Question for Steve and the other doomsdayers

joepa, I own for a different reason - stability/predictability of monthly expenses
not everyone owns for the same reasons
this recent boom has involved people looking for short-term profits
I have no idea what the proportions are, but my $0.02 worth is that most people's life trajectories do not involve 25 years in Manhattan or Brooklyn or Jersey City apartments - people move to other urban areas or the TriState suburbs
the chatter about "the market" I feel is mostly a very specific demographic group, and that's why whether the market is up or down, whether to rent or buy, is so important -- to that subgroup
it also intersects mine, though I am a long-term NYC resident and not leaving

because they have no other outlet for their genius. probably, in their real lives, no one wants to listen to their analyses. Frankly, their on here for the same reason we're on here. Because the market is dead all around and we're looking for signs of life. sort of like what would happen after a nuclear holocaust. we'd all come on here looking for steve's cheery messages about the future of nyc real estate in an apocolyptic nuclear winter.

Why do you care so much about why he cares so much?

The stuff about children of owners vs. children of renters is an amusing example of social science being abused - applying the experimental model to a situation with so many intertwined independent variables that it would be impossible to control them properly. That doesn't stop the real estate industry from parroting the results. In fairness, I doubt most of the parrots would really understand the fallacy of correlation implying causation.

West 81st - Well then we can go on forever - why do you care so much why I care so much about him caring so much :)

I agree as to the difficulty in validating that experimental model - that doesn't mean it is invalid, however. I had a recent similar discussion with some friends about SIDS (sudden infant death syndrome). The Amercian Academy of Pediatrics says that when they put out the recommendation for babies to sleep on their backs, the rate of SIDS decreased in half. There are at least a dozen possible other reasons for this decrease - to associate the decrease with their recommendation is tenuous, at best. Still - since the recommendation came out, very few parents allow their child to sleep on their stomachs anymore. So - if the possibility of the correlation exists, are you going to be the one to test if its valid?

Steve and the other doomsdayers are a bunch of forum morons!

I rarely post articles or start threads that would be considered "doom and gloom" but since I agree with steve and with what a lot of other people said I will throw my 2 cents in here too. Why do I care? Simple. I work in Real Estate, I have a vested interest in the state of the market (one way or another). Do I wish for it to go down, sure. That is what markets do when they go up, they come down.

"going to decline and hoping that the rental market declines so that you can get in and rent, would you? Perhaps the reason for that is that there is a huge value and sense of pride with home ownership that is not accounted for in your rent/buy analysis. People prefer to own - that's why this board pretty much exists. Home ownership gives a sense of stability, pride, commitment to your community, and freedom that renting doesn't. It gives you something that you can enjoy for your entire life and pass on to you children. There are studies which actually show that children whose parents own v. rent actually have a higher IQ and are better adjusted. Using a strict formula which only accounts for the financial aspects of ownership v. renting entirely ignores these social benefits."

WTF is a "social benefit"? Your above quote shows your superiority complex towards renters. Would your friends and relatives not visit you if you were a renter? Do you sleep better as an owner? Do you flash the deed to your condo to get laid? Maybe I am just jealous because a lifestyle so trite and meaningless where owning (over renting) equates to nirvana is incomprehensible to me.

Actually, yes. We sold our coop when our eldest child was seven months old, and have rented ever since.

We did put her on her back in the crib, but when she started rolling over, we left her alone.

Yes - I'm a self-professed anti-rentite! I never equated ownership to nirvana or said that renters can't get laid. I just said there are certain non-financial benefits to ownership v. renting. Increased sexual activity was not one of the benefits I stated. You have greatly exaggerated my sentiment.

Joepa, I agree that there is an intangible benefit to ownership. Some people sometimes will be willing to pay something for this. Strangely, though, I'm not sure this comes through in the data. There are widely published reports of price-to-rent ratios, and they show pretty good stability over time (with prices and rents near parity), until the last five years! I think your point is fair but you need to suggest how big that premium is. 5%? 10%? 30%? 50%? Many people on these boards think the ratio is out of whack by 30% or more. I doubt that is a sustainable premium to pay for this intangible benefit. Furthermore, during times of fear, like right now, people might pay a premium to rent (this hasn't happened yet, of course). Personally, I think the premium we observe in the data is due to a faith in ever-rising prices that became a bit irrationally exuberant over the past few years, and will likely correct. The correction might come through as rising rents, but more likely through falling prices.

Excellent summary, TenthStreet.

As for non-financial benefits - Joepa, I completely agree with you - I'd rather sleep with an apartment owner any day over a renter - owners are more sexy and stable!! Co-op owners are even better than condo owners because they have to have more liquidity than 10% down-payment. You can't get sexier than the owner of a pre-war gold coast spread...

Good points tenthstreet. As for the amount of the premium, the problem with an intangible benefit is that it is difficult to assign a percentage. The value of stability is intrinsic and different for everyone. Obviously many believe that 30% or more is not an out-of-whack premium to pay for this benefit. Few think that the market will continue to sustain these price increases yet many continue to buy in at these levels. The rationale is usually that they plan to live in it as a home and stay in it for a long period of time. Thus, they are saying two things: 1) I'm okay with paying this premium because I intrinsically value home ownership (v. renting) at a greater rate than the current premium and 2) any possible lost premium should be offset over time. Whether it is sustainable or not, only time will tell. Most thought in 2004 that it wasn't, yet here we are 4 years later.

Joepa,

I agree with your premise but understand that in most parts of the world, housing is a very utilitarian concept. Most of the rest of the world would have a tough time understanding why a family of four needs a home with 3 1/2 or 4 bathrooms or why there is a need for a "guest" bedroom that rarely gets used or the need for a maid's room. A single family home with 10 Bedrooms and 14 bathrooms would be a mindblowing concept to 90% of the world's population. It would even be viewed as excessive in most parts of the developed world (outside of the Anglo-Saxon countries).

Think about this:

The U.S. Government has subsidized housing since the 1930's starting with the Savings and Loan industry and continuing with the creation of Fannie Mae, Freddie Mac and Ginnie Mae. The are no mortgage GSE's in other countries outside of the U.S. Furthermore, the subsidy extends to today with the deductible of mortgage interest on your tax return. And even further, we as taxpayers are now on the hook for liabilities of Fannie and Freddie. As a result, an inordinate amount of U.S. savings and capital investment goes to residential housing. This may or may not be a good thing. In fact it is probably not a good thing. But that is the way it is. And as we know, the American public is very good at responding to incentives and there is tremendous demand for subsidized goods.

Rent/Buy ratios are out of balance. The financial model does not make sense. But it is has been out of balance for a long time. And there is no reason to think that it cannot stay out of balance for a very long time. Or to think that it cannot get even more out of balance.

Most buyers do not buy homes for purely financial reasons. On the contrary, it is emotional factors and fuzzy feelings about schools, safety, convenience, commute, aesthetics, prestige, ego that all weigh in on the home buying decision . No where is this more true than in New York City and in the surrounding metro area. No where are people more willing to spend money for convenience. And there is virtually no where else where people have the income to pay for that convenience. I accept that the rent/buy relationship is out of balance. And I have no doubt that it can remain so for a very long time.

Joepa, I am suggesting that there is usually not much of a premium at all. The only reason such huge premiums would have emerged in recent years is because people have an inflated view of future growth. Anyone who bought four years ago in Manhattan and sold today would enjoy a handsome profit. But it doesn't mean that the market behaved rationally over that period (a corollary to “The market can stay irrational longer than you can stay solvent.”; and bravo to anyone who made money). Given the tightening credit market, buyers today are of necessity better-capitalized people who therefore don't have the discipline of the capital markets telling them "no". Generally these people are the last to go in a bubble: those who have too much money or not enough information (hence the disproportionate share of foreign buyers in the residential and commercial real estate markets). On the downside, the market might overshoot as well. Markets dow not stay out-of-whack forever.

I am a long-term believer in NYC, but why not wait a year or two and get more space for your money? No one seriously thinks prices will continue to rise much over that period (and most think they will fall). I don't begrudge anyone their decision to buy today, but I don't think they're making a decision they'll feel great about in a year or two. I wouldn't buy to make money (i.e. I don't see it as an "investment"), but I wouldn't buy to lose money, either.

