Another 35% decline?

Read a good analysis of why unemployment may be a leading indicator this time, due to the combination of low interest rates and lack of credit availability for most businesses and consumers. If unemployment is leading this time, instead of lagging, it will be a look out below scenario.

Rhino86
5 minutes ago
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Yes, you do need to capitalize as a rate of return..

stevejhx disagrees

By saying 12x Steve is making an indirect statement about his cap rate if you make a simplifying assumption about the ratio of rent to maintenance. If maintenance is roughly 1/3rd of rent, then 12x is a roughly 5.5% cap rate. I frankly think that is a little too close to the mortgage rate. I think equity should command a bigger premium.

"But Steve hasn't show us how he can capitalize and create a present value without using a rate of return which he says isn't relevant."

You don't need to create a present value for a capitalized expense. It is accounting, not finance. Make fun of me all you want - it is you who don't understand the difference between a capitalized expense and capitalization.

You DO NOT need a rate of return.

And there is a difference between amortizing the cost of a home and capitalizing the expense - the former does not include transaction costs or interest, the latter does.

JuiceMan, sorry about this, but you're just sad. What I said a year ago would happen to real estate in Manhattan has, and your claims have proved to be false. Like the reasoning or not, it happened.

Stevejhx, tell me then now, how do you capitalize something? How do you go from a stream of regular expenses (rents) to a capitalized value? If you don't need a rate of return, if you don't need to create a present value, then please tell me how you do it? Tell me how this accounting works?

Steve, how is it done?

Klonpin, since we seem to agree on this, what do you think the rate should be? I am torn on the subject...but I do think it should be at least as high as the prevailing mortgage rate. The problem is that even -30% Manhattan cap rates implied by the market are still under 3%.

Oh, I agree real estate is overvalued right now for sure.

But stevejhx says it is not based on the required returns for the asset class. That it is based on capitalized rent of the occupant. But he says that the capitalized rent has nothing to do with a required rate of return (brilliant statements of justification include "it is you who don't understand the difference between a capitalized expense and capitalization.", "It is accounting, not finance.", "The mortgage rate obviously affects the 12x ratio, though if you do the math it's not that material." "If you buy a car to use yourself, the economics are completely different from buying a car to lease to someone else.").

What should the rate be - if you can borrow 80% of value at 5.5% long-term (or less after effective tax benefit), and your downpayment is equity and at risk, the 20% should be higher than 5.5%. Weight them and you have your answer. If the equity needs 10%, then do the math that way. Arguments about illiquidity, etc. all factor in to the risk of your equity in this asset class.

assuming that the asset is owner occupied, real estate equity is completely different from stocks because stocks are simply the PV of the FV of dividends. in my opinion the discount rate for RE can be looked at independently of debt and equity returns because it is an entirely different asset class.

Klonpin I don't think you weight them....because regardless of how much debt you use, the cap rate of the real estate should be the same number. It should be a measure of the inherent risk. I know for me, if I could 'cap' my rent at 5 or 6%, considering that its a tax free return of 5-6% (given I'd have to net after tax income to pay rent), I'd have to consider it... And I know at 3% its too little for my risk.

klonipin, no capitalized expense has a rate of return. If you spend $1,000 to develop a computer program with a 4-year life, you capitalize that $1,000 and amortize the expense over the life of the asset, such that each year you book an expense of $250.

If you buy a home and live in it, you take the price of the home, let's say $120,000, and amortize it over how long you plan to live there, let's say 10 years. That gives you annual amortized rent of $12,000, or $1,000 per month, plus the current portion of the interest expense (which is not capitalized).

However, since most properties are mortgaged, you would follow the mortgage amortization schedule. It gives you the same result in the end.

You would, of course, need to add the transaction expenses in separately if you don't mortgage them, and amortize them over the same period.

Simple enough?

Steve you are wrong on this. If you look to go buy a home for cash in order to 'rent it to yourself' then clearly you need to have a return on your cash investment in mind. You are using a price to rent ratio, which is a form of same.

So, If the home is $120,000, and you live there for 10 years, then the rent should be $1000 per month, "plus the current portion of the interest expense" (which by the way would be higher at the beginning of a debt amortization schedule than at the back end)".

If I live in the house for 20 years, I've cut my monthly rent in half, ("plus the current portion of the interest expense").

Interesting.

