do you purchase?

what do you mean? is parked another way of saying written off? do you ignore your mortgage liability as well? have you decided that you will stay in your apartment forever therefore the possibility of being underwater is irrelevant?

Yes, I technically "ignore" the liability as well as the value. If you're a renter, I assume you don't deduct future rent from your net worth either? It's the same thing (we all need a place to live). On top of that, I don't have any intention of selling, and at this point it would take a couple catastrophic events for me to worry about being underwater, fortunately. Obviously, that's not true of everyone.

are you serious? so, you selectively ignore what is no doubt a significant liability? and, comparing remaining rent on a one year lease is silly. and, it would seem that you're making my original point which is your circumstances and lopsided analysis are not relevant to real discussion.

So you only plan on living in an apartment for one year? That's silly. I don't think my circumstances are that unique, sorry.

CC lets just take it as a lesson. Would we have had the experience we've had in the US if people were intelligent about accounting for the risk in their home ownership? All we have here are a couple of examples out of millions.

Its not unique at all for people to be short sighted and poor estimators of future possible outcomes.

you're right. amazing. the extent to which people rationalize irrational and downright foolish behavior has no end. the comment about living in a rental for one year is downright hilarious.

I can see why home has more feeling than investment. Before the bubble, you could actually think that way relatively safely. The danger is thinking that way to pay 25x+ rent cause interest rates are low. I resent the bubble.

Try to be patient. Its going to take time but the bubble is on its last legs. Its hard to feel sorry for people like this poster; no doubt he/she will be busy blaming everyone but themself.

"Its not unique at all for people to be short sighted and poor estimators of future possible outcomes."
"you're right. amazing. the extent to which people rationalize irrational and downright foolish behavior has no end. the comment about living in a rental for one year is downright hilarious."
"no doubt he/she will be busy blaming everyone but themself."

Sorry, that's an awful lot of judging you guys are doing on here, based on next to no information. What exactly am I trying to rationalize here? Are you advocating I view my home as a pure investment? Do you have any idea what I paid or how much my mortgage is relative to value? And what am I supposedly going to be blaming people for? Get real.

@inonada, just a hunch, nycmatt=shrimpie and greenecounty... last time I had a lover's quarrel w/ matt, shrimpie appeared with 20 run on sentence diatribe against little ole me.... and I've seen inklings of nycmatt's bitchiness on his postings... like he's holding back...and I have yet to see nycmatt continue his postings post a shrimpie posting, it's like he goes into a tele booth and comes back out as shrimpie... FLMAO... but maybe I'm the loon swinging at shadows? -the truth will come out sooner or later...

@bjw... my rent is a "cash flow" item in my spreadsheet. If I were to "own" my dream 3bdrm on CPW, I'd have an asset and an "imputed" rent on my cash flow stmt, but you'd solve for "rent" based upon what you could get on your "home" as an alternative "investment" in a "bond" say or what a comp rental would rent for.

When you do this, you'd find..... 1) you would not have bought anywhere in 2004-2007 (and still would not based on lower rentals and high asking bubble prices) 2) Your "cash" asset account would grow every month relative to being a "owner" to the tune of $1MM sitting in 2 separate FDIC savings account over the last 3 years w/ 0 nyc re mkt risk...

So in conclusion, there are many many nimrods who can't model for shit and even more who choose not to bc itz just too painful.... and this is WHAT makes bubbles until to KING OF CASH FLOW smacks you in the tushie... FLMAO.

Could be a good time to buy, The Euro crisis has pushed mortgage rates down to rediculous levels. People need a place to mark funds and Fannie & Freddie mortgages fit the bill. You the home-buyer benefit with rates your parents and grandparents could never have imagined.

hilarious.