I agree with joepa. There is something about owning that is deeply embedded into the human psyche. Serfs worked their lives to own land. Now that China is experiencing huge wealth they are buying homes and have an interest in travel and buying abroad. Similar to the Russians, the Japanese in the 80s and so on. It seems to be an human complulsion. I kow Steve will be on discussing that the Swiss rent - but I think parts of Europe are bad examples because often you cannot own the underlying land. But that's another topic.

Unless someone is very young and renting or renting only because they're in town for a few years on business I admit I view them differently. They strike me as somewhat immature and as having fear based thinking. They always seem too afraid to take the plunge. Renters now might have a point about prices being out of whack but that does not explain why they missed the run up of the last few years. It seems to me, a long term renter will often miss out on opportunity because it will never be the right time.

I agree with joepa concerning the intangible benefits of home ownership. But to further TenthStreet's point, these intangible benefits are actually priced in to historical price-to-rent ratios. Unless one can argue that there are more intangible benefits to home ownership currently than there has been historically, there is no reason that current price-to-rent ratios should exceed historical values by nearly as much as they do. As TenthStreet notes, the reason p-r ratios are currently so out of whack is because people came to view real estate not merely as a home with the attendant intangible benefits but also as an investment that would appreciate in value. If the expectation of appreciation caused prices to rise so much that p-r ratios dramatically exceeded historical values, the elimination of that expectation (or the expectation of depreciation) should cause p-r ratios to fall in line with (or below) historical norms.

joepa,

I hear you, although those aren't exactly my reasons for buying. I look at it this way: in the neighborhoods that I like best - the east village, west village, and nolita - there are very few good rental buildings. there's kind of a bifurcation in the market in these areas - old walkups, a few great old buildings, and some new buildings (most of which are very nice, a few that are not). One of steve's biggest arguments is that it is "much cheaper to rent than buy", but for me, there really aren't any comparable apartments to rent. I want to live in a neighborhood I like in an apartment I like, and am willing to pay for it. He likes to throw up those lists of no-fee places, and I've probably lived in or looked at all of them in my area. You either buy a great place, or rent a crappy one. There are some extremely high end rentals, but they are more apartment than I need, and are way more expensive than my mortgage. In addition to this, I am happy to have my monthly payment locked in, and not be subject to rent increases year over year (which I continue to see in the better buildings in my area). I am also very confident that I could rent my place out to at least cover my mortgage (even before tax benefit), and that's now - I expect the spread to widen as time goes on.

Honestly, I'm not buying to be more invested in my neighborhood - I think that is a good side effect of buying, but I wouldn't pay for it. That being said, if I had kids, I would probably think a little differently, and be more inclined to pay a premium for the stability of ownership.

In any event, thanks for the interesting post and thoughtful analysis.

Oh, and as to why people post negatively all the time, my guess is that they want to buy, but can't afford current levels, so they want to try to talk down the market (as if posting here will help, please). I also think that they are a little lonely and like getting attention.

eah: "They [renters] strike me as immature and as having fear based thinking." Really?

If you narrowed your prejudice to unregulated tenants with excellent credit, substantial liquid assets and very settled work and family situations, you might possibly be on to something. But you would also be narrowing your prejudice to a very small percentage of NYC renters.

People have different levels of tolerance for different types of risk. That doesn't mean that some are "fear-based" and others aren't. Much human behavior is driven by fear of varying sorts. Why is owning any braver than renting? I may be more afraid of asset depreciation than you are; but apparently, I'm less spooked by the uncertainties associated with renting. As for maturity, I think there are far better yardsticks, notwithstanding the real estate industry's relentless attempts to equate homeownership with adulthood.

Vive le difference. Can't we all just get along?

Don't forget there are non (or semi-) financial benefits to renting as well, particularly in NYC.

Flexibility is one. The apartment that "works" for you at 22 is likely not the one you want at 32. Trading up is easier (from a process POV) when renting. Folks might want to sample neighborhoods. I know folks that want to go "all out" and take a luxury place for just a year. You could sell or sublet in some case if you owned, but there are restrictions and time costs.

Or even trying other cities. Or careers. Or whatever. I've seen folks "tied" to a certain place in life because of ownership (or even a rent stablized place they don't want to give up.

I think part of why this is a city of renters is because its a city of the kind of folks who DON'T want what ownership usually brings. Stability? Consistency? I thought all those college folk moved to NYC for the opposite reasons...

Not saying those are bigger/better reasons than the positives for owning, just noting that there is a flip side to every story....

In the end, options are generally worth something. And the option to make continued choices each year is worth something, non-financially, and potentially financially as well.

And, in the end, you could have all the intangible benefits in the world for owning... if you have to pay too much for 'em, they you come up short.

West81st, it's just an opinion. I said "I admit" because I wanted to convey that I know there are exceptions and it is a broad stroke opinion. Still, I do think owning is an essential growth step. I actually find regulated renters more scary. They stay in the same place they could afford when they were 20 or so? I have a tenant who is a physician. Starting renting from me when he was a poorly paid intern. Why on earth he is still with me all these years later and many more pay grades up confounds me.

Anyway, I agree...it is not an important enough issue to go to blows over.

EAH: Exactly. Group hug!!!

Hey, I'm grateful for all the information and insights I've gotten from Steve. His comments have helped me to resist buying in NYC at this time. There is a lot to be said for owning - and I do in Connecticut. But I'm OK with renting a pied-a-terre in NYC now as I agree that there is substantial price risk in Manhattan property today. Price-to-rent ratios are important...just like price-to-earnings ratios were important for Internet stocks in March, 2000. (How I remember all the folks who said I just didn't get it in 2000!) As Mark Twain said, "History doesn't repeat itself but it does rhyme."

Just so I understand...those who post from the bearish point of view are lonely, destitute cretins who revel in others misery. Those who are bullish (i.e. nervous) are shining beacons of society's aspirations, whose views are so unassailable that any opinions to the contrary are unwelcome. Okay.

This whole thread is nothing but self-administered ego stroking for those caught on the wrong end of a declining real estate market. Sorry to be so harsh, but it just irks me that people think these forums belong only to the bulls.

Gee, and I thought this was one of the most harmonious threads I've read in a long time; divergent viewpoints expressed eloquently. See we can play well together if we try!

I think that reasonable people can be in the more bullish or bearish school when it comes to Manhattan real estate. No doubt that the economy will have a negative pull on real estate. Still, things are holding steady in most areas, with mild appreciation and declining inventory.

I am somewhat troubled by the extreme bears that use gloom and doom and jumbled statistics to talk down the market. Psychology plays such a big role, and these characters are using the Web as a sword in their fight to drive down prices. If you do not think psychology plays a role, look at the way reports on consumer sentiment (ie, polls) affect the stock market as they are announced. Now these people have every right to express their views, but I have a right to point out what they are doing.

I think those who are trying to talk down the market so they can afford to buy should consider the fact that they are working to de-value an asset they want to, at some point, buy into.

Reminds me of a quote from Carter Eskew in the political context that appeared in the Washington Post this weekend:

"I once asked a famous commercial advertiser why he didn't attack his big rival, a competing laundry detergent -- say that it "ruins your washing machine!" or "causes hives!"

His answer: "Because I might gain temporary market advantage, but I'd devalue the whole category. Sooner or later, people would stop buying soap.""

Now maybe one of our bearish friends is already writing his book, "How I Crashed the Manhattan Real Estate Market," probably in several languages. I guess that's one way to get money for your downpayment.

Will: Considering the millions that are spent promoting homeownership, and the billions that subsidize it, I think the market can handle a few overheated posts on an Internet message board. If that's all it takes to torpedo property values, maybe they need to be torpedoed.

will - consider all the energy you're expending to wage your war against the bears. Do you really believe that these few individuals have the collective power to beat the NYC real estate market into submission? Particularly if, as you claim, "things are holding steady in most areas, with mild appreciation and declining inventory."

Why the angst?

Same question to joepa - why the concern?

