WSJ - Home Owners in "Denial" on Housing Values

In the end, those in denial are the ones who get hurt the most. Ask those who got stuck in that phase during Dot Bust.

Denial is more than a river, if I can quote from Alcoholics Anonymous.

What do alcoholics have to do with Manhattan real estate?

Nothing, except a really great high.

Steve--you're giving yourself away. So, what, you just stopped drinking and need something to do? Typical. Freakish AA person with too much energy.

Also shows why we're *nowhere* near capitulation. Meaning we probably have a ways to go before we actually hit bottom.

Eddie, Americans, especially in New York City, have a buyers mentality. Everyone wants to buy. You won't see a bottom until the "sideline" money enters and is used up. We've already seen the last of the foreigners and the '07 bonuses. The next step is for the market to go down enough to lure the money-in-wait. Once that powder is spent, the economy better be up and running or else kerplunk. The market will take a savage gash to the neck. And you'll see a real crash. Which is rare indeed.

"Everyone wants to buy."

If that were true, why do most people in NYC rent?

If that were true, why do most people in NYC rent?

It's called down payment...they make great salaries but can't save a dime. So what they do is pay me(owners) helping build my equity while they go buy those new shoes before going out to that nice restaurant.

Two good reasons why most people in NYC rent -

(1) It's more expensive and difficult to buy compared with the rest of the country. Coop boards (majority of buildings) typically require a minimum 20% down, some are higher. Plus you have to have ample cash as 'liquidity', and they have to like you. And that's if you find a building you like with good finanicals, etc.

(2) Rent stabilization prevents many people from saving up. I know a few people in their 40's who are established professionals living in prime areas while paying cheap rent. Why should they buy only to move to a further location and pay more? Can't really blame them.

"I know a few people in their 40's who are established professionals living in prime areas while paying cheap rent."

Exactly. It's much cheaper to rent here, stabilized or not.

"If that were true, why do most people in NYC rent?" - aside from not saving for a downpayment, there are a bunch of delusional people in NY who rent because they think that they are actually paying less in rent than their landlord is paying to own that space. These people are small minded individuals who cant understand basic finance and make absurd statements like "why buy when I can rent for half the price of owning?"

Landlords love these type of people because we watch them year after year hoping for a RE crash and try to time the market. But year after year, they still dont understand finance and still dont buy so they write us check after check after check. We make hundreds of thousands of dollars on these people, all the while we allow the renters who are paying us over 50% of what they earn to think that they are smarter than us, and are getting one over on us. I love these people they make my life sooo much easier.

"Exactly. It's much cheaper to rent here, stabilized or not." Steve your landlord loves the fact that you think this way, he lvoes it to the tune of a fat $4500 every month after month after month. He loves you thinking that way to the tune of $165K over the past 3 years.

The majority of people want to buy because they see homeownership as a path to riches. They figure the worst that can happen is their home price will double after 10 years not 5. Many, many people see real estate as a train that if you are not on now, you will be left behind at the station. All your peers will be rich and you will be poor relative. Many of these are people have never owned and have no idea of the risks involved with real estate investment or signing your name on a mortgage.

steveF, the "discretionary spending is eating away at savings" argument was used in the mid 90's. It's kind of specious because $10,000-$20,000 a year doesn't matter when apartment prices are over $1,000,000. Your shoes and dinner budget won't put a dent in the closing costs. You need real money. Either you have it, cash, or the banks lend it to you, or the prices go down to the point where your money becomes viable again...or you don't buy.

ok, petrfitz, you've made your point. Many people don't understand finance or how to approach rent vs. buy. So for you obviously it makes sense.

Another reason why NYer's rent is because so many are transient. Even in boom times, why buy a place when you know there's a good chance you'll have to move in 2 years? If you're renting you just give your notice and you're gone.

Otherwise, as an owner you can try renting out, but many coops restrict so you're stuck trying to sell your place, which can take a while. Then pay for attorney fees, closing costs, brokers, etc. If your place increasese in value it's great but if not you're SOL.

Petrfitz, we all love your absolute conviction that now is the best time EVER in the entire history of Manhattan Real Estate since the beginning of time to buy/invest in it.

Don't deny it and make me pull up the thread where you attempted to justify such a bold statement.

BTW- since WWII, house prices have just 'kept up' with inflation. It's only since this reckless credit/housing bubble of the past 7-8 years that house price exploded into stupid-land. Of course, you think that it will explode EVEN MORE into stupider-land since NOW is the best time EVER to invest in Manhattan real estate. I believe you.

http://randolfe.typepad.com/randolfe/images/housing_projection.jpg

Look carefully, since WWII, house prices adjusted for inflation have done what? that's right. not much, until this ridiculous bubble.

MMAfia:

Please name a time in NYC real estate where there has been less competition, less price softness, less inventory available, and more sideline sitters piled up than now.

