How Much Will NYC Decline...

20% NYC, 30% Brooklyn.

Cool, now we're getting there.

BTW, sorry, in my post, I meant to say 16% Manhattan, 23% Brooklyn, and I'll add in 21% for other 3 boros...

This downturn will really happen and some people don't believe it will. This is like late May 2000 for the tech bubble. In about 9 months, poor hipsters living in Greenpoint could sell their bikes for a down payment on an apt Downtown Manhattan.

With less reason than ever for Wall Street and related Big Law to remain in NY [London benefits from proximity to Chindia, among other things; NJ and other places benefit from fear of terrorism; technology allows boutiques to be in the Ozarks], I vote for steeper declines than NYMag guesses at.

The only other economic leg NY has, that's not already in decline (publishing, advertising), is tourism, and that declines when budget cuts (gov't and BID) result in filthy streets, even if the world economy picks up.

What was the runup from the early 80s to the 1990 RE crash compared to the runup in NY RE since 2000? I bet a lot less.

[I'm not all like mathy and stuff, so I won't try to translate that to numerals.]

newaccount, are you on record with the date?

Are the predictions inflation adjusted or not? Note the the Consumer price Index is 8% higher in June 06 than June 08. Potentially in the next year inflation can jump a lot and add to devalue housing prices.

Just curious, how would you measure the decline in Manhattan?

With all the anecdotes and reports from buyers and brokers, would you say that the market has already declined 8-10%? Call it "softness", moderate weakness" or anything else... If you think that 8-10% is a fair estimate, you think we are about half-way there?

If so, I would agree with you. I would say no more than 15-20% decline, with half of it already in the books. In 12-18 months, no longer a buyer's market.

Why stakan, are you a hipster?

Let's not complicate things. Not inflation adjusted, just in nominal dollars.

15% increase yoy by late 2009.

Dementia is setting in. You need to see a physician.

"15% increase yoy by late 2009."

LMAO.

yes the downturn will happen and then it will uptick. its called a business cycle so why all you renters sit around hypothesizing and analyzing the down side, the upside will pass you by, as it did last time.

Steve - would you care to bet a month of your rent on it?

As long as we can come up with an appropriate way to measure it.

At least 10% increase YOY in late 2009. 5-10% increase YOY for 2010.

> At least 10% increase YOY in late 2009. 5-10% increase YOY for 2010.

That's a meaningless guess.. you need to include end of 2008 for that to say anything.

If its a few more percentage points down in December, thats calling for an actual increase.
If it goes down 50% by December, what you are noting would only be a slight dead cat bounce...

Without the end of 2008 call, this isn't really saying anything.

> > 15% increase yoy by late 2009."
> > LMAO.
> Steve - would you care to bet a month of your rent on it?

Steve, be careful. Per the logic in the above thread, if the market goes down 90% by the end of the year and comes back a few bucks, he'd technically be right.

Thats why I qualified this thing... its % off the total peak.

This might have been the smartest thing sneakyputz did... maybe he's actually sneaky.

These guys talking about YOYs seem to be glass bulls trying to cover their bets. What matters is TOTAL movement, not what happened one month to another... well, that it if you like making money, not losing it.

Have some balls, guys, call the decline off the peak...

I will do 2 sets of predictions: 17% Manhattan and 25% outer Boroughs if interest rates remain below 7% and spread between non-jumbo and jumbo doesn't balloon even more. If rates and spreads seriously shoot up (let's say towards 8% for non-jumbo and 10% for jumbo by late 2009) then all hell could break loose in 2010.

"If it goes down 50% by December, what you are noting would only be a slight dead cat bounce."

ROFL

Leave it to the rationalizers to avoid answering the actual question....

15% decrease b late 2009.

"call the decline off the peak"

When exactly did we reach the last peak?
What were prices like at the peak?
How much have prices dropped since the peak?

How do you measure all these?

Price drops will vary by neighborhood. There will be no across the baord uniform declines.

"Price drops will vary by neighborhood."

That was a brave call.

"There will be no across the baord uniform declines."

Really?

Price declines will even vary by the desireability of buildings. So in a single neighborhood, you can have price declines that are all over the place.

I love it. You have a bunch of folks saying 15% or more, and then the rest eithger going "it will be a 20% increase" (with "over 1991" written in really small print) or "uh, I'm not sure we can agree on the definition of decline". I love it! What backpedalling...

I know you guys debate about the validity of Case Shiller Index on Manhattan. I am surprised that there is not an institutional price index on Manhattan condo prices that we can use as a benchmark. Or is there?

