ATTN: stevejhx -- POST HERE

"All I do is what economic theory (and banks, btw) do: compare a stream of rent payments with a stream of mortgage and tax payments for an identical or closely-related property. The concept is either called PITI (principal, interest, taxes, insurance) or PTI (payment to income ratio). That's how they do it in the market."

What you describe here is a different approach than what you've been talking about, but I actually have no problem with it at all. The problem is it's not what you actually do when you present your numbers. Compare:

1. The correct way to do this: Take the entire PITI stream, and discount it back to a present value figure. In this case the P&I go for 30 years on a standard 30-year amortizing mortgage. However, the rental payments go into perpetuity. You should take a view on the future movement on rents. If you assume flat forever, that's your assumption. But in any case you have to account for 30-year P&I vs. perpetual rents.

2. What stevejhx ACTUALLY does when he presents his numbers. You present the P&I payment as a pertpetual number (when it's not), therefore ignoring the principal component. You also assume the rent flat-lines forever. Therefore you're not really calculating a PV cost, as you should be for #1. All you do is compare apples and oranges, by comparing Day 1 P&I to Day 1 rent.

Don't you see how this is inconsistent?

Seg, what an interesting post. The concept of perpetuity is the 800 pound gorilla sitting spread eagled on the rent/buy analysis desk.

seg, yes, but Steve's theory all along has been that you should be paying less to own than rent from day 1. It's a concept I disagree with, but he is adamant about it, so I understand his perspective here.

Of course Steve's best argument is the one that he never makes. That renting provides for future "optionality"

"seg, yes, but Steve's theory all along has been that you should be paying less to own than rent from day 1."

bjw/others: Right, and I should resist getting drawn into these never-ending discussions. What is irritating is that there's obviously a good case that renting is better, some of which Steve makes, but he'd make his case so much stronger if he'd just be intellectually honest about it. Like in his analysis yesterday he used 6.0% for the mortgage rate. All it takes is opening yesterday's NY Times RE section, turning to the "mortgages" section, and in moments he could see 30-yr fixed listed at 4.6% for NY Coops. Fannie 30yr yield requirements are currently even lower.

So why not just use the right number? It's not helping anyone to put forth wrong information, especially anyone reading these threads for the first time.

seg, I hear you, but why worry about the quality of steve's debating/conversational skills? Right or wrong, he's as stubborn as they come, and while it is dangerous to perpetually spread bad info, I think this site relies on people like yourself who seek to get the best info out there, and are unafraid of putting others' feet to the fire when there's legitimate doubt.

Yep. Also, in case it wasn't clear -- the reason for this thread is that a Rent vs Buy discussion got started in one of the other recent threads. It was completely off-topic, so I just tried to move the discussion over here to spare everyone on the other thread. (Never intended to start a new thread just to make an unprovoked assault!)

Many people have mentioned in these analyses that one thing missing is future changes in rents - I predict there will be a salvo of links to studies saying that rent has historically never changed - regardless, steve's point is that if you begin on day 1 with a cheapter monthly gross nut for owning than to rent, one profits off future rent inflation, also from the tax benefit which he claims doesn't exist (precisely because it isn't a benefit if you are subtracting it from your gross nut to make your nut equal to rent), and the principal amortization (not a benefit if you already subtract it from your owning "cost" to make your gross nut equal rent) and future equity appreciation. Start from steve's stubborn day#1 demand, and you are guaranteed to profit. He will not buy, because it's not coming to a building near him again, and he's not willing to live somewhere that the future rents will catch up to beginning ownership costs. Most people are. That's why his equilibrium is not coming back soon.

HahahahahAaaaA omfg. The fallacy of perpetuities. I hear someone in Venice is really pissed when the borker promised that Venice would be the greatest city forever!

Btw, Stevie and I don't believe the 4% mortgages are 'financially' correct to do any calculation. It's like taking Bonds steroid stats....

You guys are really cute. Txt me on Facebook when you think re taxes and maintenance doesn't go up above CPI or at least the rate of increases equals rent on increases.

And don't forget about the mortgage deduction! On Lordy. 3 hrs ago I predicted that was gonna go away. I also predicted a double dip and $500psf and foreclosure mess would hit manhattan.

Slow as molasses, which is funny Bc most ppl can run faster than molasses, but the lemmings still wanna taste it, weird.

3yrs!

Can't we all agreed 0% policy is a little whack?in times of stress you should build your greatest castle? Wars have proven the mobile armies always win. Go build your marginot lines!

"Btw, Stevie and I don't believe the 4% mortgages are 'financially' correct to do any calculation. It's like taking Bonds steroid stats...."

Sorry, so are you saying they don't exist or don't count?

"Txt me on Facebook when you think re taxes and maintenance doesn't go up above CPI or at least the rate of increases equals rent on increases."

