Buying Makes No Sense

that and the 3 yr forbearance alot of bked developers are getting to go rental... it'll only drive rental prices and make bid/ask spread greater in the end....

We are just pushing an overinflated breast implant around... if you read closely you'll note the manufacturer... "Timmy Corning Inc."

Only rich people that don't care about money buy

Couldn't the current turmoil mean there some deals to be made? If building sales are down more than 80% since last year, some people must be making some good deals. I am not talking about buying a 2 bed condo for 1.6, but something that might have lost 50, 60% value at least.

I agree with Mimi. Many sellers are still hoping to get the prices they would have gotten a few years ago, but for those sellers who really need to sell, they can only get what someone is willing to pay in today's market. If you can afford to buy and you plan to live here for a while, why not buy? I've been renting for more than 15 years now and there are alot of negatives when you rent besides the fact that you are just giving your money away. I wish I had bought 5, 10 15 years ago. I also think that as you get older, you don't always want to live in buildings filled with people in their twenties which is often what you get in rental buildings. Alot of noise, alot of turnover, alot of problems.

Renting only makes sense as a numbers exercise on paper - quality of living factors all tilt in the favor of owning. Particularly as you move along in life and have a family, your urge (and more importantly, your wife's urge) to "nest" and have your own space becomes more immediate. V-brownie and some others, guessing you are single, in your 20's through mid 30's, and enjoy the downtown lifestyle. For many, if not most, it definitely makes sense to rent, which is why an overwhelming majority of NY'ers rent instead of own. But it's silly to post about something making no sense if you don't have the vantage point to see all aspects of it.

Lobster you really wish you bought 5 years ago???

OTNYC - one would think quality of living will be vastly overshadowed by what you have to pay for your apt versus renting it in CURRENT environment, in my view anyway. The last time I checked (my building anyway) the buy versus rental difference was 2 to 1. Essentially to buy something would cost 2x the cost of renting it every month. Part of this is bc the montly costs of the buildings are outrageous in NYC. There is a clear premium to own in NY which makes absolutely zero economic sense. And esp people with kids (and im not talking about super rich here but low middle class segment in NY), I would think they rather spend that excess 50% they are paying to own an apt on their families. I mean you could def increase your quality of living in other ways esp when you have 50% more each month! But hey, to each his own. Im just saying, personally makes no sense to me. And no, Im not single and def not in my 30s and I dont even live downtown.

MIMI - those deals are rare. Most sellers are still very delusional even in this market. They are essentially behind the market. By the time they lower the price, the market has already moved even lower. This is when you see apts that have been on the block for a very long time with several price decreases and they are still not getting any bids. Bc they continue to be in denial about where value is today.

LOBSTER - just be glad you did not buy in 2007. You would REALLY be giving away money then.

VB, I am aware they are rare. But they are possible. I am sure there is some commercial space out there that might be a good deal.

If you're a bull buy Manhattan commerical REITS and pay your rent with the dividends.

Well, cats, all of a sudden I'm getting calls from Europe from people who want to buy in Manhattan, and now.

Except for some gifted individuals who seem to have an instinct for market timing (Warren Buffet), most of us mere mortals can not detect the bottom of the market except in hindsight.

So investors look to buy either just before the bottom hits, or just after. Either is good. To buy exactly at the bottom is considered an act of luck. I've been lucky like that, but only once.

So OP, that is why people are buying in Manhattan. That sure doesn't mean YOU should buy--it depends entirely on your circumstances, and many people are way better off renting.

I agree with Vbrownie that a lot of sellers are behind the market, when they should be pricing ahead of the market. And though inventory is down, buyers are slow to sign on the dotted lines. That's what I'm seeing.

People want, but they are wary.

{Manhattan real estate agent.}

Calls from Europe. Haha. Buffett does market time, and unlike you he knows what cheap is. Buffett would not be buying Manhattan real estate at a 3.5% cash yield.

