WSJ say's it cheap!

I think that's partly because these are median prices, not apples-to-apples prices. In the one apartment that I've held since 2004, which is a midtown studio condo, the price is up in constant dollars. Any other long-term holders experience the same?

ali r.
DG Neary Realty

Also New York City is cheap compared to other major cities in the world.

FP, using the SE index and CPI, inflation-adjusted prices are flat to July 2004. You bought your place in June 2003. Between June 2003 and July 2004, the SE index was up 20%. Inflation was up 21% July 2004 to present. So unless you think the current price of your place -- minus any significant renovations -- is up appreciably more than 45%, it's pretty close to market.

>> Doesn't feel cheap...

Did it feel cheap in 2004? If not, it shouldn't feel cheap now, except for a mortgage rate argument. That's the point of inflation-adjusted.

FWIW, I think 2004 buyers have taken a bit of a spanking because of negative carry. I.e., no return on downpayment. 2003 buyers have fared decently -- something like 7-8% annually on downpayment, comparable to stocks/bonds. That's probably true for "average" apts -- ones currently selling $800K-$1.5M. Story is better for lower end, worse for higher end, simply due to cap rates. An extra 3% annual return on a 20% downpayment for a $400K apt is not a whole lot of beans -- $2400 a year. For an investment, starts sounding more like payment-for-labor rather than return-on-capital.

That's just it, nada, the current price of my place is up conservatively 65% and more aggressively 70%. And my building has a special circumstance that prices are depressed because of an ongoing lawsuit. That's why I'm interested in hearing more apples-to-apples examples.

ali r.
DG Neary Realty

333 w 56, 5A.

Or else look at 8C. Bought in Feb 2004 at $370K, SE index would put it at $505K today. It did not find a buyer with a $550K ask, which translates to $525K or so after a listing discount.

The difference between 1.65x and 1.45x is only 14%. There is variation around the average, some location specific, some deal-specific. Maybe your conservative price is overly rosy. Maybe you'll get it because you are a broker and will work harder / longer / spend more on marketing, but then not count the value of your time. Remember the freakonomics study that showed realtors get about 4% more for their own homes? Maybe you did the same when you bought -- worked harder to make sure you got the absolute best for your money than the average buyer.

The SE index is about as apples-to-apples as you can get. It just uses same-apt resales. Same as the apples-to-apples examples you seek, except they do it with tens of thousands of apples-to-apples examples.

Did it feel cheap in 2004
No, I was watching for a cycle back to 99-00 pricing. The unanticipated low rates and lose lending standards accelerated the market at a pace that blew right by me.

Inonada: I have a methodology question, related to your statement, "...using the SE index and CPI, inflation-adjusted prices are flat to July 2004."

According to Streeteasy's methology paper (http://docs.streeteasy.com/research/SECMI_Methodology.pdf page 7):
"1. Inflation: Pricing trends did not reflect inflation and its influence on nominal price. So
we adjusted the model for inflation in order to compare real growth in price v. nominal
growth in price by using the following:
a. Real Price = Nominal Price / Inflation rate (CPI)"

Doesn't that mean the SE CMI already reflects CPI? If so, are you double-counting inflation? The impact, if I'm reading the charts right, would be that prices are flat to roughly 2006, not 2004. You're way better at this stuff than I am, so I'm probably missing something. Just trying to understand how to factor in inflation when applying the index to a 2006 same-unit sale.

FWIW, my sector seems to be above 2006 nominal levels now, and the excess might be in line with inflation. It's a small slice of the market anyway, so it may not be statistically significant.

Sorry, "methology" should be "methodology". Methology sounds like something from Breaking Bad.

Buddy, you're losing it. We had this conversation just 4 months ago. They originally published both the index and an inflation-adjusted one, but soon dropped the latter without clarifying the paper. Here's what I said last time:

http://streeteasy.com/nyc/talk/discussion/32476-help-should-i-buy

I think you are misunderstanding the methodology. The methodology paper does not talk about inflation-adjustment at all, except in that section under "Variations of the StreetEasy CMI" stating "The StreetEasy CMI was manipulated a few additional ways for comparative analysis." They used to publish both non-inflation-adjusted and inflation-adjusted, but they stopped doing the latter.

