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April 11, 2007

Oh, Inverted World: Renting Better Than Buying?

As prices for residential real estate were reaching all-time highs around the country back in 2005, the smart money decided to wait it out on the side lines in a rental, says the New York Times today. And even though purchase prices have fallen considerably since then and rents have ticked up, when you add in all the expenses of owning (taxes, maintenance, mortgage), it's still a better bet to rent in most markets. For buying to make sense, the article asserts, you have to believe that your local market will appreciate five percent a year for the next five years. Do you think Brooklyn, and New York City as a whole, can do that?
A Word of Advice During a Housing Slump: Rent [NY Times]
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Hell no!

Posted by: Anonymous at April 11, 2007 9:04 AM

I don't think it will there's no where for the prices to realistically go at this point. there has to be a cool down period of slow to no growth for things to balance themselves out at this pace you won't be able to find a brownstone in brooklyn for under 2 mil in a few years. I can't see that happening.

Posted by: Anonymous at April 11, 2007 9:24 AM

I've never read a more broad, generalized, and silly article in my life. It takes into account no particulars about where you are buying, what price point in reference to the rest of the properties in that market, how much work you are going to put into the property, and if you are selling something else. Who ever said there was some absolute right to buying a home and having it be worth %25 percent more after five years. You have to live somewhere.

Posted by: Anonymous at April 11, 2007 9:26 AM

This article assumes we will repeat a 1989-1992 real estate market. Interesting how they "forgot" to mention that there was a nationwide recession at that point that had a profound effect on real estate. How can they make the comparison and leave that out?

I swear, journlism is going to hell.

I guess the guy who wrote this rents. Shocker.

Posted by: Anonymous at April 11, 2007 9:26 AM

If you ever wish to own, should rent well below your means and stash extra money away.
And when you buy, it better with intention of more than 5 years - and not as 'investment' to sell at 'profit'- but for security, build equity (none of that only interest loan nonsense), and quality of life.
I

Posted by: Anonymous at April 11, 2007 9:30 AM

have to agree with both 9:26 posts.

every situation, property, neighborhood, price point and the income levels of a buyer related to their potential purchase have a huge impact on the intelligence of buying vs. renting. you just can't dumb it down in articles like this, which basically tell us nothing useful.

plus, what of the flip side of this lame-o perspective? rents are already astronomically high in nyc, even in transitional nabes, so as property values potentially slip, more people will seek rentals which drives up the price of said rentals. Why no mention of this?

Posted by: Anonymous at April 11, 2007 9:44 AM

I own. I don't think prices will appreciate as indicated in the article.

Posted by: Anonymous at April 11, 2007 9:47 AM

I did the math & that would mean my house would increase in value by close to $44,000 a year. No chance. I do believe that 30yrs from now, when we're too old to walk up all those stairs, we'll be able to retire comfortably on the proceeds of the sale and live our final days in Jamaica ... sorry, daydreaming ... anyway ... I say no way 5%/yr is achievable in the next 5 yrs.

Posted by: tag482 at April 11, 2007 9:52 AM

Actually it is a very good article - they point out the falsehood that owning is always better then renting. They use a specific time period 5yrs - which is realistic based upon average time people live in a location and consider the costs of owning that are often ignored and just as 'thrown away' as rent - post deduction mortgage costs, taxes, fees etc..
And in fact the article ignores the most hidden cost - the opportunity lost for the equity investment in your home- which if the market stays flat is 5% ayr compared to the most basic money market account.

Posted by: David at April 11, 2007 10:03 AM

My parents own a small 450 sq.ft. studio in SoHo. They just rented it for $2100 a month. The coop board demanded that the tenant pay a year's rent up front ($25,200). At the end of the lease, this tenant could be booted out. Is the rent/buy debate really an issue here in NYC? I don't think so...

Posted by: Anonymous at April 11, 2007 10:08 AM

What you conveniently choose to ignore David, is that the 5% appreciation you are refering to is on the total value of a home. That is a very different number than the 5% ROI that you get on your money if it is a CD or agressive money market account. If you take $100,000 and put it into a CD at 5%, it is worth $105,000 after one year. If you put $100,000 down as a 10% down payment on a property that costs $800,000 (with the extra $20,000 covering closing costs) and that asset appreciates 5% in one year, your original $100,000 would be worth $140,000. It doesn't even take the historical average of 5% home appreciation a year for the home to be a better long term investment.

Posted by: Shahn Andersen at April 11, 2007 10:13 AM

Why does the Times print this article (title: Market Strong from Apartments in Manhattan):

http://www.nytimes.com/2007/04/03/nyregion/03property.html?ex=1176436800&en=289578d12dfa3854&ei=5070

below the fold on a Tuesday morning; then today puts this BS piece of journalism on the cover? This latest piece mentions 'the coasts' but leaves out the fact that prices in NYC have increased significantly over the last year. And that Brooklyn condo prices were up 22%. Kinda' slanted if you ask me...

I wish someone would do a review of major real estate stories over the last few years to see how they were slanted and to determine if they were anywhere close to being right...

Posted by: Anonymous at April 11, 2007 10:18 AM

By the way, that article was printed below the fold on the cover of the METRO section, not the cover of the paper...

Posted by: Anonymous at April 11, 2007 10:20 AM

Who spends $200k on closing costs for a $1 million house??? And why do you assume David "conveniently chose" to ignore ROI, rather than was simply mistaken? This is a conversation, not debating team.

Nevertheless, you are right about the ROI that a down payment can leverage. It is also important to understand that, by purchasing a home, there are other costs, and savings, that you achieve that a renter does not have. And each individual has different needs for liquidity. All of which is to say that there are many markket-specific and individual-specific factors to consider, but that doesn't mean one can't learn some general principles of doing the analysis from an otherwise simplistic article.

Posted by: Anonymous at April 11, 2007 10:23 AM

"your original $100,000 would be worth $140,000. It doesn't even take the historical average of 5% home appreciation a year for the home to be a better long term investment."