Our maintenance actually went down for a year before we brought them back up to original levels (which aren't much higher to begin with). In other words, they haven't gone up at all since I moved in. Rents in the neighborhood, unfortunately, have. It happens.

little w67th: "why do we have to move again?"

w67thstreet: "because i've determined our home is like Venice. Something is rotten in the state of Denmark. This rent be damned."

w67th jr: "But I like it here. Don't we have to pay rent somewhere else too?"

w67thstreet: "The 67th street clan is a mobile army. Moblie armies in the war."

li'l w67th: "Why are we at war? We're moving again?"

w67thstreet: "The f*cking lemmings. FLMOAZ! Let's keep pace of the molasses!"

Look in my old country ppl moved Bc of a gun to the head. My wife and I have moved numerous times in our lives due to finances, kids, work, bubble etc. But I know financial distress breaks up families much more often and much more frequently than 'moving'. In fact my 2007 bid was mez trying to lock into our long term 'home', but a lemming borker/flipper outbid me. So here I am thanking that flipper from the bottom of my heart.

Thank you thank you thank you!

Bjw. Pls show me rents that have gone up..... My coop just put in 10% increase. Sorry don't buy cc/ret have stayed flat.

If you're a credit buyer, now is a good time to buy. There is no telling how long one can borrow for 30 years at a low fixed rate like we have today. If you're a cash buyer, prices might be lower in a year or two. Then again they may be flat for a very long time. But it's not all about making money. There are many benefits to home ownership: 1. it can be sensible "forced" savings plan; 2. no more war (finished moving); 3. personalize your home to your taste; 4. enjoy stable neighbors with a shared interest in livability; 5. save in the long run; and 6. have your household expenses drop dramatically on mortgage payoff.

"and I should resist getting drawn into these never-ending discussions" ... by starting threads that put forth your viewpoint, while window-dressed as a "correction" of someone else's? Right.

Steve's rationale for ignoring the "principal" component, I believe, is that the average holding period for owner-occupied properties allows for minimal paydown of principal in a typical mortgage. So the equity argument is sizzle, not steak, and when put on the scale is really pretty but has no weight. Is that your thumb on the scale?

w67th: We've moved numerous times too for all the same reasons. I shouldn't have brought family into it...not sure why I'm feeling so ornery today, I guess I got inpired by all your "warfare" rhetoric...

w67th, show me where these kinds of rents were in my neighborhood 2-3 years ago (hint: nowhere): http://www.rosenyc.com/SearchResults.aspx?Type=2&Neighborhood=21&AptSize=&Amenities=6,9&MinPrice=&MaxPrice=

Sorry you don't buy that my ccs and taxes have stayed flat, but they have. I'm pretty sure they'll go up in the long term, but your assertions are a bit off.

I'm pretty sure theyll go up => not perpetuity. Nuff said.

alahhart - while true that the average holding period doesn't allow for a massive principal paydown, what a person should be doing when they buy that next place is amortizing over 30yrs less the holding period of the original place. Of course many, or most don't. but that's no different than the people who are engaging in 'rent and save difference', with the idea that the cumulative savings will provide the funds for renting (or purchasing) in retirement, most of whom don't save that money but spend it anyway. Most people are just not rational with their money - and it is something that needs to be taken into account and why the forced savings of buying is a useful tool.

Maintenance and taxes are usually far lower than rent, so comparing long-term increases of the two is not apples to apples.

"I'm pretty sure theyll go up => not perpetuity. Nuff said."

Not when your comment was "Txt me on Facebook when you think re taxes and maintenance doesn't go up above CPI or at least the rate of increases equals rent on increases."

Say I buy a place for $1,000,000 and finance it 100%. Assume my payment is $6,000 / mo with $5,000 being interest and $1,000 being principal. Now say I make my first $6,000 payment:

1) how much do I now owe on my mortgage?

Now say I sell the place immediately (on exactly the 30th day) for $1,000,000.

2) how much do I give the bank in order to pay off my mortgage?
3) how much am I left with?
4) Net of transaction costs how much did it cost me to own that place for the month?

This is the level of stupidity we need to stoop to when having a conversation with steve

I waited till LICCdope posted something:

"Maintenance and taxes are usually far lower than rent"

Actually, prices are so exorbitant and rents so low that maintenance and taxes are about half the price to rent:

http://streeteasy.com/nyc/sale/487227-condo-212-east-57th-street-sutton-place-new-york

maintenance + taxes = $2,028
market rent (asking) = $5,000

http://streeteasy.com/nyc/rental/579263-condo-212-east-57th-street-sutton-place-new-york

They couldn't rent it at $4,700, so they increased the price to $5,000.

HAHAHAHA!

Yet again much more expensive to own than to rent:

Down Payment $250,000
Mortgage Amount $1,000,000
Mortgage Payment $5,678
Total Monthly Payment $7,706

Breakeven price for the property above is $600,000, assuming $4,700 a month rent:

Down Payment $120,000
Mortgage Amount $480,000
Mortgage Payment $2,725
Total Monthly Payment $4,753

That is, more than 50% less than the current list price.