Rhino/CC: Re: people having a different perspective on money. That is what confounds me, also. I understand that in Manhattan you compete for RE with people who are so wealthy, they have no conception of true value. And, in fact, it often doesn't even pay for them to take the time to figure out the value of what they buy. But when you add young things who buy apts at 10X their income, don't know what rent ratio is, don't account for mortgage as liability, or have "impulse" RE buyers, I am wondering if it will take a full generation for this bubble to shake out.

Consider the woman who walked by 127 Madison and saw that there was an auction, then way overpaid on an impulse for an apt for her two 20 something daughters. WTF? Will those daughters ever learn to pay rent, do a spread sheet, find an affordable neighborhood. That woman buyer is a generational bubble enabler. I read that and I wonder how many years I am going to have to wait to buy.

Apt23: you are makin' a lot of sense here. As for people providing for their kids, that's a concept as old as humanity. Over and over again, people who know better rationally and are damned smart in every other way, overprotect, overcocoon and overprovide for their kids. You can't argue with the heart. People providing huge dps for their 30-something, 40-something kids, private school tuition for gchildren - I know quite a few.

ditto that CC, hilarious...
my turn.... BUY now or be priced out FOREVER, Riversider...

People are berating bjw without even listening to what he's saying. Which of this can anyone disagree with:

1. If one has built/invested significant equity in their home, then it would be absurd to "count" the liability while ignoring the asset value. The original purchase may have been a great buy or a terrible buy, but that wasn't the intended point.

2. The nature of the liabilities in buying vs. renting. Buying is borrowing from the bank and renting is borrowing from the landlord. They're future cash outflows no matter how you think about it. Of course renting provides the flexibility to get out every year, but as he said you still have to live somewhere.

I think(?) this is all bjw2103 was saying...what exactly is so controversial here ?

Well, bj says he doesn't care about his equity.

And comparing the liability of a short term lease to a mortgage is ....lame.

Don't forget to add in the ridiculous 8% broker fee when you decide to sell the apt (of course alternatively you could go through the hellish experience of selling it yourself). I bought my first home at 22 years old, and I regret it fully. Not that its lost that much value on a notional basis, but after factoring in all the lawyer fees, mortgage fees, maint fees, re tax, renovations, upkeep AND broker fee (8%)... I generate a little less than 3% with much more risk than say treasuries. At least with treasuries I can margin it up and do other stuff with it. So if you buy in NYC -- buy to LIVE in it, for at least 5 years. Otherwise don't bother. Rent is the way to go. The American dream doesn't apply mathematically to NYC.

w67th, correct me if I'm wrong, but you're talking about property as investment. I'm one of those crazy people who doesn't consider owner-occupied real estate as such. So sue me.

This AIN'T rocket science.

Investment property or residential - add to assets column (go conservative on value to account
for transaction cost - say 90% of market). Then mtge in liabilities column. Monthly carry in
expenses column. As for tax benefits, I would ignore on a monthly basis, and if you get a refund,
subtract from your tax expenses.

I am gonna hear a huge hue & cry from the Matts (but I save 10k on my taxes). As far as your MONTHLY
nut goes, it doesn't matter.

seg, thanks. I don't think rhino or columbia actually read what I wrote and instead saw some words that set them off into holier-than-thou rant mode. Of course I recognize my mortgage as a liability, but I view my home as consumption, and columbia seems ignorant of the fact that if you live in this city, you have to pay rent or a mortgage (well, there is an alternative, but you know...). Obviously there are legal differences between the two, but both represent a certain future outlay of cash. Whether you call it a liability is semantics to me, but the net effect on your bank account is the same.

Unfortunately, I did read what you said.

Tell us again how a one year lease with an absolute right to leave at the end of the term with no further liability is the same as a mortgage.

Tell us again how if you lose your job and need to move to another city for employment that each of the above is the same.

Tell us again about how you wrote off your down payment the moment you wrote the check.

"Tell us again how a one year lease with an absolute right to leave at the end of the term with no further liability is the same as a mortgage."

