4 Must-Know Facts About Inflation, Housing, And Mortgages

Maura Schauss |

By Craig Strent of Apex Home Loans, Guest Blogger

Many of our prospective and current clients are growing more concerned about inflation, and what that can mean for one of the biggest investments they have or are planning to acquire – their home.  To get a better understanding of the benefits of home ownership in inflationary markets, we turn to Apex Home Loans CEO & Co-Founder Craig Strent to share his perspective formed from almost 30 years of working in the DC area’s unique real estate and mortgage market.

We appreciate Craig and the Apex Home Loans Team for taking the time to share the following valuable insight.


With inflation here and only expected to get worse, many potential buyers are getting nervous and wondering what to do. As a result, I thought I’d address a few major considerations today.

1. Housing Is an Inflation Hedge/Protection Against Inflation

As a hard asset, housing tends to appreciate with inflation like we saw in the 1970s and like we are seeing now. As you may already know, the price of homes tends to increase in proportion to the supply of money in the economy. And, if the money supply does increase too quickly, the value of our dollars decreases while housing tends to hold its own, thus protecting homeowners from inflation.

2. Mortgages Are Assets in Inflationary Environments

Borrowers with low fixed-rate mortgages benefit tremendously in inflationary environments. This is because rents and wages tend to increase in inflationary environments while the value of the dollar falls and fixed-rate mortgage payments remain the same. As a result, inflation can be a huge boon for debtors, as they get to pay off their debt with much less valuable dollars.

We saw this in the 1970s when borrowers saw their incomes increase sharply over the decade because of inflation, allowing them to easily pay off their low-rate mortgages from the 1960s.

3. Inflation/Fed Policy Will Only Further Increase Housing Prices

We have and have had significant asset inflation for some time, as a result of the Fed Policy. This is a point Raoul Pal of Real Vision makes often; when the money supply increases, asset holders (homeowners and stock market investors in particular) benefit the most because money supply increases often result in asset appreciation more than consumer price inflation.

So, buyers who are waiting for prices to fall before buying might be disappointed, as current Fed policy and inflation concerns indicate that home prices will continue to rise. And this of course is not even taking into account the demographic trends and the low housing supplies.

4. Inflation Pushes up Rates

One more reminder for buyers who might be sitting on the fence – inflation pushes up interest rates. This is because investors are not willing to hold mortgages or Treasury bonds if the yields are lower than the rate of inflation, as they would be losing money if that was the case. Hence, interest rates almost always tend to increase with inflation. So, once again, buyers who are waiting for lower home prices might be sorely disappointed if they end up with a 3% higher interest rate than what they could get now.

 

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ABOUT APEX HOME LOANS

Since day one at Apex Home Loans, we've been committed to finding you the perfect mortgage to meet your financial goals. Over time, we've built an in-house infrastructure to drive efficiency, a transparent loan process to provide peace of mind, and an unforgettable customer experience. In addition to helping you purchase a home or refinance an existing mortgage, we also manage your mortgage for its lifetime, reward community members who go above and beyond, and drive positive change in our communities. With nine branch locations, Apex is licensed and positioned to service MD, DC, DE, VA, PA, NJ, FL, and WV. Learn More

 

ABOUT WASHINGTON WEALTH ADVISORS

Washington Wealth Advisors is a fee-only registered investment advisory firm serving busy families, executives, women building wealth, and small business owners. We provide Wealth Advisory Services—financial planning coupled with asset management—guided by a personalized investment strategy based on each client’s unique goals. Our unbiased advice, independent approach, and proactive investment management help to support our client’s overall financial peace of mind.