When you think about rising inflation and mortgage rates, in combination with the still-tight housing inventory in NYC, you may think you’re better off just staying put and renting your apartment. However, if you’re in a higher-end unit you may be surprised to know that now could actually be a good time for you to buy.
Control Your Monthly Expenses
Let’s start with your monthly expenses. Rents continue to skyrocket in New York City, despite a spike in mortgage rates and a slowing home-sales market. For the first time in history (!) the average monthly rent reached a record $5,000 dollars in June and the median rent hit more than $4,000 dollars. What’s worse is, prices aren’t expected to ease up since inflation is creating excess rental demand. Rental supply is also low, coming in at barely 1.9% vacancy rate at the end of June. If your rent today is around these prices, I say you are better off paying for a mortgage and gaining control of your expenses. When you take out a home loan you are most likely to do it at a fixed rate, which means you will know exactly how much money you’ll be spending every month and will no longer be at the mercy of landlords raising your rent every year. Now, you may bring up the high mortgage rates today but consider these two points:
- Mortgage rates are still historically low despite having risen from a bottom rate during the recovery period from the pandemic.
- Most people only hold a mortgage for about 5-7 years before refinancing it at a better, lower rate
So still, you will have all the control over how much you spend each month.
Stabilize Your Expenses During Financially Uncertain Times
The next big benefit of owning vs. renting today is the economy. Homeownership is actually a great hedge against inflation. In an economy suffering from inflation, prices rise across the board for many consumer goods. Historically, homeownership is a great hedge against those rising costs because you can lock in what’s likely your largest monthly payment - your mortgage - for the duration of your loan. That helps stabilize some of your monthly expenses. Your home is also a tangible asset, not a paper one. These tend to hold onto their value even as other assets drop. When prices rise across the board, so do home prices. We still have a really low supply compared to buyer demand, and home prices are expected to keep rising in value, even if at a slower pace.
Grow Your Net-Worth
You may ask yourself what good does it do you to own a home in the long run. Well, consider it as a wealth-building tool. When home prices go up and your property appreciates, you are effectively WORTH MORE. Your net worth is a good indicator of your financial health; it shows whether your overall assets are worth more or less than what you owe. Net worth can be an important indicator for financial planning, like purchasing a home or business, or mapping out a retirement strategy. You can leverage this net worth to save for your next down payment, or to finance any other large purchase you may want to make.
Here Is a Real-Life Example With Properties on the Market Today:
Here is a one-bedroom apartment on 80th and York for $5,438 a month.
And here is a one-bedroom apartment on 79th and First Avenue for $725,000. The maintenance cost per month is $1,485.
If you pay 20% down and finance 80% at a 30 year fixed rate (calculated today) your monthly mortgage payment will be about $3,100 dollars. Add to that the monthly maintenance and you are paying $800 LESS every month, and now you are paying it towards gaining equity. When mortgage rates begin to fall, which they will, you will be able to lower that payment even more with refinancing. If you pay even more in rent, you can probably afford to upsize, or choose a building with higher monthlies.
So I hope I have made a good case and that by seeing the actual numbers you are starting to realize the path towards home ownership is not only a better step to take, but one that is already available to you.