But that totally discounts the costs of owning a home also, such as maintenance. Sure, in some years maybe I just do a few things. But maybe you need a new kitchen one year, or a boiler breaks, or an old oil tank leaks and you have to call out the EPA. There are expenses one has when owning a home that too many people discount. I do think that owning over the long term is good, but that doesn't necessarily mean that at this particular point in time it is smarter to buy.

The calculator is pretty interesting, and will allow you to make your assessment more local and use your own assumptions.

Posted by: Anonymous at April 11, 2007 10:23 AM

Got to get to work but I think that the Times article is so generalized as to say almost nothing. The Economist does much better economic reporting on real estate, particularly recent coverage of the sub-prime and CDO debacle. One thing you never hear about in this rent - buy thing is the issue of control. For example if you go to Forum and you see how many brownstoners are want to buy places "vacant" or who are in the throes of trying to figure out how to do their conversions and deal with tenants in place, i.e. eviction, buy out etc. Or discussions, extolling the value of the no-lease for maximum ease and flexibility with tenants. Think about being a tenant in an building that is up for sale. Not pretty, even if you are earning some money on the equities you bought with your savings on plumbing repairs and closing costs. If you are a renter in one of the thousands of new and barely occupied apartment buildings in Miami, hey maybe renting would work, but here, there are serious advantages to owning that have everything to do with having control of your living circumstances.

Posted by: anon Fort Greener at April 11, 2007 10:24 AM

Shahn that leverage works both ways. If you asset depreciates you have a greater loss. Did I just say that real estate could go down in price in NYC? Ok everyone pile on!

Posted by: Anonymous at April 11, 2007 10:26 AM

10:13...I was just about to point that out. The market doesn't need to appreciate 5% per year to make your equity investment in your home well worth while. I am personally a BIG believer in owning versus renting. Why should my hard earned dollars go toward paying someone else's mortgage?

Not everyone has the money for a down payment, but if you do, it just makes way more sense to buy. I am a BK a resident with tons of friends in colleagues in the City. They are often shocked to find out that my mortgage is often significantly less than their rents (not even factoring in tax savings from interest). If you assume a decent size 2 bedroom is $4000 - $5000 per month, that translates into a whole lot of coop/condo/house, etc.

In terms of ROI, 10:13 gave a good basic example. It is a relatively no brainer!

Rent vs. Buy...Buy wins in my book!

Posted by: Anonymous at April 11, 2007 10:29 AM

shahn--your math would work if that 800K was the only cost of owning a home for a year. it's not. pay 15K in taxes, and you're down to 25K. pay another 10K in heat/property maintenance over that year and you're down to 15K. And, of course, you can only access that extra 40K if you sell the house after a year...which will net you a nice stiff federal/state/city tax bill.

Posted by: Anonymous at April 11, 2007 10:33 AM

10:03,

sorry but i disagree...

1. pointing out falsehoods? somtimes owning IS better than renting, even now. this article offered no concrete financial data, no specific areas of study, no specific period of time. impossible to draw conclusions without empirical data...just one anecdotal story...

2. The 5 year period doesn't mean anything in and of itself - "up" and "down" cycles are not and have never been defined periods of time - no one has a crystal ball, and even if you could define the period of time of a given "cycle" your investment success depends on what part of the "cycle" you bought and/or sold, as well as a myriad of other factors that are beyond the scope of this limited article. (like the quality and desirability/resale aspect of the property you bought!) Also, you could spend 25k on closing costs, pay high taxes, and easily get that money back, plus a hefty profit, sometimes within the first year or two.

some people will buy high and sell low, others will make money in a bear cycle and still others will lose money in a bull RE market if they made dumb choices to begin with. It all depends...

3. your "lost equity" point is actually a bit of a falsehood. Most people do not have the financial discipline to invest money as renters. In fact, most financial planners love the "forced savings" aspect of the monthly mortgage payment. It's a very effective piggy-bank.

I'm not saying everyone should buy (in any market), and right now I might be somewhat encouraged if I were a renter hoping to buy in nyc. but that doesn't change how i feel about this article. just look at published recent sales data in nyc, for example, and check prices now vs. one year ago - units are selling in nabes that were unknown five years ago. doesn't look like values have dropped too much to me. and maybe they will, but no one can possibly know when or to what degree.

Posted by: Anonymous at April 11, 2007 10:37 AM

If you live in Flordia you can easily rent a home that is comparable to one you'd like to buy. Go ahead and try that in NYC. Look at the Corcoran website. They have all of three houses for rent. the cheapest is $8K per month. Don't know what the broker fee is but assume it's 1 month. The max you'll get is a 2 year lease.

Posted by: Anonymous at April 11, 2007 10:38 AM

ben stein had a good article a few months ago in the times about house appreciation, and how over 20 years his vacation home, when taxes and maintenance etc. are taken into account, barely kept up with inflation. obviously there are periods of time where prices jump up and huge profits can be made, but he was arguing that in the long term, real estate is not the be all end all.

this is confirmed in a 400 year study of amsterdam real estate values. they also basically kept up with inflation.

I'm not saying don't buy.

Posted by: anon at April 11, 2007 10:39 AM

Shane, what about interest costs? As you illustrate, leverage is a beautiful thing. But leverage has cost in the form of interest. Your example implies that you will have 'made' $40K more due to leverage. However, you seem to have omitted interest costs? Even if you had an IO loan @ 5.5% you'd still be paying almost $40K in interest.(Not to mention PMI since down payment is less than 20%).

So how exactly is buying better than renting over a 5 year timeline?

Posted by: ItsAWrap at April 11, 2007 10:43 AM

Despite some of these hysterical replies (on both sides) no matter which way you cut it, if you are honest with the numbers then renting is still cheaper than buying UNLESS you also expect fairly continuous capital appreciation as well (eg, the 5% a year the times mentioned) _and_ you are free to sell when the time is right - not forced to sell by a job change or whatever at what might be a market down-tick. If you are going to buy and hold for 10 or more years then you can be confident the maths vs renting will start to work out. But I think a lot of buyers around now are not thinking of having to hold for that long.