"*Gee, and I thought this was one of the most harmonious threads I've read in a long time; divergent viewpoints expressed eloquently. See we can play well together if we try!"

A thread about Steve without Steve..... Hmmmmm.

I see your point, West81st, but our culture and the great influencers are changing. Look at the Obama campaign as an example.

One person can make a difference, for better or worse. The people on this board are opinion leaders on the Manhattan real estate market. Just look at what Topper says -- Steve dissuaded him from buying a place. Enough Steves and Toppers and we will have a crash.

It may not have dramatic impact for long term future, but one voice screaming can have an influence. The Big Lie repeated over and over again becomes reality.

As Nicholson's Joker had "a name for [his] pain," so does eah: Dr. Low Rent. That's a shame.

Just expressing my opinion, Faustus. My right.

"A thread about Steve without Steve..... Hmmmmm."

hahaha..knew steve couldn't resist posting something..couldn't hold out any longer? who wants to take a over/under on how many days can go by before steve/eddie succumbs to the urge to post some doomsday piece of news? LMAO..

Why is it that the bears are using "gloom and doom and jumbled statistics to talk down the market" but the bulls are not using delusional optimism in the face of crushing fundamentals to maintain overvalued pricing for assets they are trying to sell? There is simply no more reason to impugn the motives of the bears than there is the bulls. Why isn't it that everybody is giving their honest assessment of the state if the market? And if you think people should refrain from making honest arguments because those arguments might convince somebody of the merits of their position *gasp*, you're really living in the wrong country. If real estate really is overvalued, the bears are doing more good than harm by informing people of that fact.

not everyone is a bull or a bear

bill - where are you seeing bullish comments calling for 20-30% increases in a year in NYC real estate backed by misleading information and cherry-picked data? I don't see your point.

will - listen to yourself:

"The Big Lie repeated over and over again becomes reality."

What's the Big Lie? Is it a Big Lie if people consider the facts that surround them, and after serious deliberation, reach the conclusion that NYC real estate is a bad investment? Or that now is not the best time to buy? Shouldn't one consider the arguments made on both sides of the debate? The fact is, as obnoxious as certain posters (including myself) may often be (mostly for entertainment purposes), the macro- and microeconomic arguments against buying right now are not only compelling, they are virtually overwhelming. And they have been demonstrated time and time again with arguments backed by data and other source material - hold your nose and admit that credit goes to Steve for presenting thoughtful and reasoned arguments. Just expressing my opinion, Will. My right.

And on the logic front, the bears have a very very solid case. Nor has the bulls' case been helped by the likes of LICC and others who don't have the capacity to engage in intelligent debate.

What's the Big Lie? That prices will only go up? That foreigners will be there to save us? That bonuses will be strong this year and banks will start hiring en masse? That the lending environment is healthy?

Tell me, what is the Big Lie you're referring to?

I believe the extreme bullish case misses the point that Manhattan RE prices have already experienced an unprecedented run up in the past decade. The better question is what happens from here.

It is difficult to argue that the fundamentals that generated all the past optimism has substantially changed. It is more appropriate concentrate on the factual side of the equation mainly, state/city finances. health of the financial community, employment, inventory levels and investor psychology to make an informed assessment. Making financial decisions based on emotional analysis usually doesn't generate the best of results.

I was a huge bull from 1995-early 2006 and it was one incredible if not historic run. Today, I'll let the new fundamental realities work themselves through the system for a year or two and allow the picture to come into sharper focus.

West81st: - I'm not saying Steve has the influence to bring down the market, but to say that a few people expressing their opinion don't have the ability to "torpedo" value systems, is somewhat naive. Most of our value systems are based on a few people's expressed opinions. Nazism, cults, the KKK all started with a few people expressing their opinions in the face of rational thought. I don't mean to draw a comparison with these extreme groups to the doomsdayers on this board, but don't underestimate the power of a few opinions. They are especially strong in the face of fear - whether that be economic, social or political. There is something called source amnesia. We all have it. We know that George Washington was our first president but very few of us remember where we first learned that from. We forget the source and the conclusion becomes the truth. You say something over and over and over and eventually people often forget where they heard it but remember it as truth.

Faustus - I'm not waging war on the bears. I have absolutely no problem with rational discussion about the declining market. I, myself, believe it will decline (though I have for years). It's the constant barrage of articles and gospel and shoving statistics down our throats -- from the same individuals -- over and over and over that I have a problem with. It's made me consider leaving this board on many occasions.

Wow - that was a much longer post that I had written - ignore the above West 81st - that's not what I wrote.

Let's try again:

West 81st:

While I don't give Steve that much credit, don't underestimate the power of a few opinions. Often just a few opinions can torpedo value systems. Nazism, cults, the KKK all began with a few opinions in the face of mass opposition and rational thought. I don't mean to draw an analogy between Nazism and the bearish propaganda on this board, but the power of a few opinions should not be dismissed. There is something called source amnesia. It's remembering something as truth but forgetting the source of where you learned it. We all know that George Washington was our first President but most of us forget where we first learned it. Eventually, something is said often enough that we often forget the source and where we learned it but take the conclusion as truth.

Faustus - I'm not waging war on the bears. I have no problem with people on this board engaging in rational argument about the declining market. I, myself, believe that the market will decline (though I have for years). It's the constant barrage of articles, propoganda, statistics being shoved down our throats, and deragatory remarks toward any opposition over and over and over from the same people on this board that I take issue with. It's made me consider leaving this board on many occasions.

Apparent glitch in the system: Last try to repost

West81st: "If that's all it takes to torpedo property values, maybe they need to be torpedoed"

While I don't give Steve that much credit, don't underestimate the power of a few opinions. Often just a few opinions can torpedo value systems. Nazism, cults, the KKK all began with a few opinions in the face of mass opposition and rational thought. I don't mean to draw an analogy between Nazism and the bearish propaganda on this board, but the power of a few opinions should not be dismissed. There is something called source amnesia. It's remembering something as truth but forgetting the source of where you learned it. We all know that George Washington was our first President but most of us forget where we first learned it. Eventually, something is said often enough that we often forget the source and where we learned it but take the conclusion as truth.

Faustus - I'm not waging war on the bears. I have no problem with people on this board engaging in rational argument about the declining market. I, myself, believe that the market will decline (though I have for years). It's the constant barrage of articles, propoganda, statistics being shoved down our throats, deragatory remarks toward any opposition over and over and over from the same people on this board that I take issue with. It's made me consider leaving this board on many occasions.

faustus, you should also realize that steve doesn't provide reasoned and thoughtful arguments backed by data, he uses out-of-context data, manipulates and cherry-picks information, and sometimes just flat out lies, in some weird competition or complex he has to prove that anyone is stupid to disagree with anything he says. I have no problem with the bears that are reasonable and respectful, like Mmafia and others.

"bill - where are you seeing bullish comments calling for 20-30% increases in a year in NYC real estate backed by misleading information and cherry-picked data? I don't see your point."

1) This is false equivalence. Considering the fundamentals, predicting a 10% YoY increase (which I have seen) can be more irrationally bullish than predicting a 20 - 30% decline from the peak is irrationally bearish.

2) I've seen bulls argue that tightened lending standards will drive Manhattan prices up. The bears have nothing on the bulls when it comes to making ridiculous arguments.

"I have no problem with people on this board engaging in rational argument about the declining market. I, myself, believe that the market will decline (though I have for years). It's the constant barrage of articles, propoganda, statistics being shoved down our throats, deragatory remarks toward any opposition over and over and over from the same people on this board that I take issue with. It's made me consider leaving this board on many occasions."

joepa, glad someone else feels this way. In fairness, a few of the "bullish" people here were guilty of the same thing not so long ago, but none were quite as derogatory/condescending as the newer batch, which started posting with such fervor once it was clear the market was slowing.

I haven't seen the arguments that tightened lending standards will drive Manhattan prices up. Maybe someone said is somewhere, but I haven't seen it. I may have seen some comments saying 10% YOY is possible, and while I don't think that will happen, I wouldn't say it is crazy. Let's say there is a 10% chance that the credit markets stabilize and Wall Street doesn't do as bad as expected for the rest of the year, and layoffs aren't as bad as projected. To me, that is just as likely, or unlikely, as a 50% crash in Manhattan prices in a year, which some of the bulls argue very forcefully. With the exception of one person, I just don't see the "bulls" on this board being as extreme as the bears.

