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I saw this comment from NYCMatt on another thread and it seemed interesting, as the implication was you can only afford a place around 250K price range if your income is $100K/year. I was wondering is this is true across the board? Or does it only apply to someone who has little to no savings for downpayment.
I am a first time buyer and it would really help me understand if someone or NYCMatt can elaborate on what is the minimum income required in today's economy, considering I'll be looking to buy a 1BR (700-800 sf) Condo in the 400-500K price range with 15-20% down.
NYCMatt said ( http://streeteasy.com/nyc/talk/discussion/18178-2-bedroom-apartment-in-harlem ): "Assuming he makes exactly $100K/year (and as a board member I don't care about his being a "rising star" blah blah blah -- just look around you, there are plenty of people who were "rising stars" who are now trying to get by on $430/week unemployment checks. I care only about what he's making TODAY), at BEST you can afford $250K."
Not really trying to put NYCMatt in a spot or anything, am just curious, that's all.
Well, part of it will depend on what kind of condo building you end up trying to buy in. If you'll be paying full condo property taxes (very high in NYC) and hefty maintenance (for doorman, gym, etc), NYCMatt's number may not be too far off.
However, if you end up with one of the places where taxes are abated (for 10, 15, 25 yrs) and with fewer building amenities, it could make a very big difference in how much apartment you can afford.
Still, assuming you're making $100k and it's just you (i.e. no one else to feed/clothe), you can probably spring high 300's.
i would say that the mortgage should be in the $250K range. with $100K down, that brings you into mid $300's. a small studio in Manhattan.
It depends on many factors: downpayment, interest rate, tax and maintenance amount, PMI (if your downpayment is below 20%), other debts (student loans, credit cards, other.)
A conservative approach is to keep your housing payment below 28% of your gross income, and total debt below 33%.
Many coops have their own formula and restrictions, which typically are even more restrictive.
If your $100K job is stable, and maintenance and taxes are under $500 per month, you can certainly afford $500K condo with $125K down. Morgage payment on $400k will be $24K per year. After tax deduction $20K. Add $5k maintenance and taxes. Assume post tax income of $65K still leave $40K. No savings of course.
Think about another way, Pretzel -- you can carry a mortgage debt of 2-3x income.
So if you make $100K, you can borrow $300K. What you can spend is then based on how much you want to put down; if you put down $70K, you can afford a $370K apartment.
I wrote a book about my first year as a real estate agent, and it has a lot of tips for first-time buyers -- I think you'd like it.
You'll find all sorts of calculators on line. But just do a little math yourself to get started.
Assume you earn $100,000. That's about $5800 take-home per month after you tax out taxes, med ins, a a little deferred comp.
You'll borrow $400,000 (put down $100K on a $500K place).
Assume here 5.5% interest for a 30-year loan which = about $2200/mo mortgage payment.
For monthly maintenance/carrying fees say $1000.
Utilities, cable-computer-etc, phone, homeowners insurance say $300/mo.
Total is $3500/month the apartment will cost you, leaving you with $2300/month for everything else in your life.
Set aside the question for the time being of whether a bank would grant you a mortgage or the board would approve you in a coop with these numbers. Do you want to live on $2300/mo? Maybe yes, maybe no. But this is the beginning of how you need to think about this. And into this calculation realize maintenance/monthly fees and insurance costs only go up--they are not fixed.
Thanks sledgehammer, that link was very useful. As per the link, it puts me in the 450-550K range, about what I had originally in mind.
Maybe NYCMatt got has some other reasoning to come about the 250K range?
"Total is $3500/month the apartment will cost you, leaving you with $2300/month for everything else in your life."
And any financial planner will tell you that paying 60% of your take-home pay for housing is absolutely insane.
No matter how you slice it, an apartment with a $3500 monthly carrying cost requires a minimum $140,000 income.
pretzel - NYCMatt has always been really conservative with his numbers for whatever reason. I interpret his #s as the ones to follow if you want to avoid the risk of not being able to afford your mortgage after being out of work for a year and going through your savings.
my wife and i just bought a place in the high 400s with 20% down and an income of less than 100K between us. However, our income should be at least 110K or much higher by the Fall. Many people here would consider this very risky on our part, however we have had some assurances from ppl that they would help us for the short term if necessary.
What makes your situation a little tougher is that you are the sole breadwinner, so if you lose your job then you are very much SOL.
"Many people here would consider this very risky on our part"
Not to mention quite stupid.
"NYCMatt has always been really conservative with his numbers for whatever reason."
These are standard criteria used by the majority of co-op boards.
I'm actually among the more liberal board members.
Whether or not such a mortgage is risky or stupid depends quite a lot on how much other savings a person has.
