Financial publications occasionally make the case that renting is better than buying for some people, illuminating lower housing payments, and the avoidance of transaction and maintenance costs.

The analyses often ignore the benefits of a fixed housing payment (rents go up), tax savings, and potential appreciation in hot markets, etc.

There is, however, one more factor that we think is more significant than ever right now for long term consideration: Inflation Hedge.

The current federal debt load is about $19 Trillion, but that is a drop in the bucket compared to our unfunded liabilities for Medicare, Social Security, Pensions, etc. Unfunded liabilities are payments or promises that will come due as people age and retire, but for which we have not put away enough money.

Unfunded liabilities currently total about $130 to $200 TRILLION, depending on the source. Our entire GDP is only about $19 Trillion right now. Hence, we are likely unable to raise taxes enough to cover these liabilities.

It also seems very unlikely that any politician (who wants to keep his or her job) will cut the level of benefits.

It seems most likely that the gov’t will eventually (years down the road; not in the short-term) have to “monetize” the debt on a large scale. It is already happening now, but in simplified terms, it means the gov’t effectively prints money to cover expenses.

So, for an extreme example, if the gov’t ends up increasing the money supply by a factor of 10 in 2050, the dollar will be worth 1/10 as much. A $4,000 rent payment will climb to $40,000, and savings will suddenly be worth 1/10 as much.

But fixed assets like real estate will likely jump in value by 10 times. And homeowners with fixed rate loans will benefit significantly from having fixed payments and by being able to make payments with much less valuable dollars.

The above case is over-simplified, and I think America will find a way out of its woes, but some of it will likely come about. And we like real estate that much more as a result.

Jay Voorhees
Founder/Broker | JVM Lending
(925) 855-4491 | DRE# 01524255, NMLS# 335646

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