Inflation fears & buying a home in Raleigh

By Jason • January 22nd, 2010

Renting may seem cheaper than buying a home, especially in an uncertain market. However, rents will increase over time due to multiple factors, inflation being one. Raleigh is already seeing an increase in rental demand and according a story from the Triangle Business Journal yesterday, Raleigh rental rates are leading the charge. in U.S.

“Despite a slight dip in the fourth quarter, the Raleigh-Cary MSA was one of only two U.S. metros in 2009 to see a increase in average rent for apartments and other rental housing.

Average monthly rent in the Raleigh-Cary MSA rose 2.9 percent to $806 in 2009, according to a report released Thursday by research firm RealFacts Data.” (1)

What I found interesting is that rents nationwide have decreased while Raleigh has increased. My thought is that our continued growth is driving the rental market as individuals moving here for work. etc.. may have properties yet to sell in other markets.

A decrease in the value of the dollar is yet to come. I think that many people will miss the point I am making by thinking short term. Renting versus buying a home may seem like a better deal right now, but if you want to protect yourself and your family from the effects of inflation, start thinking long term. Even if the rate of inflation remains fairly tame, rental rates are still going to rise. Now, factor in appreciation. Appreciation is how your house increases in value over time with the market, just like inflation.  Raleigh has historically appreciated at nominal rates that might compare to inflation so even if it costs more to buy than to rent, your costs are offset by this new value you have in your home.

If you buy a home with a fixed rate mortgage, your payment will not change over the life of the loan. This is a distinct advantage of buying a house.When you rent, your rent will fluctuate with inflation. The advantage of locking in your payment is rarely mentioned for some reason, but it’s power should not be underestimated. Your tax bill will fluctuate and so will your insurance, but your principle and interest payment will not.

Current mortgage interest rates are extremely low, but that will change. The Federal Reserve has been keeping rates artificially low by subsidizing the mortgage securities market. Rates are sure to increase as the Fed works to stave off the coming inflation. Also, the price of buying a home has hit or is near bottom and property prices will rise, too. In another 5 years, the value of houses will have increased and the low daily mortgage rates we enjoy today will follow.

It is my opinion that buying a home is an excellent way to fight inflation and for the next few months, the government is even giving you a tax credit to buy now! This is an outstanding opportunity to buy a home if you are gainfully employed and have a plan to live in the home for the next 5+ years. Some cases in Raleigh may be suitable for shorter term buyers, but I’m a big fan of the 5+ year plan right now.

(1) Leo John. Triangle Business Journal. Raleigh posts top U.S. apartment rent gain; Durham holds steady. January 21,    2010. http://triangle.bizjournals.com/triangle/stories/2010/01/18/daily39.html. Accessed January 22, 2010.
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Comments(1) First Time Home Buyer, Home Buying

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By Patrick Wynn on January 22nd, 2010 at 11:40 AM

This reminds me of the story of a man who bought a home in the mid 70’s and had a $1000 per month payment. His father told him he was crazy to have a payment so high. In the 90’s the prices of homes in that neighborhood had increased so substantially that neighbors couldn’t believe he lived there and paid so little. What may appear to be alot now will not be much at all in the future!

 

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