MANDATORY READING! Parallels to 1988!

People, if you are reading this and you are listening to Stevejhx...does it remind you of when you were young and suddenly realized you were hanging out with the wrong crowd. It's getting late and you look at one or two people in the group and you get a queasy feeling in your stomach..telling you..."hey you shouldn't be here with these people, they are not good for you." Than you get that overwhelming desire of wanting to be home.......... Don't listen to Stevejhx, he is the leader of that crowd. Thank God I didn't listen to those pessimists/doomsayers in my life. I started buying and now I'm rich.:)

The Financial Editor for Crains NY was on PBS TV the other night discussing NYC in the current economic climate. He related that it took 2 yrs after the 1987 stock market crash for the real impact to be felt on the NYC economy. Once it hit though 300k people in NYC lost their jobs and of course real estate tanked.
He compared NYC's economy to an aircraft carrier: it doesn't slow down or turn around easily- it's a slow process.

Here is the billboard top 10 for 1988, classic!

1. Anything For You - Gloria Estefan & Miami Sound Machine
2. Get Outta My Dreams, Get Into My Car - Billy Ocean
3. Flame, The - Cheap Trick
4. Don't Worry Be Happy - Bobby McFerrin
5. Wild, Wild West - The Escape Club
6. Seasons Change - Expose
7. Wishing Well - Terence Trent D'Arby
8. Baby, I Love Your Way - Will To Power / Freebird Medley
9. Hold On To The Nights - Richard Marx
10. Shattered Dreams - Johnny Hates Jazz

steve, how many Richard Marx CD's have you purchased in your lifetime?

Is Richard Marx the long-lost brother of Groucho?

They were just playing Gloria in Gristedes a minute ago.

I just received Halstead's First Quarter Report with the following message:

Dear Friends:

Attached for your information is Halstead Property’s Manhattan Co-Op & Condo Sales Report for the 1st Quarter, 2008. Clearly, Manhattan real estate remains strong!

I hope you’ll find this data to be useful, and please contact me with your questions & concerns. Thank you!

With best wishes!

Richard Marx is with Halstead.

steveF_the_ponzi_man, it is customary while saying things like " i did X and now I am RICH!!" to have your pinky finger at the edge of your lips, and go "MOO HA HA HA HA HA". without that, nobody will take you seriously.

When I saw the thread title, never in a million would I have suspected it was started by stevehx.

Hey cartmen, no response on the rumble thread to the whole 7% thing?

11201962, did they mention that the sales report is reporting on sales that were agreed to 6-9 months ago?

Read that NY Times post. One of the best quotes is this: "Anybody who can get in the ground by the beginning of next year should have no problem with sales because there won't be much else around...."

stated in 1988, just at the beginning of a 10-year decline that saw prices fall 25% in real terms.

People have to learn the difference between sales hype and real data.

Oh, BTW, the co-ops open this weekend.

Steve, I am the guy with the little, white dog who refuses to be on a leash. (I may get juiced again for that comment.)

Also, Halstead called--they want you to write their upcoming market outlook brochure.

JuiceMan, I almost forgot how horrible late 80's pop was. Now I remember why I became an artsy-fartsy Knitting Factory guy (47 W. Houston, back then).

I think once people realize that stevejhx has a mental illness they will stop egging him by disagreeing with him. Please assure him that the RE market is crashing and will continue to crash. Actually that would drive him crazy because he won't have anything to respond to.

C-255 but I'll only be there briefly on Saturday to turn the lights & electricity and appliances on - Christine Fisher is painting, and it's a mess right now.

ccdevi: i thought i did respond - what more do you want?

or has stevehx set such a high bar that every time you bulls ask a one-line question, you expect the rest of us to write out a 10,000 word, detailed response?

eric_cartman, I type over 100 words a minute. Twice the rate that my brain works at. LOL.

But it's a very interesting article to read - you hear the same arguments you're hearing now from Halstead and Dolly Lunz: The market is faaaabulous, darling. Faaaaabulous!

Yeah, it's a lot of fun to beat up on Steve. His posts are incesant, and too long-winded, and have that smarty-pants tone of the kid who just made people beat him up all through grade school. But the truth remains that the current economic indicators are not just bad--they are, in many respect, horrible. Singing about how we hit the bottom of the credit debacle with Bear Stearns is missing the point. The fallout hasn't even begun to hit, and the broader markets and Europe have yet to truly be impacted. The pain from unemployment hasn't begun. Inflation is in marginal check but the more the fed toys with the markets to relieve the credit crunch the more the fires of inflation are fanned. I am not a doom and gloomer. I just remember. 2000 was lousy but in terms of magnitude it was a joke of a recession. 1990-92, that was some real hurt for those who remember how a recession really feels. Let's not even discuss the mid-1970's which were practically like the economic equivalent of water boarding. Too many people blogging away have not lived through a sustained, painful economic contraction. They are the same people who blathered on about the "new economy" in 1999 and about how the US would be recession-proof in the future. Where are those idiots now?

Of course, recessions end eventually, but first a lot of bad stuff happens. And yeah, part of that bad stuff is that property values can slip. Why is it so important to so many people on here to insist that can't/won't happen. So what if it does? It will recover eventually. No need to stake out such extreme positions. The bottom line is that what we are on the cusp of now certainly looks very bad to a lot of professional analysts--and with each passing day of bad news, it seems more and more like whistling in the dark to hope it's all just going to keep getting better now. It isn't. Before it does, there's gonna be a lot more pain. Beating up Steve may pass the time, but it isn't going to change the downturn that has been set in motion.

"C-255 but I'll only be there briefly on Saturday to turn the lights & electricity and appliances on - Christine Fisher is painting, and it's a mess right now."

Is this some sort of code for, "come to my Long Island house (which I paid too much for) at 2:55 Saturday. It's a mess right now, but I'll still fiddle your diddly. Leave your pain in the ass little white dog at home"?

hi..stevejhx ..i was curiuos since you seem to be very active on this website, what's your background, are you in finance or realestate ?

Oh, boy. Sfo are you ever in for it now. You don't know what you've unleashed.

i had to ask as im pretty confused..and im usually not..

