Lease renewal
We’ve just signed a new 1-year lease on our apartment. The rent didn’t change, and so there wasn’t much incentive to look for another place to live. What would cause us to look more seriously (as opposed to the non-serious sports-pages way New Yorkers continuously look at real estate)?
Our thinking was that a rental was definitely what we should do for the first year in Cleveland, because we didn’t know the city and we shouldn’t get stuck owning a house without being familiar with local conditions first. Downtown Cleveland seemed a good fit for New Yorkers, and it’s turned out to be the right decision: the location straddle the places of interest around the city looking east and west (ten or fifteen minutes away from the Hospital with many alternate routes in case there are problems on the highway; midway between shopping centers; judo to the west, aikido to the east; Westside Markets a quick drive away; interesting places to walk to when the weather is nice, quick airport access, etc.) Though we like the location, we’ll still move, if conditions change.
Financials are an obvious possible condition. Rent hasn’t gone up for us, though rent in the neighboring Bingham seems to have increased by at least 7%, which seems unsupported in the Warehouse District housing market, where “apartments available” placards sprout up on the sidewalks nearly every weekend. Perhaps they’re justifying it by arguing that, when tenants signed a year ago, the project was much less complete than it is now (so more amenities are currently available): we saw the building a bit over a year ago when we were looking for apartments post-Match, and the entrance was a construction zone, Constantino’s Market was almost a year away from opening, the was much raw drywall in and around the sales office, etc. Established residents of the Cloak, in comparison, have had a new construction site open up next to us; and we’ll be living with it through the year at least.
The future of the neighborhood should also be brought up. This is still thought of more as a nightlife/entertainment district, as these articles show (they talk about the death of The Flats, too, as a cautionary tale). If the entertainment side implodes before the residential side becomes fully established, what happens? This is arguably more an issue for prospective buyers of Warehouse District condos, though, as renters would have more flexibility to move, given that any sort of implosion would take a few years.
Rent considerations are only one side of the financial picture, as house prices in, say, Cleveland Heights may be attractive. (Arguably, they’re really not two sides of the financial picture, but rather a set of prices for a variety of the same thing, housing. I acutally don’t buy into the homilies about purchasing a house to build equity, or that renting is flushing money away: there will ba cost of housing that will appear in different forms — overtly in rent, covertly in mortgage interest and opportunity costs of freezing your money in an illiquid asset — but that cost will always be there. And renting may be cheaper than buying, as we see in this Wall Street Journal article comparing the cost of renting to owning.) We’re paying $1500 plus parking right now for a 1900 square foot apartment. Assuming average investment returns of 6% and property taxes of about 2%, the equivalent house would be around $250K (Yes, I’m ignoring tax effects. I’m assuming that the tax effects will wash out with the costs of ownership I’m not thinking of, like contracting to have a guy drive by with a plow during the winter, so Grace won’t get bogged down in the snow at 5AM when trying to get to the hospital, or the risks of facing a furnace or roof replacement.) There are clearly houses available for less than that, so this is always an option, though perhaps not a compelling one right now.
The reasons I don’t find the available housing stock compelling is that, while the Cleveland area isn’t obviously in the throes of a bubble (For those who believe that real estate prices can’t fall, we have the examples of the NYC real estate bust in the late 1980s and early 1990s. Prices took close to a decade to recover, but have boomed since. And there’s the example of Japan’s long and terrible hangover from its real estate bubble of the 1980s, from which it has yet to recover: 80% declines in prices!), a nation-wide collapse will still have an effect here in terms of general economic conditions. Our timeline for Cleveland isn’t actually that long: four years of residency and possibly a couple for fellowship, either here or elsewhere. This would probably put us in the middle of the bust for when we’d like to sell. Note that Cleveland’s house prices probably won’t go down that much — they haven’t risen much to be knocked down; there are indications that the demographic decline in the area is slowing in that Cleveland lost fewer people than before; there are indications that Northeast Ohio might be the focus of biotech entrepreneurship given the two hospitals — but houses are particularly illiquid around here. There are tales of taking six months to a year to sell a house, which is a long time to have assets tied up when we’d be adjusting to a fellowship or staff position elsewhere.
So many things to consider. But the rent hasn’t changed on the new lease, so we’re not in a hurry to make this sort of decision.