If you’re buying a home, it’s important to understand the difference between home appreciation vs inflation. Both look like an increase in the home’s value, but they have different effects on your bottom line.
What is Home Appreciation?
Appreciation occurs naturally. Real estate prices generally increase over time due to buyer demand, economic growth, or demographic reasons. Homes also appreciate when homeowners improve the homes, giving them more features or replacing current features with better (more valuable) features.
For example, if you buy a home today for $150,000 and you sell it in 10 years for $250,000, the home appreciates $100,000. The home’s value is determined by the average selling price of homes in the area within the last six months.
What is Inflation?
Inflation is an increase in the price of goods and services, not just real estate. It affects the entire economy including the wages everyone earns. Fortunately, with inflation, everything increases which includes home values and even the rent prices renters pay.
Most real estate keeps pace with inflation unlike other investments, such as stocks which often lag behind inflation rates.
Home Appreciation vs Inflation – They Work Together
When most people talk about inflation – they talk about it negatively. Inflation makes it harder to afford your regular goods and services because prices go up, making your dollar worth less money than before.
But real estate is the exception to the rule. Real estate is one of the greatest ways to hedge against inflation. Real estate and inflation typically work together – increasing at the same pace.
When you put money down on a home, you have the advantage of enjoying the appreciation. If inflation hits and causes your home’s value to soar, your investment takes off, giving you an even greater return on your investment.
Should you Invest in Real Estate?
The sooner you jump on the real estate bandwagon the better. You’ll get in when values are lower, and ride the real estate appreciation train all the way to the top.
You don’t need a large down payment to buy a home, especially for owner occupied use. First-time homebuyers can secure loans with as little as 3 – 3.5% down on the home and subsequent buyers with 3.5% – 5% down.
If you’re buying an investment property, you’ll need a larger down payment (usually 20% – 30%), but you’ll leverage your investment by taking advantage of inflation and naturally appreciating homes.
Bottom Line
If you’re looking for a way to hedge against inflation, look closely at the similarities between home appreciation vs inflation. A home investment is one of the best ways to ensure you get the most value for your money.
Today it’s easier than ever to get financing. You don’t need perfect credit or a large down payment. We have programs to help borrowers in most situations. If you’re ready to put your money to work in real estate, let’s talk today!