I think a mortgage of 3x salary (assuming reasonable maintenance/ccs) is as high as I would personally go, however. And that's if I had a lot of job security and extra cash.
NYCMatt and I disagree on plenty, but not this. The largest expenditure of your life should not be taken after playing loose with the numbers. If ever a prudent approach is needed, it is on this. Losing your job for 12 months should not cause you to lose your home. If it does, you shouldn't own a home. In my view, it would be irresponsible. Gambling finances on a home purchase is insane. No worth while independent financial advisor would counsel such a purchase. Engaging in a home purchase without running it by an independent financial advisor is reckless IMO.
kyle, your $5800 per month is unrealistic. when i was earning that, putting 10% into 401K, i only got $4500 per month.
Wow! Nice useful comments everyone, appreciate them all.
I like the conservative estimates of keeping housing payments to around 30% of my gross income. I do not want to extend myself, especially in this economy. I do think I have a stable job, but you never know.
The breakdown provided by kylewest was also very useful. It helps to break it down like that to get a realistic perspective on the new monthly payments post possible payments.
Thanks for the link to the book as well, Ali. I will try and check it out soon.
I was looking at buying something in either South Harlem (on FDB hopefully) or Williamsburg and a 1 BR would be good for me and my gf (we are both in early 30s). I would probably want to move to a bigger place in next 7-10 years, hopefully turning this 1BR into a rental. May not be possible but something I would love to do.
Thanks again for all your help :)
Thanks for clarifying that NYCMatt.
For the example that kyle provided, wouldn't I be able to get some tax benefits considering that for few initial years I'll be paying towards interest?
"You'll borrow $400,000 (put down $100K on a $500K place).
Assume here 5.5% interest for a 30-year loan which = about $2200/mo mortgage payment.
For monthly maintenance/carrying fees say $1000.
Utilities, cable-computer-etc, phone, homeowners insurance say $300/mo.
Total is $3500/month the apartment will cost you, leaving you with $2300/month for everything else in your life. "
Btw as an FYI, for my calculations I was also hoping to have some contribution from my gf, down the line towards the monthlies.
"For the example that kyle provided, wouldn't I be able to get some tax benefits considering that for few initial years I'll be paying towards interest?"
Tax benefits should never be factored into your ability to afford the monthly carrying costs.
"Btw as an FYI, for my calculations I was also hoping to have some contribution from my gf, down the line towards the monthlies."
Please tell me you're not planning on buying a piece of property with someone you're not married to.
Even worse, please tell me you're not seriously calculating affordability on the "hopes" that someone else will "have some contribution".
pretzel: you are correct that you'll see some money back for interest deductions. But consider that icing on the cake--not a major part of the calculus to rely upon because that can change overnight depending on what Congress decides to do. And realize, in the numbers I gave, I was probably low-balling it since the interest rate you get will likely be higher and your take home for now is probably less if you are maxing out your 401K as you should be.
DO NOT BUY with someone you aren't married to. Messy. Gay people largely have no choice on this which is another reason not being able to marry is so grossly unfair, but that is another thread. You have a choice. If you aren't ready to wed, you aren't ready to own together. Sounds like you weren't planning on buying together right now, but thought I'd toss in my two cents.
So your gf gives you money for the privilage of having a place to sleep with yiu and maybe get a shower afterwards. Bravo, bravo. You tha MAN!
"pretzel: you are correct that you'll see some money back for interest deductions. But consider that icing on the cake--not a major part of the calculus to rely upon because that can change overnight depending on what Congress decides to do."
And any tax benefit wouldn't be seen until the following calendar year, in your tax refund.
In the meantime, you have to front the difference.
Ok, thanks for clarifying the tax question.
I am buying a property for myself. It's a 1BR, so enough room for me and my gf. She btw owns a studio, which she purchased 9 years ago with a little bit of her parent's help. She plans to rent that out and move in with me when I buy my condo.
It's not a shared purchase, all the down payment will be mine alone. My gross annual for last year was 120K, hopefully it will be same or more next year if the NYC economy doesn't take a tailspin dive again.
I say it's a hope that she will have some contribution is only because her job is in the publishing industry which is not as stable as mine (I think).
Maybe I am wrong in my calculations as I am still trying to figure it out what will be the best route for me/us.
Matt, I'd think most people (well, me, anyway) would increase their exemptions when buying, so their withholding would be less. You've said you get a huge refund, so what's the story? Do you just like getting that chunk of money in the spring, as a sort of forced savings?
Forced savings on which the government is getting all the interest in the meantime.
Get her pregnant. That way shell be forced to support your apt purchase.
One lesson of the credit bubble which seems to have been forgotten on this thread is that many people tend to be over-optimistic with regards to their budgeting. There's a lot be said for erring on the side of caution. The banks know this and use this knowledge to their advantage when they calculate charges for say, over-draft which research shows nobody ever thinks they will use.
so...do you have a specific recommendation for the OP?
