Rich Americans Ditch Home Ownership For Renting

Many on Wall Street are nervous going into 2011. Their firms expanded but nobody is quite sure where the profits will come from in 2011. He bought in 2008 and may have entered into the purchasing agreement only in 2007(Market Peak). Also says this guy is no market timer and panics.

Or maybe he's still traumatized from his Lehman days(is this him?)
http://www.reuters.com/article/idUSSP27173820080508

article says he sold it for about the same as he paid in 2008 - if that's the peak, the market has not exactly crashed

LOL! The Bears have been largely wrong on NY so far.

Hoho, I was wondering who was buying the 2m+ smallish 2brs at the Harsen House :) I guess it's SE Asian bankers.

RS, agree he bought at peak & probly panicked. I think he sold for about $100K less than his purchase price.
I just think it shows an interesting trend.

nyc10023, how did you come to that conclusion?

lowery, maybe there wasn't as much of a drop in this particular case because someone who lives right under him wanted to buy it.

Sunday, I found it too, via ACRIS.

Granted its a reasonable move, it's amusing that an ibanking MD is stressing over the value of his apartment when he should be more concerned about landing a position in Asia that will make a bigger difference in terms of money in the bank.

columbiacounty
16 minutes ago
stop ignoring this person
report abuse do you ever stop? is there anything that you aren't an expert about?

Is chasing other posters the extent of your contribution to streeteasy? When was the last time you posted about real estate? Maybe a couple weeks ago?

Hey, have you heard from alanhart lately?

I find it interesting that some people have no problem spending more than $10,000 a month renting an apartment. The Corner, which is mentioned in the article, lists 2 bedroom rentals for $12,000 a month which seems crazy money to me unless a corporate entity is paying the rent. There are also downsides to renting in that people tend to view the spaces as short-term and not invest money in decorating or renovating the spaces. In that sense, it is not the same as owning a home where you would likely spend money decorating/renovating. I would think that most of the renters mentioned in the article are waiting to buy again in the future and that the rentals are a short term move.

You think someone spending $12K a month on rent won't spend money decorating or that such a place need renovating?

It's all relative. If the person needs two or three bedrooms, wants to live in a modern doorman building with Amenities then "it's reasonable". And for those in this category renting instead of purchasing, it's not an affordability issue but one of liquidity and optionality. So comparing the 12k monthly rent against a Stuy-Town arrangement is not correct here.

I agree lobster. Those that are panic renting, will be buyers again, once they regain their confidence.

Panic renting?

Panic renting? Does that come after panic selling in an attempt at market timing?

No

It's another stupid thing that you've made up.

me?

Lord you're a stoopid tool rs. But I must admit you're focused.

I wonder if owners on rsb will bother to renovate as thongs become dated. Will the return be there?

Thongs was supposed to be things. But ...

eww, first there was aboutspready, now there's aboutready's talk of thongs. Gross.

eww

but seriously columbiacounty, you really can't be interested in aboutready in a thong, can you?

Hmm, so that's the way it is in your family.

who knew a typo could cause such excitement?

I think most of us on streeteasy would rather not know about columbiacounty's interest in aboutready's thing.

please aboutready, tell us this is just a 1 way thing that you are trying to stop too

eww, columbia, you out to be ashamed of yourself

eww, columbiacounty, you are a disgusting old man

in real estate related news, i still wonder if the upcoming costs of renovating to make units contemporary will cause even greater losses for those who bought units at or near the peak, or those benefitting from tax abatements, etc.

yes, thank you aboutready, get back to real estate. Enough of your thong

columbiacount you ought to get counseling, you disgusting old pervert

cc, do not feed the troll.

or the thong

Done

done? eww

In order for the buyer in the article to break even after closing costs, realtor fees, etc., does Manhattan RE not need to fall a minimum of 12%?

Sunday - "lowery, maybe there wasn't as much of a drop in this particular case because someone who lives right under him wanted to buy it."

And why shouldn't the person under him want to buy it? That's one of the potential markets for any resale, good market or bad. If it was a peak market, would the guy downstairs be the overbidder in a war?

lowery, were those rhetorical questions or sarcasm?