"Often just a few opinions can torpedo value systems. Nazism, cults, the KKK all began with a few opinions in the face of mass opposition and rational thought. I don't mean to draw an analogy between Nazism and the bearish propaganda on this board, but the power of a few opinions should not be dismissed. There is something called source amnesia. It's remembering something as truth but forgetting the source of where you learned it. We all know that George Washington was our first President but most of us forget where we first learned it. Eventually, something is said often enough that we often forget the source and where we learned it but take the conclusion as truth."
If the statements being made are based on facts, is there really any problem? I fail to see any connection between the "bears" who in reality are the moderates (well I would say most are) and something like the KKK.

People using facts and economic fundamentals to show their viewpoint = Racially motivated hate group???

No matter what "side" of the fence you are on, you can choose to ignore facts and/or have an opinion. But to deny that facts/datum are what they are, is a different matter entirely.

Fed - you entirely and consistently miss my argument. It's not the "facts" or the opinion that I have a problem with, it is the way in which these opinions are expressed that I have a problem with.

I also tried to make clear that I wasn't trying to draw an analogy between the bears and racially motivated hate groups (though I knew someone would miss that point and attack me for doing it anyway). It was the method by which some people on this board and these hate groups express their messages that I was drawing the analogy with.

"Nazism, cults, the KKK all began with a few opinions in the face of mass opposition and rational thought."

And so did religion: Jesus, Mohammad, Buddha.

And so did philosophy: Plato, Aristotle.

And so did economics: Adam Smith, Keynes, Friedman.

And so did civil rights: Martin Luther King, Lyndon Johnson, Bobby Kennedy.

And so did everything that matters in the world. It starts with the opinions of people whose opinions fly in the face of conventional wisdom, who stick to them until they are proved corrected.

Now joepa - I won't say that you're an idiot, but your postings are certainly idiotic. Statistics / Articles = Propaganda. Come on.

And what they did was

"And what they did was" = bad editing. Ooops!

And? Thank you for backing my original point that a few opinions can have the power to change. West81st eluded to the fact that a few opinions shouldn't have the power to change market forces. We both agree that that is incorrect.

Steve - all I'm saying is that there is a better way to express your opinion than proselytize it as if you are any of the above mentioned people in your last post - championing a cause to the death. We're dealing with subtleties and ambiguities of a real estate market -- not the repression of civil liberties or religion.

"We're dealing with subtleties and ambiguities of a real estate market -- not the repression of civil liberties or religion."

And we're not dealing with Nazis, either, which I have been called, or the KKK.

I'm not comparing myself to any of those people, just pointing out the idiocy of your post.

"there is a better way to express your opinion"

It's up to me how to express my opinion. As soon as I give that power to others, I lose my opinion.

Sorry.

Yeesh, are you really comparing yourself to Jesus, Muhammad (I know how much you care about spelling), Plato, MLK Jr., etc.?

"where are you seeing bullish comments calling for 20-30% increases in a year in NYC real estate backed by misleading information and cherry-picked data? I don't see your point" This is one of the funniest by LICComment yet, just because he tries to strike a civil and reasonable tone instead of resorting to his typical name-calling and hyperventilating rants. First, petefitz predicted 15% increase for 2008 in another thread. Second, you bulls already had 7 years of 20-30% appreciation from 2000 on, and what you're trying to say is that that was a reasonable, economically sound, socially fair and just wonderful occurrence. We beg to disagree. Third, about the cherry-picking, it is perfectly reasonable to pick the info based on the source and method of research that source used. For example, I refuse to give much credit to median price info from Prudential-Elliman because median says little and PE is in the business of selling Manhattan apartments and earn a comission.

Anyone who disgrees with Steve, and worries that he might influence the market, should be glad that he goes over the top and debates every detail to death. His rhetorical excesses distract attention from his sound central thesis: that rents, property values and incomes eventually gravitate toward equilibrium at ratios that approximate historical norms.

If Steve didn't let himself get Swift-boated on details like marginal vs. effective tax rates, or the exact ratio at which rents and values will achieve equilibrium, he would be much more persuasive, and considerably more threatening to anyone who doesn't want his message to spread.

I still think the idea that this board wields significant influence is overblown. The "Yelling fire in a crowded theater" analogy doesn't apply, because people don't panic-sell real-estate the way they might panic-sell a more liquid asset. You can't click from an alarming post on Streeteasy to eTrade.com and sell your house in ten seconds, the way you can with a stock after reading an ominous rumor on the web. The market may not be very efficient, but it isn't really impulsive either. And while psychology plays an important role, that's just as true on the way up as on the way down.

The Nazi analogy doesn't work either, because Steve doesn't coercively control the channels of communication. There are plenty of bullish voices; and even in a bearish real estate market, the bulls still have much bigger advertising, marketing and lobbying budgets than the bears. If the bears are convincing people, maybe it's because they make some pretty good points.

watch bjw...get steve all worked up and he will tell you all his tear jerking stories about burying ALL his freinds who dies of AIDS complications and Stonewall and how every young gay person needs to thank HIM for their current rights...

You know, cause that is so relevant to NYC RE...

steve - how you express your opinion is clearly up to you. This is the last time I'll say this but, all I'm saying is that if you come down off your pulpit for a second you may see that there are a lot of people on this board that have valuable comments and are willing to have a rational discussion with you about your ideas without resorting to derogatory attacks and without you continuing to call people (or their posts) idiotic.

Well said joepa.

The reason I come to street easy is to get some information about prices so that I can buy once the pendulum over-swings in the other direction now that we are in correction mode.

The reason why I come to this board in particular is because when and if I see all the perma-bulls stop posting, I will know that yet another signal among many other signals has shown that the time to buy is at hand.

"without you continuing to call people (or their posts) idiotic"

It is idiotic to make a reference to Nazis. Sorry, it is.

"without resorting to derogatory attacks"

LICC: "Well said joepa"

Do you, joepa, want me to go through and re-post the things that LICC calls people?

I think not.

"there are a lot of people on this board that have valuable comments and are willing to have a rational discussion with you about your ideas"

If somebody would come up with a theory supported by real numbers, used by economists, I will gladly have such a rational discussion. However, what I am bombarded with - especially by LICC - are self-invented "theories" that are designed to come up with the answer they want to hear. Claiming - as LICC does - that the price-to-rent ratio is wrong because it doesn't take into account the tax benefit (which it does implicitly through the price of the house) when it is commonly accepted in all literature everywhere that it is true. Or LICC's derision of the Case-Shiller methodology. Or his insistence on using the marginal tax rate instead of the effective tax rate (as the government does). Or JuiceMan's "fatally flawed" comments about the imputed-rent model when it is used by the Labor Department and the Federal Reserve Board.

So come on - I'll have the argument with anybody. Show me what theory you're using, what historical norm your using, and I'll look at it. But if you insist on making it up yourself as LICC does, then I won't accept it and will criticize it.

End of story.

Real estate prices will not go down because of stevehjx's postings, nor anyone else's.

I had argued much the same things to myself and friends for years before ever reading an infamous steve rent-vs-buy thread - and I got out my calculator and tried to make sense of things and argue to people - steve did not convince me of the reasoning of his argument or of mine, and in fact seeing them taken apart so thoroughly and put back together made me question some of my own assumptions.

I do not read forums to convince others, but yes, this has been a topic that has consumed (too) much of my energy. What I do see is that other people have had the same misgivings that I have had, and that includes people who are both "bulls" and "bears" as they are categorized as. The nasty stuff is not interesting, but the arguments themselves are. If I was wrong for so many years, why? Is it my fault or is the world crazy? If suddenly what I said should have happened earlier begins to happen now, was I right or am I wrong because of the timing? Biggest question to me remains: why hasn't NYC crashed? The only answer I see is that incomes have remained higher longer here, and the trickle down effect has been steady, low unemployment for the not-so-affluent. Compared, that is, with the rest of the country. Nope, it's not because Landmark prewar condos are more desirable than new subdivisions in Fresno, CA. It's because there are more people here with more money.