Listen, I'm going to go outside and debate a parking meter. If I win that debate, I'm going to check in with Dick Cheney and see what I can do there. After that, I'm going to see if I can convince the students, alumni and faculty over at Notre Dame that abortion is good. And then I'm headed to the Middle East to make peace. If I get that done, stevejhx you watch out because I'm really going to take you on and I'll probably have a 25% chance of righting your logic.

Rhino, you are correct - that, however, is the "opportunity cost" of the equation, and you would need to include depreciation.

What I am using is the general way most people purchase a home. I recognize that it varies from person to person, and there is the cap rate which strips out the financing charges. But that becomes a much more complicated way of looking at it.

What we started discussing here is that properties are down in price and are predicted to continue to decline. If you use the most sophisticated models (imputed rent) you will see that no one will purchase a property if they think that the return will be negative.

My point about the 12x ratio is that is the standard, long-term ratio between rents and purchasing prices. How we digressed into this topic I don't know.

So, where are those prices heading?

Klonipin, best of luck in your endeavors. The parking meter might be a tough one.

I think we digressed because 12x is a blunt tool if we recognize that interest rates are a big deal. Behind your 12x is a 5-6% cap rate... Which without doing too much math, would need to be like 8x if interest rates went back to 8%.... Maybe the math is (2/3 x rent x 12) / mortgage rate / annual rent = right price to rent. The 2/3rds is the assumption one third of the market rent = maintenance.

As usual, rhino, I agree with you.

Capitalization is a measure of income; capitalized rent is a measure of expense. This is what klonipin does not seem to understand.

I'm not sure I follow the distinction you are making here...or what you are saying Klonpin doesn't understand. But I am happy with my little simplification...Basically it says if you can't cover your interest cost with income, there is something wrong with the purchase, because I didn't even build in a spread over mortgage interest.

stevejhx
Capitalization is a measure of income; capitalized rent is a measure of expense. This is what klonipin does not seem to understand.

I'll agree with you there steve, I don't understand your prior sentence.

I came back in for a minute for a glass of water - this parking meter is exhausting me.

Me neither. When you capitalize lease expense in classic accounting...you use a rate, or a multiple...same thing.

Well, from stevejhx we understand

1 - capitalization is income and capitalized rent is expense
2 - a house is worth one value if the owner lives in it, and a different value if someone else lives in it
3 - accounting is different from finance
4 - you do not need to know the required rate of return to capitalize something; rate of return is irrelevant
5 - 12x, the reciprocal of the rate of return, is relevant
6 -

1. The "cap rate" is a measure of income. Correct. Capitalized rent is a capitalized expense. That is also correct.

2. I never said any such thing. I said that the former is a capitalized expense, the latter is an investment.

3. Accounting is indeed different from finance.

4. Capitalizing an expense does not require an interest rate UNLESS interest is being paid on the expense. There is no "rate of return" on an expense.

5. 12x is not the "reciprocal of the rate of return"; it is the ratio of rent to the naked purchase price of a dwelling, excluding interest (explicitly).

The "capitalized lease method" is not what we're talking about.

2. So the two sides should converge on a common current price? I understand your logic about valuing the assets in different ways depending on how you're using them, but will the ultimate value of the property from each analysis result be equal?

Wishhouse, under normal market conditions they will be the same: owners' carrying costs will equal market rents. However, we're still under bubble conditions, which is why I predict a further 30% fall in property prices, on top of the 30% fall we have already seen.

Figures JuiceMan couldn't own up to his past comments, and LICC would only revert to his usual "Steve doesn't know," despite the fact that what I have been saying for the past 18 months would happen, is in the midst of happening!

Guys...?

Steve -- under normal market conditions, owner occupants' carrying costs (if you mean out of pocket costs) must be **lower** than rents, to allow for a return on capital invested.

You are confusing yourself by trying to combine the decision to buy with the decision to finance. It's easier to see the rational choices if you separate the two. A car is a car regardless of whether you rent it, buy it, or buy it with leverage, and since it is the same car, the price should be the same for the same product in all three ways (unless there is some irrationality in the finance market). Apartments work the same way.

I started a new thread to explain the theory at length (see "How to predict future prices"), but the short version is that equilibrium is when INVESTOR LANDLORDS are indifferent between (a) holding indefinitely to rent, or (b) selling to an owner occupant. At any price above that (including the price you are predicting), investors have an incentive to convert rental properties to owner-occupancy, which increases supply and therefore lowers price.

Your analysis focuses on one aspect of demand -- individuals choosing between renting and owning in economic terms and assuming that they cannot predict where trends will be when they want to sell -- without taking into account the effects on supply. Those who are arguing for higher prices still are also focusing too much on stories about where demand is going to come from without considering supply.

