Where can you buy this apartment for $3,600 a month

Well, for your point to be all that applicable as well, it would be nice to see if that trend were often the case. Are you sure there's no correlation? Or are you just saying that because of one data point?

Regulated rents ALWAYS go up. Market rents are subject to vicissitudes. Ergo, there is no correlation.

Market rents will be depressed for many years to come. I signed a 2-year lease b/c they offered me 1 free month, an 8% discount on the nominal rent, and then offered to extend it for 2 years. In other words, the landlord himself was predicting a fall in rents. I'm predicting that property prices won't fall enough to match rents, so it's a match made in heaven.

Steve's "analysis" totally falls apart under an inflation scenario. He will then face 5-10% per year rent increases (it has happened, check out the RGB history in the 70s/80s).

http://www.housingnyc.com/downloads/guidelines/aptorders2010.pdf

As an owner with a fixed mortgage, increases would me much less. And historically real estate appreciates faster during inflationary periods.

He has constructed a theory that works well this year, but will likely not survive a serious bout of inflation. Ask anyone who bought a townhouse in GV for $50k in the 70s if they wished they had remained renters.

"And historically real estate appreciates faster during inflationary periods."

No it doesn't. In fact, it falls precipitously, as the cure for inflation is very high interest rates.

just plain, dead, wrong steve - find me a period of large inflation and corresponding precipitous falls in real estate.

More economic blathering. High interest rates are at the end of an inflationary cycle, and meanwhile home prices have soared with CPI.

http://www.newyorkfed.org/research/quarterly_review/1980v5/v5n1article3.pdf

page 7. shows Manhattan co-op prices in the late 70s (the most recent period of high inflation here in the states). not only did prices not fall precipitously, they went up, precipitously.

"Regulated rents ALWAYS go up. Market rents are subject to vicissitudes. Ergo, there is no correlation."

That's a bit hokey, Steve. Under such a scenario, regulated rents would eventually surpass market rates, unless of course, over the long-run market rents went up at least (or about) as much, which might imply a correlation, no?

the argument that a prolonged period of high inflation is bad for nominal real estate values makes zero sense. and given that most purchases are funded with long-term fixed rate debt, the real return in such an environment would be fantastic, and buying would destroy renting.
if you want to make the case that we're in a 90s japan/30s US deflation, then yes, renting will provide the better returns. you can have one or the other, but not both.

Adjusted for inflation home prices fell in the 1970's:

http://en.wikipedia.org/wiki/File:Shiller_IE2_Fig_2-1.png

which caused the boom in the 1980's.

modern - you can't extrapolate what happened to NYC real estate in the 70's to today: in the 70's most of NYC was uninhabitable and the population was falling quickly. The WV wasn't what it is today. There weren't even street lights west of Washington Street.

In addition, there were a number of other factors affecting NYC real estate: the co-op conversion boom (which offered incentives to insiders causing "flipping"), the deregulation and re-regulation of apartments (rent control / stabilization) and the introduction of market rentals. The "boom" in the '70s and '80's was completely reversed in the late 80's through 1998. Apartments were more expensive in NOMINAL terms in Manhattan in 1983 than they were in 1998, 15 years later.

It was another boom.

Printer, the fact of the matter is that outside of Manhattan, most regulated apartments rent for LESS than the maximum regulated rent. Big article on it in the NY Times some years ago. The only place where rent regulation actually matters is Manhattan, and even here it doesn't in most times.

"But if you buy that apartment at its current price of $10,000 a month, you will have paid $1,200,000 for something that I paid only $570,000 for, so it seems like I'm getting the better end of that deal."

This is the dumbest thing posted on this thread, maybe on this board. First of all, it isn't $10k a month that's just silly. Look at a few reasonable comps and your are looking around $4-4.5k. Secondly, you paid $570k and get nothing. If you buy you eventually own it or have a significant amount of equity (this is where steve drabbles on and on about negative equity in inflationary periods but we can just laugh at that). steve, you are not this dumb even though your statements would say otherwise.

"5% per year increase as "conservative". Funny."

Over the next ten years on average? Absolutely conservative. Tell me why I'm wrong nyc10022. Tell me how rents will go down in an inflationary period.

> Tell me how rents will go down in an inflationary period.

Tell me when we're in an inflationary period.

Historically, 5% is waaaaaay off.

"Tell me when we're in an inflationary period."

We are not, but you have said yourself we are headed there.

Not in rents...

http://www.streeteasy.com/nyc/talk/discussion/15712-tregny-continued-downward-pressure-on-manhattan-rentals

but nice try...

"Adjusted for inflation home prices fell in the 1970's"

You really are an idiot. During high inflationary periods what you want is tremendous NOMINAL inflation on assets financed with FIXED debt. Which is EXACTLY what happened to real estate in the 70/80s.

