Challenge for the bears - bring it on!!

thanks Nada...gulp on the closing costs. as for the p/r, paying the national average of about 20 for a nice spot in manhattan aint that bad is it? as you alluded to, my preference neighborhood doesnt offer much better than the mid twenties. it's a freikin pied a terre wasteland over there is why. 16 hunh...dang that's steep. you're a land shark and shrewd one at that :D

why take a 5yr interest only mtg? I mean, it's interest only & in 5 years, ya gotta refi & ya have no amort? Rates are low now, so why take a 5yr io?

Seems that much of the discussion here views the purchase of a primary residence as an investment. Shouldn't the focus be on whether one can afford the price & monthlies and whether the purchase price is inflated?

Help, paying 20x sucks. You should be able to find 16x in Manhattan right now... as as Inonada says thats just shy of mediocre. What I would consider right now is Wall Street is due for another round of layoffs. In addition to working out of a cyclical trough, the finance industry is arguably in a secular contraction from 25 years of growth capped by a leverage cycle. I could buy my rental right now in the market for about $1.1mm. It would probably have to be below $900k to be a good investment.

Also, floaters are bullshit. Floaters distort your decision. You shouldnt buy on a 5 year timeframe and as such you should match assets to liabilities. Of course you can delude yourself on a floating rate mortgage during a historic low in interest rates. That shouldnt surprise anyone. THis unless of course you are pushing yourself to justify something you want to do, rather than something than is smart to do...buy now.

Inonada, thanks for the closing costs link and your contribution to the discussion board. Do you have a link covering what to look for when analyzing coop financial statements?

Thanks

You might want to check out http://czarbeer.com/webinar-063011.html

Thanks NWT! That was even better than I was hoping to get.

No clue on that one, no_slogan, but I'm sure NWT has pointed you in a good direction.

"Shouldn't the focus be on whether one can afford the price & monthlies and whether the purchase price is inflated?"

Sure, but how does one tell whether the purchase price is inflated? With a rental, it's easy to calculate an all-in cost. With a purchase, it's harder particularly as people delude themselves in various ways by ignoring hidden costs. When you start seeing that for the cost of buying a $1M place you can rent a $1.5M place, or for the cost of buying a $3M you can rent a $4.5-6M place, you might want to consider whether you'd rather just rent a vastly superior space.

The other thing that "but I can afford the monthlies" folks forget is that prices are still off the charts relative to rents. Go back to the nineties, and you'll see price-to-rents of 10-12.5 being the norm rather than 20-25. Interest rate differences are nowhere near enough to explain the difference: it is the bubble. Given that the deflation of the bubble is being managed slowly by Fed policies, the numbers have remained lofty. So just because you're willing to pay an inflated price relative to rents right now and can afford the monthlies, you also have to consider the fact that the next guy down the road who buys from you will probably not return the favor.

"paying the national average of about 20 for a nice spot in manhattan aint that bad is it?"

First, I don't think that Manhattan's 20-25 is anywhere near the national average. This chart has all sorts of problems in its construction for sure, but it's pretty clear that Manhattan is on one side of the scale:

http://trulia.movity.com/rentvsbuy

Second, I don't see why Manhattan should have a higher price-to-rent than other places. The extra greatness of Manhattan is already accounted for in the higher price & rent. The only thin that would justify a higher rent-to-price is if you expect rental growth rates to be higher in Manhattan. Is it possible? Maybe. But data shows that Manhattan rental growth rates have been in line with inflation over long periods of time since the 90's. This includes a long period of increased popularity of Manhattan in culture, a booming finance economy, and population growth, mind you.

Given what's happening to a number of industries here, and banking in particular, it's hard to see where the extra-inflation growth would come from. The problem is that Manhattan is already extremely expensive. A decade of growth beyond inflation by 3% would mean that rather than spending $3000 a month on a 1BR, that same 1BR today would cost you $4000. Using a 50x multiplier, you'd need an income of $200K today to qualify for a 1BR. We're talking about an already-high number and cranking it to infinity and beyond.

"As for your rate of return of 3.25% on a risky investment comparable to a 3-5x levered RE investment, that sounds horribly low"

I think that is a little low too. I use 5% post-tax return on my thought process (7-8% pre-tax return).

That said, I did want to point out that if you are talking about comparing a mortgaged property to a leveraged S&P 500 index or something, keep in mind that leverage is a lot more capricious in the case of margin against equity/stocks vs. a secured mortgage against a real asset. You can get unexpectedly hit with a margin call if Mr. Market has a bad case of diarrhea one day; you can only get called on your mortgage if you stop paying it. Two inherently different levels of real world risk, in my opinion. One is inherently controllable, the other is not.

Now I suppose you can talk about equities in asset classes which are inherently leveraged like REITs or MBSs, but honestly how many normal people understand how to properly invest in those?

"You should be able to find 16x in Manhattan right now..."

I think 16x is possible in a few cases, particularly bread-and-butter coops in less-desired areas like Murray Hill or Yorkville. As soon as you go condo, or a more-desired area, or something more than 60s-white-brick-with-view-of-neighboring-60s-white-brick, you're looking at 20-25x. Go to the very high end, it's 30x and beyond.

Rhino86 -- all about fixed mortgage servicing for me, it is in fact one of the top reasons why im even looking to buy. thanks for your other comments too.

Nada -- ive learned more from reading your reasoning in these 24 hrs than i have in my life about real estate. Thanks very much man.

I wonder what the multiplier is on the place that Aboutready is buying in Harlem? Aboutready is such a lemming. FLMAOZ. Unicorn.

Maklo1421, I'm certainly not suggesting levered stocks as a comparable level of risk against levered home equity. Rather unlevered stocks against home equity. A 10-year hold with an 8% returns gets you to 6.45% after-tax, BTW. Capital gains taxes do not compound.

"Nada -- ive learned more from reading your reasoning in these 24 hrs than i have in my life about real estate. Thanks very much man."

LOL. Just realize that I have never purchased a piece of RE in my life. Remember what they say about free advice: you get what you pay for.

Nada,
one other thing that may justify a higher rent-to-price is the volatility of the factors that influence rental rates in manhattan. this volatility in effect adds value to the option on buying a home, even if volatility can also produce negative returns :]

Nada - I would not just limit yourself to the 20% capital gains rate to calculate after-tax returns. First, that is assuming hold period of a year for every single realized gain/loss, when in reality, the average hold period for the majority of retail investors is far shorter. Second, for NY residents, you need to add on 10% or so for NY state tax on capital gains if your gross income is above a certain level. 95% of my gains in 2010 were long-term and I paid an effective tax rate of 30% on them.

i hear ya man, but like i said, im a noob. and your reasoning adds up -- youre also informed. there is knowledge to what youre saying. now sure, at the end of the day, buying always will require some leaping of faith which i guess you just admitted you have not displayed yet.

