Buying Beats Renting in Just Under Five Years in New York City

The costs of homeownership match the costs of renting in just three years in Queens but takes more than seven years in Manhattan, according to new StreetEasy analysis

15 Feb, 2016, 05:00 ET from StreetEasy

NEW YORK, Feb. 15, 2016 /PRNewswire/ --

Key facts:

  • The median StreetEasy Tipping Point in New York City is 4.9 years, meaning the costs of renting a home in New York City would exceed the costs of buying a comparable home in just under five years.
  • Among the five boroughs, the longest tipping point is in Manhattan: 7.4 years. The shortest is in Queens: 3 years.
  • Of the nearly 300 neighborhoods tracked in the analysis, more than half have a median tipping point of five years or less.
  • Neighborhoods with the shortest median tipping point (less than 2 years) are concentrated in Queens, while the majority of neighborhoods with the longest median tipping point (over 10 years) are located in Manhattan and the Bronx. – In New York City, rent and sales prices continue to reach new highs, making homeownership seem unachievable in such an expensive, competitive market. However, for most buyers who plan to live in New York City for at least five years, the financial benefits of buying a home outweigh the costs of renting, according to a new StreetEasy® analysis.

In New York City, rent and sales prices continue to reach new highs, making homeownership seem unachievable in such an expensive, competitive market. However, for most buyers who plan to live in New York City for at least five years, the financial benefits of buying a home outweigh the costs of renting, according to a new StreetEasy® analysis  

The StreetEasy Tipping Point is a new metric that approximates the median number of years it would take for the costs of renting a home to equal or exceed the costs of owning a comparable home in the same areai. The greater the tipping point, the longer a resident would need to stay in a home for it to make financial sense to buy rather than rent.

City-wide, the median tipping point is 4.9 years, meaning the typical New Yorker would need to live in New York City for nearly five years before it would be financially advantageous to buy a home rather than rent. This is significantly greater than the national median of just 1.9 years, as tracked by Zillowii. Of all the neighborhoods tracked in StreetEasy's analysis, there are only 16 neighborhoods with a tipping point of two years or less, most of which are in Queens. More than half of all neighborhoods (59.3 percent) have a median tipping point of five years or less.

The StreetEasy Tipping Point is determined by examining a variety of costs and benefits related to renting and buying, including property tax rates, closing costs, maintenance costs, home price appreciation and median down paymentiii. On the rental side, some costs considered include median asking rent, rental insurance rate, a broker's fee, security deposit and rent inflationiv.

"It's often said that it takes eight years to become a true New Yorker, but it takes considerably less time for homeownership to make sense here – going against what many New Yorkers have been trained to believe," said StreetEasy data scientist Alan Lightfeldt. "Although New York is known for being a transient city, for those who plan to stay over five years it would be financially beneficial to own rather than rent. The buy-rent decision certainly takes longer to fall in favor of buying in the city than it does across the country, but owning is actually not an impossible dream."

Among the five boroughs, Manhattan has the longest median tipping point at 7.4 years, followed by the Bronx (4.6 years), Brooklyn (4.4 years), Staten Island (4.1 years) and Queens (3 years). Within each borough, there are strong contrasts between neighborhoods. Though Manhattan has the longest borough-wide tipping point, two of its neighborhoods – West Harlem and Roosevelt Island – have some of the shortest tipping points in New York City, at 1.2 and 1.4 years, respectively. Rounding out the top five neighborhoods with the shortest median tipping points are Queens' Howard Beach (1.4), Briarwood (1.4) and Alley Park (1.1 years).

On the opposite end of the spectrum, 36 neighborhoods have a tipping point above 10 years. The majority of those neighborhoods are in Manhattan, a reflection of the borough's prohibitively high asking rents, sales prices and down payment requirements. Carnegie Hill, Little Italy, Nolita, Soho and Tribeca all share a median tipping point of 31+ years, meaning homeowners would end up repaying their 30-year fixed-rate mortgage before ever reaching the tipping point.

The Bronx is home to the second largest share of neighborhoods with the longest tipping points, but fueled by opposite factors than Manhattan. Relatively lower down payments and slower price appreciation contribute to the borough's neighborhoods with the longest tipping points, including Melrose (31+ years), City Island (18.5 years), Country Club (18.3 years), and Pelham Gardens (16.2 years).