Hey Steve, if inflation is 8% and you own an apartment going up 6% per year, you consider that bad, right?

But with 20% down, you are 5x leveraged, which means you are generating a 30% return on your investment (as your debt cost is fixed) versus say 8% in the bank (assuming money market rates go that high, they tend to lag inflation).

Tell me again how that is bad for the owner? C'mon, I am sure you can make up something.

Uh during the inflation, a mortgage is win? 6% mortgage vs 8% inflation??! The chart is right great depression was a deflation, so RE prices went down.

"Look at a few reasonable comps and your are looking around $4-4.5k"

There is NO comp anywhere near that price, Juice. The one "comp" that you picked - $699k - totals out at about $7k a month.

"During high inflationary periods what you want is tremendous NOMINAL inflation on assets financed with FIXED debt."

Doesn't matter what the inflation rate is, if adjusted for inflation prices fall. Because inflation is offset by increases in income, so it all washes out.

When what you say happens happens, it is followed by a deflationary period as we saw in the late '80s and 90's. In NOMINAL terms, again, prices in Manhattan were lower in 1998 than in 1983.

modern, your "example" is fine but limited. In times of high inflation banks don't lend (for that very reason). If banks don't lend then property prices go DOWN in real terms, even if they go up in nominal terms (which would be reversed in any case after the inflationary period). Unless your theory is that banks DO lend in inflationary periods, which is not borne out by any empirical data.

You would be alone in arguing that inflation is a good thing.

"Doesn't matter what the inflation rate is, if adjusted for inflation prices fall. Because inflation is offset by increases in income, so it all washes out."

that statement is so stupid that I don't even know where to begin.

steve, do yourself a favor and just stop this argument right now. if you don't want to actually admit you are wrong just fade away, but you can't argue yourself out of it. simply put, your return on a property financed by a fixed rate mtge in a period of inflation will be very good. not that difficult to understand - you have locked in prices at a fixed rate when prices were low, and now they are rising.

the 80s after inflation was pricked by Volcker was not deflationary - it was disinflationary - big difference.

"simply put, your return on a property financed by a fixed rate mtge in a period of inflation will be very good."

Nominally that will be true, but in REAL terms - what your income buys - it won't be. Because incomes rise with inflation and a bit more (productivity) over time; real property prices go DOWN in inflationary periods because a) banks stop lending (for the very reason you cited - they will lose money); and b) interest rates are very high when they do lend. Just look at the early 80's and what it caused: massive housing DEFLATION over the next 15 years.

Generally, Volcker caused disinflation: the inflation rate was tamed to a normal, healthy 2% from the high teens. But the value of housing - a fixed asset not counted in the inflation rate (rents are, instead) - collapsed.

Just look at the history, printer, and retake Econ 101.

And printer, the whole reason why your argument MUST fall apart is that the price of housing is NECESSARILY tied to incomes and leverage. Whenever leverage leads to a short-term disequilibrium in housing prices - eventually it falls back to equilibrium.

Owner-occupied residential real estate does not behave, and never has behaved, like an investment. Unlike stock and bonds, it's indivisible. There is a general formula (PITI) that limits how much you can spend of your income on housing. Your argument, taken to its extreme, is unsustainable: while partially true for the few lucky ones who may have locked in a fixed rate prior to the inflationary period, real housing prices MUST fall during that period to a level supportable by current incomes and interest rates. I know that solving simultaneous equations is difficult, but I'm sure you can figure it out if you put your mind to it.

So you will get a very good nominal return during a period of inflation, but you MUST get a negative real return to resolve the effect of high interest rates.

steve - if it were an unlevered purchase then yes, you could end up w/a negative real return. but the leverage amps up the return to the point that you end up with a positive real return. again, if you had a floating rate mtge that moved up more than inflation it would be a different story, but that's not the case - you have locked in your funding at the lower levels.

steve typically does this - he initiates a flawed argument, and when others point out the flaws, instead of just admitting he is wrong he digs a deeper and deeper hole for himself. I think he does this just to justify to himself his bad decision to be a renter all these years, and to pretend he is smarter than everyone else.

In nominal terms, yes, printer, if you're one of the lucky ones. In real terms, however, leverage works the opposite way: The more your property declines in real terms, the greater your loss in real terms.

Ask anybody who bought in Manhattan in 1983 and sold in 1998. After 15 years their properties were worth less in nominal terms, but worth far, far less in real terms. I bought an apartment for $218,000 in 1998; it had been converted to co-op in 1983 at $250,000. If you had taken out that loan in 1983 based on your income in 1983, you would find that people who made much less than you in real terms in 1998 could now afford your apartment.

The ratio between prices and incomes and leverage cannot stay out of balance for long. That's why property prices MUST continue to fall in Manhattan.

steve, this thread is pitiful. I'm all for debate, but your are just making stuff up now. I guess that's what makes you tick, enjoy.

