Any weekend open house anecdotes (2/9 & 2/10)?

Here's what I continue to see in the $800,000 to $2,000,000 range (based on dozens of open houses downtown in past 12 weeks and scouring of NYTs and Streeteasy): ideal properties with great locations, smart layouts, protected views and great light in prime buildings are selling quickly at near asking prices that are at about the market-high levels. These properties are few and far between, though. On the other extreme, units that are highly/ambitiously priced as if the market is still "hot" but which are seemingly oblivious to their short-comings are sitting. The more odd-ness a unit has, the more it is just sitting. People are not compromising and willing to pay top dollar for these anymore. For instance, absurdly tiny kitchen even in nice apartment; 100% gut renovation required including flooring; inner courtyard with depressing views; bizarrely high window sill heights; weird "second bedroom" carved out of dining alcove in a unit that is small even as originally configured and with bad finishes covered with a million layers of paint throughout = lots of lookers and no buyers. It appears to me that in this market, apartments without a strong "wow factor" are not selling unless they are perceived as bargains or at least very "reasonably" priced. And while one might think this would start causing an increase in inventory, I don't see it. Not downtown at least. New inventory downtown (excluding new construction) is at a trickle--just look how few new properties are getting listed in the last 14 days downtown. Hesitancy is becoming pervasive. That's what it looks like to me.

I agree with kylewest. my price range is much lower but still the same trend. delisting and relisting or waiting till spring seems like a place for lots of sellers.

Thanks for your observations. I got a laugh out of several of the frequent shortcomings you mentioned. I can't tell you how many "french doored" 2nd bedrooms I've seen out there. It's an instant walkaway for me. And yet the seller (via the broker) talk it up as though it's just as good as a real 2nd bedroom. Sure buddy, all real 2nd bedrooms have wiring for a hanging light fixture and happen to be connected to the kitchen. Uh huh.

The only thing I might disagree with you on is the "lots of lookers but no buyers" point. Judging by this weekend, there might not be so many lookers any more!

Lower those asking prices!

funny thing. an agent was trying to show me comps in the building with previous listing print out and he forgot to take out the previous listing of the unit i was seeing. it was listed last summer and went on sold and now asking 50k more.

i mean unsold and now asking 50k...

I am more or less in agreement with kylewest. As a potential buyer I see "good" properties going quickly at or near ask. However, overpriced and/or properties with issues are lingering.

Here is our perspective as buyers. We are prepared to bid aggressively for a unit that fits our needs and is appropriately priced. We are not going to wait in hopes for a general market decline. However, we are not at all in fear of being priced out of mediocre apartments. These mediocre apartments will eventually sell and get replaced by other mediocre apartments. But we are simply not worried about being "priced outforever" and needing to buy something (ANYTHING) now. I think buyers had some of that very fear a year ago. So we are happy to wait patiently for the right apartment -- not a market decline, but a good unit.

Also, we went to four open houses yesterday (2 bedrooms; $1.5 - 2.0 MM). I would characterize attendance as OK. By no means empty, but not at all the kind of craziness we saw pre-summer 2007.

Colgin, coop or condo? Your target range seems to be shaded somewhat on the high side for 2 bdrms (unless you're only looking high-end). (?)

Colgin, I'm in a very similar place. I feel absolutely no sense of urgency. There's no feeling that prices will go up beyond my reach if I wait--quite the opposite possibly. I've sold my place. My money is earning a nice bit of interest each month now as I wait to buy, and if I have to rent for a while more, I will. I'm willing to pay for the perfect apartment that I'll stay in for years, but I'm not at all feeling pressure to overpay for a unit full of compromises given the uncertainty of the market. This is no time to buy a starter or interim apartment IMO. And FWIW, east_cider, in the downtown market, $1.5-2M for a decent two bedroom coop is completely the norm.

dropped by an open house in midtown, 2 br, ~1.4M. light attendence, but I wasnt sure if I was there early or not. However, what surprised me was what the other folks were saying:

They were saying they thought the unit may loose value because they have lived through a couple cycles already. The listing agent refused to make an comment on the direction of prices (a good agent or the sign of the times (being held responsible/sued etc??))

I wonder how many prospective buyers have lived through the last down cycle in the early 90's.. they are well aware of the hype/boom/bust. No use using 'rar rar' to these folks, they just see from experience. What % do you think make up the market of these types of buyers?

I always try to get there toward the end of the showing so I can count how many people signed in before me (this is how I determined that last weekend's attendance was lousy). Also, at the end of the showing, if the broker is still smiling and has an inviting attitude, it probably means the interest level has been ho-hum. (Conversely, if the vibe is cool and disinterested, it probably means he or she had a few interested parties.)

was at an open house on 34th and park over weekend, 2 BR, on 15th floor, place was packed....must have been 8 couples there when went. Seemed like lot of interest, broker said they had an all cash offer during week but wanted to wait for weekend to see results of open house......

bugelrex: "I wonder how many prospective buyers have lived through the last down cycle in the early 90's.. they are well aware of the hype/boom/bust. No use using 'rar rar' to these folks, they just see from experience. What % do you think make up the market of these types of buyers?"

I'm not sure I understand what you are saying. The early 1990's recession taught us that prices may go down 25+% in a bear market but that prices do recover and increase if you have patience. Same lesson to a lesser extent in 2000-01. But I think it is pretty self-evident that if you pay top-dollar for something, you better be ready to stay with the property for a while or you may lose money in the shortrun. New and seasoned purchasers with any degree of sophistication generally realize this. But very few people are ready to commit to a place for say 10 or 15 or 20 years. And these days, if you may want to sell within 5 years, you can't risk paying too much for a mediocre property. Thus, the hesitancy of buyers. Sellers, on the other hand, aren't ready to concede that the boomtimes are over for now and that things are flat or even backsliding. Result: spreading standoff. What do I hear people saying at the open houses? One universal comment at all but the true trophy apartments: "They're crazy if they think anyone is going to pay that in this market."

Nice plug for your listing, brokersSTINK. It's clever how you used reverse psychology in your choice of alias, too.

Went to some open houses in FiDi, mainly new construction projects. Steady flows in and out and people had to wait for agents. Maybe not packed but very busy.

Went to check out the setai in fidi. When we got there at 3pm Sunday it was dead in the sales office but over the course of the next 45 minutes we saw 4-5 different couples came in to talk/tour the models. So it did appear to have some traction. FWIW they told us it is 62% sold.

brokersSTINK: if the place you saw over the weekend was at 10 Park Av, and the broker was a bow-tie wearing guy from Corcoran....watch out....he used the same story on me on a previous listing..once he gets your max offer, the 'cash offer' wasn't qualified, etc. Then they raise the asking. Just my experience....

Just curious if there are any Presidents Day Weekend anecdotes for open houses.

I saw a few massive crowds.

I'm not back from an OH but just from a visit of an apartment - Classic 6, Carnegie hill -
at the end when I was asking when my husband could come and visit, she casually said "Sunday it could be, I have some appointments already for it and you know this is the first day I show the apartment". I wanted to tell are you kidding me??? maybe the first time since you've lowered the asking price by $230k .. or else this is a complete fiasco b/c the apt's on the market for more than 3 months already.
do they think we don't do any homework??? but I came to think as well that a lot of brokers don't know about this website and all the info available for buyers.

