Manhattan Market predictions

Two thing I do know will be true: answers will differ based on neighborhood and interest rates will remain at historic lows.

Let me add $ price per sq ft.

$3k plus per square ft, down 10-20 percent from the actual sales prices in 2019 which are down 15-20 percent from the peak. This is the area with biggest oversupply.

$1000-1500 per sq ft resales, could be up or down.

1 Manhattan square: Another 10-20 percent off current ask factoring in current discounts if they want to move it.
Hudson Yards: 25 percent off current asks.

Hudson Yard looks a good place to buy, why down so much?

Prices are way too high as most developments are high end luxury.

There is also huge inventory. Some places around high line have taken a 25 percent hair cut already from inflated asks.

You can ask anything you want.... So 35% off some pie-in-the-sky number is meaningless. However, if we're looking at a consistent number of trades at specific price points, then we have a market. Meaning not one or two exceptional sales that someone with more money than common sense purchased.

I agree that many of the original ask did not reflect the market price. They were just pie-in-the-sky numbers.

I am seeing ask prices at cost with no takers.

multicityresident - when you say prices "at cost" what are you referring to? Do you mean people selling at the same price the bought at or is it something else?

To clarify, I mean new developments in Hudson Yards areas 25 percent off from the original asking price. Resales are very few anyway.

I'm going to be political here: an extension of the current sloggy market (where trades are getting down at prices lower than two years ago, helped by low interest rates) if it looks like the party that passed the current tax bill stays in power.

Are you finding the tax bill (I assume you mean SALT deductibility) to be causing people not to buy? I would think that people buying these properties were subject to AMT and not able to deduct SALT under the prior tax rules.

SALT impact does exists depending on the individual but is not big. It a function of local taxes including real estate, income level and new lower federal income tax percentages across incomes. Less than $300k may not see any impact, higher than $750k will see 1-2 percent net increase. Even if you were in AMT, AMT (think was 26 percent) may have been lower than your new federal tax marginal bracket if your income is high enough. Impact is mostly psychological as people wanted to get lower income tax brackets but without change in SALT deductions.

AMT is 26 or 28 percent depending on the income level.

@TeamM - Yes, and even below.

I'm talking about SALT specifically (guess how happy my friends in Scarsdale are) layered on top of the smaller mortgage interest deduction (remember we lost $350K of that) but I also think it's psychological beyond those hard numbers. The equity market is doing well, and that kind of strong performance usually buoys the housing market, but now... they've decoupled. I sell Downtown a lot (tangent: I currently have a very nice loft listing) but I also sell the Upper West Side a lot, and he's not a favorite son here. Let's see (*pauses to look up the stat*)... just one percent of my neighborhood voted for this president... I think that has added to the bearishness.

Uncertainty hurts the Real Estate market: for the length of the impeachment, trial and vote, until he is either removed or cleared there will be downward pressure on the market.

The impeachment charade has nothing to do with real estate prices. While perhaps it would be better for the RE market if Dems were back in power so they could give the rich a much-needed tax break by restoring SALT deductions, I see the real problems being a terrible mayor and socialists running Albany. Real estate is still mostly local.

I think a lot of the data is misleading. Brokers love to quote 7% over 70 years. Average sales prices and price per sq ft over time bc there has been a glut of new luxury condos. When I looked at the data I was like wow if you bought at peak pre recession, you were flat for 5 years and then if you held for 10 you still made 4% CAGR. Turns out I was wrong, when I did the study over 100 condos, turns out most are struggling to break even, whether bought in 2008-11. Wish there was a “same store sales” concept. Point being you come to the wrong conclusion. 10-15% drop in recession and this current drop is much higher 20% so you think you’ve hit a floor. Clearly not

Also look at building permits. Any idea how long building permit becomes supply? 3 years?

In my little pond I've had no one bring up SALT deductions in are there negative or positive way. I think most people have simply moved on to acceptance.

