Not in the market to buy in NYC? Here’s why it’s great to be a renter right now.
Many NYC renters are aspiring buyers, who look forward to the day they can own a piece of the city and never worry about another rent hike or obnoxious landlord. This year, though, a number of factors are making renting a home in NYC look quite attractive compared to buying one. Everything changes in real estate, and whether you rent or own your home is a personal decision based on a number of factors. But here are five great reasons to be a renter in NYC right now, rather than a buyer.
1. Rising Mortgage Rates
Rising mortgage rates are one of the most compelling reasons to be a renter right now. Rates have risen to a national average of 4.63 percent, up from historic lows of 3.31 percent in November 2012. Rising mortgage rates make buying a home less affordable by decreasing purchasing power — as rates rise, a buyer’s maximum total loan amount generally shrinks. StreetEasy Senior Economist Grant Long puts it another way: “It’s essentially going to cost renters more money to buy the equal amount of house.” In NYC, where buyers routinely stretch to the very top of their budgets (or past them) to afford desirable homes, rising rates likely have a large impact.
2. New Tax Changes Hurt Homeowners
Under this year’s tax changes, homeowners who previously deducted local property taxes and income taxes are likely to see a significantly higher tax bill. For 2019, homeowners now can only deduct $10,000 of their state and local taxes, including property and income taxes. This marks a major shift from years past, when homeowners were able to deduct all of their property taxes.
To illustrate this impact, let’s look at this $1.14 million 1-bedroom in Lenox Hill, a property comparable in value to the StreetEasy’s current Manhattan price index of $1,410,150. The monthly taxes for this apartment are reported as $1,488, or $17,856 annually. In years past, the owner was able to deduct all of that. For 2018 taxes, they will only be able to deduct $10,000 of it — and no other additional state or local taxes. If they were to deduct $10,000 in other state and local taxes, they would be allowed no deductions for these property taxes. Clearly, this change will significantly increase tax exposure for many New York homeowners, as will new limits on how much mortgage interest can be deducted. “These changes tend to favor renters over buyers,” according to Long, “discouraging many who might have considered buying.”
The new law actually has direct advantages for some renters. If you are single renter earning more than $70,000 a year, and typically don’t itemize your taxes, your standard deduction will jump from $6,350 to to $12,000 in 2018, and your tax bracket falls from 25 percent to 22 percent.
3. It’s a Buyer’s Market, But Prices Are Still Very High
Inventory levels have hit historic highs, homes are lingering on the market, and prices in Manhattan are dropping. These are all clear signs that NYC is now a buyer’s market.
But let’s back up a little. The median asking price in New York City is now $1 million — quite high for most people, especially given that the nationwide median is $275,000. Incomes are higher in NYC than elsewhere, but that doesn’t make up the difference. From 2011 to 2017, median home prices across NYC rose 48 percent, while median household income rose by only 23 percent. We now see signs that the typical NYC home is becoming unaffordable to the typical NYC buyer: From 2010 to 2017, in 32 neighborhoods across the city, the share of 2-bedroom apartments listed for less than $1 million on StreetEasy fell by half. Neighborhoods like Park Slope and Carroll Gardens, once considered more affordable alternatives to Manhattan for working New Yorkers with children, now rank among the most expensive areas of the city.
4. Rents in Downtown Manhattan Look Better Than Ever
Ask any New York renter where they’d love to live, and chances are they’ll say “West Village.” For years now, the West Village, and Downtown Manhattan generally, have been some of the coolest and most desirable parts of NYC. So cool and desirable, in fact, that many renters couldn’t afford them. Now, however, rents in the outer boroughs have ticked up so much that Downtown Manhattan looks relatively reasonable — and still just as cool. As our predictions for 2019 noted, median rents for 1-bedrooms in the outer-borough neighborhoods of Dumbo, Downtown Brooklyn, and Long Island City have eclipsed in those in Chelsea, Nolita, and the East Village.
5. Renters Have Negotiating Power in North Brooklyn
The L train shutdown is fast approaching, causing a run-up in rental inventory and a decline in rental demand in Williamsburg and other places along the L. But renters now have more negotiating power with Williamsburg landlords than ever before, which could be a great opportunity for those who work in Brooklyn. This fall, Williamsburg was the only neighborhood in the entire city where rents actually dropped. At the same time, inventory and rental price cuts increased by 70 and 30 percent over last year, respectively. So if commuting to Manhattan isn’t an issue for you, now is a great time to move close to the restaurants, music venues, cafes, and shopping that make Williamsburg so desirable.
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