Correction "(unless there is some irrationality)" should be "even if there is some irrationality in the finance market -- in rational non-bubble markets, that'll just affect the decision about HOW to buy".

Also, increased supply only decreases price if demand stays constant. But price affects demand (higher prices reduce demand as some people find that there is a price at which, on the whole they'd rather be in Philadelphia, but oddly, **trends** of increasing price **increase** demand since they reduce perceived risk. In the reverse direction, reverse.) So you need to consider both supply and demand.

financeguy, I have another thread and have repeatedly stated that property is properly priced if you can buy it (standard financing) and break even from the get-go, excluding principal payments. That is approximately what you are saying - assuming it is, I agree with you.

I've focused on many different ways to look at the problem - this is but one more.

if you can buy it (standard financing) and break even [renting to an unrelated third party].

Oops!

Nothing is stopping the downward trend. When i look at the chart below, i'm confident that prices will come back to at least 2001 comps by 2011/2012:
http://seekingalpha.com/article/137653-deep-property-depreciation-ahead?

Only steve would go through 120 comments where everyone makes him look foolishly wrong and shows his fundamental mistakes, and then revive the thread with a statement that he proved he was correct.

LICC - you're funny!

"Only steve would go through 120 comments where everyone makes him look foolishly wrong"

Right after: "Nothing is stopping the downward trend."

Looks like sledgehammer is on your side, LICC!

Hey Guys, i just like simpler answers. When i read your everlasting back and forth arguments, my brain start to smoke... :-)

I fully understand, sledge!

Simply, LICC and Juice argue that the marginal buyer at the bottom will be an owner-occupant willing to go cash flow negative vs. renting on a pre-tax basis.

Steve, financeguy and myself argue that the marginal buyer at the bottom will be an investor or investment-minded person who will want to accrue a pre-tax cash dividend to themselves vs. renting in order to compensate them for principal risk.

Group A has set the price since 2003-2004...and group B most of history prior to that time.

Well said, Rhino.

Except I don't think that LICC has argued anything other than THE TAX BENEFIT.

The truth is, throughout history, it costs the same to own as to rent, out-of-pocket. I started another thread daring people to find just ONE apartment in Manhattan that cost as little to own as it does to rent. No one could.

I have said that prices need to fall 50% from their peak. That is what this thread says. Another thread says they've already fallen 30%, meaning there's another 30% to go.

The last real-estate bubble in the US burst in 1929, and that had a happy medium-term outcome, didn't it?

BTW, Rhino, our argument is the one that is accepted by mainstream economists. Juicy's and LICC's is the one marketed by realtwhores. That's why every refutation from them comes complete with a link to what realtwhores opine.

It boils down to appreciation expectations... I think this downturn will be severe enough to price them out of the market entirely. Who knows, we can't know how many 'group A' buyers exist... We do know every transaction removes one even at these price levels.

It boils down to appreciation expectations if "imputed rent" is used. In the past, no one expected to make vast gains from real estate - it was simply a place to live. Investment property did not increase in value any faster than owner-occupied residential real estate (it can't); rather the additional gains are made by the fact that someone else is paying off the mortgage.

This is still my favorite chart...

http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif

That's a sick chart 10022 but i'm not sure choosing the year 1890 as a year for the 100 index is relevant, except if the intention was to make that chart sensational.

sledge, Shiller went back 350 years and traced the inflation-adjusted price of a single property in Amsterdam, and came up with the exact same answer.

If we forget 1890 for a sec... I am interested to see the next leg down rents take this summer as natural outflow continues and the incoming undergraduate and graduate banking classes are smaller numbers at fewer firms.

I may be wrong but i think people should be looking at the evolution of housing prices as back as a lifetime. Meaning, if we live for average of 80 years, the index year should not be older than 1929. Am i the only one thinking that way?

Also, if you didn't go back to 1890, the Depression would be out of context.

Most people do the measurement from 1945, the start of the "modern era," if you will.

whew!... the "how to predict future prices" thread is nutz.... ahhhhhh.... I feel much better here....

We only need to go back to 1980 to know everything after 2002 was uncharted in terms of ratios, cap rates or however you want to frame it.

I think that w/ an 1890 start, after WWII you can say that 110 was the new normal. If the chart continued to 2008 (in Manhattan) it would be even higher.

You can spin this any way you want, but its pretty freaking obvious. We never cross 125 before, we did a HUNDRED YEARS going up or down 25-30... and now we're up a hundred.

