Which rose faster, inflation or the house price?

Which rose faster, inflation or the house price?

Property is often said to the hedge against inflation

How true is this statement, don’t you wonder? I think some time back, I wrote that I am okay with home prices rising just 1 percent every year! At the same time, inflation can rise by 3 percent every year. Want to see this in number? How much do we spend every year?

Based on a typical RM5,000 salary, that’s RM60,000 per year and inflation of 3 percent means a reduction of the value of this RM60,000 by RM1,800. Meanwhile, a RM500,000 home rising at just 1 percent per year is RM5,000 yeah. This is why property is often mentioned as the best hedge against inflation.

Let’s look at the largest economy in the world where inflation and home prices are concerned

Source: cnbc.com: ” While inflation is 10 times higher now than 60 years ago, home prices are 24 times more expensive, a new study found.

If home prices increased at the same rate as inflation since 1963, the median price of a typical house in the U.S. would be $177,511, according to a new research report by Clever, a real estate data company.

In reality, the cost of a typical house in the U.S. is closer to half a million dollars. The median price for a home in the U.S. is $412,778, according to new Redfin data.” Do read here for the full article: Source: cnbc.com:

Not an easy time for working people and home prices in the United States

Inflation rose by 10 times. Usually inflation number is also a driver for salary increase since salary increase is so that people are not worse off this year than last year. However, when home prices rose by 24 times, the affordability of homes have dropped tremendously. Why people could still afford to buy then? Well, they could still afford to buy because their life would be tougher, they may need to have two incomes to buy or that they have less children so that expenses are reduced and everything is channeled to mortgage payments instead.

Inflation in Malaysia then? Is it truly 3 percent per year?

Source: tradingeconomics.com Chart is below and I think that 3 percent per year is about right. As for personal inflation, it could be higher.

Property price increase in Malaysia then?

I think it’s safe to say that our situation is similar to the United States. Property prices are rising faster than the inflation rate. Yes, I think we face similar situations when it comes to the value of money too. It’s dropping. There were years when the property price rose like ‘there’s no tomorrow.’ but it has also dropped once as if ‘there’s no bottom’ too. The more important thing is that when we stretch the years, the general idea is that property prices will increase slowly over the years too.

What if we can earn money faster than property price increase?

No matter how high home prices could rise, if we are earning way above the increase, then there is no need to buy any property yeah. However, if our earning is slower than property price increase but is above inflation, then better buy property yeah. Then, just wait as inflation slowly move all prices up and home prices rising slightly faster than everything else. So, perhaps buy or no buy really depends on how much we could earn. Anyone earning a normal income is better off owning a home. Just buy the right onelah.

Happy deciding.

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