Should You Buy or Rent?

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"I thought it was crazy the prices people were asking for, and more crazy that people were paying [them]," he says. Jaecks rented a one-bedroom apartment, paying $950 per month, and after searching for years, in April 2010 he bought a three-bedroom house in the suburb of Bloomington for $187,000. The house had previously sold for $275,000 in 2005 and was relisted at $224,000. "Prices may go down for another year or year and a half, but interest rates will be going up," he says. "I bought in the ideal situation."

Even in a city as expensive as New York, some argue now is the best time to buy. Neil Binder, principal of the Bellmarc Companies, says that for those who can afford to own, renting is not the better option. "Not with 5 percent interest rates. If we had a different market, and prices were higher, and interest rates were higher, it would be a different story."

Don't Be Shy About Negotiating

For the millions of New Yorkers who can't afford to buy, or choose not to, renting in the city offers other advantages. Many developers overbuilt during the boom; rather than be stuck with empty apartments, many have been willing to negotiate rent reductions and shorter leases. According to Miller Samuel, the average rental for two-bedroom units in Manhattan dropped 6.6 percent year-on-year in this year's first quarter, although brokers expect overall rental prices to stabilize for the remainder of the year.

Of course, many considerations other than price are involved—many see the flexibility of renting as a major advantage. Beth Sievers, a sales representative at the New York brokerage Bellmarc Realty, says one client who recently sold his Midtown co-op decided to rent instead, in order to stay liquid while he started his own business. He also wanted to avoid the difficulties that come with being approved by a co-op board, she says.

Another consideration: Renting might also be a better option until the economy fully recovers. "For most people, now is not a good time to buy, for lack of security in people's jobs," says Mike Colpitts, editor of real estate forecaster Housingpredictor.com. While most analysts believe the New York market will stabilize, depending on employment, Colpitts holds a contrarian view: He expects housing prices in Manhattan to deflate by 13.8 percent this year as more foreclosures enter the market and properties remain overpriced.

Jerry Weigand, a commodity broker, also recently switched to renting after selling his Upper East Side apartment. He now lives in a two-bedroom unit for $6,500 per month. A newlywed, he says he and his wife wanted to try a different neighborhood. Their decision to rent was driven more by the desire for a new experience than by economics. He says they will look to buy again in a few years. "I do feel that prices have a little way to go down, but not by a lot," Weigand says. "And I don't think they will rise by a lot like they did a few years ago."

Wong is a lifestyle and real estate reporter for Bloomberg Businessweek.

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