Buying vs. Renting in New York
Is it better to buy or to rent in New York? Press reports studies shows that renting can actually be more interesting than buying. Recently, the Journal of Housing Research, (Read More Here) stated that in the long term, taking into account the entire United States real estate market, renters are getting richer than buyers.
This isn’t the whole story.
There are some issues with this study; however, the first being that the study looks at consumers who not only conscientiously saves, but judiciously invests the money saved each month by renting. From an economics perspective, we prefer the forced savings that comes along with purchasing a property. Above all, and more seriously, these studies are done on averages and on the whole market. There are considerable differences between a suburban house in Texas and a brownstone in Brooklyn (for example). And here, if we rely on the real estate market in recent years, there is little doubt. In the most popular areas of Brooklyn for example (Carroll Gardens, Boerum Hill, Park Slope, among others), a property bought a million dollars six years ago is worth 1.6 million today. And in some cases, the value has doubled or more. Under these conditions, all online calculators (like the NYT, very well done: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html) will show you that even if you had been housed for free, buy is more interesting. This is the magic effect of “leverage” and still interesting rates offered for real estate purchases.
In the example of our buyer in Brooklyn in 2012, considering that he put 20% of personal contribution (often the minimum for a purchase of this magnitude), these same $200,000 dollars placed on the stock market would also have doubled on the same period, but the gain would have been only $200,000. Even for a short expatriation of 3 years, buying was therefore more interesting than renting.
“New York is indeed one of the few “safe haven” (safe haven) in the world of real estate.”
All right, you will say, but what about the future? With rising rates, a turnaround in the real estate market we are promised soon, is it reasonable to buy in New York today? Even if each case is different, most often the answer is yes, for 3 reasons:
An aggressive rental market
The New York market is extremely segmented, with prices that can be very different from one neighborhood to another, for example because a public school attracts families, as is the case in Carroll Gardens with the program bilingual of PS58. In this particular case, the inventory of apartments for rent is very limited. As a result, although in theory it might be more interesting to rent, buying may be the only way to live in the neighborhood
A market favorable to buyers
After several years of soaring (on average + 30% between 2011 and 2018 and much more in some districts), the market has changed this year. We are now firmly in a “buyer’s market”: the inventory of goods for sale has increased (+ 23% in the third quarter of 2018 compared to the previous year) and sales time has increased. We went from a situation where buyers had to bid very often above asking price to hope to win more and more often accepted offers below the posted price. While in 2015, at the height of the market, 35% of sales were above the price initially requested, this proportion is only 9% in the third quarter of 2018. This is of course reflected in prices: in the third quarter of 2018, the median price of an apartment in Manhattan rose to $ 1.1 million from $ 1.2 million a year earlier. If the US economy – and New York – continues to perform at its best, the rise in interest rates and also the tax reform at the beginning of the year (which has reduced tax benefits for some households) have contributed to weigh on prices.
All of these statistics are good news for buyers who can do good business. Until recently, in the most competitive neighborhoods, such as the Brooklyn Brownstone, a large part of the transactions were “all cash” (that is, without any suspensive condition of loan acceptance). to be able to win against a multitude of offers. In recent months, the proportion of purchases financed by debt has increased.
In the long-term, New York is a Safe Bet
Hindsight is always 20-20. Writing in 2019, 11 years after the financial crisis of 2008 the real effects on the market are much clearer. New York has been fared far better post-crisis than other cities. If prices fell by about 20%, they quickly recovered and, in five years, the market had caught up with its 2007 level. For losing money in real estate in New York because of the crisis must have been the victim of a very bad timing: having bought just at the peak of the market and then having to resell within 5 years.
The crisis of 2008 showed it: New York is distinguished by a very stable real estate market. In the long run, the city continues to attract. The population, now 8.5 million, is expected to reach 9 million by 2040. The international attractiveness of the Big Apple adds a stabilizing element: when activity has declined because of economic crisis, the dollar was also falling, suddenly strengthening the purchasing power of foreigners.
The past decade has only served to reinforce what a century of real estate statistics have already shown: all experts agree (FORBES): New York is indeed one of the few “safe haven” (safe haven) in the world of real estate.