Does anyone wanna rumble?

iMom might knock you out and that could be embarrassing. :)

I would like to see stevejhx vs. stevejhx. He could fight himself for days and not even realize it.

Yes, Juiceman! It would be like Fight Club. Notice how calm it is around here without him?

Sort of dueling filibusters.

I vote for a seperate stevejhx vs. iMom "NO RULES NO LIMITS CAGE FIGHT TO THE DEATH!!"

I think I just heard spunky ask if waterboarding is allowed.

Agreed kylewest. There seems to be an air of civility on the active threads. I wonder why that is?

iMom is hot

well, fighting with a renter, to me, is like fighting someone who is mentally slow or somehow very disadvantaged. it's mean and pointless.

the only real renter i can respect is someone who, say, was relocated here to work or someone who knows they hate the city and want to leave at the first chance. any long term resident who doesn't buy (whether it be uptown, brooklyn, wherever they can afford) is just kinda pathetic.

"any long term resident who doesn't buy (whether it be uptown, brooklyn, wherever they can afford) is just kinda pathetic."

LOL! just about as pathetic as those who bought real estate at the peak and now can watch their assets steadily get flushed down the toilet while they nervously stay awake at night trying to sleep.

LOL! MMafia, that's true. I think there's another word for it? SUCKER?

Not sure what you mean MMAfia. I sleep great at night. It would be impossible for me to explain to you how not worried I am.

Time to shift your gold positions to steel, MMAfia. Don't want to lose that nest egg do we?

Ugh, this site is becoming more and more like the Yahoo message boards about tech stocks back in the late 90s bubble...."Tech stox rule! No, they stink! No, they rule! You stink! No, you stink!"

MMAfia, so everyone who purchased did so at a peak?

Well, I suppose that is hpw renters justify their decision--they assume every RE transaction took place in the last year...

I won't fight! I'm putting my money where Stevejhx's mouth is. Signing lease for one more year (same price as last year)in midtown west. Sentencing myself to one more year of Sunday open houses - who needs to pick a fight when I can make myself miserable just fine on my own?

eah: Are regulated tenants pathetic too, or are we just vicious parasites? It's pretty hard to justify buying when the cost difference is in the 3X - 4X range.

regulated tenants--uh yeah..you are. even more so. it means you're probably still living in the place you could afford in 1975. awesome growth curve! do you wear the same platforms, too?

The problem seems to be that we remain without clear knowledge of specific trends in the RE market and everyone who has an opinion can still claim a legitimate basis for why s/he is correct. The time will come soon enough that out of the uncertainty in this market will emerge more clearly defined trends. Inventory will build significantly for a sustained period of time or it won't. Sales figures will drop, remain flat or go up with or without 15 CPW and the Plaza. As new development contracts signed in 2007 close, a more accurate picture of the instant situation may reveal itself. For now though, it's anyone's guess and just about everyone is guessing and posting. It may not be very productive, but it sure kills time while we wait to see what happens.

i don't know about vicious, but parasites for sure, and those who act like the continuation of such regulation is their birthright, they're just assholes.

The Little Black Arrows are already taking bulls down. OOF!

i read this on another blog, and it made me think about steve and his stand up career (even though he does own). simplistic, but made me laugh.

To all bitter renters: How's this for a reply?

I do believe one is able to somewhat time the market (I'm a recent owner, so yeh I'm stupid right?). You guys keep yapping that carrying/closing costs at this time heavily outweigh renting. OK.

HOW ABOUT OPPORTUNITY COSTS?

All that time you spend reading up on RE to time the market, takes time away from your primary/secondary job.

Once you buy a home (as a home, not investment) you don't cringe at every RE article predicting doom and gloom. You can focus your energies on your actual job or even start that small business you wanted to since your energies aren't tied up daily on whether you should close now, etc, etc. Your income and mental health rise, 5 years down the line, you are able to upgrade b/c you had more "free time" to invest in your career/small business, as opposed to wasting your time on timing the market on when to buy.

Ciao.

eah/ccdevi: Regulated tenants don't write the laws. Other than a few fanatical activists, we just take the rules as we find them. If/when the rules change, we'll adjust.

