The uncertainties in the real estate market are causing people to shell out big bucks – sometimes over $10,000 per month – to rent properties, instead of purchasing them, according to the New York Times. The report followed several couples who are prime examples of this trend, like Aimee Raupp-Temple and her husband, Ken Temple. They chose to rent instead of buy when they moved to the suburbs of Connecticut three years ago because they weren’t sure if they were going to stay. Now, after realizing that they did in fact like the area, they still decided to rent instead of buy.
The couple, whose patriarch works in finance, did so because they are convinced that home prices would continue to decline.
Aimee told the New York Times: “Our parents’ mentality was, you bought your home and that was your major profit place. Now, I think people are a little more cautious.” In fact, the real estate market appears so uncertain that many people are spending between $5,000 to $10,000 a month to rent because it actually feels like a safer bet than buying. This is especially true for suburban counties like Fairfield and Westchester, where median home sale prices can be above $1 million. The demand for single-family rentals is up not just in Connecticut, but across the broader region surrounding New York.
Many potential buyers are waiting to see how the market will pan out. Their concerns are new federal tax laws and general unease about the economy in an environment where the Fed continues to hike rates.
Aimee continued, “There are so many other ways to invest and make money than real estate now.”
The numbers confirm the trend: in Fairfield County, single-family rentals are up 13% in July compared to a year ago, according to data from the appraisal firm Miller Samuel. In Westchester County, there were similar results: single-family rentals were up 9.6%. This growth in rentals has been the most pronounced with higher-end buyers. An “exploding rental market” was the term used in a report put together by William Pitt/Julia B. Fee Sotheby’s International Realty.
This firm’s data shows that for the first half of 2018, homes that rented for $5,000 or more in the county were up 33% compared to 2015. Out of the 268 total properties, 61 of them rented for $10,000 or more, which was a 35% increase over 2015.
In other affluent areas like New Canaan, Darien, Greenwich and Westport, the lowest range of rental homes are generally older properties that have three or four bedrooms and a regular sized yard. The houses that are closer to $10,000 a month usually have at least five bedrooms and large lots – sometimes with beach locations and amenities.
Westchester County showed similar results in higher-end rentals, but at a slightly slower pace of growth at just over 12%. The growth there was focused on the southern end of the county, similar to other areas.
Kathleen Collins, an agent with William Pitt, told the Times: “I definitely see an increase in interest in rentals in the Bronxville area.” Collins said she had been approached by more real estate agents than usual this year, asking whether not property she had for sale may be available to rent.
Meeting the demand are high-end sellers who are now open to the idea of renting. Those who can’t stomach the sale price they want are even more enticed to rent. In Fairfield County, the number of homes offered for rent at $5,000 and up during the first half of this year was 25% higher than five years ago, according to data from William Pitt. Inventory was up 18%. William Pitt noted that renting is a way to cut potential losses, as well as meet demand. For instance, if homeowners sell a primary residence for less than it was bought for, the loss isn’t tax-deductible. But, if the homeowner rents it for at least two years, it can be legally converted to an investment property and capital losses from it can be written off in the future.
The growth in demand for these types of rentals has been further catalyzed by concerns about new tax law, which caps income tax deductions for property, state and local taxes at $10,000. Further fueling the nervousness, according to Jonathan Miller, the president of Miller Samuel, is unclear economic policy and rising interest rates.
“We’re going through this era of uncertainty. And what do buyers do when the near-term seems uncertain? They pause. People are just nervous that values will continue to decline, and for that reason, more people are opting to rent, if they are not forced to buy”, Miller said.
And while demand for rents is rising, traditional purchases are fading fast. In many of the same counties, buyers are simply unmotivated. In New Canaan, property values have declined by 10% to 12% over the last year. At the same time, the number of sales is down by 15%.
* * *
The article also tells the story of another couple, Michelle and Jeremy Fine, who signed a two year lease in March for a five bedroom house in the Old Hill section of Westport. The couple has two children and were previously living in a rented condo in White Plains before they decided not to buy it because of property tax reasons. They stated that the change in federal tax law was definitely a factor for them to rent.
Michelle Fine told the NY Times: “I don’t believe you’re spending that much more on rent than you would on a mortgage. Being in a home you purchased that is not the right fit is a bigger challenge if you have to sell. You have to weigh out what’s more important.”
Todd David Miller, a vice president of sales at the Higgins Group, told the New York times that of the $57 million that his sales team has done this year in Westport and Fairfield, almost all the sellers have moved out of state or are renting in the area instead. Those who are staying are moving toward rental homes near the beach.
“These are mainly higher-end transactions, and the majority of them had to sell at a loss, They don’t want to put any more money into real estate right now,” he said.
Leslie Razook, an agent with William Pitt, echoed this sentiment for New Canaan and Greenwich.
Another couple, Scott and Nina Ackerman, decided not to buy after selling their home in Rye, New York where they lived for 17 years. While they noted there was ample supply for homes in the area, they couldn’t find what they wanted and figured they wouldn’t force the issue. Renting seemed like a good alternative. They are doing it now in a four-bedroom home for $7,000 a month. Scott stated, “Home prices seem to be coming our way. We made a good sale, and I think we’re going to have an opportunity.”
But the home buying market hasn’t dried up completely, despite this seismic shift that appears to be taking place.
Harper and Scott Mates are a younger couple who spent a year renting a seven bedroom house in Rye, New York before deciding to buy. Coming from the city with young children, they wanted to stay close to their job but they weren’t sure of the location. Unlike the other couples, they fell in love with the area and jumped at the opportunity to purchase a five bedroom house on an acre of land within a couple of days it was listed.