Where we're going from here - the bullish argument

aboutready - AMT does not affect mortgage interest deductions. While at some point in the future the deduction may be reduced, I seriously doubt it would ever be eliminated.

SteveJ - gotta go back to a comment you posted yesterday: "after a near sevenfold increase in prices in ten years". Dude, come on, you can't be serious. Prices about doubled in real dollars since '99, and that was on the tail end of no movement from '89. I agree we are headed down, but come man, don't just make stuff up.

LICComment, i know that. But the mere fact that one owns, paying real estate taxes, pushes one into the AMT which raises the amount of taxes paid.

and i wouldn't be so certain that we "rich" people won't lose that tax deduction, or have it greatly reduced, sometime shortly. someone's going to have to pay for TARP, and inflation and dollar devaluation can only go so far.

OTNYC, not on a Case-Shiller basis they didn't double - they increased nearly sevenfold.

The apartment downstairs from the one I bought in 1998 for $220,000 was listed for $1.14 million - don't know what the final sale price is yet. At the peak last year, a lesser apartment on a lower floor with no view sold for $1.3 million:

http://350bleecker.com/policy/sales.html

Look at the per-share price: from $944 to a peak of $7,439.45 in 10 years.

It's approximately the same for the same price. 2P sold for $303k in 2000, $1.3 million in 2007. That $303k price is 50% above the 1998 price. It's nearly a sevenfold increase in 10 years.

That's why median prices are inaccurate - they don't account for the mix of apartments.

"It's approximately the same for the same price" = "It's approximately the same for the same apartment."

Ooops!

"unless you want to play childish games of I-told-you-so, like our pal above here"

The hall monitor strikes again!

(probably because he's a little bitter that we told him so)

nyc10022, again, don't know who this "we" you speak for is. Weird. Also not sure why you think I'm bitter (or that you seem to think you "told" me anything), though it seems to make you happy to think so. Good stuff!

Yes, you're not bitter, you're just dropping bitter posts every five minutes.

Suuuuure....

Troll.

"Happyowner - are these "lots of people" really just the many voices in your head? Which specific observations have led you to perceive an increase in interest? Is it:

(1) The fact that pretty much all of the sideliners who post on this site won't touch NYC real estate at the current grossly unrealistic price levels?

or

(2) The fact that the only bulls on the board are owners or sellers?

because it can't be

(3) Your therapist, who told you that the only way to quell your anxiety about the daily deterioration of your net worth is to stop paying attention to the real estate market.

Or is it:

(4) The fact that you have been, are currently and will always be in denial."

byp, well done...

nyc, that's great. What was that line you like to troll out about "self-referential statement of the day"?

taxes taxes taxes... if I gotta hear that's another reason to buy RE, I gonna drill a hole in my head!

Everyone take notes (the RE bulls). Efficient market theory, depending on market conditions a tax benefit on any given asset is shared by the buyer/seller of the asset. B/c the market is efficient, so 1) the tax benefit of owning causing rental stock prices to decrease and home ownership cost to increase and 2) if it's a seller's market all of the tax benefit is built into the price of the asset (the home), so the buyer is in effect buying into a "tax benefit" logic and paying the seller 100% of this benefit.

OBTW, in my prior banking life, I did some tax based "loans" to multinational corporations with bases in Ireland. It took me forever to explain this to an associate... like they say, you gotta pay taxes at some point.

The tax deduction is helpful for many people, but I would never say it's a primary motivator for buying a home.

Of course its a motivator. The debate is whether or not you should deduct tax benefits when comparing buying to renting. The pro is its real money if you live there. The cons are an asset is worth the cash it could generate if you rented it out.

Rhino86, I'm not downplaying the financial benefits of the deduction; I just don't see it as, say a top 3 reason to buy instead of rent for most people.

It may not be a primary motivator for buying a home, but it's a lifesaver in my case. Our monthly outlay is the same as it was for our previous rental, but the tax benefits are massive.

I bought in 2007, and would have a hard time finding a buyer if we had to sell right now (which is funny, since that's my job). Certainly we're not thinking of our home as an investment at the moment. So it's nice to see any financial benefit whatsoever. Tax time brings us joy!