You dont have to get the bottom if you know your carrying cost is at a discount to renting. In such a case, time is on your side.

True carry cost (cue Steve with machine gun).

"Only rich people that don't care about money buy"

I never heard of a rich person who doesn't care about money. That's why they're rich.

True status of the real estate market: "Well, cats, all of a sudden I'm getting calls from Europe from people who want to buy in Manhattan, and now."

HAHAHAHAHAHAHA! That means the bump from the last 2 months is over, no one is buying, which is why inventories continue to rise.

Rhino - you're right. If you can make money on an arm's length third-party rental by buying under normal market conditions, BUY! Otherwise, you're likely to lose your shirt. As I said, I'm negotiating to RENT a 2-bedroom 2-bathroom 2-balcony 1200 square foot apartment in Midtown for $3,600 a month. Buying would cost $10,000. You make sense of that....

I trust your math Steve but $10k sounds high...is that a short holding period with fully costed transaction costs and a high opp cost return? Plus you are probably comping to a condo vs a coop... which conceptually is correct. We so often comp to coops on this board but coops should prob be dinged for unerlying mortgage and lack of control. I dont doubt for a second, however, that there is nothing in the purchase market in midtown that can compete with $3600 a month and a shit ton of TIPS in your account.

$10k is right if you're talking new development. Probs. $8k if you're talking an older co-op w/ underlying mortgage. Sorry but 21st floor, 2 balconies, 2 huge bedrooms in a great neighborhood CANNOT be gotten for anything remotely close.

That does NOT include the transaction costs. That's the standard 80/20, 30-year mortgage + common charges + taxes.

Just do a search on streeteasy for ANY 2 bedroom 2 bathroom apartment in prime Manhattan for under $4k a month. The result is 0. Actually, the result is 4: all time-shares!

RENT a 2-bedroom 2-bathroom 2-balcony 1200 square foot apartment in Midtown for $3,600 a month. Buying would cost $10,000.

wow steve. is there another one in the building? can i be your neighbor? i would take that deal in a heartbeat.

Me too.

Alas, I'm a tad skeptical.

$36 a square foot?

http://www.streeteasy.com/nyc/rental/566424-condo-140-east-56th-street-midtown-new-york

wasn't difficult to find.

but it would only cost about $6000 a month to buy. both rents and purchasing prices have seriously fallen for the 1200sf 2/2.

Only $6k to own it? Sign me up :) After tax benefits tax benefits tax benefits...thats what about $4500. Step right up and pay for the priviledge to take risk.

Actually...not buying in Manhattan has been my biggest regret. It ALWAYS seems too expensive to buy here. It ALWAYS seems like the top. 10 years later, you've been a renter (with no tax breaks) and have nothing to sell and nothing to capitalize on.

When you love the city you have two good paths -- a big rent stabilized place that will grow with your life (get married have kids), as easy to find these days as a winning lottery ticket, or buy an apartment.

We lived in rent stabilized units for a long time. They were cheap, but small. It was a great deal back then. But you know what? Buying back then would have been a better deal.

In 1999 you wished you bought stocks in 1987. That didn't might it right to buy them in 1999.

rhino, as i'm sure you know, i just meant compared to the $8-10 figure.

LP1, i seriously regret not having enough cash in 1995 to buy something bigger. another $30k was all that separated me from my dream home. since then, i regret one purchase, and don't regret renting.

I think people need to re-check the math. Saying "its always expensive" tells me someone really hasnt compared the value proposition of purchasing in the 1990s to post 2004 in an intelligent and accurate way. Tech stock P/Es "are always high". No.

Don't tell me about stocks Rhino -- I've done it all in that mkt. Here's the difference, I don't need a stock. I do need a place to live though.

"is there another one in the building? can i be your neighbor? i would take that deal in a heartbeat."

If the deal comes through I'll give you the deets. It's not an apartment that is currently listed.

