In many markets around the United States, particularly in bigger cities, renting has offered a strong level of security to long-term renters. Instead of needing the astronomical down payments associated with big city real estate, renters could instead work out agreements with landlords that benefited both, with rent rates remaining relatively stable and maintenance taken care of.
However, these same long-term renters still save for the future like anyone else, and the tables have started to shift in many markets where lifelong renters are feeling the pinch of rent hikes. Whether because of the turmoil of 2020 and 2021 or simply because they believe they can command higher rates, landlords have turned to long-term tenants for boosts in their bank accounts. Even with the high prices and rising interest rates, many renters are changing their plans when it comes to homeownership and starting to look for a real estate agent.
Buying Puts You in the Driver’s Seat and Sets a Ceiling
After multiple consecutive rent hikes, renters turn to looking at a 30 year mortgage with a bit of envy, knowing that the costs for housing would be high but at least stable. Without the volatility of one’s home potentially being sold to a new owner, renters start to see the stability of ownership as worth even the substantial costs of down payments and closing costs.
In expensive markets, high down payments are the norm to secure high-priced purchases, but once that down payment is achieved, the owners start their home ownership journey with substantial equity. Especially if buying in a growing market, the choice to buy rather than rent can create a very valuable source of equity in your home for the future, and growing rent doesn’t leave as much room for building wealth. You’ll want a great real estate agent who can help you determine if the market is right.
Not Happy With your Rate? Refinance In a Future Low-Rate Market
Of course, buying now often means getting either an adjustable rate mortgage that could continue to have higher interest rates before seeing a lower interest rate. However, the 30 year or 15 year mortgage can be refinanced, and paying higher interest for a time is still being calculated as a better hedge than hoping landlords will rein in price hikes. Refinancing gives the freedom to reduce costs or extend the life of the loan, essentially giving the owner their own version of a price cut on their “rent.”
Ownership comes with all its own challenges and rewards, but during times when rent hikes are common and aggressive, the benefits swing further toward buying, even in a rapidly appreciating market. The best bet for a family or individual who has rented long-term is to crunch the numbers: what are comparable homes selling for in your area, and what kinds of terms do you qualify to receive now? If monthly payments are comparable or lower than rent even in this higher-interest environment, locking in a fixed APR can give you a stable payment for decades, all while building equity. It’s not for everyone, but many renters are starting to see why this choice could benefit them.