What is the Best Inflation Hedge? ~ Hampton Roads Real Estate Ramblings

What is the Best Inflation Hedge?

Thursday, January 6, 2011

Hello Hampton Roads,

What is the best inflation hedge you ask?

Today more and more people are talking about inflation--we can see it already in the higher prices for food (and smaller sizes--heck, the 7-Eleven Big Gulp is 4 oz smaller!) and gas (crude is over $90/barrel) and not to mention, the stellar rise in price of gold and silver.  The best hedge against inflation is to buy tangible assets, and since this is a real estate blog, that would be buying houses.

Buy the best house that you can afford.  It's value will likely keep pace with inflation over the long term and the interest on the mortgage is tax deductible.  Billionaire John Paulson, famous for betting against the housing market in 2007, also shares this sentiment.  In a recent speech at the University Club in New York City, Paulson is quoted:

"If you don't own a home, buy one." Paulson said.  "If you own one home buy another one, and if you own two homes, buy a third and lend your relatives the money to buy a home."

Buying a home today will lock in debt at low levels of interest while being paid back with cheaper, devalued dollars (see Sidebar below). In the short, intermediate term, I believe housing prices will fall due to the glut of inventory on the market and downward pressure from distressed property sales, but in the long term, prices will rise again.

Sidebar:  Regarding interest rates, the 30-year fixed-rate mortgage average declined to 4.77% from 4.86% last week, and the year-ago average was 5.09%.  Also all this QE (Quantitative Easing) increases the money supply making each dollar worth less.



Thanks for Reading,


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Serving your Hampton Roads and Virginia Beach Real Estate needs.

1 Comment:

Anonymous said...

Hello Liz,
As usual you proving excellent information, and according to my research you are right on the money!
Thanks again,
An Avid Reader