The platitudes fail in Manhattan. Its hyperlevered to finance. You need a place to live but you dont need to own it. If you get stuck in a starter place chances are your family cant fit in it (unlike a 3 or 4 bed house). You cant just buy a place at any price and count on selling it in five years and making money and moving up the chain. Most surburban purchases could stand for a lifetime, albeit in some cases, a little cramped. The same is not the case for Manhattan.

I come to church every Sunday and once during the week to practice with the choir. That's why I appreciate the same preachers steve, about, rhino saying the saying the same thing each week in a long sermon, feeling proud of themselves each time they say it as if they've discovered some new cure for my diabetes to make me live longer. Hallelujah!

I come looking for a bull who says something compelling enough to drive me to rethink my thesis.

Hallelujah Rhino86!

Rhino watch your language. It's uncalled for and unwanted on this forum.

Don't tell me about language - I've done it all.

One does not "come" to church, unless one is already at church. One "goes" to church.

If it's Type 1 diabetes, alas there's not much to be done presently. If it's Type 2, lose weight, do some exercise, get off your fat ass.

That's my remedy.

Oh thank you Stevejhx. Hallelujah!

Nice, Steve. Is that your current place, or are you moving? I just renegotiated my rent 20%, which was already a great deal last year. FWIW, from what I saw, $36/ft is doable if you're willing to do the work (which Steve obviously has).

My current landlord would move on price, but not enough for me, so I said Toodles. In anticipation I've been watching the rental market for many months, as well as the sale market but they weren't even comparable. I've submitted my package to the landlord, got notice that they checked my credit score last night (usually the last step) so I'm just waiting to hear if they approve the app. I don't know why they wouldn't, but you never know in this world.

I'd be curious as to why a landlord would want to rent what sounds like a delightful apartment for just $36.

I guess the key is doing a lot of leg work and networking and finding someone who has their own unique set of needs that a specific tenant can uniquely address. I am guessing that that could occur, in particular, with folks wanting to rent out their coops or condos for special reasons.

Mimi, Village Brownie- Obviously, I'm glad that I didn't buy at the top of the market, but I think that there is a quality of life differential with buying vs. renting, especially if you rent in a building which is 100% rental as compared to subletting an apartment. You have to have the money to buy an apartment and at least in my case, we've needed to save money for quite a while. But after all these years of paying rent, I have no equity for all the money spent and I'm hoping that if we buy and live there for a number of years, that our property will increase its value. Trying to take a long term view. Also we've had a lot of very young neighbors in rental buildings who make alot of noise and I'm hoping that with people who own their apartments, we'll get more families and more "settled" people and it'll be quieter. I don't want to live in the suburbs, but in my 40's, I'm too old for a dorm.

inonada, since your educating comments regarding cpi, rents and OER i've been paying closer attention to those numbers. stunning how the cpi showed rents and oer continuing to rise the past three quarters. this quarter it didn't happen. interesting.

O, Lobster! Quality of life does not exist when there is a crazy co-op board running things.

"Well, cats, all of a sudden I'm getting calls from Europe from people who want to buy in Manhattan, and now."

And I get e-mails from Nigerian lawyers who want to wire $10 million into my account....what's your point?

What is the purpose of this site? It seems like most of the regulars just talk about how they would never buy real estate in NYC. Thread after thread, post after post. It's the same thing over and over. If one has no interest in buying real estate in NYC, why keep posting? Unless the goal is to save those poor souls that are thinking of buying.

Sammy Davis Broker, "All the hep cats are buying NYC coops...forget gold and oil my little babushka. These are like TIPS, but with a lower return and 10x the risk."

bob420, it does get wearisome. "Don't buy in a bubble!" Well, duh...

Now there's a lot of "Buying never makes sense" which obviously makes no sense.

I think it's your "save those poor souls" idea. Training them with constant repetition, like kids or dogs.

Poor borkers.