@Keith, acceptance maybe, but the volume is still down so significantly: 1st three quarters 2019, 7644 sales vs. 1st three quarters 2017, 9413 sales.

I do agree with 30 that the market hates uncertainty, and I do think it will spring back somewhat whatever the outcome of the impeachment process. However, depending on which way the cards fall, I'm not sure that it's going to recover the entire 23% of lost volume.

@George, charade, I can't even. But political discussion is not even the point. For purposes of forecasting the market, the question is how the market is going to react to a particular change in circumstances, not whether you or I think that change in circumstances is appropriate or fact-based.

^^ btw, those stats are Miller Samuel's, for Manhattan.

The market's been falling since before SALT. It's certainly an ingredient in the slowing market, but far from the whole picture.

It's a pretty good time to be a buyer. Is it the perfect time..... Probably not.

Keith

I think the SALT impact is more profound than people realize for a variety of reasons. The increased cost of home ownership is a key element of it that will weigh down prices, but the more troubling component is the increased overall cost of living in NYC as compared to alternatives. E.g., there is now greater incentive for high earners to move to lower tax states. That shift is the shift that really threatens NYC more acutely and that will weigh down prices more over time.

Unless there is a policy shift that helps support NYC residency and home ownership for high earners, I think that prices will decline over the next several years.

@teamM perhaps more so in the suburbs, I don't think so in most of NYC. Some high earners are fortunate enough to have the flexibility to move to a low-tax state. But none are commutable to NYC.

Most high end jobs are not transferrable expect for select asset management jobs like Icahn. I remember UBS went to CT in the 90s as the local income taxes were lower. They always had problem attracting employees and had to continue to increase the size of NYC office. Of course now, CT income taxes have gone up and they are mostly in NYC.

https://cslib.contentdm.oclc.org/digital/api/collection/p128501coll2/id/578101/download

I think it's hard to argue lower interest rates help but SALT doesn't hurt. I think the real harm is that young earners don't have their Accountant/Tax Preparer telling them "you have to buy a home." They don't have their friends telling them either. And once they don't have 10 people they know a year buying a new apartment the FOMO goes away. I know I keep repeating this but all the market needed was a change in momentum. The cocktail party stories are now about not being able to sell, and even people who bought for $500,000 and can still get $1.5 million are starting to talk about how much they "lost" because they didn't sell in 2017.

^^ This. The cocktail party chatter is now about who is moving to Miami, Tennessee, or Aspen/Jackson. Jobs move easily, but it's harder to follow the jobs if you're trapped as an owner of real estate. One family at my kid's school has been trapped in an UES coop for four years now, with the Board rejecting every sale.

As for what people my age are being advised, the best NY real estate investor I know said to run away. The only people saying to buy are brokers and sellers.

It's a terrible time to be a buyer. Who wants to catch the falling knife?

PS, my financial advisor, whom I've known for my entire adult life, is also upping sticks and moving away after 15 years in the city. He's going to raise his newborn in Pennsylvania and come into the city a day or two a week. His regret is not selling his UES townhouse sooner. This is the sort of advice people of home buying age are getting.

Board rejections for four straight years, whoa. That's a story I want to hear more about.

Jeez... You're buying an apartment to live in, hopefully for the next 7 to 10 years. You're not committing financial suicide. Real estate prices go up and down, long-term they're up. A lot of very smart people got this completely wrong in 2009, very few of them still post here and congratulations to those who purchased then, including 300 who killed it. There are currently no significant macroeconomic forces to drive a crash in real estate prices. But I guess you can take all this cyber cocktail party chatter with a grain of salt, because no one on here is smart enough to know what the markets are doing over short periods. I'll take advice from my CFP on how much home I can afford, certainly not market predictions.

And please keep in mind I'm on record in a few newspapers including the real deal, advising people not to buy in 2007. The first two years of the Burkhardt Group were offering discounted rental commissions.

You don't want to buy a home don't buy a home, However 'Catch a falling knife' is an empty cliche. The market has been falling for 4 plus years.

