Rents Close To Historic Highs

Historic highs is a very strong statement to make without an ounce of data.

So if you’re thinking about buying or renting, I recommend that you read “The Effectiveness of Homeownership in Building Household Wealth” by Jordan Rappaport, an economist at the Kansas City Fed (hat tip David Leonhardt). The most valuable part of the paper is that it clearly outlines the financial tradeoffs between owning and renting. Rappaport creates a model that estimates the cash flows from buying a house and selling it ten years later and renting for ten years, assuming that you invest all the money you save by renting. He then looks at historical ten-year periods beginning from the 1970s through the 1990s to see which strategy would have been preferable.

It turns out that, of those ten-year periods, owning was better in about half, renting was better in about a quarter, and in the other quarter it’s hard to tell. The ten-year periods that began around 2001 will probably favor owning, but when you get to 2003-2006 they will probably favor renting (because of the housing decline since 2006).

So if you are making the decision for real, the tradeoff is this: historically, on average, owning has beaten renting more often than the converse (if you have a ten-year holding period), but owning is riskier. You can’t tell now what is going to happen to house prices over the next ten years. But there is one thing you can sort of estimate: the current ratio of house prices to annual renting costs. David Leonhardt‘s rule of thumb is that if the ratio is below fifteen, owning will probably work out better than renting, and if the ratio is above twenty, renting will probably work out better than owning. (That is roughly borne out by Rappaport’s chart on page 51, but I think the chart implies that the “owning” threshold should be somewhat lower than fifteen.)

http://baselinescenario.com/2011/05/13/renting-and-buying-compared/

"I used to see the rental market as a leading indicator of changing economic conditions because of how nimble it is," said Jonathan Miller, CEO of appraisal firm Miller Samuel who prepared Elliman's report. "But here the economy is struggling -- or at best, is flat -- and conditions are tight in the rental market."

That's because the economy has been so volatile that people are putting off their purchasing decision and instead choosing to rent. Even those who are inclined to buy, Miller noted, are encountering such strict mortgage underwriting standards that they're forced to reconsider.

To wit, Elliman's report shows rental activity during the typically active summer months slipped 6.9 percent from the same period a year ago to just 7,998 transactions, and 6.7 percent from the second quarter. Combined with the rising rents, the data suggests many renters are staying put and delaying decisions to move to another rental or buy, Miller speculated.

Factoring in concessions, the average monthly rent for a Manhattan apartment increased 6.9 percent from the third quarter of 2010 to $3,491, Elliman data shows. The rental price per square foot skyrocketed 13.6 percent in that timeframe to $50.60, according to the report.

http://therealdeal.com/newyork/articles/manhattan-rental-market-strengthens-in-the-third-quarter-of-2011-according-to-douglas-elliman-and-citi-habitats-reports-and-gary-malin-and-jonathan-miller

That said, I do think the rental market is tightening not because of the strong jobs picture but because more people are renting over buying.

im still trying to find a legal way to end my tenants 2 year lease and bump it up 20% which would still put it under market comps..

..claim i need my unit back for health reasons? the eastern sun exposure is good for my mental health?

I'll be renting until I find a place to buy.
I'm in the transitional group.
Gonna take my sweet time.

my rent (doorman bldg.) has gone down $300.

There you are, julia!

How did it go with your busy-body doorman situation?

My conclusion is that manhattan rents always have a floor because people from outer boroughs / NJ move in when they find a deal which eventually drives up prices.

ho: You can do that. Just keep wearing your p.j's. around the building.
Start talking to an empty chair in the lobby.

Truth, Don't you mean the forever lazy?

http://www.youtube.com/watch?v=5S2p7AiNX9g

lol, Riversider. Again.

"Historic highs is a very strong statement to make without an ounce of data."

It was written in the NY Times so they must have a lot of data to support this article right?

When they call her the grey lady , I think they are referring to senility...