You *could* borrow $400K on a $120K income, certainly the banks will let you and condos don't care -- but you really are starting to push it. There's a reason that 3x is the upper part of my rule of thumb.
* For one thing, I think your utilities estimate is low at $300/month for everything -- maybe work covers your phone? I feel like my (smart)phone bill alone is $150 a month, and then there's cable and the two DVRs, etc.
* Second, at that debt level you don't have much money left over to furnish your home -- surely for a new apartment you'll want a new rug -- or for routine maintenance expenditures. Another rule of thumb: you'll want to spend about 10% of your purchase price on renovations, customization, and furniture, if you can. Many people spend less because they're so house-poor after the purchase, but if you can spend that extra 10% it truly feels yours.
Also, homes deteriorate -- for example, you'll want a new kitchen in 7 years -- so you need to budget saving for that as part of your monthlies;
*Third, at that borrowing level, the stricter co-ops are going to care -- they'll want you to keep your housing expenses at 25% or less of your gross, not at 30% -- so you're starting to restrict your purchase choices.
Hubby and I have certainly been much more leveraged than you are considering being, and the second income is a nice swing factor, but realize that generally every dollar you borrow over 3x income is going to hurt.
wow...i guess asking if you're ashamed is over the line?
NYCMatt calculations are not too far off. In such a bad economy you don't want to stretch your monthly payment so high, you shall allow yourself to save some money from your paycheck every month in case you lose your job.
Do you really want to be foreclosed on because you can't meet your mortgage payment with your unemployment checks?
Pretzel, If you are committed to a condo in the 400-500k range, I would suggest delaying and using the time to save an increased down payment. Prices are unlikely to run away from you and there's a lot be said for running a conservative budget.
The bottom line is, assuming a standard 20% down payment and 30-year fixed mortgage, on his $120K income Pretzel would be able to afford a $300K co-op.
Just because he *can* afford a more expensive condo doesn't mean he *should*.
There's a reason why co-ops have largely been insulated from foreclosures, and this is why: with starry-eyed home buyers over-extending themselves and greedy banks pouring them the Kool-Aid, with a co-op board, eat least there's ONE parent in the room.
Not to pile up on your dreams, but I just read your post again, and I just saw you're planning to put less than 20% down. Very bad idea in this environment, you will pay through higher rates and PMI for years. If I were you, I would try to save 40% of my purchase price: 20% for a downpayment, 10% for closing costs and minor move-in expenses, and 10% as cash savings for safety.
I think Kylewest is dead accurate (as usual). The affordability calculator is not enough to make a decision on- it's also dependent on what you deem important. BTW, that CNN calculator does not include common charges, which can be a hefty chunk of change every month- so keep that in mind.
A mortgage of two to three times your annual income was more in line with traditional lending standards- before things got all out of whack in recent years. Personally, I went with a higher ratio because I had no other debt, and I preferred to spend my money on my home rather than on lots of frivolous items or expensive trips. If I was more of a spender rather than a saver, then there is no way I would have taken on a larger mortgage.
If you like to go to expensive restaurants, take lots of fancy trips, need to buy the latest and greatest gadgets the minute they come out- then you might be better off buying a cheaper home or gathering a larger down payment prior to buying.
Hi pretzel - as we're recently going through this ourselves (combined income around $280k, 20% down, no higher than $700k purchase price) I just had a couple of thoughts. First of all, how much are you paying in rent? How much is your monthly payment going to increase (or decrease) if you buy? Second, if you have a lender that's letting you put less than 20% down right now, please let us know who it is :)
I actually disagree with some of the comments regarding the wisdom of putting 20% (or more) down. Even if it's more expensive (through PMI etc.) in the short-term, you obviously have more of your own capital on the line in your home purchase, which I have to say in a falling market is not necessarily...wise. If someone came by and offered us a reasonable PMI rate plus 10% down we would be all over it - we'll gladly take the hit on the insurance if it provides us with the opportunity to minimize our losses later on. This is after all an investment - short sale/foreclosure should really be a viable outcome should the downward pricing trend escalate.
tell me this is a joke?
Great plan, StreeteasyNewbie. Sell low. And ruin your credit at the same time.
Hi, I'm just starting my research with buying a co-op in NYC. I see that Kylewest's example includes "Utilities, cable-computer-etc, phone, homeowners insurance". Is this for the buyer's own information purposes only? Or do banks take that into consideration too?
Because I was under the impression that banks only use the "monthly mortgage payments monthly co-op maintenance fees" for MORTGAGE QUALIFICATION purposes. Am I wrong? Thanks in advance!
