For those who believe investing in the S and P is better than buying Manhattan RE

Oh I forgot to say you get to live in it as well. Well time to have the brewski on the terrace tonight.

oh I forgot about the tax deductions as well

I was wondering how accurate this chart really is.

Note the little box in the lower right-hand corner: There does not appear to be a correlation with the Dow Jones Industrial average, but we provide the chart because it is requested so often.

This is why spunky is dumb: "I beleive this chart says it all" when the chart itself says it's meaningless.

LOL.

Moreover, it's the "average" sales price - skewed by a few very expensive apartments - versus the more accurate still median sales price, versus the more accurate still price of the same apartment over a period of time.

The chart doesn't say it's meaningless. It says there is no correlation (ie. when the Dow goes up it doesn't necessarily imply housing will go up). The chart has plenty of meaning if you read it.

Actually stevejhx if you read the link below investing in Manhattan Real Estate proves to be a much better investment than investing in stocks. Just curious about your comments on this one.

http://www.themortgagegeek.com/Downloads/Presentations/Condo_vs_Dow.pdf

excellent article houser very enjoyable reading.

houser, I am absolutely certain that if you start from 1997, that will be the result. And that is also the problem.

joepa, if you plot two variables on the same chart overlaying them using the same scale, you are attempting to show the correlation between the two. It has no other purpose. When the chart itself says there is no correlation, just because the lines appear to move in one direction or another in tandem, do not mean that they are correlated.

Basic statistics.

You can certainly make a chart to show more than just correlation. This chart is a perfect example. The Dow and housing are not correlated, yet the chart still shows that housing outpaced the Dow. So the chart demonstrates how one asset outpaced another - even though there is no correlation between the two assets.

stevejhx well you pick a time and I'll plug the numbers in and see what we come up with. What year would you like me to start stevejhx.

Another example would be if we chart your iq since birth with my height. Although they are not correlated, the chart would show how my height outpaced your iq.

joepa, you make my point: they're not correlated, so just because they behaved in one way in the past does not mean they will behave that way in the future.

I assume your weight is far in excess of my IQ.

"Actually stevejhx if you read the link below investing in Manhattan Real Estate proves to be a much better investment than investing in stocks. Just curious about your comments on this one." houser

http://www.themortgagegeek.com/Downloads/Presentations/Condo_vs_Dow.pdf

"houser, I am absolutely certain that if you start from 1997, that will be the result. And that is also the problem." stevejhx

"stevejhx well you pick a time and I'll plug the numbers in and see what we come up with. What year would you like me to start stevejhx."--houser

notice how stevjhx purposely evaded this request now I know why stevejhx is referred to as a weasel

"2) The S&P 500 increases at a real rate of 8.0% per annum.

These being true, it is ALWAYS better to rent property than to buy, if you invest the down payment in the S&P 500."

steve, I was wondering if you were thinking about the correlation of the S&P and real estate when you made these comments?

houser, it is well known that property prices fell by around 25% from 1987-1998. The S&P 500 rose at an annual rate of 16.50% from January 1, 1987 through December 31, 1998.

http://www.moneychimp.com/features/market_cagr.htm

For a total price increase - just capital gains, not dividends - of 393%.

You lose.

Spunky: "I beleive this chart says it all.
http://millersamuel.com/charts/gallery-view.php?ViewNode=1168395557MyEfJ&Record=5"

Steve: "Note the little box in the lower right-hand corner: There does not appear to be a correlation with the Dow Jones Industrial average, but we provide the chart because it is requested so often."

This is why spunky is dumb: "I beleive this chart says it all" when the chart itself says it's meaningless.

LOL.

juiceman, I wasn't, because they are completely uncorrelated. See Spunky's chart for the DJIA:

http://millersamuel.com/charts/gallery-view.php?ViewNode=1168395557MyEfJ&Record=5

The S&P 500 is much more closely correlated to the DJIA than to housing prices. It's a silly comparison to make - the S&P 500 is tied to expectations of future earnings of the composite companies; housing prices are tied to household incomes and leverage.

So your saying you should compare the returns of the S&P to real estate?

No, you did.