It doesn't bother me. It's just interesting to see so many people spend so much time on a real estate message board discussing why they won't buy real estate. Comments on every single news item. Doesn't matter what it is, it always ends up in some way about why people shouldn't buy apts in NYC.

I find the people who log on to say things are unpredictable and/or buying is always the better idea more interesting. In other words, if its not an analytical endeavor, why even look at data on a board like this? You assume that the bears were and always will be bears. If you read the dialogue and are in any way honest with yourself, the bears are clearly the more analytical and finance/math literate group on the board. Again, we log in to test the case.

I'm on here bc it helps me with my interpersonal skills in 'real life' and my doc said it might help alleviate my turrets

w67th, is it working?

In all seriousness I am here bc on the way up I heard every borker, dog walker, and shoe shine guy tell me what great investment re waz!!!!!! That didn't turn out so well.

What's funny is dolly fake boobs is still touting re, as are all her peers. Two days ago had a borker on my floor tell me to buy my rental cause it's down 20%. When I've had 3 months wo a single acquaintence telling me to buy, I'll go away from se. Deal?

Oh I see. You are just looking for the right time to do some old fashioned remodeling.

In my 20 years of selling realestate I never heard of someone say realestate was a bad investment, Its only those who get greedy or those that dont understand math. It is aways smart to buy, the trick is
the timing. Now is a very good time.

perhaps some alternative therapy. or maybe your tourettes is your real estate therapy? for a commonly known but little understood condition, iwanttobeattheshitooutofthisselfpromoterism?

words are always better than fists.

AR, I haven't been following the actual CPI numbers on rent and OER, so your mentioning it here is the first I'd heard of it; thanks. Perhaps what's going on here is that there is a lag between market rents and paid rents: e.g., the market may have been down 6 months ago, but the rent I paid didn't decrease until I recently renewed. Of course, it works in both directions (i.e., rents going up), and it's only when the inflation rate changes that you notice the lag of the measure?

Also, I am often late to read posts and don't necessarily respond in a timely manner, but I have seen you gripe a couple of times on the state of affairs with ultra-low interest rates and how the government should be doing something about it. I don't think I agree with that: even with 0% interest, the purchasing power of your saved dollar is increasing, isn't it? Sure, the CPI has its errors that don't track you perfectly, and you maybe worry that your dollar buys a lot less euros than it did 6 months ago, but how does that affect your consumption costs? Have you computed your personal inflation: i.e., how much has the cost of living increased/decreased for you in the past year, adjusted for improvements / degradation? For me, it's gone down 10-15%: the majority of my spending (though not income) goes towards housing, and pretty much all my spending is in dollars, so from where I'm sitting, I'm seeing pretty massive deflation. Heck, as far as I can tell, rents are lower now than they were towards the beginning of this decade, wiping out a decade of overall inflation for me single-handedly. You are probably making more now in terms of personal inflation-adjusted returns than you were 2 years ago with interest rates at 4%, no?

Just a thought...

Stop showing off with your fancy spelling, AR. I think w67 has an issue with little towers around his mouth shooting off arrows of vitriol.

"even with 0% interest, the purchasing power of your saved dollar is increasing, isn't it?"

No, it's not. Inflation eats away at the dollar's purchasing power.

That is elementary economics.

in the short term most investors are not that sophisticated in their reasoning, and view the zero interest rates as an impetus to invest in riskier asset classes. given the status of pensions that's a very dangerous path to follow, for many. regarding the cpi i do understand your point regarding renewal times, and obviously there are a lot in the third quarter so it is a logical place for them to show up, but given what has been going on for the last few years in many regions nationally, i found it hard to believe that the rent OER numbers were continuing to increase.

i am firmly in the deflation camp, and i am well aware that there is no other option for the fed and the treasury than to provide cheap money. but that doesn't mean i have to like it, or the consequences.

but no, we are making more in absolute terms because my husband was promoted, but we are not making as much as we would have because his law firm has firmly been hit with wage deflation, particularly at the partner level. travel, food, clothing, electronics are less expensive, some services as well. rent is the same because my rent on renewal this april was still relatively low, so wouldn't have been worth it for me to threaten to leave, and even if i leave this coming april it wouldn't be a large dollar amount in terms of percentage of spending, and income is down about 20% from what he would have received then.

but declining rents are indeed one of the bright spots recently.

