One of the hottest topics right now is the crazy housing market. Everyone I know has in some way been impacted by the market. For my demographic of clients, friends, and colleagues, most of them are at that stage of life where they are looking to buy their first house. If you were to ask anyone who is currently in the housing market, the first thing they mention is how competitive it is. I am not planning on talking about why housing prices are the way they are, but rather what these housing prices can teach us moving forward.
Averages Are Not Steady
Steph Curry is one of the greatest three-point shooters ever, and a lot of times whenever he gets into a zone, it seems like he can’t miss a shot. Every time the ball goes up, you think it’s going in. What if I told Curry does NOT make 50% of his shots? It feels weird hearing that because we remember him during his hot streaks. The housing market on average has had a long-term average of 3.9%, and that number is close to inflation rates. But it might not feel like it because we only remember the jumps, but with effective planning we can prepare for better, average, and worst-case scenarios.
Purchasing Power is Key:
Our parents have told us stories about how things were so cheap when they were our age. I remember my 5th grade teacher telling me her family got a weeks’ worth of groceries for $20. We know this is not the case in our current economy, and that’s because of inflation. Theoretically, if you buy groceries for the same sized family now with $70, that would equate to $70 worth of groceries in today’s prices has the same purchasing power that $20 did in the past. This is what we have seen with housing prices, whenever you see a 13% spike in housing prices in one year, the same dollar amount does not hold the same purchasing power that it did a year ago.
Investing Gives You Power
Investing can be advantageous because with investment returns you have the chance to not only keep up with inflation, but outperform it. So whenever we have a burst of inflation, you have a bucket of money that will allow you to compete in the current market. My mentor, Peter Lazaroff, recently penned a blog article on this subject.
Planning is key
With home purchases it is important to plan accordingly, if you have a short time frame till you plan on making the purchase, it might not make sense to invest that money due to volatility associated with investing in the short term. If you plan accordingly and start investing early and give your investments time to grow, you won’t have to worry about losing out to inflation, and ultimately you’ll have the ability to purchase the home you dreamed of.
This material has been prepared for informational purposes only and should not be used as investment, tax, legal or accounting advice. All investing involves risk. Past performance is no guarantee of future results. Diversification does not ensure a profit or guarantee against a loss. You should consult your own tax, legal and accounting advisors.