Worried About Inflation? Buy a Home
Written by
John Csiszar
Edited by
Levi Leidy
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Inflation has remained doggedly persistent in the United States economy since the coronavirus pandemic of 2020. Although the Consumer Price Index (CPI) has fallen dramatically from its peak of 9.1% in July 2022, prices remain elevated across a wide range of consumer goods and services, especially housing and food.
Unfortunately, analysts at J.P. Morgan Asset Management warn that Americans should brace for more pain. In their estimation, the effects of the Trump administration’s tariffs have yet to fully hit the market, meaning inflation could rear its ugly head once again.
With no refuge in sight, Americans might have to turn to the overpriced housing market to find some relief. Here’s why.
Inflation Hedge
Real estate has historically been used as a hedge against inflation, primarily because it’s an appreciating asset. Over time, average housing returns have slightly outpaced inflation, and there are a few logical reasons for this.
For starters, when inflation rises, it costs more for developers to build homes. These costs are passed through to buyers in the form of higher prices. Since real estate values are based on comparable sales, when new homes cost more, it drives up the prices on all homes. There are obvious exceptions, of course, but in general, the rising tide of inflation lifts all boats when it comes to home prices.
Another reason home prices tend to rise during inflationary periods is that investors crave tangible assets. Inflation devalues paper assets like cash or even stocks, but tangible assets like housing tend to benefit.
Rising rental income can also make properties more valuable. When inflation goes up, landlords tend to raise rent on tenants. When a property can generate more income, it becomes more valuable.
Protection From Rising Rents
One of the main benefits of a 30-year fixed-rate mortgage is that your mortgage payment doesn’t increase over time. What may seem like a high mortgage payment today is likely to seem much lower in 15, 20 or 25 years. This is particularly true in comparison with the rental market. According to Trading Economics, rent inflation in the United States averaged 4.22% from 1954 until 2025. Over time, this compounds to an enormous amount.
Imagine, for example, that you’re choosing between paying a $3,500-per-month mortgage and a $2,500-per-month rental unit. At first, you’ll obviously be saving a lot of money by renting instead of owning. But over time, that ratio turns completely upside down. After just 10 years, that $2,500 rent will jump to $3,809, using the historical average rent increase of 4.22% annually. By the time you’ve paid off your mortgage 30 years down the road, your rent would have increased to a whopping $8,846.
This is obviously an extreme example, and rents don’t go up in a straight line at a fixed percentage rate every year. This example also excludes all of the additional expenses that come from owning a property, from maintenance and insurance to property tax, potential homeowners association (HOA) fees and more. But the principle behind the exercise should be obvious — over time, the fixed mortgage payment itself will be an amazing hedge against rent inflation.
Forced Savings
Every mortgage payment you make, you are building equity in your home. What may feel like an expense in your monthly budget is actually an investment. Even if your home doesn’t jump in value along with inflation, the fact that you are paying your mortgage down every month means that your home equity increases. This “forced savings” is a great way to build your net worth over time.
Caveats
Nothing in the investment world is as simple as “When X happens, do Y.” This applies to the housing market as well. Although real estate is traditionally a good hedge against inflation, there’s no guarantee that will remain the case in the future.
One of the worrying problems is that homes are at near-record levels of unaffordability, thanks to elevated mortgage rates and prices that skyrocketed coming out of the pandemic. If tariff inflation hits hard, interest rates might rise even higher.
High interest rates might not just make homes even more unaffordable — it might trigger a recession. In a recession, home prices typically fall, sometimes dramatically. In this scenario, your hedge against inflation may turn into a financial burden around your shoulders, one that could take years to recover from.
A final thing to consider is that homes are illiquid by their very nature. Even in a hot market, you’ll have to find a buyer, go through escrow and complete weeks if not months of paperwork. If you really need to sell your home, you’ll have to be patient enough to wait for the process to run its course.
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