Buy a home because it's going to make your life more enjoyable, and make sure you can stay there 7 to 10 years. I've been in New York City since 1981, have yet to meet anyone thats ruined their life by buying an apartment they live in. However I do know many people who have done very well owning the apartment they live in.

My father-in-law bought his townhouse on West 22nd Street in 1958. Everyone told him he was crazy buying real estate in that neighborhood.... He never owned a stock or Bond, did very well buying residential real estate, holding it for a long time, including homes in Lakeville, Connecticut, Mexico.

So how many people here actually pulled the trigger when it looked like the whole world was going to hell in 2009? That was your opportunity. When will the next one come? I don't know. But it will, so be prepared to weather it out or else buy.

Keith Burkhardt

Keith, I couldn't quite buy in 2009 due to personal situation but close enough. I do remember bidding on many properties with you (with my highly precise spreadsheet for each property with buy vs rent etc) and finding a low-key building we really liked at a decent price and low maintenance. Did not feel like a steal that time as generally cautious / bearish me thought it should be another 5-10% lower. I do not know what it would sell for now but all I can say is that we really enjoy living here and lowering mortgage payment a few times by refinancing. Every one's requirement are different and they should do what makes them and their family more peaceful and happy.

What Keith said! (Never met him, and already own...)

I don't have any market predictions, but do feel that the QOL in my part of NYC has gone down. But not rushing out. Just too hard to do with job, friends, schools, etc. But I'm full of belly-aches that I like to share at cocktail parties!

I am with George and Front Porch on the cocktail party chatter. One friend is renting a house in Connecticut while their coop lingers on the market because they are done with NYC but can't get their capital out of their coop. She wanted to get her kids situated in new school system sooner rather than later and got tired of waiting for apt to find buyer.

It's not like Connecticut is some panacea -- their financials make NY look well managed. The tax arbitrage has narrowed and will continue to do so, which makes the difference more about lifestyle than finances. Greenwich is not a substitute good for Manhattan.

Between all the talk of impeachment and the cocktail party anecdotes, I can't help but think of Jim: https://www.newyorker.com/magazine/2017/03/13/who-is-trumps-friend-jim

I tried to find a link from The Nutmegger but no luck.

I do have to agree - all the things that make NYC tough are even worse in CT and NJ. I see a stronger case to get out of tri-state entirely. I'd much rather own prime Manhattan over Greenwich or leafy NJ.

So the fundamentals (rents, economy) are strong, but the word on the street is fear and doubt.

@flarf - Agree re lifestyle for family-in-question's decision to move to CT; focus of discussion with them is that nobody wants to buy their apartment in stuffy coop, but even when a buyer does materialize, they don't want to put their capital into another stuffy coop, and the stuffy coops dominate their preferred neighborhood in Manhattan (and they cannot afford a condo), so they have decamped to Connecticut.

I think that more jobs may be transferrable than people appreciate, and relatively small numbers of relatively high earners can make a significant difference in the tax base and real estate market.

A friend recently attempted to retire from a large NY bank, but they made him an offer he didn't refuse. He now lives in Arizona and keeps getting those paychecks. There are lots of ways that people can move even if their job doesn't seem to.

What Keith says is true if one bought when you could get a decent apartment for $100k or perhaps $300k inflation adjusted. But now that that same apartment or TH costs $3 million, is it such a great deal? Sure, for you as a seller or broker. But is someone going to pay me $30 million for that property? I doubt it.

Even 2009 was a terrible time to buy real estate. The Dow was at 7000 and since has nearly quadrupled. Show me an equivalent resi RE deal that has quadrupled. Even with leverage and tax subsidies, stocks were a better deal.

I'm in the market bc Mrs George wants the psychological benefit of saying she's a homeowner. But I'm scared of flushing away millions and finding virtually no sellers who have any motivation to sell. Hence the standoff.

You are making a silly assumption that downpayment for an apartment would have been invested in equities and anyone who bought didn’t have more than enough exposure as per their risk appetite to equities outright and through their jobs. As an extreme example, Is Ken Griffin really stupid to buy real estate rather than invest more in his own fund which has performed well?