Tina
(Brooklyn broker)

I don't think its something people rank.... I think its something people either include or don't include when they compare the cost to renting. Just like interest on a down payment is something people either include or don't include. Its basically hard not to include tax benefits when things are rising around you...and seems silly TO include it as things are falling around you. If bulls don't want to talk about it as an investment, they shouldn't talk about it at all, because its all moot. If you want to talk about it as an investment, then whether you live there or not, whether the board would let you rent it or not...you can look at it as a cash flow investment.

Tina, unless you put down a huge downpayment, its hard to see how your monthly outlay on a purchase is equivalent to rent...Unless you bought something less desirable than your previous rental.

"Tax time brings us joy!"

I LOVE that! When, tina, don't you buy another property so you can save even MORE on your taxes?

"I bought in 2007, and would have a hard time finding a buyer"

That's the rub - it will cost you far more in lost principal that you ever saved on your taxes. And since you're a broker, when you lose your income you lose your tax deduction, and it winds up costing exactly what it costs - the payments without the tax benefits.

Tax benefits are tax benefits. Mortgage payments are mortgage payments.

"Rhino86, I'm not downplaying the financial benefits of the deduction; I just don't see it as, say a top 3 reason to buy instead of rent for most people."

But, unfortunately, "investment" and "RE only goes up" don't really work anymore, so you have to go lower down the list...

I'm as bearish as the next bear...but I do see the point that cash is cash. I think the issue of tax benefit inclusion may be less important that the fact that if you NEED them to bring your payment down to rent equivalence, history has proven you do not have great appreciation potential from that point. History has also proven there will be points in time when you can buy and save monthly dollars on a pre-tax basis.

> nyc, that's great. What was that line you like to troll out about "self-referential statement of the
> day"?

You and the big words you don't understand....

Can't be self referential if its me talking about your trolling...

"unless you want to play childish games of I-told-you-so, like our pal above here"

Troll home, tourist.

All these people trying desperately to talk themselves out of buying!!

Q1 2010 beats Q1 2009. So much pent up demand represented here. It is scary.

"But, unfortunately, "investment" and "RE only goes up" don't really work anymore, so you have to go lower down the list..."

I definitely would not include the latter, but RE can be a good investment, so it's pretty valid as a reason in the right situation.

Obviously cash is cash, but do you really think the tax deduction is a make-or-break factor in deciding to buy? I'm sure it is for some people, especially for those who are purely investing, but for owner-occupied real estate, I have a harder time buying it. steve, I don't think tina was saying that the tax deduction is the reason to buy, but explaining that it's nice to see that deduction when you're filing.

nyc, classic stuff.

w67 is missing the point. When comparing the cost to own and the cost to rent, you must look at your after-tax costs. To just ignore any reduction in taxes you might get makes your comparison invalid.

And you must look at lost principal, which will far outweigh any tax deductions.

And you must look at what you could have earned had you invested in C at $1 a share.

"So much pent up demand represented here. It is scary."

SteveF said exactly the same thing... a year ago.
Still funny now.

"All these people trying desperately to talk themselves out of buying!!

All these people trying desperately to rationalize past purchases.

Thanks for more useless comments steve. How about looking at principal appreciation? How about looking at how much you would have lost in C if you invested one year ago?
Please try not to degrade the discussion more.

LICComment steve is right. Monthly mortgage + fees must be lower than rental rates because buyer of property chooses to make a large equity investment in property (a non yielding asset/commodity) while the renter doesn't (he chooses treasuries, SPX, etc). Let me ask you ... if you are bullish on the economy would you rather invest in RE at a -25% discount in RE or SPX at a -50% discount ... which is the "depressed asset" (aka better investment right now)??? I think we all love the RE here, but refuse to jump at assets where current sale price doesn't compensate for risk!!!

Rhino86: "Tina, unless you put down a huge downpayment, its hard to see how your monthly outlay on a purchase is equivalent to rent...Unless you bought something less desirable than your previous rental."

I put 10% down on a two family house. We prefer our new place to our old one (same number of bedrooms, fewer baths, better kitchen, amazing outdoor space, quieter, doesn't smell like dead chickens), but it's in a less "desirable" part of the same neighborhood. Our monthly mortgage + escrow - income from our rental = a couple hundred less than our previous rent. In both homes we paid all utilities. And while I know this stat doesn't matter to the SE board, but we are much much happier in our new place.