"I think he does this just to justify to himself his bad decision to be a renter all these years,"

Good morning LICC! Show me that comp that beats my rental, and I'll show you a flawed argument.

JM - what am I making up? How inflation affects the real prices of fixed assets? Not at all. Ever been to a country with hyperinflation? They are very poor in real terms, even if it costs millions in their currency to buy a lemon. Only you and LICC are left arguing that property prices are uncorrelated to incomes.

Want to see making up stuff? "Look at a few reasonable comps and your are looking around $4-4.5k."

Still waiting for you to show them to me.

That's "making stuff up."

FYI - just got the news! The lease is signed by the mgt. co.

Where are my bitter buyers paying $1 million plus for a view and space available for a mere $3,600 a month?

Tee-hee-hee.

classic steve - changing the terms of the debate so that he doesn't have to admit he was wrong.

1983-1998 was not a period of high, sustained inflation, was it? how about choosing a time period that was - say 1973-1983? oh, that's right, b/c it would actually reflect the conditions we are debating and show how spectacularly wrong you are.

enjoy your new place.

"oh, that's right, b/c it would actually reflect the conditions we are debating and show how spectacularly wrong you are."

I posted a chart that showed the inflation-adjusted price of housing in that very period. No changing the terms of anything.

However just using Manhattan is not relevant because of serious shifts in the property market at the time, due to the conditions of a burning city. Or don't you remember?

3 things:

1) So now the fact that manhattan was a crime-ridden, fiscal train-wreck somehow made prices go up?
2) for the 10th time, the real unlevered return is not at discussion, rather the real levered return, which, due to the fact that the borrowed money was at a fixed rate, were decidedly positive
3) I'm done - sometimes you are right, but when you are wrong, you have a pathological inability to just admit it and move on, so there is no point continuing this.

enjoy the new place and neighborhood.

"1) So now the fact that manhattan was a crime-ridden, fiscal train-wreck somehow made prices go up?"

No. It was the resolution of that problem that made them go up - in other words prices were low because of the problem. Also during that time rent control was eliminated, rent stabilization was introduced, and the co-op conversion law was passed. Unless those things didn't happen...

"2) "The real unlevered return is not at discussion, rather the real levered return, which, due to the fact that the borrowed money was at a fixed rate, were decidedly positive."

I have given you that point for those who were lucky enough to buy in 1963 or so and had a very low interest rate locked in. Unfortunately, as interest rates rose property prices fell in real terms, which make any nominal gains illusory.

"3) I'm done - sometimes you are right, but when you are wrong, you have a pathological inability to just admit it and move on, so there is no point continuing"

Actually I admit that I'm wrong all the time - when I am. Look it up.

I guess this is what you would consider a "comp," right JuiceMan?

http://www.prudentialelliman.com/listings.ASpx?ListingID=1133994&utm_source=NateFind&utm_campaign=corporate&utm_medium=listings

Look at that, JuiceMan, another comp:

http://www.prudentialelliman.com/listings.ASpx?ListingID=1146896&utm_source=NateFind&utm_campaign=corporate&utm_medium=listings

Rooms around the same size, listed at 1182 square feet. There goes your size theory.

And look at that, it can be yours for a mere $14,000 a month!

You should feel HONORED to live there, right?

"Rooms around the same size, listed at 1182 square feet. There goes your size theory."

Yes, because we definitely trust broker listings all of a sudden? Not to mention this condo has a bigger master bath and actual hallway space. Honestly though Steve, what's your ultimate point? That you can find a (more desirable) overpriced apartment? It's evident you got a pretty good deal, but in no way is a prime Soho condo building a true comp for your rental. Otherwise, might we pull some "comps" from East New York?

Looks like steve is having another fit because he lost yet another argument.

yup LICC, another death spiral for steve.

Yup, Juicy, I see all those $4,000 comps you posted!

Yup, LICC, I'm hiring you to negotiate property prices down from $900,000 to $500,000. If anybody can do it, YOU CAN!

Nope, bjw: compare both listings I posted and tell me how JuiceMan gets 700 square feet for mine. Not all psf's are accurate, but I believe those to be.

JM: How big is this one?

http://www.rosenyc.com/Portals/0/PropertyFiles/Floors18-282bdrA.pdf

> 1) So now the fact that manhattan was a crime-ridden, fiscal train-wreck somehow made prices go up?

No, the changing of it from that to disneyland gave it an additional bosst beyond what would be considered normal RE growth.

Big point... thats not a repeatable increase unless we go to hell again... so including it in the data makes no sense.

"2) "The real unlevered return is not at discussion, rather the real levered return, which, due to the fact that the borrowed money was at a fixed rate, were decidedly positive."