Well, we were.

"Simply, LICC and Juice argue that the marginal buyer at the bottom will be an owner-occupant willing to go cash flow negative vs. renting on a pre-tax basis."

Is that what I argued? Funny, here I thought I was just pointing out how silly "equilibrium" is and that no one has been able to post anything that explains it (steve says he has, but he just post generic articles and claims victory)

Further, this thread started with steve claiming victory on some stupid prediction from a banker that utilized a dataset that steve himself had already discredited. He then somehow turned the subject of the thread to 12x blather to hide his embarrassment.

"Steve, financeguy and myself argue that the marginal buyer at the bottom will be an investor or investment-minded person who will want to accrue a pre-tax cash dividend to themselves vs. renting in order to compensate them for principal risk. "

Rhino, not sure why you lump steve into this category. It is clear from this thread (and many others) that steve doesn't have a clue what he is talking about most of the time. You have pointed it out a couple times in this thread yet you continue to bail him out, are you BFF's?

Hey steve, how are Rhino’s coat tails?

Ah, Juicy! Glad you're back.

Let's see. "this thread started with steve claiming victory on some stupid prediction from a banker that utilized a dataset that steve himself had already discredited."

No. It started with an article that said prices in Manhattan had another 35% to fall. There is no mention of what "dataset" that banker used. You claim it is Case-Shiller; I see no evidence of that. I have not "discredited" Case-Shiller as a methodology; I have said its data do not include 99% of Manhattan.

That said, the article discusses "affordability." Case-Shiller does not. So your claim of my claim not only has nothing to do with my claim, it has nothing to do with the opening post. Affordability is measured in one of two ways (or both): the ratio of disposable income to property prices (which is direct), and the ratio of rents to property prices (which is indirect, as rents are directly related to incomes).

There is no embarrassment whatsoever. 12x is one of those two ratios; the other - disposable incomes - has been discussed to death with respect to Wall Street bonuses. NYC posts a chart that shows property prices in the country - unless you think incomes went up that much, then property prices will have to come down.

"Is that what I argued?"

Yes, actually, it is, and Rhino stated it very succinctly. Too bad you don't even know what your own arguments mean.

"I thought I was just pointing out how silly "equilibrium" is"

Wow.

Wow, wow, wow!

"and that no one has been able to post anything that explains it"

No, not at all. You're 100% right. We haven't posted anything about cap rates, rent-to-price ratios, imputed rents, owners' equivalent rents, PITI / 40x monthly rent market constraints, incomes to purchasing prices, rent p/e's, investment breakeven points, etc.

NOTHING has ever been posted on any of those subjects on this board. Nothing, ever, by anyone. The only thing we've discussed is the tax break, and how it's worth overpaying for property so you can get one.

That's it!

"Rhino, not sure why you lump steve into this category."

Which proves that you have no idea what you're talking about. It is the same as breaking even on a rental to an unrelated third party from the get-go.

Rhino need not "bail me out," Juicy! I don't need his coattails, or he mine. We are saying the exact same thing in different ways - every way imaginable known to man - and you and LICC are the only ones who deny it.

I've published where you said that you would believe everything I said if you could get a discount on a Manhattan apartment. The discounts are running 30% right now. Are you willing to fess up?

"It started with an article that said prices in Manhattan had another 35% to fall" = "It started with an article that said prices in NYC had another 35% to fall."

Ooops!

And Case-Shiller - even though irrelevant to that article - does include a good deal of the outer boroughs, and most of Staten Island.

Manhattan prices increased more than the other 4.

Juicy - no comment on why you didn't know that you were saying what Rhino said?

LICC - no comment on your "120 comments" coming right after a comment supporting me?

Seems you two are alone.

LICC - you'll have to bring back your alt-ego tech_guy. He's been silent for AGES!

yeah... where is tech_guy? I miss him so..... me so horny for him :)

Err, sledge's comment had nothing to do with the rent ratio discussion. I think you need to get some rest steve, you are starting to hallucinate. It's like you are a glutton for revisiting your losing arguments over and over.

