Some think that the price of a house will tell you the rate of inflation over a longer period of time. Their reasoning is that the inflation rate tracks the amount of money that we’re willing to pay for goods and service. The more we’re willing to fork out, the higher things are going to cost. When a recession brings us down, we spend more time looking for deals and end up less likely to pay the more ridiculous prices. It is then that the vendors are forced to sell their products for less.
A house is made up of tons of smaller products and services. A home is worth the sum of them all. Therefore, if a home cost $250,000 when you first bought it, and it would now cost $150,000 to make that same house due to the economic downturn, then a consumer is much less likely to purchase the home for you when they could make a similar one for $100,000 less. The process is the same vice versa. If the home was $250,000 when you bought it but it would cost $350,000 to make today, then you would be crazy to sell it for anything less.
Since the house equals a sum of all the products in services within a home, it is therefore a viable unit to measure the inflation rate in our economy over time. It turns into a measuring stick for those that watch and work with the economy.
You as a homeowner can take advantage of this information. If you understand this concept, then you can use it to your advantage today. Our housing market is still recovering from the crash in 2009. Because people aren’t willing—or capable—of purchasing a home for higher prices, inflation is at an all time low. This means that higher value homes are cheaper than ever. Buying a home today is considered a smart investment in your future because we can only go up from where we came from. Should you buy one now, you could potentially make fifty to a hundred thousand dollars from the sale of the house once the market reaches its pinnacle again.
If you’ve ever thought about investing your own money, why not do it in a house? The investment in a home might not pay off for a few years, but when it does, it could mean the difference between an early retirement and working the full length of the career. This is especially true if you invested in multiple properties.