Steve is right here. You don't get to cherry pick the interest rate....

> Looks like steve is having another fit because he lost yet another argument.

LOL.

I find it interesting that its the folks who were completely wrong about the crash talking about others losing arguments....

Borrow at 5%, with 25% down. Buy a $800K apt in 2009 - $200K principal, $600K mortgage. Could have rented an equivalent place for $3K/month. Market value of said apt in 2012, due to NYC RE bubble popping - $500K. Then, 8% appreciation for the ensuing 7 years (abnormal return b/c of inflation) [Note - present value of tax savings is cancelled out by transaction costs incurred in buying and selling the apt]. Market value of apt in 2020 - $857K. Net gain of $57K on a $200K investment over 10 years - or 2.54% annual appreciation on principal invested. Due to inflation, your purchasing power will have substantially DECLINED. Meanwhile, you will have paid twice as much annually in interest as you would have in rent for a comparable apt during the same time period.

YEAH, MAKES PERFECT SENSE TO BUY TODAY! (hahaha - good one)

Your analysis depends on a 40% drop in prices from current. Give me a little while to stop laughing . . .

LICC laughed about the first drop as well.

http://www.rosenyc.com/Portals/0/PropertyFiles/Floors18-282bdrA.pdf

~950 sq ft

Not to change the subject, or take sides in the argument, but people are predicting inevitable future inflation. Right now apartment rents are deflating, and the price of clothing in retail stores is deflating. I wouldn't venture to say, "Ah-hah! Proof positive that we are headed for a long deflationary spiral," but just for the sake of looking at all the above in a different light.... so everyone is debating effects of future inflation on the rent/buy decision made in October 2009. What if that inflationary spiral doesn't kick in within the next few years? What if we have a few years of deflation first?

I'm still waiting for those "comps" I've been told exist.

secondandc, with the foyer I get 1,000, so that's about right.

lowery, I see no inflation for a long time to come.

http://www.streeteasy.com/nyc/sale/464658-coop-400-west-58th-street-clinton-new-york

I did a quick search for 2-bed, 2-bath apartments up to $900k. There were 10 other like this in the same asking price range.

That took about 10 seconds to show steve is wrong, again . . .

if i was as seriously underwater as LICC--id try to do more reading and learning than opining on those who dodged the blunder he has so espoused

as unrealistic as an additional 40% further decline from here may be as cited in be sex's comment, so may the assumption of a seven year run of 8% appreciation--plug flat til 2012, and say 7 years of 5% appreciation, in be sex's model and im still dying to rent

and modern i cant agree with comparing leveraged real state investment with non-leveraged financial asset investment, esp where one assumes an ever-appreciating re market --your analysis is partticularly useless in times like now where many of those who leveraged real estate of recent are underwater

I bought my first place in 1998, and you think I'm underwater? Excuse me until I finish laughing again please . . .

You're saying the place you bought at the top of the bubble isn't underwater?

Ive bought and sold many properties in many years--been very lucky and maybe a tiny bit smart--ive been flat nyre since 7/07--tell me about your portfolio since then--tell me about your lic property--lic is on it's lows as we speak with no bounce in a loooong time--off appx 30-40% from peak prices---and you have continulaly talked up investments there with each new lo--what's to laugh about? and it aint over in lic--mark my words--lic is a special place--if there's a place with the potential for another 40% decline, it's lic--

"I did a quick search for 2-bed, 2-bath apartments up to $900k."

Down Payment $167,800
Mortgage Amount $671,200
Mortgage Payment $3,811
Total Monthly Payment $5,350

Really, LICC? Since when is $5,350 = $3,600?

Your math is seriously lacking. Try again.

"I bought my first place in 1998, and you think I'm underwater?"

If you're underwater it would be under the Newtown Creek.

Look what happens when you change the price of your "comp" to $470,000, LICC:

Down Payment $94,000
Mortgage Amount $376,000
Mortgage Payment $2,135
Total Monthly Payment $3,674

Since the list price is $839,000, it only needs to fall in price by 44%!

steve, when you just ignore the tax benefit, you are just showing everyone that you have no idea how to analyze the cost comparisons, and that you have potential mental issues, because you would choose to ignore the financial benefit and put yourself in a worse financial situation just to feel better about being a renter. You really are comical.

too bad you don't understand how the AMT really works. maybe you're not subject to it.

"when you just ignore the tax benefit"

The test is, LICC, can you purchase a property and rent it out to an unrelated third party and break even. That test allows for all taxes - everything! - to be deducted, except the principal. Therefore, out-of-pocket expenses must be the same for owning and buying, which is, historically, what the equilibrium has been. Only since the boom from 2003 has this not been the case.