I am saying they are uncorrelated. Real estate prices are correlated to household income and leverage. The S&P is correlated to expectations of future earnings.

Spunky is the one who says the DJIA is related to real estate prices. You should address your question to him since you'd rather be called him than me. I said there is more correlation between the DJIA and S&P 500 than there is between either of them and real estate prices. Are you saying that that is false?

Steve - can you ever admit you are wrong or would you explode if you did?

joepa, I always admit I'm wrong when I am. Read my other threads. ALWAYS.

I don't understand steve. If you say the S&P is not correlated (which you never have said until you saw that chart) why do you keep using the S&P in comparisons with real estate?

Ah, juiceman, again with the obfuscations, trying to make a sensible messenger like moi sound stupid to the unfamiliar by asking a stupid question.

The opportunity cost of investing in real estate is the cost of not investing somewhere else. The S&P 500 is a broad sample of the stock market. Don't invest in real estate and rent instead, do invest in the S&P 500, and over time you will become far wealthier.

I "never said it until I saw the last chart" because it would have never occurred to me to say it. Only the Spunkster would say something so stupid, without realizing how stupid it was.

Gee stevejhx all I asked was for a start date because I wanted to demonstrate to you that over the past 40 years to present one would of been way better off investing in Manhattan RE as opposed to the S and P. Certainly if you can pick the top or bottom of any market price you are much smarter than me. I do want to commend you on your talented ability to manipulate questions and remarks from others. This manipulative approach will always generate antagonistic responses.

houser, I said the data don't exist.

oh, I see stevejhx but that is a silly silly statement. There are many investments that "could" outperform housing, but none that you live in. So the only comparison you should be making is between renting and buying. So maybe you shouldn't discuss the S&P anymore?

JuiceMan: Now stevejhs will scream that he can discuss anything he wants, that you can't tell him what to discuss... This board is dead.

JuiceMan, what? What you said makes no sense. I think you're trying to twist and obfuscate again, because the truth is painful.

The fact is, residential property is not a good investment, though it could be a great place to live, provided that it costs no more than a rental, because a rental has the same output value: shelter. If you look at housing versus the S&P 500, and consider housing to be a good investment, you merely need compare not that it "could" outperform housing, but that over long periods of time it always does.

So, do the math. Invest your down payment, maintenance and taxes in the S&P 500, which yields a real 8.0% per year over long periods of time. Invest them in housing, which like rents rise at the rate of incomes, or a real 0.7% per year over long periods of time. You will always get the same answer, over long periods of time: it is far better, as an investment, to invest in the S&P 500.

By all historical measures, the recent run-up in real estate prices is an aberration. Current housing prices are 24x annual rent in Manhattan. Because of the 40x/28% income constraints, those constraints can not long be over 12x. So either incomes rise 50%, or prices fall 50%, or some combination of both.

Your argument is silly. You could make the same argument you are making about renting. If you are saying you shouldn’t own because it is a bad investment when compared to the S&P you can also say you shouldn't rent because it is a bad investment when compared with the S&P. How has renting performed against the S&P?

So people, steve says don't rent or buy, live with your parents and invest the money in the S&P.

JuiceMan, you make no investment when you rent. It is an expense, pure and simple. It doesn't show up on your balance sheet. It shows up on the P&L.

What you say is stupid. You can't compare income accounts to asset accounts.

I repeat: by all historical measures, the recent run-up in real estate prices is an aberration. Current housing prices are 24x annual rent in Manhattan. Because of the 40x/28% income constraints, those constraints can not long be over 12x. So either incomes rise 50%, or prices fall 50%, or some combination of both.

Sorry if you don't like it, but those are the market-imposed constraints. The value of owning a home is its output value, which is market rent. Market rentals are a near perfect substitute for market purchases. If one is too expensive, people gravitate toward the other.

Basic economic theory: elasticity of demand.

"JuiceMan, you make no investment when you rent. It is an expense, pure and simple. It doesn't show up on your balance sheet. It shows up on the P&L."

So you saying that the return on renting is 0, because it is expense right? How does that compare to the S&P?