A lot of this country is either just finally recovering or still hasn't even recovered (Real Estate prices wise) from the market crash a decade ago. If there hadn't been a $780 billion bailout of Wall Street which fairly directly fed NY Real Estate the market wouldn't have done what it did. So if you think that both there will not be a recession that some are predicting and that there will be another almost trillion dollars cash injection into the NYC economy from some event then I agree that under those circumstances the impending market crash will be averted. OTOH I think it's interesting that many of the same people who have been telling sellers for a while that they have to be realistic and look at the numbers are being very unrealistic regarding their conclusions as to what the numbers are saying.

Let me ask you another question. What do you plan to do with your money when you have more than enough for good life for two generations? Splurge on real estate you like or still rent and just leave the money to your kids who will not have a sense of belonging as you kept moving every three years. Or do you want to be the guy who never took a nice vacation as staycation or visiting relatives is equally nice and will leave $5mm to his kids? It is choice people make based on what makes them happy rather than financial calculations.

For fun, I would like names of a few rich savvy business people / investors (call it more than $100mm net worth) who still rent.

@george glad we're not working with you ( ;
@30 when was the last time you were bullish on real estate? Pounded your fist at the cocktail party and told people to buy!! Lol...

https://ti.me/2OSDf2h

300,
If you're looking to prove that 1% of people should still buy I don't see anyone arguing against that.

Majority of Manhattan buyers are in top 1 percent of the income/wealth.

30, But very curious when you were last bullish on Manhattan real estate. Just for a fun discussion.

Yes there will be a recession..... Sometime. I'm guessing the article is much better than the title.

We bought in 2009. I mean, we owned already, but we bought a bigger place. I had been pounding the table to my clients, and I thought I should eat my own cooking. Part of why I was bullish then was the then-recent-ish history of the Trade Center; enemies flew planes straight into my city, and real estate prices barely budged.

The past few years have felt different though -- I still think that the city has the resilience to withstand whatever crisis pops up, but the underlying dynamics are changing in a way that seems dispositive. I'm still bullish, I think, but not in the way I was ten years ago.

Ali, It makes complete sense not to be as bullish as 2009/10 right now. That was a unique time where the world’s financial system was falling apart. If you were wise/lucky enough to have spare cash to deploy, there were great deal on real estate as well as equities.

The dynamic of ownership in the city can be a bit more tenuous because time horizons tend to be shorter for holding. That said 7 to 10 years can sort of fly by, so most buyers should be able to hold for this time frame. However, if you know going into things you can't hold that long, you're probably better off renting.

If you're moving to the burbs with the family and you're going to hunker down for 20 + years, then you're just foolish if you don't purchase. Especially today with 4% 30 year fixed mortgages.

The other big dynamic is the emotional component of homeownership. I love owning my house, customizing it to fit my lifestyle etc. Originally owning it with very cheap fixed rate financing, and paying off my mortgage in 5 years, you can't do that with a rental. And in my case I've seen excellent appreciation since purchasing in 2012. Approximately half my net worth is in real estate the other half in equities.

And it's a fact that higher net worth people own their home. However I think it's even more important for financially stable middle-class Americans to own the home they live in. This will become a very important financial component for them.

I was a bit of a rare bird in the suburbs, my parents never moved out of their starter rental. They lived a very comfortable life, however the so-called money they saved on rent did not wind up in the s&p 500 over the course of 30 years, it got piddled away. A house they could have purchased for $30,000, could have eventually been sold for $700k, would have come in handy when they retired. I'm not sure if that would have beat the s&p, however it's better than a box of rental receipts.

After 30 years of selling real estate in New York City I've learned a lot about different people and what they want. This year we handled two transactions in the $2M -$3M range for couples that were retiring, selling their homes in the suburbs and moving into Manhattan. You could probably make a pretty good argument for renting, but these were wealthy, well educated professionals who understood the emotional value of owning the home they lived in as well as the financial and decided to purchase there home. As one said to me, "I'll be leaving this place in a box."