If the concern is minimizing losses later on you are already of the opinion that the condo is of questionable value and already preparing to put the property to the lender. Add higher monthly cost and it favors the rental option.
I mean, if you want to make an "investment" in what you think might be a falling market, don't pick a short timeframe on a 10x levered asset. LOL.
I agree with Miette. It's leverage which makes real estate risky.
That is truly a crazy way to look at it, Newbie. If you don't have the time and money to absorb ups and downs, just rent, it's much cheaper.
Sorry, I don't mean to mock. But this is a teachable moment. It's one thing to say, "I'm quite happily going to be in the place long-term, so I can ride out another 10% drop in prices without losing my lunch." It's another thing to say, "The minute I lose my entire down payment, I'm outta there!"
Buy some stocks or bonds with your downpayment money instead. That way if the relevant market goes down 10%, you've only lost 10% of your downpayment if you decide to sell at that moment.
"short sale/foreclosure should really be a viable outcome should the downward pricing trend escalate."
If there's a short sale or foreclosure & the lender has recourse, you will not be walking away unscathed.
IMO, best to keep your monthly housing expense at 25%-28% of your gross income.
That is such bubble thinking. Sorry, newbie, but that era is over.
It's not "bubble thinking" it's a way to mitigate against a falling asset. I mean really, why would you put up more of your own capital if you can pay a small premium not to? The reason that 20% downpayments are required by most lenders right now is that they want to come as close as possible to eliminating their exposure should prices decline another 20%. As the homebuyer, you are sitting on the other side of that quite unfavorable point of view.
Of course this only makes sense given a certain set of assumptions (e.g. reasonable PMI plus some probability that prices will continue to decline). It's sort of a moot point anyway because PMI basically doesn't exist right now because most lenders are selling to Fannie and Freddie, which require 20% down anyway.
I agree with the idea that you should have a long term outlook on a real estate transaction however as we all know, things don't always work out that way. I also agree that leverage is of course what makes real estate "risky" however, as it goes, if you're going to lever up...um...do it with someone else's money. I imagine this isn't a popular point of view on here, however it's how every corporation and successful business is run...as long as there is a safety net should your bet work against you. In New York, because of lender recourse, that safety net is less viable (so foreclosure is much more tricky although a short sale is still feasable).
Actually, 20% down was the standard prior to the housing bubble. During the bubble, people began referring to houses as "assets" and talking about them as if they were stocks. They aren't, and good luck getting banks to give you a mortgage with less than a 25% down payment these days, because the banks got burned pretty badly lending money to people who thought of their houses the way you do.
It IS an asset :) It's not a stock because obviously, it's less liquid, but it should be treated the same way as any other asset on your personal balance sheet. Actually, I think if more people thought of houses this way, the real estate market in NYC would be more reasonably valued, not less. If people viewed real estate through the lens of an investment for example, I think almost no one would buy in Manhattan because a reasonable return expectation (even for an all cash buyer) is probably less tha 200bps greater than simply putting their cash in a high yield savings account. When you do the math in Manhattan for a purchase that involves a mortgage, it starts to get really ridiculous, even if you intend to live in the apartment.
It's a good point though that 20% was previously the standard. But again, that's just because the lender wants you to carry the first 20% of the loss on the asset. If you can avoid this situation as the borrower, of course by all means...you should.
evnyc, you can still buy a 4-unit building for 3.5% down (maybe only 3%) -- and you don't REALLY have to have saved that anyway, as long as you make one of the units your primary residence ... I think only for the first year. However, in New York you're limited to a purchase price of $1,400,000. You can roll the closing costs and even PMI into the mortgage amount!
Truth stranger than fiction!
Oh, and I might add that the standard mortgage used to be 25-year fixed, and people would actually stay and pay it off until they owned their houses outright. I think 30 years became the new standard in response to 1970s inflation and simultaneous/subsequent astronomical interest rates.
Actually evnyc that's not totally correct. PMI used to be aplicable.
Newbie, it's true that in some circumstances it is rational for a homeowner to walk away from her downpayment and her mortgage -- i.e., if she is well underwater and can't truly afford the payments and and/or is almost certainly not going to see her equity recouped for a very, very long time. (I'll leave others to opine on whether walking away is a morally commendable act.) But most people would not view a 100% loss (the " " being the additional principal you've contributed in the meantime) as an acceptable "investment" outcome -- unless maybe the property was part of a basket of properties with varying rates of risk and return. If you think you'll have to sell soon, if you think you'll panic and sell soon even if you don't have to, or if you really think prices are likely to decline more than the percentage you're planning to put down and that they will stay down for the duration of your likely timeframe, don't buy. A 10% downpayment is a poor excuse for downside protection on your "investment." In essence, you're saying, "It's okay, at least I can't lose more than 100%." (Though you could, of course, because real estate is a relatively illiquid investment.)
pretzel, "financial problems" is one of the top two reasons why couples split.
