Is buying a West Lafayette home for sale a hedge against inflation?
Richard Weisser has written a featured post "Buying a house now could be the best hedge against inflation. . .EVER!"that makes a solid case for consumers buying a home because of the low home prices and the incredibly low interest rates.
NOT SO FAST!!! I do agree with Richard that in most markets it is a great time to buy a house, and why wouldn't you want to get a FIXED RATE loan and lock it in for the next 30 years as a possible hedge against inflation?
I do not believe we can see that far into the future and assure our clients that buying a home now will be a great investment hedge against inflation. There are too many factors that will impact the future price of one's home besides INFLATION, among them are supply, demand, local employment opportunities, fiscal policy(local, state, & federal), and consumer confidence.
If there ever was a hedge against inflation in our area and appreciating home prices it would be the city of West Lafayette and its award winning school system. From 1999 through 2009 the median sales price of a home appreciated over 25% in value which included an increase for the LAST FIVE YEARS!
Guess what? This still did NOT keep pace with inflation. Even though the median sales price appreciated from $137,000 in 1999 up to $172,000 in 2009 the housing market in West Lafayette(extremely limited supply of new home construction, high demand, award winning schools, Purdue University) the homeower lost over $2,000 dollars in 2009 in "real" dollars(adjusted for inflation).
You need to check out this website: The Inflation Calculator
Did you buy some gold as a hedge against inflation back in 1980(talk about bad timing) for $800 an ounce and sell it last year finally for a "profit" at $885? Plug in the numbers into the Inflation Calculator
ENTER THE AMOUNT OF MONEY $800
ENTER THE INITIAL YEAR 1980
ENTER THE FINAL YEAR 2009
To keep pace with inflation your gold should have sold for $2,056 an ounce!!!!!!
You lost almost $1,200 per ounce on your investment. Had you bought the gold for $100 an ounce in January of 1974 you would have doubled your money in 35 years.(a return of just over 2% per year)
You can do some fun things with THE INFLATION CALCULATOR on past purchases or it is great for your kids and school:
***Was Jefferson's Louisiana Purchase a good deal in 1803 for $15 million. PLUG IN THE NUMBERS!
***Gasoline was 37¢ in 1973 before the oil embargo. What is that in real dollars for 2009?
***You bought your home in 1982 for $100,000 what is that in inflation adjusted dollars for 2009?
Test your local market with historical prices and see how the median or average home sale has held up against inflation!
Will the inflation that challenged our economy during the mid and late 1970's return? Who knows? I do agree with Richard that it IS a great time to buy, and that a fixed interest rate mortgage is a smart move!
I just don't think we can state with certainty that buying a home today is a hedge against inflation for the future. Consumers have an opportunity to buy a home at a great price with incredibly low interest rates and they should do so for those reasons. Hopefully their house will appreciate in value in the future but that is not our call.
Comments(27)