Well, volatility on an asset should reduce price. The "risk" in risk/reward ratio increases, and the reward stays the same, price should come down.

Now you are correct that with an option, volatility helps. But is this really an option? The days of 0% down are long gone. So you're looking at 20-30% down payments. Then, you're not gonna default at the first sign of negative equity. Realistically, you're gonna wait until -10% to -20% equity. Then, you've probably paid down maybe 5-10% of the principal. All-in, you're looking at a 40% drop before you can hand the bag to someone else. Not a likely outcome IMO. And yes, you can probably make 10% of it back by collecting rent while in default. But if that's a strategy, you've got bigger problems.

Also, NY is a one-shot state meaning they can come after your other assets if they choose. If you have any other assets, you've got problems. And don't underestimate the value of good credit when the shot hits the fan. If you're defaulting, guess what, so is everyone else. Shortly after makes for a great time to purchase at distressed prices. But you cannot as you have no credit. So you miss a bottom in a decades-long cycle. With human lifespan being what it is, it's the type of opportunity you never recover. I saw it with my parents' generation in the early 90s, and the repercussions have pretty clearly carried through 20 years later. You might "win" on $100K, but then you set yourself up to lose on $1M going forward.

"now sure, at the end of the day, buying always will require some leaping of faith which i guess you just admitted you have not displayed yet."

Well, that's mainly a function of my age, acquisition of wealth & income, and the bubble. Trust me, I'm not a low-risk type of person with my money. To me, "I'm OK with treasury-like returns on risky assets" isn't conservative investment, it's stupid investment. Conservative would be buying TIPS. I'm much higher-risk than that with my investments, and will push all-in when I see good value. It's just nowhere near there with Manhattan RE, much the opposite as has been the case for quite some time now.

"Nada - I would not just limit yourself to the 20% capital gains rate to calculate after-tax returns. First, that is assuming hold period of a year for every single realized gain/loss, when in reality, the average hold period for the majority of retail investors is far shorter. Second, for NY residents, you need to add on 10% or so for NY state tax on capital gains if your gross income is above a certain level. 95% of my gains in 2010 were long-term and I paid an effective tax rate of 30% on them."

The federal rate is 15%, not 20%. So 25% all-in. A 10-year return of 8% on $100 becomes $216. Taxes on the $116 gain are $29. So you're left with $187 after-tax, which works out to a 6.45% annualized rate of return. Granted, dividends eat into it because taxes on that portion does compound, but if you run a spreadsheet you'll see it's not that bad.

In any case, I'm suggesting buy-and-hold, not trading. Most people do not have a track record that demonstrates it's a good path to 6.45% after-tax returns over 10 years (which would require 11% returns pre-tax). Analyses and arguments can be made for such a thing on indices.

Be careful in comparing price:rent ratios using national statistics.

First, there is no good data on national sale:rent ratios for comparables. All the national data collectors compare MEDIAN sale to median rental -- not COMPARABLE sale to comparable rental. Due to the rental market's failure to develop a lease that grants tenure on good behavior and protection against exploitative rent increases and the income tax subsidy for upper-income homeowners, Americans with choices are more likely to buy. Therefore, the median sale property is always higher quality than the median rental property in every US region.

This means that a ratio based on MEDIANS will always be higher than one based on comparables. So when national media say a 16x ratio is "normal", they do NOT mean that paying 16x the rent for the unit you are buying is normal. The national ratios are not comparing similar units. Absent bubbles, the usual ratio for comparable apartments has to be closer to 8-12x or landlords can't make a living.

Second, this also means that some of the reported difference between cities might be due to differences in the mix of the units available for sale/rent.

NYC and the NY metro area have an unusually large number of middle and upper class rental units, mainly due to the effects of RS (which solves some of the problems that lead middle class people to avoid long term renting). This pushes the median quality up on the rent side and therefore makes sales prices look LESS out of line with the rest of the country than they would if we had the usual US mix.

Conversely, we are more unequal than most of the US and our homeownership is more concentrated in the extremely wealthy -- so the sales side may reflect more upperclass and less middle class housing than usual, which would tend to make us look MORE overpriced than we would look using comparables.

That said, it is crystal clear that NYC price:rent ratio using COMPS is far higher than the rest of the country, even if it is hard to say by how much. As Inonada says, a higher ratio makes sense only if we are still in a bubble, or if investors expect rents to go up faster here than in the rest of the country (not just to be higher).

The non-bubble explanation is implausible. Gaps don't get bigger forever. NY is obviously better than Darien and LA, but it is not going to get ever more better. On the contrary, it is increasingly easy to find decent food and crowds and conversation and the internet in Darien and LA and Palo Alto, and chain stores and Republicans and layoffs in NYC. The NY ratio is high because enough local buyers still think the price of local tulips is determined by high local salaries and can only go down if interest rates go up.

Thanks everyone again for the best wishes.
1. Re comment on my doing just 5/1 I/O. We are in a unique situation that we want to pay down at least to $1mm rather than carry the mortgage. We do not have to worry about rates going up as in the worst case, we can afford to pay it fully in the next five years with liquidity left. There is also a cap of 8% life time. We do not invest in the market as it takes time, creates stomach churning volatility, and our jobs are highly leveraged to the stock market already not to mention the unvested stock.
2. I believe we got early 2005 price on a place which will be considered mid-end reno now (was high end 10 years back). Inflation adjusted early 2004 prices. I had been bearish on real estate for a long time and feel the downside now is limited to 5-10% on an average for Manhattan real estate.
3. Hate moving and want to decorate (wall paper, ligthing, minor architechtural elements) as we like. And nice decor does not have to be expensive - just creative.
4. If real estate dips down significantly in the next 3-5 years (more than 15%), we will consider buying an investment property.

NY and Darrien will never converge. Just like Long Island Cab will never sell at Bordeaux prices. One may believe the less expensive offers better value, but that's it. As far as evaluating NY vs Darrien best one can do is look at historic comps to see if things are falling too out of line with historic averages. Also unlike other markets there's no great way to lock in the arb so things can stay cheap or expensive for a long time

"and chain stores and Republicans and layoffs in NYC"

LOL -- chain stores and Republicans. To their credit, those NYC Republicans seemed instrumental to getting gay marriage passed if you believe the NYT article.

"Re comment on my doing just 5/1 I/O. We are in a unique situation that we want to pay down at least to $1mm rather than carry the mortgage. We do not have to worry about rates going up as in the worst case, we can afford to pay it fully in the next five years with liquidity left."

