• calendar_month October 25, 2022

A global rise in inflation began to occur in the early months of 2021, due to numerous causes such as the pandemic-related fiscal and monetary stimulus, price gouging, supply shortages, and commencing from 2022, the Russian invasion of Ukraine. 

In order to tamper down rapid inflation, The Federal Reserve uses their main tool: the raise of interest rates- which increase the cost of borrowing money, reduce disposable income and consequently limit the growth in consumer spending. This tends to reduce inflationary pressures and cause an appreciation in the exchange rate. 

Inflation decreases the purchasing power of money- so as inflation rises, every dollar earned loses its value. As the prices of goods and services rise, including the price of real estate, so too does rent.

Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), explains what happened to rents in the latest inflation report:

“Inflation refuses to budge. In September, consumer prices rose by 8.2%. Rents rose by 7.2%, the highest pace in 40 years.”

Historically, homeownership is a great hedge against an inflationary economy due to locking in what is likely your largest monthly payment (your mortgage payment)  for the duration of your loans which helps stabilize some of your monthly expenses. 

With the rise of mortgage rates, it does in fact cost more to buy a home today than it did last year; however the same is true for renting. Either way, you will be paying more- difference is, with home ownership, you’ll be gaining equity overtime which will help grow your net worth. 

Every person has their own unique situation, however you may be closer to home ownership than you realize. So if you’ve been thinking about whether you should sign onto another lease or start your journey of building your net worth through home ownership, please do not hesitate to connect with me in order to figure out what your next steps should be.