"No, it's not. Inflation eats away at the dollar's purchasing power.
That is elementary economics. "

And elementary economics says that if inflation is negative, a dollar can purchase more today than it could yesterday. CPI is negative.

would you buy if the after tax monthly payment, insurance and taxes were about the same as your rent -- with 10% down, and a under 5% interest rate?

The 5% interest rate is already taken into the payment, so thats SAT trick extra information. If it takes tax benefits to get you to rent equivalence, why would you? The only reason I could see would be if rents were rising. Is there any hint that rents are rising? No.

The dollar buys more house, rent, stock and bonds. Cash is underrated. It only gold that it buys less of.

That's the bitch about deflation, AR: it usually hits people on both income and spending. Must inflate. I believe the forcing of investors to put their money in riskier asset classes is the whole point of having stable positive inflation: you want that capital to be put to work so as to grow the economy. Granted, you need to know what you're doing with the money, but that is the burden of having money: heavy is the head that wears the crown...

NYCMatt, see modern's comment. We are in a deflationary period and trying desparately to stoke inflation. Look on the newswires today about how Social Security recipients are not receiving a cost of living adjustment this year because CPI went down. Dollar bills stuffed in my mattress since last year buy more housing for me this year than they did last year as rents are down. Rent & owner's equivalent rent (what you would be able to rent your apartment at) make up about 1/3rd of CPI, the Fed's favorite inflation index. The actual price of housing does not matter because the Fed says they don't matter and don't look at it when considering inflation, just the rent or equivalent rent. Since the Fed has the levers that control the money supply with regards to dollars, what they consider inflation is gospel. So yes, even if your mortgage payments did not go down and your common charges went up, the Fed still considers your housing costs to be deflationary. They ignore your mortgage payments and just consider how much rent you could have gotten for the place, which went down.

ah...matt got it completely backward.

again.

yes, in normal times a moderate interest rate allows for moderate returns. and a moderate stable positive inflation rates.

but i know that just wishing for unicorns will not make them appear. these are not normal times, and for now i'll take some solace in the fact that the cash i do have is, for now at least, more valuable.

the husband is a litigator. potential plaintiffs can't ignore the statute of limitations forever. and sadly, i believe half the decrease in wages was due to increased costs, largely one-time costs for severance. need perspective, must find perspective.

Damn, Rhino86! Do you know how much gold I need each year just to get by? Just replacing my grillz every year costs me an arm and a leg. My personal CPI IS inflating after all. Thankfully, it's just the gold that's gone up, but the diamonds have come down, so maybe my grillz are a-OK after all. Thank you Ben!

Maybe a set of grillz will give you perspective, AR?

If you compare rental vs. buying for cash (my situation), on the one hand I think the market has further to go down, but on the other hand my cash if invested fixed income, will not generate much income at current zippo yields (I would NOT take long term bond risk at these rates, so stuck with short term investments only). My inclination is to rent for a year and see where the market goes.

If you assume either hyperinflation or massive devaluation of the dollar over the next 5 years, why not buy now at a decent price and finance with a 5% fixed mortgage. You'll be paying back the loan with very cheap dollars and/or have an asset that is a decent hedge. You can rent and pocket the savings, but what are the savings gonna be worth when the dollar plummets. Buy now and sell out to Russian or Chinese buyers in 10 years.

If I am worried about that I will rent and invest the difference in gold. You all forget inflation drives rates up offsetting most if not more that 100 percent of the impact of higher rents on values. Further the inflation you speak of vis a vis dollar weakness in the global context does not impact local goods like rental apartments or haircuts. A debased dollar makes ags gold and oil, goods for which we compete globally, more expensive in dollar terms. So many of you know just enough economics to apply it poorly.