Unfortunately (or fortunately) there is a reason people will pay a premium to buy and that is the intangible benefit of being able to do things to ones abode that a landlord would never let you do. Obviously for many people that benefit is worth the extra expense of buying over renting (or the risk of relying on capital appreciation to make the maths work out).

And to those who think that anything bought can be sold easily, please remember the spread on property is probably close to 10% when you take brokers and taxes and fees into account. So when you get the title deed, you might take several years of a steadily rising market to claw back the expenses you incurred to own it, and the expenses you will incur to turn it back into cash again.

Posted by: Anonymous at April 11, 2007 10:44 AM

Real estate has appreciated historically at around 3% to 4% per year for the last 100 years , i see no reason why we can't expect the same plus adding 1% to the mix depending on job growth and GDP growth. Prospects for Brooklyn and Manhattan are great, the desire of people from all over the world who want to live here remain high. If you think about it where else is there to live in the United States? San Francisco and Chicago are the only other comparable places And they are really not the same.

Posted by: Ron at April 11, 2007 10:52 AM

I'll be buying first property soon but going in with eyes wide open - I fully expect prices to drop in near term and may stay down for a while. So why not keep renting? Because I don't want to delude myself into thinking i can time the market - even though it looks to me like all the towers in dumbo, williamsburg, plus the endless contstruction on every block in brooklyn will flood the market sooner or later, i can't predict when that will happen or what kind of effect it will have. More important, I'm buying much more space than I need now with the assumption that I will grow into it, and stay much longer than the 5-year horizon most people use. And some of it, I'll admit, is psychological - I've lived here 10 years and have had to move twice when my landlord sold the house I was living in. There's a value in knowing that I control my living space that is admittedly a bit irrational. But then, so is much of this discussion.

Posted by: Anonymous at April 11, 2007 11:03 AM

I own. It was a good idea for me to buy when I did (in the '90s). But I don't think my house value will go up 5% a year for 5 years.

But... if I didn't own and was thinking about buying now, would I wait? Probably not. Because (1) what the hell does a layman like me actually know about what the price of ANYTHING is going to do? (Did I know my house was a good buy at the time? Hell, no!) And (2) I just don't know that I'd want to forgo the intangibles of owning for 5 years or however long for the timing to be right--I can't get those 5 years of my life back. But that's totally subjective.

Posted by: linusvanpelt at April 11, 2007 11:15 AM

Anon 10:44. Most sensible post.

Posted by: Anonymous at April 11, 2007 11:18 AM

here's my take...

i have been a renter for almost 7 years, and very recently have become an owner (in bklyn) and i much prefer the latter. but here's the thing: in new york, especially the arguement about renting to save cash doesn't really work like it might in other places. i can only speak for myself and for those i know, but when you're a renter here in new york, it doesn't really seem to matter how much money you make or have, we seem to spend it all. saving anything of substance becomes very difficult. part of it is the lifestyle of big city living. so to become an owner in new york is in my mind very much like having a child. you commit to it. it has only been since i've bought my place a few months ago that i even feel like saving money is possible. even with such a large (for me) purchase. buying a place here is something you throw yourself into, and to say it's better to rent because you are going to save more money....be honest with yourself...how many of you renters are actually saving much money???

buying here is tough...but if you're the kind of person who craves stability and more of a sense of community (which is one of the best parts of owning for me) it becomes a personal choice. for many, owning something in new york gives a sense that you are connected to something in a city where things can get so hectic, crazy, etc. some people enjoy that feeling, and some don't.

Posted by: anon at April 11, 2007 11:36 AM

Buying versus renting is not a simple assessment. There are many variables, which the article does not take into account. That said, there are many variables that some of teh previous posts don't take into account regarding the benefits of buying. Some of the variables are not even financial (namely stability versus flexibility). For my situation renting is far better for the time being. I have a below market rental in a nice neighborhood that allows me to save towards a down payment. I could afford to buty right now, but I would be forced to move to a less desireable neighborhood or really stretch myself. the market is so ridiculous that I have actually decided to take a break as I just don't see value right now. Before someone jumps on this notion, I acknowledge that I might miss a buying opportunity and costs will only go up, but it is not like the opportunity is so great right now that I should jump at it. I will continue to save money towards a down payment, and if prices continue to rise, I will continue to rent. Yes, I will not enjoy the appreciation of the house and the potnetial value, but unlike many home owners, I will continue to take nice vacations and make large purchases without regret or apprehension, because I have a mortgage payment. In the end, I might make out and find a better buying opportunity, or I will be forced to move outside the city. But if I am forced to leave the City, I will have a greater savings and a better life style, when I do purchase a home. For MY situation, renting is better.

Posted by: Never Simple at April 11, 2007 11:37 AM

"If you think about it where else is there to live in the United States? "

You gotta be freakin kidding? I can think of a few virgin islands and Florida keys I could call home!

Seriously, its cheaper to rent NOW than to own a comparable space, hands down. I'd only buy now if I could get more space for the $ (on a price per sq ft basis).

From a sentimental point of view, buying would make sense (security, control, pride,etc.)

From an economical point of view, in general, renting would make sense (lower out-of-pocket expense).

From an investment point of view,
banking on above average appreciation DOES NOT make sense. (5% is squat! Anyone see the recent prices of eggs, tomatoes, gas, or plastic? Inflation is WAY over 5%!!!)

So unless you're hoping for say, 10 to 15% yearly appreciation, don't even TRY to factor appreciation into your analysis (It'll only work on rental properties).

IMO, if you bought before the end of the 2000 - 2005 boom, you've probably seen huge appreciation (100% for my home), and that was a blessing/anomoly. Today's buyer should NOT think about future appreciation, just compare what it costs (year-end)to rent property Y with what it costs to own comparable property Z.