BTW, ccdevi, I tend to agree with you about regulated tenants who treat their status as a God-given right. But I feel similar scorn for owners who treat the mortgage interest deduction, the lifetime capital gains exclusion and various other goodies as inviolable sacred cows. I'd favor phasing out all government meddling so the market can find its natural level. If you really believe in free markets, go all the way.

The market will be down 20-30% by end of year. This in an opinion based of indicators. There is nothing anybody can do to stop the downward turn. It is already in motion and it will be slow at first and then gain steam as the year progresses. Don't shoot the messenger. This economy is about to go in the toilet fast. Jobs were the reason NYC always fairs better than most of the country. It makes sense right. If there are job then housing goes up (ie. Demand) when the jobs go south so does the real estate. So my conclusion. Many factors will weigh on the NYC real estate market, however lack of jobs or job insecurity will bring this market down faster than any other factor. Don't expect prices to actually level off after this decline for 18 months. Only after this economy starts hiring people will it level off and still things will never be the same. Credit standards will eliminate 25% of potential buyers of the past. I wish everybody the best of luck. FYI-I'm a home owner.

RClavi, not sure about that poster, sounds a bit grumpy and defensive. Bottom line is - it does not look like this is the best time to buy when the prices are starting to go down. The RE market started crashing in other cities, and usually New York is the last one to get the blunt of it and the last one to get out of it. And it looks like the prices are just starting to go down here. Hey, it's all about the timing. I certainly won't be feeling good about myself if I bought late last year or early this year. Some new units went down over a 100K, that's not negligible that's quite in fact, staggering. So I do understand if that poster is defensive. Not saying that the property won't increase overtime, just saying that he/she could have gotten more savings by waiting a little bit more. But hey, hindsight is 20/20.

ccdevi, eah, come on - if you get the same thing for cheaper, you would take it too - when was the last time you said "i insist on paying more for my cotton sox so the ppl in china making it can make a decent wage"?

RCIAvi: buying is a one-time activity (6 months or so of search max). are you really suggesting I should buy a place for $100 G more, just to avoid a few internet searches and open houses?

ALso, clearly, YOU DO CARE about every RE article predicting doom and gloom. You even care enough about what people on these boards think. REmember SteveF, the other bull? He's infamous for pointing out, that he was trying to talk up home ownership so more people will buy, so prices will benefit all home owners (sort of like a ponzi scheme)

rclavi - as a stay-at-home mom, having invested in 5 and sold 4 properties, making all the investment, insurance, etc., decisions for the family, AND having done very well the last 20 years, I can say that it's not always an idle pasttime.

Sure we can rumble! Here's how: maybe one of the bulls would like to tell me why the fundamental reasons - repeated below - for falling property prices are wrong, I'll listen.

I mentioned these to ccdevi before; s/he never answered. I mentioned them to malraux, and he responds like Fred Flintstone: "B-b-b-b-bet!" JuiceMan predicts 0.5% interest rates in 7 years, denies that ARM's are risky, and thinks that it will take 2 years for JPM to absorb BSC's IT systems, when it took less than that for Bank One to absorb 2,300 Chase branches spanning 17 states (and network reconfiguration takes a lot longer than mere data migration).

Here's my prediction: within 2 years property down to 2004 prices, which have doubled since then, indicating that they will fall 50%. I've never strayed from it (except I brought it forward in time), never will.

Again, here are my reasons why:

1) market rents indicate a 50% fall in home prices based on out-of-pocket cash flow rent vs. own (historically 100% correlated)

2) 40x rent / 28% total household income ratio to rent/buy during a time of falling incomes means rents must fall and property prices must fall with them

3) historically constant 12x p/e ratio for rental versus 24x or more current

4) Manhattan property prices are nearly perfectly correlated to bonuses, and Wall Street bonuses are falling dramatically

5) significant layoffs in Wall Street (Bear Stearns (obvious), Goldman (announced), Merrill (announced 10% of non-brokers), Morgan Stanley (announced), Lehman (announced), not to mention CITIGROUP (about to implode)). Those firms are the engine of the NYC economy.

6) falling market rents

7) reduced leverage in the form of higher mortgage rates for jumbo loans, restricted access to loans with less than 20% down, restricted access to ARM's (especially jumbo)

8)current 9.8+ month supply of apartments on the market now and growing at the rate of about 100 per week.