Why would anybody buy when it costs half as much to rent? Makes absolutely no sense - in Manhattan real estate has 25% to fall yet at least. Example: I sold my South Beach apt. for a cool $1 million 2 1/2 years ago, now the same floorplan 3 floors higher is "listed" for $799,000, and has been on the market for almost 3 years. Don't believe the "62%" figure for "sold out": that's 62% of the properties they've released; developers only release apartments in blocks so as not to flood the market. There's a 3-year supply of properties out there, all overpriced, but insufficient market information for buyers to know it. Anybody who buys now instead of renting is crazy! Rents throughout the city are falling, and people are still in this fantasy land thinking they're going to get a thousand bids an hour, like in the olden days. When I bought my first apartment in Manhattan in 1998 I paid $217,500 for a 2-bedroom 1-bath apartment in the West Village: at the bottom of the crash, and I paid less than the prior 2 owners. A similar apartment in that building "goes" for $1.4 million now. HA! Nearly a sevenfold increase in 10 years! If only my salary had gone up sevenfold, I'd be up there with Mike Bloomberg!

stevejhx: thank you. that was a very insightful post.

You really zinged him, kylewest.

You're welcome! And here's another good example of how overpriced things are: in 1968 a first-class stamp cost 10 cents. Today it costs 41 cents. That's a fourfold increase in 40 years. Compare that to a sevenfold increase in ten years for Manhattan properties. Facts are facts, and over time the carrying costs of renting and buying are the same, with the market return on the down payment offsetting the income-tax benefit of interest deductions. Do the calculations yourself:

It costs up to twice as much to own a property in Manhattan as it does to rent a nearly identical one directly across the street. Therefore, there is a huge property crash about to happen in NYC.

This is easy to prove: compare two buildings across the street from each other in Chelsea:

Chelsea Stratus (condo)/ Chelsea Landmark (rental)

A 2-bedroom 2-bath apartment about 1000 square feet in Chelsea Stratus would cost $6,711 per month to buy (if you can get that 6.5% rate: ask around!), whereas in Chelsea Landmark rents for $4,380 - and you can probably get it for less.

There is a tax benefit to owning, but also an opportunity cost on the $235,000 down payment. If you make the historical stock-market average of 12% on $235,000, that's $28,200 in lost income per year, or 53% of the rent at Chelsea Landmark. If you're in the 33% (net, not marginal) tax bracket, you would save $20,294.19 in taxes based on the mortgage shown on the website, decreasing over time, whereas the income on $235,000 would compound over time.

In any case, you're still two months ahead if you rent based on tax benefits vs. opportunity cost, but let's call it a wash.

Remember: Chelsea Stratus has a real-estate tax abatement, which has ended in Manhattan for new construction. Real estate taxes on a condo that size would be approximately $900 a month (see indigo-21.com for approximate real-estate taxes for similarly priced apartments), making the real total monthly cost $7611, or 73% more than the cost of renting. Factor in the mansion's tax and the future conveyance tax if the apartment is ever sold, and it gets increasingly more expensive to own.

Given this, in this example it costs 53% more to own an apartment than it does to rent one. Chelsea Landmark is a relatively expensive building; search StreetEasy.com and you will see much less expensive rentals. And Chelsea Stratus is not the most expensive building in the area: at $1415 per square foot (this example), it's far below other buildings in the area.

But these are fairly representative for who lives in the area, I would say. At the extreme level they amount to up to 3x as much, which is pretty silly.

It's impossible for this situation to remain long-term. Rents rise and fall with incomes because they are not leveraged; property prices rise and fall with interest rates and financing terms. The days of loose money are gone for a long time.

Just to clarify, I was referring to a $1.175 million apartment in the Chelsea Stratus.

Note to kylewest: "facetious" doesn't play well on these boards.

Ummmm stevejhx:

kylewest was being sarcastic. As in 'thank you. that was a very insightful post. now tell us something we don't know. and perhaps you could sound a little more nervous and/or agitated.'

"It costs up to twice as much to own a property in Manhattan as it does to rent a nearly identical one directly across the street..."

Ummmmmm, no it doesn't. I committed to buy a new high end condo ($2,000 +/- per s.f.) for investment purposes about two or so years ago for about $3.7MM +/-. I closed a month or so ago. I could flip it today, right now, no questions asked, for about $6.5MM +/- (and I have been offered this much in a totally unsolicited bid). Instead, I'm renting it, and the rent is enough to cover my (fixed, historically low) mortgage AND the maintenance as well, plus a few thousand per month in the black as pure profit.

My point here is that in principal, I agree with you and your general assessment. But your across the board lowest common denominator the sky is falling hand wringing hyperventilating style of posturing isn't really useful. There's lots of really smart people with lots of experience here who can run the numbers just as well as you can. The difference is where you see no possible outcome other than a negative one, some of us still can manage to eke out very constructive long term positive financial outcomes, yes - even in a market such as this.

Hey maulraux, if you think that kylewest was being sarcastic, look at what he wrote: "But I think it is pretty self-evident that if you pay top-dollar for something, you better be ready to stay with the property for a while or you may lose money in the shortrun. New and seasoned purchasers with any degree of sophistication generally realize this."

Why would he be sarcastic if he's saying the exact same things I am?

You're also comparing apples and oranges: you bought your apartment "two or so years ago," so you paid a two-or-so-year-ago price. I'm not talking about a two-or-so-year-ago price: I'm talking about today's prices, which in many cases are 50% higher than two-or-so-years-ago. You're also talking about a different price-point, where the economics are entirely different.

You're also talking about the economics of a a rental property, whereas I'm talking about the difference in carrying cost between buying and renting almost identical properties.

So I don't think that I'm hyperventilating at all, because you're not even talking about something remotely similar to what I am. What I am saying is precisely that prices have to fall to two-or-so-years-ago prices - 25% below where they are today, which is where you bought your property at.

That said, if someone wants to pay you $6.5MM for your property, if I were you I'd take it. If you figure that after taxes and commissions / fees you'd probably come out with about $1.5 million or slightly more, then if you make the historic average stock market return of 12% on that $1.5 million, it comes out to $180,000 per year, or $15,000 per month, which is a lot more than our "few thousand a month" pure profit that you brag about. You can rent someplace really nice for $15,000 a month.

Just as a pt. of information, 2 BRs at the Chelsea Landmark go for about $6200/month.

And just to conclude, maulraux, do the math: run your rental scenario with a $6.55MM price tag, not a $3.7MM price tag. I'd bet that you wouldn't be making any money on that rental if you did.

If you took out a mortgage for the difference between your $6.55MM and $3.7MM, that is $2,857,000. At 7.25% for a jumbo mortgage (and good luck if you can get it!) that's an additional $19,442.42 in MONTHLY mortgage payments. FAR more than your "few thousand a month" pure profit. And that's not including the property tax once the abatement lapses.

So, maulraux, inadvertently, your numbers proved my very point: it's far cheaper to rent than it is to buy. Which is why the guy renting your apartment is so smart: it's cheaper.

Nothing personal, but I don't think that you're as sophisticated as you think you are!

Sorry Will, you're right: in both cases they were one-bedroom apartments.

My bad!

However, you can get a 2-bedroom in 21 Chelsea 21 and other buildings for much less than that.

Chelsea Landmark is much more comparable to Chelsea Stratus.. both high end, good finishings, services, etc. I think 21 Chelsea is an okay building, is not quite so high end. Also I believe it's a little higher in price than the low 4000s for a 2BR.

No, actually, it's in the mid 4000's for a 2br. But that's why I chose the example I did (even if I got the br's wrong): they're across the street from each other, nearly identical.

Actually, Archstone Chelsea is across the Street and 2 BRs there go for 6600/month. See archstoneapartments.com. Also Cap Chelsea and Chelsea Vanguard 2 BRS go for 5300-6800 or more,depending on floor,season (tend to be lower in winter) but none listed on rosenyc.com at the moment.

chelsea 21 is a lower rise, lower end building a few blocks from chelsea stratus (nice, fine, but lower end)

Best to do is go to NYBits - the latest 1-br @ 21 Chelsea is for $3100. Remember, you're renting - why rent luxury, when you don't really need it? And compare 21 Chelsea to indigo-21 across the street - half the price.