Future? Let's watch with an open mind.

"I think that reasonable people can be in the more bullish or bearish school when it comes to Manhattan real estate."

I don't actually agree with that.

Once we saw 40% declines in sales, IMHO anyone who knows anything about real estate markets would see that as part one of at least a medium crisis. And I think most did.

When push came to shove, and all were asked for their predictions on the market, not one of the "bulls" predicted a decline of any less than 10% (and that was just 1, all the rest were 15% or more).

I think where we've gotten is that most of the former bulls have backpedalled, and we now have a general consensus that we're in a decline, only question is how much.

I think that gets overshadowed by lots of stupid yelling, and rationalizations about "well, I'm already up x%, so going down y% isn't really a decrease", but thats beside the point.

I think the crash is in.

I have never made any disrespectful comment to anyone who did not first make rude or derogatory comments toward me.
steve doesn't like arguing with me because I clearly show the mistakes and flaws of his analysis.
I never derided Case-Shiller, I criticized steve's out-of-context application of Case-Shiller.
steve, we had a major discussion on another thread where other commenters noted how you were completely wrong and torn to shreds on the effective v. marginal tax rate issue. You are completely wrong on that issue. Case closed.
My arguments show clear practical applications of current real-life prices and rents. Don't blame me because your reputation on these boards has been destroyed.

> I have never made any disrespectful comment to anyone who did not first make rude or derogatory
> comments toward me.

Thats not 100% accurate, as I noted before (and posted examples). There are numerous instances of you making personal attacks when the person never actually addressed you personally.

> steve doesn't like arguing with me because I clearly show the mistakes and flaws of his analysis.

You both clearly love arguing with one another, so I don't think this is quite accurate.

> Don't blame me because your reputation on these boards has been destroyed.

Pot calling the kettle...?

Eddie, don't lie about this. You can't find a personal attack by me on anyone who wasn't first rude and derogatory toward me.

"I have never made any disrespectful comment to anyone who did not first make rude or derogatory comments toward me."

LMAO.

"I criticized steve's out-of-context application of Case-Shiller."

And then you used the exact same "out-of-context application" to try to prove that Manhattan prices have gone up 9% per annum on average since 1968 because one apartment that at the time was in Spanish Harlem and now is in a nice neighborhood did.

Nice try.

"steve, we had a major discussion on another thread where other commenters noted how you were completely wrong and torn to shreds on the effective v. marginal tax rate issue."

That is correct, we did have such a discussion, and merely because "others commenters," aka "commentators," did do that, does not make it correct. They are wrong as you are, and I showed you that the Fed and the Labor Department BOTH use the effective tax rate, that is, the tax rate paid on all your income, not on your last dollar of income.

So does the Congressional Budget Office:

http://cboblog.cbo.gov/?p=40

"In 2005, the overall effective tax rate (the ratio of federal taxes to household income) rose to 20.5 percent from 20.1 percent in 2004, reflecting a rise in the effective individual income tax rate and the effective corporate income tax rate."

Seems like EVERYBODY, except LICC and his "commenters," use the effective tax rate.

To repeat, "You are completely wrong on that issue. Case closed."

My arguments show clear practical applications of current real-life prices and rents. Don't blame me because your reputation on these boards has been destroyed.

> Eddie, don't lie about this. You can't find a personal attack by me on anyone who wasn't first rude
> and derogatory toward me.

Already did, already posted examples on the other thread you tried this claim on. Once again, pot calling... well, you get it.

Now you are parroting me. That seems to be what you do best.

It was explained to you, which of course you ignored because it shows you are wrong, that the Fed uses effective rates to measure macro data, but when looking at an individual's situation, you must use marginal rates. Keep pushing this steve, it just shows everyone more and more how dense and mistaken you are.

> Eddie, don't lie about this. You can't find a personal attack by me on anyone who wasn't first rude
> and derogatory toward me.

Its a good thing for LIC that this isn't all written down somewhere, otherwise folks might realize that he isn't being straight... Thank god this is an oral-only board.

Look, all this from just one thread!
http://www.streeteasy.com/nyc/talk/discussion/4366-lic-sucks

This was LIC's first post, so impossible to claim he was replying to someone who insulted him:

> This thread should be renamed "A Bunch of Clueless People Who Know Nothing About LIC".

Then...

> Wow there is a lot of dumb commentary here.

Then...

> People who say that [lic condos]are overpriced or not "worth the money," are people who
> can't afford to buy there and are bitter.

Then... Newaccount did not address LIC directly either, so impossible to claim he insulted LIC first... yet

> newaccount, thanks for showing everyone that you think you can buy a good apartment in the Financial
> District for the same prices as LIC, and that in your opinion, Chinatown is a "ghetto." Thanks for
> showing everyone how clueless you are.

Then, after newaccount responded - with no insults - this from LIC:

> newaccount, I'll try to be patient and dumb things down so you can understand.

Then this

> I think I see the pattern of the bears who post on this board - they are either
> bitter renters or others who are angry that they can't afford to buy a nice place
> where they want to live, or people who couldn't make it working on Wall Street
> so they lash out at the Wall Street crowd that is doing well and hope for a real
> estate crash.

Again, that’s just from one post.

When LIC claims he's only an ass in response to others attacking him, he is simply lying.

"the Fed uses effective rates to measure macro data, but when looking at an individual's situation, you must use marginal rates"

LMAO.

Eddie, to be fair, you purposely baited him with a thread titled "LIC Sucks."

West81st put it best:
"His rhetorical excesses distract attention from his sound central thesis: that rents, property values and incomes eventually gravitate toward equilibrium at ratios that approximate historical norms."

This is something I'd told steve a few times, but he doesn't seem to care. The countless posts with just "LMAO," etc. are really just trolling and make this board difficult to read sometimes. I don't understand the need to be so combative on this board, to perpetually play the game of "I-told-you-so" when we're all supposedly grown adults, but some of us here apparently have an urgent need to belittle. There's lots of good info in there, but it's cobbled in with a ton of junk, unfortunately.

Wrong again Eddie. Where was there any specific personal attack? The only people I was referencing on that thread were people who had made insulting comments to me in the past. That's pretty weak if that is the best you've got. It's also pretty funny coming from you, the person who gets the most reaction from others saying you are a douche.

> Where was there any specific personal attack?

Uh, you named the guy, and then said "Thanks for showing everyone how clueless you are."
I have to assume you're just playing dumb now.

> It's also pretty funny coming from you, the person who gets the most reaction
> from others saying you are a douche.

It wouldn't be LICComment without a strong bite of hypocrisy....

Hey, I never claimed I was an angel. but you are the only one here trying to play victim. And you have MORE than your share of detractors here...

And, more specifically, this can't be called anything other than a lie:
"I have never made any disrespectful comment to anyone who did not first make rude or derogatory comments toward me."

Also, you do in fact hold the record for content-less insulting posts in a row...

Sorry, stevehjx, but I do not agree that 1160 Park Ave was ever in Spanish Harlem. You may have been born here, but as long as I've known the area (only 32 years), I have understood that boundary to have been 96th Street, and the Park Ave. buildings on the south side of 96th Street were no Spanish Harlem.

This could then lead to a long thread all by itself to see who's right and wrong. No one is perfect, and the best way to learn is to recognize that. It's the bickering that gets tiresome in a subject that otherwise is interesting. The marginal rate argument was weird. If your only Schedule C deduction from taxable income is your mortgage interest, then you look at your marginal rate. When there were more rates, people watched these things even more, because the name of the game was to get down from one bracket into the one below, hopefully two below, so that as you then deducted things like credit card and auto loan debt (remember those?) you'd be cutting into the lower tax brackets, etc.

And people do buy just for the tax break - it's not sound, in my opinion, but yes, their reasoning is that if they're going to pay that money in income taxes, they'd rather it go into mortgage interest instead, and although this may not bring their cost down to market rent, some people get an emotional satisfaction out of saving every dime they can on income taxes, even when they're paying more for their housing than they perhaps ought to.