Unfortunately, the only apples to apples comparison index is the Case Shiller, but Case Shiller NYC is for the entire metro area, and does not include the majority of apartments in NYC. The other indexes are all generally means or medians, which are slanted by WHICH types of apartments sold. In the current state, because co-op sales dropped by half, and the only stuff still selling is predominantly new construction condo closings (many which originated some time ago), the numbers don't mean a whole lot... yet.

That being said, in my head its the medians down by the numbers I gave above... meaning I'm thinking the actual apples to apples comparison will be worse...

Radar Logic has a Manhattan Condo index (which is a subsidiary of their New York MSA Index)

http://www.radarlogic.com/productsservices_research.html

I think it will be easier to track data come 2009 once most of the high end devleopments are removed form the reports. I think prices have already declined. In the latest Miller Samuel report, the median price for 2 bedroom co-ops is down by 2%.

Its a little dated... April is the last month. Though that shows a .7% month over month decrease...

The bigger issue is that its based on PSFs. I like that as an idea, but it likely suffers from the same apples to oranges issue... you aren't comparing like apartments.

"does not include the majority of apartments in NYC."

Untrue. It doesn't include any of them since it only counts single-family homes.

I don't see a Manhattan Condo index at radarlogic.com, but it still would not include the majority of Manhattan properties: co-ops.

I can imagine Steve is having a field day with this thread, spewing forth all kinds of crash talk. I had a great day, and I actually want him to feel a little better about those pesky sellers not lowering their prices by 50% already.

So, I hereby change my prediction. I call for 25% decline by year-end, another 30% decline in 2009 and another 30% decline in 2010. However, that's (generously) assuming that the US government is even solvent in 2010 (MER DID write down 8.5B this week, after all). If the government goes under, I say that prices will be eleventy gazillion dollars higher in 2010 in nominal dollars (a little more for new construction), but down 99.4% in real dollars. Basically, what I am saying is that you will be able to buy a 3-BR in Manhattan for a case of beer and a handjob. Price for Brooklyn: same, minus the beer.

For the love of God, can people just stop putting any bids on any place, so that Steve can buy at 1879 prices?? Is that too much to ask??

why am i not surprised...yet another trying to change the subject and not actually put down some numbers. Wow, not even willing to answer the question...

Talk about not putting your (monopoly) money where your mouth is.

Look up the thread, I answered your question. And yes, I put my money where my mouth is at the end of 2001 and will do it again by spring 2009

A 20-30% price decline still will be nothing for people who bought before '01.

> A 20-30% price decline still will be nothing for people who bought before '01.

You posted this on the other thread, too... still doesn't make it correct or relevant.

You sure about that?

If you had a 50% increase, a 30% decline pretty much brings your return to zero.
If you had a 100% increase, a 30% decline now means you have a 40% total increase.

If you're talking about before 2001, you're now talking at least a 10 year time horizon. Breaking even after 10 years means a HUGE loss after inflation. A 40$ increase over 10 years, I don't think even beats inflation.

Now, add in the costs of borrowed money... you could be talking about a serious loss.

Not just that, how does this help the folks who *didn't* buy 10 years ago, but more likely 1-2-3 or 5 years ago?

So, to sum up so far.... Manhattan unless otherwise noted

Eddie Wilson - 16% Manhattan, 23% Brooklyn
Surdy - 20% Manhattan, 30% Brooklyn
AlanHart - more than 21%
Bgaria - 15-20% or less
Topper - 15%

Not giving answers
SneakyPete -15% increase over the bottom (genis!)
Houser - 10% increasse over the bottom

Looks like we haven't had one person not say/infer a decrease. Now *that* is backpedalling...

Sorry, bgaria, did not see your original post the first time. Granted, the "or less" does not really a projection make... Pretty sneaky, sis.

People who bought 3-4-5 years ago are not paying 8% on their mortgages (for example, my mortgages are under 5.5% because I refinanced in 2004). They also have a lot more than 50% gain, so a 30% decline (IF it occurs) is not bringing them back to zero even by a long shot.

40% over 10 years doesn't beat inflation (let alone opportunity cost and all that), but I can't imagine how someone can own in Manhattan be up only 40% between 1998 and 2008. 240%? Sure...

35% decrease over 5 years. This will be a slow bleed ala Japan.

EddieWilson...what I was trying to say (not very well) was even a 30% decline the prices are still very high. $700k one bedoom is never going to go down $210k.