Let's put all of this in context:

JuiceMan
about 13 months ago
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Steve, your numbers are awful (and you know it). Stop trying to bullsh*t people. You and I had this conversation months ago. Have a look at joepa’s example above:

1)First, a portion of your payment is principal, in this case about $1,000. So, you should be comparing $6,389 vs. $4,500

2)Next, your 11% is laughable for a couple reasons (and you know this):

a.If you were able to make 11%, it would be taxed (eventually) so your 11% is more like 7.7% short term 8.8% long term

b.Your 11% is not risk adjusted. You talk about the 11% like an automatic return that investors will receive in perpetuity. You know this is not true. What if you lost 5% the first year? Your nest egg would then be $237,000. That guaranteed tax break is looking pretty good then right? ($20,435 vs. -$13,000)

c.You really need to use a risk free (taxed) rate of return for this comparison steve. The deduction is risk free, so you cannot make the argument any other way

d.I can’t believe you are still trying to sell this, makes you look like a damn rookie. The statement that tax advantages and investment returns are a wash is a fabrication. .

3)So assume steve’s calculation is correct that the tax benefit for owning is $20,435 and the return on a risk free investment after tax is (generously) 5% = $12,500 with a difference of $7,935 for a total monthly benefit of $661. Which get’s us to $5,728 vs. $4,500

4)Real estate tax is deductible as well. So, $12,000 is $3,600 in benefit or $300 a month. Which gets us to $5,428 vs. $4,500

5)You say the tax benefit goes down because you interest amount goes down over time, but you forgot to mention that you are building more equity, which is better than a tax deduction for your rent vs. buy calculations. (You put more in the “bank” the longer you own )

6)Combining these calculations with your “theory”, prices would have to fall by 16% to be in “equilibrium”.

7)I have repeatedly stated that your “theory” of “equilibrium” is an economic impossibility because it is an overwhelming buy signal. With that in mind, it would be impossible for prices to fall that much without investors jumping in at some point during the decline. I’m not exactly sure what that point is, but it is somewhere between 1-16%. Let’s pick the midpoint of 8%. And that my friends, is a reasonable estimate for any correction

8)A very important point, (which steve will never make because he likes sweeping claims) this is an educated guess for that particular apartment. It will be more or less for a given neighborhood and set of (comparable) apartments. No two scenarios are the same.

9)This assumes zero appreciation and zero rent increases (BIG FRIGGAN ASSUMPTION) Assume any reasonable rent increase over the term of the loan and any reasonable appreciation……..and you are at break even VERY quickly.

So you see steve, the sky is not falling and your 50% is ludicrous. I’m sure you will respond with some sweeping claims and garbled numbers to say I’m wrong, but this is a reasonable calculation, using your numbers, and your theories. You made the statement that you are willing to stand corrected, are you?

http://www.streeteasy.com/nyc/talk/discussion/3365-poll-growing-majority-avoid-buying-homes

Pay particular attention to JuiceMan's Point #7.

"7)I have repeatedly stated that your “theory” of “equilibrium” is an economic impossibility because it is an overwhelming buy signal. With that in mind, it would be impossible for prices to fall that much without investors jumping in at some point during the decline. I’m not exactly sure what that point is, but it is somewhere between 1-16%. Let’s pick the midpoint of 8%. And that my friends, is a reasonable estimate for any correction"

So, Juicy, we've nearly doubled your 16% theory, debunked your "rents have to rise" theory, leaving your "overwhelming buy signal" theory.

Where are they, Juicy?

I'll tell you where: until you can make money on an apartment from day 1 by renting it out to an unrelated third party, NO INVESTOR will buy. And for most apartments we are still 50% away from that point.

"sledge's comment had nothing to do with the rent ratio discussion."

Where did I say it did?

"There is no mention of what "dataset" that banker used. You claim it is Case-Shiller; I see no evidence of that."

Here is your evidence. If it isn't Case-Schiller than it is probably the Wayne,NJ / White Plains index. LMAO!

http://www.businessinsider.com/nyc-real-estate-could-fall-another-47-2009-3

“That said, the article discusses "affordability." Case-Shiller does not.”

That is one aspect of his “analysis” but not what he uses to come to the 47%

"I have not "discredited" Case-Shiller as a methodology; I have said its data do not include 99% of Manhattan."

Which is exactly why you shouldn't get excited when these stupid research reports are posted using a dataset that doesn't "include 99% of Manhattan". You do anyway, because it fits your story and don't think anyone will call you on it. When someone does, you change the subject, call them names, throw a bunch of shiny objects around the room. I call it "hamstering" and I think that is a great word to describe how you approach this board.

Just admit that this prediction / analysis / whatever this Deutsche douche wants to call it is malarkey and we can move on.

