The Death Knell of Manhattan Property Prices!

Wait! Spunkster! This must be a mistake! A property whose listing price actually went DOWN!

Price History

09/10/2007 Listed in StreetEasy with Warburg at $4,000,000
10/09/2007 Price decreased to $3,795,000
01/16/2008 Price decreased to $3,495,000

Make them take it off this website!

And Spunkster, just FYI: the average of those prices is $3,763,333, the median (and I stand corrected on the term: my bad, my bad, my bad!) is $3,795,000, and the standard deviation is $253,984.91.

why don't you give the building info so we can all see your full of BS as usual

Steve - I have been trying to find the energy to post for a while but with the large amount of nonsense flying back-and-forth, I figured it would just be a waste of breath.

Anyhow, I do not agree with your projected extreme NY price cuts. I do think that the housing market is inflated relative to incomes; however, my view is that NY will not have CA style price drops. It is not a sprawling suburb with a bunch overextended ranch homes. It is a world class city that I would not compare to other places in this country.

Earlier you listed countries and the percentage of ownership vs. rentals; comparing the U.S. to England is not the same as comparing NY to London. And I do believe that comparing prices in NY to London or Paris or Hong Kong (etc.) is fair. Anyhow, I'm just playing catch-up to previous posts, my real point is:

I don't believe that housing prices will adjust to income. Thanks to our good friend (jackass) Brenanke and his spree of interest rate cuts, we will experience a dramatic rise in income - unfortunately, that will be fueled by something that we call inflation; so, in my opinion, we will see a flat housing market for a while - then, people in the workforce will get to enjoy the experience of $8 milk followed by rising wages - the good news: your housing prices will remain somewhat flat and the government has once again fixed the social security crisis, your $2,000 a month check is now really only worth $1,000.

Why will this happen?
Greenspan cut interest rates like a madman so that some dopes that stuck "dot com" at the end of their company names and called it a business could get bailed out - little did he know that as a result of that, sleazy brokers were selling mortgages to uneducated/unsuspecting souls who thought that getting a 3.2% interest rate for 3 years -- on a house that they couldn't even afford at that rate -- was a good idea. That poured a nice foundation for inflation, and then the dollar started this lovely decline which Bush actually claimed was a good thing because it would, get this: "help the trade deficit" (that was unbelievably insightful). And then, Greenspan woke up and realized that 0% interest rates didn't really work for the Japanese and started raising rates again, at a pretty quick pace, so that all of those people who took out mortgages while Greenspan was bailing out the computer geeks running businesses from their garages (I mean 18 year olds need to buy their Maseratis, right?) could find that their 3.2% rate was actually going to reset to 7% instead. Then we got ourselves into quite a bind, and that's when Brenanke came along, and then, he realized that all of the poor banks (the ones that profited off of the low interest rates from the "dot com" bailout) were in trouble, so the logical thing to do was to start dropping interest rates again so that we could bail them out too. Not only that, but even more aggressively than Greenspan. If you didn’t sense the sarcasm, then I’ll just take this line to point out that I am being sarcastic.

Now, that's "real world econ-101" for today. One of the first things that you will learn is that cutting rates (he’s cutting all rates, discount and fed fund), injecting money into the economy, growing the deficit to all time highs, injecting billions of dollars into the financial sector: it's all the modern day equivalent of printing money that you don't have. Monetary policy takes a long time to have an impact on the economy, the inflation that we are starting to see now is probably still a result of Greenspan's cuts, wait until you feel the effects of these -- starting in September; interest rate hikes like you've never seen before. Ask the Russians what happened when they started to print money like it was going out of style.

I am not trying to say that a deep recession or a depression would be a pretty thing, but they are market corrections. They happen and they are needed. We can try and put band aids on the problem but in the long run, the effects of short term fixes will be outweighed. Does anyone remember the 70s and early 80s?

So, in my opinion, we could have let the market correct itself and we would have seen huge consolidation in the banking sector and an even more dramatic decrease in housing prices – I’m not saying that it would have been my preference, but that was the other option.

Fortunately/unfortunately (depending on how you look at it), I believe that NY could have seen a crash in the housing market, but the current prices are more sustainable than the rest of the country because of the more restrictive housing market (co-op boards, higher demand and less supply) which has allowed us to stay ahead of the rest of the country so far, and even if you consider it a "lag" I think that inflation will come and further stabilize the housing sector...and Steve, that is what is left out of your analysis (or you may not agree with, which is fine, that’s why it’s an analysis), with inflation comes increased wages (although not real wages) and that will help sustain the prices, as you saw housing prices skyrocket, I think that you can expect to see prices in other sectors do the same and that will be followed by wages (not driven by the increase in housing prices but rather, the decrease in interest rates). I am not saying that is any better, but that is why you won't see a drastic drop (greater than 15%) in NY (Manhattan area and "fringe") gross prices.

ohhh, by the way, I'm also assuming that your previous post about buying a studio for the price of renting a 2br-2ba is acomplete exaggeration. Otherwsie, I also take issue with that comment.

