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Stay? Or Rent? Experts say they can't predict the real estate market, but some homeowners are selling, renting and hoping to buy... low?BY RANDI F. MARSHALL, STAFF WRITER Newsday Long Island March 3, 2006 Ray Smith knew the heyday of real estate had to end sometime. So last fall he and his wife, Michele, sold the five-bedroom Port Jefferson home they bought in 1988, getting $856,000, or more than 2 1/2 times what they paid for it. But then the Smiths made a fairly unusual move. Instead of using their profits to buy another home, they chose to rent a house in Stony Brook, paying $2,700 a month on a one-year lease that gives them the option for three more years, if they choose to stay. A bit like a short-seller in the stock market, Ray Smith, 48, is betting the housing market will falter. If and when prices come down, he's hoping to get back in the home-buying game.`` Although that's not a new trend, some homeowners are making the decision to cash out and become renters again, as they consider a market in flux and prices that appear to be moderating. "I think I sold at the peak," said Smith, a lieutenant with Suffolk County police who has two children, ages 4 and 7. "The more I looked at the numbers, I said, 'This can't go on forever.'" Not an easy decision It was not an easy decision to make, especially because Long Island lacks a significant supply of rental property, making the search for the family's next home more difficult. Nearly six months later, however, they're pleased with the decision. "Now all of a sudden, we have money for things like furniture instead of constantly living with credit cards and debt," said Smith, who has paid off what the family owed and invested some of the money in a mix of stocks and bonds. At a time when housing inventory is on the rise and homes are staying on the market longer, the debate over the market's path has intensified. Some suggest it will simply "normalize," with prices still rising, but at a far slower clip. Others, however, are expecting a far bigger downturn. Just as they disagree on the potential for future ups and downs, experts and homeowners differ on whether it's a good idea to sell now - potentially at the top - and then rent. It's a theory that has failed for some in the past, especially when prices kept rising after they sold, but might work now. "If you don't have to buy immediately, it really is a good time to put your money in a high-yield account and wait for the right opportunity to strike," said buyers' agent Beth Marten, who heads the Home Buyers' Resource Center in Baldwin. "I think they [sellers] are going to sit on the sidelines and possibly rent for a while. "That's not good news for Marten, who represents home buyers in the transaction and has seen a slowdown in business because of the shift in the area's housing market. Even with the advantages, it's not a simple decision to return to renting after years of homeownership. There are financial implications, with the lack of home equity and the mortgage-interest tax deduction, and there are more emotional issues, too, since people often consider renting a step down from owning. That, however, may not be as big of a factor as it once was. "The American dream of owning a home is no longer the priority it once was," said Sayville financial planner Jack Chite, with J. Chite & Associates. "There is a trend among some people who feel renting and being unencumbered is the way to go." Nonetheless, Chite argued that the financial issues should outweigh the emotional ones, leaving home ownership as the better way to go as long as the tax laws don't change. To be sure, there are additional risks. If prices don't fall, those renters could miss out on significant additional profit they would have received. "You can't time the market, whether the stock market or the real estate market," said Bob Moulton, president of Americana Mortgage Group, a Manhasset mortgage broker. Moulton said he has clients who sold their properties early in the boom and decided to rent, only to see the homes they sold now worth far more. For those hoping to buy again in the years to come, there's also a risk that interest rates could rise significantly, leaving them unable to afford as much house as they could have now, when rates are still relatively low. A game of chance "It's a game of chance," said Kate Rossi, president of Coldwell Banker Residential Brokerage, which covers Nassau, Suffolk and Queens. "There's no benefit to renting other than throwing your money away. .. . And money is so affordable right now that it could be a missed opportunity." Some homeowners, however, aren't worried about buying again in the future. They're getting out of ownership altogether. Take Beverly Slott, who now lives in a rented apartment in Rockville Centre, sold her home in Oceanside last July - a home she bought 47 years ago for $16,000. Slott