Growing government deficits worldwide have sparked concerns about future inflation levels. America’s Federal Reserve and other central banks have been increasing the supply of money, in order to keep economies expanding.
Currently inflation is at low levels. But if it picked up even modestly, the effects would add up over time.
Inflation typically reduces the value of cash, while increasing what tangible objects are worth. For instance, the price of energy tends to rise during inflationary times.
Real estate owners and investors can expect higher inflation to have a couple of important effects on them. First, mortgage rates most likely will spike upwards once inflation climbs.
Borrowers should consider moving into a fixed-rate mortgage soon if they’re concerned about inflation. Fixed loans offer payments that won’t change in the future, no matter what happens with inflation and interest rates.
HIGHER HOME PRICES
Property prices typically rise as inflation goes up. Real estate holds its value as a dollar’s worth gets smaller. Owners enjoy higher wealth levels as a result.
Even with the real estate market’s recent weakness, an average home’s price has increased at about the same rate as inflation over the past 30 years, according to data compiled by the National Association of Realtors.
Owners can use their growing equity for a down payment on a property which better suits their needs. Or homeowners entering retirement can downsize into a smaller house, and have funds left over to live on.
If you believe inflation will go up from today’s low levels, you’ll have a cushion against its effects by owning a home with a fixed-rate mortgage.