People pay premiums to live in areas and buildings they perceive as being more prestigious, so less space for more money. That's why people go into rages when their neighborhood is insulted. People's commuting time is usually longer than they say it is. There's an old joke that no one on Long Island lives further than 10 minutes from the Rail Road.

My big question now is.... will this be a regression to the mean scenario? It has been a bubble.

I think the reason for the smug told-ya-so attitudes has been the preposterous comments hurled at stevehjx and anyone else who tried to put forth a logical argument for why we were in a bubble. I do remember them quite well, and I was flabbergasted. "When has there EVER been a decline in real estate prices in Manhattan?"

That kind of smugness is begging for a told-ya-so comeuppance, and I don't blame "the bears" one bit.

newaccount had made plenty of rude comments before I ever addressed him. Eddie, stop making things up. When did I play victim? I just corrected your lies.

Lowery, I agree with you that it was not Spanish Harlem, but I do agree with the general premise that it was not part of the Upper East Side in terms of pricing, demographics, and "general understanding" in the late 60s...

> That kind of smugness is begging for a told-ya-so comeuppance, and I don't blame "the bears" one bit.

My point (from a few days back) exactly. Yes, I feel guilty sometimes, but it was admittedly hard being (what is now pretty much demonstrated to be) right 12 months ago... and seeing the capitulation of the bulls does bring on certain emotions, particularly when you see a LOT of backpedalling...

Eddie - it's just that other people who don't know where all these postings of news articles are coming from are not giving grudge points to either side. I found the boom-forever attitude back then really shocking, but I was not about to argue with it, and hey, with the NYC apartment market so whacked-out for so many years, I for one felt pretty stupid crying "it will all crash" for year after year, and by the time I started reading this forum and saw the future-wars going on I was not about to call a winner. In this thread mention is made of cultural/group psychology and the effect of repeated gloom and doom hand writing. I have found the newspaper articles about bad news in the past six months hard enough to take, and have had some heavy s**t to deal with on an individual level, so I have mixed feelings about it. I have been reminded of a car accident my mom drove by with me in the car when I was a kid and her condemning the people who pulled over their cars and got out to look at it. She considered it very bad manners and talked about it for days afterwards. I did not understand what she meant, and I wanted to see what everyone else was looking at.

We are in a multicar pileup. I feel like I'm one of the people who can't resist pulling over to see what the damage is, but I also feel guilty for being like a spectator of Roman gladiator sport. The nasty characterizations of "bitter renters" and "people in denial about how much money they're losing" and insulting remarks about people's financial portfolios are offensive to me, because I don't think I'm either one of those camps, yet I am following the car wreck along with everyone else, for whatever reason. If I am not preaching The End Is Near it does not mean I don't believe the worst predictions, nor does it mean I'm in denial. Most people just do the best they can, and we are all interested for reasons other than gotcha points. And if the day comes that a great investment opportunity comes my way because of the train wreck........ I'm not too proud to be a "bottom feeder," which is another pejorative we can look forward to hearing.

About Park Avenue, I don't know every block intimately, but isn't the only building on Park with a private driveway in the courtyard with parking spaces for residents between 86th and 96th Streets? I don't think Park, Madison or Fifth were ever a fringe area up to 96th Street. Now, 86th Street I can remember being grotty, at least east of Lex..........

"I have understood that boundary to have been 96th Street, and the Park Ave. buildings on the south side of 96th Street were no Spanish Harlem."

There are technical boundaries, there are real boundaries. You would be incorrect to discount the effect of surrounding bad neighborhoods.

Sorry, steve, you lost me on that one.

Wow, steve talks himself in circles, again, instead of just conceding that he is wrong. What a surprise . . .

Might as well throw in my $0.02 about the mortgage interest deduction here.

The buyer looks at what s/he will pay and then to swallow the jump to ownership pill comforts her/himself with the tax deduction. The way that deduction looks best is to assume the highest tax bracket their income falls within.

Steve is absolutely correct that the gross cost to an apt buyer tday is too much higher than market rents to simply be evened out by the tax deduction on mortgage interest. In this respect it matters not at all whether you use marginal or effective rate. The bank will tell you what they will lend you, and their tables have factored in all the tax rates at different incomes, and they also will punch in your auto loan, student loan, etc., spouse's income, etc.

Comparable rents may be difficult to determine for some people, but it's getting easier - new condos' owners rent them out as investments (not because they're broke and can't sell - not yet....) It is easy to find out what rents are for a one or two-brm unit in 45 Park Avenue or the Charleston, for instance, if you want to buy there. If you're looking at buying new construction you can find out what the nearest and most similar condo is doing.

Subtract the gross rent (which is not the money the owner makes - there are vacant months, late payments, painting, etc.) from the gross cost of purchasing a new unit or resale. Let's call that the "premium."

People have paid and do pay and will pay that premium when they purchase. If the premium is zero or a negative number, then it's a great buy, a no-brainer with 20% down, but even more so with 10%, 5% or 0% down. Steve's theory is that the historical norm is zero and that it is this premium which is in a bubble stage which will revert back to a historical mean. It has been correctly stated to him that for all the data he can use, this is still theoretical. His response is that no, it's scientific, irrefutable fact. I'm saying that straight lines do not exist in reality and "data" in this realm of trending is much more subjective than anyone is willing to recognize. The best you can do is set some parameters and then plug in the maximum data. This will show you overall trends and will therefore be subject to all the criticisms of imprecision and numbers-massaging. Every single case is an exception. That's the joke of all these "scientific" trending studies.

The premium people are now paying for New York City real estate is not only the mortgage interest deduction. The benefits of the mortgage interest deduction are not a cold, finite datum point. One's interest payments change over time. One's tax situation changes over time (to say nothing of marital and family status). People pay premiums based on an expectation that the asset value will increase. People pay premiums based on an expectation that market rents in New York City basically go up over time.

My opinion is that these stratospheric price levels on Manhattan apartments are based more than anything else on the expectation that prices will continue to increase at 15% per year. It is unrealistic. There is no scientific way to compute where the bottom will be, or even whether prices will fall at all. It is anyone's guess who the fools are in this market. I balked at a $395,000 Park Avenue prewar one-bedroom apartment because my gross cost would have been something like $3,100 to $3,500 a month. How stupid was I? Try to factor future changes into a flawlessly scientific formula. Go right ahead. Let's hear all the data about what rents will be, what tax rates will be, how long our marriages will last, how many kids we will have, etc., etc. I'm all ears.

The whole problem with LICC's "theory" is that he assigns a "tax benefit" to people who can't get it.

Banks use PITI - Principal, Interest, Taxes, Insurance. They will lend you up to 32% of your gross income in PITI. Nowhere in that calculation does the "mortgage tax benefit" come into play explicitly. It is accounted for implicitly in the 28% - 32% ratios.

Now then, if I pay $4,500 a month rent I make at least $180,000 (40x monthly rent). 28% of that on a per-month basis is $4,200; 32% of that is $4,800. So a bank will lend me up to a PITI of between those figures. Well, smack dab in the middle of those figures is $4,500.

Herein lies the problem:

Sales in All Downtown
We found no listings with monthly payments of no more than $4,500 with at least 2 bedrooms with at least 2 bathrooms

Expand your search
Manhattan (20)

Absolutely 0 apartments in downtown Manhattan cost that much. All of 20 do in all of Manhattan.

The cost to buy a 2-bedroom 2-bathroom 1000 square foot apartment in a medium-rise building in Chelsea is approximately $1.1 million. An 8% 30-year fixed mortgage on that would cost $6,457.13. Unabated taxes would be about $1,000 a month, common charges would be about $1,500 a month. Total cost $8,957.13, about $9,000, or twice the rent, and requiring twice the income to buy the place as to rent it.

So, although LICC is partially correct that there is a tax benefit to owning, that tax benefit isn't available to everyone. If I make $180,000 I can RENT an apartment for $4,500, but I can't borrow the $880,000 I would need to buy it, because I can't afford a PITI of $9,000.

So to say that the carrying cost of an apartment with a PITI of $9,000 is the same as renting at $4,500 is just plain dumb, because on my income I couldn't afford a PITI of $9,000 and so could not afford that apartment. Therefore, I would never have the opportunity to take that tax deduction.

