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According to the Bureau of Labor Statistics, inflation is at its highest point since 2008 and is expected to keep rising until at least January 2022. Inflation has drastic effects on decreasing consumers purchasing power, essentially driving the cost of products and services up, while wages remain the same.
As of August 2021, inflation is currently at 5.25%. Fortunately, buying real estate is one of the strongest methods of combating a rise in inflation because of three great reasons. Appreciation, amortization, and taxes act as catalysts in the real estate industry that hedge against inflation.
According to the Federal Housing Finance Agency, home prices were up a whopping 18% between May 2020 and May 2021. Plus the rate at which homes are increasing in value substantially exceeds the current interest rates on 15 and 30 year mortgages. Amortization over these 15-30 year mortgages allows borrowers to spread out the costs over time, allowing them to build wealth and lower monthly costs.
Taxes also provide real estate an advantage in combating inflation. There are several tax benefits for real estate, including the ability to write off annual interest expenses on mortgages and home improvements. Additionally, if borrowers have purchased a home within the last year, mortgage interest and points paid at closing serve as an additional write off.
If you do choose to hedge inflation by investing in a home or piece of real estate, it’s vital you reach out to an experienced financial or mortgage advisor. Unibell Financial can help you pinpoint the best mortgage product for your goals — and your long-term wealth.