Previously we had others on the boards here who thought very much like George, think Ionada. They just could not make sense of purchasing, home ownership was not important to them. To each his own.

I'll chime in as I occasionally do. I am a banker, not a broker and I like to consider macro trends.

Overall I think Manhattan has to fall another 20-30%, maybe more.

Manhattan headwinds:
* Rent vs buy still way too skewed in favor of renting. As a free market guy, I think these need to equal out over time.

* Incomes are falling and the 'purchase price-to-income' ratio is historically high. Investment banks and hedge funds have been getting CRUSHED by many factors but especially the shift to passive investing (away from actively managed funds). These super high incomes are being replaced by lower incomes in areas like technology, etc.

* We are at / approaching the end of a historic 10 year bull market. Economic numbers coming out of China appear to be the worst in decades. Europe is already weak. The easy growth is gone. Stock market should tread water at best, recession at worst.

* Strong US dollar remains a barrier to foreign investment, as does new regulations unmasking LLCs etc.

* City government appears inept. Amazon gone. Nothing to encourage investment. Bloomberg created new frameworks that encouraged investment in the city (Hudson Yards, midtown east re-zoning). De Blasio is perhaps the worst mayor ever (see next point).

* Worsening NYC school system is another edge factor that will cause much more selling than buying. In cahoots with de Blasio, NYC school chief Carranza intends to eliminate the best performing schools in the city (Gifted & Talented) and will implement new policies based on race. These are insane policies, they will drive families out of the city. City should be investing in more, better schools rather than eliminating the best schools.

Manhattan tailwinds:
* NYC still one of the most desirable places to live on the planet.

* Lot of $ on the sidelines will want to buy as prices fall, tempering any potential selloffs.

* Higher % of all cash buyers can afford to weather the storm, again tempering potential selloffs.

Tom, Appreciate a couple of buy vs rent calculations. Pick a nice rental building like Related and compare it similar size apartments.

I tend to agree that market is going to be going down over the next few years. Any discussion on future prices HAVE to consider the demand curve. Specifically, its important to remember that the NYC real estate market's demand curve is relatively inelastic. What I mean by this is that if you lose only 2-3% of the buyers, this will significantly negatively impact prices by 10-15%. Suppose that on average we have a 100 buyers looking to buy in park slope in a given season. But new dynamics results in only 80 buyers. This will result in a substantial drop in prices. On the other hand, if you can increase the number of buyers by a relatively small amount, that will positively impact prices. The reason for this dynamic is the enormous pressure the sell that is faced by some people and the widespread use of comps: Suppose there are 100 townhouses for sale in park slope--probably about 10-20% of them are MUST SELL places. People who need the cash now or very soon. They will have no choice but to sell at a lower price. The market will see the comps and everything moves downward very quickly.

In the past, we were seeing positive pricing pressure, because all else being equal, there was a net migration into the the city. People need to understand the huge impact of the current state: Net migration out of city. We lost 100k people last year. This year is also looking like a net migration out.

Obviously all the other items that were listed also contribute to downward momentum: (1) Taxes -- 3 new taxes!!--SALT, mansion tax, transfer tax (2) Potential recession (3) Significant new supply, particularly in Manhattan. Also the "opening up" of parts of the city, (including parts of manhattan) such as brooklyn, bronx, queens into more desirable places to live basically add a ton of new supply to the market and further pressure manhattan (though it helps other boroughs (4) loss of foreign buyers, in part due to a strong dollar and the trade tensions with china and (5) loss of jobs to low tax states -- while its true that there arent that many lost jobs yet, again, just remember how inelastic that demand curve is. Even a loss of a few thousand jobs, probably results in 10-20 few buyers, which has a significant impact on that demand curve.