The Times has not been batting 1000 lately..

>My conclusion is that manhattan rents always have a floor because people from outer boroughs / NJ move in when they find a deal which eventually drives up prices.

A floor or a dampener?

since the market is so competitive now I've begun to charge 18% commission on two year leases. any other agents out there doing the same?

I don't want to give my doorman (the one that gossiped about me) a christmas tip but I'm going to give him the same tip as the others...call me a coward.

>since the market is so competitive now I've begun to charge 18% commission on two year leases. any other agents out there doing the same?

Is this not an indication to your landlord clients to raise their rents rather than leaving money on the table for you?

we have raised rents.

but doesn't that indicate not enough? Why does the landlord want you to make extra from their pocket?

raise rents 80%.

raise commission to 40%.

Jim,
the apartments with the windows in the shower, like the one columbiacounty saw on Riverside Drive, have those gone up too? How much could the broker who took columbiacounty there get?

the owner wouldn't see it that way hberger. they dont like two year terms for their own reasons.

see my point?

marco_m
about 12 hours ago
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My conclusion is that manhattan rents always have a floor because people from outer boroughs / NJ move in when they find a deal which eventually drives up prices.
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^that

jim_hones10
huntersburg
columbiacounty:

http://www.youtube.com/watch?v=kJKvs0Q6LIg

http://www.youtube.com/watch?v=VpBJsVw000w&feature=related

What does the economist author say about the person who bought an UWS brownstone in 1978 for $50k, and sold it for $4.5 million dollars when he retired? Is that good, or did the owner make a huge mistake?

can you provide a link to the actual property?

He says the same thing he says to the renter who made a fortune working at a dot con in the 90s.

jason: dot "coms" were the cons in the 90s.

dealboy: An UWS brownstown in 1978 would have been broken into on a weekly basis.
The owner would have been mugged on the way home on a daily/nightly basis.
And be lucky to retire, alive.

brownstone.
Whatever.
Shite! Hang onto your hats and wallets, and RUN,RUN,RUN from the subway to get home.

julia

there are changes...nothing major...I recently bought an apartment but now I'm getting calls from realtors who had clients that would not budge and they are now willing to listen....too late for me but a slight move to sanity

about 3 years ago

Julia - according to the above post, you bought an apartment three years ago.

Yet now you rent? When did you sell your apartment?

Not sure why she keeps saying her rent is dropping year after year shortly after she claims she just bought an apt. I think Julia is living two lives where she rents out the apt to herself. She always seems to be buying or renting an apt at a lower price than the previous year. Maybe she keeps dropping her rent to herself and afterwards decides to sell her apt to herself at a lower price.

So if I am not mistaken, Jonathan Miller's data does NOT show rents per SF in Manhattan near all-time highs, and CERTAINLY not so on an inflation-adjusted basis.

See for yourself. Here it is in NOMINAL rents: http://www.millersamuel.com/charts/gallery-view.php?ViewNode=1263479298xkoid&Record=2

Here it is inflation-adjusted: http://www.millersamuel.com/charts/gallery-view.php?ViewNode=1263479338nkvcH&Record=3

In nominal terms, we are maybe 5% below the 2008 peak in rents PSF, about 10% below median rents' peak, and 15% below average rents' peak.

In the second, rents per SF, median, and average rents were all about 30% higher in constant dollars just when the dot-com bubble burst versus where they are today.

Since nominal prices are ALWAYS rising, the all-time high of almost ANY price will eventually be surpassed. Which is why the inflation-adjusted figures matter more.

I notice the time periods are not fully synced in the above charts, but even adjusted for 3Q2011 data, the rents are not within 20% of all-time times in real.

> Tough being a renter in this market

Hmmmm... renting still way cheaper than historical... and cheaper than buying... prices still down AND mortgage rates down if you want to buy.

Seems pretty easy to me.

Julia? Hello?

Julia? When did you sell?