Will Homeowners Be Better Equipped To Fight Inflation?

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.

On the other hand, prices have fallen and in many cases continue to fall.  You also must consider that there are other costs associated with home ownership that will not be protected from inflation (property taxes, repairs, insurance, etc).

Unless you have a crystal ball, I don’t know if there’s a sure right answer.  I’ve seen many predictions come true over the years and many that haven’t.

What do you think?  If inflation kicks in  and rent starts spiraling upward, will those who have locked in their rates and their monthly payment end up better than those who are exposed to the risk of rising rent prices?  Let me know what you think in the comments.

5 thoughts on “Will Homeowners Be Better Equipped To Fight Inflation?”

  1. Well, to put things in perspective, my mom bought her house in 1978 for $10,000 then sold it for $215,000 30 years later. Although she put money into it to repair and maintain it, I think it was still the right way to go for her, especially since part of it was a rental.

    My vote is yes, it is a good hedge against inflation.

  2. I think in order to answer that question, one needs to know how much they still have to pay down on their mortgage.

  3. If anything, real estate is a decent diverse investment; I don't view it as a full-proof inflation fighter contrary to popular opinion. You can have cases (as have been demonstrated throughout history) where there is both hyperinflation AND complete crashes in real estate prices. No guarantees!

  4. In general, it is better to own debt during a period of inflation as opposed to deflation or stagnant prices. However, as you mentioned, there are many costs associated with home "ownership" that will not be protected. Also, since there isn't any natural floor for housing prices, I wouldn't want to take that bet.

  5. Another factor to consider is your source of income. Areas of high home ownership are slower to recover from streaks of unemployment (both localized and on a national level). If you need to move where to find new work – not being able to sell your home will really hold you back.

    Of course, this is more applicable to the younger portion of the workforce and those that work in more volatile fields.

    I may not have a crystal ball – but what I do have is liquidity. When the time is right and my career more stable, I'll move that into a mortgage.

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