9) new regulations on mortgages and investment-bank leverage

10) new jumbo loan guarantees don't apply to co-op loans, a significant portion of the Manhattan market.

11) ample availability of rentals either through market-rate buildings or subletting condos.

12) virtual elimination of rent stabilization in Manhattan as new units become vacant, increasing market-rate competition.

13) last year's sales were 50% above normal sales levels in Manhattan over the prior 9 years, which were above normal for the supply.

14) 30,000 units permitted in Manhattan over the past three years, much of it yet to come on line.

15) increased market transparency (through this website among others)

16) Manhattan is not "special," and is not exempt from market forces.

17) etc.

That's what I base my prediction on. The market is overbought. All indicators point in that direction. All indicators point toward a rapid decline, just like in the rest of the country where - over a longer period of time - prices shot way above their fundamental support level, and are collapsing - albeit at a slower rate than I predict for here.

Now, let's rumble: talk about fundamentals, what causes prices to be set at certain levels. Incomes set rents, rents + leverage set housing prices. Fundamental. Incomes fall, rents fall. Rents fall, housing prices fall. Leverage falls, housing prices fall even further.

Unless they don't. Right guys?

Shut up IT, renter boy. Get back to fixing printers and mapping drives.

See what I mean, Impartial Readers? I gave 16 reasons (plus 1 "etc.") why property prices have only one way to go - down - and I get, "Shut up IT, renter boy...."

FYI for those who have read other threads, I've never fixed a printer or mapped a drive. I can do the latter, I can't the former.

Confront Property Bull-Sh*tters with reality, and look at the responses you get: "Shut up IT, renter boy...."

It must tell you something.

Steve, on point 7, the jumbo rates 30 Y Fixed are rather going down than up. The new conforming limits will be kicking in 1 or 2 weeks. The spread with Treasuries might be high but the trend for jumbo loans is down not up. Getting quotes below 6% on 30Y for 700K.

The fact that one chooses to rent a property rather than to buy it is a very poor indicator of social status or net worth. A majority of wealthy Germans choose, for example, to lease their luxury properties and to invest in financial assets. Is it possible, eah, that "renter boys" have greater confidence in the size of their endowments?

93rd: the new conformings don't apply to co-ops, which is the majority of the NYC market. Plus banks are charging extra for the "jumbo conformings". At least recently, the jumbos have got more expensive. Are you getting good faith quotes for your rate? If so, from whom?

Interest rates fluctuate in the short-term. They are down from two weeks ago, but on the whole are higher than they have been in the past, and far less readily available. A $700k loan is a jumbo conforming (max $729,750); try a loan above that amount - what you might need for a 1-br in a nice Manhattan neighborhood - or try to find a jumbo conforming with 10% down.

Co-op loans are indeed not covered by the new limits, which will hold condominium prices down. The jumbo conforming rate will also act to keep units down below that level. Those are good things; better would be to get rid of the jumbo conforming guarantees, bring them back down to their normal rate, to exercise further pressure on property prices, helping to make them more affordable. The only ones who really benefit from those guarantees are banks - who have less risk on more money lent - and builders - because they subsidize interest rates, allowing property prices to rise.

Thanks for the clarification. If it is easier - or cheaper - to finance a condo (below the limit of 729,750), would that mean that condo prices will be less vulnerable to a downward market? (More buyers on that segment than for coops?)

93rd, I don't know for sure. Co-ops will become cheaper and condos compete directly with them. It depends on how many people care which form of ownership they prefer, if they even have a preference. I, for one, having owned 2 (one of which I still own) would never, ever, ever, ever buy a co-op again because of nutcase boards of directors. But the competition will be there, and co-ops - especially more established ones - have much lower property taxes on the whole than condominiums, so they will certainly seem more attractive to some.

Steve, I also wonder about the value of co-ops versus condos as prices fall. I recently have personally noted that several "white glove" co-ops on Fifth and Park are loosening their creepy but obvious restrictions against same-sex couples. A broker told me several months ago that these restrictive co-ops are "noticing a decrease in relative values as the building's strict boards have excluded all but a bunch of white, octogenarians with a certain net worth." Funny thing, free markets.