JuiceMan, now you're being ridiculous. I guess you want me to stop posting because you don't want people to hear my message because your properties are still for sale.

You cannot by definition have a return on an expense. And the S&P is not an expense.

Where do we get 40x/28% income constraints as a pricing model for real estate? Maybe a general guideline on lower income levels. But among higher income levels and among those with stores of wealth, those ratios are rather modest.

So if what your saying is true, you can only compare expenses. Home ownership is both expense (interest) and an asset. So you should only compare rent expense with the expenses related to home ownership and can compare the S&P to an appreciable asset, such as home ownership. Is that correct steve?

Popomobile, yes, in the extreme.

JuiceMan, what? If what you mean is that you compare the expenses of home ownership to the expenses of renting, and compare the performance of your actual investment in the property - the down payment - to investing that down payment elsewhere, that's what I've been saying.

Yes, we are in agreement. So why do a monthly rent vs. buy analysis by comparing rent vs. fully loaded mortage cost? You have to exclude the principal payment for your expense to expense equation to be true.

No, JuiceMan, read my example on another thread. I include the principal & what you get at the end: the full value of the apartment less interest costs. Take the down payment and increase it @ the historical rate of the S&P 500, & you will exceed the numbers for owning property @ historical real values for residential real estate prices. Residential real estate is a crappy investment. Nice for security & ego, but as an "investment" it sucks.

For the first time I have to say that malraux makes more sense than you do. Investment real estate is NOT a crappy investment, provided that one look at it on a cash flow basis, as malraux does. It's not one that I'd ever get involved in b/c I understand emerging markets much better - & I think they're more lucrative albeit more volatile - but investment real estate is a different animal.

All "investments" make the same return in the long-term. Residential real estate should not be viewed as an "investment." Investment real estate should.

stevejhx take if you purchase an apt in Manhattan 10 or more years ago you would be far better off today than investing in the S and P. Take a look see at the link below.

http://www.themortgagegeek.com/Downloads/Presentations/Condo_vs_Dow.pdf

Yes, spunky, take a mortgage broker's pov. That will get you far.

Property prices are correlated to incomes, & until recently, in Manhattan, those incomes have risen. If they fall, as they are falling....

doesn't this chart show that investing is better than buying?

Dow goes from ~2,000 to ~12,000 (500% return)

Sales price goes from $400k to $1.8mm (350% return)

wrmoss84, if you're willing to believe a single chart w/ chosen start & stop dates & w/o explanations, g-d bless.

ummm stevejhx, if you think i believe that chart g-d bless

i was just saying spunky's chart was disproving his/her point duH!!!!!

wrmoss84 that's if you paid 100% cash for the property. Most people don't. So at 20% down what do you come up with.

spunky, you like to compare apples to jackasses: you can only compare a leveraged return to a leveraged return. Now, if you can get 4x leverage for a house by only 2x in the stock market, fair enough, compare those figures: they're market figures. But not a naked investment to a leveraged investment.

And any case, even if you do what you do, renting is still more advantageous at historical rates of return.

well stevejhx if evn even combine the rate of return with that of renting the apt( as long as there is positive cash flow) that's even better. I agree there are some very overpriced apts for sale right now but then again some of my best investments have been buying overpriced apts.

Spunky:

Sorry - just saw your chart - haven't read the other comments, but I think the chart is VERY misleading (bordering on plain out lying) because it tries to IMPLY that house is a slightly better investment than Dow Jones at most points in time, by showing the Sales price of the two over time. However, it conveniently leaves out the dividends you could make by holding the Dow Jones stock (say, 5% per year). It also leaves out the expenses incurred if you own the apartments (tax, maintenance, insurance - say, another 5% per year). Right there, the chart is off by ~10% per year.

However, Spunky, I must commend you - you are headed in the right direction. This is exactly the kind of debate I hope to see more from the bulls. Happy to engage more if you have additional data / perspectives.

Spunkster, I don't know how you have made good investments by buying overpriced things - perhaps you can elaborate. It will work in the short-term if prices are rising and you flip a unit, but I don't know of another way to do it.