Only fools go where angels fear to tread.

steve has been making a fool of himself with his idiotically flawed rent-buy analysis (among other things) for years.

His analysis is consistently stupid, unfortunately for him.

Say I buy a place for $1,000,000 and pay for it in cash. Now say I sell the place immediately (on exactly the 30th day) for $1,000,000. Net of transaction costs how much did it cost me to own that place for the month?

According to JuiceMan, $0.

I CAN LIVE FOR FREE! YIPEE! YAPEE! YAHOOIE!

This is the level of stupidity we need to stoop to when having a conversation with Juicy. If you pay in cash, LIFE IS FREE!

OMG.

Only in the bizarro world of JuiceMan is it possible to spend a million dollars and not have it cost you anything.

HAHAHAHA!

LICC's "this is how I want the world to be" comment: "His analysis is consistently stupid"

LICC's "this is how I want the world to be" comment: "Maintenance and taxes are usually far lower than rent"

stevejhx's REAL MARKET DATA:

maintenance + taxes = $2,028
market rent (asking) = $5,000

Maintenance + taxes = 40% of asking rental price, 57% of likely market rent.

50% price reduction needed before you can buy the property and rent it out to an unrelated third party and break even.

That is the historical relationship: market rents = owners' carrying costs.

But in the bizarro world of LICC, it's GOOD to overpay by 50% to take on a far greater risk (renting vs. buying).

Bizarre.

of course, it depends on how you define breakeven. I could use this equally invalid definition and come up with the following:

Purchase Price: $1.25mm
Mortgage Amount: $1mm
Mortgage Payment: 4774
Principal: $1441
Mtge Interest Deduction: (4774-1441)*.35= 1166.45
Maintenance + Taxes: 2028
Property Tax Deduction: 300*.35 = 105

Net 'rent' = 4774+2028-1166-1441-105 = $4090

wow - this place is cheaper to own than to rent!

That's very good, printer! EXCELLENT, in fact! You have adopted the NAR's concept of "The New Math," which helped get us to where we are.

You forgot to include the foregone earnings from investing your equity elsewhere. Once you put that back in - which will almost exactly offset your tax deductions - you'll find that WOW: this place is cheaper to rent than to own!

But I'd say you'd be much better off using Juicy's rule of - if you pay in cash, it's free. Because that way you'll wind up a lot richer.

HAHAHAHA!

"You forgot to include the foregone earnings from investing your equity elsewhere."

Like your awesome stock portfolio, which earns you 2% per day, right?

Note how steve didn't answer those simple questions.

steve= bad math, bad etiquette, bad analysis, bad logic, failure.

This whole concept of having to break even on day 1 in order to justify ownership is more steve idiocy. Then add that is model excludes positives for owning and negatives for renting, and he is shown to be a total joke.

exactly Steve - the NAR's "The New Math" is as equally invalid as your idiocy. Perhaps we should be calling you Steve Yun from now on.

I did answer it, Juicy, but here we go again:

Say I buy a place for $1,000,000 and finance it 100%. Assume my payment is $6,000 / mo with $5,000 being interest and $1,000 being principal. Now say I make my first $6,000 payment:

1) how much do I now owe on my mortgage?

$995,000

Now say I sell the place immediately (on exactly the 30th day) for $1,000,000.

2) how much do I give the bank in order to pay off my mortgage?

$995,000

3) how much am I left with?

$5,000

4) Net of transaction costs how much did it cost me to own that place for the month?

There is insufficient information in the problem to answer the question. If you could have rented the same place for $3,000, and you instead chose to pay $5,000, then it cost you $2,000 to live there. If you could have rented it for $7,000, and it only cost you $5,000, then you would have made $2,000 on the transaction.

PLUS the lost opportunity cost of investing that $1,000,000 elsewhere. If the risk-adjusted rate is above the mortgage rate (which it is in today's environment), then you also lost the difference.

The problem with how you ask the question, Juicy, is that it will give you an unrealistic answer. Buying a property is viewed as capitalizing an expense, not making an investment in an income-producing capital asset. That is why your reasoning is faulty, and why you get such absurd answers when viewed at the extreme.

Ask any trader to invest $1,000,000 in a risky illiquid asset for one month, when all he gets back at the end of that month is $995,000, and he'll tell you where to put your investment advice.

"1) how much do I now owe on my mortgage?

$995,000"

Steve, I'll take a mortgage from you any day if that's how you calculate remaining principal.

Did I do the interest and principal payments backwards?

Oh, well....

steve has some bizarro insanity world "risk-adjusted rate" that is above current mortgage rates. Plus, you are not investing $1 million elsewhere. Opportunity costs must be based on down payment only.

Opportunity cost is another basic economics concept that is over steve's head.

for any rational person who stumbled onto this looking for some quality rent/buy analysis, do a search for discussions with posts by inonada. she actually is interested in exploring the issue rather than pushing an ideology.