Keep that in mind when you decide whether to be conservative with your budget.
Money cannot buy long term happiness, but the lack of it can make you miserable.
It's interesting that Pretzel basically asked if it would be ok to over-leverage him/herself, and that many people replied, in effect, "sure! go ahead and pile on the debt!"
Which is a strange mindset, and the reason we got into this big mess in the first place.
Pretzel, I say, no, don't carry more than $250k of debt on a low-six figure income. Because unexpected expenses come up all the time -- what if you need dental work? It's friggin expensive. What if you get sick and your medical insurance won't cover the treatment that you need? It happens all the time.
Besides, on a salary of a hundred grand, you ought to be able to do more than tend to your health, you ought to be able to take a modest vacation once a year, and occasionally take yourself out for a good time. By which I mean once every two or three months, a nice show, a nice dinner.
But if you're putting all of your available money into a mortgage, you won't be able to do those things. Living in New York is expensive -- just buying groceries here is expensive. Dressing to work in an office in Manhattan is expensive, even if you only buy stuff on sale. Restuarants in the city are expensive.
It's not prudent to pile up debt on the assumption that you'll always be able to cover it and still live a decent lifestyle. Cause it won't work out that -- there will always be things you will need to spend that money on besides a piece of over-priced, over-hyped real estate.
Rent instead. Wait for prices to come down. Sleep easy at night.
Lots of good answers on this discussion. I didnt read every single one so my apologies if Im repeating something. Coop boards have their own requirements and I think thats where nycmatt is coming from. But if we gathered all the information between condo owners vs coop owners vs single family home owners, I'd say we'd have the lowest default rate by a landslide with coop owners. With that being said although the guidelines by which coops follow are probably wise, I think everyone's situation is different. Everyone manages money differently. Quite honestly, a majority of my clients dont have housing ratios at 28% or below. And I dont recall having any defaults in the last couple of years. At least not that I know of.
Banks do allow your housing ratios to tread in the 40% range. That's not to say it a smart thing to do. But some people can manage that and theyre fine with it. Kylewest made a good point, you have to look at the numbers. What are your expenses going to be with your mortgage, taxes, insurance, credit cards, car payments, groceries, utility bills and then figure out what your take home pay is. Will you be comfortable with that?
Just stating facts here but a majority of my clients who make 120k assuming about $1000 carrying charges and approx. $500 monthly credit obligations usually get a mortgage between 350k-417k. So even at 500k and 20% down, you'd fall into the majority. Not saying this is right or wrong, just stating the facts.
streeteasynewbie-we allow up to 85% financing up to $729,750 loan amount. Assuming you qualify (credit, income ratios, etc.)and meet MI guidelines, of course.
Boy, newbie, you really are a piece of work.
Here is why your "plan" isn't going to work, and it's also why people blow up all the time: you cannot see the sources of your risk. With a 10% down payment on a $700K house, you're thinking you're getting an option on the upside for a $70K premium, right?
The problem is the following: prices remain flat for the next decade, an you've got a negative carry of $15K a year. In addition to this $150K, you pay out $70K in transaction costs, so you end up with a -300% loss on your "investment". Did you ever have the opportunity to limit your loss to $70K? Absolutely not.
The other thing you are missing is that it is the value of a decade plus of credit. If prices drop by 20%, leaving you with $70K of negative equity, will you default. I hope not with an income of $280K. As a rule of thumb, I think ruining one's credit becomes attractive for an amount that is on the order of one's income.
Combine the two things above, and you see why you are stuck with the loss in most scenarios. Even if prices drop 20% over the next 5 years gradually, you are still out $140K $75K on your $70K investment with no opportunity to stick the losses on the lender. At that point, your choices are to default for $70K of debt, sell for another $70K of transaction costs in loss, or keep feeding the alligator $15K a year.
NYCMatt - You said that your financing guidelines come from what is standard for nyc coops. Do you feel that the guidelines, are too strict, too loose, or just right? Obviously they are in place for the coops to protect themselves, but from my point of view, I feel like it makes it very hard if not impossible for a middle-class family (lets say ~120K income) to purchase a 2bedroom anywhere below 125th st.
Mmarquez, your question strikes me as somewhat odd. Regardless of coop standards, what two bedroom in Manh could a family with just $120/yr buy? It would be reckless at that salary to buy something that cost $500K and I don't know any 2 bdrms avail at that amount anyway. Say coops didn't have boards and such a purchase were permitted. A family over-leveraged itself with a 1/2 million $ coop and spending well over 1/2 its income on housing says to me the parents are out of their minds. In your example, thank goodness at least a coop board is there to smack some sense into these parents who would cast the financial stability of the family and ability to care for their children in an emergency (medical, job loss, special needs arise, etc) out the window to own a coop in Manh.
