The average interest that a savings account delivers today– it’s low — very low. If you factor in two percent annual inflation, a $10,000 savings deposit earning 0.6% is actually DECREASING in value by $140 per year.
Consider that the average national annual rent increase exceeds the rate of inflation. For example, in 2019, one-bedroom rental apartments saw rent increases of 4.1 percent; while two-bedroom prices rose by 5.5 percent (according to adobo.com). A strong economy and increased demand (particularly by millennials and baby boomers) drove these increases. That said, they were countered by historically low interest rates, which motivated many renters to take the leap into homeownership.
With these numbers in mind, owning hard assets (such as real estate) right now is something on which many wise investors are focused. But there is one asset – your home – that is not just an investment but is an ESSENTIAL NEED. We all need shelter. If you can combine an asset/investment with an essential need – one that has historically weathered inflationary times well – buying a home in the current low-interest-rate environment might make more sense than ever.
Of course, real estate is only one way to grow your wealth but it is one of the easiest ways to invest and save — after all, owning your home is essentially a forced long-term savings account. It allows you to take advantage of tax incentives. And once you have equity, you can use low interest rates to borrow and use it to refinance your car loans, student debt, and/or transfer your credit card debt.
So, renters, while homeownership may be a long-term goal for you, I’d encourage you to take the steps now to be in a position to buy a home as soon as you’re able. Be sure to check out our best tips for relatively painless ways to save up for a home. And of course, reach out to us anytime if you’d like to talk about your options. We’d be happy to help!