That's fine, but you don't account for it in your costs. You are saying that you have plenty of capital to put at risk at a fixed 3.25% for a 20-year duration -- i.e., you will lend from one pocket to another at that rate for years 5-20. Well, this unfortunately means that you have sold a bond to yourself for years 5-20 at a fixed 3.25% rate.

Two issues. First, this is the opposite of an inflation hedge: you are effectively long a fixed-rate bond. Not that there is a problem with that having a long-bond view, just that it goes against your stated purpose of having an inflation hedge. Second, treasury yields for years 5-20 are more than 3.25%. When you're counting the cost of capital for risky investments at a risk-free rate, you've got a problem. Best-case, your argument for how it's an after-tax 3.25% with razor-thin risk margins hold water. But I think it is more likely that reality sets in sometime between now & 20 years from now w.r.t. reasonable risk margins.

When your argument are "if everything goes perfect, I do so-so", that's a scary place to be IMO. Not that you should look at this purely financially, which is all I'm talking about here.

On volatility:

Generally, housing prices (rental and sales) for constant-quality units go up less quickly than income: construction tends to get more productive over time, so its costs go up less than inflation. (This is partially hidden in the statistics,since as income goes up, people tend to buy bigger and better quality houses -- even in Case-Shiller, some of the reported price increases are fancier stoves, better HVAC and finished basements.)

However, anything can happen in the short run.

Unstabilized rents can be quite volatile; this is one key reason why RS adds value for both tenants and landlords. The risk is that you could be forced to move. If your rent doubles and your income doesn't, you move to a neighborhood of people earning what you do. Still, collectively, landlords are going to have trouble raising rents faster than incomes, so the main fears are a crazy landlord or that your own income doesn't keep up.

In contrast, short-term house prices can go up and down without any clear link to income: Nationally, incomes stagnated during the entire bubble period. If NYC's bubble ends and your house price drops to the point where your downpayment is gone, you are trapped until you can save another one (if you can -- if my acquaintances are any indication, most NY homeowners got their downpayment from non-repeatable luck, like inheritance, bubble profits, or a Wall St lottery-win). And if you get sick or divorced or lose your job and can't make the mortgage, the consequences are far worse than from an unexpected rent increase. Alternatively, if the bubble grows further and you get the timing right, you too could be the undeserved beneficiary of the misery of your fellow Americans following behind.

This is one reason why, in non-bubble markets, buying is significantly cheaper than renting: buying is riskier. (Another reason is that the government makes transfer payments to homeowners, and in normal markets, buyers keep them rather than turning the capitalized value of the tax subsidy over to their sellers. A third reason is that, absent a sensible RS law, residential rentals suffer from a major market-for-lemons problem: landlords don't know how to demonstrate that they won't take advantage of tenants' desire for stability, so tenants aren't willing to pay for what they want. It's crazy to fix up a rental apartment if the LL might respond by charging you more because the place is nicer, and LLs apparently don't know how to write a lease that, like a mortgage, allows tenants indefinite occupancy if they pay the monthly charges and don't destroy the place.)

RS: Reread Inonada. You missed his well-explained point about the difference between high rents -- which reflect the fact that NYC is a better place to live, with a wider selection of chain stores, etc. -- and a high rent:price ratio -- which implies that NYC is going to get even more better even faster. High levels and high rates don't work the same way.

FTR, let me state that I love that people have silly cost-of-capital assumptions when it comes to NYC RE. The return on cash (non-financed) on the place I rent is 1.25-1.50% after accounting for monthlies. Take out 1.25-1.50% for upkeep/reno and transaction costs amortized over 10 years, and you're left with a yield of 0% on a cash purchase.

So effectively, I'm borrowing the condo at 0%. Yeah, short-term rates are 0%. But this isn't exactly like a bank deposit where you're guaranteed to get your money back whenever you want. This is a risky asset with a 0% yield.

Nada, We are only using the capital which just stays in cash due to our investment philosophy described in the posts.

http://www.businessweek.com/magazine/content/06_20/c3984067.htm

Nada - under AMT effective capital gains tax rates for long-term gains are over 20%. Plus, after 2012, LT capital gains tax for federal is going to 20% anyway. You are also ignoring state taxes, 10% in NY state.

Nada:
I think you are overstating the benefit you get from continuing bubble thinking.

The condo owners' willingness to overpay for its condo -- which is what generates your LL's 0% return -- makes it highly attractive to developers to create more condos. Since developing is a fairly competitive business, much of the excess profit (that results from overpaying condo buyers) ends up going to bid up the prices paid to sellers of land and obsolete properties.

That is, in classic Lloyd George style, the benefits of the productive work of developers and of the NYC residents who make this an interesting place to live go and the companies that produce the jobs that allow us to pay -- instead -- to unproductive landowners who are simply profiting from their dead-hand monopoly rights from the past.

The result is land prices go up. You, and all the rest of us, end up paying an unwarranted transfer -- a kind of troll-under-the-bridge fee -- to selling property holders for the privilege of living in the city. That payment increases everyone's costs, reduces the quality of life in the city, and benefits no one but the heirs of slumlords and other holders of obsolete or underdeveloped property in the city: exactly the opposite of our usual expectation that markets reward those who add social value.

"Nada, We are only using the capital which just stays in cash due to our investment philosophy described in the posts."

Well, you are using the cash for a riskier investment with the same-ish yield as a risk-free investment. Best-case, the market retains your philosophy and does not demand a premium for risk in NYC RE ever again. And you make out flat. More realistic is that the market will start demanding a premium somewhere between now & 2031.

If you bought stocks 10 years ago, there was a similar zero- or minimal-premium situation. At the moment, you'd be up 2% or so annualized. By 2021, you'll likely be at something like 5% annualized over the 20-year period. By 2031, something like 6%. Lower than 30-year treasuries on a nominal basis, but somewhat better on an after-tax basis.

You'd be "up", but it'd still have been a piss-poor investment.

"In any case, I'm suggesting buy-and-hold, not trading. Most people do not have a track record that demonstrates it's a good path to 6.45% after-tax returns over 10 years (which would require 11% returns pre-tax). Analyses and arguments can be made for such a thing on indices."

I would suggest buy-and-hold trading as well, but my point is that most people do not. Even I have short-term gains. So your assumption here on the opportunity cost of the downpayment are aggressive here, favoring the rent equation. Not to mention ignoring effective federal capital gains taxes, the projected increase in long-term capital gains taxes in 2012 and state/city taxes on capital gains income.

