Inflation Can Impact Home Buying In Raleigh
Did you know that inflation can impact home buying in Raleigh? It doesn’t matter if you’re a cashier, lawyer, plumber, or retiree; if you spend U.S. dollars, inflation impacts you and it’s crucial that you understand it. The annual inflation rate in the United States is currently around 7.5%—the highest it has been since 1982.
Economists expect the effects of inflation, like a higher cost of goods, to continue. Luckily, an investment in real estate can ease some of the financial strain. Here’s what you need to know about inflation, how it impacts you, and how an investment in real estate can help.
WHAT IS INFLATION AND HOW DOES IT IMPACT ME?
Inflation is a decline in the value of money. When the rate of inflation rises, prices for goods and services go up. Therefore, a dollar buys you a little bit less with every passing day. The consumer price index, or CPI, is a standard measure of inflation. Based on the latest CPI data, prices increased 7.5% from January 2021 to January 2022. A little bit of inflation is considered healthy for the economy, but 7.5% in a single year is high.
How does inflation affect your life? Here are a few of the negative impacts:
● Decreased Purchasing Power
We touched on this already, but as prices rise, your dollar won’t stretch as far as it used to. That means you’ll be able to purchase fewer goods and services with a limited budget.
● Increased Borrowing Costs
In an effort to curb inflation, the Federal Reserve is expected to raise the federal funds rate. Therefore, consumers are likely to pay a higher interest rate on new
mortgages, car loans, and variable-rate credit cards.
● Lower Standard of Living
Wage growth tends to lag behind price increases. According to Moody Analytics,
when adjusted for inflation, average weekly earnings in January were down 3.1%
from a year earlier.4 As such, life is becoming less affordable for everyone.
Inflation can force those on a fixed income, like retirees, to make lifestyle
changes and prioritize essentials.
● Eroded Savings
If you store all your savings in a bank account, inflation is even more damaging.
As of February 2022, the national average interest rate for a savings account is
0.06%, not nearly enough to keep up with inflation. And economists don’t expect
that rate to go much higher.
Where To Invest
One of the best ways to mitigate these effects is to find a place to invest your money
other than the bank. Even though interest rates are expected to rise, they’re unlikely to
get high enough to beat inflation. If you hoard cash, the value of your money will
decrease every year and more rapidly in years with elevated inflation.
So where is a good place to invest your money to protect (hedge) against the impacts of
inflation? There are several investment vehicles that financial advisors traditionally
Some people invest in stocks as their primary inflation hedge. However, the stock
market can become volatile during inflationary times, as we’ve seen in recent
Commodities are tangible assets, like oil, livestock, and minerals. The theory is
that the price of commodities should climb alongside inflation. But the classic
choice–gold–hasn’t risen consistently during periods of inflation since the 1970s,
according to data from Morningstar Direct.
● Inflation-Indexed Bonds
Treasury inflation-protected securities, or TIPS, are U.S. government-issued
bonds that are indexed to the inflation rate. Bonds are considered low risk, but
the returns they offer are generally low, as well.
● Real Estate
Real estate prices across the board tend to rise along with inflation and often rise
faster than inflation. That’s one of the reasons demand for real estate is soaring
Contact us today if you’re interested in exploring options in either the long-term or short-
term rental market. Mortgage rates are expected to rise, so you’ll want to act fast to
maximize your investment return. Feel free to reach out to Ash at your first available time.
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