Cool - make $hit up now. If you want to leave NYC in a year, then yes, there's no way in hell you should buy an apartment here. I'm assuming you want to stay in this city for good (which I do). You don't read properly and then put words in my mouth. Awesome.

What happens if an unforeseen life change requires you to rethink this?

columbia, that's not really the point we've been discussing, is it? But I'll answer anyway. I think you're under the impression that I'm a bull or am advocating buying. Neither's true. I have a very stable situation here and I can't think of too many catastrophic events that would force my hand into moving. If I lost my job, I have more than enough saved to stay here through a thorough search. The point is, if, under the same circumstances you would only feel comfortable renting, then I don't think buying a home is ever an option for you. Period. You're just not at ease with any kind of risk. Though I would say that there is risk in everything, which is a paralyzing thought to some people, unfortunately.

Unemployment is a risk for buyers and renters. The one outcome that favors renters is the "take a job in a new city" scenario.

This means you lose your job AND you remain unemployed AND the first thing that comes up is in another city AND (this is the interesting one) when you're considering this opportunity, there is nothing of even remotely similar quality is available in NYC. Does this happen - sure. Is it a high probability outcome that should significantly skew someone's decision-making if that person is on strong financial footing and wants to live in NYC - well this is a matter of opinion, but I don't think so.

RE. "unforseen life change" - CC hit the nail on the head here. It is impossible to account for every theoretical contingency that might come up. By defintion things can be "unforseen". If one spends a great deal of time worrying about unpredictable, unforseen events then the flexibility of renting must be extremely valuable. People place different values on that flexibility.

Bjw: I think what CC is getting at is that net worth and liabilities are ultimately legal constructs. If you pass to the great beyond, the govt has a specific way that your heirs can tally your ultimate net worth no matter what your lifestyle considerations. And, to the govt, your mortgage plops firmly in the liability column. And though you apparently have a good cushion (good for you) in your RE purchase, nothing is certain in this life. Unforeseen is just that. If there is a dirty bomb in the Holland Tunnel and you are forced to leave the city for health reasons, chances are your down payment will be lost, you will still need a place to live and unless the world implodes and the banking system goes under, you are still liable for your mortgage. Hate to bring up the extremes, but this argument seems to be endless.

apt23, I get that, I really do. I'm comfortable with that risk. If it takes an extreme scenario such as everyone having to vacate the city, then I can live with that. Calculating net worth for oneself is not really a legally defined thing though, is it? I rarely use it for much, but when I do look at it, I don't include the value of my home on the asset side, nor the mortgage balance on the liability side (and I have more equity than mortgage). And even when the mortgage is paid off, unless I plan on renting it out or selling it, I still wouldn't include the value there. Obviously if there's an estate sale someday, that'll be handled differently with lawyers and whatnot, but by then I won't really be around to notice. Btw, I really appreciate your posts - you keep it civil and to the point. Wish there were more of that here.

Help me understand how people who cant think of their home as an investment determine what is a fair price? Are you basically a price taker?

How are low rates an opportunity when all they serve to do is push up price? Biggest misconception around.

> interest in the bank earns 0%

Yes, but comparing money leveraged 10 to 1 on a non-diversified portfolio (of one apartment in one building on one block in one city) to money in the bank is insane.

At the same risk level, there are many more options paying substantially more. Buy a junk bond if you like.

> if including maintenance and interest deduction, your monthly carry is less than current market
> rent ?

For me, it would have to be substantially less, not just slightly less, given the risk of further declines. I will reevaluate in another 6 months or so.

An all cash purchase should at least earn you the mortgage rate...otherwise there is negative carry.

"Sunday, Lets just say I agree with your math. I just don't believe it's correct to assume the primary residence is a liquid asset that can or will be sold or easily liquidated for various reasons and for that reason for many if not all metrics it is better to exclude when calculating one's personal wealth"

Liquidity doesn't mean something isn't in your net worth. Often folks are asked about liquid assets... or investable assets.. but illiquid assets are still completely part of one's net worth.