> 40% over 10 years doesn't beat inflation (let alone opportunity cost
> and all that), but I can't imagine how someone can own in Manhattan
> be up only 40% between 1998 and 2008

You didn't understand the post. Noone said that. Read it again...

> If you had a 100% increase, a 30% decline now means you have a 40% total increase.

No one said the increase was only 40%. We're just pointing out here what happens to a 100% increase after a 30% decline sets in... it means you don't beat inflation over 10 years... (really 12 years, because we've got at least a couple years of shakeout).

Eddie, for all that you and I disagree, we have a fairly similar view on this. My guess would be 10%-20% off the peak in Manhattan, with lots of variance based on neighborhood, type of building, etc.

Who is EddieWilson?

The rest of the country is still falling, so it's hard to say exactly. My best guess is if the rest of the country falls 50% in some places then NYC will see 30-40%.

Alan Greenspan stated that this is a "once in a century event" and this is not a "normal liquidity" problem. Gee where have I heard this before. Nothing like we have ever seen. Once housing stops falling, then we are left with a failing global economy and increasing unemployment. Not to mention a banking sector that will take at least 5 years to recover. It's a mess.

So read this:
EddieWilson
Manhattan is "down 3% from the first three months of 2008, according to Prudential.... number of sales in Manhattan dropped 22% to 2,282 in this year's second quarter compared with the year-ago period. Meanwhile, inventory surged 31% to 6,194 units."

With sales down 22% and inventory up 31%, but prices down only 3%, how can one make a case for big price declines? By assuming sales volume is down 66% and inventory up 93%, that'll get prices down nearly 10%?

30% down over 5+ years.

I would say that prices will be down about 15% by Q1 2010. I think prices will continue to decrease, or stay the same for several years after that. Depending upon who the next President and Mayor are, it may take until 2013 before we reach bottom. At that point, in real dollars, I would not be surprised if prices were down 30-35% from their 07 peak.

urnfna, are you going to post this everywhere?

The number of sales is a backward-looking indicator - if you read the report, lots of those sales were for new developments that had contracts signed a year or more ago. If you look at prices, they were heavily skewed by 15CPW and the Plaza. What you can look at that is a present indicator, is inventory, which was up by 31% (and up even more for this quarter).

"how can one make a case for big price declines?"

Because you have to understand the nature of what you're reading.

> urnfna, are you going to post this everywhere?

Absolutely. This is at least the 3rd thread she's posted this exact post. And, it sounds stupider to me each time I read it. I'm assuming she's a broker.

Summary so far... anyone with a range, I just took the middle.

15-20% decline - 5 folks
20-25% decline - 1 person
30-35% decline - 3 folks

I'm surprised that we haven't seen anyone say less than 15%

I'm not including the putzes with the "it will increase from the bottom" posts.

Seems more like you'll get a modest decline at best, but factored over time. So simple stagnation, given the passage of time, benefits the buyer. Doubt to see anything more than 10% on average. Or on median. Future buyers like me can hope, but to sit on the sidelines for the rest of my life isn't what I would consider personally wise.

"Doubt to see anything more than 10% on average."

"but to sit on the sidelines for the rest of my life isn't what I would consider personally wise."

uwcider is a realtor. There is no inherent benefit to prepaying your rent by buying an apartment, moreover when it's twice as expensive.

i'm a realtor?
no
i'm a renter looking to buy
but what are you?

stevejhx, you didn't answer the question, what are you that you seem to be such a jerk around here. Funny thing was that when I came here this morning to see what people were saying after the NY Times article, you weren't even the weirdo with the blind to fact posts, but you seem to have picked up for some others.

steve keeps saying the same mistaken information over and over, because he can't admit when he is wrong. He keeps saying it is twice as expensive to buy than to rent, but he has yet to show any realistic data that supports this, unless you ignore the tax deductions you get when you own. He sticks with his fantasy analysis even when shown clearly and unequivocally that the numbers contradict him.

LIC Post Review...

Insults - 2
Supporting Facts - 0

"but what are you?"

I am both an owner and a renter.

LICC, you are so lame.

"He keeps saying it is twice as expensive to buy than to rent"

Been shown a thousand times by a thousand people, as recently as yesterday.

"but he has yet to show any realistic data that supports this"

Been shown a thousand times by a thousand people, as recently as yesterday.

"unless you ignore the tax deductions you get when you own."

