UES non-prime post-war coop prices vs. rents

one possibility is that they started out so cheap comparatively. they were by far (other than lincoln towers and a few ugly stepdaughter buildings) the cheapest options available in the jr. 4 category in 1998, 2000 and 2004 when i looked. a young couple during that time period was fairly likely to have bought there if they didn't have a lot of money.

and if they've been there a few years (or more) and need to get out, they can sell quickly and relatively cheaply and still make a profit.

in the "established" neighborhoods, i should add.

AR, that begs the question of why they started out so cheaply in the first place. Did rents rise by a lot since 1998? Otherwise, they would have had the same more-favorable buy vs. rent characteristics back then.

when i was looking i got the sense it was a prestige thing. all the young BSDs with oodles of cash didn't want to be there, at all. fifth to lex was different. but large parts of the UES were just considered dull as shit (which it was, actually, although things have gotten better).

there were exceptions of course, certain buildings on EEA, gracie, a few others, but mostly it was a bargain hunters dream. back in 1995 when i was looking the same was true of gramercy, many parts of the UWS. and of course murray hill. murray hill is another neighborhood where prices may revert closer to rents sooner. but it has gotten much more popular with the younger crowd, so maybe not.

and then, of course, in the mid to late '00s, location seemed to matter less and less (although it still mattered, obviously, it's just that people would "settle" to get in the game, leading to outrageous prices for yorkville studios). harlem condos going for $800 psf. that would have been unfathomable in 1995.

nada, also, those life events tend to promote movement. having a kid, having a second kid, needing to find a school, needing a new school, etc. obviously death as well. the ues has a bunch of both. lots of elderly, and lots of families squeezed into too small apartments who may not be able to find appropriate school options. distress + lots of appreciation can result in lower selling prices.

i'm always harping on how the market will be moved by those who have the desire and the room to get out. they can undercut the market to ensure a sale.

here's a murray hill example. 2004ish pricing, 2F sold for $300k early '05, small studio. seems close on the current rent/buy scale.

http://streeteasy.com/nyc/sale/418097-coop-210-east-36th-street-murray-hill-new-york
10/09/2008Previously Listed by Citi-Habitats at $349,000.
04/13/2009Citi-Habitats Listing is no longer available. Last priced at $329,000.
06/04/2009Listed by Citi-Habitats at $299,000.
11/06/2009Price decreased by 7% to $279,000.
11/20/2009Listing entered contract.
02/10/2010Listing sold.
02/10/2010Sale recorded for $279,000.

AR, while I appreciate the argument that these neighborhoods are less desireable and/or may be exposed to distress more, the prices just seem perfectly consistent with other neighborhoods. Trades are happenning at 20-30% discounts to peak, around 2004-2005 prices, just like the rest of the market.

Perhaps one can view the conundrum as renters over-paying rather than buyers under-paying. Taking the Murray Hill example, there seems to be something similar in the building that maybe rented with a last ask of $1400 about a year ago. I figure the same-sized apartment in a better neighborhood with a more attractive interior would fetch $1800-$2000, or a 30-40% premium. However, to buy, it'd be $500K rather than $2800K, or an 80% premium. The question then becomes why the renter is so over-paying?

Perhaps it's because most people view their renting as a temporary thing, and believe in saving money rather than getting value when it comes to "flushing money down the toilet". I.e., when you're renting you think "Well, I can save $500 a month simply by living 3 avenues away, and who cares about the lower ceilings, etc." When you're buying, the permanence of your decision and the fact that you're "settling" is bigger. It's no longer about "better things will be coming my way somehow", but rather "eh, I'm going to be in X neighborhood for the next 10 years", and the permanence of the situation makes people demand a bigger discount more commesurate with the lack of "prestige". On the coop vs. condo thing (you rarely see this level of pricing in condos), perhaps investors will arb the difference, so there is no difference.

In any case, I always find the irrationality of people with their consumption of rented housing vs. bought housing strange. More often than not, you see people buying something of higher value than when they rent, and I always wonder why they just aren't willing to rent the same-quality thing. I guess you can argue that when you buy, you have to plan for future household growth.

so..if i follow that example..one should tend to buy in m hill....and rent in the nicer hood....?

I don't know if I'd go that far, Jim. Assuming you want to live in Murray Hill long-term in a sub-$1M place, buying a coop seems like a financially viable option as compared to renting given prices and the current highly-subsidized interest rate picture. It ain't a slam dunk, IMO, but an option. Personally, I'd rather pay 30-40% more and rent a nicer place in a different neighborhood.

nada, for certain types of product i think there are fairly narrow ranges in rental pricing. your modest elevator building straight studio being one such example, a post-war jr. 4 being another. but the reasons for that seem interesting. i'll have to ponder.

"i'll have to ponder."

Damn -- I've stumped the great AR. I must be asking about the RE equivalent of the origins of the universe here...

nada, very funny. but you know as well as i know that you know more than i know.

From my junior high school history teacher:

He who knows and knows that he knows is a wise man, listen to him.

He who knows not and knows that he knows not is a child, teach him.

He who knows and knows not that he knows is lost, guide him.

He who knows not and knows not that he knows not is a fool, avoid him.

nada, i love your message (s). it would be interesting if you were to show for one of our get togethers.