Proof of just how dynamic the Manhattan real estate market truly is came this week in a flurry of breaking news. Third Quarter sale prices reached their highest level since 2007, apartments are now selling at an average of only 88 days on the market, and rents continue to climb (with the gap between Brooklyn and Manhattan rents reaching their narrowest margin of difference yet). As buyers scramble to take advantage of interest rates that are also on the uptick and with apartment inventory nearing its lowest recorded level, the age-old question of whether it’s best to buy or rent seems to be reaching a fever pitch. Buyers, sellers and renters who sat on the sidelines watching these changes take place before their very eyes are now wondering what to make of all this.
The question of whether to buy or rent is always going to be a deeply personal one–and since nothing has created wealth for the typical New Yorker quite like homeownership–the importance of this decision cannot be overstated. With an average apartment now renting for close to $3500, those who were hesitant to leverage their way into a market of downturn pricing and record low interest rates are now questioning their position. Fears of debt, a lack of liquidity, a reduced ability to move with professional and familial changes, concerns for maintenance and tax increases, a resistance to long-term commitment, as well as a general anxiety over another housing bubble looming on the horizon all seemed like valid arguments for avoiding mistakes of a recent, still aching past.
While the banking industry certainly didn’t help matters with increasingly stringent lending standards, many believed the lesson learned from the Great Recession was one of entrenchment: that is, staying put. Owners who were underwater couldn’t or didn’t want to sell, and renters avoided the housing hangover by signing with their landlords for another year–which then turned into another year, and yet another one after that. The result was a kind of paralysis. Even the most historically compelling arguments for New Yorkers “throwing away money” and “only making their landlords wealthy” by renting made little difference in the minds of Manhattanites.
All of this has changed.
Even as we see sale prices rise, experts and analysts agree that buying a home is still significantly cheaper than renting. Factoring in closing costs, down-payments, agent and attorney fees, and other considerations this still holds true. Forbes Magazine recently reported that the buying in New York remains 26% cheaper than renting, both now and a year ago. To see how this works, consider that lower mortgage rates translate into a lower cost of ownership, mortgage interest and property tax payment s are typically deductible, and the longer one remains in their home, the expense of ownership decreases. Especially since the days of “flipping” homes has been replaced with a more nesting-oriented mentality, staying put as a homeowner pays off.
This isn’t to say home prices will always rise, or that ownership carries less risk than renting; rather, there is no better historical formula in this city for building personal equity than purchasing and maintaining real estate–either as an occupant or as an investor. Now that the buying season is in full force, opportunity has never knocked louder.