Three Cents Worth: Getting Pulled From Renting To Buying

[This week, real estate appraiser, Curbed graph guru, blogger, and podcaster Jonathan Miller debunks some rental myths.]

Since there was a recent theory proposed in the Journal about why Manhattan rents are currently flat or falling (they're not falling), I thought I'd talk about the problem with the theory. It used a multi-year generalization (2007 to 2013) and applied it to explain the last four to five months of market behavior?which doesn't explain what happened from 2007 to 2011 or what is currently happening. In theory I get the point being made?we have a lower level of financial services jobs than we did in 2007 and therefore more lower paying jobs are being seen in the rising employment numbers?and it's a long term concern for both rental and sales.

I presented a breakdown of what is actually being rented (excludes renewals) using two charts. The first chart (above) compares studios/one-bedrooms to two-bedrooms and larger apartments. The second chart (below) is the same info without combining the segments.

Thoughts:

Rents are not rising as rapidly over the past four to five months as they had in the prior 12. While I don't have demographic data on who is renting, we are not seeing less expensive apartments (supposedly rented by tech and creative types in the recent NYC employment rise) gaining share as was suggested. In fact it is just the opposite.

· Manhattan median rents are up 2.6 percent YOY (Jan-12 v. Jan-13), not falling.

· Since 3Q 2011, the market share of studios and 1-bedrooms have fallen from 76.5 percent to 68.9 percent, the lowest in five years (except for the period just after Lehman collapsed).

· The reason for the market share drop since 2011 is more likely the precipitous drop in mortgage rates pulling first time buyers into the purchase market. It would appear that more tech and creative types are buying apartments rather than renting them, despite tight credit conditions. According to Freddie Mac, a 30-year fixed rate was 6.16 percent at the end of 1Q 07 and was 3.53 percent last week. That's a massive increase in consumer purchasing power.
· Matrix [matrix.millersamuel.com]
· Three Cents Worth archive [Curbed]