Tom,
For example, this is roughly 1000 sq ft two bed room with old crappy bathroom but in a nice building. I am sure kitchen is decent with stainless steel appliances but forget high end appliances. No pool etc.
https://streeteasy.com/rental/2760335

https://streeteasy.com/building/685-first-avenue-manhattan
https://streeteasy.com/building/one-united-nations-park

Using promotional pricing? Percentage adjustment for difference in view and finishes?

And what percentage off from asking sale price? No that much in new development trades at ask.

one manhattan square

https://streeteasy.com/building/one-manhattan-square

unit 50N - sold for $1.53mm, now renting for $4200 a month no fee. if that buyer paid cash, cap rate is just 2.6% without even considering closing costs and broker fees.

I hope that buyer did pay cash - because unless the buyer put ~54% down the buyer will lose $$ every month

Let me also add upfront that for most new developments buy vs rent will not work due to “Freedom Premium” rich are willing to pay but I will do the 685 First Ave cals for fun.

Do you guys ever get tired of talking your book? Jesus

You asked for a comparison in a "nice rental building" with "similar size apartments". You realize that's the same building, right?

If you want to nitpick that it's not apples to apples enough because the finishes, it's promotional pricing, potential price off from new development, etc. then how about this comparison:

https://streeteasy.com/rental/2850782
https://streeteasy.com/building/halcyon-condominium/12f

Why do you avoid my good faith question about 685 first avenue? You can just look at pictures to see the difference in finishes.

I built a big spreadsheet that takes into account the tax subsidies of homeownership, amortized round-trip closing costs, etc, and looked at like comparisons in liquid bldgs like Zeckendorf. For condos, nothing was even close for a 7 year hold - renting wins every time absent aggressive assumptions on capital gains. With condos trading at 0% cap rates, that made sense. The only numbers I could get to work are in owner-occupied non-RS multifamilies with low taxes. However, here I assumed no management costs and no discount for the lack of someone to take my Amazon orders.

Rock,

For Halcyon, I get buying $100 more assuming the buyer got 10% off the list (I have no way to know actual).

Interest Rate 2.6%. 10/1 ARM. 25% down; counting only interest payment. $406 per month interest deduction.
$300 per month additional upkeep which renter does not pay.
Transaction cost amortized over 10y including buying broker's rebate at 66% of 2.5%.

I am assuming that renter will move every two years as it is a condo rather than a rental building. Pay 1M rent to broker and 1m rent eqt in moving expenses / rental overlap / furniture damage etc. So adding $688 per month for that. Trouble to move not included.

Please post your calculations for a sample property.

ToReno, We are all expressing our views as we see fit. That what a discussion board is about. What are your views on Manhattan real estate with some justification as that is what this thread is about?

Strange comment ToRenoOrNotToReno, generally this is one of the few places where you can hear a diversity of opinions, including brokers who are talking about weaknesses in the market.

Btw, as far as comparing rent vs buy, how are you accounting for any interest deduction, 300? It is unlikely to provide any benefit to anyone with the way taxes are structured now. 1st you need to itemize and without SALT that already changes the equation.

I took 25 percent deduction on $750k. That $400 per month on 2.6 percent interest loan. No deduction for real estate taxes.

I think for many people the interest rate deduction will be minimal, partially depending on if they are filing standard or itemized, an equation that has been significantly impacted by the SALT cap.

Also, I don't think using a 10/1 ARM is the best way to approach the comparison, imo, because part of the rate cut is based upon taking rate risk. Part of the point of a mortgage is to fix the monthly costs. But I can also see a counterargument for using a 10/1 ARM. I don't think it is completely off, just think a 30 yr fixed would be a better way to look at the numbers or my preferred way - all cash purchase.

Btw, this rent vs buy thing always gets convoluted bc there are so many variables. I live in the West Village in a large building with a doorman, gym, large shared roof with amenities, and have a private patio as well in a 2 bdrm/2 ba. Not only that but most of the problems in my unit are fixed same day, things like plumbing, electrical, appliance failures, etc.