Notice as the dollar has gotten crushed this year manhattan rents have fallen as have values. What has risen? Crude oil and gold. What would be different if the dollar fell even more? Nothing but magnitude.

sickof, how funny. just read a piece today on the god awful real estate bubble that's occurring in china. husband does a lot of work with russian clients. the place is an f'ng mess. the husband now can't step foot in a couple of countries because by following the law in the US he now has warrants out for his arrest in some baltic states.

> I come looking for a bull who says something compelling enough to drive me to rethink my thesis.

Rhino: 5 good reasons to consider buying. Don't believe you've addressed any of these (as far as I know):

1. LT movements in rents. Compare rents in 60s, 70s, 80s, 90s, early-00s etc. The numbers are surely staggering over a long-term horizon.
2. Aversion to frequent moving. Some people don't want to re-evaluate their situation every 12-months.
3. Re-sale volumes of condos and co-ops are moving again. See Streeteasy Q3 report. Buyers are certainly showing up at a price.
4. Rates. If you can afford it and get a loan, buyers have the ability to lock in P&I at near-record low rates. That certainty has value, both economic and psychological. Maintenance may go up, but that's life.
5. Negotiating leverage. Buyers have leverage on the way down. They lack leverage on the way back up.

1. Whats staggering is that rents are barely up in 10 yrs and prices are double or more.
2. This is a worthwhile trade currently, especially since price make "carry out" purchase relatively out of reach.
3. At a price. Not mine. Irrelevant point. Inventories remain much higher than normal.
4. This is most relevant to a very long term purchase. See (2). Buying when rates are high provides value upside to a decrease in rates.
5. Absolute price matters, not delta to asking price.

Re Rents: Rents in Manhattan are barely up since 2000 -- (the exact building I was in in 2000 shows listings at times for about 10% above what I paid 9 years ago....and that is the asking rental.) MOREOVER - since monthly fees have gone up with inflation I suspect then the net income to an owner of rent - fees is basically flat.

OK, at least your logic is good. I can't fault you there. Some folks have long-term horizons, and would rather lock in. It makes more sense (for some people), instead of renting and buying gold. Will there still come a better time? Probably. But will it be a time that can be acted upon conclusively, at just the right moment? Not so sure. The debate can go on and on...

Maintenance is probably up 40%...if maintenance is any reflection of actual costs to an owner, the net rent is probably down considerably.

AVM, I guess you mean the folks with a budget over $2mm. Absent that, you are talking about people who don't have plans to get married and have 2.0 kids. Or you are talking about people who have two of the same sex kids and are going to have them share a room. I think long term logic is flawed in Manhattan for all but the very wealthy. Long term logic works in the burbs because your three or four bed house can accomodate the average family...more or less comfortably, but nonetheless accomodate them. I also think you would find even with a long term horizon you are better off with a low price entry during a period of high interest rates then vice versa...assuming an exit at a period of average interest rates..whatever average means....8%? Range = 5% to 12%.

"Maintenance is probably up 40%...if maintenance is any reflection of actual costs to an owner, the net rent is probably down considerably."

Of course it's a reflection, but it's not a 40% reflection unless the owner owns it free and clear. And in that case, there probably aren't too many units where the owner isn't still making a substantial profit (i.e. where rent is not a substantial amount more than cc+RET / mtc). If an owner has a monthly mtc of $1,000 and a mortgage payment of $3,000, a 40% increase in mtc results in (approximately) 10% increase in overall costs.

Rhino,
I can only speak for myself. Married with 1 kid. In contract for a 3br for under $1.5mm. Do I consider this a no-brainer great decision? No way -- otherwise I wouldn't be posting on SE at 11pm!