"Why is it so important to so many people on here to insist that can't/won't happen."

kylewest, who said this? I can't remember one post in the past few months that said a correction can't/won't happen. Why do bears constantly argue with people who aren't there?

Sure there are parallels...but there are even more differences. 42nd Street was an adventure not the Disneyfied tourist trap it is today. Don't discount the fact that in the late 80's people wanted out of this city because of the out of control crime. Now, to many people, the city is more attractive than the suburbs. I grew up in the suburbs and got sick of dealing with sitting in traffic and the out of control road rage that has become so rampant. I moved to the city, sold the car and I am loving it. Most cars are a depreciating asset regardless of the market- houses...only rarely- something to be said for that as well.

JuiceMan, C-255 yes is code. It happens that I have Maxwell Smart's shoe phone (Blackberry version) and C-255 is the key to getting it to work.

sfo my background is an economist by training, a management consultant and auditor by experience (aka nerd - I can fix your Vista issues!) and an investor the rest of the time. I love real estate.

JuiceMan, "Why do bears constantly argue with people who aren't there?" You forgot spunky.

semerun, read this in the article: "a scarcity of sites, rising land and construction costs and more restrictive zoning rules will make apartment production too expensive even for the affluent people developers have been building for, almost exclusively, in the last few years."

Amazing how they've found all the extra land and new zoning in recent years, ha?

Actually, in the 80's most everything was co-ops, which restricted rentals. Rent stabilization was in full force and effect. Right now, with all these market rental buildings, condominium units to rent out, more market transparency, new conforming jumbo loans not applying to co-op loans, drying up of credit, decimation of Wall Street (half of BSC, I read on Bloomberg today), it's far worse than the 80's.

And I still have my car.

Juiceman: "I can't remember one post in the past few months that said a correction can't/won't happen. Why do bears constantly argue with people who aren't there?"

Are you kidding? I've read lots of posts (I'm not going to comb through all the threads but I know they're there. Spunky and malraux come to mind, but others as well) from people who deny that the housing market is soft, that anyone who sees a correction is a deranged lunatic, that the only possible direction for NYC RE prices is up, that NYC is special, that national/global economic trends have no impact on NYC, that Wall Street layoffs are insignificant, etc, etc, etc. They point to the latest quarterly market report and feel that just because 71 apartments over $10MM were sold as evidence that there is no weakness in the market. To say that there are have been no posts that said a correction can't/won't happen is inconceivable when there have clearly been so many.

I think kylewest's analysis is right-on-the-money. We haven't really seen the full effect of the slowdown yet.

I guess I'm a bear (eesh--I never thought I'd say that so long as I lived, but I was thinking about something else). I suppose my feeling that it might be a good idea to sit on the sidelines for a while make me bearish. What I was responding to is everyone who just attacks and dismisses Steve out of hand because he can be obnoxious and extreme about it being stupid to own while he completely ignores intangibles and sites stats and formulas that make people boil. All I'm saying is that it really may be a good time to rent for a while and that cutting through all the static Steve could be right on that (wow, that's two things I never thought I'd say in just one post). I better go eat dinner. Maybe my blood sugar is just low.

kylewest, you are so gay. I figured it out on the Jade thread, but the bear business....

Welcome to the club.

Or should I say, "Welcome to the cub"?

cartman: I saw no response to my email in which I explained that the 2600/1 mil numbers you were working with were unreasonable and detailed the results of my work with the website you cited.

I am a market bear too. Whatever goes up has to come down eventually. This market cannot sustain. I can't believe how these new developments are selling apartments at 1400-1600 psf. What are these people thinking? Are they aware of what is going on in the credit market? Do they realize it is getting harder and harder to get financing? Do they know In a way I feel great that this is going to tank. I am a buyer sitting on the sidelines waiting for a good entry point.

imom you are full of sh*t. When did I ever say RE just goes up and up and up year after year. You and stevjhx are probably the same jackass for all I know.
No one including your identical twin can predict what the mean, median or average price is going to be in Manhattan next year. Can it go down, possibly, but 5, 7, 10, 15 years or so from now there is a good chance that the purchase price as well as the cost to rent is going to be higher than this year. Those that purchase an apt and take out a fixed 15 mortgage will have paid a nice chunk of it off in 10 years. Those that are still renting 10 years from now will probably see their rent fluctuate over the years but the likelihood is that the trend for rent will be higher and higher. Certainly your rent should be higher in 5 years than it is today and I cant even guess what rents will be like 10 years from now.I beleive in 2004 you could rent a one bedroom for 2400 per month I believe that same one bedroom in GV or the West village now goes for 3500 a month. Now I'm not saying rents will go up year after year but there is a good chance that rents will go higher over the next 10 years.

"I can't remember one post in the past few months that said a correction can't/won't happen. Why do bears constantly argue with people who aren't there?"

Yup Spunky, right on the money. imom's response is classic.

ccdevi: those were the numbers i had. regardless of whether the growth built into pricing is 7%, 3% or 9%, the overall point still holds - which is:

(a) prices of condos in Manhattan today have significant growth built into prices today (similar to stock price with built-in growth expectations from analysts)

(b) real estate price does not have to go down for you to lose money on it - if it grows by anything less than the growth included in the purchase price, you will lose money

we can go back and forth on 2600/1 mil, or 9% vs 8%, emerging markets vs treasuries - but the overall point, in my mind, is still valid

cartman

eric_cartman silly example of 1 million apt renting for 2600. Eric apparently your mentor stevejhx has taught you well on how use silly examples and worse case scenarios to prove your point.

thats all you have? you make a stink about this 7% thing, I demonstrate that you were wrong, and all you do is fall back to "the overall point still holds." I'd rather you just say thank you and go on your way.

spunky - that's yet another day your overpriced condo has been sitting on the market - how much longer before you read the writing on the wall?

eric I have no apt sitting on no market and I may add no mortgage sitting in no ones hands.