I stood last year at the entrance to a Fifth Avenue co-op (across from the Museum and with a goofy turret) and was told by the broker that it was a waste of his time and mine to even look at the apartment. No same-sex couples would ever get by the board. He even very kindly provided examples of failed applications by some noteworthy gays.

Oh, I fumed. Wrote Congress. Supported the--now dead--legislation to force co-op boards to supply a written reason for application denial.

But the concept of falling relative property values in restrictive buildings delights me for many reasons. I believe that these properties could offer great value as the market deflates around them.

11201962, I would apply, be denied, then sue. There is precedent, and a NYC law against that.

yes 11201962, I'm sure that 740 Park Avenue will open their doors to you just as soon as their $30M apartments that require owners to have 3x in liquid assets start collapsing in price.

Steve, I will apply when the prices have fallen to appropriate levels.

Spanky, thank you for the application requirements for 740. The bigger they are...

Spanky, piss off.

Hi Steve - remember I am not a property bull simply because I own property. I've seen property fall and hold properties that have appreciated little. So, often we're on the same side of the argument. I just think you're a bit of a jackass and like to pick at you because you take yourself so seriously. The fact that you have an IT background just kind of cracks me up for some reason. It all makes sense now.

But keep raging and ranting. I am sure it will all pay off for you.

eah, what you've never seen is property rise so high so quickly. It has never happened before, except in Japan in the 80's, and look at the price chart for Japan in the 80's versus the 2000's. Worse than flatline: dead.

You apparently don't see me laughing as I type some of this.

Hi, ccDevi, Spunky:

In one of these threads, I had made a statement that I chose not to buy a place last year because I had found that house prices would have to appreciate at 7% for buying to break even with renting. i.e., this was the growth that was "built into" the price, and if it grew less than that, I would lose money.

I was challenged to back it up - sorry it took me so long (had a pretty busy week at work).

CALCULATION ENGINE USED:

My calculations are based on www.housemath.us has, what I believe, among the most sophisticated calculation for comparing rent vs buy options. I have reviewed the math posted on the wiki. I would encourage you to do the same before using it as basis of what is likely to be the biggest investment in your life.

SITUATION
In 2006, I renting a 1 bedroom mid town (door man bldg, hells kitchen) paying ~$2600 rent (perhaps I had a good deal). Some of the new condos coming up there were asking close to 1 mill for a similar sized place, with common charges close to $1K.

APPROACH:

Much of the output of this (and other buy/rent comparison sites) is driven by what your property appreciation assumption is. Since so much of the answer dependeds on this hard to guess number, rather than put in a number based either on average for the last few years, or just plain guesswork, I asked myself "what would the growth have to be, to justify this price?". In other words, "what is the growth in asset price built into this pricing? " The answer of whether I would buy or not, I figured, would depend on whether this number was resonable or not. So, keeping rent and buying prices as fixed, I just played with the assumed growth rate of property price by trial and error.

ASSUMPTIONS USED:

- Price: $ 1M
- cc: $1K per month
- term: 30 yrs
- interest: 6.5% ( 0 points, loan origination fees)
- downpayment: 20%
- Opportunity cost: long term portfolio return: 9% per year (US S&P500 index grows at about 8% in long term, I believe it is possible to do at least 9% with significant exposure to emerging markets)
- inflation: 4% per year
- Others - left at default (I believe that is resonable)

CONCLUSION:

The growth built into apartment price was determined to be 6 - 7% (depending on the ownership duration assumption from 10 - 30 yrs). I found this number to be unresonable (long term average is ~4%, so this is 50 - 80% above long term average). Hence, I chose not to buy last year.

Please do try this out with your specifics to determine what is the growth that is built into the price of the property you are purchasing.

Spunky, ccdevi, eah, and others - I am open to your critique of this approach. Do let me know your thoughts.

--
PS: ccDevi, you are right, the site seemed to be down a few days ago - its back up now.

Oh no, eric_cartman, it's always a good idea to buy!

Stevejhx - in your reference to Japan - the comparison is striking. when looking at the charts http://globalhouseprices.blogspot.com/2006/04/housing-bubble-facts-and-figures.html

Howver, I wonder whether we can compare the severity of a bubble .
The US Banking system is more resilient for one and so far we have had a better capacity to contain crisis (Countrywide, Bear Stearn or LTCM).