Posted by: me at April 11, 2007 11:43 AM

Shahn I didnt ignore the leverage - I stated if the housing market stays FLAT, then the lost the return on your equity is a cost you have to figure. (in fact as long as the cost to borrow is more then the appreciation there is a lost opportunity cost - ignored by the article.)
And BTW in order to get back to the historical average of 5% of a yr house appreciation (you cited), we are going to need a few real bad years or many many many almost flat years.
And 10:37 - while you are right that some people need the 'forced savings' a mortgage forces - if you are doing an accurate financia comparison, you cant account for people's total lack of self-disipline.

Posted by: David at April 11, 2007 11:47 AM

Real estate is like every other asset over, fair or miss priced. Meaning in every market there is an opportunity. If you buy at $1100 a sqf in Dumbo the probability of this asset to increase yoy by 5-10% is slim. Now if you find a similar asset in a adjacent neighborhood that has all the infrastructure in place (subway, shopping & government incentives)you might find an asset that is priced relative "cheap" compared to its surrounding assets. Then you need he general market to appreciate 5-10% yoy but for your asset to converge to market prices similar to the ones in the surrounding areas.

When the market crashed in 2000 .com and technology went down the toilette but even in that market there were winner, the gaming industry appreciated in the triple digit over the course of the next 2 years not because they had record earnings but because they were trading at a discount to the rest of the market. In other words the savvy investor will always seek out the opportunities and make money on their investment. The follower or the herd wants a piece of last year’s performances and hopes to get it by buying into the hype at record prices. (i.e. Dumbo parts of G & PS)

There is still money to be made but its harder than it has been over the last couple of years.

Posted by: tonino at April 11, 2007 11:53 AM

"your "lost equity" point is actually a bit of a falsehood. Most people do not have the financial discipline to invest money as renters. In fact, most financial planners love the "forced savings" aspect of the monthly mortgage payment. It's a very effective piggy-bank."

This generalization just irks me - I rent, and because of it, I save $6200 a month - yes, I put that much away every month. With interest. And no, the apartment and location doesn't stink - it's good, and large - 2 bed/2bath. Maybe not everyone who rents can or has the incentive to do this, but do owners necessarily save any money? I think it's a myth that owning is forced savings, because money is money - a house is an asset, and whether you agree or disagree, it CAN lose value and therefore you lose part of your forced savings. At least in an account, your money, while it cannot "appreciate" per se, you will have it.

And again, this does not mean I am against buying - I am looking to buy right now (and in fact just had a deal fall through) but I am not going into it convincing myself that the house will be a goldmine and forced savings. You have to be realistic, and to me, all signs point to flat or declining prices. But as someone said, I'm looking to stay for 10 years or so, so I'm 'hoping' to ride that out.

Posted by: Anonymous at April 11, 2007 12:01 PM

In my experience, renting stinks and I can't wait until I don't have to do it any more. Sure, my rent-stabilized place is 20% below market in a nice part of Brooklyn...but my kitchen is literally falling down around me, as is the bathroom. And my landlord simply does not care because my rent is too "cheap" for them to bother with such trivial matters as the health and safety of tenants. I am looking at home ownership primarily as a way to live in a nicer place and to have more control over my environment. I understand that ownership comes with a lot of new responsibilities, but I sure as heck won't pay so much for a property that I must depend on it to finance my retirement.
Basically, I am buying a place to live there...not to stake my financial future on.

Posted by: bolletje at April 11, 2007 12:17 PM

i find it ironic how many people who read this site which is intended to be for people who truly love brownstones, their history, the sense of communities that these neighborhoods foster that these same people seem to think of their homes as nothing more than vehicles to make cash.

or perhaps those that think that way and post here are the ones who don't actually own and wish they did.

it's suprising. owning a piece of brownstone brooklyn goes so far beyond money for me that i just don't relate at all to many of these postings on figures, etc.

i bought here because i love my home, my neighborhood, the people, etc.

the rest is gravy.

Posted by: anon at April 11, 2007 12:24 PM

I saved 10k plus in taxes because of the deductible interest I paid on my mortgage. Thank God I own and can reinvest that 10K.

Posted by: Anonymous at April 11, 2007 12:24 PM

Hey 12:24 what kinda psychadelic trip are you on, talking bout "i just don't relate at all to many of these postings on figures, etc."?

I own a bstone, love bk,etc.
but the numbers gotta make sense for me if I were to be buying NOW!

Posted by: me at April 11, 2007 12:29 PM

I am getting an 18000 refund check in taxes which effectively makes my renovated Parlor and ground floor/garden duplex apartment cost me 1900 dollars net cost per month - this is with building maintenance costs, heat, repairs etc. I take care of my tenants, my apartment, nobody evicts me, I sell when I want. The cash flow works and I bought this place to live in it. It works for me whether the market goes up 5% or not. The recent appreciation has worked for me (gotten me better financing and some cash to complete the renovation) but nothing about this deal is dependant now upon additional market appreciation.

It's about housing.

Posted by: anon at April 11, 2007 12:33 PM

once again, issues get cloudy when everything gets reduced to monetary value. owning has been worth it to me if only so i never again have to deal with the idiotic landlord from my last apartment. you can't put a price on that!

Posted by: Jimmy Legs at April 11, 2007 12:34 PM

What I'd like to know is, how to normal people manage to save up the money you need for a down payment? I've been renting in Brooklyn for nearly 4 years (with a great landlord, so thankfully I have a stable and below market rent) and I would LOVE to own a historical home in my nabe (like the brownstone I live in), but it just seems so ridiculously out of reach for me! I don't get how people do it. We are saving for a down payment but at the rate we are going now, we MIGHT be able to put money down on a small condo in three years. I never would have thought that homeownership would seem like such a dream, when I'm a college educated professional with a decent salary. How do people do it? 'rant over'

Posted by: Rachel at April 11, 2007 12:39 PM

But thats money you wouldn't of paid in the first place if you rented. You haven't saved anything.

