We are ALL seeing the effects of inflation, especially during these times. We are currently in the highest inflation period in 40 years, and none of us are immune or exempt from seeing and experiencing the effects. The purchasing power of your money diminishes each day, which in turn means you’re buying less. Many of us are cringing at the gas pumps.
Your money buys less gasoline now, than it did a year ago, by close to 50%. Beef prices are up about 20% since last year. Used cars are about 35% more expensive than they were a year ago. Mortgage rates are near 5% after reaching their lowest of 2.65% in January 2021.
What about the price of homes? CoreLogic has reported that home prices increased by 20% in February of 2022. That means there was an annual five percent increase in home prices from 2014 to 2021.
You’ve heard of the American Dream I’m sure. If you haven’t heard that term before, the American Dream is the dream of all Americans to own a home. For many, that dream is unfortunately slipping away. Many of you are needed to make some adjustments such as your expectations of what you’re looking for in a home, or what you can expect to achieve that home. You also need a long-term strategy for achieving that goal and make that “dream come true”. If you delay that gratification of owning a home by trying to get everything you want in a home now, you potentially could be waiting for quite some time – years possibly!
Even if it isn’t the “ultimate home” that you’ve always been looking for – owning a home in today’s market gives you a significant protection against inflation. Not only is the home appreciating faster than the rate of inflation, the mortgage on the home produces leverage that increases a homeowner’s return on their equity.
A really simplified way to look at this is appreciation and amortization. A homeowner has both the home’s appreciation plus its amortization (paying off a debt over time in equal installments, ie your mortgage or car payment), working together which increases equity.
Here’s some numbers you can crunch. $40,000 invested in a certificate of deposit earning 1% would be worth $42,040 in five years. If the same amount was invested in the stock market that earned 6% annually, it would be worth $53,529. However, if the $40,000 were invested in a $400,000 home, with a mortgage at 5% for 30 years, that appreciated at 5% annually, the equity would be close to $180,000 at the end of the same five-year period.
Let’s connect, and we’ll put together a plan to help you benefit from inflation.
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