Since New York City’s (NYC) real estate market is still experiencing a fresh post-COVID effect, you are better off buying if you have the money (and credit score). However, as is often the case, it greatly depends on your financial situation. Living in arguably the most desirable and expensive part of the world presents a financial burden to many younger adults, who are still working lower paying, entry level jobs.
The majority of real estate property owners in New York City are of older age and in the highest income brackets (NYU Furman Center). Additionally, they are more likely to have permanent ownership of property in other locations (Goldstein, Property Nest).
Many people view renting as ‘wasteful’ because you don’t have the benefit of acquiring equity in your property. However, the reality is for most young or middle-aged professionals, the economic opportunities – combined with the cost of living in New York City – don’t allow them to acquire enough requisite disposable income to put a down payment on a desirable apartment unit. This brings up a primary obstacle many residents of New York City see with buying a permanent unit: most people don’t view New York City as their ‘final destination’, long-term residence. In other words, when most people think about taking out a mortgage and buying a home, they’re thinking about a serious long-term commitment (emphasis on long-term). Raising kids, settling down in a permanent work situation, and finally retiring. The suburbs or a quiet town; not the most densely populated, most popular tourist destination in the world.
While there are plenty of mechanisms available to individuals looking to get out of a 20 or 30-year mortgage after only a few years, logically, it would make sense for most to still prefer not to take on that kind of serious financial responsibility without the intent of staying in that location for a while.
With that being said, from the perspective of someone simply asking: “hey, would I be better off buying or renting in New York City?”, I would advise them to not be hesitant and buy if they have the money saved.
The reason is two-fold. If you are going to live in the unit, at least initially, you’ll acquire equity simultaneously. If you find that NYC is not for you in a few years – as many inevitably do – current market prices and historic trends, combined with current rates and incentives, suggest one would be able to see a positive cash flow from subleasing or subletting their own property. Meaning, renters are consistently earning more monthly rent than their monthly mortgage payments. Alternatively, if you have no desire of becoming a landlord, contrary to ordinary homeowner’s beliefs, there is the ability to sell your mortgaged property and earn a profit. It’s extremely difficult to look at the recent data without considering the COVID-19 situation, but over a 10-year period prior to that, real estate prices were significantly increasing year-over-year.
That’s largely why real estate became viewed as a very popular investment vehicle for financial investors. The figure below illustrates an average of New York housing prices over a 30-year period, between 1987 and 2018, from different housing market segments.
Figure 1 – New York (NYC) Housing Market Prices (1987-2018) Overview
As one can see, prices went up across the board mostly every year, with the exception of a rocky period in the midst of the Great Recession of 2008. Therefore, having more ownership/equity in a property that’s also going to increase in value over time is a no brainer, even if you choose to move out of that property prior to paying off your mortgage.