Oh, LICC - you're a silly billy! You can read about the risk-adjusted rate here:

http://www.qfinance.com/asset-management-calculations/risk-adjusted-rate-of-return

You might know - if you read anything but the Post - that mortgage interest rates are being artificially depressed by the Fed; they don't represent real long-term risk-adjusted rates. The common risk rate to use is the S&P 500.

Poor LICCdope, yet again doesn't understand how leverage works with opportunity cost:

"the higher the leverage position the higher the opportunity cost and return on investment needed to justify that risk level."

http://www.uwcc.wisc.edu/info/yic/22fin.html

That's not from me, LICCdope, it's from the University of Wisconsin Economics Department. Just search on "opportunity cost" and "leverage" to find out more.

seg--30 yr fixed jumbo ny coop mtgs are 6%--that's a fact--and if youre trying to use an arm for your calcs, that would be disingenuous--and if your downpayment is small and, for purposes of opportunisty cost calc a la LICCdope, not meaningful; and youre borrowing less than 700k, lil seg(s) are sleeping in closets---ouch

steve embarrasses himself again, and again, and again . . .

It's like having to come down to ten-year old level to explain even basic things to him.

An opportunity cost is the value of a foregone alternative. Only in steve's bizarro world of the stupid do you assume that someone who purchases is giving up the alternative of otherwise borrowing the same amount of money and investing it in the stock market.

And steve, your misdirected citations aren't fooling anyone but the other voices rattling around in your head in your bizarro land.

30 year jumbo fixed mortgages are under 5% right now. Nice shot at trying to make up your own facts.

Printer...You're absolutely right. Inonada is one of the, if not THE, smartest on this board. I met her at one of the meet-ups and she's also absolutely gorgeous.

Here is my situation, based on an actual comp for a condo which traded 1.4 mm, provided by another poster:

thx ar, a good comp for my rental

25% down 362,500

5.5% jumbo mtge 1087500

6175/month

2950/mo cc+taxes

so, for 9125/month, i can have the privilge of putting up 362,500 to own this apt, which comps nicely to my rental, for which i pay 4950/month--(my rental has 3 full baths, insted of the 2.5 in this place, and is slightly better located, imho)--my rental is a pretty good deal based on the market, but not that good a deal--and my tax bracket, quite low this year, is often quite high

show me the math that says i should buy under any circumstance other than that your crystal ball says this condo will be a car on the bull train!!

you longs cant admit youre paying to have your money tied up in a non-performing asset

Thanks, wb, the only other sane voice on this board.

30-year fixed jumbos are between 5.5% and 6% according to bankrate - IF you can get one. But if you already have an adjustable rate mortgage, it would be around 4%.

Under LICCdope's view of the world - unlike any other view by anyone else in this solar system - if you borrow $1 million to invest in a home or to invest in a factory and put $0 (or any other amount) down, there is no opportunity cost to the choice you make.

HAHAHAHAHA!

"Did I do the interest and principal payments backwards?"

Note that steve doesn't understand the difference between principal and interest. This is what we are dealing with here.

"There is insufficient information in the problem to answer the question. If you could have rented the same place for $3,000, and you instead chose to pay $5,000, then it cost you $2,000 to live there. If you could have rented it for $7,000, and it only cost you $5,000, then you would have made $2,000 on the transaction."

Note also that steve he has refused to answer question 4 because it proves (very simply I may add) that his claims are completely false (shocking isn't it?). Just tell us steve, net of transaction costs how much did it cost me to own that place for a month? You can compare to renting after you answer that question, ok?

WB, I have the same situation: I live directly across from The Link, which is newer than my building and has marginally nicer kitchens and bathrooms. They want $9,000 a month to rent this:

http://streeteasy.com/nyc/rental/706292-rental-310-west-52nd-street-clinton-new-york

whereas I pay $3,600 for this:

http://www.ellingtonnyc.com/18_28_c.html

and look right into their building. I also have 2 balconies, though they have a powder room.

For which they want $9,000 a month.

They want that because that's what it works out to at the price they have it listed at, $1,790,000:

http://streeteasy.com/nyc/sale/563894-condo-310-w-52nd-st-clinton-new-york

Down Payment $358,000
Mortgage Amount $1,432,000
Mortgage Payment $8,131
Total Monthly Payment $8,551

Somebody please justify the price differential, and/or guess who's not going to get $9,000 a month for that apartment?

Juicy, your question can't be answered the way you frame it - it's akin to saying, "Do you still beat your wife?"

That's why investment real estate is compared using the cap rate, which excludes the cost of financing. That's also a fine way to look at things.

Your way, however - where you live for free if you pay for it in cash - is not.

Wbottom, that's great - you found a condo that someone overpaid for. Are you extrapolating that every apartment on the market also trades for too much?

So the cap rate on the Link property would be:

$4,000 * 12 / $1,790,000 = 2.7%

GREAT DEAL with mortgage rates hovering around 6%!