Spunky: You've been the biggest anti-bear of them all. I wouldn't say you were outright bullish because that position would be indefensible, but you've tried to shoot down any and all comments that suggested that right-now is probably not a good time to buy. You mock anyone who presents any supportive evidence, you resort to name-calling and subject changing, and oppose anyone (like me) who expresses the view that real estate prices (yes, even in NYC) can decline. I'm not saying "collapse" or "crash", I'm saying "decline".

But somehow you comeback with "you are full of sh*t" and with some stupid angle about how stevejhx and I are "probably the same jackass." Real insightful. You'll probably respond to this post with some form of insult, innuendo, cursing or name-calling. That won't change the fact that real estate prices are still soft, that the local and national economies are still weak, and that we'll probably see more price-chopping than price-increases in the near future. And that's all I care about - not any of your stupid posts.

Imom give me a break. You put words in my mouth like I stated that RE just goes up and up and up year after year and you get defensive for me mocking you. Give me a break. You have been as repetitive as stevejhx on how and why Manhattan RE prices will fall and must fall.Don't you realize that your posts are as boring as yourself. Wow how insightful is your statement "local and national economies are still weak" Gee How deep and insightful is that. What did you major in rocket science.

I may have been repetitive - that's because what I've been saying has been right all along. I couldn't care less if you've found me to be boring. My college major is of no consequence.

Spunky ---- we're all jackasses on this bus!!!!

I protest! I am not iMom. Nor am I poorishlady, or JuiceMan. I am me.

Spunkster, here's the issue: you say, "No one including your identical twin can predict what the mean, median or average price is going to be in Manhattan next year. Can it go down, possibly, but 5, 7, 10, 15 years or so from now there is a good chance that the purchase price as well as the cost to rent is going to be higher than this year."

Actually, that's not true. EVERYTHING ALWAYS RETURNS TO THE MEAN. Always. And the mean is 50% below where we are today, I've proved it by as many ratios and formulas that exist, and all I get from you is BLAH BLAH BLAH BLAH.

If you think we're wrong, answer this:

a) Do things always return to the mean over time?
b) What is the mean in your opinion?

If you say that a) is no, you have no credibility among anyone. Thus all that is left is to answer b).

I was a property bull for 10 years. I made a lot of money at it. Now I'm a bear. Real estate is cyclical. That seems to make sense.

"And the mean is 50% below where we are today, I've proved it by as many ratios and formulas that exist"

nah not at all. you grossly overstate how overpriced nyc real estate is. which of course makes me a "bull"

Nasdaq bubble burst and returned to mean (in 2002), and where is that now? That's right it is still trading in the 2000 range (before 1998 level). How long has it been? 10 years. It will take a long time before we see the 5000 again. This is what will happen to the over blown real estate market.

Speaking from personal experience, I can only add this. I purchased a thee bedroom terraced PH in the Village in 1988 for (the-then-ungodly) amount of $1.25MM, with I put $300,000 down. I sold the place in 2006 (18 years later) for a bit over $8MM, netting me about $8MM profit over the 18 year hold period. This was sold FSBO, so closing costs were quite nominal. That netted me an annual ROR of around 20% over the 18 year period. I'm rather sanguine with that. And that does not include the significant additional monies earned over that 20 year period renting the place out, which also covered all mortage and maintenance costs during the same period (plus left plenty additional in my pocket on a monthly basis, particularly from 2000-2006 when the place was fully paid off and the rent amounts had gone up vertiginously).

Of course, I would have been happier had I purchased the place in 1992. But it may have not been available then! So I, for one, would happily purchase (for investment) now the exact right place (not just any old glass box in the sky) with a long enough time line. But you have to be really, really patient. And have courage in what you're doing. And have the monetary ability to ride out the market without leveraging yourself too far.

I agree with malraux: if I found the perfect place right now that I can see living in for the next 20 years, I would buy it--not withstanding the market and the fact that in a few days I'll likely have signed a one year lease to rent while things settle down. Shy of being perfect and seeing myself there for a long time, nothing a broker says could get me to buy at these prices in this climate. So what does that make me? Bear? Bull? Rational?

I agree with malraux and kylewest as well: if I find the perfect place today that I absolutely love and will stay there for 20-30 years, then I'll do it, too. Just nothing has come close to what renting for 20-30 years will do.

I know it's repetitive, but it's true. 1988, if you NEEDED to sell in 1998, you were doomed: you would have lost your shirt. But if you don't need to sell and if you have a long-term horizon, fine. Just, if you can also wait a year, fine, too.

kylewest: welcome to the cub.

Look, I have investments that have made me a lot of money, but they're currently down. I could have made tons more if I had waited a minute or two, or bought a minute or two earlier. No one is prescient. My point is that if you CAN wait, and if prices will MOST LIKELY fall, then wait. If you don't want to, then spring for it. It's kewl, as long as you're not one of the people who think they'll flip it in a year for a 40% profit, 'cause it ain't happening.

Is that okay by folks?

No one can pick a bottom or a top (unless you have gaydar) so do what you want. But UNDERSTAND THE RISKS. That's all I say.

Stevejhx your last post actually made some sense.Not sure if I agree that if you bought in 1988 and sold in 1998 you would of lost your shirt. Take for example malraux situation where he purchase a place in 1988 for 1.2. I wonder what the value of it was in 1998. I might be wrong but I would be very surprise if it were below 1.2. If I had to guess it was probably worth well over 2 mil if not 3 mil in 199

That's 2 mil or 3 mil in 1998.

Look, most bulls are people who are sellers, realtors or recent buyers. Bears are buyers brokers and scared buyers. Then there are the heinous few who are trying to incite fear with the hope of setting off a panic and crashing the market so that the market will be more affordable to them. These "sky is falling, Rome is burning" posts are bit over the top.

Stevejhx: "I agree with malraux and kylewest as well: if I find the perfect place today that I absolutely love and will stay there for 20-30 years, then I'll do it, too. Just nothing has come close to what renting for 20-30 years will do."

