Are Homeowners Going To Benefit From High Inflation?

The end of inflation is not near

The end of high inflation does not seem to be anywhere near. In June 2022, the rate of 9.1% was the highest since November 1981! This increase is above the forecast of 8.6% that most economists were expecting for this year. 

No sector of the economy is untouched. Food, construction materials, and energy prices have gone through the roof. The majority, 71% to be exact, of Americans, report inflation has changed their spending habits. Eating out, groceries, vacations, and remodeling are the areas most consumers have cut back. Education, at this point, remains the least affected. 

Are we all going through the same?

So are all Americans going to be equally affected by this inflation? Given that we all use the shrinking US Dollar, it would seem so. But that largely depends on each individual’s position as a debtor and what kind of debt one has.

A tale of two neighbors

Consider two neighboring homeowners, both having bought similar houses of roughly the same price.

The first one got a 30-year fixed-rate mortgage at 3%. So, monthly mortgage payments are fixed and paid with money worth increasingly less due to inflation. But, this homeowner has a tangible asset (the house) increasing in value. So, if both trends last long enough, this first homeowner will pay relatively little for a high-value home.

Now let’s take a look at the other neighbor. This person got a mortgage with a variable rate, now at around 5.22%. Inflation and interest rates go hand-in-hand, so as one increases, this person will have to pay more on his monthly mortgage payments. Ultimately, he will end up owning a tangible asset with considerable effort and personal sacrifice.

Are renters better off?

Is inflation leaving renters the worst off? Yes, it is. A tight market made rent inflation reach 5.6% in June 2022, the highest year-on-year increase since February 1991. As a result, renters have to dedicate increasing amounts of their income to keep a roof they will never own over their heads.

In an economy with high inflation rates, the most viable option to maintain the real value of our savings is to turn them into assets that hold prices that are in line with or above inflation. Other strategies will give us lots of money with less purchasing power. 

We have a program to help you

At The Cal Agents, we have a team of experts in real estate, accounting, and economics. So if you want to protect your hard-earned money, we can guide you through the decisions needed to count yourself amongst the Americans that beat the current bout of inflation.

We offer our friends and customers our free Real Estate 101 classes to guide you through purchasing a property.  In those classes, we cover everything from down payments to how to get the best loan and many other subjects. You can attend our classes live by clicking here or scanning this QR Code.