Ouch.

Still too expensive for West 91st Street, but getting closer. For that neighborhood you'll be getting down to the $600 psf level soon, $800 psf prime neighborhoods like the West Village.

That is, 2003 prices, which were already threefold 1998 prices, so the falls, though precipitous, aren't so bad viewed from that perspective.

Yeah, but was overpriced $400,000-$600,000 to begin with. Probably should have put it on market for 1.795 and it would have sold 6 months ago.

steve:

So you're predicting that the selling/contract price for a 700 (+/-) square foot 1 bed/bath on a higher floor with nice park views/light in really nice condition in a prime Village full service pre-war doorman building such as One Fifth or 41 Fifth will be selling for (approximately) $550,000?

Just tell me when. I'm salivating regarding the investment potential......

Stevejhx- While I agree that prices are coming down-the 50% drop you pump on these boards seems a bit brutal. I'll buy 20%-or even 30% in some neighborhoods. Now I don't have an advanced degree in mathematics, but you are claiming that within a couple years the $2 million apt today (as we still seem to be at or close to the peak in this town) will sell for $1 million, the $1 million for $500,000, and the $500,000 apt will sell for $250,000. Bigger drops than we've seen anywhere in the country so far. Are you sure?

steve will distort some rent ratio analysis that is not even relevant to NYC anyway to justify his unintelligent claims that NYC prices should be 50% of what they are now, even though when you look at actual rents v. prices in just about any Manhattan neighborhood, the numbers seem to make sense. He is so bitter that he is hoping everything crashes and can't stop himself from posting his negativity over and over.

kgg- Would have sold in 2006-mid 07' for asking and now the bulls would like to point out that it should have been priced much lower. I guess if that's all you got left......

Another thread on that same Elliman listing? Jeez. How many of you UWS experts have actually seen the apartment? kgg has. I have. We agree that it was drastically mispriced. FWIW, I think the broker (Lense) knew better, but the sellers were greedy.

There's very little to see here, and what there is to see has been thoroughly discussed on other threads. Can we move along?

Stevejhx...I believe, I believe!!!

I've made my prediction - 50% down from the peak. It's not that bad really, and I'd be happy with 40%.

"So you're predicting that the selling/contract price for a 700 (+/-) square foot 1 bed/bath on a higher floor with nice park views/light in really nice condition in a prime Village full service pre-war doorman building such as One Fifth or 41 Fifth will be selling for (approximately) $550,000?"

I happen to remember when apartments in 1 Fifth and 41 Fifth went for "approximately $550,000," and it was just a 5 years ago. Real estate does not double in 5 years and stay there.

Salivate away.

BTW: What about the Dow 11,000 thread that you didn't answer?

"steve will distort some rent ratio analysis that is not even relevant to NYC anyway to justify his unintelligent claims that NYC prices should be 50% of what they are now, even though when you look at actual rents v. prices in just about any Manhattan neighborhood, the numbers seem to make sense."

As Suze Orman says, "Show me the numbers!"

Wait - I know! The tax "benefit" at your marginal rate - it makes all the difference in the world!

12x annual rent. That's the threshold. Anything over 15x is vastly overpriced.

ok steve, answer this: Why is 16x vastly overpriced? Have you ever actually looked at the numbers? No, of course not, because your brain doesn't think that way. You probably were an accountant back in the day - counted numbers others gave you but didn't really think them through.

Let's assume $4,500 monthly rent. At 16x, the purchase price would be $864,000. Let's assume a $700,000 mortgage. Your after-tax cost of your mortgage and common charges would probably be between $4,500-$5,000 (on the high end). Is that vastly overpriced? Doesn't seem so to me, especially since you would have the benefit of ownership and rents are sure to increase over time more than your carrying costs.

I am also being conservative with my estimates, the actual after-tax costs could be lower.

"Your after-tax cost"

Therein lies your first mistake. The 12x ratio does NOT take into account tax benefits - it is simply the ratio that holds over time, based on net amounts.

The imputed rent method does take into account tax benefits, and there the ratio is higher but it is more complicated, taking into account perceived appreciation and risk premiums.

Your second mistake - and perhaps this is because you're not familiar with the Manhattan rental market - is "Let's assume $4,500 monthly rent."

There is no way on God's green earth that in Manhattan you can buy an apartment for $864,000 with an equivalent rent of $4,500. I rent a 2-bedroom 2-bathroom 1,000 sf apartment in Chelsea. Here is the number of equivalent apartments you can BUY in Chelsea for under $900,000:

Sales in Chelsea
We found 1 listings for no more than $900,000 with at least 2 bedrooms with at least 2 bathrooms
Median price: $895,000
Information on Chelsea

And here are your actual costs for an 80/20 30-year fixed costs + maintenance at 6.5%:

Down Payment: $179,000
Mortgage Amount: $716,000
Mortgage Payment: $4,526
Total Monthly Payment: $6,332

Your total interest payments for the year are about $46,000. If you're in the 28% EFFECTIVE (and don't go through that again - you've been proved wrong) you save $12,000 a year in tax, or $1,000 a month. That leads to a total monthly payment of about $5,300 versus $4,500 to rent the same thing.