Steve, you are agreeing with me, but only in part. We disagree a bit to on how we view the final analysis. Actually, whether a place is "perfect" for me isn't about a rent/buy formula over some period of time. Truth is I can't rent what I want to buy. A place to make my own and not ask someone everytime I want to paint a wall or worry when I hang a mirror that I can't patch the holes up adequately, or to build closets, renovate a bathroom and install a kitchen I want. If I want a say in how the building I live in is run, I can do that, too. I'm not at the mercy of an immovable distant management company. And by buying into the market, I also buy in permanently--it goes us or down, I can still sell and buy a new place whenever I want because every other coop in the city is going up or down, too. I don't foresee just cashing out entirely since NYC is my home and I anticipate it always will be. So flip? No. That's not me. But renting is just a stop gap. The place I've found to rent is very nice and we'll be happy there for a while, but it isn't how I want to live permanently. I want my own place. And the final determination isn't going to be simply an economic one based on a rent vs. buy formula which misses the quality of life values that are so important to me.

7419 listings today, up from 5113 on 31 December.

I rent a very nice 2-br 2-ba place in Chelsea right now. Very happy here. I'd love to buy again and will - someplace to stay the rest of my life. Just not at this price.

Spunky that's all I've ever been saying.

"stevejhx -- No one can pick a bottom or a top (unless you have gaydar)"

That made me laugh out loud at work.

Thanks, KISS - I try to be entertaining. :0

Tony stated there the heinous few who are trying to incite fear with the hope of setting off a panic and crashing the market so that the market will be more affordable to them. These "sky is falling, Rome is burning" posts are bit over the top

I could think of two that meet the above category, Urbandigs and stevejhx.

Vulture capitalists

I just finished reading this article. Interesting piece.

http://www.nytimes.com/2008/04/14/business/worldbusiness/14real.html?pagewanted=2&ref=realestate

Sometimes, spunky, you're capable of saying smart things. You should avail yourself of the capability more often.

The only thing that you ever agree with is that "it's a good time to buy," regardless of what a bad time it might be. You do yourself a disservice.

"Then there are the heinous few who are trying to incite fear with the hope of setting off a panic and crashing the market so that the market will be more affordable to them. These "sky is falling, Rome is burning" posts are bit over the top."

Tony, thats exactly right, good post. Almost no one is bullish on real estate right now (despite the claims of some) but these scare tactics in the name of trying to "inform" are just evil. More than anything what amazes me (and pisses me off) about some of these folks is that they would gladly accept a real estate crash and all the associated effects (forget recession, some have made it clear they'd be ok with a depression), all so they can get 20-30% off their one bedroom.

stevjehx where did I say it was a good time to buy. That all depends on ones circumstance don't you think.

ccdevi: "the heinous few who are trying to incite fear with the hope of setting off a panic"?????

LOL!

Well that certainly does give me a lot of power, doesn't it? No to mention the power it gives to this website.

It seems to me that approximately the same people read it all the time, so how anyone could "set of a panic" here escapes me. The comment is absurd.

One need to no more than know how to read in order to see that, in fact, the sky is falling on real estate throughout the country. I wasn't the first to say it.

So actually, yes: Vulture Capitalist = Good Capitalist. Because it means buy low, sell high. Perhaps you'd like to be a Charitable Capitalist: buy high, sell low.

"More than anything what amazes me (and pisses me off) about some of these folks is that they would gladly accept a real estate crash and all the associated effects (forget recession, some have made it clear they'd be ok with a depression), all so they can get 20-30% off their one bedroom."

That's as absurd as the rest of your post. No one - not the government, not even a Vulture Capitalist - can prevent market forces from acting over long periods of time. Unless you'd like to live under Hugo Chavez and subsidize milk until there isn't any, or under Robert Mugabe, who "orders" people to sell things for less than they cost to produce, and shoots them if they won't.

No, ccdevi, what you are espousing in that little post of yours is Soviet-style socialism: let's regulate prices so we can avoid the effects of the market. You seem to want to to protect people from losses who may have made 30% per year for the 3 past years, but that is impossible in a free market (and NYC is the capital of free-market capitalism, if you recall): things don't always go up, and if they go up too high - outside their fundamental growth rates - they MUST fall. It saves a profit for the few at the expense of those priced out of an irrationally priced market. It's as silly as John McCain's gas tax holiday, or the 421-A abatement: subsidies NEVER benefit the end user over time because everything always comes back to its fundamental relationship to income, with or without a subsidy.

No, ccdevi, nothing I or anyone do here will cause or avoid a recession. If prices went up beyond a rate sustainable by incomes, or if incomes are falling, or if leverage is drying up - or, if all 3 are happening at once, as they are - then prices MUST fall. That's what you don't seem to understand. There is NOTHING the government or you or I can do to stop it. Nothing. Ameliorate it, perhaps, with government guarantees on loans or mortgage bankruptcy protection, but things like that only take the sting off or slow the slowdown down. They cannot stop it. The government cannot set prices for long: remember what rent control and rent stabilization did for NYC in a high inflation period, the 70's: the city was unlivable. Remember the last building boom in NYC - the 80's - when the 421-A abatement was phased out below 96th Street (I believe): it flooded the market with apartments at the same time as rental buildings were converting to co-ops to get out of rent regulation, and caused a 10-year slump in property prices that lasted till 1988.

Read the article that opens this thread. It was a perfect storm then, it's a perfect storm now.

You give those of us who look at prices rationally - as a function of income and leverage - far, far too much power. We can't start a run on real estate, like a run on a bank; it's far too illiquid for that. We're not "gladly accepting a real estate crash and all the associated effects" because we can't NOT accept it if that's what happens. There's not a damned thing we can do: start one or stop one. Just figure out what caused it, and how long it's likely to last.

BTW if you MUST know, I don't think in the aggregate that we are in a recession or will be. Only 2 sectors are in trouble - housing and finance. Everybody seems to be doing pretty well. So much for that part of your theory, as well.

lasted till 1998, I meant. And didn't recover inflation-adjusted till about 2001, BTW.

good post steve, but disagree with the fact that only housing and finance are in trouble. Include retail, manufacturing and Technology. I think we are already in a recession. Intel reports after market close. A number of bluechip tech companies are reporting this week and next week. Their earnings will be a good indicator on how Tech is performing this quarter.

what is really heinous is the sellers trying to pump it up for the last few months - weeks - days so they can sell and get out before its too late.

for way too long we have had bulls run wild saying things like

"real estate prices never go down"
"real estate is a good way to save"
"real estate is your retirement fund"
"real estate should be compared with risk free funds" (yeah, right - what else that is 90% leveraged is compared with risk free rates?)

