Rent vs buy, Manhattan edition

By Felix Salmon
May 9, 2012

newpic.jpg Yesterday, I published the chart on the right, showing that in the nation as a whole, houses look like they’re a pretty good value, relative to rents, for the first time in many years. The chart elicited an email from one New Yorker, asking whether the same thing was true here in Manhattan.

It’s a good question, so I asked Jonathan Miller, of Miller Samuel, to provide some New York data which I could overlay on the US chart. And here’s the result:

manhattan.jpg

The most striking thing, of course, is how expensive New York is relative to the country as a whole: that huge spike in the original chart now just looks like more of a foothill.

But it’s also clear that even with record-low interest rates, Manhattan prices are still a lot higher than Manhattan rents.

It wasn’t always that way. Rents were higher than prices from the fourth quarter of 1994 through the fourth quarter of 1999 — a full five years, during which prices rose from $227,500 to $320,000. Which in hindsight was a great time to buy, seeing as how prices now are at $775,000.

Obviously the Manhattan data series, with fewer transactions, are much noisier than the national series. But broadly speaking, it costs you the same amount to buy a house today, in terms of your monthly mortgage payment, as it did at the end of 2004, when the median sales price was just over $600,000. By the standards of recent history, then, Manhattan real estate is a lot more affordable than it was during the bubble. But look back a couple of decades, and it still looks expensive. And compare it to rents, and it still looks like you’d be better off renting than buying.

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