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

@BSexposer I did have all of savings converted from stable assets to stocks in early January, now I am cautious since a market correction is due. So for now 50% cash, 50% investment, I don't count my 401k which I am not going to rebalance right now. If I can get a place under $650/ft in FiDi I will be happy.

bjw - if you can't see that Manhattan RE prices are still way overpriced based on historical norms (versus income, rents, etc.) and that they are set to fall further in this credit-starved environment, then I don't know what to tell you. Prices in NYC fell continuously from 1987 to 1994 in a better economic environment - so why would they bottom out any quicker now? As far as my investments are concerned, I don't have absolute certainty, however I think it's pretty clear that if you invest based on fundamental principles (see Buffett, Warren), you will have good results over time (not measured in days or weeks, but over 3-5 years). That, and the fact that I believe the economy will continue to recover over the next few years, leads me to believe that my investments will do well during the same time frame.

"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."

Who is sad? In this scenario, I own a $1.2M place and you own nothing. How did you get the better deal?

BSex, happy you are up 40%, most are not and would have been better putting their down payment money in a shoebox under their bed. When discussing opportunity cost there is upside and downside. Folks around here only talk about the upside. Smartest group of investors I have ever seen, everyone around here kills the market!

"down 60%"

I think I confused you with steve. He is the one that lost everything in the market.

In 1987-1994, NYC's social environment was horrible, with massive crime. It is not even comparable to today's conditions.

Why would you NOT have your future downpayment money invested (assuming you are gainfully employed)???? Unless you are buying in the next few months, it's crazy not to invest the money. Why would you not? I keep all but my next 2-4 month cash needs invested at all times, except for brief periods when I have liquidated an investment and am deciding how to re-invest the proceeds. IMO trying to "time" the markets by going in and out of cash is foolish - all it does is hurt your overall results over the long term.

"The opportunity costs are based on the down payment, not the entire amount invested."

Since you've been wrong about everything else on this thread (and everywhere else, LICC), what's one more:

http://money.outlookindia.com/article.aspx?88393

The opportunity cost is actually greater than the principal amount: it is the sum of the principal amount and all the interest payments, because instead of spending the money on interest, you could have spent it on something else.

This is so simple to understand that the fact that LICC needs this explained is pathetic.

"most are not and would have been better putting their down payment money in a shoebox under their bed"

JM - I'm sorry, but you are just plain wrong. I suggest you read the following:

http://www.cnbc.com/id/33361615

"Who is sad? In this scenario, I own a $1.2M place and you own nothing. How did you get the better deal?"

You overpaid, I saved the difference between the $570,000 it cost in rent and the $1,200,000 place you bought (not to mention tax, maintenance, etc.) and invested it elsewhere, along with the down payment.

"IMO trying to "time" the markets by going in and out of cash is foolish - all it does is hurt your overall results over the long term."

This is the conventional, but wrong, wisdom. Anyone who follow that advice has pretty much nothing to show for 10 years of investing in the SP500.

There is a time to be heavily invested and a time not to be. Blindly investing your money is what has killed many Americans and their 201k plans.

And Warren Buffet has been a mediocre investor for years.

steve, after going through this with you some time back and making you look completely foolish, why do you want to go through it again. Do you not realize how completely idiotic you come off trying to argue that the opportunity cost should be measured by the entire amount invested? I think you need to give your economics degree back.

Opportunity Cost - the cost of an alternative that must be foregone in order to pursue another action.

If you buy instead of rent, you forego investing the down payment in an alternative investment. If a person did not buy, their alternative is not to still borrow the same amount of money that they would have borrowed had they bought and then invest that money.

steve, you are officially worse than pathetic.

We found 395 listings
Median price: $459,999 Median size: 1,686 ft² Median price per ft²: $286
Information on Wayne

1.2mil, that must be some house.

JM - if you bought NYC RE in late 2008 and I bought stocks in late 2008, you would now own something (an illiquid levered investment, with high transaction costs) that you overpaid for and would I own something (liquid, unlevered investments, with low transaction costs) that I underpaid for. So how could that possibly make you better off (financially or otherwise) than me?

LICC - what does the NYC crime level have to do with how long it takes an illiquid market to go from a cyclical bubble top to a cyclical bottom??? Answer - nothing at all. Bottom line - it takes years - NYC RE reached it's cyclical high in early 2008 and won't bottom out until 2012 at the earliest.

You don't think that NYC's poor social environment in the late 80s/early 90s had an effect on real estate prices?

This thread is attracting some really wacky comments.

LICC, read the citation.

"Opportunity Cost - the cost of an alternative that must be foregone in order to pursue another action."