You're starting to talk sense "on a cash-flow basis." As on my other thread, malraux invests in properties if he's break-even on a cash-flow basis; he then has someone else pay off his mortgage and taxes and interest, so he makes a profit concomitant with his risk. Makes pure economic sense.

But if you then switch it to owner-occupied properties, and it cost you more to buy the property from malraux than it would to rent it from him, and you try to justify that by your "tax savings," as I've so often said, you're counting the "tax savings" twice: once when malraux - who owns your apartment - includes it in his calculation of the market rent, and then again when you try to justify why you made a "good purchase" because it "reduces the tax."

You can't count the benefit twice. Go to my orange example. I grow an orange and eat it. No profit, merely saving the cost of buying an orange at the store. I grow an orange and sell it to malraux, who sells it at his grocery shop. I make a profit on the difference between the sale price of the orange to malraux and my marginal cost of production. Malraux makes a profit on his cost of buying the orange from me and selling it on the open market.

If I sell an orange that I grow to malraux, then go to malraux's store to buy it back, that's dumb. The only benefit I get from growing the orange for self-consumption is the right not to have to buy an orange from malraux. I get no cash, I get no profit. Nothing. Merely the right not to have an expense.

And just like the benefit I get from growing an orange and eating it is the right not to purchase an orange on the open market - its output value - the benefit I get from buying an apartment on the open market is the right not to rent the same property. Those are the output values of those two commodities. So why in god's name would I buy an apartment on the open market when - on a cash-flow basis - it costs me twice what I could rent it for? You can't say the "tax benefit," because malraux has already calculated that tax benefit into his market rent, and it was one of the factors when he decided to make his investment. You know, discounted cash flow.

Residential owner-occupied real estate is a capitalized expense, not an investment. I'm a bank, I decide to write a computer program in-house. The value of that development is precisely what it would cost me to buy an identical program from another company, say BMC. The computer program has a useful life - I capitalize the expense and depreciate it over the course of its useful life. At the end of that useful life I can still use it - I own it outright. The decision as to whether to develop the program in-house - akin to owner-occupied real estate - is what its cost is versus what the cost of buying that outside program is - the license fee, or "rent." If it's cheaper for me to develop the program myself and amortize it than it would be to pay the license fee, then I will develop the program myself and amortize it. Otherwise, I'll pay the license fee.

The economics, accounting, and finance of this is inexorable. Residential real estate is not an "investment"; it is a capitalized expense. Its value is its output value, market rents, which take into account taxes, opportunity costs, and everything else that people are trying to count twice.

And the market constraint on prices is 40x/28% income.

I am very suprised that no one has said that they are BOTH good investments. Clearly the RE maket has been fantastic but you also made 6x on your original stock investment in a little over 18 years. Thats pretty damn good.

Good investment portfolios have a variety of asset classes with a low correlation to each other (stocks, bonds, RE, commodities, hedge funds, all have low correlations). What the chart does indicates is that NY RE has gone parabolic. When asset classes go parabolic (see stocks 3rd qtr '99) it usually close to the end of the road and a good idea to look elsewhere for outperformance....

Because, Cpalms, owner-occupied real estate is not an investment. It is a capitalized expense. What has happened in recent years is anomalous. Owners' carrying costs on a cash-flow basis cannot long exceed market rents, never mind being where they are now, at twice.

Investment real estate, on the other hand, can be a good investment. Just not one that I personally like.

http://www.millersamuel.com/research/gallery-view.php?ViewNode=1096034424rIMRe
thanks houser great link...I posted a link(above) earlier from Business 360 from 2004 to help explain some of Manhattan real estate movement from Miller Samuel. I'm sure alot of you posters are aware of it. But as I read the title and it said "Real Estate Bubble?"....and I thought wow they are addressing the "bubble" talk back from 2004. It's 2008 and "bubble talk" is still here and I concluded that "bubble talk" will always be around. It's so easy to say "Bubble" as it trys to unnerve you and yet it offers nothing.

People who are discontent, feel alientated or are distrustful, or have problems with ambiguity will often create apocalytic or fundamentalist theories to provide easy answers and resolve contradictions. Whether it be the fate of the world, Y2K, or the value of housing, there will always be fundamentalists predicting its imminent demise. One day they will be right.