Excluding the opportunity cost of investing elsewhere, excluding what happens to your equity if property prices fall.

You don't know what you're talking about. Price to rent ratio does NOT include the tax benefit. The imputed rent method does. Don't mix models and ratios that can't be mixed - it's not a Chinese restaurant.

steve, there is no mistake. You said anything over 15x rent ratio is vastly overpriced. I just ran actual numbers at 16x and showed that you are a fool.
You may have some great deal with your rent, but 95% of 2-bedroom rentals in Chelsea will be much higher, closer to $6,000 actually.
And please give up your ridiculous effective tax rate argument. The numbers do not work, you are completely wrong. When analyzing the benefit of a tax deduction, maybe, possibly, you can blend the last two tax rates on your tax rate schedule and use that number, but using your effective rates blends in the 0% on your initial income and all the lower bracket rates, which significantly understates your benefit. Using the top marginal rate applicable to you is much more accurate. Go back to school to learn this again before you try to keep arguing the same misguided thing again and again.

Try living in reality and not in your bizarro world when applying these theories of yours.

Also, even given your example, use a 32% tax rate and the benefit becomes $1,227/month. Also, are you taking into account the deduction on the part of your monthly payments attributable to property taxes? Let's say that's another $150/month. That brings your total monthly cost to under $5,000. You also didn't consider rent increases. If rents increase 5% per year, your costs are at parity within 3 years.

Steve always cites certain rentals available for rents that support his positions. I think some of this is a matter of aesthetic values, convenience, services, etc., but simply because a one bedroom can be had on 8th or 9th Avenue for $2500 doesn't mean that is what should be used as a comparable. Those $2500 one bedrooms may not be units you would live in--either for rent or to buy. Try instead finding the cost of one bedrooms on or just off lower Fifth Avenue in the Central Village with a doorman, excellent building, units with some architectural interest and servicable layouts and respectably sized rooms. Now your one bedroom is costing $4500+ (exclusive of fees which can be up to $9000, plus security) and the calculus changes.

"I just ran actual numbers at 16x and showed that you are a fool."

No you didn't. You calculated in a tax benefit that is not included in the ratio, used the marginal rate for the the tax benefit (that should be excluded), failed to assign a risk premium for the added risk of buying versus renting, and failed to calculate in the benefit of investing in another asset class.

Other than that, your analysis is perfect.

Go here:

http://money.cnn.com/magazines/fortune/price_rent_ratios/

and click on p/r, then go back and read the article.

Every reliable source will tell you the same thing.

"And please give up your ridiculous effective tax rate argument. The numbers do not work, you are completely wrong."

"The third component is actually an offsetting benefit to owning, namely, the tax deductibility of mortgage interest and property taxes for filers who itemize on their federal income taxes. This can be estimated as the effective tax rate on income times the estimated mortgage and property tax
payments."

www.ny.frb.org/research/staff_reports/sr218.pdf

"Go back to school to learn this again before you try to keep arguing the same misguided thing again and again."

Read the Fed - no more arguing with you.

"which significantly understates your benefit."

No it doesn't - it states it precisely.

"If rents increase 5% per year."

Rents can only increase 5% per year if incomes increase 5% per year, which they do not. In Manhattan they've barely budged on market-rate rentals since 2000.

"and the calculus changes."

Actually, kylwest, it doesn't. It has been proved that people will not pay significantly more to own a place to live than to buy one. The long-term correlation between rents and owners' carrying costs is nearly perfect. Each has its advantages and disadvantages.

LICC, I realize that you like to ignore empirical and theoretical evidence that contradicts everything you say, but I can't. Just read this - it's wiki, easy for you to understand:

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

Here's something else from 2004:

http://www.frbsf.org/publications/economics/letter/2004/el2004-27.html

"Conclusions

The price-rent ratio for the U.S. and many regional markets is now much higher than its historical average value. "

Oh, I forgot, you don't believe the Federal Reserve Bank.

Classic steve - he knows he is wrong, he can't argue the numbers, so he distorts the discussion with out-of-context theories and articles.

Dude - you're beyond ridiculous and merit no further engagement.

There are the theories - read them. From the Federal Reserve of New York and San Francisco. There are the numbers - read them. From Dr. Robert Shiller and Fortune Magazine.