That is correct. And if you are paying $5,500 to own an apartment that I pay $3,500 a month to rent, there is an opportunity cost on the $2,000 difference (assuming that we both need someplace to live, you preferably remaining far away from Manhattan).

So you do get a tax break on the interest paid, but you also forgo $2,000 that you could have invested, or bought bagels with.

Sorry that's so hard for you to understand. You are officially worse than pathetic.

"And Warren Buffet has been a mediocre investor for years."

You have NO CLUE about what he's achieved. Berkshire Hathaway has tripled in the past 13 years. How is that "mediocre"??? You are clearly an idiot.

LICC - I give up on commenting on your responses (which are beyond clueless) - goodbye.

Berkshire is up 3.4% per year for the last 5 years. You would have been better off paying down a morgage and earning 5.5%.

Yeah, I must be an idiot, I have only done 5x better annually than Warren over the last 5 years. Yup, should have listened to you and given my money to Warren. What was I thinking.

steve, if our after-tax monthly costs are the same, there is no foregone alternative. If I were the renter, I am paying that $2000 in taxes that I otherwise wouldn't be paying if I owned. The owner isn't foregoing anything because if he is not paying it in mortgage interest, he is paying it in taxes.

Your college called. They said that not only are they taking your economics degree back, they are purging all proof that you ever even attended a class.

modern - maybe you can explain how you can "earn 5.5%" over the past 5 years by paying down your mortgage, now that it's accepted that NYC RE prices are back to 2003 levels - I would be highly amused to see you explain that. BTW, Buffett is worth $30 billion solely by virtue of his investing acumen - and you? LMAO - you, sir, are a DOPE. Next.

"Smartest group of investors I have ever seen, everyone around here kills the market!"

JM - I don't claim to be a genius at investing - I just try to follow good advice when it's offered by someone who has proven over long periods of time that his investing methods are highly effective (20% annual returns over a 50 year period). If you read Berkshire Hathaway's shareholder letters, you will see what I mean. You don't need brains, all you need is some common sense, discipline and patience. It's all laid out in the SH letters, if you aren't too lazy to read through it and absorb it all (as most apparently are). GL.

Why don't you try to explain how a 70% reduction in crime has no bearing whatsoever on real estate values?

BS, I could explain it but you just wouldn't get it. It's called innumeracy and you have a bad case of it.

http://en.wikipedia.org/wiki/Numeracy#Innumeracy

Good luck with your "investing", remember, you have said stocks can do nothing but go up for the next 5 years, so it should be easy! I think they were saying that about houses 5 years ago.

Well I checked my 401k (I wasn't rebalancing it), from 1/1/2006 to now annual returns:

I am investing evenly in each, US stocks didn't perform that well.
Core equity -4.2% (Russel 1000)
Small equity -6.1% (Russel 2000)
International 16.2%
Lifestyle 7.4% (mix of everything, 40% internation/60% us)
Average return: 3.3%

Not so good returns for US stocks.

darkbird - US stock go up over the long term. 3 years is just a blip. The Dow went from 66 to 10,000 during the 20th century. This century will not be substantially different.

http://stockcharts.com/charts/historical/djia1900.html

You forgot to mention that you will be dead by the year 2100.

modern - are you really as dumb as your comments suggest? If so, I feel sorry for you. FWIW, I expect to be alive in 2050, so that's good enough for me. Besides, my kids and grandkids will be around to inherit my wealth - or maybe you think that providing for your descendants is meaningless(???) Seriously, you are even more clueless than I originally thought - congrats!

"if our after-tax monthly costs are the same, there is no foregone alternative"

Not necessarily. Some people don't get tax deductions, and others, like me, get a hefty home office deduction. Taxes are taxes, interest is interest.

Let's say that there is a $2,000 difference in payment - not all of that for all time generates any sort of tax benefit: the principal portion. You take that $2,000 and apply it to a tax benefit; I take that $2,000 and apply it to another investment. Your $2,000 diminishes over time, mine accretes.

"bjw - if you can't see that Manhattan RE prices are still way overpriced based on historical norms (versus income, rents, etc.) and that they are set to fall further in this credit-starved environment, then I don't know what to tell you."

Hold on - I never said that there aren't a lot of properties out there that are overpriced. I'm simply stating that if you find a well-priced apartment that you love and want to live in, I don't think it's crazy to put down a lot of cash (provided you can afford it obviously) in lieu of the fairly unappealing choices out there. I do think you should invest the cash you expect to use for a down payment, but definitely not in the stock market (as I said, look what would have happened to you ca. Lehman collapse). Bonds, CDs, these are the safe alternatives that I think you should be looking to park that cash into. Yes, you should invest in stocks and alternative investments with some of your wealth, but if you're serious about buying a home, I think it's far more prudent to keep that safe.