Longest Tipping Point, by Borough

Shortest Tipping Point, by Borough

Neighborhood

Tipping Point

Neighborhood

Tipping Point

Manhattan


Manhattan


Carnegie Hill, Little Italy,
Nolita, Soho, Tribeca

31+ years

West Harlem

1.2 years

Midtown

25.5 years

Roosevelt Island

1.4 years

Flatiron

16 years

Civic Center

2.3 years

Brooklyn


Brooklyn


Boerum Hill

16.4 years

Old Mill Basin

1.7 years

Carroll Gardens

15.8 years

Starrett City

1.9 years

Dumbo

13.4 years

East New York

2.1 years

Bronx


Bronx


Melrose

31+ years

Belmont

1.6 years

City Island

18.5 years

East Tremont

1.8 years

Country Club

18.3 years

Norwood

2.4 years

Queens


Queens


Douglaston

6.5 years

Alley Park

1.1 years

Long Island City

6.1 years

Howard Beach

1.4 years

Fresh Meadows

5.8 years

Briarwood

1.5 years

Staten Island


Staten Island


Stapleton Heights

31+ years

Clifton

2.1 years

Randall Manor

19.2 years

Arlington

2.2 years

Lighthouse Hill

8.9 years

Elm Park

2.5 years

 

A complete list of tipping points for all boroughs and neighborhoods can be viewed at http://streeteasy.com/blog/tipping-point-buy-versus-rent/.

About StreetEasy:
StreetEasy is New York City's leading local real estate marketplace on mobile and the Web, providing accurate and comprehensive for-sale and for-rent listings from hundreds of real estate brokerages throughout New York City and the major NYC metropolitan area. StreetEasy adds layers of proprietary data and useful search tools to help home shoppers and real estate professionals navigate the complex real estate markets within the five boroughs of New York City, as well as Northern New Jersey and the Hamptons.

Launched in 2006, StreetEasy is based in the Flatiron neighborhood of Manhattan. StreetEasy is owned and operated by Zillow Group (NASDAQ: Z and ZG).

StreetEasy is a registered trademark of Zillow, Inc.

i The StreetEasy Tipping Point is the number of years it would take for the accumulated costs of renting a home to equal or exceed the costs of buying a comparably sized home in the same area. StreetEasy calculated the tipping point for all five boroughs and across nearly 300 neighborhoods by comparing the costs and benefits of homeownership in an area to the costs and benefits of renting using recorded sales data collected from the city and asking rent data on StreetEasy. The tipping point for an area is the median tipping point for all homes where the above calculation is possible. The current tipping point values are based on full year 2015 recorded sales and asking rent data.

ii The breakeven horizon is the number of years after which buying is more financially advantageous than renting (at the precise breakeven horizon one can be indifferent between buying and renting). We computed the breakeven horizon for each household by comparing the costs of owning a home versus renting a home at the end of each year for 30 years (assuming the house is purchased using a 30-year fixed mortgage). Our buy versus rent analysis incorporated all possible costs incurred when purchasing a home as well as those incurred when renting a home to make the comparison between these costs as realistic as possible. The full methodology can be found here: http://www.zillow.com/research/rent-vs-buy-breakeven-horizon-analysis-methodology-updated-3549/

iii StreetEasy estimates the median down payment as a share of the total price of a home and is determined by mortgage data provided by the New York City Department of Finance. It is the inverse of the median loan-to-value (LTV) ratio for all homes in a geography in which mortgage data is included in the transaction's documents. The typical down payment in dollar value is determined by multiplying the median recorded sales price in a geography by the inverse of the median LTV. This is only an approximation of a typical down payment size and is not an actual recorded number.

iv All inputs for calculating the StreetEasy Tipping Point are as follows - costs of homeownership: 30-year fixed-rate mortgage (prevailing rate updated monthly), property tax rate, purchase costs, selling costs, maintenance costs per year, renovation costs, homeowners insurance, capital gains tax rates, NYC mortgage tax, NYC mansion tax (where applicable), median down payment amount for area, home price appreciation according to 12-month StreetEasy Price Forecast and inflation. All inputs for calculation costs of renting: rental insurance, broker's fee, rental deposit, condo fees, down payment investment return potential, rent inflation according to 12-month StreetEasy Rent Forecast

 

SOURCE StreetEasy



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