Photo: Living Room at 37 Great Jones Street, a luxury rental building in NoHo.
We all know moving is a huge stressor, and even if you are financially well off, the monetary burden of moving can be quite significant. Two leading factors that make buying a home in the long term seem the better choice than renting are cutting back on the number of times one needs to move, along with the perceived investment opportunity.
In New York City’s unique real estate market however, this is actually not the case at all for the large majority of city dwellers. The rental market is actually the better choice by far.
A recent report by the personal finance site SmartAsset studied 29 of America’s largest cities found that a New Yorker would need to live in the same residence for 18.3 years to financially recuperate from the cost of the buying, the highest in the nation by far. To put these numbers in national perspective, notoriously expensive cities such as San Francisco and Los Angeles didn’t even make the top three for worst homebuyer market – those spots went to San Jose and Seattle, at 16.73 and 14.6 years, respectively.
To arrive at this breakeven point, as SmartAsset referred to it, they compared the total rental versus buying costs for a household that earns $100,000 annually, taking into consideration brokers and finders fees for renters and closing costs, downpayments and mortgage rates for buyers. They used data from the 2012 U.S. Census Bureau and U.S. Department of housing and Urban Development to obtain their research, and assumed a financial model of a 4.5 percent mortgage rate, a down payment of 20 percent, and closing costs and fees of $2,000.
Their findings determined several factors that make New York City’s residential sales market so unparalleled in its severity. Because of the extreme desirability of living in New York, good deals are almost impossible to find. When something construed as a deal in any measure does present itself, it disappears almost instantaneously. This leads to a highly competitive bidding culture that continues to raises prices–a classic example of scarce supply and skyrocketing demand. This high level of competition also drives up closing costs and fees, and the cycle continues to repeat itself.
For many New Yorkers, moving into an apartment they plan on staying in for nearly two decades – the amount of time it would take for buying to be more economical than renting an apartment in NYC – simply isn’t realistic. So if you’re looking for an apartment in New York City for the next five years, or the next 17, renting is the unequivocal way to go.