I live in Chelsea 21 - no low end there. Brand new, marble in kitchen, stainless appliances. Will - are you a real-estate agent trying to convince people that prices are okay? Look at malraux's numbers: they don't add. I used to live in the Westminster, around the corner: Related Rentals, much more expensive, the only difference was marble vs. tile baths. I'd rather have twice the space for half the money than take a shower in marble vs. tile. Just me - you decide for you.

Again, my bad: my original comparison was for a 1-bedroom, even though I typed 2-bedroom. The numbers speak for themselves.

And everyone who's been in my apt. in Chelsea 21 say just one thing: WOW!

When I first moved to NYC in 1997 I paid $1600 rent for a 1-bedroom @ 9 Barrow in the Village. Adjusted for inflation that would be $2094. So if it's $3100 for a 1-bedroom @ 21 Chelsea, it's still 50% above inflation-adjusted. Any way you crunch the numbers, there's nowhere to go but down.

They denied it when I lived in Miami - "foreign money," I heard. "Special tropical market." It was all BS: the marked dove 20%, and still has further to go before people will buy.

What Wall Street bank is going to be handing out those big bonuses in the next few years, as they recapitalize? None! They all earned bonuses based on trading securities that were, in Warren Buffet's words, "marked to myth." Now - surprise! - nobody want them. Expect another $100 billion Wall-Street write-down.

This market is worse than in the 1990's: what goes up must come down.

And don't forget, there's no mortgage interest deduction for mortgages over $1 million (unchanged since Reagan). Makes these numbers seem even more ludicrous!

My pt was that you should not compare apples and oranges.

That's exactly it Will - I'm not comparing apples and oranges - malraux was. That's why I compared Chelsea Landmark & Chelsea Stratus. Exactly across the street, & 50% more to buy than rent! I just said that if you can live without so much luxury, the case becomes even more compelling.

Take your $6600 month 2-bedroom to rent in Landmark. That same apartment costs $1.8 million across the street in Stratus. 80% 30-year mortgage is $9,823 per month. Add $1500 in maintenance & $2000 in (unabated) taxes, it's $13,323 per month, most of which isn't tax deductible because of the mortgage interest limitation on mortgages over $1 million, or if it is deductible you'll wind up with AMT that'll take most of it away since it's a 26% tax rate. So it's still twice as much to buy as to rent.

If you think I'm wrong, produce the numbers. There's no number on the face of the earth that supports these property prices. C-R-A-S-H is the only word that comes to mind. No number. Not one. If there is, show it to me. Rents are falling, prices will be crashing. Just like in Miami - I've seen this movie before.

This was all a joke. Triple-A ratings for securities backed with underlying securities - mortgages - for people who couldn't even prove how much money they made (Liar's Loans!). Or people with bad credit: who would give a Triple-A rating to someone with bad credit?!

This is all a joke. I remember looking for an apartment 2 years ago - before the "boom," even, and before I decided to rent - and there were lines around the corner for an open house. Or so many bids that they lined people up to have an "auction"! I said no - this is a feeding frenzy! And it's taken two years, but boy am I right. HISTORICALLY, RENTS AND OWNER'S CARRYING COSTS ARE IDENTICAL. That's where we're headed. Unless you can prove to me otherwise, with real numbers, which you can't.

And to clarify: twice & 50% is the same thing, just depending on your POV: 4 is twice 2 (100%), but 2 is half 4 (50%). Just so people understand what I'm saying...it's the same thing.

O-V-E-R-P-R-I-C-E-D!

I'm waiting for malraux to come back with his own $6.55 million math to tell me that I'm wrong.

stevejhx, are you on speed? Despite your hyper-posting I agree with much of what you say - I am especially in accord with your comment that malraux "is not quite as sophisticated as he thinks he is".

Oy. Some days I just don't have the energy. Malraux, what can I say? Steve, your math is off in part because your tax analyses are flawed, but for other reasons too. Someone else can do the explaining. Regardless, you quote a point I was making somewhere on here that a RE investment may not be the best place to park your money if you foresee needing to sell in the short-term given current uncertain market conditions and the need for greater risk tolerance until things settle down some. That's all I said. I stay out of the rent vs. buy debate.

And I've said before, I think the rent/buy question is like buy/lease for a car: it depends a lot on your circumstances, financial goals, and intangibles because you LIVE in this investment unlike your stocks. There are arguments for both ways to go. I find people who use lots of capital letters in posts tend to give short shrift to the complexities and texture of the issues involved. I don't think people who buy are "crazy" or people who rent just envy owners. Smart people can go either way. It doesn't help to advance a discussion to shout or take extreme positions. There. No sarcasm. Maybe that reads more clearly.

No, kylewest, my tax analysis isn't wrong. It's generally known that the opportunity cost for lost income on a down payment offsets the tax benefit of the income-tax deduction. If I'm wrong, show me your figures: it's not enough to say that my analysis is flawed and leave it at that. Those are real figures, and in fact the return on a down payment invested in the stock market increases over time, whereas the interest deduction tax benefit decreases over time. While mortgage interest is allowable under AMT, if it is a large deduction it will cause you to lose the state and local tax deductions, limiting the effect of that deduction.

This I agree with: "because you LIVE in this investment unlike your stocks." But in my opinion - and it's only an opinion - we would need to be much closer to the long-term equilibrium to take such a risk. You yourself mention the last downturn lasted some 10 years; the one before that, in the 70's, was deeper: remember "balloon payments" and 17% interest rates? In Miami properties are down 25% and still no one's buying. It's worse in Vegas and San Diego. The boom started later here; we're behind the curve, that's all, not immune from it. The long-term equilibrium between rents and owner's carrying costs remained in effect until 2000, when interest rates fell to extremely low levels, and all these leveraged loans started to become fashionable, which are the source of the financial turmoil we're seeing today. As an economist my advice is never to ignore long-term equilibriums.

In fact, that equilibrium is extremely important: in inflation housing costs are measured not as asset prices but as "owner's equivalent rent," or how much you could rent your property for. So when the equilibrium is lost - as happened - asset prices soar but inflation isn't recorded because rents stagnated. Now it looks like there's inflation because rents have been rising since housing is unaffordable, but in fact we're in a deep deflationary spiral because the asset bubble has burst.

I don't think I am giving "short shrift" to the complexities: I've given you market comparisons of similar apartments for sale and for rent, calculations of the interest deduction tax benefit vs. opportunity cost of investing the down payment in the stock market, challenged malraux's flawed analysis by showing that if he bought his apartment today it would add nearly $20k per month to his carrying charges so he couldn't make is "few thousand dollars a month" in "pure profit". As far as I can see, everybody else is talking in generics, & I put down the facts! :)

Sorry about caps - I wanted to underline, but this system doesn't let you. And I never thought you were being sarcastic.

"There is a tax benefit to owning, but also an opportunity cost on the $235,000 down payment. If you make the historical stock-market average of 12% on $235,000, that's $28,200 in lost income per year, or 53% of the rent at Chelsea Landmark. If you're in the 33% (net, not marginal) tax bracket, you would save $20,294.19 in taxes based on the mortgage shown on the website, decreasing over time, whereas the income on $235,000 would compound over time."

Who makes 12% YOY? Especially in this market! Not many. There is a significant amount of risk that you haven’t adjusted for on that 12% (you could lose 20% one year), the tax deduction is risk free. Also, you are neglecting the fact that ~14% of your first mortgage payment goes to principal (using the $1.175M example), increasing over time. Assuming zero appreciation, that principal payment "goes in the bank". What part of your rental payment "goes in the bank"? Doesn't an owner’s interest payment get smaller over time whereas a rent payment gets larger? Shouldn’t you be comparing interest payments vs. rent payments? Also, property tax is deductible, have you figured that in?