Look, I knew the real estate was headed down when I bought. But we never considered putting our down payment into the market. We were honestly thinking of buying a boat. If we'd kept it in cash it would be gone - we're not financial geniuses. Obviously. We paid about $390/sf for our house. That number is still below average, even in our crappy nabe.

I'm not trying to rationalize past purchases. We have made good real estate purchases (Greenport 1999, Greenpoint 2002) and bad (Rowayton CT, 2004). Too soon to call it on this one - we'll know when we sell.

Tina
(Brooklyn broker)

390/sf? where is that happening?

Red Hook, Brooklyn.

NO LICComment.. you are missing my point. Mkts are efficient, if an asset gives off more cash flow should the acquisition price of said asset increase relative to other assets?

ipod: Let me ask you ... if you are bullish on the economy would you rather invest in RE at a -25% discount in RE or SPX at a -50% discount ... which is the "depressed asset" (aka better investment right now)???

You forget the tax-free implied rent "paid" to yourself by not having to pay rent for the property you own (assuming a cash purchase in both cases).

And I do not think RE is a good "investment". It is a form of consumption. The best financial RE move is to rent a super cheap crappy place in Queens far from the subway and invest your free cash flow. Everything else is a form of consumption.

Plus places you can buy are generally better than places you can rent. What is the "rent" on a Park or CPW classic 7? What is the "rent" at 40 Fifth?

And I got dibs on Rhino buying before the TImes square ball falls on 2009. He's got a kid and a wife. He is done.

No way that happens. This thing has too far to fall to get to my bid that fast. Although 25% in six months.... If that happens twice more in 12 months we could be looking at 2Q 2010!

Rhino: No way that happens.

Famous last words.

In every first chapter of every Balzac novel, the heroine states that she will never, ever sleep with the villian.

"And you must look at what you could have earned had you invested in C at $1 a share."

This by the guy who first came on this board to brag about his 60% YOY market returns and then subsequently lost his ass in the market. All while insisting that 11% returns on the opportunity cost of down payment capital was the norm in rent/buy comparisons. You have said a lot of moronic things on this site steve, but this one takes the cake. Celebrating a return on C after losing 80% of your wealth in a stock market crash and then spinning it into a rent/buy decision is absolutely fucking hysterical. I need to see one of your shows because if you are as funny on stage as you are on this site, you should be selling out MSG.

Since I already have one thread to my credit (see 50 W. 96th) where a bull said to me he would move to Canada if things got so bad that $1mm apartments were selling for $750k (ask on said apartment currently = $799k)... Are you willing to go on record that peak prices aren't going to get cut in half? Call it 30% from this here 75c on the dollar. Think empty condos, unemotional developers and the fact condos are real property that will always command a premium over coops.

aboutready - "hopefully in a year or so we will be able to look back and laugh at our foolish pessimism."

I think there will be a point at which people will look back a year or so and shake their heads at how foolish people were by not seeing the signs of the beginning of a recovery. Wanna flip a coin or shake the i-Ching or fiddle with a ouija board to get the date that will be? I have today as much faith in a ouija board as anyone else's precognitive prowess.

i have some residual fondness for the ouija board.

eventually the financial markets will stabilize and they will make money, even if it takes the government giving them money at virtually no interest to do so.

i just don't see a typical post-recession recovery. they're usually begun by the lowering of interest rates and the easing of credit. as to the former, there is nowhere to go. as to the latter, i don't see the securitization occurring to promote lending to the consumer on anywhere near the scale that has been occurring the last 10 years.

my greatest fear, however, is that the powers that be DO manage to reinflate the bubble (and there are many signs). in which case i think that the path that the market has been taking, following the 1929-33 trajectory in an almost scary manner, may continue with the second dive down. but as you point out, who the hell knows. i'm tired of thinking about it, and have decided to paint my (rental) apartment. almost done with the master bedroom, and it's looking quite nice.

happyowner

1) Every apartment has a effective rental rate and a sale price. If I make 4mm a year and decide to buy an apartment for 1mm good for me but it doesn't change the relationship (rental of your unit is simply one way to value / monetize your investment).
2) Marginal expenditures increase property values but infinite marginal expenditures don't. I can add value to the property only to the point that the value can be realized through rental or sale (and hopefully someone values my expenditures more than I do). Can I turn a 100k home in the Bronx into a 1mm without the help of my neighbors?
3) Buying (paying cash or taking a mortgage) means I am simply locking in an rental rate until sale (buying property means you are effectively long the rental market). If you guess wrong then those of you who buy at to high of a price will realize loss through sale or rental of the property (study what happened in Japan) or hold on to it until it comes back inline (again study what happened in Japan to date).
4) I am not sure what you mean by consumption though purchase but the buyer of your property should not pay for your consumption (they should compensate you for your savings and investment .. in present value inflationary or deflationary terms ).