Juice, the problem here is the only thing that is fact is that before 2003 or so, no one factored tax benefits into their purchase comparison with rent. Now you argue this bubble construct is the new normal. You have four years on your side, and we have decades. All the equity accrued by those who used tax benefits to justify their post 2003 purchases has basically been wiped out since September. This should tell a rational person they should reconsider their view.

"Here is your evidence."

Where? It doesn't say Case-Shiller, & it discusses unemployment. Nothing to do with Case-Shiller.

"it is probably the Wayne,NJ / White Plains index"

Which is why the title says "New York City," right? Because that's where White Plains is.

"Which is exactly why you shouldn't get excited when these stupid research reports are posted using a dataset that doesn't "include 99% of Manhattan"."

And I wouldn't, if this one did.

"Just admit that this prediction / analysis / whatever this Deutsche douche wants to call it is malarkey and we can move on."

Based on what? On your fantasy that he used Case-Shiller to calculate affordability (which is impossible) and that White Plains is in New York City?

Not quote.

Why don't you address your 8% fall theory, posted 13 months ago, instead of ascribing false sources to Deutsche Bank analyses?

steve you would make an awful litigator. Your debate and argument skills are terrible. You spent most all of this thread debating your incorrect rent ratio analysis, then when sledge makes a general comment about market prices, you say he supported your argument, when his comment had nothing to do with rent ratios. Sad, sad, sad . . .

Not quote = Not quite.

Ooops, again.

"steve you would make an awful litigator."

Perhaps, but I'd make a great predictor of real estate prices in Manhattan.

"Based on what? On your fantasy that he used Case-Shiller to calculate affordability (which is impossible) and that White Plains is in New York City?"

Can't read the chart can you steve. He calculated the 47% including NYC, White Plains, and Wayne,NJ. Man, you just can't admit when you are wrong can you?

People never considered their tax benefit when making purchase decisions before 2003? Something magical happened in 2003 that all of a sudden people woke up and said: Wow, my taxes are lower, I should think about that when I make my mortgage payment!
The mortgage deduction was a major debate when Reagan revised the tax code in the 80s. Everyone always considered tax benefits when purchasing their homes. Please keep these discussions based on reality and not bizarro world conclusions.

Allow me to be more precise... Before 2003, you never saw prices high enough that you actually needed the tax benefit to get down to rental equivalence on a standard mortgage scenario. GET IT NOW? Sure, they were considered...they were considered just compensation for risk of capital.

And this was at best..more often people saved money vs rent pre-tax.

You would make a great predictor of real estate prices? This from the man who has been renting for over 10 years.

Here is some further information on what makes up this MSD. This is too much fun!!!

"New York-White Plains-Wayne, NY-NJ Metropolitan Division (Bergen County, NJ; Hudson County, NJ; Passaic County, NJ; Bronx County, NY; Kings County, NY; New York County, NY; Putnam County, NY; Queens County, NY; Richmond County, NY; Rockland County, NY; and Westchester County, NY)"

http://geography.about.com/od/specificplacesofinterest/a/nymetroarea.htm

or how about this:

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

This would say that Manhattan makes up about 13% of this MSD. So how do you think a 47% decrease in this MSD translates to 13% of the population? Do you think the Bronx and Queens will react the same as Manhattan?

LMAO! Wrong again steve!!

You two monkeys prove again and again you have no sense of history or appreciation for the bubble that few now deny. I showed you both a graph that 2004 was a new high for price to rents in Manhattan looking back to 1980 and you conveniently forget.

JuiceMan, that's not Case-Shiller, by the organization I believe it's HUD's data but I'm not sure, and I don't know what data are included or excluded. I also don't know that the 47% includes those cities (it could have been extracted in another part of the report), but if it does, then Manhattan is likely to fall more because those areas began falling sooner.

Moreover, it is IMPOSSIBLE to calculate affordability using Case-Shiller, which measures price changes.

I stand by what I say.

"Wow, my taxes are lower, I should think about that when I make my mortgage payment!"

Mortgage interest has been deductible since 1913. It increases the price of property.

I still don't get why its a debate if pre-tax carrying costs were less than rent from 1980 all the way to 2003 or 2004. The whole appreciation period during which it was 'right' to include them was wiped off values in 8 short months.

Everyone who agrees with Juice and LICC is flat or in the hole on their purchase. Please monkeys help me understand how you defend your position from there?

"You two monkeys prove again and again you have no sense of history or appreciation for the bubble that few now deny."

Really? What am I denying? I guess that's what you get for pointing out logic flaws to hyper-sensitive bears.