I agree with most of your analytical framework, but the ultimate conclusion is just as good as the input assumptions and I have to say your assumptions are aggressively in favor of the rent equation, so it is no surprise you end up with that conclusion. I am just not sure they apply to the median household who are looking to live and NYC and trying to decide whether to buy or rent.

maklo -- this isnt proselytization -- i would have smelled it a mile away. there are lots of people who view renting as a religion -- i don't get the sense that anyone in this thread in favor renting at current levels is of that kind, especially Nada.

maklo -- oh and i know that's not your point (that he's proselytizing) -- but in the limit, that would be your point ;]

"Nada - under AMT effective capital gains tax rates for long-term gains are over 20%. Plus, after 2012, LT capital gains tax for federal is going to 20% anyway. You are also ignoring state taxes, 10% in NY state."

For the third time, I'm assuming 15% federal plus 10% state.

On the 21-22%, thanks for the link as I was not aware of the issue. My understanding is that for married couples between $250K (roughly where AMT kicks in) and $440K (roughly where the AMT exemption phaseout ends), you not only pay 15% capital gains, but the gain removes 25% of your exemption which costs you 25% of the 26% or 28% marginal AMT rate. So yes, between incomes of $250K and $440K for married couples, it's 21-22% federal. Outside that band, it's 15%.

Wow. Great thread.

Ino;"Give me $5 a sq ft, and I'd have put you on Central Park with sweeping unobstructed park views. Including Sub-Zero and marble bath. Hey apt23, you've got unobstructed park views, right? How much do you pay per sq ft? I'm guessing $6, but if you're doing $5 I'll tip my hat to you"

Do I still get a tip of the hat if it is under $6? I don't exactly know the sq. footage but a rough calculation is minimum 1250 sq ft. But that doesn't include the amazing terrace overlooking the park. I am paying $7000 with 3% inflation increments for minimum three years. I wanted less on the inflation raise but didn't want to lose the apt. The interior is not as nice as any apt I have owned -- sub zero no, marble bath, yes--but the location is better than anywhere I have lived and I find that I don't care so much anymore. I am much happier knowing that I am not overloaded with debt as we go into what in certain to be a nasty downturn.

Maklo, I hear you on my assumptions leading to $15K a month being skewed. I was "bringing it on" as the OP wanted. However, the $6K number originally posited is even more skewed, to the point of being ridiculous. No transaction costs, cost of capital for a 20-year hold being 3.25% despite the fact that even in this low-interest environment no one would lend anywhere near those rates for debt let alone equity, no upkeep/reno budget, no accounting for capital loss come the end of 3.25% 5-year loans that lead to faulty logic on costs, etc.

Dial back my aggressiveness that led to $15K, and you'll get to $12K or $11K or $10K. Nowhere near $6K. Not that I think 300_mercer really thinks it's $6K, just egging the rest of us on.

BTW, you might not find $15K a month so crazy once you start running some numbers on people who bought 2006-2007 an sold 2010-2011. I do remember some example where a $1.5M subsequently sold for $1.3M amounted to $15K per month after all was said and done. For a 1250 sq ft generic 2BR condo that could be rented for $5K or so over the period. And price-to-rents were what they are today going into it.

"Do I still get a tip of the hat if it is under $6?"

Hat tip? Screw it, you get a full-on kowtow. I think with the terrace, it's close to $5. What do you estimate the sale price at? $2.5M or so?

Next time I want a Subzero though, dammit!

Not surprised that those who bought in 2006-2007 and sold last year lost a ton of money. There were certain periods of time when it made sense for almost nobody to buy and that was one of them. 2011 does not feel like it is one of those years.

I ran the math adding in assumptions for 30-yr fixed vs 5/1, transaction costs, higher cost of capital etc. and came to around $8,000 per month. Seems like a toss-up to me between buying and renting on this one. Throw in intangibles like desire for stability, desire to customize to specific tastes, etc. and that could easily push it over to the buy side.

Please explain.

300_mercer started at $7K a month.

Fixing tax deduction mistakes adds $1K a month.

Going to 4.75% rather than 3.25% (on loan and cost of capital) adds $2K a month after-tax.

Transaction costs amortized over 20 years adds $1K a month.

Budgeting for a $250 a sq ft renovation once in the next 20 years to keep the place constant-quality adds $2K a month.

All that adds up to $13K a month. Maybe I rounded in a biased way, so let's call it $12K a month. That is with 4.75% cost of money, all tax benefits, no loss or gain on the apt. Never mind that for a 20-year buy-and-hold of stocks (which is the fair comparison because you are insisting on buy-and-hold on the home equity) and a 30% tax rate, that amounts to a 6% rate of return over 20 years, which history has shown is unusually low.

I'd like to know how you got to $8K.

My bad: he started at $6K, no $7K. So the above adds up to $12K, maybe $11K if you don't like my rounding. Which $3-4K did I overstate in your estimation?

>. I am much happier knowing that I am not overloaded with debt as we go into what in certain to be a nasty downturn.

Why is aboutready on a 4 week vacation and soon to buy an apartment and move from her rental? Does aboutready know something that apt23 doesn't know?

Sure. Major assumptions from original post: $2,000,000 purchase price, $2,000 per mo. maintenance/tax. Financing assumptions: 5.0% 30-yr FRM I/O, 80% down, 5% post-tax opp cost return on downpayment. Inflation at 2% per year. Transaction costs 7% all-in. Hold period over 10 years. Tax rate 35%. Depreciation/maintenance capex budget at $1,250 per mo ($150,000 budget over 10-year period).

P&L Year 1 (and assumption going forward)

Interest Expense $80,000
Opp cost of downpayment $20,000
Common charges/taxes $24,000
Less: Tax deduction ($17,500)
Amortized transaction costs $14,000
Depreciation $15,000
Less: Asset appreciation ($40,000) [keeping up with inflation]

Total: $95,500 in Year 1 or ~$8k per mo. Compared to rent, this figure grows slower than inflation through year 10 as a large chunk of it - i.e. the fixed mortgage interest - is fixed.

Transaction costs 7% all-in? Can you break that out for us since that's a pretty significant amount here if the assumption is incorrect.

On the other hand, love to know how you plan on getting 5% post-tax on opp cost.

Transaction costs are for a co-op and based on my own experience. I did not use a buying broker going on so my buying costs were around 1.5% of value, majority of which was the mansion tax. Again in my case, the seller used a broker and told me afterwards that the broker's fee was around 3-4%. Add in transfer taxes and some miscellaneous expenses and that is around 7% all-in. For a condo, this number might be 1-2% higher.

I think 5% after-tax return on the downpayment is a reasonable assumption. It is not out of line with historical stock and bond market returns. I am assuming the average Joe, not the next Warren Buffett.

Nada, it appears we differ on two key assumptions.