said she made more than $100,000 in improvements to the house - and more than quadrupled that investment when she sold. Although Slott wasn't thinking about the housing market realities, her son, Rockville Centre certified public accountant Ed Slott, was. And he backed his mother's decision the whole way." What are you going to do - buy another place that's highly overpriced?" Ed Slott said. "It seemed better to invest the money and rent." Slott said it's an especially good idea for older homeowners who don't want their large houses anymore and would like someone else to take care of the maintenance. Before, those homeowners might have bought in a retirement community; now many of them think renting is better. And he noted that since the tax laws changed nine years ago, there are no longer any tax implications to a homeowner's decision to sell and then rent. The decision to rent may be a particularly wise one for those who have seen significant gains in the values of their homes, experts said." For certain people as sellers who have seen huge appreciation ... it's that time where, yes, get out [of your current home], go rent an apartment and call it a day," said Michael Grabelsky, a sales associate with Halstead Property, who specializes in apartment sales and rentals in Manhattan. "I would not recommend it to someone who bought their apartment only two or three years ago." Others suggested geography is a factor. In Manhattan, the trend might make sense, since the rental market seems to have better deals. But on Long Island, with high rents and far less rental supply, it might not make as much sense to sell and then rent, Chite said. If a homeowner is planning to leave for a lower-cost area, the plan might work, he added. Even within Manhattan, it seems location is key to the decision-making. Jeffrey and Lori Paige sold their Upper East Side apartment last July for $940,000, when they determined they wanted to leave their neighborhood, at East 93rd Street and First Avenue, but stay within their school district." I'd like to say I'm brilliant, but part of it was dumb luck," said Jeffrey Paige, who is a real estate attorney. "It seemed like the right time to make a move. ... The signs were there that the market was changing a bit." But Paige quickly realized he couldn't buy the space and neighborhood he wanted with the money he had. So, he rented an apartment at East 86th Street and Second Avenue. Paige is spending $4,300 a month on rent, but plans to purchase again when the time is right. "Ideally, I'd find something tomorrow I could buy, but I don't think I'll be able to - it'll probably be in the next two to three years," he said. Some strategies Of course, there continues to be disagreement about the best strategy. Rossi said no investment beats housing. Chite argued that over the long term, the stock market does better, as long as you have some risk tolerance. Martin Blumberg said he isn't sure he's willing to take that risk. While Blumberg, 64, and his wife, Maxine, 60, have been thinking about selling their Woodbury house, he said they can't afford to buy the condominium they'd want because of how much apartments, too, have appreciated. And they're not sure buying is such a good idea right now, since the market is shifting. But Blumberg, a partner in an auto parts company, said he is worried that if they choose renting, the housing market will continue to rise - and the stock market won't keep up, leaving them with a potentially bad decision. "If the bubble doesn't burst, we're going to find that we're paying rent and were in better shape before we sold," said Blumberg, who estimated that his home is now worth as much as $1.7 million. He paid $250,000 about 20 years ago. "I don't want to take the risk." But Blumberg admitted the advantages of renting still tug him, especially considering the money he'd save on upkeep and heating. And if Blumberg were as sure about the market as Ray Smith, the police lieutenant, he might be convinced. Even if the market doesn't collapse, Smith said he thinks he made the right decision. But he said he is expecting prices to drop - and then he expects to reap the benefits. "The market could fall 40 percent. If something went from $360,000 to $850,000, why couldn't it come back to $500,000?" What's for sale Here's a comparison of real estate inventory and selling prices in 2005 and 2006. Residential inventory Percentage increase from 2005 Nassau 2005 4,005 2006 6,689 67.0% Suffolk 2005 5,993 2006 9,825 63.9% Queens 2005 4,141 2006 6,956 68.0% Median selling prices Percentage increase from 2005 Nassau 2005 $445,000 2006 $480,000 7.9% Suffolk 2005 $365,000 2006 $390,000 6.9% Queens 2005 $400,000 2006 $485,000 21.3% NOTE: All data are from January of year listed.Percentage increases are rounded. SOURCE: MULTIPLE LISTING SERVICE OF LONG ISLAND Copyright 2006 Newsday Inc.
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