"Help me understand how people who cant think of their home as an investment determine what is a fair price? Are you basically a price taker?"

I don't follow the logic. Are you saying that everything you buy should be viewed as an investment? Or are you a price taker on anything you don't consider an investment (electronics, food, clothing, etc.)? I thought it was obvious that you can still bargain hunt for goods/consumption, but what do I know?

"How are low rates an opportunity when all they serve to do is push up price? Biggest misconception around."

Some actual evidence of that supposed causal relationship would be nice. And besides, wouldn't that imply that you're an interest-rate taker?

"Help me understand how people who cant think of their home as an investment determine what is a fair price? Are you basically a price taker?"

I think this is where some of the confusion lies....

An apartment you live in is not an investment, by definition.
But it *is* an asset.

Just as that sports car you own is not an investment... but it is an asset.

If low rates increase buying power for buyers, then clearly it exerts upward pressure on price. Thats a truism.

I still dont understand how a decision to rent or buy doesnt involve some math. Not all math but some.

"If low rates increase buying power for buyers, then clearly it exerts upward pressure on price. Thats a truism."

I get the "logic." If it's such a truism though, it should be fairly easy to demonstrate. I strongly suspect it's not 1:1 and takes quite a while to manifest itself. In other words, low rates can indeed present an opportunity.

"I still dont understand how a decision to rent or buy doesnt involve some math. Not all math but some."

Yeah, I don't think anyone's said that.

Here's the deal. Either you believe that we are living through extraordinary economic times characterized by never before seen downside risk or you believe that this is just another blip that will go away.

There is no historical data to rely on to prove this one way or the other.

There's that..but then there is simply that apartments are expensive relative to incomes and rents. 1999 wasnt the end of the world, but it was a bad time to put money in stocks, even for the long term. In my view thats all this need to be as it relates to buying an apartment at this moment.

Such a truism is not easy to demonstrate because there are many other factors and it is not possible to isolate this ONE. If you do not think cheap money drives asset prices up then you simply lack the basic finance understanding to really engage in this discussion frankly.

> I still dont understand how a decision to rent or buy doesnt involve some math. Not all math but
> some.

Agreed it should, but when personal feelings, old wives tales, and cognitive dissonance get involved, its a recipe for disaster. And this seems to be the rule for buying homes over the last few years. Hence the whole mortgage meltdown in the first place.

Well without a financing bubble, you could get price to rents so out of whack...or "in equilibrium" as Juicy would call it.

>but then there is simply that apartments are expensive relative to incomes and rents.

... and unemployment levels. I am still astounded at price levels. Even factoring in cheap money which is not an infinite commodity. Money can not get much cheaper and sooner or later we have to run out of buyers for whom money is no object and any other subset of cognitive dissonance. Seems to me that the equity market going down and staying down for a while is the only thing that will rein in NY RE prices. If we experience low returns in the market for a couple of years coupled with new development resales adjusting to true values --i.e falling off a cliff and delivering serious negative returns to all the eager buyers in 07-10, we might get sane pricing for middle and upper middle income families to live in NY.

"but then there is simply that apartments are expensive relative to incomes and rents."

I've never exactly disagreed with that, so ok.

"Such a truism is not easy to demonstrate because there are many other factors and it is not possible to isolate this ONE. If you do not think cheap money drives asset prices up then you simply lack the basic finance understanding to really engage in this discussion frankly."

Rhino, why so condescending all the time? Anyway, as I said before, I fully understand that logic. But you're the one who made the assertion that "all [low rates] serve to do is push up price" and that they don't present any opportunity. I think that's wrong. And yet you can't prove your assertion really. Nice.

Low rates can be helpful if you expect to keep a big mortgage out there, for a long time. I still dont know how its debatable that low rates push up prices.

"I still dont know how its debatable that low rates push up prices."