All I can say, I certainly don't consider us very wealthy. On the other hand, I do think we can afford it. Even in an unfortunate loss of job scenario, I have some savings for awhile. I have saved for a long time and am putting down a meaningful deposit. The mortgage rate is low and the monthlies are reasonable.

If and when we have another kid, the apartment is certainly livable for a number of years, but may eventually get cramped. Certainly it's no house in the burbs, on a sft basis or otherwise. What will our re-sale value look like then? Who knows! Maybe not great.

The flip side is we've been moving around for the past 10 years, and we're thrilled to be settling down somewhere.

It would be great to buy in a high interest rate environment. I completely agree -- the price would be way lower and I could pay cash and not worry about a mortgage. But unfortunately that's not the environment we're living in right now.

Anyway, that was my logic. One can poke holes in it -- definitely. I have done so myself.

Well since you have been honest, I will too. I came very close to buying several times in the past couple of years most recently right before Lehman went tits up, which relatedly scuttled a deal with a low appraisal. After that, it has seemed to be a no brainer to avoid, mainly because rents have been so weak. Before rents were weak, bad ratios could be overlooked somewhat, for right or wrong, because another couple of years of 10-15% rent increases could change those ratios so drastically. I can appreciate the need to settle, and if your schooling situation is palatable for the next ten years or so, you should be ok. I am frankly unwilling to lock in private out beyond my first childs graduation from PS at this price level. Buying is so much easier with after tax savings (not equivalence) vs rent...as month in and month out, you are building a reserve so to speak against potential price reduction (or even just amortizing your costs).

lots of interesting stuff to read here, thanks

I have been agonizing over whether to buy for the past few years too. With #2 kid nearly walking and #1 in pre-K, needing a 3-BR or at least a classic6 on the UWS. A couple very nice & patient brokers have shown me dozens of places, and the ones I would even consider are still well north of $1.5M.

To buy, that works out to something like 400K down, and a monthly nut (with maintenance) of generally more than $10k. Not only that, but all these places are north of 96th st, which means private school, at another $30K per year.

To be in a desirable public school zone it's even more to buy, whereas comparable places to rent can be had for $6-7K per month. I know there's math of the tax deduction on the mortgage interest, but to me it still seems like buying only makes sense with the accompanying fantasy of prepetual appreciation, which is clearly proven to be myth. Not to mention if I rent I can earn something with my $400K.

So I too am having a hard time finding justification for buying. Even though I want a better place for my growing family and would rather not leave the city; I guess shelling out north of $80K annually in rent is the lesser of two absurdities versus getting mortgaged to the eyeballs in what still seems like vastly overinflated real estate market.

Hell, I guess I could get a nice 4-BR house in Westchester for around a mil and get decent schooling with my hefty (though relatively not) taxes ... but been in the city for 17 years ...don't want to leave.

Dont forget, maintenance IS RENT. After tax interest IS RENT (of money). Westchester property taxes offset by lower income taxes for commuters, assuming you are someone who makes the $400-500k that would have you looking at $80k in rent/$1.5mm purchase.

These $1.5mm apartments need to go to $1mm, in order to stem the outflow of people like you.

imho buying might make sense at these inflated prices only if you are willing to really play the game (minimize skin and be willing to walk away if underwater while living rent free). that's not for everyone. besides you have to buy below $750k to qualify for FHA...

whether maintenance costs and property taxes are with respect to the rent might not matter a whole lot anyway to those that are willing to walk away, they just do not pay them if the price of the home doesn't go up.

but wait... that's what's going on since 2003? or 2005? ok, finally i understand the game :-)

tripel, it's actually another $70k for private school, $35k times two.

Whats going to happen when a private equity firm buys Stuy town and dumps every renewal tenant and sells it as a condo. They buy it for a 7.5% cash yield and sell the units for 5% yield, undercutting the market by 35%.

right ...70K post-tax for private school -- yikes!
we're renting a 2 BR now that's $4K, so it's managable (for one kid), but in 3 years i want public school, so that means either somewhere in the 70s-low-80s or Westchester...

and the prospect of renting seems more palatable for the short term, as I can't imagine those $1.5M places being worth $1.75 any time soon

tripel, if rhino is right maybe you'll be able to buy one of the five bedrooms in ST for a song and send the kids to PS 40.