Case closed.

Therefore, it is disingenuous - and completely wrong - to equate the carrying costs between renting and buying by applying the tax deduction, because a bank will not lend you enough money

steve, it is completely disingenuous to compare a 2-bed, 2-bath Chelsea $1.1 mil apartment to a $4500 rental. A comparable rental is more like $6000. We have gone over this and yet you keep doing it. You have lost all credibility.

"steve, it is completely disingenuous to compare a 2-bed, 2-bath Chelsea $1.1 mil apartment to a $4500 rental. A comparable rental is more like $6000. We have gone over this and yet you keep doing it. You have lost all credibility."

Since you live in an apartment you own in Long Island City, I commend you for your intimate knowledge of the rental market in Manhattan. Unfortunately, I am sitting in a 2-bed, 2-bath apartment in Chelsea that costs me $4500 a month. Two other apartments in my line were just rented out at approximately the same rent. The rental building across the street charges approximately the same rent:

$5,300 2-Bedroom at 21 Chelsea (available October 1, 2008) posted 06/25/08; last adverised on 06/25/08.
$4,750 2-Bedroom at 21 Chelsea (available August 1, 2008) posted 06/25/08; last adverised on 06/25/08.
$4,750 2-Bedroom at 21 Chelsea (available August 1, 2008) posted 06/20/08; last adverised on 06/24/08.
$5,300 2-Bedroom at 21 Chelsea (available October 1, 2008) posted 06/20/08; last adverised on 06/24/08.
$4,750 2-Bedroom at 21 Chelsea (available August 1, 2008) posted 06/13/08; last adverised on 06/20/08.
$5,300 2-Bedroom at 21 Chelsea (available October 1, 2008) posted 06/13/08; last adverised on 06/20/08.

The $5,300 units have balconies.

Those were the advertised rents.

$4,680 2-Bedroom at Casa: 155 West 21 Street (available July 1, 2008) posted 06/18/08; last adverised on 07/10/08.
$4,350 1-Bedroom at Casa: 155 West 21 Street (available July 3, 2008) posted 06/18/08; last adverised on 07/03/08.
$5,250 1-Bedroom at Casa: 155 West 21 Street (available July 1, 2008) posted 05/22/08; last adverised on 06/24/08.
$5,250 2-Bedroom at Casa: 155 West 21 Street (available July 1, 2008) posted 05/21/08; last adverised on 05/22/08.

The $5,240 units have balconies.

from nybits.com.

We have gone over this and yet you keep doing it. You have lost all credibility.

Where you get the rents you quote are in larger apartments (1200 sq ft) in high rises:

http://www.nybits.com/apartmentlistings/e48012e2e135ec5fa84d58d2a8bd9601.html

$5,795.

There are the verifiable data. Case closed.

steve - "because I can't afford a PITI of $9,000."

But people are buying, and they are paying more to do so than their rent would be

One could easily turn your above post into an argument that you have priced yourself out of the market by renting for $4,500, rather than buying something smaller, perhaps in LICC (snicker), or renting a studio to save for a downpayment

You also exaggerate the numbers - and I seem to recall you sneering when I pointed out to you the existence of Parents' Money in downpayments and rental payments in prime neighborhoods - your response was something like "who would do THAT?!" Well, people do, so what's the point of arguing whether it's logical or not?

Now, in exchange for dinner at Cafe Luxembourg on your tab, I will advise you with what to do -- sell Fire Island and use the money to buy a modest little place in your dear Chelsea area. You will come out ahead. BTW, I know plenty of one-bedroom rental apartments in Manhattan in the $4,500/month price range. Sounds like you have a nice deal, so I would not call it typical.

"But people are buying, and they are paying more to do so than their rent would be"

That's right, people are buying, and those who can afford a PITI of $9,000, after tax, will be paying less after tax. The point is that you can't say that a $1.1 million apartment actually costs the same as renting a $4,500 virtually identical property, because the person who can only afford the $4,500 apartment CANNOT get financing to purchase a $1.1 million apartment. Therefore, he does not get the tax deduction. Therefore, the argument is false.

"Parents' Money." What I said is that it's not quantifiable.

"BTW, I know plenty of one-bedroom rental apartments in Manhattan in the $4,500/month price range."

And I know plenty in the $3,200 range.

Well, if you want to own a two-brm in Chelsea I think you would make a mistake to wait until your gross cost to own it would be $4,500/mo. I don't see it happening.

What do you think your rent will cost 10 years from now? It could double, but I see 50% increase no prob.

Chelsea has changed dramatically and continues to do so. Your neighborhood is just beyond the point of returning back to the days where people lined up around the block to overbid (because the price was that attractive to many people at what you felt was too high). It's getting to be Tribeca.

If large one-brms rent in prime neighborhoods for $4,500, I have a feeling your two-bedroom is not so vast and not quite top of the line, but bottom line is ..... if you're waiting for condo and coop prices to come back to your great deal for a rental, in an area that is no longer an alternative for people priced out of other areas ..... not a great strategy, even though things are dead/flat/slightly decreasing today.

Just do a rental search on streeteasy for 2-bed, 2-bath apartments in Chelsea. There are 3 for $4500 or less, and around 200 for more. The median rent was well over $6000 per month. steve, you are wrong about a lot of things a lot of times, but I must say that lately you have just been a mess of silly incorrect statements.

Now instead of your make-believe factors, let's get back to what I was really saying. A $4500 rental in Manhattan is most equivalent to a unit selling for $800k-900k, which other factors being equal and not taking into account someone trying to time the market, on an after-tax basis is quite reasonable.

you know, LIC, I have really expected a full-blown RE crash in New York, and as of now, with how things stand, I don't it coming - the tsunami is upon us and it's feeling like a mild case of bad weather - so it depends with each person and their circumstances, but for someone who knows long-term they will be in NYC and what their income is, waiting makes sense to me for only about the next year or two max.

Re LIC - it has potential - the potential is not realized yet - the zoning changes took some 25 years to effectuate after the speculation was already underway that it would be the next ultra cool area - if those zoning changes took this long, it's a sign of what's different about New Jersey and New York City. Developments just west of the Hudson eclipsed those east of the East River and left LIC trailing in the dust. So long-term, LIC may turn into this nice little ultramod settlement just east of Midtown, and if it does, there will be no bargains there. I do not agree that prices outside of Manhattan will ever each 80% of Manhattan levels, no matter where in Manhattan.

correction - no matter where outside of Manhattan

You can ask for anything you want on streeteasy - doesn't mean you're going to get it. I posted real market rental buildings, real postings, not pie-in-the-sky this is what I want to rent out the condo I overpaid for. I also posted the real numbers for renting at Chelsea Stratus - 50% loss.

I also posted real price drops of $225,000 PER FLOOR. Quite the premium.

You're out of your league - you live in Long Island City. You know nothing about the rental market here.

"A $4500 rental in Manhattan is most equivalent to a unit selling for $800k-900k"

First, it's not. The average price per square foot in Chelsea is $1300. That would put a $1.3 million price tag on a 1000 square foot apartment.

That aside, let's humor you. Say an $850k apartment. The mortgage on that is $4,989.60. Taxes of $900, common charges of $1,000.

Total cost per month: about $6,900 PITI. You need an income of about $260,000 to afford that - by what the bank will lend you. You need a $180,000 income to rent it.

There is no "tax benefit" to the person making $180,000, because he couldn't afford the $850k apartment that you just made up.

So "on an after-tax basis is quite reasonable" to the person making $260,000, but not to the one making $180,000, who can't afford to buy it, just to rent it. It is a false argument.

Sorry.

That's why the people in the Chelsea Stratus and everywhere buying new developments are losing their shirts. They can't even cover their costs.

"steve, you are wrong about a lot of things a lot of times, but I must say that lately you have just been a mess of silly incorrect statements."

