000 per month payment, your payment will stay the same for the life of the loan. If prices double over a ten year period, your mortgage payment stays the same whereas your rent payment would likely double over that period.
- Your interest rate stays the same. During times of high inflation, interest rates creep up to what can be pretty high levels. If you lock in a 4% interest rate today, you’ll beat any mortgage available during high inflationary times.
- Unless home prices fall dramatically again, you’ll have equity. This is the part where most people these days are going to say ‘A-ha!’ and rightly so as prices have been in a downward trend over the past years. But, up until a few years ago, most homeowners who got a fixed rate mortgage at a low rate would have equity within a couple of years whereas a renter never has any equity in the place where they live.