FOUNDER'S NOTE
Dr. Teresa R. Martin, Esq.
FOUNDER OF WISE AND REIA NYC
Rising Rents Hurt Ownership?
The prevailing opinion is that rising rents will cause more consumers to purchase homes. This is
absolutely the case as you have seen statistics published time and time again that show it is
actually cheaper to own in most areas of the country as opposed to renting. In addition, the
stats continue to show rents rising from month-to-month and year-to-year. So how could rising
rents hurt home ownership?
If you are a renter, you are likely spending a greater portion of your income towards your rent.
Therefore, as rents rise, it is harder and harder to save for a down payment. That is why many
Millennials are staying at home with their parents and when they move out, they are purchasing
instead of renting. But for others, it gets harder.
What does this mean? For most it means that the faster you become a homeowner, the better.
Once you are a homeowner, you are protected from inflationary increases in payments as only
a small portion of your payment (taxes and insurance and association fees) is subject to annual
increases. Generally, your taxes and insurance and association fees can rise in the future, but
the major portion of the payment is comprised of principal and interest and that will not change
if the rate is fixed as opposed to an adjustable rate mortgage.
Eventually, more apartments will be built and the rent/ownership equation should even out. For
now, we are seeing first time homebuyers starting to awaken to the fact that sooner is better
with regard to home ownership.
Even if rent increases slow down, owning is typically a better long-term decision because a
portion of the mortgage payment goes to build equity (principal reduction) and again,
mortgages are not as susceptible to inflationary increases.