Perhaps real estate in Manhattan will decline, those who are predicting a catastrophic collapse I think fall into this group.

Yup, steveF, you're right: in 2004 - the date of that article - real estate was NOT overpriced. Unfortunately, it's doubled since then, but incomes haven't.

What I've been saying all along.

joepa, that's a very useful comment. But in investing, fundamentalists always come out ahead.

poker anyone?

dude, i'll lose, but anything is better than repeatedly explaining the obvious.

stevejhx, I believe you are being a bit to rigid in you view of owner occupied real estate as an asset class; If it is viewed as an investment so be it, regardless of what the textbooks say. What investments doen't have carrying costs/ capitalized expenses?, most of the good ones have huge carrying costs...Jim Simons at Renaissance charges 5% yearly fee plus 50% of profits...Steve Cohen at SAC charges 3% and 35%. Private equity guys the same thing....mutual funds 1-2%....stocks, bonds have commission....buy any futures lately? the commissions are huge: not to mention ongoing capital gains. I agree with your accessment of NYC RE but your missing he the boat here....

How's that S&P?

Is it me, or can spunky not read a chart?

From this, S&P starts at 2200 and ends at 11500.
RE starts at 3800 and ends at 16500.

S&P grows 423%, RE grows 334%.

And the S&P already took its lumps, will be interesting to look at this in 12-18 months...

"How's that S&P?"

Very sickly. It couldn't penetrate key resistance levels even with the substantial correction in oil.

Elliot Wave analysis intimates that we recently saw the iii wave peak, which means we could see a bottom for oil (~110s) before the next run up.

If the S&P couldn't penetrate key resistance at this most opportune time during current oil correction cycle we're in that has a very good chance of completing when it reaches the $110s, watch out when oil goes back up again.

Remember this post, and let's refer back in about 4-6 weeks from now (today is 7/29). We'll see just how sickly the S&P is at that point in time.

Just to go out on a ledge - based on the Miller chart - it seems that Manhattan RE outperformed the S&P only on the last 5 years with the S&P out performing RE for the 10 years before that. At the beginning of the chart it seems that Manhattan RE is worth more - but both the S&P and the RE values remain stagnant. Am I missing something?

That chart doesn't come close to showing the gains I made in NY Real Estate compared to the crap I've done in the Stock Market since 1997. NOT EVEN CLOSE!!!!!

Best move if my life was selling a bunch of stock and buying Real Estate... (well, other than getting married ; ))

Owner-occupied residential real estate does not "perform." It is in a bubble. Face it.

Negative real interest rates + lax underwriting standards + excessive Wall Street bonuses based on selling worthless assets = bubble

Now reverse those trends:

High interest rates + tight underwriting standards + diminished Wall Street bonuses = crash

Who's left to buy at these prices?

"Who's left to buy at these prices?"

Sounds like all of Urbandigs' clients.

"Sounds like all of Urbandigs' clients."

Seems to me that new listings continue to exceed contracts signed:

1-day 7-day 30-day
New Listings 72 314 1,163
Price Cuts 67 288 1,072
Contracts Signed 38 170 641
Total Inventory 7,527 7,504 7,494

So much for that theory.

It seems like it would be more practical to compare the performance of real estate vs renting while investing in the S&P -- in other words a typical rent vs buy calculation. This would take into account the money that could be made in the market, but also the cost of rising rents and the tax benefits and equity building of home ownership.

Bennyboy, been done lots. Right now, renting is cheaper. Again - lots.

I don't get your point steve. Urbandigs said yesterday that he is working with a number of non Wall St. buyers. I know that pains you to hear, but digs seems like a pretty credible guy. So the answer to your question of "Who's left to buy at these prices?" is pretty simple, buyers such as Urbandigs' clients.

Not sure why you went to the inventory picture and commented "So much for that theory", besides the fact that you had nothing else to say.

BTW, notice its the *entire* S&P against just one cities RE. How about if you picked only the best sector for instance? Or couple of companies. Not to mention you get to pick the best period every for NYC real estate... and it still seems to lose out to the S&P.