Now, when confronted with reality that the numbers dont hold up, they are now taking refuge in non-quantitative stuff:

"real estate is not about the money - it's about freedom of OWNING a place and paint walls purple"
"its the notional value - not really about the money"
"its hard to put numbers on the pride of being a home debtor (i mean home owner)"

nobody can talk the prices up or down. after years of brokers and sellers pushing houses on people who couldnt afford it, thereby causing one of the largest financial crisis in the country, we have a few people calling out their bluff - and you call them heinous?

look in a mirror

wow, you have truly outdid yourself, I feel confident that that is the single worst post you've ever made on this board (well at least that I've read), and thats saying something.

first you start off attributing a quote to me, that while I agree with, I just copied.

"Well that certainly does give me a lot of power, doesn't it? No to mention the power it gives to this website."

second, you assume that because anyone thinks you and your ilk thinks you're trying to do something, that we think you actually have the power to do it. We don't, but we think you're that dumb to think you can.

third, then you quote me where I say that "some people would gladly accept a downturn" and go off about how nothing can be done to prevent it. Seriously man can you read? Where did I say anything about preventing, I was simply commenting on the fact that many of you are rooting for it.

And then the whole rest of the post is just made up nonsense, that doesn't in any respect have anything to do with what I said. Socialism? Where did I say prices should be regulated or that anyone can or should do anything to stop the downturn?

"We're not "gladly accepting a real estate crash and all the associated effects" because we can't NOT accept it if that's what happens. There's not a damned thing we can do: start one or stop one."

Are you serious? You're talking at the level of a child. you could say that about anything. we couldn't not accept 9/11 because it happened. course there's a difference between accepting something and cheering it on but of course you know that.

this is just another example of you making an argument against a position you attribute to someone but which actually doesn't exist. Its the same thing you all the time, in the end you're a one trick pony.

ah cartman, coming in late and weak as usual. you know steve i can respect sort of, he has a history, a view, a plan, you are just so obviously the prototypical renter who is just so upset about not making any money these past 10 years and just wants to feel better about yourself. I understand, we've all had that emotion in one form or another, most of us are sorta embarrassed about it and keep it to ourselves and don't whine on message boards, but so be it.

ccdevi: no points as usual, i see - just put-downs (though i must admit - yours are more sophisticated than spunky's "pay rent")

points refuting what? you didn't make any points. what's your point I'll gladly respond.

ccdevi, you're a classic! You call me "evil" and "heinous" and attribute to me "scare tactics" on a thread that maybe 100 people in the world read, and you expect people to take you seriously? Even those of "my ilk"?

You say, "some of these folks [...] would gladly accept a real estate crash and all the associated effects," and I say I'm not "gladly accepting" anything. It's out of my control. What would have me do to stop it? A dance? Kaballah? Black Magic? Ouija Boards?

Wait! The pope's in town! Maybe he can sprinkle some holy water on your front door, make the outlook brighter.

Then you add, "so they can get 20-30% off their one bedroom." Well the clear implication of that is that you would like to do something to prevent a 20%-30% fall in the price of one bedroom apartments. That, sir, is socialism. Market forces dictate that, and you must "accept" it, "gladly" or not. If you enter a market you must know the upside and the downside, not just the upside.

So NOTHING can be done. If prices fall, they fall, and you must just as gladly accept it as I do, because it means that capitalism is working its magic.

Your real intention, I think, is here, to Mr. Cartman: "who is just so upset about not making any money these past 10 years and just wants to feel better about yourself."

I think what has you so upset is the prospect of LOSING the money you made ON PAPER ONLY over these past 10 years, and you like to attack anybody who you think is threatening that. This seems pretty plain to me, since I can think of no reason why you would write the things you do, and use words like "evil" and "heinous" to describe people who are merely making a good-faith attempt to forecast the market. We are but the messengers; we didn't create the mess. Especially those of us who are renters; we weren't involved in the property bubble at all.

This little theory of mine is borne out by your preposterous statement elsewhere that the price/rent ratio for NYC was not in fact the historic 12x, but rather a magical 18x-20x because Manhattan is so "special."

I'm sorry, there is no indication that yours is the rate because it would require that you spend 42% of your income on housing expenses (28% * 150%, where 150% = (18x - 12x) / 12x using your lower figure of 18x), and no one would let you do that. It would let people rent apartments whose incomes were only 20x rent, that is, rent a $5,000 per month apartment to a person making only $100,000 (40x income * 50%).

It's simply not that way, ccdevi, I'm sorry. If it were, I'd let you know. You ignore that very uncomfortable fact when you make your bizarre claims, instead attacking me as heinous and evil because I can do the math and you can't.

40x monthly rent = 28% total housing costs and 12x rent = purchase price are the same formula. Ignore it at your peril. And right now you have:

1) falling incomes on Wall Street
2) an economic slowdown elsewhere
3) dried up credit
4) property prices that have soared beyond their sustainable, long-term mean.

You can't avoid the formulas, ccdevi, or the facts. You can ignore them and attack people for publishing what they are, but it doesn't make me evil or heinous. It makes you seem somewhat foolish.

Unless you can come up with a different explanation of the medium-term results of the aforementioned 4 factors, or with a credible explanation how price to rent ratios could be 18x when that would imply 42% income being consumed by housing costs. There are no explanations for the things you say, beyond fantasy.

At the end of the last property bust - when the market was once again in balance - it was exactly 12x. Now it's 24x.