I do feel that most of your posts are very smart and well thought out though.

I just see thigns a diffirently.

Spunkster, you fall into every trap:

http://www.streeteasy.com/nyc/sale/106023-coop-139-west-19th-street-chelsea-manhattan

And as for the "average," this from wikipedia: It is sometimes stated that the 'mean' means average. This is incorrect if "mean" is taken in the specific sense of "arithmetic mean" as there are different types of averages: the mean, median, and mode. For instance, average house prices almost always use the median value for the average.

What you might want to do, Spunkster, is take the "mode" of all similar listing - studio, 1-br, 2-br, etc. - which will give you the most likely value within that dataset. It is a far better predictor of prices than what you have chosen.

Lobo: you can't say "I don't believe that housing prices will adjust to income" because that's not something to believe in or not. It's like saying, "I don't believe food prices will adjust to income," because if no one can afford food, no one will eat.

Then, fixed mortgage rates are tied to long-term interest rates, not short-term interest rates, so Uncle Ben has no control over them.

Co-op boards may have had some effect, but they did not stop people from taking out ARMs, which is the bulk of the problem.

Everyone in the past has said that Wall Street was propping up housing prices. Now that that died, they come up with something else. Time to be consistent here!

NYC will always be relatively expensive compared to most other places. Agreed. But by definition it must be affordable to the people who live here, else no one will.

How do you get around that, lobo?

And no, do the math, compare an 80% 30-year fixed mortgage + maintenance, cc + tax to what rentals are going for. Get good rental information from nybits.com.

Hey guys, any thoughts on starting a Spunky Thread, to compete with mine?

You do deserve your own thread, spunkster! Look at how this website lists its listings:

"Medians for listings from past 60 days from StreetEasy data. Excludes some extraordinary properties. No representation is made as to the accuracy of this data."

Notice: MEDIANS! Notice: EXCLUDES SOME EXTRAORDINARY PROPERTIES!

Why do you think that's so, girlfriend? What does it say about all your banter from before?

spunky, why did you bring those ppsf averages into this discussion? It's clear you wanted to demonstrate that prices aren't falling/won't fall in the near future. All West81st and I have tried to do here is show you how using those figures as a be-all, end-all argument for your position is tenuous at best. No, we shouldn't discount the Plaza and 15CPW - they DO count - but you a) completely failed to recognize their very high degree of influence on the data; b) act like these properties shouldn't be looked at differently AT ALL, when it's clear that most people cannot even consider these; c) imply that similar properties will be available in the near term and sold at the same level of insane prices; and d) somehow infer that sales and prices from the past are accurate indicators of what's going to happen now and in the near term. As urbandigs, stevejhx and other have been trying to pound into the impenetrable fortress that is your head, we're dealing with the NOW now. Get it? So quit getting all snippy and assume we're all predicting a crash - I'm certainly not, but I'm not going to extrapolate from a set of numbers and not consider all the implications and reality of the situation. That's irresponsible and dumb.

Very well put, bjw2103! Especially, "the impenetrable fortress that is your head."

I liked that!

Spunkster, you can do another evaluation, as well: streeteasy lets you pull up a list of listings whose prices have changed within a certain number of days. You should take a look at that, compare how many up and how many down, not only as marked but especially as relates to the original listing price. (Sometimes prices go up and down several times, meaning that what's an up from the last price might still be a down from the initial price, and vice versa.)

I just skimmed which way listings were headed, and they're not in your direction.

Great example Stevejhx too bad the building only had 2 units that sold in the last 3 years all well under that price which appears to me hyper inflated.

Spunkster, what are you basing your "hyper-inflated" conclusion on? You don't know anything about the other two units that sold, do you? How big they are, what views they have, have they been upgraded, DO THEY HAVE A 3,400 FT2 TERRACE?

For instance.

All I said was that the price dropped. This year. Not 2 or 3 years ago. We all know that even if they are the exact same apartment, the price will have gone up in the past 2 or 3 years. No news there. We're talking about the here and now and the short- to medium-term future, now what happened 2 years ago.

Talk about talking out your arse!

And to show you HOW MUCH you were talking out your arse, Spunkster, if the square footage of that apartment is correct, then the original price comes out to $1,176 psf, below the average for the area, if you include the outdoor space. Now it comes out to about $1,000 psf, and maintenance is only $1,700 for a $3.5 million apartment.

That's cheap by comparable standards, Spunkster.

Wow! You are a piece of work!

I know this building and there's no way even the current price will stand. A bad month for this cat. Oof.