Publishing only an inflation-adjusted index is extremely weird. However, the definitive evidence that the CMI index currently being published is not inflation-adjusted is the graph on page 7 comparing to Case-Shiller. On its description, it says "Since the CSI is not adjusted for inflation, we removed our
inflation adjustment so that we could compare 'like-to-like.'" You can note that the CMI shown there (scaled by 10 to undo the CSI-comparable re-scaling) is indexed to 1000 in Jan 2000, first breaks 2000 in late 2005, and double-peaks in late 2007 / early 2008 at 2200. That matches the currently-published data exactly. CPI was up 25% between Jan 2000 and Jan 2008, so the inflation-adjusted difference would have been 1.76x instead of 2.2x during that period for inflation-adjusted CMI.

Nada, I can't speak to 8C because I didn't list it. I will say that I wouldn't have to go very far down my client list to get a 65% return; it's not tough to find willing condo buyers at that cap rate, and Corcoran (which has been an active listing agent in the building) often does.

As far as 14%, I still think it's a significant variation. Maybe you're right, and I made it on the purchasing end with my spidey-sense (which would be a pretty good advertisement for my expertise). But I'm not sure that's true, that's why I'm looking for numbers from others.

ali r.

>> FWIW, my sector seems to be above 2006 nominal levels now, and the excess might be in line with inflation. It's a small slice of the market anyway, so it may not be statistically significant.

The average 2006 level in the SE index is the same an now nominally. It is 10% below the March 2008 peak. CPI has increased 14% since 2006 and 7.5% since March 2008. So unless your sector is 14% above 2006 nominal levels, putting it 5% above the cherry-picked 2008 nominal peak, it is not in line with inflation.

BTW, I love how everyone's sector/apt/etc. outpaced the average. Wonder where those sub-average apts are hiding.

Don't believe this at all. Classic 5 in 2004 in my old building sold for 700-800K in 2004. Most recent classic 5 sold above asking for 1.39M (and it needed some work)

16 w 81, 6f

>16 w 81, 6f

Admit it, you really miss being in Manhattan.

I recently looked at how our landlord is doing on our unit for purposes of lease renewal negotiations. It was very interesting b/c he is doing great on our unit - he purchased at the end of 2007 for $2.2 million with a mortgage of $1.8; he is almost certainly covering his mortgage, taxes and common charges through our rent, as he did with previous tenant. Unit in same line a few floors below closed for 2.6 a month ago; unit in same line a few floors above closed for 2.7 two months before that. My first thought was "wow - this building seems to be doing well despite whatever else is going on in NY real estate." But then I looked at closing prices of others who purchased in building at same time as our landlord; a number of closings at 2.6 in the line in 2006-2007. I wondered how our landlord appeared to have done so much better than others who purchased at the same time. I now see that maybe it is because our landlord is a real estate professional? He is a well known real estate attorney and investor.

Correction - our landlord purchased at the end of 2006, for closer to 2.3. Is he doing well on our unit or not? Would love for someone else to do the math. He's definitely doing better than others who bought into the line at the same time, but I don't know if that means he's doing well. As often noted, I am only a half-step above being financially illiterate.

>As often noted, I am only a half-step above being financially illiterate.

But antitrust lawyer = lawyer plus economist.

:-)

NYCNovice, your place was a new development back in 2006-2007. While I've sometimes seen what looks likely to be shady practices -- employee / service provider given "special" price, presumably in lieu of compensation -- the story is much more simple here.

Your unit went into contract pre-construction June 2005 at $2.3M, closing Dec 2006. The unit below you was $2.7M with a post-construction contract date of March 2007, closing June 2007. (That info is in ACRIS.) While there might be room for savviness between those two times & prices, a decent chunk of the difference is from the contract date.