Global venture capitalist Parag Saxena paid $13.8 million for unit 29C at 15 Central Park West, twice what the seller paid for the apartment, according to city records posted today. Saxena, co-founder and CEO at Vedanta Capital, bought the unit on March 19 from an unidentified buyer, who paid only $6.9 million for it on Dec. 13. Other wealthy financiers in the building include former Citigroup CEO Sandy Weill and Goldman Sachs CEO Lloyd Blankfein. Saxena, a former CEO and fund manger with Invesco Private Capital, formed Vedanta Capital in 2006 with two partners. He ranked No. 31 in Forbes' 2008 Midas List of high-tech dealmakers. By Adam Pincus

Spunky, are you going to post that nonsense on every thread, as if it were meaningful? Maybe Richard Branson is going to move in, too!

no I just thought it was rather entertaining.

Sometimes you say things that are truly entertaining, and sometimes you even say things that show you are intelligent.

Then there's the other 99% of the time.

kind of like some who really enjoy your personality and then there's there's other 99% of the population

What?

Ok so we just finished doing our taxes today and honestly i dont now how some still think it's stuipid to buy. we have two incomes and a child we claim ZERO and becase of some LONG TERM captial gains we made last year, we had to pay total of both fedral and state tax the equivlant of a year and a half worht of rent. adn even if we didnt have the capital gain we would have paid the equivlant of 8 months.

i now steve you have all these tables and data for rent versus buying but honestly i dont know how if you fall under a certian tax bracket renting is better..

It simple math. If you make 350K and you can afford a 1.25M apartment and take out a 1M mortgage at 6% you are paying 60,000 in interest a year. At a 40% bracket you are saving 24,000 and still paying 36,000 in interest per year. That is 3K per month, net. That does not inlcude maintenance, taxes and principal reduction. And during the first 10 year your total interest only goes down a little as the principal has not gone down very much.

Also if you lose your job and don't have an income and don't therefore have to pay taxes you still have to pay the entire 60K in interest.

pez dont you agree if you loose your job you still have to pay rent and if you have a lease it's pretty diffcult to break ?

keep trying steve, yeah you show no enthusiasm whatsoever about the downturn in real estate, all you're trying to do is warn people. Well most of what you say is more made up nonsense which doesn't at all address my simple point which is that certain people are hapy about what may happen but putting that aside I just wanted to make 1 point and ask 1 question. First, I never said the historical price to rent ratio was 12x, you know this. I said I thought right now with these interest rates and tax rules that 12x was cheap and that 18-20x was reasonable, i.e. that at 18x the real cost of a purchase was reasonable versus rent. The math supports that. Second, how does 40x=28%? How can you just keep throwing that out there as a set in stone rule when it relies on so many variables? If interest rates are 4% or 10%, 40x still equals 28%?

sfo, I just paid two hundred thousand dollars in taxes today, & I own (a vacation property) & rent (where I live).

There is no material difference between the two - I'm happy renting, I'm happy owning. The reason I choose those options has to do with finances.

Let's say you pay $60,000 a year in interest and I pay $30,000 in rent, and we live in virtually identical places. You'd have to be in the nonexistent 50% tax bracket to save the difference. And - as I've said before - would be an ABSOLUTE 50% tax bracket, not a marginal bracket, because you'd have to smooth the curve, so to speak, along all different tax brackets so as not to give your mortgage interest tax deduction precedence over all other tax deductions.

Then - as pez rightly point out - include all your other expenses, that somebody else is paying for in my case.

Taxes make no difference. Tax abatements make no difference. It's not a matter of argument; it's a matter of definition. Imputed rent = market rent. Market rents include EVERYTHING that the owner-occupier has as a benefit, save profit, which in the case of the renter is the opportunity cost of investing in residential real estate - which historically appreciates very little over time - vs. investing in any other asset, say the S&P 500, which yields about 11% nominal per year, over long periods of time.

Pez, you can't allocate that 40% tax bracket merely to mortgage interest. You have to do a weighted average with all other income / deductions. Otherwise, you're favoring mortgage interest.

Unless you're emotionally attached to real property, there is no difference between owning and renting. The benefits of the two are exactly the same: a place to live. Only a fool would pay twice as much for the honor of owning than for the indignity of rent, when the benefits of both are the same.

And I both own and rent.

Pez why did you stop in the middle of you calculations? What was your point?

cc, "I said I thought right now with these interest rates and tax rules that 12x was cheap and that 18-20x was reasonable, i.e. that at 18x the real cost of a purchase was reasonable versus rent. The math supports that."

What's the math? Show me the math! Then I'll listen.

"Second, how does 40x=28%? How can you just keep throwing that out there as a set in stone rule when it relies on so many variables? If interest rates are 4% or 10%, 40x still equals 28%?"

I did this once before, and it proves the insanity of your 18x-20x ratio. You make $100,000 a year. You can afford $2,500 a month in rent. $2,500 x 40 = $100,000.

You buy. You make $100,000. 28% of $100,000 is $28,000. Divide by 12 = $2,333.33.

Do the math, baby: add in property tax an all the other things that you have as an owner but you don't have as a renter, and $2,500 in rent = $2,333.33 + other owner-occupier expenses.

There it is. That simple. Those are the market constraints. Do different math if you can multiply, and tell me what you come up with.

That's why they're the same figures.

Then there's the 12x figure, that you so object to. First, I did not determine that figure - it was calculated by Fortune magazine. Let say you buy a $100,000 apartment at 6% interest. That give you a $600 mortgage payment (actually, $599.55, but to hell with it). If $600 is 28% of your income, your income to qualify for that rent is $27,715. You could therefore afford to rent an apartment for $692.88, which is reasonable since owning has costs beyond the mortgage. $692.88 x 12 months x 12 p/e = $99,648. The apartment we were discussing cost $100,000.

DO YOU SEE THE ABSURDITY OF YOUR CLAIM?

12x annual rent = 40x income. Always. When you do the math you have to remember transaction costs and taxes and other things contemplated in rent that are not in the mere cost of a mortgage. I know that there's the tax benefit, but when you calculate the tax benefit it is absolutely offset by the opportunity cost in not investing the down payment in another asset. I've also demonstrated this elsewhere.

ccdevi, this argument is now OVER. There are the numbers. You claim other numbers can support 18x-20x, prove it. Because as soon as you introduce low interest rate, housing prices climb to offset them. If you have a question about that, look at what happened to housing prices since 2001, when credit was cheap and easy.