Also, Tokyo propably does not have the same pull for international investors so there will always be foreigners willing to invest in NY. (I am one of them).

Please note that the link that i have provided is from 2006/04 - emphasizing the bubble 2 years ago.

We went higher, and faster. I don't think the US banking system is more resilient; if anything, Japanese banks are more protected, and were not required to report losses, keeping them hidden for years.

steve, it is 70 degrees outside with all sorts of people in the park, playing ball, laughing. Get a life man.

Stevejhx - FAS133 doesn't covered this? (JuiceMan - I am back from running in central park)

JuiceMan, I had every intention of going outside to play today. In fact, I had every intention of going to Fire Island. But I got a call this morning from London from one of my best clients and they need something by Monday morning GMT, and it's a project I always work on, so I'm stuck here doing it. Tomorrow, however, I will be in a show in Philly.

Thanks for your concern!

93rd, doesn't FAS 133 cover what? It covers derivatives losses.

Eric and Steve: what I think you don't build into your model is the fact that property is emotional. Most people in NYC rent. This is for a reason. Many people can't afford it or anticipate raising their families elsewhere and don't want to make the initial investment. But a majority of people fall in love and in the initial rush want to own with their partners to forge the bond. And they typically want to raise their families in a scenario of home ownership. I don't know why this is. But homeownership seems to give rise to a upward cycle. I am not saying that some people do not get supremely screwed -for whatever reason or that everyone should buy. But I am pointing out that no model can built in how people with money feel about ownership vs renting. I guess it is sort of like why you don't want someone else sleeping with your significant other - at a certain you stake a claim on principle.

Also, about Japan...ever been there? It is an amazing place. The area is not depressed by the property scenario and young people still strive to buy. Same situation in Singapore and cities in Russia.

eah, if what you were saying about housing being "emotional" were true, it would be borne out by the statistics, but it's not. The fact is that rents and property prices are nearly 100% correlated over time, and that correlation is 12x annual rent = property price, over time. Those are just the statistics. I understand that there are behavioral and game theories that try to quantify this stuff, but it hasn't been quantified.

"No model can built in how people with money feel about ownership vs renting." No model about how people without money feel about ownership vs. renting, either. Feelings can't be modeled. However, if it were true, there would have to be some statistic somewhere to demonstrate that it's true, and I don't know of one. Reasonable man that I am, if you can find me one and tell me what it is, then I'll look at it and maybe change my mind. All I can do is look at statistics over time, and they say one thing: rents and home prices are very closely correlated, meaning they're fungible goods.

And just to add, I, too, prefer owning to renting. It is a pride thing, at least with me. However, at the end of the day I do look at the cost and make a rational decision.

If I have a down payment (which I do) and two properties will cost me the same out-of-pocket, then I will choose to own. Unquestionably. But as I've said all along, it depends on the price. I'm not willing to pay 50% more to own or 100% more. Maybe I'd go up to 10%, but not much above that.

eah: I agree, there is a notional value in home ownership. I too, would love to own, rather than rent. However, I would not like to ownership "at any cost".

I am willing to pay a small premium over renting for the privilige of ownership - just not twice as much. For much of economic history in the US, people have only had to pay a small premium for ownership over renting when faced with both choices (acknowledging, ofcourse, that in parts of the country, some types of properties can only be purchased - not really true in Manhattan). It is only in the last 3 - 5 years that things have gotten way out of whack.

Can someone please explain one thing to me? If you get a tax deduction for interest exzpense, which is not affected by the AMT, and you pay a 50% premium to buy, how is it that much more expensive to own? I am considering buying and surprised to hear everyone unanimously agree regarding the rent vs. own relationship and ignore the deduction. What am I missing?

Pops, much of the tax deduction is negated by the opportunity cost (interest earned on downpayment money) that isn't realized.

Steve and Eric, why you force arguments where they don't exist is amazing to me. Ownership is typically a trend. Yes, right now there is most certainly a segment of people "on the bubble" who have to analyse the numbers closely but most people who purchased in Manhattan, over time, have done very well. And, many of us have experienced downturns where our property values likely dove. But, again, at a certain point you leave fear behind and just do it and make it work.