First, you assume outright that there will be a massive capital loss in _nominal_ terms. I am assuming the asset merely keeps up with inflation. This is the value an owner would get by purchasing a _real_ asset with _nominal_ fixed-rate long-term debt. Looking at it another way, the _real_ cost of debt is actually more like 1.5% (5% x (1-tax rate) less 2% inflation). Owners get this benefit, renters do not.

I think your assumption of a nominal loss over a long period of time is as extreme as people assuming significant capital gains to justify their purchases (b/c the price/rent equation did not work) back in the bubble period.

Second, I think your depreciation assumption is too high. Having just completed a major gut renovation project, I can tell you that $250/sf would mean a substantial upgrade, not "constant-quality".

InoNada doesn't know the difference between caviar and hamburger helper. In response to someone who was talking about scaffolding covering the light on his ground floor $1800/mo rental, inonada started talking about a rental that was discounted from $27,000/month to $23,000/month. He's also compared Manhattan real estate to Wayne, NJ (yes, I don't get it either). His best suggestion for someone being mistreated by his landlord is to go find condo apartments and negotiate on multiple apartments to get the best deal. Inonada is proud because during the worst period for landlords, early 2009, he was able to negotiate a very good deal for himself. How would he do today?

"Total: $95,500 in Year 1 or ~$8k per mo. Compared to rent, this figure grows slower than inflation through year 10 as a large chunk of it - i.e. the fixed mortgage interest - is fixed."

Thanks for details, maklo.

So it sounds like we have some minor differences. I like 9% trans costs (5% broker + 1% mansion + 2% transfer + 1% other, like attorneys & points & empty months). You like a lesser renovation of $150 a sq ft every 20 years, I like $250. Ignoring appreciation, you get to $11.3K & I get to $12K. Not that far off. Maybe I see cost of capital higher: better expected return from equities, more in line with historical averages, and I like to be paid more for illiquid assets.

But you got to $8K a month assuming $3.5K a month from appreciation. 300_mercer got to $6K a month with no appreciation. Even with your numbers, $5K a month was missing.

Now do I think 2% appreciation at inflation is a good assumption? In general, yes, but right now in Manhattan I wouldn't hold my breath. We have price-to-rents that are still at near-peak levels of 20-25 on average (prices are down 15%, but so are rents). Not that long ago, it was 10-12.5. The average of the country is 15. We have an interest rate curve that is based on -2% real rates that is unlikely to be there in 10 years, and when it goes away so does all the funny math found in the OP. Nudge interest rates by a percent or two, and the math falls apart to the tune of $2K per month for the next buyer. That alone will eat $400K of price, never mind the market reverting to a more normal price-to-rent because the bubble ended. Remember that here 10 years later after the tech bubble crash was supposed to be all said and done, the S&P underperformed what it is supposed to do by 6%+. We're still 80% above inflation-adjusted 1996 prices. I don't know about you, but I don't think that Manhattan RE was trading at 55% of its intrinsic value in 1996. Saying that you expect 2% inflationary increases here on out amounts to the same.

FYI, I think benefits on later-year monthlies will offset with the tail-end nature of the appreciation. I.e., $9-10K is leaving every month, with $1-2K being refunded in 10 years.

"Inonada is proud because during the worst period for landlords, early 2009, he was able to negotiate a very good deal for himself"

Wow, a bio just for me. Thanks, I appreciate groupie fans. To help you improve your accuracy on my bio though, try stating it like this:

In late 2009, inonada went and saw what was out there. He worked his magic, and in the end he renewed his existing place at a 20% discount with a price-to-rent in the 25-30x range. Undaunted by the much-vaunted Landlord Spring of 2010, he tested his meddle in the supposed heights of 2010 the following year. Using every last ounce of rental-hero skills in his arsenal, he came in at the Valhalla regions of 35x. His exact path to this place remains a secret to this day.

However, despite these and numerous other achievements, inonada feels that the crowning achievement of his life came in the dreaded winter of 2009-2010. That's when he unmasked the scoundrel hfscomm1 as one and the same as the infamous rufus, and that he (through joint efforts with his trusted sidekick w67thstreet) is also the dastardly jim_hones.

This man is the stuff of legends.

So in the past 3 years, how many leases have you negotiated? How many times have you moved? You think this is an appropriate strategy for people?

The market was extremely weak for landlords from late Q1 2009 all the way through Q2 2010.

As far as your scoundrel unmasking. Congratulations. But I'm huntersberg.

I moved once and have a multi-year rental agreement, with my exclusive option to break it. I don't expect to (nor have I) moved except after a few years. I saw lots of places in a very short amount of time (maybe 10 hours total time spent seeing places, including travel time) and put multiple offers in simultaneously. Between seeing the first place and having final terms determined, it took a week. This was in Q4 2010, well after the market supposedly turned (eyes rolling).

Given the great results with a reasonable amount of time & effort, yes I would absolutely recommend the strategy to others

"As far as your scoundrel unmasking. Congratulations. But I'm huntersberg."

Guilty conscience? I never said anything about you.

In any case, do you rent or own? What strategy would you recommend for finding a good place to rent?

>"As far as your scoundrel unmasking. Congratulations. But I'm huntersberg."
>Guilty conscience? I never said anything about you.

Correct, you didn't say anything about me. What guilt should I be conscious of?

>In any case, do you rent or own? What strategy would you recommend for finding a good place to rent?

Are we talking about a $2,000 rental or a $7,500 rental or a $20,000 rental? One size strategy doesn't fit all price points.

Nada - Yes, the difference comes down to primarily what your view is on future appreciation/loss. And this is driven by views on the quality of life relative to other places to live. Quality of available jobs is a large factor but so are other metrics like crime, amenities, public transportation system, cost of living, etc. On a lot of these metric, NYC has improved significantly since 1996. Now has life improved at a 3.6% real CAGR (ie 80%) since 1996?? Hard to say definitively. However, i would point out that you've chosen a year close to the bottom of the cycle as you point of comparison. Like I said earlier, selecting what data to use is just as important as th analytical framework itself.

So clearly you think NYC prices today are expensive. It is then largely a self-fulfilling prophecy on your views towards buying/renting as that is a fairly large input. T be fair, i am no different. My view is that prices are fair and my view towards buying/renting is somewhere in the middle.

I think the quality of life argument is a bunch of BS, and I think you know it. Rents have slightly underperformed inflation since 1996 (Miller Samuel data), yet they enjoyed the same quality-of-life improvements without the 80% runup in real terms. So nothing there. I know 1996 was a low, I chose it because that's roughly as far back as the SE index goes, but do you honestly think things were trading at 55% of fair value back then relative to rents? You know both should increase at the same inflationary rates more or less.

Put this beside the fact that NYC had the same bubble runup as the rest of the country, and the fact that every high-end market (avg price over $1M) across the country has shown the same pattern. You think that all these places had real 80% improvements in quality-of-life despite flat rents inflation-adjusted and/or that they were all trading at 55% of intrinsic value in 1996? When their less-affluent siblings have shown otherwise?