Posted by: Anonymous at April 11, 2007 12:40 PM

12:24 said:
"i bought here because i love my home, my neighborhood, the people, etc.
the rest is gravy."

THAT'S the way to debate this issue on this particular site.

So let's pose the question this way: if you do know you plan to live in Brooklyn all your life, or at least 10-20 years, then which is better, buying or renting?

The whole 5-year investment doesn't apply to most Brooklyn house and brownstone buyers. We don't go through what we go through in renovating these old things to stay in them only 5 years. Save that debate for the Manhattan apartment buyers.

Regarding the guy who said property taxes on a $800K apartment were $15,000 a year - again, that's Manhattan. Our $950K Brooklyn limestone has property taxes of less than $3,000 per year.

Posted by: Anonymous at April 11, 2007 12:42 PM

after tax savings and including maintenance, mortgage, repairs, etc. my studio purchased in 2006 costs me between 1000-1100 per month.

don't find too many places for rent in that price range.

and life is about more than numbers, 12:29.

that way of thinking is what, for me has degraded life in the u.s. to a culture that values paris hilton more than paris, france.

Posted by: anon at April 11, 2007 12:43 PM

"What I'd like to know is, how to normal people manage to save up the money you need for a down payment?"

The normal people that will tell you they're not rich bought a long time ago. The rest probably either sold a crappy apartment for a bundle during the boom to buy the brownstone, work on Wall St. or got money from Mommy and Daddy. Because brownstone Brooklyn, unless you live in a very fringe area, is not for the normal people - rich only need apply. "Normal" people don't buy million plus houses that need hundreds of thousands in work and survive, even with a tenant.

Posted by: Anonymous at April 11, 2007 12:47 PM

Rachel at 12:39, that's another reason if there is any, to buy a condo instead of renting - when you know for sure you want to upgrade to a house in Brooklyn, in several years. The only way we were able to buy a house was because we had a Brooklyn apartment to sell that my husband had owned for a decade. Otherwise you're right, it's hard to jump from renting directly to buying an entire house.

Posted by: Anonymous at April 11, 2007 12:49 PM

12:49 said it very well, Rachel. There are parts in Brooklyn where you can still get good value by buying a coop or condo. It is hard to jump from renting to owning a brownstone, but if you research it a bit you can find good coops or condos as an interim step. That is how I bought a brownstone and how many "normal" people on this site bought brownstones. And you may find that before long you can afford to buy your own house - it might not be a fancy mansion in Brooklyn Heights, but there are many beautiful parts of Brooklyn where deals still exist. Good luck to you.

Posted by: anon at April 11, 2007 1:00 PM

We moved away, rented and saved and came back. It was the only way we could do it, both hubby and I come from poor folk so no trust funds to help us. For us it was worth it. Our property has appreciated more than it would have if we'd bought where we lived while we were saving.

Posted by: Anonymous at April 11, 2007 1:19 PM

12:40 who are you refering to? I posted about the 10k. And yes I would have had to pay it if I was renting since I own a small business.

Posted by: Anonymous at April 11, 2007 1:22 PM

Rachel, it took me years to save up the DP, living in cheap(er) apartments and trying to be as frugal as possible. even with the income of my girlfriend though, we couldn't even consider our brownstone neighborhood and chose an area the rich folk wouldn't dream of looking at. so it's possible for non-wealthy, non-trustfunders to buy a house, but it's unlikely to be that 'ideal' historical house. but ya gotta start somewhere!

Posted by: Jimmy Legs at April 11, 2007 1:27 PM

I don't think it's a fair to compare the cost of renting vs. ownership in any given year. You have to look at it over time. I've both rented and owned. When I think I know about renting is that my rent always went up (averaged about 5% over 10 years). If you're renting an apartment for $3,000 today and rents go up 5% a year, you'll be paying about $5,000 in 10 years. With ownership, your costs can go down oer time. While taxes + maintenance will rise, interest expense will go down because the loan is amortizing.

Posted by: Anonymous at April 11, 2007 1:57 PM

Rachel -- I thought the same thing and it drove me crazy for many years (I moved here in 1999). I saved modest amounts every year only to watch the prices rise faster than I could save. I did not have a starter apt. to sell, earn a Wall St. salary and bonus, or have any help from mom, dad, uncle, aunt, etc. My partner and I got creative by starting a business on the side to create an additional income stream (he runs the business full time now) and I made good career moves to keep my salary growing. We also always rented cheap (and that meant being in neighborhoods that were safe but lacked amenities), well below our means, to also help save money. My partner and I could have afforded renting in Cobble Hill, Park Slope, and even a small place in Dumbo, but we decided saving was more important. Our unlimited metrocards got me to all those places in minutes anyway. And overall we tried to stay as disciplined as possible without giving up the things that make NYC great.

All that has finally paid off in that we are in contract on a 2bed/2bath, under $400K, over 1000sqft apt in Brooklyn. The neighborhood lacks amenities (we're used to that so not a major adjustment), but we chose space and quality of the apt (move-in condition) and a low monthly mortgage. Our mortgage payment is only a hundred more than our rent (but rent goes up, our mortgage will stay the same), but we will now incur maintenance fees. We should be able to break close to even once we get the interest deducted. All in all, we'll still have enough left over each month for travel, some luxuries, and dinner and drinks out.

Buying for me has symbolic value. Having grown up in rentals, I am finally buying part of the American dream. We're also investing in a community -- and excited to become engaged and help improve it (much less incentive to do this when you're renting and improvements mean rent hikes). While everything up until this point has been focused on the money and financials, now we can focus on paint colors, buying furniture that we won't have to move from one rental to the next, and making investments in custom pieces and home improvements that in a rental would have been a waste of money.

Regardless of the NYT article's take on things, I'm very thrilled.

Posted by: Just about to buy at April 11, 2007 1:58 PM

Just about to buy-Congrats to you and yours !