Also - you are using entire US housing data to make apoint on NYC RE and that is misleading and you know it.

I do believe that now is the best time in years to invest in NY. The rabble has been cleared, the near term future is less risky, and there are two years of sideline sitters waiting to get back into the market. There is a baby boom in NY with familites choosing to stay in the city, there are macro economic forces causing suburbanites to flee their homes and move to the city.

sorry MMAfia - please name a time in NYC reale state where there has been less competition, more price softness, more inventory available, and more sideline sitters piled up than now.

'It's much cheaper to rent here, stabilized or not'

My favorite mantra!

That works for me - though somehow, over time, I've managed to assemble (currently) about a dozen prime Manhattan properties (mostly 2 bed/2-1/2 bath), and renters pay my mortgage and maintenance/RE taxes, plus put positive cash flow in my pocket every month!

I love renters. After I throw in my down payment, renters basically buy my properties for me that, despite current negative economic factors, also have accrued significant value as well.

I hope it stays cheaper to rent than to buy for quite a while.

Basically speaking, you've worked hard for your rent money, and I work hard for your rent money!

"your landlord loves the fact that you think this way, he lvoes it to the tune of a fat $4500 every month after month after month. He loves you thinking that way to the tune of $165K over the past 3 years."

Oh, sneaky, you're so easy. What I love is not having bought into the Chelsea Stratus where they just slashed prices, so there is now a $225,000 difference between 1 floor:

http://www.streeteasy.com/nyc/sale/194216-condo-101-west-24th-street-chelsea-manhattan

#34A - $2,475.000

http://www.streeteasy.com/nyc/sale/217323-condo-101-west-24th-street-chelsea-manhattan

#35A - $2,250,000

Let's see - that's 3.5 years of FREE RENT! at $6,000 per month.

The let's see - you can buy 28E for $1,525,000

http://www.streeteasy.com/nyc/sale/76875-condo-101-west-24th-street-chelsea-new-york

But only rent it out at $7,000.

Your total cost to buy it with a standard mortgage is $10,002, for a total monthly loss of $3,000, but the taxes are abated so soon enough that will be a $4,500 per month loss.

NEAT.

The $7,000 link:

http://www.streeteasy.com/nyc/rental/395317-condo-101-west-24th-street-chelsea-manhattan

Hey Pete, my stove broke, the toilet is clogged, I need baby bars put on the windows and I think there's lead in my paint. Please take care of these issues by the end of the week. Don't forget to remove the snow from the sidewalk this winter, maintain the facade and pay the astronomical heating oil bill for me, too. Oh, and don't bother trying to raise my rent, because rentals are getting cheaper and more plentiful by the day. Thanks!

Signed,
Your tenant

p.s. Sorry about your eroding equity.

Steve - posting examples of purely priced units does not prove your point that a buyer cannot find a reasonably priced unit that is a good investment. Your arguments are childish and it is easy to see your misuse of data points and selective data.

But keep thinking this way, your landlord loves you sending him most of your take home each month. You are truly a real estate genius by wasting over $210K in the last 4 years in rent while the rest of us made over $500K in profits! That puts you about $900K down in potential opportunity in just the last 4 years.

Don't change what you said:

http://www.streeteasy.com/nyc/talk/discussion/4206-mortgage-stops-lending-

and I quote:

"There is the most opportunity in the RE market than there has ever been - and you are missing it."

I STILL don't believe that now is the best time than there has EVER been.

Also, while the Shiller graph shows housing prices as a nation, once again you are using the argument that Manhattan is different in a convenient and inconsistent manner.

Basically, the premise is that Manhattan is not different on the way UP when the bubble inflates along with the rest of the country. But magically, when the bubble pops, all of a sudden Manhattan is different and will not deflate along with the rest of the country.

Again, although I do agree that all real estate is local to some degree, I don't believe in that kind of convenient different/not-different analysis to support your arguments. It's just not consistent.

Look at what happened to Manhattan in the last two real estate booms/busts. The chart clearly shows what happened as a nation. Was Manhattan different then? History shows that it was not. Now you're telling me to believe that this time around, it's different? Even for Manhattan?

Perhaps there are some who might believe that. Perhaps they are those who don't want to believe the reality and keep coming up with reasons as to why it won't happen this time around with all sorts of, to be quite frank, interesting analysis and reasons.

I'm not one of them. I believe that it is NOT different this time around.

Being a landlord is a guaranteed way to make money? Some of the owners who turned landlords bought using ARMS. When these things reset, they'll need to charge more for rent to cover their expenses. Saying rents rise is one thing. Saying they'll rise to the point of covering an ARM reset is another. If developers switch from sales to rental there will be a lot of units to choose from.