So Rhino, where does your love for steve come from? Do you feel sorry for him?

You are denying that the valuation of real estate post 2003 defied all history prior in terms of its relationship to renting. There are no flaws in that logic. Its not even logic, its just history.

I love finance and history. And financial history. There was just no history prior to 2003 to suggest that 2004-2008 Manhattan prices made sense. All those who disagree are in the hole...just like tech investors and tulip investors of old. Deny the whole long way down I guess. To those who flipped, bravo but that's not an investment, that's a trade. I am a trader too, and can appreciate that for what it is as well.

rhino you can make up that I am denying something all you want, but you would still be in fantasy land. And it still doesn't make steve's rent analysis correct; it is still way off.

JuiceMan: "Bergen County, NJ; Hudson County, NJ; Passaic County, NJ; Bronx County, NY; Kings County, NY; New York County, NY; Putnam County, NY; Queens County, NY; Richmond County, NY; Rockland County, NY; and Westchester County, NY"

I have no problem with that. I also have no proof that the author didn't strip out: Bergen County, NJ; Hudson County, NJ; Passaic County, NJ; Putnam County, NY; Rockland County, NY; and Westchester County, NY.

Do you? Do you know what those two asterisks stand for in the chart? Have you read the entire report?

No.

"Do you think the Bronx and Queens will react the same as Manhattan?"

The report doesn't say "Manhattan," it says "New York City," so the question needs to be will New York City react the same as the non-city counties that MIGHT be included in the sample?

No. It will react WORSE because the falls started there years ago, and the increase was much stronger here, as is the concentration of jobs in the key industries.

Where did the "affordability" data come from, JuiceMan? Do you know?

I stand by what I said.

LICC - it's down to you and JuiceMan.

LICC you are denying that historically buyers get pre-tax savings vs. renting as compensation for their risk. You did not, and it makes you sad, so you deny it was ever the norm.

Rhino, I have to disagree with you on this one. The income tax deduction was originally for ALL interest, and it was a business-related deduction. It was changed under Reagan to exclude all interest except the mortgage interest up to a $1 million mortgage.

However, that deduction has long been built into the price of homes. Eliminate it, and watch home prices fall.

It's not "my" rent analysis, LICC. Not mine at all.

"Everyone who agrees with Juice and LICC is flat or in the hole on their purchase. Please monkeys help me understand how you defend your position from there?"

Agreed. All the rent/buy calculations get thrown out the window when you put in major declines.

In 2000, the median sales prices in good Manhattan areas for 2-bedroom apartments were $700k for coops and $900k for condos. Average rentals were $3000-$4000 per month. You think people were getting some tax deduction premium on those numbers? It's something when facts get in the way of things rhino . . .

These numbers pulled of your ass are facts? You are on crack. In 2000 you could clearly buy an apartment and come out ahead pre-tax... $700k is way too high a figure for a 2 bed coop in 2000.

I guess Miller Samuel is on crack too. And this from rhino, who has yet to post a source with hard data for any of his "factual" statements.

LICC, where do you get your figures on rentals?

Condos were not selling for 19x rent in 2000...that is effing foolish. You really never cease.

LICC, thanks for the link...or any proof that it corresponds to the rents you've quoted.

millersamuel.com

steve - NY Times

LICC, specifically where in the NY Times, what is their source, and how comparable is the "median" rental to the "median" purchase?

Then, re Miller Samuel - have you seen their recent upward revisions of inventory data for the past 10 years? They are none too reliable.

steve - do you have a better source for the general Manhattan market? I remember 2000, Miller Samuel's $700k-$900k for a good 2-bedroom seems about right to me.

I'll have to look at the NY Times data again to see if they sourced it.

I've said it before, LICC - there are no good data from back then, except the 350 Bleecker data that I refer to, which says 2-bedroom 1-bath co-ops were going for around $450,000 in 2000. They are relatively small apartments, however, so I would accept the 1999 Miller Samuel data as accurate - around $625,000 for a 2-br 2-ba apartment.

Ever since streeteasy, Miller Samuel has been suspect. If their inventories are proved to be too low by the thousand (and they themselves have revised them), prices would likely be too high by a similar factor.

You need to make sure that the NY Times data exclude rent-regulated apartments, and that they are comparable to properties. In 1998 I paid $1,600 a month for a 1-bedroom 1-bath apartment (600 square feet), bought a 2-bedroom 1-bath co-op for $218,000 down the street (800 square feet).

Rents were far higher relatively speaking 10 years ago.

