Build-to-RentNational Housing Market OutlookSingle-Family Rental

Inflation Is Good for Homeowners and Landlords

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John Burns

October 1, 2021

Inflation can present challenges, but it also presents opportunities, especially with two unique situations that are occurring today. It has been more almost 40 years since we have seen widespread inflation.

Inflation is great for homeowners

For homeowners today, as well as consumers looking to buy a home, inflation is your friend. Your monthly mortgage costs will be fixed for 30 years while there will be

  • Upward pressure on your home value. The cost to build a home like the one you own will go up, giving some upward lift to your home value.
 
  • Rising incomes. Your income will go up more than usual while your employer likely passes some of that increases on to your customers.
 

In summary, your income goes up and your biggest expense stays flat if you are a homeowner.

Landlords love inflation

In an inflationary environment, you want to be the landlord and not the tenant. That is one major reason that so much money is pouring into rental housing right now. In an inflationary environment where expenses are rising, landlords should have the ability to raise rents on tenants whose incomes are rising as well. In a market with strong demand like today, those rent increases should exceed expense increases.

Two unique situations today make inflation even more compelling

  1. Low mortgage rates. Inflation usually comes with higher interest rates because lenders and bond owners want their returns to exceed inflation. While the current situation is quite complicated, bond holders today are actually willing to accept returns that don’t exceed inflation. This situation is very unusual, and is helping both homeowners and landlords pay more for a home. Most landlords, however, don’t get 30-year fixed-rate mortgages, so the big advantage here is to homeowners.

  2. Surging household formation. The COVID-induced household formation surge, mostly driven by those born in the 1990s who were behind on household formation, is making landlords look brilliant, as occupancy is high and rents are skyrocketing. Inflation often causes household formations to slow, but that is not the case today.

Summary

While this unique high inflation, low interest rate environment creates plenty of uncertainty and challenges, housing industry executives know what to do.

  • Sell a lot of homes. Every time you sell a home, you are doing a well-qualified buyer a big favor. Advertise that and feel great about it.
 
  • Rent a lot of homes. Owning rental homes is a smart investment decision in today’s high risk, low return world.
 

Inflation is more complicated than this, which is why we have devoted 3 of our last 18 monthly webinars to inflation strategies. If you would like more info, please fill out this form. 

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About The Author

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John Burns
Chief Executive Officer
As CEO, John grows, leads, and supports a team of passionate, articulate, likable, and smart experts. Together, we solve today so our clients can navigate to tomorrow.

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