Also, LICC, when you ignore the opportunity cost, the risk premium of owning, the transaction costs, etc., you are just showing everyone that you have no idea how to analyze the cost comparisons, and that you have potential mental issues, because you would choose to ignore the financial benefit and put yourself in a worse financial situation just to feel better about being an owner.

"for owning and buying" = "for owning and renting."

OOPS!

steve, if you want to include those intangible items, you must include price appreciation, which of course you hate to do because that makes your bizarro analysis fall apart.
The test you use is not the actual test that applies to a comparison of the costs of living in a rental or living in an apartment that you own. You can create whatever mistaken analysis you want to get to the conclusion you want, but that does not make it accurate.

aboutready, thanks for a meaningless comment. If you really do know how AMT works, and have experience paying it, you would know that since AMT effectively negates other deductions, you are paying more tax at your highest marginal rate, thus potentially making the mortgage deduction even more valuable since AMT does not apply to it.

"steve, if you want to include those intangible items, you must include price appreciation, which of course you hate to do because that makes your bizarro analysis fall apart. "

Of course, that would just make Steve's point stronger. How is a 30% decline going to help the buy equation?

Also, AR is right... I don't think you really understand the AMT. The logic isn't very good.

steve: "transaction costs"

LICC: "if you want to include those intangible items"

Since when is "transaction cost" an intangible item?

LICC: "you must include price appreciation"

Jonathan Miller: "Manhattan prices down 25% to 30% from peak"

Care, then, LICC, to include price DEPRECIATION?

steve thinks the risk premium of owning is a tangible cost? Opportunity costs?? His analysis depends on long-term price depreciation?

Excuse me again until I finish laughing . . .

"Opportunity costs" are intangible, LICC?

"Risk Premium" is intangible?

Let's read the definition of "intangible": "(of an asset or benefit) not constituting or represented by a physical object and not precisely measurable in value."

Both the opportunity cost and the risk premium are highly measurable - there are accepted formulas for both.

Excuse me again until I finish laughing . . .

And: "His analysis depends on long-term price depreciation?"

No. Short- and medium-term price depreciation, which will take till the long-term to be offset. Just like what happened 1983-1998, only worse, because this boom was bigger.

Can you find anyone who is predicting short- to medium-term price appreciation in Manhattan, LICC, other than realtwhores, yourself, and JuiceMan?

I thought not.

Excuse me again until I finish laughing . . .

You don't think prices were higher in 1998 than they were in 1983? Whenever steve refers to an accepted formula, it is something he made up or misapplied, and everyone pretty much picks it apart and shows how foolish he is.

Thanks for another chuckle steve.

"Can you find anyone who is predicting short- to medium-term price appreciation in Manhattan, LICC, other than realtwhores, yourself, and JuiceMan?"

SteveF!

great company!

"You don't think prices were higher in 1998 than they were in 1983?"

No, they weren't. A well-known fact. Both nominally and adjusted for inflation.

"Whenever steve refers to an accepted formula, it is something he made up or misapplied"

Risk premium: http://www.investopedia.com/terms/c/capm.asp

Opportunity cost: http://wiki.answers.com/Q/What_is_the_opportunity_cost_formula

NEXT!

wow, I have to tell you... I've seen LICC make some nutty statement, but claiming that steve "made up" risk premium and opportunity cost... wowzuh.

LICC - you don't believe opportunity costs are real? The stock market is up substantially in 2009, while Manhattan RE prices have fallen substantially. So if I had bought a place in Manhattan at the end of 2008 [using most of my savings as a downpayment] instead of investing my principal in stocks / bonds, you think there would have been no opportunity cost??? What do you not understand about this?

BTW, keep laughing, LICC, at my prediction that prices in Manhattan still have another 35% drop coming. Looks like the joke is on you, buddy...

In Manhattan real estate, worst seen yet to come
Fri Jun 19, 2009 3:41pm EDT
By Jennifer Ablan

NEW YORK (Reuters) - With apartments piling up on the market in Manhattan, isn't this the time to snap up the real estate equivalent of buying Champagne on a beer budget?

The savviest minds on Wall Street say it's not.

Even though prices have fallen around 20 percent as Wall Street's ranks have been thinned on fallout from the financial crisis and recession, top economists, strategist and analysts at the Reuters Investment Outlook Summit said they would be in no hurry to purchase a slice of the Big Apple.

Many expect prices to drop even more, as much as another 25 percent as unemployment rises.

"Absolutely not," Nouriel Roubini, an economics professor at New York University who is known for his prescient call on the financial crisis that has gripped global markets over the past two years, said when asked if he would buy Manhattan real estate.

"With all the job losses, whether it is Wall Street or otherwise, demand is very weak," Roubini said. "I think prices are going to fall very sharply."