Maybe I'm wrong, but if in your wettest-of-all-dreams fantasyland case you get a 5% return on capital, you've got problems. The phrase "priced for perfection" comes to mind.

From 2000-until 20008 CPI & CPI Urban All Housing indices were very correlated close to 1.0 but
since 2008 that's broken down, something like 0.6. Long term one has to believe it reverts to the mean.

>Long term one has to believe it reverts to the mean.

WHo determines what the mean is? What is the mean for the period you are assuming is correct was just a long protracted aberration from the real long term?

>Put this beside the fact that NYC had the same bubble runup as the rest of the country, and the fact that every high-end market (avg price over $1M) across the country has shown the same pattern. You think that all these places had real 80% improvements in quality-of-life despite flat rents inflation-adjusted and/or that they were all trading at 55% of intrinsic value in 1996? When their less-affluent siblings have shown otherwise?

Except that some lament greater and greater income inequality in the past decade +. And the more wealthy own homes vs. rent, generally speaking. And in their ownership, and longer-term focus on their place, they want and create higher quality.

Maklo, one other thing regarding appreciation that I was curious to hear your opinion on.

Right now, you have a view that the cost here is $8K a month and that the rent vs buy is reasonable. A integral part of this is that you have 5% 30-year fixed mortgages. If the mortgage rates were 1.5% higher, you'd be looking at $2K extra in monthlies. So $10K rather than $8K. To compensate and bring you back to $8K, you'd need something like a $300-400K drop to in price to compensate.

Pretty much everything out there indicates the guy buying from you in 10 years will be seeing higher interest rates with the same inflation rates (the effects of -2% real short rates). In order for your rent vs. buy balance to hold under inflationary increases in both rents & prices, you need the same 5% interest rate in 2021. Is this your expectation, or do you expect higher rates with something else fixing the issue? If the latter, what?

>To compensate and bring you back to $8K, you'd need something like a $300-400K drop to in price to compensate.

Thank you for teaching us bond math.

"Except that some lament greater and greater income inequality in the past decade +. And the more wealthy own homes vs. rent, generally speaking. And in their ownership, and longer-term focus on their place, they want and create higher quality."

No question. That's why a ppsf metric like Miller Samuel shows we are at 3.6x over the past 15 years while a constant-quality index like SE's same-unit index shows 2.6x. So a 40% increase in the quality of the average sq ft sold.

Rent ppsf on the other hand is only at 1.3x. I think you'd agree that there has been a quality increase in the average place rented over the past 15 years. Even putting that aside and assuming constant quality on rentals, we have a 30% increase in constant-quality rents vs. a 160% increase in constant-quality sales.

So good hypothesis, but it doesn't seem to hold water.

And what percentage is based on greater condo ownership vs. coops? And how much ownership is based on brand new construction during that period of time vs. prior ownership by people taking their old building co-op conversion?

"And what percentage is based on greater condo ownership vs. coops? And how much ownership is based on brand new construction during that period of time vs. prior ownership by people taking their old building co-op conversion?"

Pretty much nothing. Miller Samuel has condo ppsf at 3.7x over the past 15 years. The SE index is condo-only and constant-quality, at 2.6x. So we see the same 40% rise in the quality of the avg price per sq ft sold in condos, due to new construction & Sub-Zero fridges & whatnot. Against 1.3x in rents.

Maklo thinks this is a good deal because he expects to make 15% return on his equity: 20k that he has labelled "opportunity cost" and 40k that he has labelled "inflation". A 15% return is pretty good, especially when banks only demand 5%.

But in a non-bubble market, an investor who wanted to make 15% on equity, with a 5% lender and rents at $7k or $8k and rising with inflation, wouldn't be willing to pay anything close to $2m.

Using Maklo's numbers: 96k gross income, less maint., depreciation, and transaction costs = 43k.

At a purchase price of $614k, 80% financed at 5%, interest is 24k. That leaves 19k return on a 122k downpayment, which is just above Maklo's desired 15% return on equity.

So a non-bubble investor, demanding the same return as Maklo, but unwilling to double count inflation or assume that future investors will demand a lower return, would only be willing to pay a tiny fraction of the current price.

A homeowner, who gets the tax subsidy that investors don't, might be willing to pay a bit more, but only if s/he expects to be able to sell to another overpaying homeowner in the future; if s/he fears having to sell to an investor, s/he will assume that the sale price won't include the capitalized value of the tax subsidy and therefore won't include it in the purchase price.

This is why Maklo's assumptions of future returns are unrealistic. The rest is just details.

A self confident pessimist, who thinks that the banks have radically underestimated inflation (or that the government is paying them to lend at negative expected returns, might also be willing to pay more -- but not enough to justify $2m. At 7% inflation, prices double in ten years, so after 20 years, the cash flow for the next buyer would look like this:

Gross rents: $384. Monthlies, depreciation, transaction: 212. Earnings before interest: 172. If inflation is 7%, banks surely are going to want 10%, so if the investor is still willing to earn only 15%, this implies a sale price of 1563k. That's the expected sale price after 20 years of unexpected 7% inflation -- and it's still way below what Maklo is willing to pay today.

Here is another way to look at the problem.

Maklo thinks he is willing to accept the same return as the bank -- 5% -- even though he is assuming more risk. It is hard to imagine a non-bubble market agreeing.

But let's assume that investors generally were willing to make this investment at 5%. Investors don't get the tax subsidy. So, using Maklo's numbers and 8k rent, the unit generates $43k free cash flow, which is 5% of $860k.

The implication is clear: any investor making a calculation anything like this and currently holding rental property in NY will eventually seek to sell it to the Maklos of the world. $2m is a lot of money for a property that the investor values at $860k.

As long as prices stay at this level, all currently rented units in Manhattan are shadow inventory for the sales market. That's why prices will not stay at this level.

Nada –

On interest rates, it is just not as simple as you make it out to be i.e. interest rates go this way and prices go this way. Real estate prices are determined by a complex set of factors and you cannot isolate one variable and draw such a mathematically-precise conclusion. For example, real interest rates are lower today than in 2007 but prices are lower today – now we know the reasons for it but that is a simple illustration of how that relationship is not so direct.

It is not just all about one interest rate number. What about the difference between short and long? What about the spread between interest rates and mortgage rates? What about the jumbo spread? Then what about people who do not use mortgages, certainly a possibility at the $2 million+ level? What about the future prospects of a city? Are you saying these factors have nothing to do with future prices?

