Renting is still a better financial decision than buying in the New York City housing market, according to the Federal Reserve Bank of New York.
By studying the ratio of house prices to rents, economist Jason Bram suggests there is less of a value today in a home purchase in the city than over the past 20 years. The ratio considers the property’s market price and divides it by the annual market rent it would generate. If the ratio is high, it means the house is overvalued; conversely, a low ratio means the property is undervalued.
Bram recommends that all monthly costs associated with home ownership (maintenance, mortgage interest, property tax, etc.) should not significantly outdo the cost of renting.
Although off their 2008 high, Manhattan price-rent ratios are still up dramatically over the past two decades, suggesting less financial “value” today in an apartment purchase there. With this in mind, it is important to expect that purchase prices of apartments will appreciate by at least 4% per year to account for today’s high prices.