02/02/2008 Listed in StreetEasy with Corcoran at $4,200,000
02/22/2008 Price decreased to $3,750,000
03/11/2008 Price decreased to $3,450,000

stevejhx, as much as I like to bust spunky's balls, you can't count outdoor space in those calcs.

But stevejhx the BS artist believes it's priced correctly. I like the way you value outdoor terrace square ft price the same as indoor. Go back to your mean and median comparisons at least that made more sense.

bjw, yeah I know it's not calculated in the exact same way, but when it's that size it is counted. Not a Juliet balcony, if you look at the floor plan, and we don't know what rights they have on the outdoor space.

Jerkstore, the whole market is in a funk. Except for the special properties that Spunkster owns, which are worth a premium because they have the Spunkster Imprimatur on them. LOL.

I'm glad you understand the statistics now, Spunkster.

Large outdoor space is worth a fortune in Manhattan. It's not worth the price of indoor space, that is true. But it is worth a lot.

So Spunkster, let's say that apartment is 1,700 ft2, 2-br. Here are the listing statistics for Chelsea:

We found 457 listings with at least 2 bedrooms
Median price: $2,150,000 Median size: 1,582 ft² Median price per ft²: $1,376

At just the median price, that apartment - excluding the outdoors space - would list for $2.34 million. Of course it's a penthouse with 1,700 ft2 outdoors. Means it's worth a lot more than the median, right?

Chelsea Stratus just sold a similar-sized apartment with a tiny balcony for $3.2 million. Seems to me that 1,700 square feet of outdoor space is worth the difference, right?

Steve, my point is not that I don't beleive that housing prices will adjust to income. I agree, they are related. My argument is that inflation will cause a flase sense of rising income - and other prices (food, transportation etc.) will rise as well. Therefore, the gross price of your home, $500,000 today, will not drop becasue inflating prices will increase you income and bring it more in line with current prices.

Second, read my post again, I am not claiming that interest rate cuts have anythign to do with mortgage rates, I am caliming that they are causing inflation, hence leading to higher prices and incomes. That he does have control over.

Lastly, while co-op boards did not stop people from taking out ARMs, it did lift many of them out of the subprime category by ensuring that they were qualified buyers - so it makes it less likely that they will be losing their home. 25% down, 2 years of liquid assets to cover mortgage payments, income etc...

I don't know that we disagree on what you have said in the past other than the fact that Bernanke is cutting interest rates like a mad man and he is causing inflation.

further to that, your comment about food prices is exactly what I was getting at - food prices do not come down to adjust to your income, income rises to adjust for food prices. It's called inflation.

It may seem like a solution to the probelm now but try telling that to a 65 year old on a fixed income.

You seem to have reversed what I was saying in my previous post inflation. And the only time that I mentioned mortgage rates as they applied to fed rates in my previous post was when referring to short term ARMs - which as you say are tied to each other. At no point did I imply that it affected long term fixed rates.

I hope that gets us on the same page.

p.s. sorry for the typos, I am on a mobile device.

stevjhx I am glad everyone else knows what the hell your saying because I don't. Can someone please translate stevejhx last posing?

that's last posting, sorry.

lobo - I hope you're not driving on using your mobile device, too!

Unfortunately, although there is food inflation, overall I think we're in a deflationary period. I won't repeat what I've said before that owners' equivalent rent after 2000 ceased to be an accurate measure of housing inflation, which makes up 40% of the CPI. As property prices collapse rents will go down to match them.

Uncle Ben can do little about commodity price inflation. Except for (stupid) ethanol, most of it is caused by BRIC.

I agree that co-op boards had an effect, but not a major one. And since 2000 most mortgages in the outer boroughs were subprime, which of course had an effect on Manhattan.

lobo--i often don't know what stevejhx and I are disagreeign about either. Glad I am not the only one..but I have come to like stevejhx.

Hey--where is urbandigs these days?

Hey--where is urbandigs these days?

Answer stevejhx took over he is the now new Urbandigs. Out with old in with new.Although it appears to be out with the young in with the old

Hey--where is urbandigs these days?

Answer stevejhx took over he is the now new Urbandigs. Out with old in with new.Although it appears to be out with the young in with the old

No more Spunky!? Come back, Spunky! Come back!

My last post is clear: judging by the price sold at Chelsea Stratus, that condo you called overpriced seems just about right. They're called "comps" in real estate.

Have we really defeated the Spunkster? Say it isn't so! Have the data been too much for her? Medians, modes, and standard deviations? Has reality sunk in? Did she look at all the downward listings on streeteasy and get dismayed?

Or did she not understand "the Spunkster Imprimatur" and why it's so important in Manhattan? Sort of like a blue plaque in London: "Spunkster owns this." Makes prices shoot through the roof.

Oh, spunkster, sticks and stones....

