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  • Writer's pictureLaura M. Johnson

The Ultimate Guide To Protecting Your Wealth From Inflation - Hint: It Includes Owning a Home!

Inflation is a reality that can significantly impact our daily lives. Prices of essential items such as groceries and fuel continuously increase, making it hard for many people to keep up. As a result, the cost of living is rising, and our wages often fail to keep pace, causing a decline in our living standards. Although inflation is a complex economic phenomenon, it affects everyone. The rise in prices is often due to increased demand for goods and services, which affects the entire economy. However, understanding the causes of inflation and managing your finances can help mitigate its effects. Although dealing with rising prices can be challenging, implementing the right strategies can help us keep pace with the cost of living, as explained by Zanda's chief economist Ali Wolf:

"We often get hung up on the exact definition of inflation, but one thing we all know is that prices for a lot of the items in the economy have gone up. If you have cash and are expecting inflation, you want to think through where you can put your money so it does not lose value. Housing is commonly looked at as a good inflation hedge."

As inflation rises, all goods, services, and real estate prices across the board will increase. This means that the same house you purchased a few years ago, at a much lower price will now be substantially more expensive. Locking in a low-interest, fixed mortgage rate is vital to save money during rising costs. This allows you to know exactly what your payments will be for the duration of your mortgage, saving you money in the long run. Doing this is a great way to budget more effectively and avoid being hit with substantial monthly payments or penalties for being unable to pay. A fixed mortgage rate also gives you more control over the equity in your home since you can lock in a fixed interest rate and a fixed mortgage that ensures you can pay it off. This added financial security is priceless and ultimately allows you to enjoy the great things that come with homeownership.

Rising Consumer Prices: A Challenge or an Opportunity?

The reality of inflation can significantly impact our daily lives. The prices of essential goods such as groceries and fuel continuously increase, making it difficult for many to keep up. This results in a rise in the cost of living, while our wages often fail to match up, leading to a decline in our living standards. According to Apartment List, 69 out of 100 major U.S. Metropolitan cities saw an average increase of 1.9% between March and April this year. Although inflation is a complex economic phenomenon, it affects everyone due to increased demand for goods and services, which impacts the entire economy. However, we can mitigate its effects by understanding its causes and managing our finances. Though challenging, implementing the right strategies can help us keep pace with the rising cost of living.

When inflation occurs, the prices of goods and services tend to increase. This can be challenging for renters, as landlords determine their rent costs, leaving renters with no control over their housing expenses. Homeowners, on the other hand, have some protection from inflation. They pay a fixed amount for their mortgage, which includes the principal and a fixed interest rate. This payment remains stable throughout the mortgage period, shielding homeowners from potential rental cost increases.

Moreover, homeownership has the potential to generate long-term wealth benefits. Mortgage payments build equity, leading to a return on investment as the property value increases. Additionally, homeowners can benefit from several tax advantages, which help lower out-of-pocket expenses.

An inflationary environment isn't terrible for everyone, and some businesses thrive in this type of environment. For example, banks and other financial institutions are typically the ones that benefit the most from this type of environment, as they can earn more money when interest rates go up. This is because they can charge more for loans and other financial services and benefit from higher yields on their investments. Additionally, businesses that produce goods that are in high demand can benefit from inflation, as they can charge more for their products and services. Retailers may benefit from rising prices, which can encourage more people to purchase their goods. Other businesses that may benefit from inflation include landlords, who can increase rent prices to capitalize on the rising costs, and companies that export goods, as they may be able to increase their prices in foreign markets.

Homeownership Is Your Best Defense Against Rising Inflation Rates

Owning a home has many benefits that renting cannot match. One of the most significant advantages is the satisfaction of building equity in an investment. As you pay off your mortgage, the value of your home increases, and you can use that equity to finance other expenses, such as home renovations, vacations, or college tuition. Additionally, owning a home means you no longer have to worry about your landlord increasing rental fees, as you have the stability of fixed mortgage payments throughout the loan's life. Many potential homeowners buy instead of rent because they want a fixed monthly expense. However, monthly rent prices are subject to local market conditions, and unexpected economic changes can cause them to rise rapidly. With a fixed mortgage payment, homeowners can manage their costs during tough times without worrying about rent increases.

2022 saw a significant surge in rental prices, with Freddie Mac estimating a 6 to 8 percent increase nationwide. These rising rents impacted many areas of the country, with some states seeing an even higher rise in rent. Despite this rent increase, Freddie Mac is forecasting a relatively modest 3.9 percent increase in rent for 2023. This projected growth in rent will continue to make housing even more difficult for many American renters to afford. In addition, the lack of available affordable housing and competitive housing markets will further exacerbate the potential for rent increases over the foreseeable future:

"Although rents and home prices are likely to remain expensive and may continually increase, there are advantages to buying a home today if you are ready. Rents typically increase between 3% and 5% each year, though your landlord or management company may charge more depending on the terms of your lease agreement."