The idea was: buy low, rent, sell higher. Even if rents don't cover expenses, the eventual sale price will make the buyer whole. In 2005 everyone knew that apartments would have doubled by 2010. Now everyone is holding their breath to see if they can cover transaction costs, fees and expenses, to break even in and out.

To the renters. Its called analysis paralysis. Learn to overcome it.

"Analysis paralysis is a phrase that describes:

when the opportunity cost of decision analysis exceeds the benefits.
informal or nondeterministic situations when the sheer quantity of analysis overwhelms the decision making process, preventing a decision."

Right, and Paul Stallings who bought his first apartment building on his credit card was an idiot too, right? you guys kill me. you guys seem to equate "landlord" with "condo flipper" to your detriment.

TA - your post was actually quite intelligent. Most poeple on this board wont know who Paul is. I am impressed that you know him as well. I must say that Paul is a fine example of a visionary who saw and continues to see the opportunity in the LES RE market. He invested in buildings when the market was down and when many thought that no one would ever want to live in the LES.

He is an example of the exact opposite of the naysaying herd on this board who is so paralized that they cannot see any opportunity in todays RE market.

totallyanonymous, there's no analysis paralysis because there aren't many sideline sitters. What we have are dreamers hoping that $500,000 will buy them something and 10% down will be OK when prices are over $1,000,000 and credit is tight. These people are not paralyzed. They are amputated.

And your analysis of Paul Stallings is survivorship bias and inappropriate. Bill Gates dropped out of college. Would you tell your kids to drop of college if they want to be successful?

Ah Paul was a lawyer with several degrees before he got into real estate.

And there are many paths to success not just college. Some of the most success people in the world dropped out - Gates, Ellison, Ambani, Steve Jobs, Michael Dell. If you wanted to limit your child path you would tell them that they can only be successful if they got to college. I have no problem if my kid wants to be the next Steve Jobs and goes for it.

petrfitz, I should have known you'd say no to college. Richard Branson never went to college. Neither did 80% of the inmates in federal penitentiaries.

petrfitz
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Ah Paul was a lawyer with several degrees before he got into real estate.

And there are many paths to success not just college. Some of the most success people in the world dropped out - Gates, Ellison, Ambani, Steve Jobs, Michael Dell. If you wanted to limit your child path you would tell them that they can only be successful if they got to college. I have no problem if my kid wants to be the next Steve Jobs and goes for it.

Wrong as usual. Mukesh Ambani has a degree in chemical engineering degree (sound familiar?) and has a MBA from Stanford. And his brother Anil has a BSc and MBA from The Wharton School.

A real educational success story for a college dropout.

Next time you google, at least know the basics about which Ambani you are talking about. Ambani's father is the one who had no college education and incidentally he never made it to the list of world's richest like his son(s).

i dont think stallings cam from money did he? i know he was a corporate law drone at some snooty law firm before he wised up. my advice to any kid today. do not go to college. it is a waste of time. this is not 1955 any longer. college will only lead you to grad school which will lead you to corporate misery, a bmw, an overpriced condo and a divorce. go straight into real estate and forego what other people prescribe for you.

Bill Gates dropped out of Harvard LAW school but he did get his undergrad degree.

"you are using entire US housing data to make apoint on NYC RE and that is misleading and you know it."

The last time I checked we were still part of the US. Did we secede and I didn't get the memo?

Surdy - as usual you are wrong: http://www.rediff.com/money/2005/sep/15sld3.htm

Surdy do the "real estate professionals" aka onsite sales agents give you all your info?

uptowngirl - Gates dropped out of undergrad.

TA - no Stallings did not come from money. He is a really nice guy with a family. I interact with him regularly. Aside from the few lunatics who claim otherwise, he treats his tenants and staff well. I know of instances where he actually personnally help some unit owners in his buildings get financing to buy units when they never would have gotten funds on their own and made these people millionaires.

uptowngal, you should stop reading Wikipedia. Bill's father advanced him the money to buy DOS from Seattle Technologies. Bill's parents were fairly well off.

petrfitz
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Surdy - as usual you are wrong: http://www.rediff.com/money/2005/sep/15sld3.htm

No, I am not. Just shows how little you know about anything when you keep on repeating the same garbage over and over again without ever comprehending that you are proving yourself wrong by providing the link above.. That article refers to Anil and Mukesh Ambani's father- Dhirubhai Ambani and he has been dead now for 6 years.

Better get your meds, might still do you some good.

Comprende!

Surdy - you area morong. oh yeah the article refers to the father who made the fortune and paved the easy path for the kids. You obviously dont read because the original post was about guys who dropped out of college and made a fortune, yet you think that somehow the post applies to the kids of the guy who dropped out and made a fortune.

Just admit that you are wrong.

And Dhirubhai was not a college drop out. He finished high school and could not afford college. Not very many people went for a college education in the 1940's, especially in India which was still under British rule.