Of course, since there's a mortgage, according to LICCdope there is no opportunity cost on that huge-ass mortgage you have to take out to pay $9,000 a month for something you can rent across the street for $3,600.

steve, jumbos are currently a hair over 5% even with the spike we saw on friday - credibility is all about not trying to fudge reality even when it doesnt suit.

Now steve is comparing his 900sf rental in a dump building to brand new condo building units.

And he applies his brainless rent-buy analysis assumptions. Sad.

Notice how steve can't address his moronic claim that the opportunity cost of buying an apartment is the inability to borrow at 5 to 1 leverage hundreds of thousands of dollars to invest in stocks for 30years.

Sad.

is the 5% 30yr jumbo assignable? and what is the prob that most ppl will keep the 30yrs and go full payoff?

It's a jacked rate, like roid performance... unless you can count on it for the next 30 yrs.... suspect.

I guess the counterargument would be you could have 1% 30yr jumbos.... betta clean my glock.

bjw, i'm not so certain about that. take a look at the SE scatter graph for the sale. and from a ppsf standpoint it's not high either. taxes are high for a recently developed condo (was a conversion in 2006) but the median asking ppsf for 3 bedrooms, 2.5 bath condos on the UES is nearly $1700.

3 bed/2.5 bath
http://streeteasy.com/nyc/sale/520477-condo-1474-third-avenue-upper-east-side-new-york

12/07/2007Previously Listed by Stribling at $1,860,000.
04/18/2008Previous Sale recorded for $1,858,306.
04/28/2008Stribling Listing sold.
05/08/2010Listed by Brown Harris Stevens at $1,495,000.
09/24/2010Listing entered contract.
11/02/2010Listing sold.
11/02/2010Sale recorded for $1,450,000.

I am refinancing this month at 4-3/8% on 30 year fixed NYC coop jumbo loan. Result is I will pay less for mortgage, maintenance, and insurance than I did renting a nearly identical unit 2 years ago (that unit has actually increased the rent since I vacated it). And the refi costs will be completely recovered within 7 months. Before the refi I payed a bit more each month than it cost to rent. This is not even taking into account the home mortgage tax deduction I benefit from.

All these formulas are very nice if you have nothing else to do but talk about them. The reality is I am living in a home that I own and love for a bit less than it cost to rent an essentially equivalent apartment. Surely, I cannot be the only person in NYC to figure out how to do this.

ar, so you think that it was a reasonable price? Not sure what you mean. Regardless, as I've said many times on here, I think it's pretty clear most people will pay a bit more to own than to rent the exact same unit, despite what steve claims. And despite all the lemming accusations, that's what actually happening out there in the real world. That's what I've been trying to get at here.

kylewest, you're a smart one, but you're right, you're not alone in having "figured" that out.

"Now steve is comparing his 900sf rental in a dump building to brand new condo building units."

Look again, LICCdope: the apartments are exactly the same size.

"jumbos are currently a hair over 5%"

I got my rates on Friday from bankrate.com. They will vary, of course.

"Notice how steve can't address his moronic claim that the opportunity cost of buying an apartment is the inability to borrow at 5 to 1 leverage hundreds of thousands of dollars to invest in stocks for 30years."

It depends on what you want to borrow against, LICCdope. The leverage is much is exactly the same for SAFE government bonds as it is for UNSAFE real estate:

http://www.eprimevest.com/forms/MarginRequirements.pdf

and there's more leverage even on agencies.

The leverage on stocks is 3:1 after meeting the initial requirement. And (most) stocks pay dividends on that.

Try again, LICCdope.

i was just fetching the comp BJ--ar beat me to it--if anything this comp trades on the cheap side--certainly as compared to what the 07 buyer paid

and i know both buildings well--it's a good comp

now show me a reason other than "buy now or be priced out forever" to buy

this buy vs rent phenom is left over from the bubble, and we aint rebubbling at a rate that even remotely justifies my buying

and there's a good chance we gots another leg down--we shall see

Wbottom, I'm not saying it's a bogus comp - I'm merely asking if you think it's a good buy. Because I'm not convinced it is, even if it is cheaper than what someone paid in 07.

"now show me a reason other than "buy now or be priced out forever" to buy"

Can we stop trotting out this bs? The only people saying this are doing so tongue-in-cheek, and it's old and irrelevant. Generally speaking, it's good to buy when your personal situation aligns and when you're not paying much more than you would to rent a similar place. Clearly, that hasn't happened for you (and others here) yet, but let's not project and apply that to the general population.