Posted by: Anonymous at April 11, 2007 2:04 PM

In the six years my husband and I have lived together we have been forced to move out of THREE rental apartments (two in Brooklyn) due to the landlord's decision to sell. We were so sick of moving (3 broker's fees, 3 moves), losing weekends to open houses, having our lives uprooted, not to mention watching these landlords make wads of cash, that we bought a co-op as soon as we could scrape together a 10% down payment. In spite of the costs (our closing costs were minimal but there really are a lot of costs in owning--plumbers charge an arm and a leg!) and all the people telling us we bought at the wrong time, we should wait (and what--rent a 4th place? incur the costs of two more moves--in and out of the rental), we are so unbelievably happy to have our life back--and a sense of control over our destiny. People keep talking about the "intangible benefits of owning" --in our case, it is a palpable sense of relief. PS-- I looked at 20 or so rentals in Oct-Nov 06--no way we could rent what we have now for the equivalent of our mortgage. (Throw in our maintenance, however, and there is a possibility...)

Posted by: anon new owner at April 11, 2007 2:06 PM

I would suggest anyone who is currently renting and thinking about buying to seriously take a look at your own math. I currently rent a 500 sqf apt. in the east village for $1800. I did own math a while back figuring the same place would cost me $500k with $750 per month maintinance. If I buy now and prices stay flat for the next 5 years I would lose $50K if I had to sell at that time, not including broker and closing costs which could be an additional $30k.

On the flip side if home prices appreciate at 4% per year I would break even. If they appreciated more I would make money from buying.

So the bottom line is where do you think real estate prices in NYC will go from here. I personally believe they will remain flat at best for a long time and that the real estate market is clearly at a very risky juncture. So the risk of buying right now just does not pay for me. So there is no way I am buying at this point.

Posted by: Anonymous at April 11, 2007 2:10 PM

Thanks for the encouraging posts, guys. We'll keep renting (praying our landlord doesn't sell) and saving, and hopefully I'll feel a little more optimistic about things in a few years!

Posted by: Rachel at April 11, 2007 2:11 PM

Ok, maybe "normal" people need to buy a starter apartment in the city before they can get a brownstone, but you can't tell me that "normal" salaries have kept pace with housing appreciation in the city over the last 7 years or so. They haven't. So yes, Rachel, it used to be easier for a normal person to buy a brownstone. Now it's not.

By the way, (and this is kinda sorta but not really totally off-topic, sorry) whoever it was who mentioned the price of milk and eggs made a good point. We're seeing some serious inflation in this country. That's going to be a problem very soon. Anyone read the Wall Street Journal article "Crop Prices Soar, Pushing up Cost of Food Globally"? It's subscription only, but you can google the title and find it for free. Anyways. Who cares if the value of your home appreciates 5% a year, if the price of everything else is "appreciating" even faster?

Posted by: sylvia at April 11, 2007 2:12 PM

What do you think of this WSJ article that made a similar argument? (you need to subscribe to read it, but there is a quote):

Q: But I have to live somewhere! And I have to pay something for a place to live. Certainly it's better to pay "deductible" mortgage interest than rent.

A: Buying a house with a long-term mortgage is just another form of renting.

Mortgage interest is rent that you pay to your lender for the use of its money rather than to a landlord for the use of his house. Yes, the government picks up a portion of that with the tax deduction, but most of your monthly payment neither builds equity nor is deductible. It just goes down the same black hole that sucks up any other renter's money. And it takes 20 years before a typical borrower pays more principal each month than interest.

"I have to pay something" is a rationale that home buyers use for going deeply in debt and paying tens or hundreds of thousands of dollars in interest to buy a house that, they mistakenly believe, will make a big profit for them down the line.

http://online.wsj.com/article/SB117329581356629863.html?mod=djemTMB

Posted by: b at April 11, 2007 2:14 PM

10:33 - I don't know what $800K property you're talking about that costs $15K in taxes and $10K per year for heating. My $750K townhouse only costs $1900/year in taxes and about $3K to heat.

Then I also get the interest deduction. And the rental unit income. And the rental unit tax deduction. And a back yard. And 2 whole floors to live on. And the option to actually make my house nice instead of being subject to some cheapo landlord's crappy taste (ie: my apartment prior to buying).

And when you net this all out, I'm paying about the same as what I was for half the space in a neighborhood where you hear gunshots at night.

And this doesn't even take into account that comparable sales in my neighborhood have already gone up at least 5% in the past year.

Posted by: Anonymous at April 11, 2007 2:20 PM

This is the Ben Stein article referred to above:

http://finance.yahoo.com/expert/article/yourlife/21845

Posted by: Anonymous at April 11, 2007 2:22 PM

"500k with $750 per month"

so find a place for 400K and a 500 a month maintenance. it's possible if you want to buy something similar. you clearly don't and that's fine for you.

"I personally believe they will remain flat at best for a long time "

yes, because everything now and in the past has shown us that home prices in new york stay flat for long periods of time.

can you tell me what you're smoking, exactly?

Posted by: anon at April 11, 2007 2:24 PM

I thought Brooklyn home values jumped 20% last year?

Posted by: Anonymous at April 11, 2007 2:35 PM

they did. we've just got many of the bitter renters out in full force on this one today.

Posted by: anon at April 11, 2007 2:42 PM

It was reported recently that there are seomthing like 5,000 new condos in development in or near downtown Brooklyn (not counting elsewhere in the boro). And, of course, these are all luxury condos ($400K+ for studios; $800-900K+ for 2 bd). No one can tell me that either a lot of them will end up as rentals (as in the recent item about the building in DUMBO) or will have siginifcant price cuts. Time to buy a condo is 12-18 months form now...

Posted by: Anonymous at April 11, 2007 2:43 PM

How can anyone save a downpayment?

We did it in the late 1980s and early 1990s, be living as absolutely frugally as possible, something that (with Metrocard and free entertainment all summer) is easier here than elsewhere, housing costs aside.

At first prices were skyrocketing faster than we could save, making it seem like we would never catch up -- just like now. But then prices crashed back to levels people could actually afford -- just like they are about to.