Surely you can do better than that!

stevejhx have you ever thought that you have an addictive personality. If alcoholism is in your genes why wouldn't other forms of addictive behavior like writing 200 posts on a daily basis 24/7. Well I guess it's better to be addictive to a message board than to alcohol.Your right I can't compete with your addiction neither can anyone else.

http://www.cnbc.com/id/23725629

http://www.cnbc.com/id/23726218

I really think Manhattan is going to dodge any major bullets. Doesn't mean no decreases here or there for a while. I see a buyers market with flat listed prices and a lot of room to negotiate. No crash. No burn.

I do enjoy a good drink now and then, Spunkster. Only top shelf, though.

Not compete with me? You've been at this for months. This is my thread, and I'm loyal to it.

If I weren't so bored with the work I'm doing I'd probably be doing this less, but it is fun dealing you near-fatal blows all the time.

No opinions on what people have been saying about your "average" prices? What happens when property prices exceed income levels? When banks are no longer allowed to make risky loans? None of this will affect the market in your opinion?

Im here. More fun to read than to write. Your ugly, no your ugly, no your ugly, well your fat. No your fat. No your fat. Well, you have a small prick. No way, my prick is bigger than yours. I dont think so man, mine is the biggest.

Oh yea, well your stupid. Take that.

Who can beat this commentary!

Urbandigs, that is the greatest post of this entire thread!

LMAO.

Holy shit I actually have to agree with stevejhx that was hilarious.

Will, what do those cnbc articles have to do with what we're talking about? I've said all along that this is a "fake" crisis in terms of Wall Street - it has to do with accounting more than anything. What is real, however, is that bonuses or not, Bear Stearns' employees were wiped out, Merrill is going to cut 20% of its staff, Citigroup is going to cut 30,000 employees.

It's not because anything is wrong with the banks - I predict they'll recover 90% of their losses once the subprime thing straightens out. The problem is they won't make any more of those loans, and it will be illegal to lend people money that they can't afford to pay back.

What kind of stupid law is that?

And urbandigs, kudos again. Perhaps the best post of all time.

Whoever thought stevejhx and urbandigs might be the same person is likely right. Which makes me cringe to think there was a fleeting time where I was getting morbidly attracted to stevejhx...

Yeah, there is something morbidly sexy about Steve. I was getting ready to drink the kool aid.

Gutted, Steve. Gutted.

If I were able to babble on about inflation and drive at the same time I would have to be pretty amazing, unfortunately I am not.

eah, I have come to enjoy reading steve's posts too; I don't take them as arrogant, it is hard to judge a one’s personality through informal writing – you can’t really make out tone without facial expressions etc.

Steve - I am not trying to claim that we are currently experiencing inflation, I am well aware of the fact that what is currently being called "inflation" is due to asinine energy policies causing tortilla prices to rise for the Mexicans ... blah blah.

I am making a projection as to what will happen as a result of these interest rate cuts.

Greenspan started raising them out of fear of inflation (from his own cuts) - and right when we seemed to be getting back on course Benny boy started cutting them again – and very aggressively. Monetary policy works very slowly, which makes it all the more ironic that they are using it to combat short term issues and float the stock market (OK, in fairness, to add liquidity so that banks don't fail either).

We will feel the inflationary effects of these interest rate cuts by the end of this year and for the years to come after that.

There is also going to be inflationary pressure so that all of these banks - competing on a global market to attract top talent – can keep competitive with our frenchy, german and british friends that are getting paid in pounds and euros. It’s hard to be competitive when your salaries buy you 50% less in Europe and give a solid 50% discount when they come here. The other way to fix that it raising rates to strengthen the dollar but clearly that is not the case (I am aware that it takes more than that, so spare me the response)

Either our country is going to take a nose dive (as many have predicted – although I do not agree) or we will need to depend on inflation to bring us back.

You mentioned disinflation, which we are definitely not experiencing right now, and if we do…it is not going to be pretty – any economist will tell you that.

I'm glad people find me sexy. Often I think I'm the only one.

But alas, I am just me, not urbandigs. Urbandigs is much funnier than I am. Not as funny as Spunkster, but at least he's funny for the right reason.

lobo, I think there is inflation in some things - especially because it costs more energy to produce corn ethanol than is actually in the corn ethanol, but that's a different website - but housing is 40% of the calculation, which I think, as a whole, considering the size of the drop I expect in housing prices, could offset everything else.

If Uncle Ben didn't do what he just did, there would be no credit at all because of fear of the counterparty risk, and that would be even worse.

On a different topic, how come whenever somebody is proved wrong they admit it, except Tony, Spunkster and Malraux, whom I've also come to miss on this thread.

yea, I got a separate ISP, with a separate IP address so I can fool the streeteasy tech team and sign up for a new account so I can waste my entire day on this thread blabbing about NYC real estate getting wrecked so I can ultimately fulfill my stated goals: to bring down manhattan real estate so I can buy more cheaply.

ya, you got me.

