Fixed Debt: Your Powerful Inflation Hedge

A lot of our conversations are dominated by interest rates right now. And they should be - rates are the highest they’ve been in the past year and a half. But something we’re not talking about enough is how debt right now could be the right move.

A fixed mortgage is a great inflation hedge. I'd bet your current mortgage payment feels pretty good right now compared to how it did 5 - 10 years ago. That's your inflation hedge at work. 

In a high inflation period, you want fixed debt. And I don’t see how we won’t be in a high inflation environment for the foreseeable future. Since COVID we haven’t been able to put a lid on inflation, and I have a hard time gaming any scenario where we can meaningfully push it down. I think we’ll be printing a lot of money in the future.

If that happens, how does that impact home prices and relative home costs? For one, it can’t touch your fixed mortgage. In a high inflation environment, today’s $5,000/mo mortgage would feel like a bargain in 10 years from now. Inflation makes that debt cheaper and cheaper every year.

Inflation does increase ancillary home costs like maintenance, utilities, and insurance - but it’s a bit of a moot point as an alternative of renting a home will include these costs too. And rents will absolutely increase in an inflationary period.

The story with home values is a lot more complicated. While an increase in inflation can push home values higher (constraining supply), there are negative forces too (higher mortgage rates). The economic conditions in Portland and our local demand from population growth is a bigger driver than anything.

While rates are high right now, we just don’t see how they will meaningfully come down anytime soon - and we’re seeing some good deals for clients right now at the end of the summer lull before the fall market picks up steam.