No - I include the tax deductions using the imputed rent model. I ignore them in the price-to-rent ratio. Exactly the way it should be done. It is you, young grasshopper, who makes up his own theories and applies them haphazardly, with total disregard for economic or financial theory, or real data.

"He sticks with his fantasy analysis even when shown clearly and unequivocally that the numbers contradict him."

No - the numbers are the ones used by the Federal Reserve and economists, who are paid to calculate these things.

I need not re-post all the links I've provided to all the data I've provided. You have provided nothing except the ridiculous statement that the mortgage interest tax deduction is calculated at the marginal tax rate, not the effective tax rate, which flies in the face of logic and everything ever published anywhere, except by you.

Dismissed.

Dismissed? What does that mean?

It means he is dismissed - ignored. LICC always posts the same thing, the same accusation, the same baseless arguments, to the point where he must just be dismissed.

7% is my prediction, which is in line with how much after 6 years on Wall Street my total comp will be below what I was hoping. So it all works out.

"which is in line with how much after 6 years on Wall Street my total comp will be below what I was hoping"

If only that were the case for the thousands who have lost their jobs, and the many thousands more who will be paid in restricted stock that doesn't vest for 3-5 years.

They have no money.

steve, when you first raised the effective v. marginal rate issue, about 6 different people spelled it out for you that you must use marginal rates to determine the benefit of the mortgage deduction, not effective rates. We all used very precise numbers and explanations showing that you are wrong. Your only response is to cite to a line in some Fed report that was not even on topic, and to spew some babble about the timing of your income, which is irrelevant. It shows either that you are completely confused, or you know you are wrong and are trying to come up with anything possible to misdirect the argument so you don't have to admit your mistake. You also compound your silliness by bringing it up again and again.
You also want to ignore the tax deduction when you misapply the rent-buy analysis. When someone brings up the fact that you are using the wrong analysis because you ignore the mortgage deduction benefit, you babble on about using the imputed rent theory, which again does not apply to the context of measuring rent cost against monthly purchase costs on a dollar-for-dollar comparison. Stop being so pig-headed and I'll stop correcting your mistakes.

Well whatever, if more than 7%, then more sweet apartment for me.

Also, about this restricted stock crap, those of us on Wall Street know how to use the restricted stock with banks an on margin. There's no worry I've sensed from buddies of mine.

"steve, when you first raised the effective v. marginal rate issue, about 6 different people spelled it out for you that you must use marginal rates to determine the benefit of the mortgage deduction, not effective rates."

Your only response is to cite to a line in some Fed report that was not even on topic.

Title = "Assessing High House Prices: Bubbles, Fundamentals, and Misperceptions"

Abstract: "We construct measures of the annual cost of single-family housing for 46 metropolitan areas in the United States over the last 25 years and compare them with local rents and incomes as a way of judging the level of housing prices. Conventional metrics like the growth rate of house prices, the price-to-rent ratio, and the price-to-income ratio can be misleading because they fail to account both for the time series pattern of real long-term interest rates and predictable differences in the long-run growth rates of house prices across local markets. These factors are especially important in recent years because house prices are theoretically more sensitive to interest rates when rates are already low, and more sensitive still in those cities where the long-run rate of house price growth is high. During the 1980s, our measures show that houses looked most overvalued in many of the same cities that subsequently experienced the largest house price declines. We find that from the trough of 1995 to 2004, the cost of owning rose somewhat relative to the cost of renting, but not, in most cities, to levels that made houses look overvalued."

Authors: "Charles P. Himmelberg, Goldman, Sachs & Co.; Christopher J. Mayer, Columbia Business School; National Bureau of Economic Research (NBER); Todd M. Sinai, University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)"

Specific quote: "The formula for the annual cost of homeownership, also known in the housing literature as the “imputed rent,” is the sum of six components representing both costs and offsetting benefits (Hendershott and Slemrod, 1983; Poterba, 1984). [...] The third component is actually an offsetting benefit to owning, namely, the tax deductibility of mortgage interest and property taxes for filers who itemize on their federal income taxes. This can be estimated as the effective tax rate on income times the estimated mortgage and property tax payments."

Further proof that you're a moron.

"and to spew some babble about the timing of your income, which is irrelevant"

No clue what you're talking about.

"You also want to ignore the tax deduction when you misapply the rent-buy analysis. When someone brings up the fact that you are using the wrong analysis because you ignore the mortgage deduction benefit, you babble on about using the imputed rent theory, which again does not apply to the context of measuring rent cost against monthly purchase costs on a dollar-for-dollar comparison. Stop being so pig-headed and I'll stop correcting your mistakes."