What people forget is that not everyone has the means to live everywhere. I can't afford 5th Ave over looking Central Park. I can't afford Most of Park Ave in the 60s, 70s, 80s. Is NY worse for that? No, but who cares--the market says you have to have a certain amount to live there and if I don't have that amount you won't hear me bitching and whining about the injustices of life. On a larger scale, some people frankly cannot afford to raise kids in Manh. That is the way it is. Not everyone can afford everything. All of us can't drive the best cars or take the best vacations or attend the finest schools. And not all of us can afford to live on one of the most valuable expensive desirable rocks on earth. People talk about how they can't afford to raise kids in prime Manh as if some birthright is being violated. I don't get it.
Sunny, thanks for that enlightening post. Are those guidelines for conforming loans, or are they also true for jumbos? I.e., do jumbos have stricter underwriting?
Thanks, kylewest. You nailed it again.
kylewest - yeah it was kind of an odd question in retrospect...I'm not trying to complain about the injustice of it, I'm wondering about the long term implications for the city. I think that it is bad for the city to not have a middle class living in Manhattan, which is where we are (or were) headed.
you stated the problem correctly---unaffordable housing but came to the wrong conclusion---overleveraging.
inevitably, if housing remains unobtainable, the price will have to come down.
I have to wonder how much more prices will drop. Nearly everyone has a vested interest in them not dropping. We don't really have a free market system, you could argue that the fact that coop boards can squash a deal due to a low price will keep prices them from declining further. Also, I believe that if prices dropped 10% further, you would have many people from the suburbs who always wanted to live in NYC jump into the pool.
I guess the key word is "unobtainable", but by whom?
perhaps it's obvious, but there is a market at work here. there is no evidence of co-op boards squashing deals although many posters here like to say it. the documented action that seems to be keeping prices from falling further and faster, based on you and others, is the continuing reach for leverage as an antidote for unrealistic prices. so many posters here provide evidence that people have forgotten that they are borrowing huge sums of money relative to their incomes and simply look at it as a monthly payment.
where is there any evidence that a further 10% drop will bring people back from the suburbs? there is clear evidence that people in the suburbs are having a more difficult time selling their homes than people in the city; if so, how will they manage to move back when the magical 10% is reached?
I don't think the occasional attempts to tweak the market can counterbalance the offer/demand equation. It may be a slow-moving market, since real estate takes months to sell rather than minutes, but what drives prices here in Manhattan is how well the top 10%-15% is doing. In the last year, I have seen enough people gobble up desirable houses with all-cash offers to realize that metrics can remain skewed for a while.
Many threads here talk about unemployment rate, or GDP growth as indicators of Manhattan real estate prices. Are they really? Maybe the psychological effect of reading about a "bad economy," but in reality, if your compensation is tied to profits (as a shareholder or a C-level executive or a banker), unemployment is good. It depresses the cost of labor, and supports higher profits. The effect of the economy or lending environment on high-end coops or condos would be virtually nil. The worse of the psychological uncertainty is behind us, so what's to prevent stable to rising prices, with dividend income and capital gains on the rise?
I can see why new condos on Fourth Avenue or the brown fields of Williamsburg or LIC (housing for us wage monkeys) would see price declines, but why should 740 Park Avenue? Their portfolios are probably back to mid-2008 levels.
The gov't can't keep interest rates low forever. Yuan/USD can't be pegged forever. Rent/buy ratios can't defy historical norms forever. Facts.
also, old cliche of "that which goes up [ridiculously high] must come down [and perhaps by even more than it went up].
the thought that unemployment is good for profits is a sad commentary on our inbred cynicism; rising top lines drive a lot more profit.
We have a global economy. Where once it was vitally important to have the "right" citizenship or nationality to guarantee a minimum standard of living, it is no longer the case.
Forever is a really long time. To impact my decisions, the market doesn't need to be skewed by the widening chasm between the have-more and the have-less. Even if continuing fiscal and economic policies maintain the momentum for another 20 or 30 years (a blip in that forever), Manhattan will be out of reach for my lifetime. I don't think it's particularly useful to tell people "wait 2 or 3 years for the market to turn around and make sense again."
the top 10-15% affect the volume and prices at the top end of the market. and i'm seeing far more purchases over $3mm these days (which will likely lead to better numbers and cries of it's over!). two years of huge bonuses seem to have convinced those at the top that their incomes are relatively secure, no matter what.
but that is one segment of the market. 90% of apartments don't fall within that luxury category. and we saw incredible price appreciation in Tudor City studios, Yorkville 2/2s, walk-up one bedrooms in the East Village.
just take a look at the listing histories for the condos that started closing in 2004. the number of units for rent and resale in many of them is simply amazing.
this ride has only just begun, i'm afraid. there's no political will, and no money unless newly printed, to bail out the states. and our fine state, while not in the same shape currently as illinois, california, and new jersey, isn't doing very well at all. many of the developed countries are being forced to cut their public spending dramatically, and china and india are in no position to pick up all the resulting decreased demand.