"and there's a good chance we gots another leg down--we shall see"

Can you give a little more detail as to why you think so? I see relative flatness.

what was your down pmt kyle, and what did you pay for the property, and when, and what is current value/equity?

and what have alterantive assets to your apt done since you bought

if you caught the 09 lo, congrats, your apt is up maybe 10% (less 6% if you had to sell)--if you'd rented through that period and bought stocks then youd have a near 2X on your hands--and yes stox are not a riskless asset, but dont try to convince me real estate is either--and stox have zero transaction cost and are liquid--you should be paid to hold that risky leveraged, illiquid, expensive to transact asset you call home--aint no more doublin bubblin--these rent/buy numbers will correct

LICC, you also forget that the mortgage market is rigged: if it weren't for the agency guarantees, no one would even write a mortgage, because no sane bank would lend for 30 years when they fund for 30-90 days. Despite what you Teabaggers think, the guarantees are what make home-ownership feasible.

Take away that and the (dying) mortgage interest deduction, as well, and the whole shebang collapses faster than Lehman Brothers.

"I think it's pretty clear most people will pay a bit more to own than to rent the exact same unit, despite what steve claims."

They're not "my claims," bjw: it is empirically proved that people will NOT pay more to own a property than to rent one, at least not for long periods of time. It makes no sense, especially since homeownership is so much more risky than renting.

This is, in fact, left over from the bubble.

the point is that, without serious rebubble appreciation on that comp to my rental, the clearly better eco0nomic situation for me is continue to rent--so flat makes me money renting--and there is option that there be another down leg--and look at the scatter and the median psf's and monthlies--and that i rent from a company with a large NY portfolio--i have a good rental deal, maybe 5% under mkt--but nothing that compensates for buy/rent numbers in my neighborhood

and if there's another leg down or if it sits flat for several years, ill happily save money renting and buy right when the time comes--

"it is empirically proved that people will NOT pay more to own a property than to rent one, at least not for long periods of time. It makes no sense, especially since homeownership is so much more risky than renting."

Please share this proof. While people play up the equity aspect too much sometimes, it nonetheless exists. Once a mortgage is paid off, an owner actually owns property of significant value, whereas a renter does not. Or is that irrelevant to you?

There are also the market constraints to take into account: Front-End PTI = 30% is EXACTLY the same as 40x monthly rent = income.

Front-end PTI is "price to income" - no special deductions, nothing. That's the most you can borrow, and it's the most you can rent.

Since you get the same product buying or renting, and the market constraints are the same, they should cost the same.

That means, all things being equal, property prices must fall another 30% to 50% in Manhattan.

And that's what's happening, albeit slowly.

bjw you see "relative flatness"...... OMFG. I DON'T KNOW WHAT TO TELL YOU. If you think 3K+ open houses in manhattan week after week is anything but a prelude to a disastrous NYC RE market that will wipe out any people that tried to catch the knife in 2009 then, 2005-2008, bubble buyers and then the "staid" actual buyers who unknowingly bought into the beginnings of a massive bubble in 2001-2005, and then let's not forget just the over-correction to the mean that'll put 1997-2001 buyers I CAN'T HELP YOU.

LEMMINGS, all around us, buying cupcakes at Magnolias, buying espresso at 67th Starbucks, running on a treadmill at Reeboks, pushing strollers at Fairways.... work for the monthly nut! Like a fking obese over-burdened squirrel with a $400 Hermes tie on.... get your nutz... get your nutz bf the winter kills your family.

Wbottom, I wish you luck - you've got to do what makes sense for you. My only beef is with people who project their situation and nonchalantly declare that everyone should do the same (it happens a lot around these parts, if you haven't noticed).

w67th, your condescending bullsh!t is hilarious. You love to keep track of open house numbers, but seem to be the only one who thinks they mean much.

bj, just Google "price rent correlation" and you'll get all the deets.

But to make it easy for you:

http://www.articlesbase.com/real-estate-articles/the-relationship-between-home-prices-and-rent-amounts-711498.html

Very few people own their properties through the life of the mortgage; the average mortgage is prepaid in 7 years. That's why - unbeknownst to LICCdope and Riversider, what with his MBS hedges (HAHAHAHA!) - trading in MBS's is so difficult: you have to take into account the unknown prepayment factor.

But it is true: if you hold your home through the life of the mortgage you have an unencumbered asset. But if the value of the stream of payments you made to hold that unencumbered asset exceeds the value of the stream of rent paid and opportunity cost income received, then you would wind up poorer.

bjw, if i hug you really tight and kiss you on the forehead, will you promise to be around SE when NY Mag pics up my "open" house statistic as a measure how far nyc re has to fall....

I might even lick your forehead.

"Juicy, your question can't be answered the way you frame it - it's akin to saying, "Do you still beat your wife?"

I wonder why steve refuses to answer the simplest of questions? He ruined a thread and got macho until a 1st grade example showed everybody how wrong he was. Sad

"Surely, I cannot be the only person in NYC to figure out how to do this."

kw, when someone doesn't know the difference between principal and interest and cannot answer the four basic questions I asked above, it is a really good thing if they rent.

steve: I'm responding here to your post from the other thread. (AlanHart: this thread was created to re-route to a new location to save the other OH thread, after many calls to take the rent/buy stuff elsewhere).

http://streeteasy.com/nyc/talk/discussion/23717-time-to-go-look-at-uws-ohs-again

"urnie, sorry to you, too: try to do an accounting entry with a negative and a positive entry on the right-hand side, tell me what your auditors say. You just can't willy-nilly reduce debt and add it to equity. There has to be an offsetting asset transaction for both liability transactions."

