Study Suggests Less Value in Manhattan Apartment Purchases

With fluctuations in rental and owner markets over the past few years, it can be difficult to determine whether one is better off renting or owning. In Manhattan, renting is currently the more financially viable option, according to a new ""study"":http://www.newyorkfed.org/research/current_issues/ci18-9.pdf by the ""Federal Reserve Bank of New York."":http://www.newyorkfed.org/index.html

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The article compares a home's market prices to the annual market rent the same home would bring in over the year. Higher ratios imply homes are overvalued, while lower ratios suggest homes are undervalued. Today's ratios are relatively high.

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The study determined apartment prices have risen ""substantially"" for the past 17 years and are now more than twice what they were in the mid 1990s.

Purchase prices would need to appreciate by at least 4 percent per year for today's prices to be reasonable, according to the study.

Jason Bram, senior economist for the New York Fed and author of the article, points out rents in the mid-1990s were not historic norms, but rather they were ""unusually low,"" meaning today's prices may not be as inflated as they appear.

""Still, current rent levels, mortgage rates, and property tax rates make it difficult to account for the high prices of Manhattan co-ops and condominiums in 2011 without assuming an expected future price appreciation of at least 4 percent per year,"" the study notes.

While the report's data extends through 2011, the author also points out 2012 data includes rising rents and relatively stable prices, implying ""people may have tempered their expectations for price appreciation.""