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Housing inflation considerations

For those with the option to purchase a home or rent, Inflation is a big consideration to evaluate.

To start with an example, let’s compare a $1,000 apartment rental vs. purchasing a condo that will cost $1,000 per month; including the normal purchase expenses such as mortgage, Property Taxes, insurance, and association dues.

What happens over time? In this example, the rental rate may increase an average of 3% per year. So in 10 years, the apartment rental would rise to $1,344 per month.

Meanwhile, for the condo purchase, the mortgage payment would remain fixed. If the other components also rose by 3% per year, the total monthly payment might be $1,131.

After 10 years, the rental payment would be 20% more than the monthly condo payment.

The inflation effect on rent affects the entire amount. However, for a purchase the inflation impact does not affect the mortgage (the largest portion of the monthly cost), just the smaller components.

Each cost component of housing is impacted by inflation and exogenous influences at a different rate. Sometimes property taxes or association assessments can explode upward. And there are periods where there is no notable inflation. I know people that have been priced out of their home from rent increases, property tax increases, and even association fees that multiplied by +400%.

Whichever housing option you choose, be aware that every expense component will be impacted by inflation. Those affects must remain affordable for your level of income in order to maintain financial stability and keep your home.

The post Housing Inflation Considerations appeared first on Financial Literacy.



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Housing inflation considerations

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