URBANDIGS: EXPOSED!

I, on the other hand, have a dynamic IP address, so I just turn my modem on and off and - voila! - I'm a new person!

or should I say off and on?

Spunkster, you haven't answered my questions about what lessons you have learned!

And Tony, thanks again for that thread! I am now in Blogster Heaven.

Steve: I don't disagree that disinflation and the effects of not cutting rates could be worse; I keep emphasizing the "aggressive cuts" which is what I find unnecessary. Monetary policy is not a tool that should be taken lightly, it is very powerful and sometimes the effects are not apparent until it is too late to reverse.

As I said before, I do not disagree with the fact that other things are priced in to “current” inflation numbers. I am arguing that decreases in fed fund and discount rates spur inflation; and these aggressive rates multiply that.

What the fed has done is too little (or too much for that matter) too late. I could understand if he took rates down .25 - .5 at a time but he has been cutting rates like crazy. That is not responsible monetary policy.

We will see inflation as a result of these cuts, the question is how much.

To your point about adding liquidity, I don’t disagree, all that I’m saying is that these guys (Greenspan mostly) got us in to this mess. They need to get us out – I admit that, but it will be at the expense of your social security check – more importantly, at the expense of someone’s who really needs it.

...But i hold firm that for those reasons. income will adjust upward, not property downward (or as I said - it will not come down by more than 15%).

Rates will also go back up quickly. However, incomes have been flat or negative.

But I do agree partially - inflation will raise the prices of things, property will fall in nominal value. I expect to the 2004 nominal values. It will take place over time.

Except for Spunky's properties, which will always increase forever at 30% a year, because they belong to Spunky.

:) -- I want some of Spunky's property.
I agree re: nominal values - maybe not to 04 values but I agree...

and re: rates going up, it will be very hard for the fed to up them as quickly as they have cut them. Unfortunately, Wall Street is not as receptive to hikes as they are to cuts.

I miss my Spunk, & all of my detractors. Confront them w/ reality - prices can't rise astronomically forever - and they say you're not sexy anymore.

:****(

Hey stevejhx, appreciate your input as well as the more reasoned posters that don't necessarily agree with you.

Just one piece of, admittedly anecdotal evidence, but we sold a 2BR/2bath condo loft in tribeca in 2004 and the going rate then was $1000 psf. All the offers came in above that actually but the buyers and brokers at that time all seemed to be in agreement that we had hit this number so buyers were offering accordingly.

Chelsea may have been different so your $800 psf for 2004 for Chelsea may be true.

I would be buying again, as you would, at 1000psf and I agree that 2004 prices will be where we bottom but I don't think 800 psf is the number.

Tribeca is more expensive than Chelsea / GV. But a listing at 99 Jane - always an expensive building is down some $100k:

http://www.streeteasy.com/nyc/sale/167077-condo-99-jane-street-west-village-manhattan

$1627 psf.

They're trying to rent either the same place or someplace identical to it for $7,500 per month, down $1,000 in the last week:

http://www.streeteasy.com/nyc/rental/289191-condo-99-jane-street-west-village-manhattan

I say do the math: buying the place with a conventional 30-year fixed jumbo mortgage (if you can get one) will cost you $12,290 per month. Renting it will cost you $7,500 per month. It would therefore cost you 63% more out-of-pocket for the joy of owning the place that you can rent and save almost $60,000 a year.

However, if you lower the price by 63%, you get a psf value of about $1,100, which was typical for this building in 2004.

Spunkster and others, THAT IS RIDICULOUS. Historically those two costs are exactly the same. If you use 40x income as the rental threshold, you'd have to make $300k to rent the place. To take out the $1,596,000 mortgage using the historical 2x income rule you would need an income of $798,000 to buy it.

REALLY?

Somebody show me the math that makes it worth it, because I say it doesn't exist. No amount of inflation is going to inflate incomes that much that fast. And this is the typical ratio for renting / purchasing in NYC today. It is unsustainable, especially as banks cut down on lending and Wall Street retrenches to recoup its losses.

Unless somebody else can do the math for me. Like Spunkster, who thinks his properties are going to soar in value because they have in the past.

And as an example, in 1997 I was renting a 1-br 1-ba apartment at 9 Barrow (650 ft2) for $1,600 a month. I bought a 2-bedroom 1-ba co-op at 350 Bleecker (800 sf) for $218,000. Mortgage rates at the time were about 7%, which would bring my mortgage payments to $1,160. Add in $800 maintenance = $1,960 per month. So at the time, on a psf basis, it cost EXACTLY the same to buy as to rent.

Rent = $2.46 psf per month
Buy = $2.45 psf per month.

That's ratio is right back where we're headed - equivalence, not those prices - as all this loose money dries up. There's no way around it.