The marginal vs. effective rate thread was priceless. steve often complains that no one ever posts real data. There is an awfully lot of real data on that thread, real data that shows steve is wrong. Also highlights his typical behavior when he is wrong .....dodging, misrepresenting, avoiding, and confusing the issue. I can't believe people actually rely on what he says, it baffles me. Well done LICC.

lowery, I agree with most of what you said. The decision to buy is based on market and personal factors. I think that if you plan on staying in the same place for 5 years or longer, and you find a place that has just what you want and like, and the price and payments work for you, you shouldn't pass it up expecting that in another 6 months or a year another place just like it, that you like just as much, will come along at 20-30% less. If you are not in a rush to buy, I also think it is smart in this environment to take time and wait until you find something that really works for you, even if it takes 6 months to a year. A few years back, a buyer didn't have the luxury of waiting to see; if you saw something you loved you had to jump on it. The comments of some people that buyers in this market are idiots and you must wait a few months because you'll save hundreds of thousands are, in my opinion, ridiculous. In most cases these people throw data and articles around that, when you really parse through it, don't really lead to quite the conclusions that the bears say. I don't even think the market will be strong in the next year, but I don't expect any big crash and the market has softened enough as it is that it could make sense to buy for many people.
As for LIC, the zoning and changes did take a very long time. But once the zoning was changed in 2004, everything has been progressing very quickly. The zoning was the real hold-up. If you looked at LIC now, it is entirely different from what it was 2 years ago, and you can see all the development that will change it further when completed within the next year. There are too many fundamental strengths to the area for it not to develop very nicely now that the zoning is changed. I believe the speed of the progress will depend on the market cycles, but it will keep progressing.

Thanks JM. I also think his "92nd and Park was Spanish Harlem in 1968" idea is pretty funny.

"steve often complains that no one ever posts real data. There is an awfully lot of real data on that thread, real data that shows steve is wrong."

Yes, JuiceMan, let us recall your enlightened criticism of the Fed's calculation of imputed rent that specifically uses the effective tax rate - as do all calculations of benefits ever - rather than the marginal tax rate. That is enjoyable.

"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"

strategy.sauder.ubc.ca/lee/comm407/Readings/Himmerberg,%20Mayer,%20Sinai%20(2004).pdf

Just so we know who the authors of that study are:

"Charles Himmelberg is Senior Economist, Federal Reserve Bank of New York, New York,New York. Christopher Mayer is Paul Milstein Professor, Finance and Economics, Columbia Business School, Columbia University, New York, New York. Todd Sinai is Associate Professor of Real Estate, Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania. Mayer is also Research Associate, and is a Sinai Faculty Research Fellow, National Bureau of Economic Research, Cambridge, Massachusetts."

Do we now see why when JuiceMan emailed Mr. Himmelberg to tell him how dumb he was, he never responded?

And why JuiceMan and LICC are so brilliant!

"borderline Spanish Harlem" in 1968. I lived here.

Oh yes, the fed paper. The paper says it so OF COURSE that makes it correct. That's your problem steve, you read something in a flawed paper and defend it to the death without bothering to understand that what we are talking about CANNOT be formulized. That paper works great for $200k houses in Albany, but completely BREAKS DOWN for high priced properties, high interest rates, and large tax benefits. The formula was built as a general view in a typical market and unfortunately for you, it does not scale well. How many times do we need to have this discussion? You agreed with me once already, I think your comment was “well, all formula’s are flawed in one way or the other”.

stevejhx, taking another look at 2BR rentals listed in Chelsea. We looked last month and median price was somewhere ~5500-6000 I think. Looking again this month, there's nothing below $5395. Looks like these are all pretty much high-end. I think it's fair to say that your $4500 apartment is a pretty good deal and not representative of the market median. But this just underscores how hard it is to get really sound data, and that's why I think a lot of people have a hard time agreeing with your ratios. I still don't get your dogged refusal about 92nd and Park being a traditionally upscale area - Carnegie Hill always bordered Spanish Harlem, but as most people who've lived in this city for any significant amount of time can tell you, things can change pretty quickly within a few blocks.

"in a flawed paper" "what we are talking about CANNOT be formulized."

Apparently, there are some REALLY SMART people who would disagree with you."

"That paper works great for $200k houses in Albany, but completely BREAKS DOWN for high priced properties, high interest rates, and large tax benefits."

I see. Either you're claiming that 1) Manhattan is special ($200k houses in Albany), or 2) it doesn't give you the result you want (but completely BREAKS DOWN)

I do agree with you that no SINGLE formula or methodology will will be sufficient, so I provided this, price-to-rent ratio, PITI ratios, 40x/28% ratios, p/e ratios, Case-Shiller-type data, and NONE of them works. None. Not a single one.

I get silly things like:

1) price-to-rent needs to explicitly include the tax benefit, which it explicitly does not.
2) PITI ratios show that with the divergence between rental costs and property prices, the "tax benefit" cannot be realized by renters because though they can rent an equivalent apartment, they can't buy it.
3) 28% / 32% PITI must include the tax benefit, which it doesn't.
4) Case-Shiller like data are good when they "prove" LICC's case in a marginal neighborhood, but not mine in a stable neighborhood

I could go on. Find me a methodology that is accepted by economists as I have done - price-to-rent ratios, Case-Shiller, imputed rent - that demonstrates what you want to demonstrate, and I'll look at it. What I can't do - and no one should - is just let you and LICC and others make up your own, blithely ignore real data and theory, and claim that all is hunky-dory.

It's not. It's dumb.

Hence "“well, all formula’s are flawed in one way or the other." They are. That's why I used lots of them.

That's exactly the problem steve. You keep trying to find a one size fits all formula and it doesn't work. That is why you need to take a pretty good formula and then apply common sense to it. Adding common sense to a reasonable formula is what smart people do every day. All of your formulas break down for high value properties. Why do you suppose that is?

all right, everyone, let's find a coop or a condo for Steve
right now - jeesh! all these brokers and investors and no one
can just lead the horse to the water!!! GRRRR

I went to NYTimes online ads instead of streeteasy and searched
for a 2br coop OR condo in Chelsea under $2MM. Lots of results,
but it included Village addresses like W.9th and Lower Fifth.

So here's something from the high end of the under $2MM range
which no one can dispute is Chelsea:

London Terrace: 2 studios combined into
2brm/2bath = $1.595MM 1,125 sq ft
maintenance = $2,103

Steve wins on that one. He can't afford it.

Let's skip the middle and go right for the bottom to give the pro-buying people the bias:

lowest in search = 2brm/1bath, $825K
$784 maintenance
75 sq ft terrace, wbfpl, brms are
11'3" x 9' and 11'3" x 9'5"

Okay, so this is only a one-bath. It also has teency bedrooms. But it has an outdoor terrace and a woodburning fireplace, so it might be a cute little place and if he only uses his second bedroom for an office, hey, why not?

Steve loses now, because even a self-employed guy with a lemon out on Fire Island can get an 80% mortgage on this for around $4,000/month. Let's also assume that we can knock 5% off asking price for him, because after all, the market is soft and Steve is NOT GOING TO PAY A LOT FOR THIS MUFFLER.

That would run Steve somewhere in the neighborhood of $4,500 per month. Not perfectly equivalent in price or square footage or potty rooms, but he'll save on cleaning lady charges, and he can sit outside while translating, so he won't need the Great South Bay.

More realistically, the lowest priced currently advertised online with NYTimes 2BATH/2brm indisputably in Chelsea is in the Vermeer (hold your comments, please........):

in contract, from an estate sale,
at 77 Seventh, only $995K, with maintenance
$1,211/mo. 1,200 sq ft

And that, my dear Steve, is within a stone's throw of your current rent, since it is 20% more space than you presently have and you can deduct at least $4,000 a month in mortgage interest on your $800,000 mortgage. I'll let a whole new thread spring up to throw out different types of mortgages, and you can run the numbers on Steve's effective rate and his marginal rate, but let's face it, nothing ever hits a target bull's-eye. The point is..... Steve, if you shopped, got lucky with an estate sale and low-balled people, you could right now end up with a comparable tradeoff by buying. And that's BEFORE the price plunges you're predicting.

But in general, yeah, most of the inventory out there is going to cost you more like $5,500 or up a month or up for a large 2-brm/2-bath coop or condo in Chelsea. You do not necessarily need to wait for prices to drop 50% to be within reason.