Wrong again. The price-to-rent ratio is just that: the price-to-rent ratio.

* The price-rent ratio is the average cost of ownership divided by the received rent income (if buying to let) or the estimated rent that would be paid if renting (if buying to reside):

House Price-Rent ratio = House price / (Monthly Rent x 12)

"The latter is often measured using the "owner's equivalent rent" numbers published by the Bureau of Labor Statistics. It can be viewed as the real estate equivalent of stocks' price-earnings ratio; in other terms it measures how much the buyer is paying for each dollar of received rent income (or dollar saved from rent spending). Rents, just like corporate and personal incomes, are generally tied very closely to supply and demand fundamentals; one rarely sees an unsustainable "rent bubble" (or "income bubble" for that matter). Therefore a rapid increase of home prices combined with a flat renting market can signal the onset of a bubble. The U.S. price-rent ratio was 18% higher than its long-run average as of October 2004 (Federal Reserve Bank of San Francisco report)."

http://en.wikipedia.org/wiki/Housing_bubble

You're a real idiot, LICC. There, I said it again.

dude, Wikipedia? If a guy who worked for me ever cited Wikipedia in a deal book for me, he'd be gone at the end of the year if not sooner.

There you go again steve. I've said it before - explain in your own words why you should use the effective rate rather than the marginal rate. You have no understanding about the things you say, you just parrot things you read, but incorrect context.

You're dismissed.

"those of us on Wall Street know how to use the restricted stock with banks an on margin"

Really? 1) Since when do banks do stock trades? Aren't they brokers? 2) If the broker agrees to it you can. 3) Provided it is allowed in the terms of the stock. 4) The amount of margin you can get on stock is limited - not enough to buy your "sweet apartment." 5) It is extremely risky if used to purchase real estate.

Another Wall Street guru using highly liquid and volatile assets to buy highly illiquid ones with low volatility - meaning that once prices go down, they tend to stay down.

"but incorrect context." - Title = "Assessing High House Prices: Bubbles, Fundamentals, and Misperceptions"

wpsst, it happens that wiki is right on that and I could quote you a thousand other sources that say the same thing. And I have. If you always discount information because of the source, you will soon get yourself into a lot of trouble: it is a basic fallacy, Logic 101.

reputation is everything Steve, a very important less on Wall Street and in life.

"reputation is everything"

If the information is correct (as it is) then it is correct. If a person's reputation is based on publishing facts rather than fiction, then on this board LICC - whom I was addressing - has none at all.

It is a fact that the price-to-rent ratio (of 12) does NOT explicitly factor in the mortgage interest tax benefit, while the imputed rent method does (and the ratio comes out higher, around 20 using it). The price-to-rent ratio does, however, implicitly calculate the mortgage interest tax deduction because that deduction effects the price of houses.

That is why what LICC does is wrong - by using the price-to-rent ratio and then adding the tax benefit again, the tax benefit gets calculated twice: once implicitly in the price of the home, and then again by adding the benefit back in.

And the reason why it is wrong to use marginal tax rates rather than effective tax rates is because that would give greater weight to the mortgage tax deduction than all other deductions, making it seem greater than it actually is since most people's marginal tax rate (for those not subject to the pernicious AMT) is higher than their effective tax rate.

All tax deductions have the same effect. Therefore, they must be given the same weight.

effects = affects.

NO, effects and affects are different words.

btw, so steve, would you never buy (and don't give me some hypothetical crap situation)?

"NO, effects and affects are different words."

I know - I was correcting my typo.

"would you never buy"

You mean would I ever buy? Absolutely. The day it costs me out-of-pocket the same to buy as it does to rent using a standard 30-year 80-20 mortgage.

Owner-occupied real estate is not an "investment"; it's a capitalized expense. The only benefit you get from buying a home is the right not to rent it. Therefore, using the well-accepted economic principle that things are valued at the worth of their output, a house is valued at its output - what you can rent it for.

It makes no sense to overpay.

steve, when you use the effective rate, you are blending the portion of your income that does not get taxed, the portion taxed at the lowest rate, the portion at the next lowest rate, and on until you get to the highest rate applied to you. At any high bracket income, which applies to the buyers we are discussing, there is no way that your itemized deductions take you from the top bracket down to the lowest rate. This is why you have no clue what you are talking about. Using the marginal rate is much more accurate for determing the mortgage benefit than the effective rate. Do you understand yet??