"he can't argue the numbers, so he distorts the discussion with out-of-context theories and articles."

I think that that statement is called projective identification. You have no theory on how to calculate these things so you make one up yourself. Find me an academic journal not published by the National Association of Realtors that supports your calculations.

As you can't, you are dismissed.

steve really doesn't like it when he is proven wrong and has indisputable numbers presented to prove it.

I love how posters like LICC and Juiceman don't understand leverage, risk or know how to plug numbers into a simple formula (oh say any respectable rent v. buy calculator) so they result to calling anyone who can actually EXPLAIN in a logical way why real estate is overpriced (as opposed to their illogical argument that it just CAN'T go down and you are an idiot if you think it will!) an idiot - shows who the recent buyers of Manhattan RE are.......be ready for a 50-80% correction - on top of this economic downturn all the baby boomers are going to want to get rid of their apartments....run the numbers people and you will see how overpriced RE actually is (and actually use a NEGATIVE RETURN on your investment b/c people that is what you are going to get over the next 5-10 years) and see what a terrible investment Manhattan RE actually is (and yes maintenance is just like rent and goes up every year on top of this!!)......oh and rents are going down....

"steve really doesn't like it when he is proven wrong"

Actually, I don't mind at all when it happens, which it does. Just not this time.

Unless you can provide a single source that supports your way of doing the calculation, you are dismissed.

Therefore, you are dismissed.

"$600 psf level soon, $800 psf prime neighborhoods like the West Village."

You are living in an acute dreamworld guy.

Steve,

What do you think is the most likely playout of your -50% expectation. A long, drawnout decline? Or perhaps over a two-year period?

Really? An acute dreamworld? Those were the prices in 2003. They have DOUBLED in the 5 years since then, after having TRIPLED since 1998, for a grand total SEVENFOLD INCREASE in 10 years.

Never before in the history of the world has residential real estate gone up so far so fast.

Do this, totally: what was your earned income in 1998? What is it today? Is it SEVEN TIMES more than it was 10 years ago? Did you average a 22% increase per year?

Doubt it.

But if that's not good enough for you, here's a pop quiz: name any other asset class that has increased at 22% per year compounded for 10 years.

None.

$600/800 psf..what's wrong with that. Every area of the economy is falling apart. It's bound to happen to NYC real estate.

Stevejhx..when is it going to happen, 6 months, 9, a year?

julia, I don't know how long it will take. Faster than most real-estate corrections I assume, but I don't know. I'd take $800 psf in a prime neighborhood.

22% is the annual compounded ROI for Berkshire Hathaway, the most successful investment vehicle in history.

And people expect real estate to match that?

"When steve tries, and uses realistic numbers applicable to NYC or to the tax code, he is proven wrong."

Dismissed.

aren't we sort of missing the point here. we don't need to calculate rent/buy to figure out potential cuts anymore... we can now just LOOK AT THE CUTS. Why predict? Looks like its here...

if it does drop to that arbitrary number of 600/800 it would be shortlived and would signal a buy point.

"Do this, totally: what was your earned income in 1998? What is it today? Is it SEVEN TIMES more than it was 10 years ago? Did you average a 22% increase per year?

Doubt it."

Actually, my income is ten times (plus) greater than it was in 1998. I will say I earned a decent salary in 1998 (above the national mean).

steve - explain this seven-fold increase since 1998. Are you saying that in 1998 apartments in Manhattan were selling for $85 psf? You could get a 1200 square foot two-bedroom in 1998 for just over $100,000? You are much older than me, but I still remember 1998 and I don't recall prices being that low.

Woops, I meant $170psf and $200,000.

totally anecdotal, but i remember my ra at nyu telling me he was looking to buy a 1br at the zeckendorf towers...going rate back then was $250k. this was may, 2000. we were like, "dang, $250k for a 1br...thats crazy!". think 1brs now start at $1.1m.

"it would be shortlived and would signal a buy point"

Not necessarily. It would depend on incomes and leverage.

"my income is ten times (plus) greater than it was in 1998. I will say I earned a decent salary in 1998 (above the national mean)."

Then you are the exception. Mine is 3x what I earned back then, which is still mighty respectable.

LICC, here is the only source I know of with reliable data on identical or near identical apartments over time:

http://350bleecker.com/policy/sales.html

I lived in the building - 1984 conversion, I bought in 1997 below the cost of the original owner.

Do the math. In 1997 I bought a 2-bedroom 1-bathroom apartment in the prime West Village for @218,000. The closest similar apartment on a much lower floor and not a good layout sold for $1.3 million in 2007. On a per-share basis that is a 5.5 fold increase, a sixfold since apartments on higher floors and in my line command a higher per-share premium.