Owning a home offers many financial benefits and a sense of stability, privacy, and pride that renting cannot match. You can customize your living space without worrying about a landlord's approval for changes or repairs. Plus, you and your family can enjoy increased security and protection without fearing sudden eviction or having to move frequently. Although renting and owning both have pros and cons, the benefits of homeownership tend to outweigh those of renting, especially in the current economy where rental costs are high, and the future is uncertain. Ultimately, owning a home is a wise investment that can provide financial safety, security, and a sense of pride that renting cannot offer. Furthermore, Freddie Mac also outlines how owning a home can protect you against the increasing expenses caused by inflation:

"Not only will buying today help you begin to build equity, a fixed-rate mortgage can stabilize your monthly housing costs for the long-term even while other living expenses continue to rise – as has been the case the past few years."

A fixed-rate mortgage is an excellent choice if you're looking for a secure and reliable home loan option. Unlike variable-rate mortgages or rent, fixed-rate loan guarantees that your interest rate and monthly payments will never increase, regardless of how high-interest rates climb. This provides a significant advantage, especially when living costs increase over time. By choosing a fixed-rate mortgage, you can count on consistent housing costs every month, quarter, and year, providing peace of mind and stability in an uncertain world.

Rising Rents: How to Survive the Inflationary Apocalypse

Renting has become increasingly popular as an alternative to homeownership due to the steep rise in housing prices and a tight rental market, resulting in higher rents in many areas of the country. While some households rent because buying a home is unaffordable, rents also increase due to inflationary economic pressures. Landlords must raise rents to cover their operating costs as inflation occurs. As the cost of living in cities increases, rental costs also rise, driven by the growing demand for rental housing and increasing home prices. Renting provides an affordable alternative to homeownership, meeting basic living needs while avoiding the instability of rapidly rising home prices. Despite higher rents, renting offers many benefits, including the ability to move quickly, enjoy professional property management, and avoid the risks and costs associated with homeownership. Nevertheless, buying a home may be a better option for most, as rents may rise due to inflation, as reflected in the graph below:

According to analysts, there are several reasons for the increase in rent prices. These include high demand from homebuyers who cannot afford to purchase homes due to rising interest rates and home prices, low inventory, landlords compensating for lost rent during pandemic-related rent moratoriums, and higher maintenance costs due to inflation. Are you worried about your rent increasing when it's time to renew your lease? Consider a fixed-rate mortgage as a solution. By locking in a favorable interest rate for the entire mortgage term, you can protect yourself from inflation-based rent hikes. In addition, with consistent monthly payments and a fixed loan term, it's easier to manage your finances and set achievable savings goals. Plus, fixed-rate mortgages usually come with lower interest rates than variable-rate loans, which means you can save significant money in the long run. Choosing a fixed-rate mortgage is wise for anyone looking for financial stability and peace of mind.

According to a survey conducted by Buildium, 73% of property managers plan to raise rental rates in the next two years. If you own a home during financially uncertain times, your most considerable monthly expense remains constant. But if you rent, you may not be protected from potential price hikes. Owning a home could be advantageous in such unstable times, while renting may not guarantee a fixed monthly cost.

Unlock Your Equity Potential

Having predictable monthly expenses is crucial for young families or those living paycheck to paycheck. Even if the value of a home decreases during uncertain times, the required monthly payment remains the same. Homeowners can rely on this consistency to ease financial stress and weather income interruptions. While owning a home has its perks, it may only be feasible for some. It's essential to consider additional costs like property taxes and insurance before making a financial decision. Despite these expenses, owning a home can be a more cost-effective choice in the long run. Homeownership provides stability and financial security through regular monthly payments during economic uncertainty. Unsurprisingly, many turn to real estate for this peace of mind, as explained by James Royal, Senior Wealth Management Reporter at Bankrate:

"A fixed-rate mortgage allows you to maintain the biggest portion of housing expenses at the same payment. Sure, property taxes will rise and other expenses may creep up, but your monthly housing payment remains the same."

It can be challenging to keep up with the rising cost of living during high inflation, making stable housing payments crucial. By choosing a fixed-rate mortgage, you can ensure that your housing payment remains the same for the entire lifespan of the loan, regardless of inflation. This provides financial security and peace of mind, as you won't have to worry about your monthly payment increasing with inflation. Additionally, a fixed-rate mortgage enables you to plan for the future, as you won't have to worry about the impact of inflation on your payments. Moreover, you can use the money saved from a fixed-rate mortgage to invest or pay other bills. With today's low mortgage rates, it's an excellent time to explore options and find a mortgage that suits your budget and needs. If you're considering buying a home or refinancing, connect with us to learn more and start your journey toward homeownership today!


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