Your rent also goes up over time. My mortgage payment does not.

You may base your analysis on a person living in NYC who can afford to buy an apartment but somehow does not make enough for their federal deduction for local taxes paid, but I like to think about these things in the real world.

BS, the end of the 21st century is 2100 not 2050, just another example of your innumeracy.

Don't worry about my kids, they will inherit Roth IRAs I converted in the first possible year (1998) that can be drawn down by them tax-free over their life. While I am certainly not going to tell them this, they will not have to worry about their finances, ever. I wish I had some help getting started, but hey, this is what makes America great, you can start with nothing and make something of yourself.

If I had only earned the same returns as Warren Buffet since I started investing in 1991, I would have only a small fraction of what I have now. Compounding double digit returns over many years is a wonderful example of compound interest in action.

On a side note, I would urge everyone on Streeteasy to take a close look at converting your IRA accounts to Roths next year, when the income cap is lifted. You will be able to spread the taxes over the following 2 years, and over the long term the Roth will be much better than an IRA.

modern, I'll second that - my parents talked me into the Roth pretty easily.

modern - you can't even SPELL THE GUY'S NAME CORRECTLY, why should I bother with you? (p.s., it's Buffett - two "t"s, not one). Again, he's worth $30B via his investments - and you????

LICC - rents are going down, not up. Maybe you should open your eyes (after you take your head out of the sand, that is).

bjw - stocks are not inherently more risky than other asset classes if you know how to invest. For example, during inflationary periods bonds are a terrible asset to invest in (much worse than common stocks).

Wake up LICC - http://gothamist.com/2008/10/28/manhattan_rents_down_inventory_up_l.php

So guys, doesn't it really just come down to this analysis:
Let's make some financial assumptions that are borne out by decades of empirical evidence:

1) Real property prices and rents increase at the rate of income, or 0.7% per year adjusted for inflation.

2) The S&P 500 increases at a real rate of 8.0% per annum.

These being true, it is ALWAYS better to rent property than to buy, if you invest the down payment in the S&P 500. Watch:

Say you make $100,000. This implies that you can spend up to $2,333.33 per month in total housing expenses (28%).

An 80/20, 30-year fixed $375,000 mortgage at 6% gives you monthly mortgage payments of $2,248.31.

Assume that taxes and common charges amount to a VERY CONSERVATIVE 10% of total mortgage payments, or $224.83 per month.

A $375,000 mortgage implies a purchase price of $468,750, and a down payment of $93,750.

If rented an apartment for the amount of the mortgage payment, you will have paid $903,455.33 in rent over 30 years if it increases 0.7% per year.

If you invest the down payment in the S&P 500 for 30 years, $943,374.08 at the end of 30 years, for a total net profit of
$39,918.75. To that, however, add your yearly maintenance and tax payments $2,697.96, increasing 0.7% per year and accruing 8.0% per year over 30 years, and you will have earned an additional $330,084.36, making your total profit $370,003.11.

Now do the same thing for your house. If your $468,750 home appreciates at a real annual rate of 0.7%, at the end of 30 years you will have a home worth $577,863.68, for a profit of $109,113.68. Add to that the original loan of $375,000 - the rest of the equity you will have built - and you get a gross profit of $484,113.68. But you would have paid $434,393.21 in interest, so your real profit is $49,720.47. In addition, you will have spent $90,343.15 in tax and maintenance, making your GRAND TOTAL PROFIT a whopping NEGATIVE $40,622.68.

That's right! You rent for the amount of your mortgage, all values go up linearly in line with historic data over time, and you will wind up with a total profit of $370,003.11. Whereas if you buy a home you will wind up with a loss of $40,622.68.

This of course excludes special assessments and all the transaction costs associated with owning real estate: brokers' fees, conveyance tax, etc. It also ignores the tax effect on dividends. But dividends and capital gains tax rates are currently the same (and can't be predicted in the future). The only further benefit from owning is the $250,000/$500,000 tax exemption. But it is doubtful that $410,625.79, which is the absolute value of the difference between the owner's loss and the renter's gain.

Guys, it's indisputable: renting is FAR better in the long-term than buying. All the figures and assumptions I used are real and verifiable. Do your own calculations: rent for the price of your mortgage payment, invest the down payment and maintenance and property taxes in the S&P 500 at the real rate of increase of 8.0%, increase your property value, rent, taxes and maintenance payments at the real rate of 0.7%, deduct the mortgage interest paid, and you will see IT IS ALWAYS MORE BENEFICIAL TO RENT.

