Ratio Rite

The number of decisions required by the home buying process could easily drive one mad. It can be influenced by any number of factors, from the logical to the insane. Despite our best efforts, some determinations are sometimes left to flipping a coin. Regardless, the intent is to logically examine the data associated with a proposed transaction and decide whether it is—or is not—feasible. It’s akin to going to Belmont and taking all facets of a given race into consideration before making a bet rather than gambling on the long shot.

Despite the amount of helpful information available for public consumption, it is still difficult to know whether now is the time to buy or rent. Naysayers favoring the former would assert that it is never a bad time to buy, that a home is an investment. But as recent declines in the market have shown us, even buying in what was described as the best of times is a risk. Just ask the financially able who are walking away from their homes as values tank.

The single-family home remains the dominant form of shelter on Long Island. It remains a vital thread with which the socio-economic fabric of the region is sewn. Wall Street alchemy aside, one of the premises on which the housing boom was based was the idea that we could all be homeowners.

But as those homes grabbed the spotlight with skyrocketing—and then plummeting—values, those who are walking away and those still looking to buy have little option but to rent. This has strengthened a growing market for apartments, which have been steadily increasing in value.

A recent report from Suffolk County’s Department of Planning shows that since 1996, apartment rents have been steadily increasing across Long Island. The report shows that in 2010, the average monthly rent for a one-bedroom in Nassau is $1,418, $1,156 in western Suffolk and $1,100 in eastern Suffolk. For a two-bedroom, the averages jump to $1,775, $1,524 and $1,401 respectively.
Compare that to the average of little more than a decade ago. Nassau’s one-bedrooms were averaging $831 and Suffolk’s were going for $780 per month. The two-bedrooms from the same period were averaging $1,143 and $1,098 respectively.

But how does one determine whether to rent or buy? A recent piece in The Wall Street Journal took a national perspective on that crucial decision referencing the real estate search engine trulia.com. Visiting the site revealed a treasure trove of information that could help both the newbie and experienced homebuyer. Among the many facets of the site, it offered a general rule of thumb, a mathematical ratio to be exact, to help determine whether one should buy or rent in a given market. In a nutshell, it asserts that homes are likely to be fairly valued if priced at a ratio that cost 15 times that of a year’s rent or less. To localize, Suffolk County reported that in 2010, the average annual rent for a three-bedroom apartment is $22,548. Multiply that by 15 and you get a number of $338,220, which is still below the average home cost—$367,500—but is also not that far off from purchase price.

Obviously, the information offered on trulia.com and the like are to be used as guides to add clarity and permit one to make heads or tails of things in what can be a very confusing process of acquiring real estate.

conor bly

Conor Bly has been writing about Long Island for the past 14 years covering, well, pretty much everything, from automobiles to zoning regulations. When not writing, much of his time is occupied by looking for that elusive perfect house.