LICC: "explain in your own words why you should use the effective rate rather than the marginal rate."

stevejhx: "All tax deductions have the same effect. Therefore, they must be given the same weight."

Caso cerrado.

"Do you understand yet??"

I've always understood what you're saying, and I've always understood that it is wrong. You are assuming that the mortgage interest deduction comes last. Unfortunately, in reality it comes simultaneously with all other tax deductions since they're all taken at the same time. It doesn't matter if they come in January or December, and it doesn't matter whether they're for mortgage interest or margin interest, or (barring AMT) property tax or state income tax, or anything else.

Here's a problem. Very simple. See if you can give me a good answer.

Let's assume 2 tax brackets: 10% and 20%. Let's say that the 10% rate is for all income from $0 to $10,000. The 20% rate is for all other income $10,001 and above.

You make $15,000. You have only 2 deductions: $1,000 in mortgage interest, and $1,000 in property tax.

Which deduction is worth more?

steve, in your made-up example, you would use the 20% marginal rate to measure the deduction benefit, not the 12.5% effective rate as you would wrongly contend. Basically, you are being taxed on $13k instead of $15k. If you didn't have the deductions, that $2k would be taxed at a 20% rate. Thanks for proving my point for me.

You are also mistaken about the AMT. AMT does not affect the mortgage interest deduction.

First, I never said AMT affected the mortgage interest deduction, because it doesn't. I said, "property tax or state income tax."

Second, I didn't ask what the deductions were worth; I asked which of them was worth more. Neither of them is worth more because, as you said, they are worth exactly the same because they're taken at the same time.

Nonetheless, in this example, if you had NO deductions you would pay 10% tax on $10,000; 20% tax on $5,000. Your total tax bill would be $2,000, which is an effective rate of 13.3%.

WITH the deduction you will be paying 10% tax on $10,000, and 20% tax on $3,000. You total tax bill will be $1,600, for an effective tax rate of 10.7%.

If you only had one deduction - property tax - you would pay tax on $14,000, or $1,800, for an effective tax rate of 12%.

The deductions CAUSE your effective rate to go down, but all deductions cause your effective rate to go down by the same amount. That is why you don't calculate the tax benefit for mortgage interest at your marginal rate - because any deduction will have the same effect, and you can't calculate all deductions at the marginal rate.

To illustrate this very simple point better, let's change the example slightly. Instead of making $15,000, you make $11,000. Now which of the deductions is worth more?

Neither of them. They are still worth exactly the same, only this time one of them bumps you to a lower tax rate.

Which one?

Both of them.

That is the concept that you fail to grasp.

Now to explain the other concept you fail to grasp, touched on briefly before:

"In this example, if you had NO deductions you would pay 10% tax on $10,000; 20% tax on $5,000. Your total tax bill would be $2,000, which is an effective rate of 13.3%."

Let's see: $15,000 * 13.3% = $1,995, adjusted for rounding the $2,000 in tax that you owed before the deduction.

"WITH the deduction you will be paying 10% tax on $10,000, and 20% tax on $3,000. You total tax bill will be $1,600, for an effective tax rate of 10.7%."

Let's see: $15,000 * 10.7%, adjusted for rounding the $1,600 in tax that you owed after the deduction.

If you only had one deduction - property tax - you would pay tax on $14,000, or $1,800, for an effective tax rate of 12%.

Let's see: $15,000 * 12.0% = the $1,800 in tax that you owed after the deduction.

The benefit is worth your effective tax rate SPECIFICALLY because when you multiply your income by your effective tax rate, it PRECISELY equals the value of the benefit, whether you cross tax brackets or not.

"If you didn't have the deductions, that $2k would be taxed at a 20% rate."

It would indeed.

Thanks for doing the effective rate calculations steve, but it does not change the clear fact that if you want to know your benefit for money used to pay mortgage interest, you use the marginal rate. Do you not see that since itemized deductions reduce your taxable income from the top (in our progressive tax rate structure), you use the marginal rate to determine how much that benefits you? If you didn't have the deduction, you would be paying your highest rate on the money otherwise deducted. Just look at your own calculations in your simple hypothetical. Your taxes went down $200 for every $1000 deduction. 20%. The marginal rate. How many different ways can people say it before you understand? I don't know why you have such an issue admitting you are wrong, you just look sillier and sillier to everyone by trying to argue otherwise.

"you use the marginal rate."

I've said it before, I'll say it again - you're an idiot.

I certainly agree that "If you didn't have the deductions, that $2k would be taxed at a 20% rate."