Views on quality of life _do_ matter in the buy vs. rent debate. If you have a view that quality of life – in the city, in your neighborhood, heck on your own street – is going to improve more than the market is pricing it in, then you are probably better off buying. As a tenant, you simply do not have access to that upside (or downside if you are wrong) that comes with that view.

So I would say the interest rate are not unimportant, but even if you are 100% certain about where interest rates are going, it still may not lead you to the conclusion you seem so sure about.

One thing where I do see high correlation over a long period of time is the relationship between equivalent housing costs and inflation/CPI. Not surprising at all, given that housing is over 30% of CPI! And sure, it may follow a squiggly pattern with the occasional boom or bust. But throughout most of history, this relationship has held true and it seems to make sense – after all it is something we know we need. Thus I think making the assumption that the asset keeps up with inflation is not unreasonable.

"I think the quality of life argument is a bunch of BS, and I think you know it. Rents have slightly underperformed inflation since 1996 (Miller Samuel data), yet they enjoyed the same quality-of-life improvements without the 80% runup in real terms. So nothing there. I know 1996 was a low, I chose it because that's roughly as far back as the SE index goes, but do you honestly think things were trading at 55% of fair value back then relative to rents? You know both should increase at the same inflationary rates more or less."

Why is 1996 a representative year? I know you picked it out of convenience, but choosing your baseline year is very important when you are drawing these sorts of conclusions. Why not 2003? Or 1982? I don't know what that data looks like, but I am just posing the question.

"Put this beside the fact that NYC had the same bubble runup as the rest of the country, and the fact that every high-end market (avg price over $1M) across the country has shown the same pattern. You think that all these places had real 80% improvements in quality-of-life despite flat rents inflation-adjusted and/or that they were all trading at 55% of intrinsic value in 1996? When their less-affluent siblings have shown otherwise?"

I am not sure the connection between nationwide housing bubble and quality-of-life not being a factor. I think it is significant that New York has fallen back to 2003 levels and Detroit has fallen back to 1994 levels. I would posit that the main factor for that difference is that quality of life has improved more in New York than Detroit.

>I am not sure the connection between nationwide housing bubble and quality-of-life not being a factor. I think it is significant that New York has fallen back to 2003 levels and Detroit has fallen back to 1994 levels. I would posit that the main factor for that difference is that quality of life has improved more in New York than Detroit

I think quality of life is dead last as factor for this.
You'd have a better argument that NYC real estate is being treated as "too big to fail." That's why you have the trickle down foreclosures or wait and see attitudes on delinquent mortgages. Too many outside pieces are invested in nyc real estate. The banks will end up with round(s) 2 and 3 TARP if manhattan crashes.
Heck you have Ohio State teacher's union pensions buying property in Union Square.

Their's a good chance manhattan could sustain as long as there isn't another big run of unemployment and interest rates don't rapidly climb.
Quality of life is not keeping this boat afloat.

FG: "Maklo thinks this is a good deal because he expects to make 15% return on his equity: 20k that he has labelled "opportunity cost" and 40k that he has labelled "inflation"."

FG, I think you got the sign on the opportunity cost backwards. If you revisit maklo's numbers, you'll see that he is saying that assuming an $8K rent then 2% inflation will yield a 5% return on equity.

That said, I'm totally with you on the spread between a pre-tax 5% and a post-tax 5% being insufficient premium between the 80% debt and the 20% equity. Except in bubbleland, of course.

"On interest rates, it is just not as simple as you make it out to be"

Maklo, it sounds like you're skirting the question. There are lots of unknowns here, of course. Inflation rates, rental rates, cost of capital, maintenance rates, tax rates, war, famine, etc. Despite all the unknowns, you made a specific set of assumptions based on reasonable expectations. I'm just asking about that set of assumptions.

The way I see it, in order for your expectations to hold together, one of two things needs to happen. Interest rates need to remain at 5% in 10 years, or people doing rent-vs-buy need to be willing to pay a higher premium for owning than they do now. Or maybe you have something else in mind. It is unlikely that your expectations will happen exactly as you have outlined, but if they do what will make your 2% annual increase hold together?

"Why is 1996 a representative year? I know you picked it out of convenience, but choosing your baseline year is very important when you are drawing these sorts of conclusions. Why not 2003? Or 1982? I don't know what that data looks like, but I am just posing the question."

I chose 1996 because the SE index, which I think is most reliable on constant-quality sales prices, starts in 1995 and I was rounding to 15 years. If I picked an earlier date (as early as 1989) and Miller Samuel data, then we'd be looking at a 40% or so bias as the quality of the average apt sold has increased 40% since then. I.e., it would show prices up at 3.6x rather than 2.6x. The question regarding 1996 would then be "Do you really think apt prices were at 40% of intrinsic value in 1996?" rather than "Do you really think apt prices were at 55% of intrinsic value in 1996?"

But if you like, we can try to play the same game for 1989 which was the tippy-top of the last cycle. Miller Samuel has avg price per sq ft on condos at 3.2x what it was in 1989. Inflation during this time has been 1.8x. So, the avg price per sq ft is 75% higher today than it was in 1989 inflation-adjusted. Adjusting by 40% for the improved avg price per sq ft to get to constant-quality, prices today are 25% higher in real terms than 1989.

Do you think that at the tippy-tippy-top of the last RE cycle ending in 1989, prices were at 80% of intrinsic value? And that towards a bit after the bottom around 1996 they were at 55% of intrinsic value? So that we end up at intrinsic value today?

The problem is that you cannot draw a line with inflation-adjustment going back ANY time that would support today's prices, save the bubble years of the past decade. My opinion is that in 1989, prices were 20% above intrinsic, that in 1996 they were 20% below intrinsic, and that today they are 50% above intrinsic.

What is your opinion?

Nada why don't you first explain how 2% short term rate increase implies into same increase jumbo mortgage rates and further translates into your assumption of 15% _nominal_ (~30-35% real) price declines in ten years starting with 2011 as a base. It's an extremely pessimistic assumption.

Now take it one step further. Lets change hold period to 30 years. Do you expect nominal declines in 30 years based on the same logic? Does inflation not exist anymore? Perhaps that is your view.

"If you have a view that quality of life – in the city, in your neighborhood, heck on your own street – is going to improve more than the market is pricing it in, then you are probably better off buying."

I'm with you if those quality-of-life improvements lead to increases in rents. If you want to say that you envision 2% national inflation, but 4% NYC rent inflation, that's one thing. But that's not what you had stated.

"I am not sure the connection between nationwide housing bubble and quality-of-life not being a factor. I think it is significant that New York has fallen back to 2003 levels and Detroit has fallen back to 1994 levels. I would posit that the main factor for that difference is that quality of life has improved more in New York than Detroit."

