2012

They would be sad, but that won't happen. If you think that will happen, offer some actual support for the argument.

I wonder what happens to jealous renters who post stuff like the OP five years from now when the OP's rent has continued to climb year after year by 4%-5% annually, and the OP is paying 20%-30% more than they are now, while Manhattan real estate is worth as much or more than it is today, hmmmmmm?

#3 are you saying an apartment bought for $1 million is going up 5% annually.

Julia, I think that's precisely what #3 is saying.

Real estate appreciating 4-5% per annum is much more likely than than your "Prices WILL drop 50%!!" scenario.

Lance75:

Precisely. If I were to buy a $700,000 1 bed 1 bath right now, and guess that in five years it would either be worth...

a. $850,000 in 2012 given about a 4% per annum increase

OR

b. $350,000 in 2012 given julia's assumption of a 50% price drop

I would have to go with a).

AND remember that the assumed $150,000 increase in value is TAX FREE money, so it's more like an 8% per annum increase assuming one is in a 38% tax bracket (after federal, state, and city taxes) - I'm also assuming that you eventually sell FSBO (as I did) and not have to fork over 6% to a broker, keeping your imagined resale costs quite minimal.
AND the mortgage in these first five years (mostly interest heavy) is largely deductible, lowering the cost of ownership significantly.
AND interest rates are still quite low, assuming one locks in a 30 year fixed rate, meaning the monthly payment will stay fixed for the next 30 YEARS while you're paying an annual 3%-5% rental increase year after year after year on your rental unit.
AND you're building equity.
AND you have to live somewhere, regardless.

So if you're wondering what's going to happen to those people in five years, well, they'll have already paid off five years towards a 30 years fixed rate mortgage with (most likely) an appreciating asset, while you're still renting, and have no equity (or anything else) of any kind to show for it.

Please answer me....WHO WOULD SPEND $850 ON A ONE BEDROOM CO-OP, NOT A CONDO.

Having lived in both, I think it's a super subjective choice, depending on the location and size of the building, how well it's run (or isn't run), etc.

Some co-ops are really terrific - the ones I've lived in had boards whos approach was 'vigilant maintenance, instead of total repair,' keeping the building running smoothly rather than waiting for things to collapse. These boards were quite moderate in terms of new applicants, and the requirements to entry were reasonable to protect current shareholders without being odious for the applicants. All in all, well run, well managed, and very good experiences.

My current condo situation has also worked out well - a boutique high end building, about 15 units, with an active (but not invasive) board.

On the other hand, I've seen both condos and co-ops be terribly mismanaged. It's not that one paradigm is better than the other - both can be good, depending on your disposition and the building's qualities. What you're looking for is the right fit, not a blind committment.

I like co-ops because I am buying a home not an investment property. I, like #8, have had a reasonable board and one that was committed to keeping the buidling looking good and running smoothly. My investment was well protected - I just sold my co-op after 10 years and did EXTREMELY well. I am in them market now for a larger unit on the UES and will only buy a co-op. I view this as a very long term committment so yes, I am willing to take some risk and weather whatever market fluctuations come my way. $850,000 for a 1 BR co-op in a good building with a reasonable maintenance is about right (depending on the neighborhood).

$6--- Cap gains rate is 15% thus tax free yield on a 4% gain will not be 8% but we get the gist of your argument.