Just to be clear, my comment to you earlier was not sarcasm. That downstairs buyer probably paid in cash for both apartments.

no, sunday, it's rhetorical - I'm assuming you brought up the downstairs guys wanting it as a reason for it not costing less, but I'm pointing out that's a bit circular - the price should be lower than it was, but it wasn't, because someone paid more, the guy paid more because he lived downstairs so he really wanted it, so he paid more - this is not exactly a crash situation, and the only thing that surprised me about the posted news piece was that someone bought his RE at the peak of the market and sold it for nearly the same price as he paid for it, so he was afraid of price cuts, yet he didn't fare so badly at all, and here we are in nearly 2011 and still not exactly a crash; instead, varying degrees of discounts to peak prices, and then .... nothing

2011 will be interesting. With the Bernanke equity market reflation from 2009 and QEs in 2010, investors have fled to assets - stocks and bonds, not RE. IMO not sustainable - is it just me or does the risk of a major equity mkt correction in 2011 seem likely with RE making a true move downward? I guess time will tell.

well, the moves of high-income professionals out of condos and coops into extremely expensive rentals is an interesting clue as to how some people, probably employed in finance, feel about the future

The sellers of the Harsen House condo might have carved out a neighbor-sale exclusion in their broker K.

Its also possible the seller didn't like the property.

Condos with few units tend to mean higher fixed costs and less amenities. It opens right up to a busy street. Also the location rules out an indoor garage

According to the NY Times buy-rent calculator, this seller would be almost $480,000 richer if he'd rented all along a $11,000 2BR rather than buying, then selling, and then renting.

11K puts you in the three bedroom category. Must be some two bedroom.

That's the worst part, that such a financial loss didn't even get him some super-luxurious apartment for 2 years. I'm sure you can rent a nicer apartment for $11,000 than the one he sold for $2M.

Rents don't support real estate
Dividends don't support stocks
Coupons don't support bonds
Cash yields zero.
Gold is just a hedge against currency risk, yields zero and has a cost of carry

So what's the least over-priced asset?

OMG he's on with the gold again.

It's 8H: http://img.streeteasy.com/nyc/image/9/14748909.gif

Cash by definition is the least overpriced. Given the impending asset/re deflation about to be unleashed as economies pick up and QE ends, cash will also be the most 'appreciating' asset as the other 'assets' over shoot on the downside. I'm just licking my chops.

Oh riverfker, they wouldn't take gold for my 50 foot yacht. But the bank was willing to lend me 120%, after they took a 85% write down? Now just so you understand, I just created a tax refund for myself for 20 years, and to top it off I get to write it off as a 2nd home mortgage. And when I sell it I get to keep $500k as cap gains tax free. This IS called, understanding the bubble, knowing the credit cycle and working the system.

All thee who avoided the bubble, ye shall be rewarded with gold and virgins, and some sidecars.

All these bankers are parasites; too dumb to be trusted with other people's money. I would wager most people would do better with a low-cost index than with an actively managed, higher-cost fund. Patrick Lee could be a doctor or a corporate exec or a pilot or a teacher or a researcher. Instead, he's inflicting his lack of sense by being a tick on our back; Wall Street is a bloated, decaying animal allowed to fester thanks to the dismantling of the rule of law. This is what abolishing Glass-Steagall has wrought: the creation of a criminal class.

Oh thank you Bernie. 4% 20 yr amort 5year fixed. Omfg, that's some cheap money.

Bankers raise funds, that's what they do. They don't manage funds.

I tend not to think of cash an an asset(it does get confusing since it gets included in asset allocations), but as optionality, that can be exchanged for assets.

now cash isn't an asset?

fine, give me all of yours.

"gold and virgins, and some sidecars."

Excelsior, dude, excelsior!!!

What is cash worth anyway these days? If I want to lend it to someone, I don't get very much? 0.25% overnight 1% requires lending it out for over a year. Big reason to hold cash and a very valuable reason, is it conveys the option of buying real estate or stocks at lower prices in the future should the situation rise(i.e. market corrections)

maly, and what do you do?

Excelsior!