If you could research what were at the time less desirable neighborhoods that are now fashionable (Chelsea, SoHo, Tribeca, Hell's Kitchen) you would see the increase is even higher.

The lending game has changed overnight. This change alone will eliminate tens of thousands from the potential buying pool. With inventory numbers poised to sky-rocket from new construction, we're going to see 2 year supply inventory numbers this time next year. Now factor in the 100,000 jobs lost by this time next year on the street and it's inevitable. We will see minimum 30% decline this time next year. Just when you wrap your head around those facts, now come Zero bonuses ( or at best fractional ). So even the ones that keep their jobs will spend the next few years looking over their shoulder waiting for the pink slip and working just for their salaries, which is not that much when you consider the real money is in the bonus. It's all part an equation that can't be stopped by anyone. The system will flush itself clean and the more intervention the longer it will take. No place will be immune.

Don't forget when Buddy Fox bought that big condo in the Upper East Side in 1985 for $900,000. That was huge back then . . .

Check this steve: http://www.millersamuel.com/reports/pdf-reports/MMR07.pdf

It looks like in 1998, the average Manhattan price was $500k, and in 2007 it was $1.35 mil. Not quite as drastic as you think.

dco is correct, ""The lending game has changed overnight." Deny it if youwill.

Who is "Buddy Fox"?

LICC: "the average Manhattan price was $500k, and in 2007 it was $1.35 mil"

Your ignorance belies you. The average (mean / median) is not the same thing as tracking the SAME apartment / home over time. The former does not account for the change in housing stock, the latter does.

The figures are as I posted.

> Who is "Buddy Fox"?

A character in a movie... Wall Street.

I'm glad the bulls have to resort to statistics from FICTION now...

;-)

That was FICTION?? ;-)

steve, you just keep going more and more downhill. If you want an idea of the Manhattan market from 1998 to now, the Miller Samuel report is more important than looking at only one particular building. You really don't know when to give up.

Who possibly worked on Wall Street in the 80s and doesn't know the movie Wall Street? You are a weird guy steve . . .

"Do the math. In 1997 I bought a 2-bedroom 1-bathroom apartment in the prime West Village for @218,000. The closest similar apartment on a much lower floor and not a good layout sold for $1.3 million in 2007. On a per-share basis that is a 5.5 fold increase, a sixfold since apartments on higher floors and in my line command a higher per-share premium."

Then why didn't you sell out?

"the Miller Samuel report is more important than looking at only one particular building. You really don't know when to give up."

Actually, no, because as Miller Samuel itself acknowledges, it reports mean and median property prices, which are skewed by the mix of properties sold in any particular quarter. The Case-Shiller method - considered the most accurate - follows the prices of the same property over time, thus correcting for that skew.

Get real.

totallyanonymous, I don't own that apartment anymore.

Absolutely, Cash-Shiller is the far better better yardstick. It just sucks that they don't do a NYC or Manhattan specific, only a metro. Maybe in time.... especially now that the indexes are getting all this press.

Agree with Eddie: the cuts are here. Little Black Arrows are obliterating massive %s of original asks. Why theorize?

1.It is unfare to compare a co-op to a condo.
2. w91 street is an equal distance as LIC, except LIC will have a much younger crowd living there.
3. The common charges at 91st street are over $2 a square foot and everyone who knows R.E. knows that higher common charges mean smaller prices.

> 3. The common charges at 91st street are over $2 a square foot and everyone who knows R.E. knows
> that higher common charges mean smaller prices

But, if the lower ones are abated, its only temporary... and, old co-ops have some of the cheapest maintenance out because of the CRAZY re tax laws, they generally value themseles on the scale of rent stabilized buildings.

New condos without abatements are generally pretty damn high maintenance respectively...

"the lower ones are abated, its only temporary",
Property tax can be abated, not common charges.
I am interested to know more about these CRAZY real estate tax laws that govern " old " co-ops

New condos without abatments will have higher property taxes ( not common charges )
If a new condo has high common charges it is usually due to a low number of units coupled with a long list of ammenities.
Condos should be compaired to condos
Co-ops should be compaired to co-ops

When talking about co-ops, the common charges play a larger role in picing due to the fact that the common charges cover
1. maitinence of the building
2. property tax
3. underlying mortgage on the property
Taking into concideration that a co-op is not " real property " because their is no deed and the building has an underling mortgage. Each unit who hold a "propriatory Lease" takes on a certain amount of responcibilty for each other.
The monthly cost of the common charges are directly related to the choices of the co-op board
When they renovated
when they financed the building
If there is a tenent who is not paynig their common charges
etc.....
A well managed building will have lower common charges
These co-ps will comand higher prices
Bottom line
You connot compare a condo to a co-op