Inonada: Thanks very much. I dropped out of that thread and missed your response to my post about inflation adjustment. Maybe Sofia will chime in to explain the apparent contradiction.

Nada - Interesting. Thx. How did you find pre-construction contract date? Was it right in front of me somewhere?

As far as covering his mortgage / taxes / etc., I doubt he has a mortgage.

The interest on his 10/1 ARM is 6%, which would mean $9K a month in interest. Add in $3K a month in monthlies w/ abated taxes, it's $12K. Would be $14K w/o abatement. Amortize $250K transaction costs & $50K for upkeep / empty months / etc., you've eaten out the $300K in gains since the 2005 contract date.

So if your rent is 4% of the current $2.6M price, that's $8.5K a month. Negative carry have been running at $3500 a month. A bit less earlier on, but probably some vacant months, works out to a $250K hole over the past 6 years. So a loss of $250K to date on an investment of $500K.

Negative carry moving to $5500 w/o abatement, so the $66K negative carry would need to be offset by a 2.5% inflationary gain just to tread water at that $250K loss.

Now all that said, he has chosen not to refinance out of his 6% rate mortgage. Given his financial means, I assume this is not because he had trouble getting a loan. Rather, he probably moved to all- or effectively-all-cash at some point circa 2009.

On a cash basis, he is earning a yield of ($8500 - $3500) * 12 / $2.6M = 2.3%. When the abatement expires, it'll be ($8500 - $5500) * 12 / $2.6M = 1.4%. Take out another percent for amortized transaction costs over a 10-year hold, 1.3% yield now moving to 0.4% post-abatement.

But I don't think he cares too much, he hit paydirt with his flip at 15 CPW.

>> How did you find pre-construction contract date?

Contract dates are on the Real Property Transfer Report form in the deed document in ACRIS, usually the third-to-last page. That tends to be accurate on the form, though the "relationship between buyers" tends to often be marked as None despite sometimes-obvious relationships (i.e., even when it's family).

More interesting still! As always, thx for breaking it down for me. FWIW - he is a great landlord; in renewal negotiations, his property manager proposed an increase; we said no because any rational person in our shoes would downsize to a 1 bedroom, but we do love the building, our unit and our landlord, so we just renewed with no increase.

Did you get it at asking rent last year, or discounted by some percentage? A nice-value rent at that price point regardless.

The opposite; we pay more than it was advertised at because we were initially turned way due to existing applicant. A friend advised us to call the broker back and offer above ask to displace existing applicant. I don't know what broker told applicant who was there first, but we really didn't have time to deal with finding a new place; both my husband and I were working around the clock and traveling different places on a regular basis at the time, so we were happy to pay the extra. Having looked at the various buildings in midtown east and having kept track since then, we really don't think we could do better for a 2/2.5 in a comparable building. Without the dogs we could probably have done better in 845 UN Plaza on a pure price per square foot basis with comparable amenities, but we like our current location better than 845 UN Plaza, so I think we would have made same choice even without the dogs.

Aren't you afraid that "existing applicant" might seek you out?

Hfscomm1

Take into account transaction costs and you'll really like your RE investment.

Nycnovice, Is your rent apps $5-6 per sq ft per month? Assuming midtown east new construction with views given your reference to other 845 un plaza.

@300_mercer - Exactly. We pay $5.625 per sq ft per month.

@greensdale - No. I would have no problem had someone done the same to me. In fact, I suspect broker went back to existing applicant and gave him/her chance to match or beat because acceptance of our offer was not immediate.

Greensdale. What happened to HB?

hfscomm2

Nada you must be psychic or something cause how do you know which building/apt Novice is in? It's not listed in the thread.

>Nada you must be psychic or something cause how do you know which building/apt Novice is in? It's not listed in the thread.

Not only that, but according to C0lumbiaC0unty, NYCNovice isn't even real, so he has to take a leap of faith that she actually exists.

A magician never reveals his secrets ;).