We have gone from a society of income and expense, to bubble rotation. In such a society bankers are the kings and they take a nibble of every in and out, thereby increasing nyc re! Now we are 'right' the ship back to 'careers' and not asset 'income'. => nyc re will UN-excelsior

'give me all of yours ' lol.

Cc, will your bank cash riverhobo's SS checks?

i'm going to open up an optionality account. With Riverdouche's cash flow, perhaps In 300 years, i'll have something.

Well let's not throw out the crotchless undies yet.

Finance sector is a necessary function, but not at the current % of GDP, which is 3x historical norms. Also securitizations w/ no skin in the game for it's sponsors means we are bound to repeat the bubble. Fnma/Freddie are such animals. They are securitization vehicles with taxpayers as sponsors.

Riversider, why would anybody care what you "think" about cash?

Yes banks "manage" funds - it's called "lending," in case you're not familiar with the term.

Cash can now be exchanged for assets? A FIAT CURRENCY?!

Say it ain't so, Riversider!

Interestingly, I saw the 12th floor duplex at Harsen House that was on the market at 8m. That duplex was close to what the buyer of 11A wants to achieve (12th full floor duplexed with 11B downstairs). It failed to find a buyer at 8m. I'm wondering if it would have been more economical to buy the 12th floor duplex instead of trying to recreate it one floor lower. But certainly, the buyer is not one to worry about value.

"I find it interesting that some people have no problem spending more than $10,000 a month renting an apartment. The Corner, which is mentioned in the article, lists 2 bedroom rentals for $12,000 a month which seems crazy money to me unless a corporate entity is paying the rent."

I find it crazy that anyone would pay $12K, or $11K, for that place given the other options available. I suspect it actually rents for less, given how long they've been flogging the units and the fact that Mr. Lee didn't want to share the info.

As for paying more than $10K a month to rent, perhaps it's crazy on an absolute scale, but have you considered the alternative? There's a 2BR 1850 sq ft place in Time Warner Center with good park views that recently rented for $15.5K. The alternative is on the market for sale at $8.8M, plus $6000 in monthlies. Let's see, $8.8M to save $114K a year. Then there's the pesky issue of the $800K in transaction costs, say amortized over 10 years, so $80K a year.

That means $8.8M cash to save $34K a year. A yield of 0.4% on an illiquid risky asset. Perhaps at a more realistic sales price of $6.5M, you get to 0.8%. Some people just have better uses for their money.

> Let's see, $8.8M to save $114K a year. Then there's the pesky issue of the $800K in transaction costs, say amortized over 10 years, so $80K a year.

transaction costs are simply crazy! (so are maintenance costs) they will cover years of rent by themselves. if obama's administration is serious about increasing home prices they should lower transaction costs to the bare minimum imho.

Yes, bubble rotation. Know your bubbles & anticipate the pops.

notadmin: "if obama's administration is serious about increasing home prices they should lower transaction costs to the bare minimum imho."

and how should they accomplish that?

W67thstreet used to be a residential landlord.

He was in lawsuits with his tenants.

Sunday, Transaction costs are not that high, but the two biggest for new construction in NY are all tax related(Mortgage Recording Tax & the transfer tax). Mortgage Recording Tax is state and local, Transfer tax should be paid by the seller, but sponsors typically force the buyer to pay.

Also if Obama were honest he would be AGAINST increasing home prices which only reduce home affordability. The big failure of the last ten years was to address affordability the wrong way, by lowering down payments(which make mortgages risky and introduce excessive leveverage(risk) into the system) and the promotion of products that reduce payment certainty to the borrower(adjustable rate loans, interest only products, option arms, etc).

I understand the Fed is promoting a policy of increasing asset prices, but this can only occur for so long, and is sort of Ponzi like. Seems every time the gov't tries to "manage" the economy and promote activity/prices in a certain sector it only manages one thing, "to screw things up".

RS, the reason I asked was because I thought the comment I quoted above doesn't make any sense at multiple levels.

Gadzooks!!! 800k in transaction costs?