"Ever since streeteasy, Miller Samuel has been suspect."

Is that because they include Wayne, NJ and White Plains in "analysis" about Manhattan? steve does.

"I am a trader too, and can appreciate that for what it is as well."

OMG! A TRADER!

LICC and Juice, can you state your agenda for the record? Is it your position that -30% from the peak represent good value? I guess if you make up numbers from 2000 you can imagine that price to rents are back to normal...but only if you overstate values and understate rents.

I think -25% got an LMAO from Juice, and then a Corcoran broker went on record that only -30% gets deals done...NOW LAUGHING MY ASS OFF. Honestly what's your point. Can you go on the record with a prediction so we can laugh at you again in a year? Steve has already pulled your pants down over your idea that prices couldn't fall 25 or 30% and here we are.

Do you guys/gals have jobs??

otnyc: I'm gonna go with . . . or lives? . . .

1) urbandigs:""Now, more people want to stay and settle in NYC, and people are more likely to move here to own and live"

True, but what if this changes in the years to come from higher taxes, service cuts, and side effects from a severe local slowdown? Lets at least be aware that the statement above is a high risk one considering where we came from, and what may lie ahead? Thats my biggest fear, that this great city becomes less desirable as a place to live and grow a family."

I was having brunch yesterday with a friend who is a late-20's black female who lived in Manhattan and then got priced out and for the past 4 years or so has lived in Brooklyn. She related to me that she HAS to move back to Manhattan now because for the first time ever, a cabdriver asked to be paid up front to take her home from Manhattan the other day. She instantly knew that this meant that things were getting more dangerous "out there" and I absolutely agreed with her. What has not been taken into account at all is that IF the economy continues to tank, despite denials from NYPD and others, we will surely see quality of life issues (like crime) erode housing values. We have gotten used to a very low crime rate and taken the word of those who's bread is buttered that way to take credit for it, when we all know "it's the economy, stupid". As unemployment and underemployment rise in NY, ESPECIALLY with the outlandish housing prices for the lower class (that's right, the lower class: as much as things have gotten out of control for the upper class, at least they have some choices: I go and see what people are paying for apartments in neighborhoods I and most other middle class people would never consider stepping foot in have risen to, and you'll see the potential for rises in all sorts of nasty stuff to happen).

2) I think people are overlooking the emotional aspect of buyers in the pricing game: everyone is correct here on their pricing models; both the 15X's-ers and the 8X's-ers. What is being left out is who is actually buying: on the way up, the "believers" are the buyers, and they pay the higher prices based on THEIR MODEL FOR PRICING. At this time, the "non-believers" sit on the sidelines and cry about how everything is overpriced. But when the bubble bursts, it turns the believers into non-buyers, at least partly due to the cognitive dissonance. Then, it is the time of the "non-believers", and they become the market of buyers, and they use THEIR PRICING MODEL. Well, we've seen where the market has gone based on being driven by the believers, and that's why you can't come up with recent examples of the non-believers model. We are clearly at a crossroads now. The question is, which turn gets taken? if the believers return to the field of play, then we will continue to see their model hold, and prices will be based on their calculus. BUT if the believers yield the field of play, and the non-believers take over, and they are the only buyers out there, then THEIR model will hold (sort of de facto / by definition /etc.). So, if that occurs, we will see they type of drastic decreases being predicted because, just like on the way up, high prices got justified by the statement "it's worth whatever someone is willing to pay for it", on the way down if you have a market flooded with people (or institutions) which NEED to sell, and the only buyers are the non-believers, properties will only be worth "whatever someone is willing to pay for it" on the way down as well. And if the only buyers are the non-believers, their pricing model calls for some VERY DRASTIC PRICE CUTS.

You are talking way too much sense for this board, 30yrs. Like it or not, we are a city of profound inequality. Crime will rise everywhere, and the NYPD will do a better job policing Manhattan as opposed to non-middle class bits of the other boroughs. Yes, yes - I know Bk is cool and all that, ditto Qns but the fact remains that there are a heck of a lot of young people living in the boroughs who would move to Manhattan if rents came down. This provides a tiny bit more stability for Manhattan. In the last 6 months, I have heard many anecdotes of people in their 20s moving to Manhattan from Bk/Qns as rents have come down.

30yrs, keep it coming. the key is the cycle of purchasing. break a link at the bottom, and you break it all. and, at the seller level, in a market this small you need fairly little distress to start the cannonball rolling. but, of course, thank you for your wonderful desire to share the nitty-gritty details.