"stocks are not inherently more risky than other asset classes if you know how to invest. For example, during inflationary periods bonds are a terrible asset to invest in (much worse than common stocks)."

"If you know how to invest" is a pretty wishy-washy statement, no? I think it's generally accepted that equities are considerably riskier investments than bonds and CDs. But again, right now nothing looks particularly appealing, so if you're going to buy and have found something suitable, putting that cash into a larger downpayment might be a good idea.

You are smoking dope if you think the S&P 500 is going to average 8% per year for the next 30 years.

And you ignore quality, you get better quality by buying rather than renting.

Lastly, your numbers are totally f#%@ed as you forgot to deduct taxes on the income/gains from investing in the market. Take away 50% per year.

Another example of innumeracy.

0.7% rent & re increases? How about 5.4%? http://www.census.gov/const/uspriceann.pdf

resourceinterat - thanks for quoting me from 2 years ago.

So modern knows - that is if you look at owner-occupied real estate as an "investment," which it is not.

"Your rent also goes up over time. My mortgage payment does not."

No. Your taxes and maintenance do, you have to repair your own apartment & I don't.

The truth of the matter is, LICC, regardless of what you want to believe and how you want Manhattan to be special (don't know why - you don't live here) and this particular boom to be special, out-of-pocket expenses between buying and renting, in the long-term are 100% correlated and exactly the same. It has been proved over centuries and across the world. That is because both are 100% correlated to incomes, and as leverage goes up or down, the price rises or falls until it regains that correlation to incomes.

An indisputable fact. Everyone in the world believes it but you. You didn't believe the first 30% fall was going to happen and it did; now there's another 40% - 50% more to go.

So steve started another argument that he lost, badly. Again.

modern, you fell into my trap!

1) From January 1, 1950 through December 31, 2007, the average capital gains from the S&P 500 was 8.66%.

http://www.moneychimp.com/features/market_cagr.htm

That does not include reinvested dividends.

"If you were to go all the way back to 1928 and dissect the S&P 500 into rolling twenty-year periods, there would be fifty-nine of them (1928-1947, 1929-1948, etc.). The average annual rate of return over those periods was approximately 12 percent."

cdn.digitalcity.com/coaches/historic-market-returns-murray05262006.pdf

That's where the 8% real return on the S&P 500 comes from, on a rolling average basis, which corrects for specifically-targeted dates.

2)0.7% real gain on real estate is from Robert Shiller of Case-Shiller fame:

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

"Robert Shiller's plot of U.S. home prices, population, building costs, and bond yields, from Irrational Exuberance, 2d ed. Shiller shows that inflation adjusted U.S. home prices increased 0.4% per year from 1890–2004, and 0.7% per year from 1940–2004."

3) Market rents are constrained by market factors: 40x monthly rent in income. Therefore, if incomes go up 0.7%, rents can at most go up 0.7% because constraints.

"Rents, just like corporate and personal incomes, are generally tied very closely to supply and demand fundamentals; one rarely sees an unsustainable "rent bubble" (or "income bubble" for that matter)."

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

And that constraint on the demand side is 40x monthly rent in income, 28% total household income in housing expenses.

4) Historical averages do not equal future returns: that is true in the short-term. But it is also true that over long periods of time everything returns to its equilibrium. And the 12x annual rent = sale price is real, and constant over time specifically because of those market constraints:

The 12x ratio (if that's what you're talking about) exists because of the ratio of prices to income. If you make $100,000, you can you can rent a property that cost you $2,500 ($100,000 / 40). You can buy a property that will cost you $2,333.33 in total cost ($100,000 * 28%).

Let's just use rents vs. mortgages to make it easy. At 6% interest, you can afford a $400,000 mortgage, giving you payments of $2,389.20 You can afford annual rent of $30,000. $400,000 / $30,000 = 13.3.

Very close to the 12x, right? And 6% is a very low interest rate and I greatly simplified the math. If you - like ccdevi - claim that the rent to purchasing price ratio is 18x annual rent, then making $100,000, being able to afford $30,000 a year in rent, you could afford a $540,000 house, but that would give you monthly mortgage payments of $3,237.57. Your monthly pay is $8,333.33, giving you monthly housing costs of 39% of your monthly income.

OH WAIT! I FORGOT! NOBODY WILL LEND YOU THAT MUCH MONEY BECAUSE THE RATIO IS 28% TOTAL HOUSING COSTS TO INCOME!