My rent is $9k/mo. The condo fees on this unit (~1,300 ft + 700 sq ft patio), given the amenities, would probably be near or over $4k/mo. The differential is $5k/mo or $60k yr. Prob at least $5-10k/yr savings for not dealing with any internal apt issues.

My guess is that it would go for about $2m minimum (let's call it $2.2m all in). Assuming a cash purchase you are looking at net $50-60k "savings" on $2.2m, or ~2.5% ROI. I think this is liberal as it doesn't include round-trip transaction costs for the purchase.

I take issue with brokers / sellers contorting themselves into arguing math that's just plainly false. I work at an investment firm, so I've analyzed this stuff from all angles. Let's take two metrics of value governing supply & demand:

(1) $/sqft vs. replacement costs = construction lending for a ground-up, high-end condo in Manhattan is being done at $1250/sqft (see slide 19 of https://tphs.com/wp-content/uploads/2019/02/Trinity-Place-Holdings-Investor-Presentation-April-25-2018.pdf). Developers are going to keep building until that math no longer leaves them a profit, and as 30 says, that usually overshoots to the negative.

(2) Buy vs. Rent = I have a ton of issues with your assumptions, since all my analyses say the same thing as George's -- buying still doesn't make sense until prices drop another 15-20% at all levels (not just the super high end like you keep saying). Just to tick through a few...
-- A 10 year ARM leaves you with significant rate risk (if rates are higher in a decade, you don't think it'll cause home price declines?)
-- What are you assuming on Prop Tax / Maintenance % increases vs. Rent % increases? Rents have been flat while the former have been going up +5% for the better part of the last 4-5 years on a like-for-like basis.
-- What are you assuming for closing costs in/out. I don't care if you get a "discount" broker or not, by the time you finish paying flip taxes, recording taxes, transfer taxes, legal fees, etc. etc. you're looking at 10% of your purchase price out the door.
-- What are you assuming for the maintenance capex you're putting into your Buy calculation? The wear and tear people put on living in an apartment are sizeable -- if you're not assuming 1-2% per year in amortized maintenance capex, you're going to be in for a surprise when it comes time to sell.

2.5 cap rate is roughly correct for a Manhattan prime condo. Ultra-luxury is sub 2 percent and coop can get to 3 percent.

On length of mortgage, you are buying significant inflation call option with 30y maturity (not full rent protection as the cc and taxes will go up), and even with 10y, which the renter does not have beyond the lease term.

Clearly, there is no way for every one to agree on the input assumptions. That is why there are life renters and people with enough money who pay a “freedom premium” to own.

ToReno,

You will never buy if you assume rents are going to be flat forever. Just like you will never buy if you think prices are going down.

I have personally gotten increased rent by 4-5 percent per year in the last three years in more than 10k per month range condo and the current lease increases by another 5 percent next year. Rent indices, with all their shortcomings, show an increase in rent.

Investment analysts and bankers in New York are dime a dozen. Some make it to the top and a larger percentage disappear in oblivion. There are always perma bears as well.

It is idiotic in my opinion to do new construction at $1250 plus cost of land in Manhattan right now unless you raised capital already and have to build to collect your development fees.

At this price level, neither lower interest rates nor SALT would affect the market

300, I'll focus on the numbers and ignore your ad hominem (brokers and owners are a dime-a-dozen too ;)). Let's take a real example:

* Buy a 3br/3ba co-op in Yorkville for $2.2m vs. rent an equivalent apartment for $9k/mo *

Assumptions:
- Interest rate on mortgage debt of 2.5%
- Closing costs on purchase = 3%
- Closing costs on sale in 10 years = 7%
- Co-op Maintenance fees = grows at +5% per year
- Opportunity cost on your equity down-payment = 2.0%
- Rental price = grows at +5% per year

With this set of assumptions, I have to be able to sell the 3br/3ba Yorkville co-op I bought for $2.2 million in 2020 for $2.7 million in 2030, JUST TO BREAK EVEN.