That said, I feel you are bringing up some very useful and valid points for new buyers to consider, especially for new developments. Some of these new devs are going to require significant market appreciation over the next few years to become viable investments. Where you lost me is applying a general 25% correction across the board. I think it depends on the situation, the neighborhood, and type of product. If you look at the rent vs. buy thread, there is an article about rent vs. buy spreads that in my opinion, would favor buying. You can’t generalize an entire market based upon two Chelsea properties that you think are comparable, when they may not really be.

Finally, are you saying that over the next five years we will see a correction in Manhattan real estate of 25%? Or are you saying that for a subset of the market?

JuiceMan: 12% is the long-term average with reinvested dividends since the end of the Depression. You're right there's risk, but with risk comes reward. It's also highly liquid, so unlike property, you can get out fast. But you can buy some pretty good interest rates with preferred stock from Bank of America, for example, yielding about 8% with virtually no risk and a qualified dividend.

Tax deductions aren't "risk free": they're only in proportion to how much you make. Lose your job, lose your tax deduction. Have too many tax deductions, and AMT kicks in, and I pay it, and it's nasty.

The two Chelsea apartments I compare are in fact nearly identical in every way, to the point of being across the street from each other. I chose Chelsea first because I live there so I'm familiar with it, and second because it has an ample supply of rentals and new construction that can be readily compared. That's not the same as other places like the UWS, which is more established with prewar co-ops, making the comparison somewhat more difficult.

That said, I've looked in every neighborhood in Manhattan and I can't find anything cheaper than what I'm currently paying in rent. If the difference were modest then I'd certainly buy - if you can find me a brand new 1000 ft2, 2-br, 2-ba doorman building with total carrying costs of about $4,500 a month - mortgage, maintenance, etc. - then I'll buy it. The problem is that no such animal exists anywhere in Manhattan.

Example: there's an article in today's NY Times that says that that maintenance in Manhattan apartments now averages $1.37 per square foot. If I have a 1,000 square foot apartment, that's $1,370 per month. A $500k jumbo mortgage at 7.25% (good luck!) would cost $3411 per month. So just there - a mere $500k mortgage and average maintenance - I'm already paying more than I do in rent: $4781 vs. $4500. But a $500k mortgage with the standard 80/20 30-year mortgage, means the purchase price for the property would be $625,000. Where in any neighborhood in Manhattan are you going to find a 1,000 square foot, 2-bedroom 2-bathroom brand-new apartment for $625,000? You will for twice that price, but not that price.

Go to NYBits and search on property rentals in Manhattan, compare them to comparable co-ops and condos in the same neighborhood. I did the analysis and did not come up with a single example where the economics of buying are superior to those of renting.

On this I agree: I'd rather own than rent, precisely for the reasons you state. But not at twice the price. So yes, I believe rents will rise and property prices will fall, meeting halfway in the middle, or 25%. You can disagree, but I can find no math that makes this market sensible.

stevejhx:

1.) If you can't read sarcasm on a board, that's your problem, to wit from kylewest "...Oy. Some days I just don't have the energy. Malraux, what can I say?..."

2.) "...You're also comparing apples and oranges: you bought your apartment "two or so years ago," so you paid a two-or-so-year-ago price. I'm not talking about a two-or-so-year-ago price: I'm talking about today's prices, which in many cases are 50% higher than two-or-so-years-ago..."

I would direct you to my OP that started this entire thread - were you one of the people also kvetching last year that?....

"...Dow will be below 11,000 by the end of 2007!!..."
"...Housing market down 20%! - no - 30%! - no - 40%! - no - MORE! - by the end of 2007!!!..."
"...The subprime/Alt-A debacle would tank the Manhattan real estate market FOR SURE in 2007!!..."
"...A bad bonus season would tank the Manhattan real estate market FOR SURE in 2007!!..."
"...High inventory would tank the Manhattan real estate market FOR SURE in 2007!!..."
"...Manhattan real estate selling for fifty cents on the dollar by 1 January 2008!..."

Is this the same assertion you made in 2006 when you said it was the end of the road and that real estate prices in Manhattan would collaps?

Is this the same assertion you made in 2006 when you said it was the end of the road and that real estate prices in Manhattan would collapse?

Oh wait - but according to you NOW, Manhattan real estate is UP 50% IN THE PAST TWO YEARS! So just maybe your infallible timing isn't what you crack it up to be.

"...That said, if someone wants to pay you $6.5MM for your property, if I were you I'd take it. If you figure that after taxes and commissions / fees you'd probably come out with about $1.5 million or slightly more, then if you make the historic average stock market return of 12% on that $1.5 million, it comes out to $180,000 per year, or $15,000 per month, which is a lot more than our "few thousand a month" pure profit that you brag about. You can rent someplace really nice for $15,000 a month...."

Wow, thanks for the excellent insight (and by the way, I was being sarcastic, just in case you couldn't tell). Yeah, except you forget the point that someone else is paying IN FULL my mortgage AND maintenance. Which means my only opportunity cost is the down payment, and whatever associated closing fees were/might be involved. In addition, if I hold the place the minimum two years, my cap gains witholding goes from $250,000 to $500,000, netting me $250,000 of AFTER TAX extra profit on the deal. So I've bought a condo for a very modest sum down, and now it costs me NOTHING, and I'm being given a few thousand a month for the privilege of letting someonelse live there while THEY pay all my costs AND build my equity and net worth. Why don't you run your numbers AGAIN factoring all that information in...

And I've got news for you. Good luck trying to net your mythical figure of 12% this year in the stock market (24% gross).

"12% is the long-term average with reinvested dividends since the end of the Depression."

But this is very different than what an individual can do on their own over the next 5 - 7 years, and that is what we are talking about here.

"But you can buy some pretty good interest rates with preferred stock from Bank of America, for example, yielding about 8% with virtually no risk and a qualified dividend."

Which is taxable I presume, so 5.5% would be a better rate to use for rent vs. buy scenario’s than 12%

"Lose your job"

and you need to sell your place or move out of yoru rental and pay lease break fees. Either way, losing your job sucks.

"if you can find me a brand new 1000 ft2, 2-br, 2-ba doorman building with total carrying costs of about $4,500 a month"

again, you are looking at this the wrong way, do a 5-7 yr schedule and see what the costs would need to be to break even. You can't look at it on a one or two year basis. Doesn't work. You have also figured zero appreciation. Do you really think that you will have zero appreciation in Manhattan over the next 5 -7 years?

You didn't answer my questions about principal vs. interest in the above post. Should you be comparing rents to interest payments? Principal goes to the owner right?

You’ve asked for someone to challenge your numbers and assumptions. I don’t believe you are fairing well in your explanations. Maybe because it is not as straightforward as you originally ranted about?

This thread was hijacked. It was a discussion of open houses. Maybe if anyone wants to continue it (this seems more the discussion that has been taking place in "Where are the idiots" thread, they could move this there or start a new thread. It makes no sense here.

Malraux, I stand by what I said. Buying your apartment for $6.55 million today means you can't rent it out at a profit anymore. Unless you provide me the math with today's prices, not historic prices.

So, what you say is correct - for when you bought your properties. The problem wasn't then - it's now.

Regarding capital gains, you don't get the $250k/$500k deduction unless you live in it for 2 years, not rent it out. The long-term capital gains tax rate is 15% if you own it for more than one year. But NYS/NYC count capital gains as regular income; it doesn't have a preferred rate. And at that level NYC has a property conveyance tax of 1.425% of the gross proceeds, in addition to regular state and city income taxes.

FYI I made 60% in the stock market last year. I don't know what "24% gross" means, however.

Malraux, you made a good transaction when you did - it's just not economic at today's prices. That's my only point, and you haven't provided me any numbers to prove otherwise.