In terms of ownership models I guess the one closest to me which will still be purely anecdotal but verifiable is what happened in London years ago. When people graduated from Cambridge/Oxford we were offered 100% and in some cases over 110% financing if we agreed to buy in fringe areas. The idea was that ownership would be inevitably appealing to a certain class of people and a certain class of people would kick off a host of changes that would lead to gentrification of whole areas of London. And London, as you know, has exploded in growth/population and many of the areas in the scheme are now very desirable. They were right. Other than those who moved to Hong Kong and other such places, renting was never part of the plan and we def. would have paid through the nose with our sign on bonus to buy. So, the gov't was clever enough to leverage the desire and usher in change.

I am glad you're comfortable with your rent to property price model. It seems well thought out so I am sure you'll (in monetary terms) make out well. I just think it is worth stepping back to consider what you're cleaving off emotionally while poised on the sidelines.

Pops - In addition to the opportunity cost from tenemental above on a 1M mortgage at 6% you are paying 60,000 a year in interest. At a 40% marginal rate you are saving 24,000 or 2K a month. That reduces only a portion of the cost of the twice as much for some properties to buy than to rent.

Also tax savings are a cash flow issue. If you lose your job and don't have income you will not have the tax savings but still have to come up with the mortgage payment. A big risk for those who feel there incomes are at risk.

Also more to Manhattan than other places but the interest deduction is limited to 1M excluding HELOC. So if your mortgage is above 1M or your marginal tax rate is lower than above your savings are reduced.

cartman:

just at quick glance, I have a problem with your 2600/1000000 numbers. If indeed you were paying 2600 for an equivalent 1 bedroom, and I think thats a big IF, you were probably wise to keep it. We can all come up with a examples of price/rent situations, but the one you cite is 32x and that was in 2006, even steve would admit that the NY market is not at 32x, I think he claims something like 24x, I personally think its lower than that but again we could all find examples to "prove" our point I suppose.

My experience with something like this is as follows, I rented a 1 br at 75th and 2nd back in 2003, I was paying 2950, which I will admit I thought was pretty damn steep. Now look at the Gotham at 87th St, see the 1 br for 895k, I pick that one because i know the owner and I've been there. That building is certainly nicer than the glenwood building I was in, and that apt is certainly nicer than the one i was renting. they are not nearly equivalents. Then throw in that I'm using rent in 2003 versus price in 2008. But for the sake of argument lets say they are equivalents. And by the way we're still at a high but better price/rent ratio of 25. Well if you plug those numbers in, including the 603 cc's, you need 3.1% appreciation, and thats for 10 years, for 30 its 1.5%. Note, I did not change the portfolio return number from 8, which btw is very important, it makes a big difference to these calculations. I don't want to debate what everyone thinks they can make on their money, but 9 or 8% is not risk free, some would tell you you should use treasury rates which would really move this in the buy direction, frankly I've always thought it was reasonable to do these calculations by assuming the same rate of return on your investments as the interest you're paying, i.e. assuming for ease that you can in effect finance the whole price.

Now, lets go back to your original point which was that you needed 30 years of 7% appreciation to break even. Using your 9% portfolio return and your 2600/1mil numbers, and 30 years, that website does indeed says 6-7%. If you use my numbers, and your 9% return its 3% for 30 years, about 3.6% for 10, if you use 6.5% return its 2.6% for 10 years and at 30 years you'd be ok with less than zero appreciation. So again these calculations depend heavily on the rate of return you assume on your investments but regardless I don't think your original 2600/1 mil, ie a 32x price to rent ratio is a reasonable place to start (and note 1000 common charges on a 1 bedroom is very high as well, compare it to the 603 at the gotham).

Pops, the mortgage interest tax deduction is factored into market rents, as are all subsidies, costs, and benefits. Think of it this way: an apartment with a 421A tax abatement is more expensive than one without. Why? Because the abatement is factored into the price. All the "benefits" that you claim for owning are claimed by the landlord. The only difference - the only thing he gets from owning that you don't - is a profit, and that profit is precisely your opportunity cost of not investing elsewhere, because over time, all investment assets return the same yield. Residential housing for owner-occupiers is not an investment asset.

This isn't something that's debatable: it's a definition. Imputed rent = market rent. The only benefit you get from buying rather than renting is the right to live somewhere. So no matter how much you pay to live in that somewhere, it's actually no more valuable than it would cost you to rent it.