If you're really bulled up on mid-century Yorkville co-ops coming back into vogue in 2030, maybe this makes perfect sense. But if you think $2.7 million for that in 2030 is aspirational, then the Buy vs. Rent math doesn't make sense at today's prices.

The biggest problem with rent vs buy comparisons is that people who think the market is going up always seem to come to the conclusion that they favor buying and people who think the market is going down always seem to come to the conclusion that they favor renting.
Assume a can opener.

Toreno,

Please post a sample listing. Also why would you spend 3 percent on a coop closing. It should be $5k in legal/coop fees and mansion tax. Do not forget to factor in buyer’s rebate 1.5 percent or more. A buyer with detailed spreadsheet has to very irrational to leave that on the table. So the buying cost is flat to negative for a coop with rebate.

P.S. I am retired from successful career in finance so I know numbers and their flaws well.

Man, great observation by 30, per usual. Amplified in markets like NYC where cap rates are below mortgage rates (which necessitate Investment returns coming from growth).

In the near future people will make money flipping apartments because seller's agents will offer 1.5% total commissions and buyer's agents will offer 4% rebates.

Ha. In the famous California flipping show, the flipping couple does not use a broker to buy or sell. They themselves are brokers.

https://tarekandassociates.com/about/

Chip and Johanna Gaines also have a real estate brokerage.

30 / Keith, Care to educate us and “To Reno - who analyzes this stuff from all angles” about coop closing costs?

21st Century Shoe Shine Boys.

https://streeteasy.com/building/166-east-61-street-new_york/8mn

https://streeteasy.com/building/the-kingsley/rental/2895576

Closing costs include Mansion Taxes, Flip Taxes, etc. If you can get away with not paying the government for your purchase, please let us know how.

Not sure why you're getting salty, other than the old saw, "If the law is on your side, pound the law. If the facts are on your side, pound the facts. If neither is on your side, pound the table."

Is there a buyer flip tax on the coop for sale you posted?

What is this "buyer rebate" that has been discussed several times here. I am recently in the market as a buyer and have not heard of this (though i have heard of everything else on here)

https://therealdeal.com/2019/10/15/sweeping-llc-law-shocked-even-legislators/

Yep, 2% flip tax. My analysis was assuming I split it 1%-1% w the other party on both purchase and later sale in 10 years.

Rent vs buy - some people (including myself) want a divirsified portfolio, for peace of mind.

The 2020 2.2MM Yorkville apartment gets to 2.7MM in 2030 with 2% annual increase, i.e. basically the expected rate of inflation. This is very reasonable, particularly considering rents will have gone up 63% (Yorkville apt price +22%).

ToReno, Flip tax is on the seller here. Not on the buyer, which is rare but does exist. The apartment is appx 1700-1750 sq ft (condo you provided is 1450 and clearly worse location). Will trade 10 percent ask (around 2mm) in line with other listings / sales in the building after factoring in condition.

10 percent off ask.

300 -- who pays the flip tax boils down to a negotiation. Most listings I've seen say "Buyer Pays," but it all depends on how much the seller is prepared to negotiate. I agree with your comments that the rental is slightly smaller, but then you have a balcony which offsets. I don't agree with you on the location -- the co-op has significant Queensboro Bridge traffic and the rental does not.

Likestocook -- I agree, that's what makes the analysis so hard to wrap my head around! The 2% HPA SEEMS reasonable, but then I scratch my head and say "does it make sense that this would sell for $2.7 million?" Really does get back to 30's point that this embeds our latent biases of "prices gonna rise" vs. "prices gonna fall."

When you've been in New York City since 1981 like I have, you have a much different perspective on price appreciation... And what's plausible/possible.

Keith Burkhardt

The wild card that I don't think anyone has mentioned: a rise in crime. There's a lot I'm willing to put up with to have easy access to the world's best culture and entertainment; crime isn't one of them, especially as a parent.

I was getting off the B62 last week and no fewer than three riders spoke up to remind me that I had left my umbrella behind.

Thus, based on my experience, crime rates are low and politeness is approaching Canadian levels.