You say: "If the stock market and real estate go up the same annualized % over the long term (which I think is much more reasonable, especially for manhattan where they are so highly correllated)"

If you the market prevents you from spending more than 40x annual rent / 28% percent of household income on housing expenses, HOW CAN RENTS / PRICES GROW AT 8% UNLESS INCOMES DO?

Well, sweetheart, THEY CAN'T!

"I'm not going to waste my time to go find the numbers for a pointless "discussion" with you, but I think this post of yours once and for all proves that your opinion is basically worthless."

Because you can't. You're in over your head. You're blind to the fact that the market is constrained by 40x/28%, and that real income rise only 0.7% per year on average, and therefore housing prices can rise only that much.

Your claim is so ridiculous that if you take the example of the $468,750 and increase it at a real rate of 8% per year, after 30 years it will be worth $4,716,870.42. But if your $100,000 income only rises a real 0.7% per year, it will be $123,277.58 after 30 years.

WHO MAKING $123,277.58 CAN AFFORD A HOUSE WORTH $4,716,870.42?

Them there's the numbers, baby, if you do what you are claiming.

resource - you made a huge mistake - you are using only the real rate of return, and using an inflation base of 0%. plug a 3% inflation rate into those numbers and see what happens.

My taxes and common charges are not nearly as costly as your rent. And why do I have to repair my own apartment? My building has a super and a handyman that are covered by the common charges. Do you ever know what you are talking about?

I don't dispute a correlation. It is obvious that your calculations and factors in measuring the correlation are filled with mistakes.

printer, ignoring the rest of them, I'm trying to show that the people who are so "into" real estate don't even know the fundamentals of the market. Yes I would like to buy, but for emotional reasons, not as an "investment," because it's a crappy one from a financial perspective. From having a secure place to live it's a marvelous thing to have.

My numbers are all proved over DECADES. I remember the dot.com bubble - the "New Economy" is special. Well that's what the real estate bubble is all about.

All my numbers are real and provable. Claims like property prices rise at a real rate of 8% per year - which is what evillager is betting his future on - are not only historically inaccurate, but theoretically impossible given the market constraints.

Why is someone cutting and pasting steve's proven-to-be-flawed analysis from two years ago?

> Why is someone cutting and pasting steve's proven-to-be-flawed analysis from two years ago?

LOL.... licc talking about things from two years ago proven wrong...

"My building has a super and a handyman that are covered by the common charges."

Sorry, but most buildings charge extra for that.

"My taxes and common charges are not nearly as costly as your rent."

Doesn't matter - as you yourself have said, taxes always go up. Rents do not.

"It is obvious that your calculations and factors in measuring the correlation are filled with mistakes."

What are they?

"Doesn't matter - as you yourself have said, taxes always go up. Rents do not."

NO, taxes are correlated to incomes. They go up if your income goes up, go down if your income goes down.

resourcerat,

You and BS are competing for math dope of the year. You mixed up NOMINAL market returns with REAL housing returns.

And you still forgot to include taxes.

"They go up if your income goes up, go down if your income goes down."

That's funny - I got a pay cut this year, and yet Albany raised my taxes. Go figure.

> Your rent also goes up over time.
> My mortgage payment does not.

Actually, my rent has gone down over time... substantially. Thats what happens when things are overpriced.

Of course, your maintenance and taxes will...

Over the long term, rents rise much more than taxes.

There is this myth out there that I had predicted that real estate prices would not decline. People can make things up all they want, but that just is not the truth. When someone asked about a year ago for predictions, I said I thought there would be about a 15% decline. Also, steve hasn't been right at all with his predictions. He called for a 50% decline even if rents didn't come down. He has been more wrong than just about anyone.

Lesson 1:

Stock price times number of shares = market value, not equity value.

Equity value = Assets - Liabilities.

Equity plus debt = total assets. The value of a corporation depends on the definition of value.

Lesson 2:

Earnings are after a company pays interest expense AND PRINCIPAL to its debt holders.

The "therefore" is a non sequitur. There is no difference between an equity holder and a debtor, except who has priority over the company's assets. Equity and liabilities add to total assets.

A company borrows money from equity holders just as it does from debt holders.

I make $100. I repay a loan, $9 in interest, $1 in principal. My net - OBVIOUSLY, according to you - $91 because I don't count the repaid principal. Somehow, I've managed to keep it.
Dumb. I make $100. I repay a loan, $9 in interest, $1 in principal. I have $90 left. Those are my earnings.

The stock certificate represents the value of a company as a producer of income, not as a holder of assets.

