2025 is a difficult time for those who want to buy homes. Prices are high, mortgage rates are high, and inventory is low. But, despite the challenges, young couples who are in the parshah should be mishtadel to do so. That’s because owning the roof over their heads is one of the most essential and powerful financial moves a family can make.
House as a Hedge
It is well known that real estate can be an excellent investment. But its financial usefulness goes much deeper than just potential returns on investment. Every human needs shelter, and buying a roof over one’s head locks in the price of a significant lifelong cost.
This inflation-hedging component is extremely valuable even if the property price does not skyrocket after purchase. The many young couples priced out of the housing market since the post-COVID pricing and mortgage rate surges are living proof of this need for hedging.
General Inflation Protection
On a basic level, it’s logical that houses should do a good job keeping up with inflation. Inflation means the cost of goods and services rises relative to the value of a dollar. Buying a house is switching dollars into many hard assets or goods (land, concrete, lumber, pipes, sheetrock, flooring, appliances, etc.) and services (the professional talent and labor that goes into building a house). Over time, the value of well-located real estate should at least rise with inflation; historically, this has indeed been the case.
Local Price Rise “Insurance”
Of course, there’s much more to real estate pricing than inflation; localized supply and demand factors will often have a much more significant effect. For example, New York’s real estate market is very different from Detroit’s, even though both have the same exposure to the US dollar. Likewise, Lakewood’s explosive housing market has little to do with national inflation statistics.
But whatever is driving home prices, buying locks in the cost of housing. This protective hedge is extremely valuable beyond basic calculations of returns on investment.
Hedging in the Gemara?
Chazal recommend that people grow their own produce because this food is blessed (Yevamos 63a). How does this reconcile with another gemara on the same page that says that farming offers relatively little financial reward? Rashi and Tosfos explain that farming enough food to cover the household’s needs is part of a bracha.
This may be partially thanks to the hedging protection from the occasional food shortages and resultant price spikes. One drought can wipe out even the wealthiest person if they must pay top prices for enough food to survive (as in Yosef’s times in Sefer Bereishis). A bit of farming—not for general parnassah, but as price “insurance”—is, therefore, a wise move.
But, in addition to hedging costs, a home purchase can ironically become an absolute winner during inflationary periods! It all has to do with the massive amounts of debt most of us use to purchase our homes.
Marvelous Mortgages
While today’s mortgage rates are higher than we’d like, history shows that rates fluctuate. Locking in a home purchase now still protects against future price increases, and refinancing can become an option if rates drop. We take them for granted, but 30-year mortgage loans are unique tools. Even those with modest means can borrow vast sums at relatively favorable rates and terms.
From an inflation perspective, locking in an interest rate for decades is an unbelievable risk for a mortgage lender. If inflation rises significantly over the life of a loan, the repaid money is much less valuable, and the lender loses significant (real) wealth.
Inflation Is Icing on the Cake
On the flip side, a long-term mortgage borrower who locks in rates beneath inflation wins big-time. The dollar amount of the 360 payments being made will be identical, but those dollars’ real-world value, or purchasing power, is constantly falling. Inflation is, in essence, a discount on the debts owed—in favor of the borrower and at the lender’s expense.
We already touched on how the potential growth and hedging power make owning a home a valuable inflation-fighting tool; the ability to repay housing debt with devalued dollars is the icing on the cake!
A Housing Plus Inflation Example
Consider an example. Amram bought a $500,000 house in 2019 using a 30-year $400,000 mortgage with 3% interest. The monthly payments (principal and interest) equal $1,686, one-fifth of his $8,430 monthly household income. Now, say inflation hits 6% annually for 10 years, and his household monthly income and typical expenses grow accordingly. For the most part, he’s in the same place financially—even though the number of dollars brought in and expended has changed, his purchasing power has remained the same except for his fixed monthly mortgage payment.
In year 10, with 6% inflation, Amram’s monthly salary would be $15,096, but his mortgage payment is still $1,686. Housing’s bite, as a percentage of his monthly income, fell from 20% to just 11% ($1,686 mortgage / $8430 salary = 20% vs. $1,686 mortgage / $15,096 salary = 11.1%). By year 20, the percentage of wages spent on housing amounts to just 6%. The right to pay out a mortgage over many years offers a significant opportunity for home buyers to profit at the expense of lenders.
(Note: this doesn’t account for property taxes and maintenance, which are exposed to inflationary effects.)
A Silent but Steady Winner
Even if Amram’s salary does not rise with inflation, buying a house remains an inflation hedge, as we explained earlier. At least, his mortgage burden won’t increase due to inflation or local supply and demand issues, whereas those renting could be hit with ever-rising housing expenses.
And the house’s value will likely keep pace with inflation. A $500,000 home would be worth at least $3 million after 30 years of 6% inflation. Pretty good for an investment that requires just a $100,000 down payment! (As we explained earlier, most of that investment gain is net of inflation since it’s a heavily leveraged investment; the bank subsidizes the return.) These factors add to the list of reasons why buying a home makes sense for most families in the long run despite the many challenges involved.
This all may ring a bit hollow to those facing today’s housing market, and with 7% rates to boot. And the inflation hedging and upside potential are far more significant for those who locked in historically low interest rates.
However, the overall logic, need, and inflation math of leveraged home purchasing remain. Try to buy when your family and finances are ready.
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