The equation ALWAYS HOLDS TRUE over long periods of time. Housing bubbles do no last, because rent bubble cannot exist, and rental properties are 100% substitutes for owning real estate, and rents are 100% tied to income.

There is no escaping it. Unless you can come up with different numbers, you're out of your league, and are heavily invested in an asset you do not understand.

ccdevi, I'm waiting for your math. Change the interest rate if you want, because what happens when you lower it? Property prices go up. When you raise it? Property prices go down. To the point where the 12x ratio is always true.

This is because, OVER TIME, market rental rates are nearly 100% correlated to out-of-pocket owners' carrying costs. Market rental rates are also 100% correlated to incomes.

If you increase the p/e to 18x, you're ignoring the effect of interest rates on property prices, and assuming that property prices will remain the same as interest rates fluctuate, and incomes rise and fall. That's not true, empirically or theoretically. If you increase the value from 12x to 18x, you are increasing by 50% the amount that someone can spend on overall housing costs. Thus, 28% becomes 42%, and no one except the extremely wealthy could live and pay 42% of their gross income in housing expenses. Moreover, no one would lend you the money to do it because the risk of default is so high.

Do the math again. You make $100,000 a year. If you use your 42% figure, you would be renting / buying with total carrying costs of $3,500 per month. But no one will lend you that much money.

Imputed rent is, by definition, equal to market rent: the only inherent benefit in owning is the right not to rent. Therefore, the output value of residential real estate is what you can rent it for.

Adam Smith posited that things are worth the sum total of their inputs. Way back then it was a fine theory. Now it is universally agreed that things aren't worth the total of their inputs, but rather their output value. The output value of residential real estate is market rent. (And note the NYC assesses property tax on condos and co-ops using the imputed rent, not market value.)

Which is why marble countertops do not make the value of an apartment, and why renovations rarely make you money. What you're buying is a place to live.

You claim 18x. If I live in an apartment that costs $5,000 per month to rent, 18x that annual rent $1,080,000. The mortgage payment alone (80%) on that at a generous 6% is $5,180. Add to that property tax and common charges of $1,000 per month each - not at all unreasonable if you look at properties priced at that level - and your total payments are $7,180. That excludes amortized transaction costs such as a) real estate commissions when you sell; b) closing costs; c) mortgage recording costs; d) conveyance tax; e) mansions tax; f) capital gains tax, etc., which if you add them back in make your ACTUAL amortized cost over the life of the property are far higher than $7,180 per month, or 44% more to buy than to rent.

To rent that apartment at $5,000, I would need to show income of $200,000. 28% (housing expenses) of $200,000 is total housing expenses of $4,666.66 per month. So when you go to the bank and ask for a mortgage that will mean you will be paying 53% more than that, what do you think they're going to say?

If you change the interest rate, all that will happen is the price of the property will go up or down to reach that famous 12x ratio. And if you increase the ratio to 20x, it becomes even more absurd, because not only do the mortgage payments go up, taxes and common charges go up, as well.

Unless, as Suze Orman says, you can show me the money.

ccdevi, I'm waiting for your math. Change the interest rate if you want, because what happens when you lower it? Property prices go up. When you raise it? Property prices go down. To the point where the 12x ratio is always true.

This is because, OVER TIME, market rental rates are nearly 100% correlated to out-of-pocket owners' carrying costs. Market rental rates are also 100% correlated to incomes.

If you increase the p/e to 18x, you're ignoring the effect of interest rates on property prices, and assuming that property prices will remain the same as interest rates fluctuate, and incomes rise and fall. That's not true, empirically or theoretically. If you increase the value from 12x to 18x, you are increasing by 50% the amount that someone can spend on overall housing costs. Thus, 28% becomes 42%, and no one except the extremely wealthy could live and pay 42% of their gross income in housing expenses. Moreover, no one would lend you the money to do it because the risk of default is so high.

Do the math again. You make $100,000 a year. If you use your 42% figure, you would be renting / buying with total carrying costs of $3,500 per month. But no one will lend you that much money.

Imputed rent is, by definition, equal to market rent: the only inherent benefit in owning is the right not to rent. Therefore, the output value of residential real estate is what you can rent it for.

Adam Smith posited that things are worth the sum total of their inputs. Way back then it was a fine theory. Now it is universally agreed that things aren't worth the total of their inputs, but rather their output value. The output value of residential real estate is market rent. (And note the NYC assesses property tax on condos and co-ops using the imputed rent, not market value.)

Which is why marble countertops do not make the value of an apartment, and why renovations rarely make you money. What you're buying is a place to live.

You claim 18x. If I live in an apartment that costs $5,000 per month to rent, 18x that annual rent $1,080,000. The mortgage payment alone (80%) on that at a generous 6% is $5,180. Add to that property tax and common charges of $1,000 per month each - not at all unreasonable if you look at properties priced at that level - and your total payments are $7,180. That excludes amortized transaction costs such as a) real estate commissions when you sell; b) closing costs; c) mortgage recording costs; d) conveyance tax; e) mansions tax; f) capital gains tax, etc., which if you add them back in make your ACTUAL amortized cost over the life of the property are far higher than $7,180 per month, or 44% more to buy than to rent.

To rent that apartment at $5,000, I would need to show income of $200,000. 28% (housing expenses) of $200,000 is total housing expenses of $4,666.66 per month. So when you go to the bank and ask for a mortgage that will mean you will be paying 53% more than that, what do you think they're going to say?

If you change the interest rate, all that will happen is the price of the property will go up or down to reach that famous 12x ratio. And if you increase the ratio to 20x, it becomes even more absurd, because not only do the mortgage payments go up, taxes and common charges go up, as well.

Unless, as Suze Orman says, you can show me the money.

Hey Stevejhx,
How do you calculate the desire for the human race to want to own a place in the greatest city in the world? Where does that fit into your calculations and ratios?

steveF, very easy Mr. Ponzi scheme: 65% of New York City residents rent.

