Karen Peissinger-Venhaus and her husband Matthew Venhaus have been renting apartments in Western New York since they moved here from El Paso, Texas, three years ago.
The couple lived at the Williamsville Court Apartments in Williamsville for two years but wanted better access to public transportation, since they have one car. Both work in Buffalo – he’s at Rich Products Corp. on the West Side, while she’s in the Cobblestone District at Watts Architecture and Engineering.
So they moved into the city in September to take up one of the new units at Ciminelli Real Estate Corp.’s Bethune Lofts building at 2917 Main St., near the LaSalle Metro Rail station. They pay $1,200 a month for a two-bedroom apartment, including heat and air-conditioning.
They know they could buy a house locally and pay the same amount for a mortgage and monthly maintenance. But they have no desire to do so.
“We’re being provided a place to live that somebody else is taking care of,” said Karen, 48, a Syracuse native. “Everyone has to decide for themselves how to invest their money... We’re paying for convenience, and we recognize that.”
There’s no shortage of people in Western New York like Peissinger-Venhaus and her husband, who choose to rent instead of joining the ranks of homeowners – even though a new study says that such a decision locally would only make financial sense if interest rates rose to levels not seen in nearly 30 years.
Every month, thousands of Western New Yorkers plunk down rent payments for homes or apartments.
And the market shows no signs of struggling. Not only are the owners of high-quality apartment buildings and rental homes able to fill their vacancies, but developers like Ciminelli and Ellicott Development Co. are adding new stock to the inventory, with waiting lists.
“The recent construction and conversion of apartments has been a wonderful, phenomenal addition,” said Isabel Robitaille, president and CEO of Robitaille Real Estate. “They’re being consumed as quickly as they’re being developed.”
Yet that seems to fly in the face of not only conventional wisdom in Buffalo – where the affordability of housing is legendary – but also economics.
According to a recent report by real estate research website Trulia, it’s generally much cheaper to buy rather than rent in almost every major metropolitan area around the country, even after mortgage rates rose by a full percentage point this year.
Trulia looked at single-family homes, apartments and townhouses on its website between June 1 and Aug. 31, and compared the average costs for renting and owning in similar neighborhoods. It factored in transaction costs, taxes and opportunity costs.
Nationwide, it’s 35 percent less expensive to buy, but that rises to more than 50 percent in parts of the Rust Belt Midwest, and as much as 65 percent in Detroit. Only in San Francisco, Honolulu, California’s Orange County and New York City is it nearing a point where renting is cheaper.
Much cheaper to own
Here in Western New York, buying a home was 32 percent cheaper than renting this past summer, Trulia says. That’s down from a gap of 45 percent a year earlier, in summer 2012.
And Trulia said the situation wouldn’t be reversed here – that is, renting wouldn’t be cheaper than buying – until mortgage rates hit 11.4 percent. The last time that happened was 1985.
“Recent mortgage rate and home price increases have made buying significantly more expensive than last year, but not enough to tip the math in favor of renting,” Jed Kolko, chief economist at Trulia, said in a press release. “Mortgage rates would have to reach into double-digits before renting becomes cheaper than buying.”
Such financial issues are the crux of the argument used by home sellers. Real estate agents assert that money spent on a mortgage payment becomes an equity investment that grows with time, while the same money spent on rent goes to the landlord.
“A lot of people don’t take the time to add,” said Hunt Real Estate Corp. broker Robyn Cannata, citing a $900 monthly rent that would total $54,000 in payments over five years. “When they see that kind of number, it gets them thinking.”
But that doesn’t sway everyone. Alex Sluyter and Tom Schmidt have lived at the Belesario, at 514 Main St., for seven years. Sluyter, a 45-year-old corporate finance and business intelligence specialist, has worked for Moog for 18 years and moved to Buffalo from Berlin in 2006. The couple rents a 2,000-square-foot, two-bedroom apartment, but has no intention of buying, Sluyter said, because he’s concluded it’s not beneficial financially. He declined to say how much they pay in rent, but the “list” price is $2,000.
“You have to look at the opportunity costs,” he said. “You can buy something fairly cheap. But I don’t believe housing is going up too much in Buffalo. So you’re better off investing in a housing market that is more lucrative, that would go up more.”
Sluyter said most people don’t factor in all the costs and the potential to do more with the money elsewhere. “Equity has to work for you. They’re simply missing the point that this money could do something for them,” he said. “It’s a basic economic miscalculation.”
David DePasquale, a 49-year-old commercial lender at First Niagara Financial Group, owned four homes in his life before downsizing to a condo at Ellicott’s Pasquale building. But with a child in college, the Western New York native decided in November to reduce his expenses by moving to an apartment at Bethune, where he pays $1,700 a month, while he rents out the condo for more.
“It’s not cheap. I can certainly buy a house for that. But I don’t want to own a second piece of property right now,” he said.
And like Sluyter, he doesn’t see it as a good investment. “In Buffalo, you don’t get the rise in value. It’s not like 10 years later, it doubles in price,” he said. “You pay on the mortgage. You pay the taxes. And at the end, when you go to sell it, it may not necessarily make you any money.”
Less hassle to rent
Much of the decision also is related to age and lifestyle. “Most of the people we rent to are younger people who haven’t got the money, nor do they want the problems of ownership,” said Tony Kissling, owner of Kissling Interests. “They don’t want grass to mow, trees to cut down, painting to do. They just want everything taken care of, so they can go take a vacation.”
Many people deliberately choose to rent because they don’t want to be locked into a house that they’d have to sell if they decide to move. That was one concern cited by Peissinger-Venhaus. “You don’t have to worry about trying to sell in a down market,” she said. “If you get bored with the area, you can move to someplace else in the city and explore that area.”
That flexibility and mobility is even more of a factor for younger renters, especially those fresh out of college starting out in their careers.
“When you buy a house, you have to stay there. Today, people like rapid change; they do not want to be tied down,” said Kevin Koszuta, a broker at Nothnagle Realtors PC.
Many of them are also already saddled with costly student debt, so adding a mortgage is not a priority. “These young career couples, fresh out of school, don’t have the means to jump into it yet, as much as they might like to,” Robitaille said.
Another reason people rent is because they want the newest and greatest features, or the veneer of living the high life, but can’t afford to buy a home in the upscale areas that have it.
Finally, there’s just fear. The thought of signing a 30-year mortgage with a six-figure debt is simply terrifying, even if the monthly payment is the same as the rent.
“It panics them,” Cannata said. “I remember telling a buyer his offer had been accepted for the home they were buying, and there was silence on the other end. I finally said ‘Aren’t you excited?’ He said, ‘I’m terrified!’ ”
As a result, local apartment owners have little trouble filling their space. Ellicott Development, for example, has 90 percent of its apartments occupied, with “really good demand,” said CEO Bill Paladino.
In response, developers are still adding new apartments, ranging from entire complexes to small buildings that are converted to a mixture of ground-floor office or retail with a handful of new apartments on top.
That’s a big change that Robitaille welcomes. She’s been in the relocation business for nearly 25 years, and had a hard time finding rental units.
“It was always, always a problem, because there was never the rental inventory to satisfy what these individuals were requiring,” she said. “The more they build, the better, and it’s great for the city.”