You look at the benefit of owning, without looking at the costs: transaction costs, insurance, maintenance and upkeep, all the things that if you rent the landlord takes care of, not to mention, as I and others have said, the opportunity costs of investing elsewhere.

And no you don't use treasurys because owning property is not a 0-risk proposition. The risks are the same as with other assets, so you take a broad range of comparable investments, best represented by the S&P 500.

eah, I lived in London during the Nigel Lawson real-estate boom. Remember that? London (as NYC) was changing, reconverting their equivalent of brownstones from SRO's to flats. The place was becoming nice again after a depression that had lasted from the end of WWII. That is, 40 years of stagnation. But it overshot, & went into a multiyear depression that began round about 1992-1998. Eventually it recovered, then overshot again, and now prices are falling.

When will people on this thread realize that real estate is cyclical? Right now we're at the top of the cycle. As far as we overshoot, we shall undershoot. It happens everywhere.

And not every apartment is priced at 24x rent. Some are 32x, some are 20x (the ones that sell). I, personally, won't wait till we get back to 12x rent to get back into the market unless there's a compelling reason to do so, but there's no way I would get in when the p/e is 24x.

ccdevi: I'm waiting for your answer on another thread: I gave you 15 or 16 reasons why I thought prices would fall. I'm waiting for you to tell me which one was wrong.
Economists have studied this to death

oh steve, you're playing the same old game you always play, arguing against a position that no one or few are taking, and specifically in this case that I am not taking. I have said multiple times in multiple threads that I would not buy real estate right now (unless of course the price was properly adjusted). I don't disagree that we're going to see prices fall. The general economy, the wall st economy in particular, the tightness in the credit markets and the simple fact prices have risen incredibly over a long period now, wow predicting a price reduction?! you're a genius, thank goodness everyone on this board has you. No, what I have been doing is simply pointing out the lies you tell, the leaps in logic, the strawman arguments, the scare tactics, etc.

"the lies you tell, the leaps in logic, the strawman arguments, the scare tactics, etc."

No lies, no leaps in logic, no "strawman" arguments (whatever they are) or scare tactics.

I'm still waiting for you to address thsse historic ratios, rather than accuse me of things that aren't true. You say, "unless of course the price was properly adjusted."

What does that mean to you? To malraux it means an 8% decline this year, 3% next year, then steady. I disagree, he provides no rationale, but fair enough, that's his opinion. What's yours?

stevejhx - is Manhattan the exception by the number of coops vs condos? Is there any other city in the US that has a similar %. Are coops bought as investment properties in Manhattan?

Co-ops are rare outside of NY I believe, but they do exist. My mother lives in a co-op in Florida. Yonkers has a high percentage of co-ops, as does Aventura, FL. NYS didn't allow condominiums until the condominium act of 1964, which may account for the high number of co-ops, since there wasn't that much building in NYC from 1964 until 1998-ish, since the population was falling and it wasn't a great place to live.

Most co-ops don't allow subletting, so that would kill the investment property idea.

This has been much fun but now it feels a bit tedious. Will look forward to checking in from time to time to see how everyone is doing.

Good luck with your respective strategies...!

what does properly adjusted mean? I wont give you a straight percentage for the whole market, to me its an apartment by apartment thing, today some apts are grossly overpriced, some aren't. Properly adjusted means that its reasonably priced vis a vis the rental market. But I don't measure this by your strict 12x ratio. As I've said with the current tax rules and with cheap financing available, I think 12x is cheap, historical trends or not. My rationale is that at 12x, its significantly cheaper to buy then to rent. I think 18-20x is not unreasonable.

Lets take the 895k example I reference above, 12x would imply that that apt is fairly priced if an equivalent rent would be about $6215. I just don't think thats reasonable. Cartman's website for instance says $3850, thats using 1% appreciation, 10 years, 8% portfolio return, 6.5% mortgage. You have consistently said that buying is currently twice as expensive as renting, I know the numbers are anywhere near that bad in general, although I do believe that in general renting is cheaper than buying right now. In the past year especially, Sellers have drunk the koolaid and everyone thinks (or thought) they could ask for an outrageous price. Just one example would be in the new building I'm in contract in. I signed in Jan 07 (when I think we'd agree the market was already fully hot and pricing full) during a first phase, less than a year later phase 2 starts and they ask more than 40% more than I paid for the same apt although granted the new one is 4 floors higher. Obviously thats ridiculous and its not uncommon. Those huge bumps will not survive.