So there doesn't seem to be this "desire for the human race to want to own a place in the greatest city in the world," does there?

And if there were, who cares what people "desire"? You can desire whatever you like, but if you can't afford it, you can't have it. You can only afford it based on the financial guidelines listed above - unless you come up with something other than 40x income to rent / 28% total housing costs to buy which are, as repeatedly indicated, market constraints, and the same ratio all things considered.

That 40x / 28% leads to a 12x p/e ratio for rents / property prices. Always. Unless you can show me numbers that disprove that.

Which you can't.

Who says people in other countries can't afford it? There a plenty of rich people in Europe and Asia who want to "OWN" in Manhattan. It carries a sort of "PRESTIGE" and human beings luv being prestigious. Can't calculate that now can we and as the world gets smaller and smaller we are going to see more of the above........

Yes, more unquantifiable nonsense from steveF, who conveniently neglects the fact that property prices are plummeting in the places they rose the most: Ireland, England, Spain. See yesterday's NY Times. And that in most other European countries more people rent than buy. And that foreigners have a very difficult time getting financing here unless they're permanent residents, and if they're not permanent residents they can only use these properties for a short period of time.

"Foreigners to the rescue!" is what they said in Miami, too. More BS.

Unless you can tell me EXACTLY who these people are.

steveF - I don't believe in this "foreigners buying into NY real estate" theory. It is great for them as long as USD is weak against their currencies. What if the USD starts to recover? It will be a bad investment for them. All we know is that USD is at lowest level against major currencies (Euro, Yen, Pound, CAD).

The problem isn't so much the value of the asset, but the carrying costs. If you earn your living in pounds sterling, and buy a $100,000 apartment when the dollar is at $2 = 1 GBP, it will cost you 50,000 GBP. If the dollar strengthens to $1.50 = 1 GBP, the value of that asset increases to $66,667.

So you would make money. Unless of course you have a mortgage in dollars - which is what you would need to finance a dollar-denominated asset - which would mean if your $ mortgage payment is $1,000 at the exchange rate is $2.00 : 1.00, it would cost you 500 GBP to finance it. If the rate rises to $1.50 : 1.00, your mortgage payment will cost you 667 GBP.

The only foreigners for whom there is a benefit are the ones who can pay in cash. Anyone who needs financing - which is just about everybody - will get screwed. Then, if the asset you purchase is falling in value on a dollar basis, and the dollar is rising at the same time, you're doubly-screwed.

Which is why the "Foreigners to the Rescue!" trumpet is never actually blown. It's a marketing gimmick to make people think that a Knight in Shiny Armor (should we say "Armour"?) will ride in on a Silver Stallion and rescue us.

Not.

Hedging against those market moves requires a very sophisticated investor, and since real estate is highly illiquid, it's even more difficult. Why flip Manhattan real estate as an exchange-rate mechanism, when you can do the same thing on forex.com with 100x leverage in a highly liquid market?

No. The only foreigners who will invest here are the ones who really, really want a NYC apartment. They're not buying it for cachet, because there's more cachet staying at the Waldorf-Astoria.

And a lot less risk.

And I meant 66,667 GBP.

Stevejhx
"No. The only foreigners who will invest here are the ones who really, really want a NYC apartment"

Just about everybody really, really wants a Manhattan apt.... "Ya I own an apt in London, Paris, Moscow and New York City"..."Really?!"..."Sure! I like to have my own place when I travel".."Wow, this guy is a big shot"......:) sounds funny but it's who we are and where we are going. Why do you think London is so much more expensive as Manahattan.

manhattanguy,
why you can't sell your apt and buy anything in America with the greenback?

malraux wrote........"And that does not include the significant additional monies earned over that 20 year period renting the place out, which also covered all mortage and maintenance costs during the same period (plus left plenty additional in my pocket on a monthly basis, particularly from 2000-2006 when the place was fully paid off and the rent amounts had gone up vertiginously)."

Can this type of investment be duplicated in today's market? Can a purchase be made where renting the unit could be cash flow neutral from the outset? Or even in five years? I don't believe so. The rent vs. ownership question does not currently look favorably at owning.

Malraux made a great investment at a tremendous moment for that investment. Kudos. Can it be done again in today's market?

check out the Miami/Manhattan real estate historical charts here
http://www.sulfura.info/economy/nymiami-real-estate-market-data.html ...pretty interesting

residential real estate has different economics from investment real estate. I'm not talking about buying someplace and renting it out; I'm talking about buying someplace and living in it.

Although...if you buy someplace and can't break even immediately, you're overpaying. Imputed rent = market rent.

Apart from that, Malraux is correct. But you're correct walterh7, if you buy now & try to rent out, you'll lose your shirt.

I was wondering stevejhx if this chart may be an explaination for all of the dribble you posted in this thread?

http://www.millersamuel.com/charts/gallery-view.php?ViewNode=1132752161iuzhS&Record=6

steve, I wanted to post a comment you just made about the millersamuel chart above. I thought it was very interesting in relation to this thread you started just a few days ago.

"Ergo, the 1988 chart is completely unrelated to what is happening today: it happened 20 years ago, in an entirely different market for entirely different reasons." - stevjhx

Just to make sure everyone understands stevejhx's view point, here is what he said about 1988.

"Ergo, the 1988 chart is completely unrelated to what is happening today: it happened 20 years ago, in an entirely different market for entirely different reasons."

That is true, JuiceMan: today's issue is that the market rent to market price ratio is 24x, when income constraints (40x / 28%) do not support more than 12x BY DEFINITION. The chart from 20 years ago shows merely that a lot of rentals were converted into co-ops, which drove up the inventory figures without driving up the actual number of units available.

More obfuscation.

This crash will be harder than the last, because prices are more overvalued and there is a 1-year supply of apartments on the market, and more coming.

So you saying that his thread was a total fabrication and complete load of crap. Back to your (40x / 28%) etc, etc.

"Ergo, the 1988 chart is completely unrelated to what is happening today: it happened 20 years ago, in an entirely different market for entirely different reasons." - stevjhx