He sees Manhattan residential real estate prices dropping another 20 percent to 25 percent. Home prices in New York dropped 21 percent in the first quarter compared with a year ago, though they had held up relatively well until the second half of 2008 when financial markets seized up.

Greg Peters, global head of fixed income and economic research at Morgan Stanley, also predicts another 20 percent in New York City. "Brooklyn, I would have down 30 percent," he said. "Although I would move to Brooklyn before Manhattan, actually."

Robert Prechter, founder and president of Elliott Wave International in Gainesville, Georgia, and known for his prediction of the 1987 stock market crash, of Manhattan real estate said: "I would probably put it on my list for an eventual bargain."

Up until the bankruptcy of Lehman Brothers Holdings Inc last September, New York City seemed immune to the real estate woes plaguing the rest of the country. The dominance in the Manhattan real estate market of cooperative apartments -- as opposed to condominiums -- that impose their own strict financial standards on buyers was seen as protecting the market against the foreclosures and repossessions that had already decimated other areas of the country.

But though Manhattan still hasn't experienced the wave of foreclosures seen in other areas, the golden days of ever-rising prices and rapid sales of multi-million-dollar apartments have evaporated.

The demise of Lehman and the disappearance of Bear Stearns Cos. and Merrill Lynch & Co. through distressed sales have transformed Wall Street.

The securities industry, which helped boost city and state tax surpluses in the last boom, has axed 21,800 jobs over the last year. And the heady days of year-end bonuses that financed the purchase of high-end apartments have fizzled out, leaving the real estate market holding the equivalent of a glass of warm, flat Champagne.

In a city where the securities industry accounts for almost 35 percent of all salaries and wages, New York's jobless rate climbed to 9 percent in May, its highest since October 1997 and up from 8 percent in April.

The pink slips have been felt.

The number of sales in new Manhattan apartment buildings dropped a whopping 71 percent in April from a year earlier [nN1497848].

And there may be more bad news to come.

"If there's going to be higher taxes as we've seen proposed, you're going to have caps on bonuses or income, and this city is a little bit more dependent on Wall Street than a lot of other places," said Tobias Levkovich, Citigroup's chief equity strategist.

Reuters did find one interested party. Dino Kos, who previously ran the New York Federal Reserve Bank's markets desk and is now at research firm Portales Partners, told the Summit: "If I had the money, yes. Yes, if I had the money. But I don't. Too many years working in the public sector -- public sector will do that to you."

(Editing by Leslie Adler)

You have to remember that both LICC & Juiceman believe that $5,350 = $3,600.

They also believe in counting only those things that support their argument, and counting them as many times as possible. They ignore anything that doesn't support their theory.

Unfortunately, all of the other theories put forth here by me and others (rhino, for example) are not only documented and proved empirically, but they are self-consistent. For instance, the 12x ratio that LICC thinks should be 21x (because he counts the "tax benefit" multiple times) is:

$3,600 x 12 x 12 = $518,000

which is approximately the price I got at which you could rent out the place to an unrelated party and break even.

Use PITI, or 40x annual rent, and you'll get about the same figure.

Poor LICC.

NEXT!

LICC has lost another argument. Thanks for another chuckle.

According to the NY Times, in 1983 2-bedroom coops in Manhattan were normally priced in the $250k range. According to Miller Samuel, in 1999, the median price for 2-bedroom coops was $515k and the average price $550k.

Hmm, another of steve's "facts" that is proven to be stupidly wrong. Shocking. (Chuckle . . .)

People here need to read better. I never said opportunity costs aren't real. I said that steve's formula to measure the costs, like most of his usage of formulas, is incorrect and mistake-ridden. One example is his dumb method of measuring the opportunity cost by the amount of the purchase price instead of the down payment, or his using high return asset classes as a measurement instead of actual comparable investments.

steve, you can ignore all the factors that negate your flawed analysis all you want, it doesn't make you correct.

"You have to remember that both LICC & Juiceman believe that $5,350 = $3,600."

I don't think anyone actually said that, Steve, but the point is well taken, that at 20% down, etc., your monthly nut at that specific apartment is significantly greater than yours. That said, given the fairly limited investment opportunities out there (hello CD rates at 2%!), it doesn't seem ludicrous to put more money down if you have it. At 50% down, that unit will cost you about the same, and I'd argue appears a bit more desirable (subject to taste of course). I know you'll disagree (and I'm not saying I'd do this either), but it's worth consideration, I think.

Just look at steve's above example to laugh at how silly it is. He thinks that an apartment that commands a market rent of $3600 should never be priced higher than $518,000 to buy. HA HA! Who would choose to rent at $3600 if they could buy and live in the same place for an after-tax monthy cost of $2800 or less?

Including the tax benefits of http://www.streeteasy.com/nyc/sale/464658-coop-400-west-58th-street-clinton-new-york

is about 4k/mo. So it is comparable.