"My taxes and common charges are not nearly as costly as your rent"

You conveniently fail to mention the amount you pay monthly in interest. Or are you part of the 1% of people that don't have your residence mortgaged?

"And you still forgot to include taxes."

which you happen to be way off on.

"Lastly, your numbers are totally f#%@ed as you forgot to deduct taxes on the income/gains from investing in the market. Take away 50% per year."

You have to be a pretty special person to pay 50% of your gains each year. I mean special in the special olympics way.

An S&P index funds is one of the most tax-effective taxable investments there is. You defer most of your gains. And lets pretend you still sell. If its a year... you ever heard of the capital gains rate? (at least for now).

"I said I thought there would be about a 15% decline"

Looks like you are already wrong - we're over 20% and still dropping. 50% drop from top to bottom is clearly in the cards. Sucks for you.

> Over the long term, rents rise much more than taxes.

All evidence to the contrary. Nice try, though.

"There is this myth out there that I had predicted that real estate prices would not decline. People can make things up all they want, but that just is not the truth. When someone asked about a year ago for predictions, I said I thought there would be about a 15% decline."

A year ago, we were well into the crash/panic/recession.

You're bragging about calling what had already started? Funny. You can be a fortune teller.... "YOU WILL IN ONE SECOND BE SITTING IN FRONT OF ME!"

modern "You and BS are competing for math dope of the year. You mixed up NOMINAL market returns with REAL housing returns."

My experience is as an auditor with Price Waterhouse and Bank of America. Yours is as a portfolio manager. That's why we came to different answers.

> "My building has a super and a handyman that are covered by the common charges."
> Sorry, but most buildings charge extra for that.

My building replaces anything that breaks in my apartment. My icemaker went, I got a new fridge. Etc, etc.
Even if you have the super, if you own you still pay for the replacements.

> "My taxes and common charges are not nearly as costly as your rent"
> You conveniently fail to mention the amount you pay monthly in interest. Or are you part of the 1%
> of people that don't have your residence mortgaged?

Actually, he's the one person in the world that not only doesn't have a mortgage, but didn't have to put anything down either. 0 down, 0 payments for life.

"Over the long term, rents rise much more than taxes"

Really??? 100 years ago, there was no federal income tax AT ALL. So federal income taxes have risen infinitely since then. Once again LICC is exposed as a CLOWN.

8% S&P return is not nominal, it's real. The nominal rate on a rolling-average basis (eliminating the effect of choosing arbitrary start and stop dates) is 12%.

There have been "good reasons" for the increase in housing prices. In Manhattan the median property price is highly correlated to Wall Street bonuses: that's where the money went. Wall Street bonuses = income, and - as I've always said - property prices are tied to income, and leverage.

It remains a fact: if you are market-constrained at 40x/28% of income, BY DEFINITION housing prices are constrained by income, and it is those relative constraints that set the 12x "p/e"ratio.

Leverage is an issue, but only on the margin. The first person to use a lot of leverage gets a good deal. Every next person gets less and less, because property prices rise to offset the leverage.

In Manhattan we were in a long real decline in property prices until 1998. The population then started to rise, Wall Street bonuses rose, leverage rose through new mortgage products. My point is that though the population continues to rise, incomes are falling b/c of the Wall Street effect, leverage has been greatly reduced, and new construction more than offsets the growth in the population.

Robert Shiller proved that over 350 years, land constraints do not make property prices more expensive. Property prices increase along with incomes.

We are talking about property taxes, but I guess you still haven't learned how to read. Did you say something about a clown?

"Really??? 100 years ago, there was no federal income tax AT ALL. So federal income taxes have risen infinitely since then. Once again LICC is exposed as a CLOWN."

Bingo.

And tax rates are going up....

LICC - property taxes, income taxes, excise taxes, health care taxes, etc etc etc - they all go up over time (more than rents), esp in NY. That's probably why people are leaving in droves (and will continue to leave) - except for dummies like you who are trapped in underwater RE.

http://www.examiner.com/x-23691-NY-Independent-Examiner~y2009m10d28-A-mass-exodus-from-New-York-State

I actually wrote an ESOP accounting system back in the day, when I worked at Arthur Young.

Show me two comparable apartments where the taxes are higher than the rents.
Your argument is almost as ridiculous as steve's.

Hey, EddieWilson is back as somwhereelse! Where have you been for the past year and change?

Market capitalization is not the same as equity value, it is not interchangeable. Market capitalization is the total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The value of options varies, and it can, in fact, have a huge effect on diluted earnings per share, especially in the case of ESOP's: they can HUGELY dilute the per-share value of of a company. That's why there's an FASB about it, and that's what the poorly written wiki article was about.