JuiceMan: why would you compare interest payments vs. rental payments. Principal does in fact go to the owner, but I don't see your point. I'm talking about overall carrying costs - out-of-pocket expenses, which over time are the same for buying and renting at any moment in time. Now they are drastically out of alignment (50%/100%, depending on how you look at it). And it is an economic fact that things always come back into long-term equilibrium.

Therefore, not only do I think there will be no appreciation in the Manhattan market, I think there will be considerable depreciation as there has been in the rest of the country. I think prices will fall in the next 5-7 years more than the amount of principal one would pay off in that time.

I heard all these arguments when I lived in Miami. I have a friend in Los Angeles who owns 3 rental properties in San Diego, Los Angeles, and Miami Beach, and he can't sell them now without incurring a significant loss. I told him to bail out; he didn't. When I sold my Miami Beach apartment for $1 million, the woman who bought it was going to "hold it for a few years and flip it." Now she's upside down in her mortgage. The owners of the similar apartment 3 floors up rejected her $1 million offer that I accepted, and they now have their apartment - update! - listed at $795,000, and they've been holding it vacant for nearly 3 years.

Preferred stock dividends are qualified in most circumstances, meaning they're subject to the lower federal rate of 15%. They are still taxable as regular income in NYS/NYC.

Oh, and Malraux: I didn't make any of those predictions that you mention in your post. I don't know where stocks will be at any particular moment in time. I also don't know what housing prices will be tomorrow. I do know that over time, there are consistent ratios: stocks tend on average to trade at a certain forward earnings P/E, so beware of anything trading far above that, and swoop in when it's significantly below that. (Ask Warren Buffet.) And owner's carrying costs and rents are the same over time. When carrying costs fall below rent, swoop in and buy real estate, and lots of it. When they're significantly higher than rent, just wait - it can't hold.

Those are facts; that's how you make money. There's no emotion to it. Cold, hard calculations: valuation. So guys, I've said what I want to say - abide by it or not. Your choice. You want to invest in real estate today, I say do it. I don't: I've seen this movie before.

stevejhx: please provide some support for your claim that overall carrying costs historically equal rent payments. I would have thought the relevant comparison was between:

a) rent, and,
b) carrying costs which don't go into capital (i.e., interest and maint./taxes), as reduced by tax breaks for interest/property tax.

If (a) is higher than (b), then for the equivalent rental payment one could build equity (which should push purchase prices up).

Of course, I recognize the model above should get more sophisticated. E.g., to (a) we need to add some amount for anticipated rent increases and to (b), an amount for forgone returns on capital.

Hey JohnDoe, that's the easiest question that I've been asked so far:

http://money.cnn.com/2007/11/06/real_estate/home_prices.fortune/index.htm

Fortune Magazine: "In most markets people won't lay out much more in monthly costs to own a house or condo than they would to rent a similar property unless they expect a huge profit when they sell. Indeed, speculators chasing quick profits did a lot to inflate the recent bubble."

Then look at the graph of the relative change in prices of rent vs. buy.

And the fact is, the city is now just beginning to feel this. According to the NY Sun a few days ago: "The city and state governments are bracing for a precipitous drop-off in the tax revenues they will receive from real estate transactions." Bloomberg said the same thing recently: real-estate transfer tax revenue has round to a halt - that's why it's so ridiculous to gauge the market based on what's happening at open houses. Who cares how many people there are? What matters is who's buying, and apparently, the numbers say no one.

I love real estate, but the figures just aren't there. You're right it's a complex and sometimes emotional decision - and over a 15 year time frame it's a great investment - but not right now. If any real-estate agents are out there making posts, disclose the fact. I'm not an agent; I'm an investor, & have been very successful at it for a long time.

"Principal does in fact go to the owner, but I don't see your point. I'm talking about overall carrying costs - out-of-pocket expenses, which over time are the same for buying and renting at any moment in time."

That is exactly the problem stevejhx. Without factoring in the equity build up or appreciation, there is absolutely no reason to buy. How can you do a rent vs. buy analysis and not factor in that you are building equity up over time? That is the most ridiculous thing I have ever heard.

kylewest / malraux, I tried. This conversation should definitely be moved to the idiots thread.

Hey JuiceMan, read this:

http://money.cnn.com/2007/11/06/real_estate/home_prices.fortune/index.htm

It addresses every one of your points, and comes down squarely on my side.

In a normal market you would be absolutely, positively, 100% correct. In an upward market you'd be more than right. In a normal market buying makes sense for the very reason you state. But as I say elsewhere, this is not a normal market, and for historical reasons I think it's headed down, and the statistics bear me out. If prices do go down there is no "equity build up or appreciation," so what you're saying doesn't hold true.

I say prices are going down, and they're going to go down faster than your mortgage amortizes. Take this example: Let's say you buy a $1 million property and put down 20%. You get a jumbo 30-year mortgage at 7.25%. If the price of that property falls 20%, then you're down $200,000. To build up $200,000 in equity would take 180 mortgage payments, or 15 years for you to build up enough equity not to be upside down on your mortgage.

Your assumption is that prices will continue to go up or stay the same. If you're correct, then your model works. I say that for historical reasons - outlined in the Fortune Magazine article - that prices are going to collapse. As in my example, the Miami market has already fallen more than 20% and it's still dead. Why do you think New York would be different?

One last thing to put an end to this: give me your assumptions. What do you think the market will do? Go up, go down, stay the same? And based on what evidence?

And then your numbers to support your theory. No one's put down a single number but me, and all my numbers lead to the same conclusion: the historical equilibrium between rental and carrying costs - the same historically until 2000 - is now way out of whack. Everything always comes back into equilibrium. That equilibrium means that property prices will plummet (as they have elsewhere in the country), and that fall will far exceed the speed at which your mortgage amortizes. So if the market falls 20% as it did in Miami you'll be upside down in your mortgage for the next 15 years.

Unless you do math based on a different set of rules...

uhhhhh stevejhx

"...You get a jumbo 30-year mortgage at 7.25%..."

I was quoted a jumbo last week at 6.25%. SO take taht into account on your 'calculation.'

"...To build up $200,000 in equity would take 180 mortgage payments, or 15 years for you to build up enough equity not to be upside down on your mortgage...so if the market falls 20%... you'll be upside down in your mortgage for the next 15 years."

Except that you're assuming the property stays down 20% for 15 YEARS (!!!) and doesn't appreciate at all, which is idiotic. Let's go back 15 years, and do the math based on the assumption you bought a place in 1993, and what it's worth now in 2008. Adjusted for inflation, what's the multiple in value now? 4x more than you bought it for in 1993? 5x more than you bought it for in 1993? 6x more than you bought it for in 1993? 7x more than you bought it for in 1993? More? Me, I bought two investment properties in 1993. The large 1 bed/1 bath with office on lower Fifth in a prewar building was purchased for about $195,000. It's now valued (conservatively) at $1,200,000. Factor THAT in to your 'calculation.'

Your 'math' is so frickin' faulty it's humorous. And the fact that you quote CNN articles is hilarious.

Hey malraux, with a 20% decline in value on a $1 million property with 30-year fixed 6.25% mortgage, it would take you 167 payments, or 13.9 years, to recover your lost $200,000 principal.

Economically, you can set your time frames however you want to get whatever answer you want. But your point is exactly my point: taken from 1998 through 2008, housing prices in Manhattan have increased sevenfold, far outstripping the increase in household income during that time. Historically home prices rise in tandem with household income, which is 1% to 2% above inflation. Therefore, this trend is unsustainable, and it is directly reflected in the differential between rental prices and owner's carrying costs. Rents are tied to household income much more closely than property prices, because they're not leveraged.