Re 99 Jane: The rental does have two bedroms. I am having trouble finding the second bedroom (although it is listed as 2 bed/2 bath) in the for sale proerty. I guess the dining area is the second bedroom.

stevejhx,

If buying the 99 Jane property you can at least intially expect about $2,100 savings per month from mortgage interest deduction. Still, a pretty wide gap between buying and renting in that building.

stevejhx, I agree with you - the income needed to support these prices is outlandish. Your basic principle is right, but very tough to use these units/numbers to support it. The unit for sale is a 1br (though converted from a 2) and has a good-sized terrace, whereas the rental is a full 2br, but with what looks like juliette balconies. Different stories, and tougher to compare. Notice though that the rent was recently reduced by a whopping 1k (which is indicative in its own way - are you listening spunky? This building is even in your prized WV/Tribeca hotspot). I'm pretty confident though that you could find two units that are more directly comparable to make your point stevejhx, just wanted to get on here before someone tries to (misguidedly) blow up your spot.

Colgin, bjw2103, I've been in nearly every apartment in that building over the years. The 1-br has converted the 2nd bedroom to a dining room, but it's a matter of putting up a $1,000 wall to get it back. There's not that much of a difference between the two, and honestly, for a rental, a balcony is worth a lot less than a purchaser. Most people don't rent luxury.

Colgin, no you can't expect $2,100 savings per month from the mortgage interest deduction, because it's a wash: you'd pay $72,000 in interest, which might get you a tax deduction of $21,000 per year. You're saving $60,000 a year by renting, out-of-pocket. It's still more expensive. And if you put the down-payment in a stock paying a 5% dividend - high, but not outlandish - your $399,000 down payment would earn you another $19,950 a year in qualified (low tax rate) dividends.

($21,000) in tax savings from the mortgage
$60,000 net out of pocket savings
$19,950 in opportunity cost interest

= $58,950 net extra out of pocket expense per year.

Are people listening? Do the math. The tax savings on mortgage interest is already priced into every property price, and it is almost always offset by the opportunity cost of investing the down payment elsewhere.

That's why out-of-pocket costs for renting and buying are almost always identical: all that stuff is already factored into the price. Yes there are other benefits to owning - building capital, security, etc. - but there are also costs: mansions tax, mortgage tax, conveyance tax, property tax (deferred at 99 Jane), real-estate brokers' fees, AMT, the list goes on.

Let them do the math, bjw2103: it's irrefutable.

stevejhx - you make detractors out of people who fundamentally agree with you but may differ on the details. That's why we don't think you're sexy anymore. :)

Well, eah, it doesn't bother me if people don't think I'm sexy anymore. I've always got myself!

The only thing I disagree with is the "mortgage interest deduction myth" which I've explained a thousand times. Somebody refute it, please!

When you do things like this you expect a response from Spunkster. What happened?

stevejhx,

Re-read my first comment. I was not disagreeing with you on rent v. buy. I said: "Still, a pretty wide gap between renting and buying in that building." I was just pointing out the deduction since the gap between the gross number for owning is so huge compared to renting. The deduction lessens this gap at least a little bit.

you're right, 99 Jane has always commanded a premium. As did the Chelsea Merc which was selling for about $1100 psf in 2004 also. Does not refute your Chelsea is cheaper point but I find it interesting that something so far north in Chelsea commanded much higher prices than even tribeca back in 2000 when it was originally selling when that district was still a bit skeevy. I guess whole foods helped a lot.

I think any time between the early 90's when I first started renting in NYC and started looking at apts to buy to 1998 would show buying to be cheaper or on par with renting. that was a particularly bad time for RE prices as you well know. 1998 was when things really took off with something like a 20% price ave increase over 1997. You have to be careful using that time frame as a baseline because prices collapsed so badly while rents did not. It would be like saying that you would not buy AMZN stock until it hit its 2001 lows of $6 or $7. OK that's a bit extreme but the point is, you have to look at a reasonable time frame and not the worst case scenario.

Perhaps you could use 2004 as your frame of reference?
Our place sold at just over $1000 psf but had we rented it out (we tried looked into that also) we would have got about $3.125 psf per month in 2000. Monthly cost to the buyers with 20% down and the 6% rates that were prevailing back then was $5.625 psf per month. Should we use that kind of ratio instead of your 1:1? after all you are predicting 2004 prices.

Steve, as far as I understood, the deduction for mortgage interest is not affected by the AMT. Is that why you are referring to as the "myth"? Is that what you want someone to refute? If so, I am refuting you.

I know you're not disagreeing, Colgin - I'm just pointing out that that deduction is a myth, and when you take it all into account, the equivalence over time is out-of-pocket expenses for renting and purchasing are the same. In fact, they'd have to be (over time), because anything else would be irrational, much like today's market.