That's much better, ccdevi! 12x is what it hovers around, that's what it was in 1997. You might be right, it might be constantly higher in Manhattan but as I've said before we don't have historic data since most apartments were co-ops in the past and those data are only now being published, and rent stabilization skewed the rental market. I personally don't think it's anywhere near 18x-20x, however - maybe 13x, but there are no data. That could be supported in Manhattan b/c for the most part we don't need or have cars, and costs can be realigned.

But, the tax effects and cheap financing etc. are already factored into rental prices. "Imputed rent."

Honestly, I was ready to buy in the Village or Chelsea at $1,000 psf, which is about where prices were in 2005. That's when the Kool-Aid started in Manhattan to my way of thinking, and now - in 3 years - the median is $1,600 psf. I think it'll overshoot on the way down, which is why I said $800 psf, but if things get back to a normal price, I won't hesitate to buy. I don't bottom-fish, but I don't catch falling knives, either.

At least I have another theory, disagree with it as I might. YIPEE!

so question to stevejhx and Co...

why do people chase the realestate market when prices are going up and out bidding each other with offers and when things start leveling off or going down slightly they are waiting.. waiting for what..when will you know that this is the bottom..

That's a great point sfo. It seems like human beings are just hardwired to do that.

sfo, it's the bubble mentality.

And to be more specific on my answer to ccdevi, I don't think the rate is anywhere near 18x-20x in Manhattan precisely because in recent years median property prices rose in nearly direct correlation to Wall Street bonuses (as per Miller Samuel). That means the ratio stayed nearly constant as prices went up. Alas, I don't have the time to do further research right now, but I might later in the week.

let me tell you something about the bubble mentality... we lived in san francisco at the time of the .com era..what a wonderful time... the bubble burst. we all sat there not knowing what hit us..my husband , then boyfriend..was going to take a job at another small start up and everyone, including myself was like..enough is enough lets just be alittle bit safe, and lets wait on buying because the prices are surley going to go down.. we sat their waiting for the realestate in SF to hit rock bottom and we either waited too long or we didnt know when or if it did hit rock bottom and ohh yeah and the smalll little start up was called GOOGLE...who would think another search engine can do well..

We have been in NY a little bit over a year and a half..so let me be a little bit optamstic for you guys..unlike SF and other places in the US you dont depend predemintoley on one sector and industry, I know the fincnial industry is huge, but you have fashion, publishing to name a few...

actually, sfo, 33% of NYC income is generated by the financial sector, and property prices rise and fall with bonuses. It's a documented fact.

If you didn't notice, publishing is not exactly a sector doing marvelously well, and as a point of fact the only part of the fashion industry still left here are the designers (not big employers). All the manufacturing has gone to China and Latin America.

Then, you seem to forget that right as the dot.com bubble burst, the real-estate boom began. If you look at historic price data in Manhattan, you'll see that after the dot.com bubble burst, Wall Street bonuses went down, and real-estate prices held about constant, went down slightly in some places. They had risen from 1998 to 2000, took a slight break in 2001-2003, then started apace again.

That's why property prices didn't fall in San Francisco at the time: a new boom started!

Go here:

http://en.wikipedia.org/wiki/United_States_housing_bubble

and scroll down to the chart on the right-hand side, take a look at the bright red line called "home price index" and let me know what you think. You can even click on it and make it bigger. All throughout time it is relatively close to the mean - until about 2001.

What do you think is going to happen next?

i'm not follwing what you are saying..stevejhx i was just trying to give a little prespective from someone who lived in a city through a down spiral..where some peopel were screaming the sky is falling the sky is falling..nothing to do with manahttan numbers..

a slight optimism and hope shouldn't offend or get someone so guarded..

Hope is a wonderful thing, sfo, but I was trying to say that you were comparing two things and two times that aren't comparable, at least in my opinion. BTW I used to work for the old BofA & would take trips to SF & it's a gorgeous city. I think for me tied for second, with DC.