Not quite. NY is currently almost 40% higher than 2003 levels. If we were at 2003 levels, you and I would be having a very different conversation. The OP's hypothetical apt would be selling for $1.45M, not $2M.

"Nada why don't you first explain how 2% short term rate increase implies into same increase jumbo mortgage rates and further translates into your assumption of 15% _nominal_ (~30-35% real) price declines in ten years starting with 2011 as a base. It's an extremely pessimistic assumption."

Sure. The market is pricing 2% inflation or so from today going pretty far out. It is also pricing that we keep short-term rates at 0% today, but that it will increase to 3-4% by sometime between 2015-2020. The market states this because they are guessing at the actions of the Fed, which is based on pretty explicit statements by various Fed officials and good economic policy.

The benchmark for 30-year mortgages is the 10-year rate because this is how long most people stay in a home more or less. It is currently sitting at 3%, a level that is relatively low because of the low short rates predicted for much of this decade. If you look at the 20-year rate, it is at 4%. Putting 2+2 together, this means that the holders of the 20-year bond expect 3% in the first 10 years and 5% in the second 10 years for an average of 4%. The market is therefore predicting 10-year rates at 5% or so for 2021. That's 2% higher than today, and from a historical perspective not all that strange or high:

http://finance.yahoo.com/echarts?s=%5ETNX+Interactive#chart1:symbol=^tnx;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

Fixed mortgages have generally demanded a 2% premium to the 10-year benchmark. So when the benchmark goes from 3% to 5%, the mortgage goes from 5% to 7%.

Inherent in your argument that prices are "just right" today were a set of statements about interest rates being a certain amount. So if you pay 5% interest on $2M to get to a certain amount after-tax, what would you have to pay 7% on to get to the same amount? The answer is $2M * 5/7, or $1.45M. That would keep your interest fixed.

Now maybe you don't like 7%, maybe you think 6.5% is more appropriate. In which case you'd need to be at $1.55M to keep the interest payments fixed. Whether you add inflation doesn't make a difference. If you take your $8K in rent up to $10K and your $2M up to $2.5M in 2021, you still end up with your same balance as today with a 5% interest rate in your rent vs. buy math. But push that interest rate to 6.5% or 7%, you'll need a drop to $1.8M or $1.9M to get to the same place.

So the question is whether interest rates will remain at 5% in 2021 despite evidence otherwise, or whether the guy buying in 2021 will have a rent vs. buy that will be even more skewed towards buying.

It seems to me that the govt/Fed policy on driving down rates to allow the housing market to slowly drain depends on people generally misunderstanding this point.

Nada, have you ever thought about the time you will never have back in your life that you will never ever get back with your well thought out but fruitless posts? No one but you and a tiny circle of (online) followers could give a shit what you say.

I have. I do for it mainly for fun. Side-benefit is that it I get to peer into the heads of various people which has been very helpful for investments. But mainly it's fun as the increment financially is inconsequential to me as I make more money than I know what to do with anyways.

How about you? What upside do you get from being a troll? Fun? How do you feel about the time you'll never get back?

Thanks for complimenting my posts as "well thought out". That's what I was going for.

Sure. But think about all the damage to your personal relationships while you spunk away hours being a fucking know it all.
But hey, makes you feel good right?

But hey, your popular with a bunch of strangers here who like someone to articulate for them why their own personal choice not to purchase property is correct. I bet all of them have "more money than they know what to do with" as well.

And by well thought out I meant you clearly spend a lot of time on your answers. Look how much you type! What if you spent some of that energy on charity or something? On top of all of that money....

What as fucking utter waste your life is.

>What as fucking utter waste your life is.

Jim, I'm not sure it is fair to put inonada in the same category as aboutready.

what's wrong with inonada stretching his mathgeek muscles here for fun?

quite an impressive show of force.

uncle cc! i'm so glad svetlana let you use the interweb tonight! or does she not know? quick! she's coming! look dead again.

uncle cc, you're old. can you please go comment on my question on the whos buying thread about when owning a home becamse part of the American Dream (tm)? thank you! mom says hi

Clearly a decent mind. Pity he doesn't put it to better use than putting doubt in the minds of new home buyers. Surely a rich fellow can find a better way to show what a big swinging dick they are. Maybe he could be the bookeeper for his an alumni association? Or counseling families who's kids didn't make the early acceptance program at their first choice uni's. Something of value.

someone valuable like you?

instead he is giving free accounting and all kinds of financial advice for any and every loser here who asks for it. what's wrong with that? sounds like a nice guy. and pitty when he finally gets bored of this and really does move on.

Nada - so your logical framework can be boiled down to:

- Today the market is saying interest rates are going up by 2% in 10 years because of the difference between the 10 and 20-year;
- Ergo, housing prices MUST be lower 10 years from now to accommodate the increase in mortgage rates for the new buyer.

I just cannot reconcile this logic with reality. Since the forward curve is usually _not_ inverted, according to your logic, at most times in history you would have to assume that mortgage rates are going up and therefore MUST factor in a capital loss on the back-end. Except that that assumption would have been proven wrong through almost every rolling 10-year period in the history of NYC real estate.

No, more like you cc. Waiting with shriveled putz in hand, hunched over the keyboard in anticipation of these fleeting encounters....

Couple years and counting, his tolerance for boredom is only surpassed ny his ego.

>Surely a rich fellow

WHo are we talking about? Surely not columbiacounty. What columbiacounty had 3 years ago, he no longer has today, after being devastated in the equity markets and selling at the bottom, then burning his bridges with his connections, business partners, friends, and most of his family. Today, he's mostly pitied by those who have met him in the past 2 years.

I haven't read the full thread so the answer to the below might be obvious, but I am intrigued by the following:

inonada:
"Well, this unfortunately means that you have sold a bond to yourself for years 5-20 at a fixed 3.25% rate."

Now, has whoever bought (and sold) the bond overpaid for it? Have they secured low-rate funding? Is it a netting transaction?

Hunterburg, read inonada's last comment
"I make more money than I know what to do with"

That rich fellow. Though one wonders why buying an apartment is so scary for such a wealthy individual. The people I know that truly have more money than they know what to do with don't mind spending it on their apartments.

I think for inonada, as a mid-30's married guy, it has more to do with he wants to live a 20's swinger lifestyle with a girlfriend in Union Square at this stage. When he gets more serious about his wife and raising a family, they'll move elsewhere and buy because Union Square isn't quite the neighborhood for that and the type of place he's in now - a loft - isn't really conducive to family. But in the mean time, he gets to brag how smart he is, how much he makes, how great he is at negotiating, etc. etc.

EVERYONE STAY CALM
Hands off the butts of those pistols.
When I count to 3 I want to see everyones prescription meds on the table.

........3

That's a lot of drugs