3 Ways a Home Purchase Is a Reliable Hedge Against Inflation

Typically, inflation ushers in higher prices for everything, including mortgage rates, home prices and rental costs. So, if you’re considering buying a home and think we might be heading for rising inflation, here are some ways buying a home now can help you later.

• Lock in a mortgage with a low, fixed rate. The average rate for a 30-year fixed mortgage is bouncing around the low-5% range, making this a great time to borrow money. As inflation increases, mortgage rates will likely climb, so folks who lock in a low rate now can avoid paying higher interest rates later.

• You won’t be exposed to rising rent. The rising inflation tide lifts all boats, including rent prices. Homeowners are shielded from mounting rental prices because their cost is fixed, regardless of what’s happening in the market.

• Property values increase over time. Tangible assets like real estate get more valuable over time, which makes buying a home a good way to spend your money during inflationary times.

Even though housing prices are surging, most homebuyers are interested now because they want to take advantage of the low interest-rate environment. Likewise, investors are keen on getting cheap money for assets that will go up in value.

Although buying a home can help protect the homeowner’s money against inflation, buyers should still consider how long they plan on staying in the house.

Because closing costs are so expensive, buyers have to factor in those costs before buying a home because it impacts your ability to afford that home in the long run. When you purchase a house you will pay between 2% to 6% of the purchase price in closing costs. And when you sell the home, closing costs can run anywhere from 1% to 3% of the sale price.

If you don’t accrue enough equity in your home to cover those costs, you could end up losing money on the sale. Similarly, some people are purchasing homes above the appraised value, which means they start out in their new home upside down on their mortgage—they owe more than what the property is worth. This is not a good position to be in if you don’t plan on staying in the home long enough for appreciation to catch up.

Often, the only thing that can help you build equity is time. Of course, there are wild card events that cause a housing market boom, and you could see your home appreciate much more rapidly than the average appreciation rate, which is typically 3% to 5%.

Today’s housing market is a great example of rapid price appreciation. Depending on your area, you could be paying top dollar for a house. This isn’t necessarily a bad thing if you plan on staying in the house long-term.

If you are First Time Homebuyer you can get pre approved here.

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