Divvie, I don't mean to imply that we will go down to 1997 prices. I mean that the equivalence will remain: cost to rent = cost to buy out of pocket. 1998 is when things started moving up in NYC, so property prices were low. Rents increased along with them, but then in about 2000, when all these crazy mortgage loans started to come out, prices shot up but rents stayed in line with incomes (though slightly outpacing them in the last few years).

My argument is that we will again return to the long-term equilibrium between rents and carrying costs. Rents are tied to income, not to leverage, so they can only go up so much. Currently, given the disparity proved above between buying and renting nearly identical apartments in the same building, that would mean that prices would have to come down to 2004 levels to reach today's rental prices (which are also falling).

I have been forsaken by my property bulls!

Ah, I see what you're saying now.
thanks for the clear explanation.

BTW, regarding AMT and mtg interest deduction. The effect of the deduction is still large under AMT. I have been hit with AMT for a while now and have done all the math (and posted here before about it) and all other things being equal (see my post about cash charitable contributions being the only sure fire way of reducing AMT's impact while giving your money to a charity you want to rather than to the IRS ad getting a refund if you give enough!) not having the mortgage deduction while being subject to AMT would have cost our family a few thousand more $ than having it. It still makes a difference.You don't get that big refund that you were once used to but you do reduce the huge amount you now owe to the irs to a still huge amount but a few thousand $ less.

With respect to same out of pocket expenses for rent and purchase being the same and anything else would be irrational, that kind of logic means that car leases should not exist at all.

The AMT doesn't affect mortgage interest deductions, but they are limited to mortgages of $1 million; over that, no interest deductions.

If you ask Suze Orman, car leases are the stupidest thing in the world. I agree. The only thing they're good for is if you absolutely, positively, 100% NEED a new car every 2 years. And nobody absolutely, positively, 100% NEEDS a new car every 2 years.

That said, a car lease works differently from renting an apartment, because when you rent you don't get a new apartment every two years, you don't get penalized for driving your apartment out of state, and you don't have to change your apartment's tires. :)

Steve...being a property bull doesn't always mean we think property will spiral upward forever or that it even should. For me it means, quite simply, I always want to own. I've no problem admitting that I hoard property. Wherever I live, I buy. Some have been failures in the short term but over the long term all have either made money, carry themselves or were able to be sold in a mini-boom. As I have posted before I have one lone property in the south of France that just sort of lists in value. But my parents adore it and it's cute--so like a puppy or a baby I keep it around and look after it.

People buy whole life insurance policies, too, and invest tax-exempt mutual funds inside of tax-exempt annuities.

People do dumb things. The constraint in the property market had always been that nobody would lend you money you couldn't pay back. That changed, and now it's changing back.

The only way to afford property at these prices is to make a ton of money, or do some risky financial engineering using ARMS that when they reset you might not be able to refinance, or sell. The renters' rule - 40x rent in income - comes out to be the same as the old-fashioned 28% of income in housing costs, if you do the math:

$1,000 rent = $40,000 income

28% of $40,000 = $11,120 / 12 = $933.00 monthly mortgage payment, + taxes, insurance, maintenance (included in that 28% calculation) = just about $1,000.

And depending on the interest rates, that equates to a mortgage of 2-3 times annual salary. (Payments on a $120,000 mortgage @ 6.5% = $758.48, plus + taxes, insurance, maintenance = just about $1,000.

Magic, isn't it?

We're headed right back down that road.

eah, by your definition I'm a property bull, as well: I like to own it, just like I like to own a car that I hardly ever use. I, in fact, as you know, own property on Fire Island, and I'm happy.

Just in NYC - what this thread is about - there is no fundamental reason to buy it since it's so exorbitantly overpriced based on historic norms. Once the correction sets in, I'll jump right back into the market. Imagine buying that $1.995 million property at 99 Jane for it's true value, about $1.2 million (at $1,000 psf)!

Three years ago it would have sold for $1.4 million, so that's not so long ago.

stevejhx has your life gotten so lonely and shallow that all you do throughout the day and night is post on this thread. I do believe that most bitter renters love reading your stuff.

Oh, Spunkster, you're back, and you're as nasty as ever! Must be a Good Friday thing.

Actually, I didn't post at all last night. You see the numeros, baby: refute them!

LOL. Oh how I enjoy this thread.

So it's eating, sleeping, going to the bathroom drinking alcohol, paying the bills, spending the rest of your time all day posting on this thread. That's basically how you spend most of your day.

Sharise, I am to please!

I do hope that urbandigs can come back - he's so much funnier than I am!

Spunky, I do all of those things but especially go to the bathroom, because being a renter, I can afford two of them. :0

Now, put your numbers where your nasty mouth it: why is it worthwhile to buy that apartment at 99 Jane when it net net costs you $60,000 a year more to buy it than to rent it?

