Research Shows Best Inflation Fighter Is Not Homes – But Home Mortgages
Owning a home during the inflationary 1970s was the most profitable investment of their lives for millions of people – even though average US home values declined 2.5% on an inflation-adjusted basis. Detailed analysis of historical statistics shows that this contradiction is explained by inflation destroying 75% of the real value of the mortgages over ten years. This distinction between home and mortgage performance is crucial for homeowners today who are concerned about future inflation.
Annual inflation averaged 8.73% during the recent historical peak between 1972 and 1982, and average home prices did jump from $18,267 up to $41,084 over those ten years. However, when that price is adjusted for a 1972 dollar being worth 43 cents by 1982 – the seeming 125% profit turns into a 2.5% loss. Yet, real home equities did soar for most Americans.
The explanation is inflation shredding the value of the mortgages financing all those homes. On average, the value of a 1972 home mortgage fell from $14,614 to $3,026 by 1982 (including inflation and below-market interest rate), a decline of over 75% in real terms. As financial author Daniel R. Amerman demonstrates in his latest book, “The Secret Power Within Your Mortgage”, the average homeowner’s real equity in their home went from 25% of their mortgage amount in 1972 up to 500% by 1982.
“There are millions of people concerned about the value of the dollar and buying real estate to protect themselves,” says Amerman, “but they are missing what history shows is the real source of protection. The secret power within home mortgages is their demonstrated ability to earn substantial profits for homeowners if major inflation does return, but without risking major losses if it doesn’t. This effectively allows people to use their own mortgages as long-term and tax-advantaged personal hedge funds.”
A 22 page chapter covering these statistics is available for download at mortgagesecretpower.com. Mr. Amerman is a Chartered Financial Analyst with almost 25 years of experience in working with mortgage finance, and is the author of several previous financial books. As an investment banker in the 1980s, he worked first-hand with analyzing the effects of inflation upon billions of dollars of 1970s mortgages.
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