Inflation, the economic term which refers to the de-valuation of your money, can sound like a blaring car horn to the ears of many investors. While its consequences are simple enough— a rise in the cost of goods and services— it’s also comprised of many less obvious negative aspects as well. For example, the direct effect that it has on the housing market (which includes impacting the many financial aspects involved in buying an investment home). Below, we describe these consequences in fuller detail and offer a solution which will allow investors to avoid the consequences of an inevitable rise in the inflation rate.
Consequences of Inflation
1) Increase in Cost of Home Construction
Remembering that inflation refers to a rising cost in the price of everyday goods, think of all the materials it takes to build a new home: from concrete and bricks, to drywall and stucco, the list is quite long. Inflation means that all of these required materials just became more expensive for homebuilders.
2) Rising Home Prices
Consider the consequence of higher homebuilding costs once more: as these put a greater financial burden on homebuilders, they have little recourse but to then make up for it with higher listing prices for just-built properties. Unfortunately, this isn’t the only reason inflation causes home prices to rise. When the Central Bank increases the amount of money in circulation (a primary cause of inflation), house prices automatically increase.
3) Decline in Financed Home Purchases
Another effect inflation has on the housing market involves borrowed money. When inflation rises, causing money to become more expensive to borrow, people don’t borrow as much of it; they may not even borrow any at all. This results in a chain-reaction of fewer financed home purchases, which may flatten economic growth.
Why You Need a Hedge Against Inflation
With inflation slowly rising, now is an ideal time to invest in an asset class that can provide a hedge against it. By doing so, you’re protecting your portfolio with a smart investment expected to maintain or increase its value over a specified period of time. In fact, residential rental homes even tend to increase in value during times of prolonged inflation. So, while purchasing office equipment for your business fails the test of appreciation, investing in real estate passes, with flying colors (a fact that we’re sure you can appreciate!).
Schedule a Consultation Today
Having an effective inflation hedge in place can directly influence your future finances—so don’t allow rising inflation rates to undermine your nest egg. To determine your best options for creating an effective hedge against inflation, call HomeUnion® at 888-276-0232 today or schedule an informative consultation.