I didn't say there would be no appreciation in 15 years. I don't know what appreciation there will be. I was assessing the downside risk. The last downturn in NYC real estate occurred from 1987 through 1993, when prices started to move back up again. That's 6 years. By all accounts properties have gone up far more this time than they did through 1987, so the predictions are for falls in prices of about 28%, and up to ten years to recover. Personally I have no idea how long they will stay down - 6 years like the last time, or 12 years: I just don't know. Nor do I know how long they will take to regain equilibrium. I do know it will happen, however, because it always does.

I don't know why you're so mad at me. I said you made some good investments in the past. You seem to think that because prices increased so much in the past that they'll continue to in the future. I say that because they increased so much so fast in the past, that they'll fall. If that's how you want to bet, that's up to you. I've made my bet.

Nonetheless, the fact that I've done my research and can point you to an article isn't hilarious: it's good investing strategy, doing my homework. Over the long term real estate is a pretty good investment, but not as good as stocks.

What your property is worth today is no reflection of what it will be worth tomorrow. Sorry, that's just a fact. It doesn't enter into any of my "calculations." My calculations are based on historical facts.

Let me also add that in the last bust that started in 1987, 1993 was the turning point; property prices didn't return to their 1987 levels until 1998, and adjusted for inflation until approximately 2000. I know because I bought my first NYC apartment for $217,500 in 1998, and I paid less than the prior two owners, including the person who bought it at conversion in 1983. So the entire down cycle lasted over 10 years, and inflation-adjusted prices fell 25%.

This time I believe it's going to be worse. You can disagree with me, but everything I said is supported in historical facts and trends. I love real estate, and when it's affordable again, that's when I'll buy!

can we save these arguments for other boards, please (like "where are all the doomsday idiots"), and let this thread focus on openhouse anectdotes? Thanks.

A new thread has been opened for this: Sales: Buy or rent?

stevejhx, first, I'd just like to thank you for the way you've been engaging in this conversation. All too often on these boards, real discussion gets lost as people start attacking each other. I'm glad you've remained on point and not taken the bate.

Second, you asked for numbers. Let's look at the following - what appears to be the same apartment, listed for sale for $1M, or for rent at $4500/mo. common charges of $474/mo and taxes of $962/mo.

http://www.streeteasy.com/nyc/rental/257717-condo-1438-third-avenue-upper-east-side-new-york
http://www.streeteasy.com/nyc/sale/126324-condo-1438-third-avenue-upper-east-side-new-york

Suppose a buyer puts down 20%. With a 6.25% mortgage (with 30-year amortization), monthly mortgage payments are $4,925.74. Adding in common charges and tax brings us to $6,361.74. Now, however, we need to account for tax deductions. In the first year, on average, $4,144/mo. Additionally, the $962 in taxes is deductible, so there's over $5k/mo. in deductible payments. Assuming a 40% marginal tax rate (quite reasonable assumption in NYC - anyone in the 33% federal bracket has this), the savings are over $2K/month - $2,042.66 to be precise. So, the post-tax monthly cost is $4,319.07. This is already less than $4,500/mo. Even better, the $4,319.07/mo. includes $781.20/month going into principal. So, the monthly payment not going into equity is $3,537.88.

Now, one big thing missing from this calculation is the opportunity cost on the $200K down payment. If we assumed a return of 6.25%, that would be $12.5K/year, or $7500/year after tax - which would add another $625/month to the cost - bringing it to $4,260/month or so, still slightly less than the $4,500 in rent.

Thanks JohnDoe. That is a really terrific analysis. Also, there probably will be a price appreciation if the buyer plans to stay for at least 3-5-7 years, so that should more than balance out the costs of the down payment.

Just a couple of minor points to be objective: the buyer would have closing costs, probably about 50k with a condo; also, I am not sure a lot of us can benefit from the property tax deduction as long as the AMT is in place. Still, I think these are just a couple of minor isues --- overall, your analysis stands.

Actually, the AMT is a big issue which makes renting more favorable for many ( perhaps most ) New Yorkers. The tax benefit is really minimized which results in owning being a lot more expensive.

Your analysis is good, except your tax rate is wrong: you have calculated not a marginal tax rate but a net tax rate. The actual amount of the tax savings is far lower than that, since income is taxed in bands, not the way you've done it: 40% off the top. The net tax rate would probably be something around 25%. Also, your market return is about half what the historic stock-market return is over time, so it would be twice that.

Here's another kick: is that a reasonable rental price, or is that what they're asking for to break even (as it would seem to be)? I just went to NYBits and found these no-fee rentals on the UES:

* $3,770 1-Bedroom apartment at The Camargue.
* $3,525 1-Bedroom apartment at The Camargue.
* $2,395 1-Bedroom apartment at 226 East 81st street.
* $3,150 1-Bedroom apartment at Carnegie Hill Place @ 1501 Lexington.
* $4,695 2-Bedroom apartment at Carnegie Hill Place @ 1501 Lexington.

So it would seem that $4500 is an unreasonable asking price for a 1-bedroom rental, based on the competition, which is priced considerably lower (and no fee!).

Nonetheless, your analysis is not quite the way the historical averages work: it's the gross carrying costs that are the same as rent, not the cost factoring in the tax benefit. So historically, what's the same is your $6,361.74 vs. $4,500.00. Based on that analysis - which isn't what real-estate agents tell you - the property is still overpriced. (And I wonder about those common charges - they seem mighty low to me!)

Will does add a good point about AMT and property taxes. However long the buyer stays in the apartment won't balance out the cost of the down payment, however, since that keeps accruing over time. It will, though, mitigate the chances of losing principal.

Here's my conclusion: rent the property for what appears to be the area average of $3,400 for a 2-bedroom, or lower the price 20%. Honestly, I'd buy it for $800k.

And I meant "1-bedroom," not "2-bedroom."

Steve, all apts. aren't created equal... taking your pt. to it's logical conclusion you are comparing a one-bedroom on a high floor in a doorman/luxury/high rise to a lower end walk up... you could probably get a walk-up one-br co-op for 800K

Will, we've been through that with the apartments in Chelsea. It was still overpriced, remember? Twice as much or half as much, depending on which side you look at it from.

We don't know the specifics of those apartments that JohnDoe mentioned because they don't say, but go here to see all the apartments listed on the UES:

http://www.nybits.com/search/upper_east_side.html

Them there's some nice apartments, and way cheaper than $4,500, which is what I pay in Chelsea, which is a lot more expensive than the UES. I know that people are "asking" $800k for a 1-br walk-up co-op, and my point is - look at the rental competition. Property is overpriced

Four thoughts:

1) Marginal tax rate is what's relevant. This is because the deduction serves to lower taxable income, so it results in your income within the highest bracket not being taxed. E.g., if you have $250K in income and $50K in interest deductions, the difference in tax liability is between what you will pay on $200K and what you would have paid on $250K, or the amount that last 50K would have been taxed - which is at the higher rate applicable to income at that level (33% federal, i believe).

2) Financially, it wouldn't make sense for gross carrying costs to be the same as rent. That would make buying way cheaper because of (a) the interest deduction, and (b) the buildup of equity. I havea hard time believing that's the long-term equilibrium (though, of course, I'm open to being shown otherwise if there's a credible statistical source you can point me to - the vague mention in the article you posted in the other thread that people won't pay much more for carrying costs than rent a) doesn't discuss how much more they are willing to pay, b) doesn't cite any statistics on that point, c) doesn't appear to be written by someone with very much financial sophistication, and d) doesn't mention gross (as opposed to net) monthly costs.

3. Agreed that AMT can complicate things for some people. Only really applies to the portion of your payment that goes toward RE taxes...which is quite low as compared with interest expense, and even lower if we start talking about co-ops.

4. The apartment I listed is a new, luxury condo, in a full-service building, which will of course command a significant premium over the places you list.

stevejhx:

"...Economically, you can set your time frames however you want to get whatever answer you want..."