Let me explain to you how the accounting works. Take a hypothetical $800k mortgage at 5.0%, with payment of $5,368. The first payment is $1,202 of principal and $4,167 of interest. Let's round to $1k and $4k to make the math simple. Futher, to be very simple, let's say the individual makes $5k of income that month.

Debit Mortgage Liability $1k
Debit Interest Expense $4k
Credit Employment Income $5k
Credit Cash $0 (+5k in, -$5k out)

In aggregate, this person's cash balance does not change, but his equity position in the apartment (and overall) increases by $1k.

A hypothetical simplified balance sheetwould look like this:

Apartment $1,250k

Mortgage $1,000k
Equity $250k
Total $1,250k

The day after the payment/paycheck, assuming the market value of the apartment is worth the same:

Apartment $1,250k

Mortgage $999k
Equity $251k
Total $1,250k

If the renter has the same $5k rent check, it's 100 expense, there's no equity build. Does it finally make sense to you how you can decrease debt and increase equity?

typos/corrections: should say "hypothetical *$1,000k* mortgage in 3rd paragraph above, not $800k.

in last paragraph -- 100% expense, not 100 expense

probably others too...

seg come on? what if price decreases $1K per month? OR RE tax increases by, or maintenance goes up by?

Do you not want your doorman to feed their children? You don't want you doorman to eat squirrel nutz for dinner? How about our gov't employees, don't make them eat 5 day old bread, that's just inhuman.

-from Les Mis-

"I order you to forgive yourself" for being a lemming owner.

feeling squirrels and les mis today.

Landlord: Am I a charity? You haven't paid me in four months.
Fantine: [shivering with cold] I paid you...
Landlord: I have bills too and I can't spread my legs. Besides, it's not good business to rent to a whore.

RENTERS always turn into WHORES

Since it was brought up yet again, here is the thread where steve was claiming an apartment was "generously - 950 square feet" and when you looked at the floor plan next to his apartment at the Ellington, it was actually larger. You can't make this stuff up.

http://streeteasy.com/nyc/talk/discussion/20204-they-didnt-get-the-memo

W67: I'm responding to the specific accounting issue in question. Can't issues be examined individually, before getting to the bigger picture? How can one evaluate the more complex issues of Tax or Maintenance increases when Steve is throwing out wrong accounting? Read all his accounting red herrings on the other thread, and you tell me what is the proper response to them.

It's like if I clearly overpaid by 2x for a property, I levered it up 80%, and then I started bragging to you about my equity in the property. Sure, at that point we COULD start analyzing maintenance/tax increases, but you wouldn't even need to go there. All you'd have to tell me is I'm underwater on Day 1. Similarly, the accounting for this stuff is pretty black and white -- no need to complicate it.

Who, me?

Buying cupcakes at Magnolia - nah, Crumbs is tastier
buying espresso at 67th Starbucks - nevah, I don't drink Sbux anymore
Running on a treadmill at Reeboks - nope, outdoors, baby
Pushing strollers at Fairways - very infrequently
Work for the monthly nut - depends on what you mean by work
Like a fking obese over-burdened squirrel with a $400 Hermes tie on - dislike Hermes

dont eat no damned squirrel nuts, or brains for that matter like they do in the south

Jakob-Creutzfeldt disease: A transmissible degenerative brain disorder technically termed spongiform encephalopathy. Eating "mad cow" meat or squirrel brain can lead to Jaqcob-Creuzfeldt-like disease. Jakob-Creutzfeldt disease, better known as Creutzfeldt-Jakob disease (CJD), a dementing disease of the brain.

w67th, yep agree - its a jacked rate. but so is this whole economy. and its quite relevant to those lemming buyers. its something steve can plug into his model aside from a bunch of loose assumptions.

"But to make it easy for you:

http://www.articlesbase.com/real-estate-articles/the-relationship-between-home-prices-and-rent-amounts-711498.html"

Sorry, steve, not one place in that article proves that "people will NOT pay more to own a property than to rent one, at least not for long periods of time. It makes no sense, especially since homeownership is so much more risky than renting." What it does is explain the relationship between rent prices and purchase prices. Something that I fully agree exists. But not really what we're talking about.

"bjw, if i hug you really tight and kiss you on the forehead, will you promise to be around SE when NY Mag pics up my "open" house statistic as a measure how far nyc re has to fall...."

w67th, I'm here. How long do you get? 3 years? 10? I'm surprised you went for the forehead. By the way, if given the choice of the lesser of two evils, lemmings are way cuter than trolls. Just sayin.