I still don't know how you think I'm debating the logic behind that, but again, would love to see some data on how much they affect prices and the time it takes for that to take effect. As you know, markets aren't perfect, and prices are relatively indifferent to smaller changes in rates, so it's not 1:1 and it's certainly not an instant shift in prices. It should be fairly obvious that those conditions can present some opportunity. Your assertion was that there is no opportunity with lower rates.

Find some data and I'll show you. If you look at the best entry points, many times they come during periods of high rates. The 1990s, the early 1980s... Its as fundamental as saying that the best time to buy stocks generally when P/Es are low. When P/Rs are high and interest rates are low, you are foregoing an opportunity to enjoy an upward push in values as rates fall. That's as much as I'm willing to give you. No need to respond.

Conversely, I think you offered here that this was a generational opportunity...not since your grandparents or some such shit. Maybe you can show me why and when buying at all time interest rate lows and nearly all time P/R highs has played out in purchasers favor over time.

Conversely, I think you offered here that this was a generational opportunity...not since your grandparents or some such shit. Maybe you can show me why and when buying at all time interest rate lows and nearly all time P/R highs has played out in purchasers favor over time.

Rhino: there were times in the early 90s when both rates & housing prices were low.

For me, what is much more important than interest rates alone are rent/buy ratios and cap rates.

"Find some data and I'll show you."

I should have to find data to prove your assertion? Nice. Maybe it's not as much of a truism as you think?

"If you look at the best entry points, many times they come during periods of high rates."

You're drawing correlation but assuming causality.

"When P/Rs are high and interest rates are low, you are foregoing an opportunity to enjoy an upward push in values as rates fall. That's as much as I'm willing to give you. No need to respond."

If you're looking to make a trade, I get the need to worry about future value that much. If you're only looking to live in the home and not sell it, or merely sell and buy another similar home for yourself, that's not as significant.

I know economists fight over a lot of issues, but really, econ 101 is pretty well settled:

"The price of borrowing money is called the interest rate. The interest rate is one example of the price of a complement. A complement is a different good that goes together with the one under
consideration. Homes and borrowing money tend to go together. So do bread and butter, coffee
and sugar, gasoline and automobiles, homes and furniture, peanut butter and jelly, and many
other examples. What happens to the demand for new homes if the interest rate rises? The
answer, of course, is that it falls. It is also likely that the demand for butter will fall if the price
of bread rises, the demand for automobiles will fall if the price of gasoline rises, and so on.
Therefore, our relationship is: if the price of the complement rises (falls), the demand for the
product (homes) falls (rises)." -- random syllabus for entry level econ class found online.

"Conversely, I think you offered here that this was a generational opportunity...not since your grandparents or some such shit."

Where did I say that? Can you guys stop making $hit up please? Thanks.

"Maybe you can show me why and when buying at all time interest rate lows and nearly all time P/R highs has played out in purchasers favor over time."

Didn't you yourself say that P/R has fallen considerably (close to 16 for well-priced?)? And yet we have extremely low interest rates still? Odd, huh?

malthus, no one is arguing that that's not true. Read the posts carefully.

Nitpicking much?

Nyc10023, if rates and prices (I assume you mean P/Rs) are both low... then of course that is an opportunity. Its times like now when rates are low and P/Rs are high that are not an opportunity...at least defined by anyone who wants to apply at least a little math to the decision.

Agreed, Rhino. Though of course, waiting only works when you have cash. When I think back to prices being low and rates being lowish in the early 90s, VERY few people had the chance to buy. Most were either underwater in their current homes or didn't have the downpayment or secure enough jobs. The people who would have had the cash - most had bought already. It's hard to be patient.

"Didn't you yourself say that P/R has fallen considerably (close to 16 for well-priced?)? And yet we have extremely low interest rates still? Odd, huh?"

