The availability of Manhattan rentals has dropped to low levels and brokers are saying some prospective buyers think renting may be a better deal.
Some residential rental agents, in fact, say they believe the rental market has gained an upper hand over the sales market in Manhattan.
“A lot of people looking to purchase are ending up in the rental market,” said Gordon Golub, manager of the Upper East Side office of Citi Habitats. “They realize that, even with low mortgage rates and tax deductions, purchasing is not saving them money. And renting is just an easier proposition as well.”
Although homeowners build up equity and renting is often viewed as money down the drain, some rental brokers say it’s possible that a monthly rental fee, at this point, may tally up at less than the monthly payment for a comparable apartment.
“I think you can make that case,” said Chris Thomas, executive vice president at Brown Harris Stevens, who works in Brooklyn. “The increase in per-square-foot purchase cost for properties across the board in the areas we represent has increased much faster than the rents. Relative to last year, it would seem now that renting is a better option.”
Bidding wars for rentals
While Golub said he didn’t believe the market has shifted, Thomas said he is seeing multiple offers for the same rental apartment much more often this year. There have been reports of rental bidding wars on the real estate blog Curbed.com.
“In terms of the time on the market, the average now for an apartment is a week or less,” Thomas said.
Still, the rental market is highly seasonal and coming off its strongest season, the summer.
Sales brokers have also been reporting that prices may have leveled off a bit this summer, so it’s hard to form an assessment about whether renting has now become more cost efficient in terms of monthly layout.
“Mortgage rates, after an uptick in July, are lower than they were last year,” said Jonathan Miller, CEO of appraisal firm Miller Samuel. “My question to people is ‘what has changed?’ [Opting for renting] may be less financial and more psychological.”
Vacancy rates drop
The overall rental vacancy rate in Manhattan stood at 0.88 percent in August, well below the 2 percent that typically signifies rising rental prices, according to the most recent report from Citi Habitats, the city’s largest rental real estate firm.
Particularly low vacancy rates were seen in the East and West Villages, which had, respectively, 0.1 and 0.31 percent vacancy.
It’s too early to predict if the strength of the rental market will continue into the new year. The first of September is the most popular move-in date in the highly seasonal market, which typically continues to boom until after the Thanksgiving holiday.
But brokers said in late September that indications look good for a strong year in a market that has been recovering in fits and starts, but overall upward spirals, since September 11.
“I started in business in the summer of 2001, when you couldn’t get a one- bedroom apartment in a doorman building for less than $3,000,” said Robert McCabe, a broker with Halstead Property. “After September 11, there was a correction in the market. I think now, it’s becoming a landlord’s market again.”
Concessions by landlords, which often included a one-month owner’s paid commission to brokers or flexibility with tenants on a move-in date, largely disappeared last spring except for in some Manhattan areas like the Financial District and north of 116th Street.
Prices for rentals have been creeping upward steadily since then. Thomas said he’s seen a lot of activity on the lower end of the market, or among rentals priced below $2,000 a month, as is typical for this time of year.
However, he said he’s also seeing properties moving on the upper end, typically apartments in townhouses or whole town homes themselves, priced at $6,000 to $12,000.
In Manhattan, however, brokers say the high end is the only segment of the rental market where they’re not seeing activity the high end typically being priced north of about $15,000.
“All the way from $1,200 a month to $12,000 a month, the market has increased this summer,” Golub said. Parts of the Upper East Side have been particularly hot, Golub said. “The Upper East Side east of Second Avenue has caught fire, because it’s been known to be an area where you can get some better deals,” he said.
“I think the market will continue to be strong for the simple fact that we’re still in a relatively strong economy,” McCabe said. “The sales market is going to stay strong for the next six months or so, but as people get priced out of it, they’ll continue to move into the rental market.”
There are indications that some people are bailing from a sales market they feel has topped out, and buyers are moving to lock in low interest rates that may soon increase, Thomas said. All of that plays a role in the rental market, which typically takes off when interest rates climb.
Golub said he expects the rental market to remain tight throughout the fall. Eventually, cooling sales prices may trigger more people to buy, leveling off rental prices.
“Then the investors get in and begin to purchase to rent out apartments, because sales prices have dropped,” Golub said.