As inflation rise slows, investment questions remain

Written by Monica Correa on December 13, 2022.


Investment questions remain as rising inflation slows

The consumer price index report released on Tuesday showed the smallest 12-month gain since December last year, although it eased to 7.1% in November from 7.7% in October and 8.2% in September. , the Federal Reserve raised interest rates by 75 basis points. November marked the fourth time in a row that commodities and assets became affordable.

Homeownership affordability fell 30% in September due to rising mortgage rates, according to the Atlanta Federal Reserve Bank’s Homeownership Affordability Monitor. According to NextAdvisor, the average interest rate for a 30-year fixed mortgage is 6.63% nationwide, while a 15-year fixed is he’s 6.01%.

The year-on-year rate of increase in house prices is 7.5% from September 2021. The median home price in September fell 4.1% from June to $365,667 from the peak price level of $381,218. Additionally, the median monthly cost of housing increased 46% from last year to $2,670, according to the Atlanta Fed. This means that the average homebuyer will spend about $851 more to own the median home compared to the same time last year. .

“Simply put, I would never recommend buying a single-family home unless you’re renting it out to someone else,” said Victor Francis, CEO and co-founder of multifamily investment firm Precision Equity. Whitemore said. “A period of inflation like this one benefits commercial real estate investors but hits single-family home buyers hard. Investing discretionary funds in commercial cash flow assets.”

Inflation favors property investors, he explained, because rising rents increase the value of commercial properties by a huge multiple. “For every $1 of additional income, the value of your property increases by $12 to $20. The single-family home you live in is not an investment. That’s the big lie people were told.”

To deal with a high-inflation environment, Owen B. Harvey, financial adviser to Miami-based First Command Financial Services, said it’s important to plan for the long term.

“We try to guide our clients so their behavior is consistent over time, but the details vary from family to family,” he said. , trying to adjust their budgets: inflation will make some goods more expensive, while others are cheaper, which could be a good time to buy. We look at the plan and try to understand what we can do each year for the plan.”

Murphy said he saw increasing stress among customers due to the market decline and rising inflation. “A lot of it feels unknown to a lot of people,” he said. “Historically, periods of high inflation are not uncommon. Clients can be reassured by planning for these ups and downs in the long run and understanding what they can get in different markets. Let’s go,” he said.

Some federal economists see the current inflation reading as a sign of improvement. Federal Reserve Chairman Jerome Powell said there had been some progress in easing inflation in physical commodities such as cars, furniture, clothing and electronics, according to AP News. Housing costs continue to rise nationwide, but apartment rents and home prices are likely to start falling next year, according to AP News, “which should help keep overall inflation in check.”

“No one knows if inflation will stop or rise further, but what people can do is prepare for the worst, plan for the best, plan for the worst, to navigate these waters. said Mr. Murphy. “So if there is a future increase, we are in good shape and aligned to do the best we can.”

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