Exactly - so don't talk in absolutes and infer that over 15 years Manhattan real estate will be down and stay down 20% when you make your 'calculations.'

"...But your point is exactly my point: taken from 1998 through 2008, housing prices in Manhattan have increased sevenfold..."

Which you didn't and still haven't figured into your 'calculations.'

"...I didn't say there would be no appreciation in 15 years. I don't know what appreciation there will be...."

Exactly. So your 'calculations,' at best, are sheer guesses. Your constant whinging "these are the numbers, these are the facts, end of story" is specious.

"...The last downturn in NYC real estate occurred from 1987 through 1993, when prices started to move back up again. That's 6 years. By all accounts properties have gone up far more this time than they did through 1987, so the predictions are for falls in prices of about 28%, and up to ten years to recover...."

Wrong again. Assuming your mythical 15 year time span starts in 1987 and ends in 2003, and assuming one agrees the decrease of 28% which you toss out from 1987-1993, by 2003 prices hadn't only 'recovered,' as you describe, but had exploded many, many multiples of the original 1987 purchase price. If you're going to discuss NYC real estate historically, at least do it correctly. I was living in NYC and buying my first places in the 1980's so I personally lived through that time period. Do you only know what read, or have you experienced this phenomenon first hand?

"...Personally I have no idea how long they will stay down...I just don't know..."

Exactly.

"...Nor do I know how long they will take to regain equilibrium...."

Exactly.

"...I don't know why you're so mad at me...."

See your posts above.

"...You seem to think that because prices increased so much in the past that they'll continue to in the future..."

I NEVER said such a thing, nor did I even INFER such a thing.

"...Nonetheless, the fact that I've done my research and can point you to an article isn't hilarious.."

Uh, yeah it is, if pointing to a CNN article is what you mean when you say "I've done my research." My "research" is having lived here and invested my own hard earned money in Manhattan residential real estate for a almost a quarter of a century.

"...What your property is worth today is no reflection of what it will be worth tomorrow..."

Wow, thanks for the tip! (...he said sarcastically...)

"...My calculations are based on historical facts...."

No they're not. They're based on assumptions about things you have little no personal experience with, faulty logic, graphs and charts from CNN, and random math which anyone can make say whatever they want depending on what numbers they choose to plug into what formula. It's not that I disagree with your basic thesis - in most cases (not all), buying Manhattan residential real estate right now with a short term time horizon is probably not something I would suggest as a wise portion of someone's investment portfolio. It's your habit of spraying posts on every streeteasy board like a stray dog marking every corner in the neighborhood, your 'calculations' foisted off on people as if we're all second graders learning long division from you for the first time, and your generally smarmy, Mr. Know-It-All attitude. It isn't WHAT you say, it's HOW you say it.

Sorry to butt in on your lengthy discussion. Just found out about this website. Pretty cool. I'm almost ready to drop my price on a gorgeously renovated 1890 Harlem place; see: www.tregny.com $519,000. Been on the market since before Thanksgiving with no offers. What's a girl to do?

I just say again, it confuses the usefulness of this forum to hijack threads. This was an open house thread until Steve's comments shifted it to Buy vs. Rent. It's free to start threads on topics. Please stop making it impossible for people to plug into topics of interest by changing the conversation to things unrelated to the thread. START A NEW ONE AND USE IT, pleeeaase.

Hey, kylewest, you're right, this is the wrong forum. There is another thread for his - people please use it!

Regarding this one, I just mentioned it with no intention of hijacking it. People just went with it. Sorry: not my intention. I merely said, "Why would anybody buy when it costs half as much to rent?" and that started this huge, angry discussion. Just to close with a few parting thoughts:

JohnDoe:

1) Marginal tax rates are what's relevant, but your calculation didn't use the marginal tax rate. You took 40% of everything, not 40% of the top margin. Not the same thing.

2) Whether, "[f]inancially, it wouldn't make sense for gross carrying costs to be the same as rent," makes no difference. What makes a difference is that that is the historical ratio: most people look at the top line - out-of-pocket - not the bottom line. Don't know why, it's just true. They usually only use the bottom line when they're trying to afford something they can't, at which time they forget to calculate the opportunity cost of the lost income on the down payment, which over time tends to offset the tax-deduction effect.

Malraux:

I didn't cherry-pick my time frames from the past; I took the past period including today. Makes a huge difference. If you pick today and work back to any period in history - any day from the end of WWII until now - you'll get the same results:

1) Compare the change in median prices for Manhattan apartments to the change median incomes, and you will see that the median price increases have exceeded median income increases by many fold, and AT PRESENT that ratio is higher than it has ever been, far above the historic average.

2) Compare rents to top-line carrying costs for purchasing apartments from any date in the past until today, and you will see that AT PRESENT that ratio is higher than it has ever been, far above the history average.

My point is: ignore these facts at your peril. Start from any date from WWII and continue through the present. These ratios are far above their historic norms, and everything always returns to its equilibrium. I made no assumptions, just looked at the data. In fact I am an economist, and I have owned real estate in NYC, on Long Island (still do), and in Miami Beach (where there's been a major crash) so I do have personal experience with it.

I wish you all luck with your investments; if you made them years ago you'll be fine (I think). The woman who bought my Miami Beach apartment is $200,000 upside-down on her mortgage. I have friends who invested in real estate who are now near bankruptcy. Caution is urged.

Peace.

Now, KYLEWEST IS RIGHT: PLEASE USE THE NEW THREAD

Steve, maybe you should go to some open houses today, perhaps in Miami or Detroit.

keep making up #'s steve.

i sold my 2 bedroom in the west of union sq not quite chelsea area 7 months ago for 1.3, absolute top of market. looked hard for a rental in same general area (just needed a place for a year while new place is finished). you know what 5000 gets you in this area? crap. ended up paying 7800 for a smaller (although nicer, so net net probably about a wash) place than I had. you do the math.

is renting cheaper than buying at the moment, probably yes in many cases but its nowhere near 2x.

you want to live in crap go ahead, but don't compare crap to luxury and draw false conclusions.

Maybe Miami Beach, Tony: there's been another price drop on the apartment 3 floors above the one 1 sold for $1 million 2 1/2 years ago: now down to $750k!

25% fall - bet if I offered $700k I'd get it. (30% fall!)

According to StreetEasy, there are 1829 open houses scheduled today in Manhattan. I'd better put on my walking boots!

ccdevi, go to NYBits.com - plenty of good apartments there. I pay $4,500 for 2-br 2-ba in a brand-new building in Chelsea. I'd cost me $9k to live in indigo-21, across the street, if I were to buy.

If you're in a Related Rental, I think you didn't look hard enough, because they're the most expensive ones in the city.

If you think I'm "making up #'s," use the other gauge: equilibrium between buying and selling is generally considered 20x the annual rent.

PLEASE USE THE OTHER THREAD, GUYS!

Go for it Steve. And as soon as you step outside, you'll realize you're not in Florida anymore!

Tony: Yet! No amount of wishful thinking by real estate agents and investors can affect the power of market equilibrium. Remember in the dot.com bubble days, all the talk about "The New Economy," trying to justify the outrageous P/E ratios for companies with barely any - if any - E?

That died a death, too, didn't it?

Now: PLEASE USE THE OTHER THREAD, GUYS!

Yeah, Microsoft and IBM are really hurting now. That's the analogy I'd make to the dot.com bust.. the strongest will be just fine and continue to thrive. Not to say they won't be made nervous by the gloom and doomers!!

Now you go to the other thread, Steve.

what am i missing, can't find all these good 2 brs you're talking about at 4500. 4500 2 bedroom in chelsea? must be absolute garbage.

as for the 20x thing, i never knew that, but if I'm understanding what you're saying, I don't see how that proves your point. For instance, my 7800 2 br, are you saying the equilibrium price would be 1.872?

