Patrick Lee went from homeowner to home renter this year.
It may sound like a downgrade, but the New Yorker didn't make the switch because he couldn't keep up with payments or because he lost his job. Instead, Lee was nervous about the state of the housing market.
So in March he sold the Manhattan apartment he bought in 2008 for about the same price he paid and moved — along with his wife and child — a few steps away into a luxury, two-bedroom rental unit in a brand new building.
Lee wouldn't disclose what he's paying, but similar two-bedroom apartments in the building usually rent for $11,000 a month.
“I wanted to protect ourselves from prices going down,” says Lee, who is a managing director at a major bank. “I didn’t want to be an owner anymore.”
Lee has company. Demand for luxury rental units has increased as wealthier individuals who can afford to buy are deciding not to, according to brokers and real estate analysts in affluent areas of the country such as New York City, Chicago and San Francisco.
“More affluent Americans are opting to rent as oppose to buy,” says Jack McCabe, an independent real estate analyst and CEO of McCabe Research and Consulting in Deerfield Beach, Fla. “Within the last year, so many people have seen their family and friends get burned in real estate. They don’t see it as being a risk free investment as they used to.”
And they're paying top dollar to rent.
In Manhattan the demand for high-end rentals has never been hotter. In the third quarter of 2010 there were 200 new leases signed for rentals charging $10,000 a month and up, more than double the 89 leases signed the year before, according to Jonathan Miller, CEO and president of New York City-based real estate appraisal and consulting firm Miller Samuel.
What’s considered luxury in New York City? Currently on the market now at The Corner, Lee's new address, are a couple of three-bedroom apartments ranging from $14,800-$20,000 a month. At The Anthrop, another luxury building in Manhattan, a 3,331-square-foot four bedroom unit rents for $18,000.
Miller says that while high-end sales have picked up recently in Manhattan, the increased demand for luxury rentals shows that more would-be buyers are concerned and taking the “wait and see approach.”
The demand is also being seen in Marin County, right across the Golden Gate Bridge from San Francisco.
Last year, the phones at Foundation Rentals & Relocation office were ringing constantly with high-end homeowners wanting to rent property that they couldn’t sell, but no one was interested in renting them.
Now the firm is getting calls from executives, especially in the technology sector, looking to move into a rental.
“They’re entrepreneurs. They would rather put their cash in their business,” says Darcy Barrow, who founded the firm with her husband Christopher Barrow.
“And get a greater return,” adds Christopher.
This year, the firm handled a rental house with an 8-car garage for $12,500 a month. Another 6,500-square-foot, five-bedroom home is renting for $11,900. They also have a 2,658-square-foot town houseon the market, boasting views of San Francisco for $7,000 a month.
“When I tell people I rent homes for $10,000, people ask, ‘Why would anybody rent at that price?,’” says Darcy. “They’re accustomed to a certain lifestyle. Just because they choose to rent, doesn’t mean they’re going to rent a two bedroom.”
In Chicago, Aaron Galvin, the broker and owner of rental agency Luxury Living Chicago, says that he has rented 30 percent more luxury apartments in 2010 than last year.
Luxury in Chicago means anything over $3,000 a month, and a building with amenities like granite kitchen counters, stainless steel appliances and washing machines and dryers in the unit, says Galvin.
A recent client sold a multi-million dollar home in the suburbs to move into a rental building, waiting to buy a property until she got a feel for the neighborhood.
“The cachet that came with owning seems to be gone now,” he says.
The same is happening in south Florida.
Chris Wells, a broker working in the Palm Beach-Boca Raton-Coconut Cove area, says he has seen “skepticism” from would-be buyers, who ultimately decide to rent a home before making a purchase, easily spending about $8,000 to $15,000 a month, because they are waiting to see if home prices continue to fall.
“In Florida, we’re really not out of the recession yet,” says McCabe, the analyst. “There is no urgency to buy.”
Lee says that he’s the first of his peers to make the switch to renting. But that doesn't mean they don't want to.
“I suspect a lot of people are underwater and can’t get out,” says Lee. “A lot of people are just stuck.”
He says he doesn’t regret selling his apartment and moving to a rental, especially since the building he lives in has all the amenities and handiwork of his previous place. And he can rest easier knowing that if he has to relocate for his job, he can leave without having the burden of trying to sell an apartment.
“With so much uncertainty,” says Lee, “It gives me a lot of peace of mind.”