The Middle Class drives this economy and will drive us out from this depression. Unfortunately, if it takes 30 to 40% of Middle Class Gross income to pay for Housing, it doesn't leave sufficient discretionary income to boost consumer spending which will lead us out from this crisis. Things would be much simpler if housing cost 40% less that it currently does.
AR, I am talking about about the top 10-15% HHI, not the top 10-15% of the market. This segment of the demographics controls over half of the market in Manhattan. I know quite a few trust-fund babies who live in walk-up 1 or 2-bedroom in the East Village or Williamsburg. The purchase price is not determined by their salary working in publishing or not-for-profit. In that sense, the S&P is more relevant to determine a budget.
I am not arguing this is the reality of the entire market, but it certainly affects how the metrics might or might not be relevant.
I can determine a reasonable value using comps, equivalent rents, interest rates, but it's rather pointless if someone can just throw an extra 10% of pure consumption pleasure on top because they can.
columbiacounty - I don't think it is stretch to imagine that there are people in the tri-state area that raised their families in the burbs for the past 20-30 years and now want to move back. They've seen huge appreciation on their properties during that time. 100, even, 200% in some areas. So now the market is down 50 or 60%, even selling today at that level they'll make a huge profit. So they decide to move back to the city because they enjoy not having to drive everywhere and feel like closer amenities will make it easier as they grow older. Also they know Manhattan is pricier, they've always wanted to live there, and it is currently down, so its the old "buy not or be priced out forever".
I know that I have no evidence to support this, or regarding coop boards stopping deals due to low prices. However I don't have any evidence contrary to this either.
Maly: but this has been the case for the last 10 years, and the rent/buy ratio has been more favorable at various points in those last 10 years. So how do you explain that? And not insignificant differences either. Was the UWS less desirable in 1999? If anything, we were living in way more ebullient, happy times. How do you explain the fact that a 2-br was more than 50% cheaper than now?
MM: you are saying that things are different now than before. Which I don't agree with. And I'm an owner, so I should be bullish. I'm not.
wow, what a great thread. to go back to the OP, so much depends on your maintenance and your mortgage rate. i put down 20% and bought a 2br co-op last sept for 499k (prewar, large living room, small bedrooms, EIK, i'm very happy blah blah blah) and i make a little over 100k. HOwever my maintenace is only $300 a month, my rent-to-buy ratio is GREAT (my total monthly layout is about $2400), i can sublet anytime, and i have $100k leftover in savings and IRA's. i can also stay at my family's house in queens for free if i ever needed to. so, maybe i'm an exception. but it's not impossible.
Well "better" is a broad term, but yes, from an upper-middle-class perspective, the uws is much better now than in 1999.
It's safer, cleaner; the public schools are stronger, Central Park is much improved in terms of access, services, playgrounds, safety, cleanliness. The likeliness of stumbling upon strangers having sex or drinking/smoking has decreased greatly. Subway service is also much better, for reliable, safe transportation to/from work and schools. I could go on, but you get my drift.
i think you're off by at least 10 years. by 1999, the UWS had already turned the corner.
CC, the uws was already safer in 1999 than in 1990, no doubt in my mind. However, it is also true that it is much safer, cleaner, "better" now than in 1999. I just looked at compstat, and found the perfect illustration for my post. In Central Park, in 1990 there were 44 Felonious Assaults, in 1999 there were 21, by 2009 there were 6. For murders, the numbers are 6, 3, 0.
30% of gross as a rule of thumb - if you make $250k/yr (wealthy according to the gov), that's $6,250 per month that you can spend on housing, with an interest rate of 5% you can afford a $1,163,873 mortgage.
An adjustment is needed to take into account maintenance/taxes/other housing costs. Lets say appx. 1500/month, that means a family earning 250k can afford a $884,544 mortgage assuming 5% interest based on the 30% rule. If the interest rate is 5.5% the mortgage goes down by roughly 50k.