If I am buying Bonds, I'd wanna know his hit run-rate w/o squirrel juice.... RENTING, not so much.

nyc10023, like I tell my sis you'll be fine. :) A significant portion that never intended to sell and did not overstretch will be "fine", but if you look at your mortgage and monthly nut as a "burden", well here's some squirrel nutz.

Home ownership subtracts from mobility, one of the reasons why we have higher unemployment in the country. That's probably the highest risk of owning, other than of course buying something that is too expensive for you, but that can apply to a car or any number of purchases.

bjw, definitely depends on the lemming and the troll.

and the unit i posted? hell, i don't think ANYthing is a good buy, but for the market that unit was. if you consider the broader market and if you consider resale activity in the building post-crash. three bedroom condos in sold-out buildings are still very expensive.

It's hard to deny the OH number.
It's hard to deny the mortgage rates.
I't hard to deny the unemployment situation.
Where is the magic?
What keeps the price high wrt this supply/demand curve?

That squirrel has tread marks on its back...

"What it does is explain the relationship between rent prices and purchase prices."

So, bjw, rent prices and purchase prices come into line, but that is done without taking purchase prices into account?

Because purchase prices are what lead to monthly payments....

Get real!

People are willing, and remain willing, to pay more to buy than rent. There are externalities utterly unaccounted for in all this that are regularly ignored by the "only renting is smart" group. People buy expensive cars when a Prius will do just fine. Why? Because life, for many people, is not about wringing every cent possible out of life to die with as much as possible. Let's take an upper middle class or lower upper class New Yorker, for example. She has a solid financial planning and adequately funding retirement savings and earns an income that does not cut to the bone of the budget every month. She can afford to live in a place she loves and most such places that entice her are not rental buildings but coops. It may cost marginally more or even a bit more to own, but she feels there are benefits to owning that renting doesn't offer. She puts a VALUE on that. Just as she values the benefits of the other luxury goods in her life. The apartment is not an investment like stocks because you much always live somewhere--you do not always have to own stock. A home is a different kind of asset. If you buy one solely, or largely for appreciation potential at the expense of sound investments for the long run, that is not wise. But this woman I describe is not buying for that reason. For her it all makes perfect sense and is financially sound.

People have, do and will pay more to own that rent. Not all people, but many people. Especially wealthier individuals. What happened in the run up leading to the bubble was silliness and not what I am talking about. But the Calvinist view of life as a money grubbing venture and nothing more--a daily exercise in formulas to be applied to extract every last cent from each day--is just not how people live and is a poor model to explain the behavior of certain segments of the RE market.

And some people hang-glide off mountaintops, and bunjie jump off of bridges. That's fine, even if - to the normal person - it makes no sense.

We're not talking about when it costs "marginally more" to own than to rent. We're talking 50% more to own than to rent.

It cannot last. Never has in 350 years of recordkeeping, and today is no exception.

well put, kylewest. The great irony is that the 3 loudest anti-own people on this board - stevejhx, AR and w67 own, respectively: a vacation house, a vacation house, a boat. Those are probably the 2 things which make the absolute least sense to own vs. rent financially. Yet they own them b/c they, as do many others, clearly place a value on ownership above the economic one. And their is absolutely nothing wrong with that - assuming they can afford it. Why they then find it so incomprehensible that someone might feel the same way about a primary dwelling, which is the place you spend more time in than any other place, is beyond me.

"We're not talking about when it costs "marginally more" to own than to rent. We're talking 50% more to own than to rent."

What a cop out, steve. Read my posts - I've always emphasized that people will find it acceptable to pay a bit more to own than to rent - NOT 50% more. If that's what you're arguing, congratulations. The point kylewest and I (and others) are making, is that there is and should be a relatively small premium to own. I know that throws a monkey wrench into your precious and formulaic viewpoint, but anyone's who's studied behavioral economics will simply be dumbfounded by your stubborn approach.

but you continue to make the giant assumption that if you can and will wait long enough, you can always recover most if not all of your investment. the near term evidence would suggest the exact opposite.

ar, I don't like either (lemming or troll), but have to laugh at a small handful of posters treading pretty close to troll territory, even as they denounce the principal troll around here.

100

bjw, there should NOT be a premium to own over rent; it is historically the other way around, because of the added risk. Whether one is willing to pay a SLIGHT premium to own over rent in the short-term depends on one's own forecast for the future. At a 50% premium, however, there simply isn't enough time to make up the difference.

Yes, printer, I do own a vacation home. You're wrong, however, that the same thing could be had by renting. It's simply not possible.

I don't "clearly place a value on ownership above the economic one," and I don't know how you came to that conclusion based on the facts (of which you are ignorant). All things being equal, I would own over renting. But all things, presently, are not being equal.

I've said many times, if I could buy my apartment for the same amount it costs to rent it -- I would in a heartbeat. But with properties directly across the street asking 3x my rental price for a substantially similar property, it doesn't seem likely to happen any time soon.

Until the dust settles, which may take years, as it did in the rest of the country.