"Show me two comparable apartments where the taxes are higher than the rents.
Your argument is almost as ridiculous as steve's."

Only because you made it up.

resource, you're starting to get boring quoting me.

"He called for a 50% decline even if rents didn't come down."

And I still do - from the peak.

resource - you made a huge mistake - you are using only the real rate of return, and using an inflation base of 0%. plug a 3% inflation rate into those numbers and see what happens

ok, you don't seem to understand this: inflation changes the picture dramatically. your rent goes up much more than your ownership costs b/c most of your ownership costs (mtge payment) are fixed. and the cap gains on your stocks investments are nominally greater, which means you pay more tax.

what happens is that you have a net positive cashflow vs. renting. invest that money at your 8% real return rate.

not to mention you forgot to account for the income tax savings from deducting all the interest payments. assume a 25% marginal rate.

to make things easy, and to benefit the renter, i'm assuming you invested all the money in a single stock that made no taxable distributions, and left you with a 20% tax bill at the end.

net/net, assuming your .7% real return on the property and 8% real return on stocks, and the owner ends up a cool $520k at the end of the 30yr period.

rope-a-dope:

resourceinterat cites http://www.moneychimp.com/features/market_cagr.htm as his source of market returns.

resourceinterat says "8% S&P return is not nominal, it's real. The nominal rate on a rolling-average basis (eliminating the effect of choosing arbitrary start and stop dates) is 12%."

12%?

The web site he himself cites as his data source: "The most significant pattern is this: Over the very long run, the stock market has had an inflation-adjusted annualized return rate of between six and seven percent."

rope-a-dope

to show you how important inflation is, if I assume 0% inflation, as you do, over the same 30yr period, the renter would end up $484k in the plus column.

Bottom Line: You can't use real returns only - you have to include an inflation base

printer - stop with the inflation!

So is the bottom line that the people who own this building are morons? And all landlords are morons? I find that hard to believe that given the choice between some poor renter who has no capital to put to work and a rich property / building owner, that the resourceless renter is the smarter one.

Seriously, no way this apartment is worth $1million. Families don't want to live in midtown, I don't care what view you have. And if your bathroom and kitchen are just rental quality and dated, you aren't getting a premium luxury condo type of price. Not to mention I think this building has not been reviewed well so even if they are fixing things up today, if they didn 't fix them for a long time then it just means that it is not the way that owners in a $1 million apartment would ever live.

that's right steve - ignore inflation! hah! of course any analysis which ignores inflation will favor the renter. if you really think that inflation has no bearing, you are truly a class A moron. you make the people arguing for 10% real returns on manhattan co-ops in perpetuity look smart

tantapasta, are you suggesting that it shouldn't take thousands of posts to answer the question "Is it better to buy or to rent?"

You may think the answer is "It depends" but that won't cut it here.

> that's right steve - ignore inflation! hah! of course any analysis which ignores inflation will
> favor the renter

Of course, given we've had deflation, the renters have made out even more...

"So is the bottom line that the people who own this building are morons? And all landlords are morons? I find that hard to believe that given the choice between some poor renter who has no capital to put to work and a rich property / building owner, that the resourceless renter is the smarter one."

I find it hard to believe that anyone things the renter doesn't have capital to put to work. Some of the richest folks in town rent...

Its not having or not having resources that makes you smart, its using them well that makes you smart.

Using the resource as a down payment on a leveraged asset that is tanking is not a particularly smart use of that capital.

> Seriously, no way this apartment is worth $1million.

Well, I agree with you on worth, but thats why prices are falling down. Prices are that high... and its NOT worth it. Thats the point.

Printer, why do I get the idea that you took out the largest mortgage possible with the hope that its value would be debased by inflation?

The inflation that you're talking about would not help owners in any way. If you think it would, a quick trip to Buenos Aires, or a trip down Memory Lane Bronx circa 1973, might change your mind.

"And if your bathroom and kitchen are just rental quality and dated, you aren't getting a premium luxury condo type of price."

If you don't think there is a lot of crap quality in "luxury condos", you haven't been in too many luxury condos.

My rental building is definitely a few notches higher than most of the new condo construction in town.

Hey EddieWilson you big fraud, are you saying that property owners should have all sold and because they are renting to Stevejhx that they are morons?

so now 3% inflation (btw, the historical average in the United States of America over the past 80+ yrs), is hyperinflation? and the main issue for the bronx was inflation?

and somewhere - exactly. in a deflationary period renters make out over owners, no question about it (see japan, 1990-present) or (usa, 1930s).