Why exactly gadzooks? For a round trip you pay 4% to brokers, 1.425% to NYC, 0.4% to NYS, 1% mansion tax, 0.5% title insurance, and maybe 1.925% mortgage tax if you take out a mortgage. That's 7.325% at without a mortgage ($644K at $8.8M) and 8.865% with an 80% mortgage ($780K at $8.8M). There's some nickels to throw the lawyers and whatnot, but I don't see how it doesn't cost you at least $650K to get in and out here w/o a mortgage and $800K with 20% down (which is probably no longer available at this price point, granted).

How do you figure the transaction costs, RS?

didn't realize we were talking about a different property. thought we were stil on the 2,000k condo

8% of $1mm is
8% of $5mm is
8% of $18mm is

A: you need a big big Fking bubble to make it work.

If you can finance it on the Kardashian Kard, why the heck not?

> Also if Obama were honest he would be AGAINST increasing home prices which only reduce home affordability.

well, Obama is just a politician. the problem is that most voters are homeowners that think that their only ticket out of poverty land is through their money pit (house). saving from their wages hadn't been the American way for quite sometime.

but i'm entirely with you. a policy of high home prices is idiotic at the society level (using asset prices as a mechanism of monetary transmission is simply going from bubble to bubble).

but it allows my household to live on 1 income by renting cheaply while having more savings than most of my double income friends that bought in the last decade. we also shorted the housing bubble. so it's working nicely for us so far. guess we owe a bunch of Thank you notes to self-serving homeowners, the homebuilder's association, mtg industry, realtor's lobby and last but not least Greenspan-Bernanke & Dodd-Frank.

A policy of higher home prices is deisgned to compensate for subparm wage growth. Never mind that the gov't can't really manipulate prices long term(as we are now seeing)

but it ends up killing the little discretionary income for young households. it's about a third of what it was a generation ago thanks to a bunch of different forces, but high housing prices is just picking winners: current homeowners win to the detriment of 1st time homebuyers. what is that good for? as prices crash the mentality shifts away from homeownership towards reducing overall housing costs, crashing prices more.

the crime was not attacking head on the "fixable" reasons why wages didn't keep up (especially discretionary income coming from wages). increasing health care and education costs, now it's going to be increasing aging demographic costs. why on earth put all that weight on the back of wages? this is a post WII invention, to punish wage-work like there's no tomorrow.

the most stupid policy possible was the one chosen. to add another increasing burden to wage earners through non-discretionary shelter.

"LOL! The Bears have been largely wrong on NY so far."

Totally! Except for that whole being right thing.

"Americans Shun Most Affordable Homes in Generation as Owning Loses Appeal"

"Victoria Pauli signed a one-year lease last week to stay in her rental home in Fair Oaks, California. She had considered buying in the area, where property prices have slumped 57 percent since a 2005 peak.

In the end, she decided it wasn’t worth it.

“I know people who have watched their home values get cut in half, and I know people who are losing their homes,” said Pauli, 31, who works as a property manager for a real estate company. “It’s part of the American dream to want to own your own home, and I used to feel that way, but now I tell myself: Be careful what you wish for.” "

http://www.bloomberg.com/news/2011-04-19/americans-shun-most-affordable-homes-in-generation-as-owning-loses-appeal.html

Wait, the "rich" are now renting? Slap a federal 10% tax on yearly rental.

lol, bob, but don't give 'em any ideas!

This is like giving up on the stock market AFTER it goes down and very counter-intuitive(yet predictable). After a large price drop an asset becomes less not more risky.

Except the biggest drops in the stock market usually come after other drops. You're assuming we've finishing falling, and that can be just as dangerous.

> After a large price drop an asset becomes less not more risky.

No, really depends on why it dropped.

You buy a house for 500k. Your downside is 500k.
If you buy that same house after a 100k fall, downside is only 400k.
Ergo less risk.

Of course the implied volatility is higher. It all depends on how one measures risk.

> Ergo less risk.

Yeah, that's not the definition of investment risk.

>If you can finance it on the Kardashian Kard, why the heck not?

Haha, the Kardashian Kard. I think Blumenthal shut that down.

And now, http://www.nydailynews.com/entertainment/gossip/cuomo-threatens-suit-khloe-kardashian-t-shirt-article-1.1348644