LICC: "According to the NY Times" [...] "According to Miller Samuel"

So, take two different measurements of two different things at two different times and claim they are the same, and VOILA: LICC is right!

Wrong.

"Steve thinks that an apartment that commands a market rent of $3600 should never be priced higher than $518,000."

IT is what history dictates - as proved multiple times by multiple people even (inadvertently) by JuiceMan in a post from a few months ago.

We are reverting to the mean, LICC, and the mean of LIC = $100,000 for a 3-bedroom apartment (overlooking the Newtown Creek).

Sorry.

"Who would choose to rent at $3600 if they could buy and live in the same place for an after-tax monthy cost of $2800 or less?"

Only someone who ignores a) Transaction costs, b) Opportunity costs, c) risk.

AKA an idiot.

"limited investment opportunities out there"

Are you serious? There are literally THOUSANDS of investment opportunities out there that don't involve sinking your money into overpriced Manhattan RE. There are thousands of public companies - and you can choose to buy equity (preferred or common) in such companies or the debt issued by such companies. There are thousands of other RE markets (look at virtually any area of the country other than the NYC metro area) - with RE vastly cheaper than in NYC.

Why would you limit yourself to one overpriced niche market if you are investing your hard-earned bucks???

steve knows he lost ANOTHER argument when all he has is backpedaling, conclusory statements with no factual support, and lies. But he is used to it by now.

darkbird - if you only include the benefits and not the costs, then you'll get a really pleasant answer. Add in the real (tangible) costs, however, and it looks even worse.

LICC: "People here need to read better. I never said opportunity costs aren't real."

LICC: "steve thinks the risk premium of owning is a tangible cost? Opportunity costs??"

Backpedlling, LICC?

BS, I don't find stocks particularly appealing at this point, but apparently you do? Based on what exactly (I'm not being snarky, genuinely curious as to what you have to say)? I should have been clearer - the "investment" I'm referring to is the cash for a down payment. Where do you put that right now? As I said, CD rates are measly, stocks are probably too risky for most (as is gold), TIPS is a possibility but not an overwhelmingly obvious alternative. Is it that crazy to suggest plunking down more cash for your home (ie: not an investment) if it a) gives you a conforming rate, b) lowers your monthly nut considerably, and c) instantly gives you more equity? There are definitely good reasons not to do it, but I wouldn't just dismiss this so casually either.

"The stock market is up substantially in 2009, while Manhattan RE prices have fallen substantially. So if I had bought a place in Manhattan at the end of 2008 [using most of my savings as a down payment] instead of investing my principal in stocks / bonds, you think there would have been no opportunity cost?"

What if all of your down payment money was in the market pre-Lehman? Do any of you geniuses actually calculate a negative opportunity cost for losing 60% in the market?

BSex, great post (from July) on Roubini. Didn't he retract all of his doom and gloom crap recently? He is nothing but a fear monger trying to drum up business for his company.

"Can you find anyone who is predicting short- to medium-term price appreciation in Manhattan, LICC, other than realtwhores, yourself, and JuiceMan?"

Anyone who bothers to call bull on steve's malarkey gets called names. Here is a guy that is convinced that his landlord will share profits with him after he moves out in 10 years and that mean prices in Wayne, NJ predict Manhattan prices 24 months out. Do we really need to read any more?

"Anyone who bothers to call bull on steve's malarkey gets called names."

Did I call you a name, other than your own?

"Here is a guy that is convinced that his landlord will share profits with him after he moves out in 10 years"

Did I say that? No. I said that after 10 years I would pay $570,000 for something you would pay $1,200,000 for, which means I get the better deal.

"and that mean prices in Wayne, NJ predict Manhattan prices 24 months out."

Did I say that? No. In fact, I said that to say such a thing would be to incur the logical fallacy of extrapolation. What I said was, in the past, staggered two years, the prices were very closely correlated (90%, I think).

"Do we really need to read any more?"

Not of you, Juicy. You've become just plain sad - posting nothing, attributing things to people that they never said (and in fact said the opposite). You are engaged in another logical fallacy - attacking the messenger instead of the message.

Nothing you have EVER said has ever disproved anything I said. You've posted nothing of use on this board. You cite Miller-Samuel data as the gospel, until it doesn't show that you want it to. You're inconsistent, and quite honestly out of your league.

I'm still waiting for JPMorgan Chase to hire all those programmers you predicted they would need to absorb Bear Stearns' computer systems.