Not really, given that rates may be just as low or lower but lending standards are tighter and unemployment is higher. I am sorry if I am taxing your limits of comprehension. Perhaps better just to agree that low rates are not a clear positive for buyers, as is the popular assertion.

"Nyc10023, if rates and prices (I assume you mean P/Rs) are both low... then of course that is an opportunity."

Rhino, I fail to see how that's now compatible with what you said earlier:
"How are low rates an opportunity when all they serve to do is push up price? Biggest misconception around."

That's where I disagreed. Apparently you concur now?

So tell me again how current prices and current rates represent a good opportunity for buyers. I would still maintain that the best opportunities are for high down payment buyers during periods of high interest rates and even lower prices. I am also not entirely sure that interest rates were ever that low during the 1990s. I do recall that price/rent ratios were much more attractive than now for all of the 1990s.

Bjw: I am an owner, and I see where you're coming from. You simply can't argue convincely that it is a "good time" to buy from an economic point of view. It isn't, it really, really isn't. It may be a good time for YOU to buy from a consumption point of view, but we don't know you, so it's impossible to argue one way or the other (based on residential prop as a consumption item). Bottom line: the minute you buy (in any situation), you deduct 10%+ from your dp for transaction costs, and add a life-changing (for most people) liability item to your balance sheet. In your specific market (as in mine), there may be a greater inclination for risky behavior (I am a breeder!), the rental stock may be slim pickings, or you may have tried renting (like me) and not liked it.

bjw: "no one is arguing that that's not true", yet 10 posts earlier you are debating whether it is a "truism". Tell me again how I should read more carefully...

Rhino: I remember working a summer internship (paid!) and hearing from a co-worker that he'd locked in at 5.5%.

Right and I'm the one that is changing my view, Malthus. Nyc10023, I think the moral of the 1990s is if real estate returns stink for 10 years, then the impact of low interest rates pushing up prices is a little deadened. If like now, you have 10 years of reasonable returns even after pulling back (at least in Manhattan)...the rates 'create a buying opportunity'...so the actual attractiveness of buying goes by the wayside. If we forget rates entirely, and just look at P/R here...there's no arguing that 16-17x for coops is a good opportunity. But if we fall a little more and rents move up and rents stay low...then who knows maybe it can become at least okay. I'd of course rather 'enjoy' something more draconian than that.

"So tell me again how current prices and current rates represent a good opportunity for buyers."

No, because I never said that. You like to be condescending but then make $hit up. You said that low interest rates as an opportunity is "the biggest misconception around." Except that it really can be an opportunity in the right circumstances. I never said anything about current.

nyc10023, I'm in no way saying now is great time to buy. Sorry if that wasn't clear, but I never said that.

Low rates as an opportunity in and of itself is the biggest misconception around. Its very popular.

"bjw: "no one is arguing that that's not true", yet 10 posts earlier you are debating whether it is a "truism". Tell me again how I should read more carefully..."

I'll tell you again because I never said it's not true. Rhino apparently thinks that low rates are never an opportunity; that's what I'm disagreeing with. Not that lower rates have an effect on prices. They do; but for there to be no opportunity, prices would have to move instantly with rates and at a constant ratio. That's simply not true.

" Except that it really can be an opportunity in the right circumstances. I never said anything about current."

You really want to argue that the blanket belief that low rates = buying opportunity (without further clarification) is not a popular misconception?!?

To me, what you're saying now is different from what you originally said. But I completely agree.

Curious if other people think I've been inconsistent. It may be that I am writing on two threads at once and may be posting blanket responses.

10-year Treasury yields on 12/31/90 were 8.07%.

10-year Treasury yields on 12/31/97 were 5.85%.

Although falling yields may have been a positive for Manhattan real estate during the period, other factors clearly outweighed their positive impact. Particularly high valuations in the late eighties.

holy crap

Oops...

First line should have read:

10-year Treasury yields on 12/31/89 were 8.07%.

(No change to conclusion.)