How MN Home Ownership Can Be a Hedge Against Inflation

You've probably heard the term inflation a million times on the news but some people are foggy on the definition. Inflation is defined as "a general increase in prices and fall in the purchasing value of money." In simplest terms, inflation means that a dollar won't buy you as much as it used to.

Between the COVID-19 pandemic and recent global strife, inflation rates have soared to their highest level in years. As of August 2022, the inflation rate in the United States was 8.26%. To put that into perspective, in August of 2020, the inflation rate was only 1.31%. If you're looking for a hedge against rising inflation in Minnesota, owning a home might be your safest option. Continue reading to learn why.

The Relationship Between Home Ownership & Inflation

If you're a homeowner in Minnesota, there's good news: as inflation rises, your home will appreciate value. In the first quarter of 2020, before the drastic inflation which the US has experienced, the median price of a home was about $330,000. By the first quarter of 2022, the median American home price had risen to about $430,000 - an increase of over 30% in just two years. If inflation continues to rise at this rate, a home you buy for $430,000 this year will be worth about $560,000 by this time in 2024.

Aside from properties generally appreciating in value because of inflation, there's another reason housing prices have seen such a surge during inflation: building materials have become much more expensive and, as a result, many home construction projects in Minnesota and other states have been halted. Because new homes are not being built, competition to purchase existing homes has become more intense and home values are soaring.

Another advantage to home ownership in Minnesota is that the loan-to-value ratio of your mortgage will decrease as inflation causes your home equity to increase. If you're paying a fixed rate mortgage on a house that you've owned since before the pandemic, you're in a great spot, since your monthly payments will be unchanged while your home's value is steadily rising.

While owning a property in Minnesota creates a hedge against inflation, those living in rental properties have experienced the opposite effect from inflation. Rental prices nationwide have skyrocketed due to inflation, placing renters in a tight spot. This is advantageous to homeowners for two reasons. First, many renters have been pushed to try to buy homes rather than paying drastically inflated monthly rental rates, creating an even stronger seller's market in Minnesota and beyond. Second, if you purchase a rental property, you'll be able to make a fortune off of renters. So if you've been considering investing in a rental property, the time is now.

Become a Homeowner with the Help of a Real Estate Team

If you don't own a home in Minnesota and you'd like to purchase one, your best hope of buying a home for a reasonable price is to work with a skilled local real estate team. Whether you'd like to buy a home to live in or as a rental property, the Chris Fritch Team with eXp Realty is here to help. Give us a call today for expert assistance with buying a home in the Twin Cities metro!