The answer to the Times question is that it is better to own thatn rent if you plan to stay -- except in a housing bubble, which is what we have.

Posted by: WT Economist at April 11, 2007 2:44 PM

WT Economist = Broken record

said same thing last year. and year before.

Posted by: Anonymous at April 11, 2007 2:50 PM

I just need to add to the Rachel advice:
Rachel, you'll notice a common thread between the other "normal" people giving you advice...it's all about compromise. Smaller places, moving out of the city for awhile, less gentrified neighborhoods. If you set realistic goals for yourself, it CAN be done. PS, I own because I'm a control freak and I never want to be at the mercy of a landlord again. My decision to purchase (and sell and purchase and sell and...) has been financially amazing for me, but I do it so I can be master of my own domain (don't go there!) And yeah, I'm addicted to fixing up old houses.

Posted by: yente at April 11, 2007 2:56 PM

"But then prices crashed back to levels people could actually afford -- just like they are about to."

why would someone who owns property wish to have a housing crash, wt economist?

your tone makes you sound like you are looking forward to it with anticipation.

weird.

Posted by: Anonymous at April 11, 2007 2:57 PM

Those like wt economist are not telling the truth when they say they own. There are poseur posters like that all the time here.

Posted by: Anonymous at April 11, 2007 3:02 PM

Broken record is the debate that always pops up on this website.

"You must own. It's fantastic and prices never go down."

"I do great renting. And prices will come down eventually."

And then random broker people pimping ownership and the idea that Brooklyn brownstones will never, ever, ever decrease in value.

Ho hum. What a bore.

Posted by: Mateo at April 11, 2007 3:05 PM

Well I own, Mateo, and I do think brownstone prices are certainly capable of going down or holding steady. (Which is why we bought in an affordable nabe and not an overpriced nabe). But I also think people like wt economist who WANT to believe the entire housing market will collapse throughout all of NYC and the entire country and that it will be just super duper neato freato for all of us economically if that happens, is totally retarded. Anyone THAT desperate to own property that they would wish for armageddon, is proving the market is strong - it shows people do want to own and not rent. The desire is strong. It might not be the smartest thing or most do-able thing for everyone, I agree renting makes more sense sometimes, but get a grip people. Like in everything in this country, everybody is always one far extreme or the other. Gung-ho on buying or gung-ho on not buying.

Posted by: Anonymous at April 11, 2007 3:18 PM

"Anyone THAT desperate to own property that they would wish for armageddon, is proving the market is strong - it shows people do want to own and not rent."

i absolutely could not agree more. you hit the nail on the head.

Posted by: anon at April 11, 2007 3:24 PM

All the people saying that the market could never go down, that WT Ecnomist is "retarded" - don't you find it strange that such extensive real estate discussion exists AT ALL? If things were normal and ho hum, it would seem to me that real estate would take a total back seat to other world and local issues - but it doesn't. It's front page everyday, and not with the best news, and that says to me that this market is NOT normal and could very likely come down (and yes, the amount would depend on the local area). Otherwise, would anybody care at all to have such a bitter and nasty discussion about the topic?

Posted by: Anonymous at April 11, 2007 3:31 PM

""Anyone THAT desperate to own property that they would wish for armageddon, is proving the market is strong - it shows people do want to own and not rent."

i absolutely could not agree more. you hit the nail on the head."

Um, people have always wanted to own a house - that's nothing new. What is striking now is the level of desperation that only seems to exist at bubble moments. Otherwise life would just go on and people would rent, then buy and things would be going smoothly.

By the way, isn't home ownership at 70%? How could that possibly bode well for the future? Very few buyers left is what that says to me.

Posted by: Anonymous at April 11, 2007 3:34 PM

wt economist is correct. I own and I bet he owns too. The cries of "bitter renter" are from brokers and/or owners who are frightened that they have paid too much and made a bad investment.

Posted by: Anonymous at April 11, 2007 3:37 PM

The internet, allowing people to form communities and discuss topics like real estate (and health problems, and job market, and politics, etc etc etc) has educated more people on these topics and got more people involved as boosters and "experts". Keep that in mind. I don't know if I'd say it means real estate is any different than it's been during other eras. Only difference is there is a public forum to discuss it.

Posted by: Anonymous at April 11, 2007 3:39 PM

People want to own, therefore the market is strong? That's the most back-asswards logic I've heard so far.

People want to own for all the reasons already listed above. It's about mass pyschology, the allure of being your own landlord, the all-American ideal of homeownership, the desire to be invested in a community, the (possible) financial benefits, a love for old houses, etc etc.

It has nothing to do with the market being strong or weak. The market could (hypothetically) be a flimsy deck of cards built on the largest unsustainable credit bubble in history with the hurricane winds of reality forecast for next week, and people in this country would still want to own.

Posted by: sylvia at April 11, 2007 3:39 PM

sylvia your comments never cease to amaze me. lordy.

real estate has been at the forefront of conversations by new yorkers forever. perhaps we have blogs now to discuss it in infinite detail, but come on people...anyone who's been living here for a relatively substantial amount of time knows that real estate has been number once choice for dinner party topic for decades.

don't pretend like all the talk is leading up to something as a scare tactic. super ignorant.

Posted by: anon at April 11, 2007 3:46 PM

All y'all want to live in NYC. You won't live anywhere else, you often say. AND you do want to own rather than rent. The strong desire to live here, and the strong desire to buy not rent, keeps the NYC real estate market going through hard times. I think that's all anybody is saying.

Posted by: Anonymous at April 11, 2007 3:47 PM

What? I really don't understand your comment, anon 3:46. And if you bother to explain it, could you bother to give yourself some kind of name so we don't have to go through this infuriating anon534789563489756 nonsense and we can keep track of your comments, as you obviously enjoy keeping track of mine?