LMAO.

bjw,

You are correct. Once a decision has been made to buy, adding extra to the minimum down payment results in a guaranteed long-term return on your cash equal to the mortgage rate. At 5.5%, that is a pretty good risk-free return that you would be hard-pressed to find elsewhere without taking on more risk.

bjw - in general I don't think making a large downpayment on a RE purchase is dumb [actually, I think it's prudent], I just think it's dumb to make a large downpayment on an OVERPRICED RE asset (i.e., what sellers are currently asking for NYC apts). As far as what I think are good investments in the stock market, they are all over the place, you just have to look around (buy KO if you want a safe one with a good dividend) - the S&P is STILL 32.5% off of its 2007 high and the general economic recovery IS JUST BEGINNING. Stocks will go much higher over the next 5 to 10 years. If you insist on owning RE, why buy in NYC when you could buy elsewhere in the country (CA, Las Vegas, FL) where prices have already cratered 50+ percent? Wouldn't you want to get a bargain?

JM - I had about 2/3 of my $ invested pre-LEH (put the remaining 1/3 in early in 2009), but nevertheless I'm well above where I was 1 year ago - I'm up over 40% this year (not down 60% - where the hell did you get that # from???). So, yes, I think I made the right decision by not buying overpriced NYC RE during the past year. You disagree?????

Its only "risk free" in that you **already** took on all the risk. Shooting yourself in the head is also risk-free if you're already dead.

Getting 5.5% isn't much reward for making a huge leveraged bet on a declining asset.

Kind of like buying a bridge for the airline miles.

"Its only "risk free" in that you **already** took on all the risk."

somewhere, that's exactly what he said.

Feel free to argue that buying is not a good investment right now (I agree), but you are dead wrong if you think putting more money down increases the risk, or does not generate a 5.5% risk-free return.

BS, definitely agree that overpriced is still overpriced, but it's not really the point I was trying to make. I'm focusing on buying real estate here as a home, not as investment, hence the lack on interest in buying in CA or elsewhere. If we're talking pure investment, that changes the debate considerably, I think. The point is, Steve is fixated on his monthly nut being lower than the cost of owning, but tends to ignore these finer points.

"but you are dead wrong if you think putting more money down increases the risk, or does not generate a 5.5% risk-free return."

You didn't read my post, thats not what I said. I agree that it isolated is absoultey true, but it almost irrelevant when you look at the big picture.

Its like claiming you made money on the comped buffet when you average $1k in gambling losses. Yes, you got your freebie, but there are less expensive ways to get your freebies.

"I'm focusing on buying real estate here as a home, not as investment"

Well, you have an alternative - you can rent until sellers accept reality. That's what I'm doing. Owning a nice place doesn't benefit me anymore than renting an equivalent apt. And if it's cheaper to rent (and rents continue to fall) and if sale prices are still falling, why on earth would you buy now? Makes no sense at all. Thus, I'll wait until I get a bargain - all you need is patience.

...and by the time bargains are plentiful in NYC RE (i.e., 2-3 years from now), my investments will have appreciated in value, thereby increasing my purchasing power. Which means I will benefit twice over. Doing the opposite (dumping good liquid investments now and putting the proceeds in a bad illiquid asset [e.g, an overpriced Manhattan condo]) would penalize me twice over (poor returns + opportunity cost of good returns foregone), a result which only a fool would embrace.

"but you are dead wrong if you think putting more money down increases the risk"

It doesn't change the risk at all. And unlike LICC's always-mistaken economics, it doesn't change the opportunity cost, either: it's calculated on the amount invested, regardless of where that amount comes from.

steve really just does not understand economics. The opportunity costs are based on the down payment, not the entire amount invested. This is so simple to understand that the fact that steve needs this explained is pathetic.

FWIW, I was posting here months ago advocating that people put their savings into stocks, since it's elementary that it's better to buy when assets are cheap than when they are dear ["buy when people are fearful"]. And I posted Warren Buffett's advice to the same effect. Of course, people mocked me then, but I (or rather Buffett) was proven 100% correct. Recently (in the past couple weeks) Buffett said he's still buying stocks. Once again, he will be ignored and ridiculed - and, once again, he will be proven 100% correct. Watch and learn...

Correct, opportunity cost is solely on the down payment amount.

"And if it's cheaper to rent (and rents continue to fall) and if sale prices are still falling, why on earth would you buy now? Makes no sense at all. Thus, I'll wait until I get a bargain - all you need is patience."

I'd never advocate buying an overpriced apartment, obviously, but what if your monthly nut is less than the rent you'd pay in an equivalent apartment? Because that's what putting more cash down does for you, no? Listen, I'm certainly not saying "buy now!" (indeed, I think there's absolutely no rush), but I have to question the absolute certainty you seem to have that a) real estate bargains will be "plentiful" in 2-3 years, and b) your investments will bring you such great returns by then.

BS, again, agreed that stocks can be a good investment (esp when you buy them on the cheap, obviously), but would you put the money you have stored away for a down payment in the stock market? I think you'd be in the minority. Whoever did that while waiting for the real estate bubble to burst got wiped out.