Home Prices Are Going Up – And So Is Rent. Let’s Talk About Inflation

Inflation is a word that seems to be worldwide these days. There’s a big concern in regards to inflation – including inflated prices on our gas, food, necessities and yes, you guessed it, rent. Assets, such as your home or your car, become more valuable over time. During periods of inflation, your home is a good investment and can protect you against inflation.

Yes, home prices are going up – but so are rent prices. With mortgage rates near historic lows, the interest is normally less than the appreciation the property is enjoying. Your equity is more than likely growing at a faster rate than inflation if you combine the leverage which occurs using borrowed funds (mortgage) along with your home appreciation.

Time for a little math and stats. A 90% mortgage at 3.5% for 30-years on a $400,000 home that appreciates at 4% a year will have an estimated equity of $220,000 in seven years due to appreciation and amortization.  That is a 27.5% annual rate of return on the down payment.  That is a significant hedge against a current inflation of 4%.

If a person were to put that same $40,000 in a certificate of deposit that earned 2%, it would be worth only $45,947 in seven years.  If it was invested in the stock market that earned 7% annually, the $40,000 would grow to $64,231.  The equity in the example for the home would be almost 3.5 times larger.

So what are good bets against inflation? You’ll want to look into some bonds, gold and other commodities as well as real estate. A distinct advantage of investing in your home is that you would have that ability to live there with your family and enjoy it. That advantage is not possible with bonds and commodities.

Of course, there are other considerations when you compare like this such as maintenance, but that could be offset (at least partially), by the cost of housing being less than what you would be paying with comparable rent. And, since there is a great shortage of rental units available, the rent would certainly continue to increase annually. Your housing costs would be fixed with the exception of an increase in property taxes and insurance.

I can provide Insider Information on Fairfax VA homes for sale. Get you a FREE Market Snapshot Report of Your Northern Virginia Home’s Value, or  Search All Northern Virginia Homes For Sale. Put that data you need at the tips of your fingers!

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