Okay, ccdevi, here goes. I asked you to use the other thread, but below you will find a list of the no-fee 2-bedroom apartments currently listed on nybits.com. If you're really paying $7,800, you're getting screwed. Unless you think that every last one of them is crap.

And Tony, FYI: Microsoft's peak share price during the dot.com boom was on January 21, 2000, $51.875 per share. It closed on Friday at $27.68. If you merely adjusted the $51.875 by inflation from 2000, it would be $63.81. So, on an inflation-adjusted basis, Microsoft's share price is about 57% BELOW it's January 21, 2000 historic high, during the dot.com boom.

You people REALLY don't know what you're talking about.

FYI ccdevi, current 2-bedroom listings in your area:

Rent Where / What

Apartments in Central Village:
$3,305 2-Bedroom apartment at 11 Waverly Place
$3,500 2-Bedroom apartment at 11 Waverly Place
$3,600 2-Bedroom apartment at 11 Waverly Place

Apartments in East Village:
$2,300 2-Bedroom apartment at 112 East 7th street
$2,355 2-Bedroom apartment at 394 East 8th street
$2,575 2-Bedroom apartment at 417 East 9th street
$2,895 2-Bedroom apartment at 394 East 8th street
$3,000 2-Bedroom apartment at 256 East 10th street
$3,000 2-Bedroom apartment at 256 East 10th street
$3,000 2-Bedroom apartment at 256 East 10th street
$3,650 2-Bedroom apartment at 64 Third Avenue
$4,495 2-Bedroom apartment at 147 Avenue A

Apartments in West Village:
$4,795 2-Bedroom apartment at 95 Perry street
$5,500 2-Bedroom apartment at 92 Grove street
$6,280 2-Bedroom apartment at Morton Square

Apartments in Chelsea:
$3,750 2-Bedroom apartment at 150 West 21st street
$6,295 2-Bedroom apartment at The Tate
$6,570 2-Bedroom apartment at Archstone-Chelsea
$6,615 2-Bedroom apartment at Archstone-Chelsea
$7,010 2-Bedroom apartment at Archstone-Chelsea

Apartments in Gramercy Park:
$2,850 2-Bedroom apartment at 346-350 East 20th street
$3,550 2-Bedroom apartment at 336 East 18th street

Yes, ccdevi, 20x annual rent is another standard often used to gauge whether a property's price is too high. I pay $4500 a month - quite possible, right in the middle, as you can see. 20x that is $1,080,000. I have a 2-br 2-ba, 1000 ft2 apartment. The average per-ft2 listing price in Chelsea is about $1,400. That would mean that to buy an apartment essentially equivalent to what I rent for, I would have to pay $1,400,000 for it. 40% above what my rent is.

No matter how anybody does the math - provided they do it correctly, like calculating "marginal tax rates" as "marginal tax rates," not "total tax rates," and using real rental data from real rental buildings who are really in the business of renting, not wishful-thinking prices from buyers who want to rent their apartments to cover their costs - then everything is currently overpriced. And from a historical perspective the same is true. All the numbers come out the same. I don't know why people want to argue with me.

Now: THE OTHER THREAD, PLEASE!

And that 40% doesn't include property tax or common charges, making up the rest of the difference.

i didn't look at all these, but um yes the ones i looked at, which were the cheaper ones not the 6k+, were garbage. some there are no details, some aren't even real 2 bedrooms, some only 1 bath, crappy buildings, just crap. dude, i looked around, not just on the net, i actually went and looked, and for 5000, 2 brs, 2 ba, in chelsea, flatiron, usq area, it was crap. sorry.

please answer my previous question about equilibrium, thanks.

thanks for your answer but disagree with your conclusions, that means my place at 7800 a month, which is in a related building, would reasonably fetch almost 1.9, to be 40% overpriced it would be 2.6. I can asure you the market is not pricing a similar place at 2.6, i would be pretty surprised if it was more than 1.9. another example. my new construction 3 bedroom, by your math to be at equilibrium, i'd have to be able to rent a similar place for about 11k, sorry can't be done. and for your its twice as expensive to buy thing to hold up, I'd have to be able to rent it for something like 7k. what am i missing?

We overlapped, but I did answer your question on equilibrium (I think). If you're paying $7,800, then that if that apartment were sold for more than $1.8 million, it'd be overpriced. As a rule, take the square feet and multiply it by the average for the area, $1,400. Your apt. would have to be about 1,300 sq. ft. (more than I have) to justify that sale price.

No doubt some are crap - seen them myself. But some are good, including where I live. 21 Chelsea has a 1-br up for $3,100 right now, and 2-br's there (which is what I have) don't go for twice 1-bedrooms, since they're not twice as big. B&L Management has lots of good buildings throughout the city, relatively inexpensive. Related is super-expensive - I used to live in one of their buildings.

How did I guess it was a Related building? They're super-expensive!

If you're in Union Square South, the two-bedroom oddly laid out apartment I see looks like it's about 1200-1300 sq. ft. If it is, at the average price per sq. foot, that would be $1,680,000 - $1,820,000.

Here's a 1323 sq. ft. apartment at Archstone Chelsea for $6610.

http://www.nybits.com/apartmentlistings/c266616e07b5c0be9fa7802a369cded3.html

The 20x rule gives you a price of $1,586 million, but at $1,400 sq. ft., the apartment would cost $1.852 million.

Looking at it a different way, taking out a standard 80/20 mortgage would give you monthly mortgage payments of $9,122. Add maintenance ($1,000 month) and (unabated) tax ($1,500 month) and you get carrying costs of approximately $11,622, that is, nearly twice the monthly cost of renting the place. There is some tax benefit for mortgage interest, but a) it's generally offset by the opportunity cost of not investing the down payment elsewhere; and b) it's limited to a $1 million mortgage; and c) your property tax deduction may lead to AMT.

These figures are approximate; I don't know the square footage on your apartment - $1,350 by your math? But if you go here:

http://www.prudentialelliman.com/MainSite/NHD/NHDInfo.aspx?id=228&loc=0&PageName=residences#BuildingListings

there is a listing at the Chelsea Stratus to buy (rather than renting, as in the prior example) 1555 square feet, at $1,500 per square foot. Better building than where I live, nicer view, $2.4 million. Maybe you could get it for $1,400 per ft2, but I don't know if you can rent a 1555-ft2 apartment in a rental building for comparison purposes - they're few and far between, because rental apartments tend to be smaller than condominiums.

Beyond this, I don't know what you're "missing" because I don't know the details. As another measure, ou should be able to break even by renting your new apartment. That is, the rental income should cover the carrying charges (including tax abatements, btw, since they've been phased out of Manhattan). If your carrying costs are $11k per month and you can't rent it out for $11k a month, then it's overpriced on a historical basis.

There are a number of ways of looking at this, but none of them that I can find supports these property prices.

I think the rule is more like 25x which is 4% or about 6% pre-tax. Jumbo mortgage rates are in the 6-7% range (30 year mortgage).

Steve and Matt are talking about the capitalization rate or "cap rate", which is the rental income as a percent of price. 4% is a VERY low cap rate, and would require assumptions of price appreciation that probably are unrealistic over the next few years. As Steve suggested, take the price of the apartment, figure out annual costs (say 80% mortgage at 6%, plus taxes of 2%, gets you to 7%), assume depreciation benefit matches maintenance costs, and compare that with the rental income (25x -> 4%, 20x -> 5%). So to just break even, you'd need something like 3% price appreciation, with zero transaction costs for buying/selling... and that's if you're okay getting a 0% return on your down payment.

Either rents need to rise or prices need to come down -- a lot, as Steve suggested.