Classic post from the archive. I love that both Spunky and SteveF make (brilliant) appearances.

"BTW, notice its the *entire* S&P against just one cities RE. "

Right, when the...I don't know...CS-S&P housing INDEX for the whole US might be a better comparison...

Lets pick RE versus gold stocks. Or Oracle or Home Depot since the late 80s or early 90s.

What's funny is the chart changed since he pointed to it. If I read it correctly....

Manhattan prices go from 750k to 1.5 mil
Dow goes from 2100 to 11800... not inflation adjusted, but you get dividends along the way (which I believe have exceeded inflation).

And you get 462% return.

What was inflation in that time?

It isn't fair to tell anyone that the S&P is an alternative (better or worse) for buying real estate that is to be used for your primary residence.

swe, is this you finally coming clean about being EddieWilson? I'm shocked.

Stocks appear to be topping out. One could easily make the case that Stock will under perform real estate by a wide margin over the next twelve months. And to not recognize that stocks carry more risk is being an ostrich.

RS, no offense, but your track record with predicting stocks has sucked. Here's what you were saying when S&P was around 1075 (we're now up 20%):

http://streeteasy.com/nyc/talk/discussion/21581
"Riversider
about 6 months ago
... Equity is not dead money, it will generate the returns of the asset class. Stocks are 40% over-value, Bonds are also grossly over valued...."

And in the middle of 2009:
http://streeteasy.com/nyc/talk/discussion/13477-stock-market-is-over-valued-based-on-real-pe
"... It is amazing that anyone would go long an equity market with a reported P/E multiple of 700x but that is indeed what we have on our hands. The end of the recession and the onset of a sustainable recovery, as we saw in 2002, are not the same thing. So this could still end badly but we will await confirmation signs that this is more than a very flashy bear market rally before shifting gears...."

I'm not saying stocks are gung-ho right now, just that the predictions you made with such authority have sucked. At 40% below 1075, that means you think proper value is at 645, or half of where it is now. Shouldn't you be putting on a big short?

"It isn't fair to tell anyone that the S&P is an alternative (better or worse) for buying real estate that is to be used for your primary residence."

If folks are buying to live in... as consumption, sure, its not fair.

But once anyone uses the "investment" word to justify overconsumption in RE, then it is more than fair.

And, in reality, the comparison was made by a RE pusher... so, its a little late to say the comparison is unfair.

> RS, no offense, but your track record with predicting stocks has sucked.

or RE...

"swe, is this you finally coming clean about being EddieWilson? I'm shocked."

swe, cat got your tongue?

swe, inonada
ladies, no offenses taken. You are certainly not obligated to sign up for my market-timer fund.

I KNEW it! Riversider is the Rice Twins!!!

If only my returns were that good!

I had to look up who the Rice Twins were...

Diversification - great idea
Market timing - bad idea

huntersburg is hfscomm1.

LOL!
I still think the S&P is over-valued.

Relative to cash or what?

and, of course, so is riversider.

watch it talk to itself.

Wait ... I thought Riversider is the Rice Twins.

Where's spunky?

wow, that must have been painflu for spunky

hee, hee

>hee, hee

We have you on record saying you sold 2 years ago.

and still being more heavily invested than pretty much anyone on this board. you have a point?

or are you still just jealous?

> than pretty much anyone on this board.

You are the smartest on Streeteasy, right?

That's your assertion.

Riversider
"LOL!
I still think the S&P is over-valued."

HahahaaaaA. Riversider. You tard. 2 yr of no equities. 2yrs of praying for your coop to pump up. Like the rest of you. Just flaccid. Flaccid flaccid flaccid.

You may want to move/shift that penis once in awhile. It'll get bed sores.

Spunky!

Where's Spunky?

Steve!

Where's Steve?

six seven!
shift penis, lest bedsores. ha!
you got me.

Of all of w67's posts, odd that you focus on the penis bedsores one.

W67thStreet:

1. based on the way you boast herecurr
2. it seems to me that you might be able to upgrade your current housing accommodations
3. if after the next time a buy a refrigerator for a tenant
4. I let you pick up the carton