Again, buying versus renting is a decision everyone makes on the margin and has everything to do with future expectations of value of property that can be monetized through rental or sale. If you can show me that the current price of a manhattan apartment is pricing in a significant deterioration in the rental market then please show me because nothing I have seen demonstrates this.

"Since I already have one thread to my credit (see 50 W. 96th) where a bull said to me he would move to Canada if things got so bad that $1mm apartments were selling for $750k (ask on said apartment currently = $799k)... Are you willing to go on record that peak prices aren't going to get cut in half? Call it 30% from this here 75c on the dollar. Think empty condos, unemotional developers and the fact condos are real property that will always command a premium over coops. "

Wow, I'd love to hear a response here...

ipod - "4) I am not sure what you mean by consumption though purchase but the buyer of your property should not pay for your consumption (they should compensate you for your savings and investment .. in present value inflationary or deflationary terms )."

I disagree. The buyer of property should not "compensate" the seller in any way. The buyer is the buyer. The sale price is the market price.

Tina
(Brooklyn broker)

aboutready - "my greatest fear, however, is that the powers that be DO manage to reinflate the bubble (and there are many signs)."

Isn't there some new tax incentive to first-time buyers? For sure there are lower-than-ever mortgage rates.

I don't know. I agree with you that the usual post-recession recovery pathways are not available. My crude way of looking at it is that we skipped these phases in the post-2000-plus-post-9/11/01 downturn, with too many pre-emptive strikes that went too far.

me2 - I keep looking for new insights and clues as to where we're going, but I've reached the exhaustion point and am not sensing any in-depth insights; just bull-headed arguments.

I'm reading "A la recherche de temps perdu" in the original French, and it's helping put all the finance angst into a better perspective!

tina24hour

my point is that if you take a dump and turn it into a star the market values that star with a different rental comp than the dump. but if you pay for an apt simply to consume (pay a value > expected rental over the term) then consumption is paid for with a capital loss through sale or realized "average rental" rate. to buy or rent is a decision people make based on future expectations ... any disequilibrium will be punished by the market in time. i still see people chasing the manhattan RE market (drop in rental rates approx = drop in buy price) ... if this is the case I see that wealth supporting the market in the short run, but given that this is in finite supply it will disappear as supply of new wealth shrinks (bank bonuses cut further, higher taxes etc.).

ipod: drop in rental rates approx = drop in buy price)

Only if you think the drop in rents is a long-term phenomenon.

House deflation in Japan was equal to about 6-7 times GDP, here it is about .5 times GDP. You need to understand orders of magnitude.

I see lots of people who clearly want to buy, using weird numerical rationalizations to convince themselves not to. :)

Housing is quite cheap, and most properties to buy are much nicer than typical rentals.

Housing is quite cheap. I see lots of people who clearly want to buy. Weird numerical rationalizations.

If being on a thread is so painful that you are coming unglued, why be here?

Ah JuiceMan, Juiceman, as he distorts the truth!

Everything I've said is true. Sorry, I didn't "lose my ass" in the market. I lost money - who didn't? - but I kept plenty of cash. But unlike your erstwhile bud malraux, I don't keep it in Krugerrands.

"Housing is quite cheap"

what are you basing this statement on?

buy now or be priced out forever!

Its psychotic. Many purchases are nicer than rentals....that's why you compare them to nice rentals.

"Housing is quite cheap"

what are you basing this statement on?"

A bargain about to become a bigger bargain is no bargain at all.

Dot com stocks looked cheap after they fell 50%, too.

Who was right? Printer or Stevejhx?

lol....both?

The real answer is live well within your means and leverage up to the hilt in "risk on" situations for investments so that you do get marginalized by govt induced inflation.

Until people realize govt inflation = theft of their entire net worth then people wont understand that they aren't saving enough for the longer term.

How funny looking back on the old debate. Time has made it very clear who was correct on this one.