Answer this:

"Instead of making $15,000, you make $11,000. Now which of the deductions is worth more?"

Because what gives you both your marginal and effective rates is the sum total of ALL your deductions, and you can't take all of your deductions at your marginal rate.

Since you can't answer the question above, here's another one.

You make $10,000.

You have $3,000 in deductions, thus:

1) $1,000 in mortgage interest
2) $1,000 in property taxes
3) $1,000 in margin interest.

The tax brackets are:

$0 to $7,000 = 0%
$7,000 to $8,000 = 10%
$8,000 to $9,000 = 15%
$9,000 to $9,500 = 20%
$9,500 to $10,500 = 30%

at which rate to you apply each of these deductions:

1) $1,000 in mortgage interest
2) $1,000 in property taxes
3) $1,000 in margin interest.

"Do you not see that since itemized deductions reduce your taxable income from the top (in our progressive tax rate structure), you use the marginal rate to determine how much that benefits you?"

Absolutely not, because what got you into that marginal rate is the sum total of all your income and all your deductions for the year. Which is why you can't answer my idiot-proof question.

And just to prevent overlap, make the rates this:

$8,001 to $9,000 = 15%
$9,001 to $9,500 = 20%
$9,501 to $10,500 = 30%

Not that it really matters, but I don't want you to be able to weasel out of the question that you can't answer.

steve, I'm glad everyone here can see how much you will flail just so you don't admit that you are clueless and someone else is right. Instead of making up an entire fantasy of tax rates that have no realistic grounding whatsoever, just to manipulate some dumb scenario where your mistake can be covered up, why not use actual current tax rates? Based on taxable income:

$0 to $8025 - 10%
$8026 to $32,550 - 15%
$32551 to $78,850 - 25%
$78,851 to $164,550 - 28%
$164,551 to $357,700 - 33%
above $357,700 - 35%

There is no way that, with a person in the 28% bracket or above (or even in the 25% bracket but lets focus on reality), you will be more accurate using the effective rate rather than the marginal rate in determining the benefit of an itemized deduction.

steve, some being so typically obtuse and idiotic and start being real about it. I will admit that it is funny to see you sinking like this.

Let me correct that typo:

steve, stop being so typically obtuse and idiotic and start being real about it. I will admit that it is funny to see you sinking like this.

Dudes, WTF... this has nothing to do with the thread. Stuff with the mental masturbation and get back on point.

LICC is defeated, as he cannot answer:

at which rate to you apply each of these deductions:

1) $1,000 in mortgage interest
2) $1,000 in property taxes
3) $1,000 in margin interest.

He is also defeated because he cannot support his contention on the nominal rate of increase in Manhattan real estate for the past 40 years, as no such data exist.

If they do, show me evidence - even one datum - that shows a Manhattan property that sold for $35,000 in 1968, and $1.1 million in 2008.

Just one.

Because here's the truth:

"According to the U.S. Census, the median value of an owner-occupied housing unit in Manhattan rose from $245,633 in 1980 to $377,246 in 2000 (both figures in 2002 dollars), implying a real appreciation rate of 2.2 percent per year that is double the national average as measured by the Freddie Mac Repeat Sales Price Index."

"tens of thousands of new units were built in Manhattan during the 1950s, while prices remained flat."

And here's why we have the current oversupply:

"We document a large gap between the market price of condominiums and the marginal cost of producing another floor of such units in Manhattan. In recent years, average condominium prices have exceeded $600/ft2. Data from different sources on physical construction costs suggests that the upper bound for a high quality, typical luxury structure in this market is less than $300/ft2. This gap between sales prices and construction costs is so large that it is doubtful that measurement error of building costs
could be responsible in any meaningful way. If it costs $300 per square foot to build an extra apartment that sells for $600 per square foot, then this would seem to offer an irresistible arbitrage opportunity for developers."

So it's plain - until recently, even during times of peak growth Manhattan property prices did not increase at anywhere near the rate LICC claims, and for long periods of time they remained stagnant. Only since 2003 has there been a bubble, which is what I have long maintained.

And now market forces are coming into play, with increased building leading to an oversupply, which will cause prices to drop dramatically.

You can read the whole thing here:

icf.som.yale.edu/pdf/seminar03-04/GlaeserManhattan.pdf

"stop being so typically obtuse and idiotic and start being real about it."

I thought as much. You can't answer a simple question.