The ultimate eff you trade here is Manhattan prices just go nowhere for 10 years. Eventually rents move up enough to make it a more reasonable tradeoff. One kid travels in the city. We have one, and we're in PS 6. I dont think I want to make my rent up from the $5k its at....but we have a few years before #2.

My call is still that prices begrudgingly fall another 30%, for a compounded 50% off the top. I dont see rental strength anytime soon. Its an outright bargain to rent at 2000 prices give 10% or so.

I'm reluctant to head down this path... but there's another factor that's not being addressed.

If you have the savings for a sizable deposit then you can choose to put in equity and cut down your monthlies a lot. Then the "outflow" of owning starts to reverse itself, and renting becomes the bigger monthly burn. Stop, you say, that is not an acceptable (implied) ROE at these prices. But what else is better right now?

Tripel, you mention earning something on the $400k. How? Cash pays zero. Risky bonds, stocks, and commodities can all lose (a lot of) value, just like real estate.

If someone has the discipline to rent, sit on cash, and wait to invest until rates rise...then they've achieved someting by avoiding the risk of capital loss, at least in nominal terms. I can applaud that level of patience. But that exposure is kind of scary in its own right. There IS a chance that the world goes the other way. 3 years from now, rents COULD be higher and your cash might have less purchasing power than it does today. Just the flip side of the same coin -- there are risks either way.

AVM, i don't disagree with you in theory. but if my money market blows up it's the end of the world as we know it. and i won't feel fine.

the key consideration, for me, is mobility. renting provides a great deal more flexibility. i agree regarding the $400k, but tripel's costs even ignoring the opportunity costs of the initial investement would be much higher if he bought.

What about buying in areas like Williamsburg, Long Island City, Ditmars, Harlem - etc. Have these areas become more affordable in the downturn than Manhattan? Is there more potential for equity upside?

Ding, ding, AR. USD is going to blow up. Personally, I'm waiting for the dollar to gain strength. I set myself some targets to switch into Euro/CAD but didn't get quite there in March. I kinda think that as people liquidate their equity positions that the dollar will strengthen again (temporarily) and I will sell most of our USD then.

zero on the cash? well, not much better than zero, ally.com with an apr of 1.8% isn't too shabby. to cover the 400k, do a JT with a spouse and be fully covered on fdic.

by more affordable, I mean did these areas go down more on a percentage basis

10023, timing the demise of the dollar and predicting the resulting implications is an interesting pasttime. i'm with you on not seeing near-term collapse.

streakeasy, amexbank has a pretty good deal, for this environment, too.

"but if my money market blows up it's the end of the world as we know it. and i won't feel fine"

AR- I agree - if my money market blows up, I'm totally screwed. But I don't quite understand how this applies here. My point is that it's inherently risky to sit on any kind of asset. If the $400k is sitting in bonds, stocks, etc., that is risky. I was actually conceding that cash/money market could be considered a safe exception. If that's at risk too, then my point is all the more true.

An alternative is to re-deploy into something physical or "Real".. sorry. Of course you can face big losses. Just saying in some ways it's not all that different than invsting in a stock or bond. Different prices, yields, multiples, risk of loss, etc. Same general concept.

Agree on mobility. If you want to be mobile, rent every time.

nice aboutready, i saw that as well and got a little tired of chasing returns. i also opened up an hsbcdirect acct to only see the rate drop 45bps. i agree heavily with rhino and am looking for a 50% drop from the top in order to buy. these prices are only making me more weary of locking in my monthly expenditure. i too will be waiting and renting in the meanwhile. i think if you just get a space big enough for your needs, you end up ahead on the renting side.