It’s been quite a while since inflation was a subject that cropped up regularly in the news—yet it’s never ceased being a major factor affecting Santa Barbara real estate wealth. For younger Santa Barbara homeowners who have never experienced rampant inflation, if it starts to build steam, it can get the public’s attention in a hurry.
Inflation is what happens when the value of money—what you can purchase with a dollar—shrinks. Normally, it does that at a snail’s pace, so we barely notice. Over the past decade, the annual inflation rate has been about 1 ⅔% per year. At that rate, a half-gallon of milk priced at $2.10 today would cost $2.14 a year from now. You’d never notice because other factors affect the price of milk more significantly.
Even so, for long-range planning purposes, Santa Barbara householders thinking about retirement many years from now are wise to take inflation into account. More so if the rate of inflation begins to increase.
What does this have to do with Santa Barbara real estate wealth? The government’s Freddie Mac, for one, points out real estate’s resistance to the corrosive effects of inflation. Unlike other monthly living expenses, the principal portion of each mortgage payment remains with the spender. If it were like some other forms of savings, that growing pile of equity could be a sitting duck for the ravages of inflation.
But residential real estate prices tend to rise to compensate for drops in the value of the dollar. The fact that this, like inflation, usually occurs at a barely noticeable pace doesn’t diminish its long-term impact. And when the increase in the value of Santa Barbara real estate exceeds the rate of inflation (as it has been doing for years), more real estate wealth results.
Back in February, Bankrate published a list of “Inflation’s Big Winners.” Leading the pack was “anyone with large, fixed-rate debts like mortgages…” Economics Professor Mark Thoma explained why: “They’re going to be paying back with devalued dollars.”
Whether or not the pace of inflation actually does start to quicken, I’m here to help you with all your Santa Barbara real estate needs. Call me anytime!