And it won't rent out for that price, either, because 100 Jane Street, directly across the street, has a 2-bedroom 2-bathroom apartment for rent at $5,500. Granted, it's not as nice and is somewhat smaller, but it is DIRECTLY across the street.

That makes the 99 Jane rental almost 40% more expensive.

And just FYI, 6 months ago 100 Jane's 2-bedrooms were renting for $6,500.

Question: That's basically how you spend most of your day?

Answer Yes

So let's do the math, Spunkster: it's Good Friday, so somebody's gotta be crucified!

It costs you 63% more to buy an apartment than to rent an equivalent apartment at 99 Jane.

But it's 40% more to rent an apartment in 99 Jane than it is in 100 Jane.

That makes it - wait! - 123% more expensive to buy an apartment at 99 Jane versus renting a similar apartment at 100 Jane. Or, $5,500 vs. $12,290.

I gotta admit my Spunk, you are a freaking financial wizard.

Yes, Spunk, I spend my days shitting on you. It's fun.

So stevejhx do you think now is a good time to buy real estate in Manhattan or do you think it's best to rent?

The other question I have is do you see Manhattan RE prices going up or do you think it will go down?

And where's JuiceMan, who called me a bullshit artist and a fraud. I'd like him to double-check my numbers, and/or explain how, if he sees rental prices as weak in Manhattan (and they're falling, BTW, so I don't know how that's happening), how he expects them to rise to the level of what it costs to own an apartment. How many people who can afford $5,500 because they make $220,000 a year (40x) are going to get a 123% raise next year to buy in 99 Jane?

Stevejhx what's your opinion on the future of Manhattan RE. Do you think it's a good investment?

Spunky, you're losing your Spunk! Your put downs aren't rising to your earlier, pre-Bear Stearns - the sky is falling! - level. I do wish you'd come up with something entertaining: Sharise is waiting.

Gimme your numbers, girlfriend. I want you to show your hand.

And Stevejhx what's the best way for me to determine whether I should Rent or own a place in Manhattan. I mean is there a break even point or should I wait it out for the prices to go down.

Oh, Spunky, you're so disappointing me.

Let me ask you the same question: "What's the best way for me to determine whether I should Rent or own a place in Manhattan?"

What's your answer?

stevejhx do you think the credit crisis will be bad for Manhattan RE in the near future. I mean what do you think about Bear Sterns. Thats got to hurt the market place. What's your opinion on this.

Too bad eah doesn't find numbers sexy. Then I'd be sexy to him again.

stevejhx can you review the numbers one more time. You bring up some valid points with those numbers.

Ladies and gentlemen, this thread has run its course. Spunky has been left speechless. JuiceMan has deserted us. Tony named a thread after me. What is left to say?

And, I'm on the last page of this freaking job for the IRS, so I won't be so bored in the future. I think I'll take a break, take a dump in one of my many bathrooms in honor of the Spunkster, and call it a day.

I won.

Spunky!! please don't let stevejhx win!!
Please answer his question - Steve, there is absolutely no time in the world, and no price at which renting trumps buying. even if renting a place is $100 bucks a month, and buying the same place costs a $ 1 billion, it is always better to buy. why, you ask? simple - Manhattan prices never go down, and what i pay a billion dollars for today will be worth 1.1 billion next year. it's a well known fact. in fact i can get spunky, my broker, and lereah agree with me on this.

ha ha !
now what do you have to say about that, steve??
ha ha !

I think it is clear that we have hit bottom with Steve's dump and that the recovery has begun.

WOW- You guys/gals are intense. If it matters at all as a new comer. I have been studing the economy very closely. The credit problem is well beyond what most people think. There are several indicators that give me these educated opinions. Not all are numbers. Sometimes you have to look at the behavior of those involved to truly understand the magnitude of the problem. For instance. We all know that Bear is no longer. Some say it was taken over. However the truth is that it was worth nothing. After 85 years this Investment Bank went under. People just think of the history. In 85 years this Bank had survived everything else. More Banks were to go under and still may if it were not for the next historic move. Never in the history of the Fed has it opened the discount window to Investment Banks. Our government is the only place that the banks can go to get money. How long at the expense of tax payers is this going to last. At one point it starts to be just as risky for the government as it would any bank. I hope and pray that this problem finds a solution. The biggest lie is that this is a subprime problem. It never was. Greed by Banks, buyers, brokers, developers...... is what caused this meltdown. More Banks will fail and the economy will begin to really start feeling the pinch. Gov'ts are already experiencing terrible budget problems. Indicator---- NYC public school budgets have started to get cut. NYPD has a hiring freeze and will be at its lowest level since 1993. Read the whole paper. Not just the business and real estate sections. You will see many indicators of a more severe problem that most can't imagine.

Nice try Tony, WRONG.