I almost feel like the 30% is too aggressive and a lower, more conservative percentage should be used. Expenses and income taxes in the city are substantial, especially if you have kids to bring up. So it seems to me you need to make significantly more than $250k to afford a million dollar apt in the city, or have a decent amount of cash on hand OR have a very, very secure income stream that is expected to rise as the years go by. Am I being overly conservative here?
not to beat a dead horse but...the difference of 15 assaults in a year is only material if you are one of the unlucky 15.
a_g, the traditional rule of thumb for housing (not buying, not investment wisdom, not mortgages) was 25% max. 30% has been used as a rule of thumb for "affordable housing" programs, but that should be seen as pain-sharing. Beyond that, if 30% has become reality for many people, it's only workable at the lower end, due to progressive income taxation.
On the other hand, discretionary income percentage increases wildly as income rises.
Still, 30% is not a healthy "normal", or even maximum.
I thought 30% sounded excessive. But if I understand your other point, you are basically stating that once income increases the amount you have for discretionary spending increases at a disproportionately larger rate, which could allow you to spend more on housing costs.
Cc, I disagree completely, both on style and content. My illustration went to degrees of improvement of the feeling of safety and convenience between 1990, 1999 and 2009, not about the absolute number of felonious assaults in Central Park. That was tangential to dishonest on your part.
Second, a crime victim is not alone in suffering the loss of safety or well-being. Violent assaults do not happen in a vaccuum, and correlate with other crimes, both less and more serious, and affect the community around the victim (first-degree friends, family, neighbors, co-workers and to a lesser extent 2nd and 3rd degree.)
Maly, I agree with CC. I was here in '99 and it felt just as safe then. The diff. in statistics is small as well. If anything, things were better in '99 (better diversity of shopping, more charm, less crapitecture).
And if you talk about the mood in the city, 1999 was WAY better.
And I find the streets of the UWS dirtier today than ten years ago. Broadway, anyway.
lets call it a wash...no better, no worse. and, even with the drop, how much more is uws real estate worth today?
I too lived here in 99, and with my anti-nostalgia glasses, I can see past the haze of golden youth. It is much safer now. Public schools are much better. No one has found a dead girl cut up in a garbage bag for at least 10 years in my neighborhood. That was my welcome to NYC 12 years ago: bits of dead girl in a bag 3 blocks from my apartment and armed robbery of the local coffee shop (owner and 1 employee killed). The old timers said it used to be worse before, not to worry.
I certainly preferred the happy-go-lucky feel pre-9/11 and busted Internet startups, but that's neither not there.
here's an article on a double murder in 2009 on UWS.
i don't see how this makes it any less safe for everyone else. apparently you had a really bad experience 12 years ago....sorry, but that hardly supports the generalization about the subways operating better.
Until Giuliani Sherman square was known as Needle Park. It's gotten better.
I can see why your posts are greyed out. There's misunderstanding, and then there's dishonesty.
Last answer and you're back to the rubber room: I didn't have a bad experience, I thought it was exciting and fun and gruesome and scary. I haven't said crime has completely disappeared, just that it's 40-60% below 10 years ago, and that it's a huge difference. It's not about anecdoting ourselves into the story, it's about statistics that bear out this change all over the city.
That movie was from 1971 (seriously before Giuliani), and was a work of fiction. If there were ever really heroin addicts congregating at Sherman Square, it ended in the mid-1970s. I suspect, though, that the name actually came from the shape of the park (before its recent annexation of the adjacent Bway-Amst switchover road).
Incidentally, you'll often hear that both Bryant Park and Union Square "used to be known as Needle Park", and at least one or two other Manhattan parks.
My guess is that Tompkins should have been given that name.
My guess is that the Giuliani Disinformation Machine is hard at work.
I think how much you can afford to spend on an apartment is to some degree an issue personal judgement. Obviously, very liberal thinking with this can/has gotten many into trouble.
However, not all of the well to do people in the world have regular salaries or consistent work. I've to this day, never had a regular job and have always made my living as a freelancer. Sometimes I make a lot of money and sometimes I don't, but I was able to save over the years enough to put 20% down on a condo. I also own a college rental property which has done pretty well (although I bought pre-bubble). My monthly housing costs are probably a bit high for what most would call comfortable but considering my lifestyle, it is a good way to build assets.
aptdude, do you find the college population to be reliable tenants? Do they routinely announce every May that their mothers have terrible diseases, and they need to break their leases? And what sort of college/town are we talking about?
i went to college on the UWS from 98 - 01 and lived there from 2000 - 2002 (in an apt, not a dorm) and did not feel unsafe at all. yes, the crime stats are better now and "QOL" is improved, certainly Giuliani's idea of QOL, but not mine. the trade-off far outweighs the benefits: there is dirt but no "grit," NY characters and families that were here for generations are being priced out and replaced largely by... Eurotrash? as someone else said, broadway is a strip mall. getting your kid into a good school was not exactly the olympic sport it has become today. many reasons but above all, what NYC10023 said - "if you talk about the mood in the city, 1999 was WAY better."