LICC - it's impossible to have a real debate with you b/c you are so intellectually dishonest. Do you ever tire of knocking down the straw man arguments you set up?

"so now 3% inflation [...] is hyperinflation?"

No. 2% - 3% inflation is normal and necessary. But it doesn't alleviate your debt burden because your REAL interest rate is positive. The only time that what you want to happen will happen is when real interest rates turn negative - say you have a 5% loan and inflation is 10%. But as long as your interest rate is real positive, it's not going to matter much.

Moreover, the average period for holding owner-occupied residential real estate in the US is 7 years. Not enough time for inflation to have any effect.

Another reason why the whole JuiceMan / LICC argument that "I'll own my property outright" is false: almost no one holds their property for enough time to pay down their mortgages. Banks know that; fools don't.

printer, why are you trying to factor in pesky things like inflation, tax deductions, price appreciation, rent increases, etc. that make steve's analysis mistaken and stupid? You should just ignore all those things to make steve feel better about himself.

given that a great deal of the CPI inflation of the last ten years reflects increases in rental costs that occurred because of a bubble, i have to wonder how meaningful the inflation-adjusted analysis is, although it is one that i usually use to do historical comps analysis. any thoughts?

or another way to look at it:

"On the rationale that housing is indeed a consumable, housing prices should be included in the CPI. I have discussed this many times, most recently in Case Shiller CPI At Negative 5.1%.

Substituting the Case-Shiller housing index for Owners' Equivalent Rent, I have the year-over-year CPI at -5.1%. By that measure real interest rates are huge."

http://globaleconomicanalysis.blogspot.com/2009/10/is-home-investment.html

I also have problems with owner's equivalent rent as a valid measure of inflation, but it's what they use. They use it because, historically, owner's equivalent rent was equal to market rents, but in this last bubble that went seriously out of whack.

LICC, instead of being stupid and claiming "price appreciation," why don't you get real, get some evidence to support your "theories" and come back to us? It does you no good year after year trying to justify your overpriced purchase in the slum that is Long Island City, all the while drooling over the prospect of living in Manhattan. If you weren't underwater on your mortgage you might even be able to sell the place, rent in Manhattan, and live a lifestyle that doesn't necessitate armed guards and dodging crack dealers.

wow, steve is awfully testy and amping up the insults and name-calling, which means he knows he badly lost another argument and looked like a clown, again.

Did I call you a name, LICC? Don't see where I did. However, to quote you, "looked like a clown."

Anyone who claims "price appreciation" in this environment is not worthy to claim he "won an argument" - you don't win any argument, LICC: you merely annoy. Like that mosquito flying around at 3 am that you're just waiting to swat.

Why don't you share the details of the great bargain you got in LICC, let's see what you could have gotten in Manhattan for the same cost or less....

I love it. The more things change the more things stay the same. Lets face it Steve, if someone wants to ignore transaction costs, ignore opportunity costs and include tax benefits...they can get their monthlies to look like current rents. The sad part is they think thats the historical norm. Unfortunately a recognized bible doesnt exist, and whatever you show LICC, I mean "them", that shows it is not the historical norm...they deny the validity of the source.

Rhino, Denial is more than a river.

Every chart out there shows you what long-term equilibrium is, and like Tulips before us, once the bubble bursts the bubble bursts. In real estate it's more like a slow deflation.

People have swallowed the NAR's Kool-Aid - here are all the benefits of owning real estate!

Well you know what? There's a downside risk, too.

Remember that mosquito, LICC? I say give him a SWAT.

If he knows what a SWAT is.

I wonder where we bottom. I agree with 30_yrs observation that if we stabilize, then the mindset developed over the bull run (that real estate goes up with minor bumps along the way) never gets fully destroyed. I think as everything stands right now, if we did bottom here...I'd have to agree with you and simply rent and invest in the market, and munis, and TIPs and whatever.

I think we have near-bottomed (at ~30% below peak) in terms of nominal prices, maybe another 10% to go. A decade of inflation with no change in nominal prices will take care of the remaining 30% drop in real prices. There is just too much govt support to keep things from really blowing up, and we need the decade so that banks and homedebtors can earn their way out of their losses, which is probably (unfortunately) the best public policy.

On people having learned their lesson, I'm on the fence. The stock bubble and crash seem to have killed stock bubbles for a decade. Herds will be herds: is the Nasdaq at 5000 any more or less silly than S&P at 670? Really, it's too early to tell. People need to fully realize their losses before they herd in the other direction. As long as you don't have to sell, or a decade hasn't passed where prices haven't gone above your purchase price and/or you are saddled with a huge monthly nut compared to your peers, people don't mentally realize the loss.