Posted by: sylvia at April 11, 2007 3:53 PM

Well, WT Economist did say in his post that he and his wife saved up for their downpayment in the 80's and 90's so I'm guessing that means he owns now. Doesn't have to be, but seems logical. Much more logical than the idea that he would just pimp himself out as owning to establish some sort of posting cred. I mean, really.

I do agree with sylvia, though. There are advantages (listed ad nauseum above) to owning: you aren't subject to getting the boot, your payments are fixed (assuming you didn't get an ARM), you can redo the place as you like, any improvements you make are an investment instead of a consumed decoration, etc., etc. But that still doesn't mean diddly about current real estate prices relative to how they'll go up or down in the coming years.

Posted by: Mateo at April 11, 2007 3:55 PM

(why would someone who owns property wish to have a housing crash, wt economist? your tone makes you sound like you are looking forward to it with anticipation.)

So in a decade my children can afford to live here as well. What benefit do I get from inflated prices? None.

And yes, this has gone on longer than I thought it would, but it cannot go on forever.

Posted by: WT Economist at April 11, 2007 3:58 PM

Wait, now I understand it. Sorry, had to read it a few times.

I wasn't implying that all this chatter about home prices means the market is going to tank. I was saying that no matter what the market does, people will still want to own.

Of course, no matter how much chatter there is about real estate, the fact remains, the market is going to tank. :)

Posted by: sylvia at April 11, 2007 3:58 PM

Even a stopped watch is right twice a day

Posted by: Anonymous at April 11, 2007 8:26 PM

It is scary how many people believe anecdotes, insults or hyperbole is a rational response to what is essentially a macro economic question.
I also think it is funny how people believe that their own purchase is somehow insulated from the rest of the market - i.e. I bought in a fringe area so I got a better value and wont be hit as bad vs. I bought in a prime area which will always be desirable so I wont be hit or I bought a Brownstone which are unique so my home wont depreciate like those condos or NYC is different etc...
These arguments may or may not have some validity but no one will know until the future has come and gone.
One thing is certain on a macro level - at some point NYC Real Estate will fall in value by some % and residential real estate is essentially a single asset class, and New York City is a completley intertwined market; so if prices fall they will tend to fall across the board - it is possible that one subset (be it neighborhood or house type) will fall less but in the end the prices are all related and rise and fall together - and if one subset gets too out of wack in relation to others the market corrects - which is why when PS Brownstones rise like crazy, nearby neighborhoods begin to rise shortly after (since people soon figure out that it isnt worth 2x the price to live in PS), hence if condos/coop fall in price by a large % it will only be a matter of time before Brownstones fall, b/c all but the most diehard Brownstone lover will be forced to consider the relative value of an apartment vs a Brownstone...and so on.
I just hope that the people here who seem so convinced of their RE purchases/investments based on what are so clearly emotional rationalizations are in fact protected by a lot of equity, high salaries or both.

Posted by: David at April 11, 2007 8:47 PM

All you need to know is that GW Bush wants you to own. The "ownership society", remeber that? Ever wonder what his motivation was?

Posted by: Obama at April 11, 2007 9:58 PM

David, one thing I can say is that it is a damn good thing we have the brilliant light of your powerful, rational mind to illuminate every discussion on this board. What would we do without it?

And what have you said here? That the market may go down, you don't know, but that if it does, the NYC market - intertwined as one asset class will eventually cause price pressure on brownstones? You are a master of the obvious.

Bravo.

Posted by: Anonymous at April 11, 2007 10:05 PM

uh anon 10:05 if you missed it most of the posters on this board need someone to help them master the obvious...which is of course the fact that NYC real estate is a game that everyone will win!

Posted by: Anonymous at April 11, 2007 11:44 PM

Must be something in the WT air or water, but I am also an owner praying for a market, um, adjustment. Prices are so out of scale--remember, median income in this city is something like $36K, meaning HALF the people who live in NYC earn LESS than that--that it seems like only investors are buying. As a homeowner, I would like to see more couples and families of all kinds with kids buying to "settle"--to be part of the nabe, have their kids play with mine, use the local schools, hang out with me on the stoop, help shovel the walks of the old-timers, etc. I have a lot of equity I'm not looking to use because I'm happy where I am, and I would genuinely like to see other people afford this piece of the "American dream." More people owning would benefit my community and me more than fewer people getting super rich. Hope that makes sense.

Posted by: Anonymous at April 12, 2007 12:25 AM

(As a homeowner, I would like to see more couples and families of all kinds with kids buying to "settle"--to be part of the nabe, have their kids play with mine, use the local schools, hang out with me on the stoop, help shovel the walks of the old-timers, etc.)

Makes sense to me. Now two things have happened in the market, once cyclical, one structural.

Structurally places closer to the center have become more valuable that those further away, reversing the last century's suburbanization trend. When we bought in 1994 our WT rowhouse cost the same as a 1940s rowhouse in Forest Hills and a 1950s ranch in the Levittown school district. Now, I would expect WT to sell for more, significantly more if the schools were ever reasonable here. That is real.

But the cyclical thing, with the credit bubble, overwhelms this. I expect NYC real estate prices to remain high. But it is quite a distance down to high.

Posted by: WT Economist at April 12, 2007 9:24 AM

WT Economist,

It's very possible to save for a down payment, but most people are loathe to sacrifice their cars, vacations, take-out, happy hours, etc. In the end, the desire, patience, and maturity required for such a big step is simply not there.

Posted by: Anonymous at April 12, 2007 3:46 PM

The best way to afford to live in nyc is to buy in a fringe or unhip hood, sit on your investment and when your equity rises, cash out and upgrade.
The problem of course, is that wher you want to move, the rates in the hip areas have also risen so you'll have to settle for something smaller in a more desirable locale. It's not impossible but does take patience. Good luck.

Posted by: AKENSINGTONBKLYNGAL at April 13, 2007 12:12 AM

« Wednesday Links Good Architects for Affordable Housing in Brooklyn! »

April 11, 2007

Oh, Inverted World: Renting Better Than Buying?

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