Fine. You make $85,000 a year. Tax brackets:

$0 to $8025 - 10%
$8026 to $32,550 - 15%
$32551 to $78,850 - 25%
$78,851 to $164,550 - 28%
$164,551 to $357,700 - 33%
above $357,700 - 35%

That is, your 28%. You pay:

$5,000 in property taxes
$5,000 in mortgage interest
$5,000 in state and city income tax

At which rate do you apply each of those deductions?

Steve, seriously, start a new thread with this one...

Here is the updated count...

Summary so far... anyone with a range, I just took the middle.

10% - 1
15-20% decline - 5 folks
20-25% decline - 1 person
30-35% decline - 3 folks

I'm not including the putzes with the "it will increase from the bottom" posts.

"There is no way that, with a person in the 28% bracket or above (or even in the 25% bracket but lets focus on reality), you will be more accurate using the effective rate rather than the marginal rate in determining the benefit of an itemized deduction."

A shift in LICC's argument. I never said that there would always be a material difference between using the two, only that the effective rate is more accurate. For some people there will be a difference; for others there won't.

EW - this is just one last effort to convince LICC that he is plainly wrong.

steve, in your example, the taxpayer's marginal rate would be 25%. When determining the after-tax cost of owning, you would use 25% to determine the benefit of those deductions received for the mortgage interest and property taxes. Were it not for the deductions, you would be paying 25% or higher in taxes on that income. If anything, I would be understating the benefit because all your deductions brought you into a lower tax bracket. Your flawed theory would use the effective rate of 20%, which wrongly understates the benefit of the tax deduction.

Thanks again for proving my point for me. You are dismissed.

steve, the discussion about 1968 prices was on another thread. You're getting confused here. But I'll respond anyway,

See recent prices for 1160 Park: http://www.streeteasy.com/nyc/building/1160-park-avenue-manhattan

See NY Mag article on 1968 Manhattan apartment prices: http://nymag.com/anniversary/40th/strategist/43881/

1968: A six-room, three-bath co-op apartment at 1160 Park Avenue: sold for $32,700.

From 2006 to 2008, looks like similar apartments in the same building sold for $2.25mil to $3.1mil. And this building is all the way on 95th Street.

You are dismissed.

> And this building is all the way on 95th Street.

Shouldn't you have picked a part of Manhattan that didn't go from marginal to good?
Something in the 60s or 70s would be more accurate...

Okay, LICC, let's do that.

"in your example, the taxpayer's marginal rate would be 25%."

Dude, you make $85,000 a year. Tax brackets:

$0 to $8025 - 10%
$8026 to $32,550 - 15%
$32551 to $78,850 - 25%
$78,851 to $164,550 - 28%
$164,551 to $357,700 - 33%
above $357,700 - 35%

The marginal rate is 28%, since $78,851 < $85,000 < $164,500.

He pays:

$5,000 in property taxes
$5,000 in mortgage interest
$5,000 in state and city income tax

So, by your calculation his taxes are reduced by 28% * $15,000 = $4,200.

That is what you are claiming.

But they're not. They are reduced by 28% * ($85,000 - $78,851) = $1,721.72

PLUS

25% * 8,850 = $2,212.50

Because that portion of the deductions above $78,851 ($6,149) is deducted at 28%, and the portion under $78,850 ($15,000 - $6,149 = $8,850) is deducted at 25%.

For a total tax savings of $3,934.22

You have overstated the tax benefit by $265.78.

In order to reach the 28% percent tax bracket you must include all your income; in order to fall back to the 25% tax bracket, you must include ALL OF YOUR DEDUCTIONS AT ONCE.

Thanks again for proving my point for me. You are dismissed.

steve, you are really embarrasing yourself now. Your marginal rate is the rate paid on your last dollar of income that is taxed. After the deductions, the marginal rate is 25%. A marginal rate is specific to each taxpayer. You don't use a rate at which the taxpayer never paid. I claimed you use your marginal rate when determining your tax benefit, not what your marginal rate would hypothetically be if you didn't have the deduction. If anything, I am understating the benefit in situations where a person's deductions bring them into a lower marginal rate than they otherwise would have had. You are sinking even faster.
You also ignored the fact that in your scenario, the person's effective rate is 20%, which is what you advocate using, which is clearly and undoubtedly wrong.

Eddie, steve asked for one "datum" of a Manhattan property. I gave one, south of 96th street which is considered prime Manhattan. I have friends who live in the 70s UES who bought 3-bedroom apartments in the late 1960s, and prices were in the mid- to low-$30k range. I just don't have a direct cite on those, obviously.