Surdy - you are a prissy little bitch who cant admit that he is totally wrong. Stay on the West Coast because you are not sharp enough to make it in NYC.

"Bill's parents were fairly well off."

Papa Gates was a named partner at Preston Gates & Ellis, which has since morphed into some other snooty law firm. Papa was a little more than "fairly well off". Son dropped out of Harvard College.

I know two Stallings rentals in east village. I think the California House was his first one, correct? Those joints are now packed with tight assed little college girls with huge bank accounts. Stallings isn't a guilty liberal too, is he Fitz?

petrfitz

Take your meds. Obviously you are getting delusional again.

TA - its funny how us Liberals are the wealthy multi property owners, and you are a renting board want a be.

"TA - its funny how us Liberals are the wealthy multi property owners, and you are a renting board want a be."

Your failure to grasp third grade level concepts aside, I am neither a "renter" nor a "want a be", whatever that means in the world you've concocted for yourself. Calling people morons and bitches on anonymous public boards is now an actionable claim so I hope you're bright enough to mask your IP address. Something tells me the answer is you're not. And those LLCs won't protect your assets after they find out you commingle your accounts to expense underage Thai hookers. My advice. Tone down the act.

Hey - did someone say "underage Thai hookers?"

SteveF (aka the ponzi guy): "It's called down payment...they make great salaries but can't save a dime"

Steve, this is just dumb. I know several people (yours faithfully included) who save 30 - 40% of pre-tax income (not counting maximizing our roth 401Ks), and have more than enough for a decent down payment - and yet continue to rent.

Capitulation in a non-liquid market? How could that be possible? Is there any intellect in your head?

Uptowngal, no you are wrong about Bill Gates.

and one more comment - TheFed, do you really go through life thinking that because there is a statistical average that everything that creates that average is homogenius?

lol -- "homogenius"! are you referring to steve?

kiss - lmao.

steve, I think you've got another groupie.

petrfitz is just another one of the deniers. But we need guys like him. We can't have a fun crash without SOMEBODY who was saying "buy" on the way down.

Its funny how no matter how many times we see boom and bust cycles, there is always someone to rationalize why this time its different.

They said that in 2000, too...

Eddie, who are "they"
and what does 2000 have to do with today? Were we in a global financial market crisis in 2000?

and, didn't real estate prices do quite nicely after 2000 for many years?

> and, didn't real estate prices do quite nicely after 2000 for many years?

Yes, the tech bubble was followed by the RE bubble, which is now popping.

Your point?

Eddie, please do not post anymore articles like the one that started this thread. It completely mischaracterizes your position as someone who predicts a 16% decline. These types of doom and gloom stories should only be posted by those who are calling for a 50% decline.

Right, and positive information should only be posted by people calling for a 100% increase!

We kidding with this?

What's even funnier is that calling for a 15-20% decrease a year ago was heresy. Now, there has been so much backpedalling from the bulls that they'll take a 16% decline as a victory. Hillarious.

Hmm, another person thinks Eddie Wilson is full of crap. Interesting . . .

No - what's really funny is that you continue to post the "world is coming to a end" type articles, and constantly use words like CRASH, when instead you simply think prices will go back to 2006/2007 level - not that bad.. Please learn to use the correct adjectives - instead of CRASH you mean SOFTEN.

Question for perfitz, maulraux and other landlords. Don't you have to pay taxes on your rental income? If you live in Manhattan, I imagine those taxes approach 50%. How does the rent vs. buy math work in that context? In other words, can you show current apartments for sale that you think you could buy, rent out and have the after-tax rent income cover your ownership costs?

This is an honest question, I am quite curious how this works, what I am missing, etc., since I would definitely consider buying investment properties and renting them out (in NYC or elsewhere) sometime in the future. Thanks.

> Hmm, another person thinks Eddie Wilson is full of crap. Interesting . . .

204 posts in a row from LICcomment without a fact or a brain. its a new record!

> when instead you simply think prices will go back to 2006/2007 level - not that bad

Who said that? I'm talking about 15-20% off of 2007 highs...

Newbuyer99,

Your question about rental income taxes is a very interesting one. No one seems to talk about that, so I am curious to see the answers provided.

Just for the fun of it, I calculated the S&P Case-Shiller return for New York "Metropolitan" Residential Real Estate Prices from Dec 1989 to Dec 2007 and came up with an annualized return of 5.02% (versus inflation of 2.87%).

Then I calculated the change in price of Manhattan real estate per square foot based upon coop figures from Miller Samuel for the same period and came up with an annualized return of 8.68%.

Big difference when you compound out such numbers over an 18-year period. I just think Manhattan prices are unsustainable. There comes a point when individuals and businesses conclude that despite all its good points, Manhattan is just too expensive. And they walk with their feet. Then things correct to more reasonable levels.

"There is nothing so disturbing to one's well-being and judgment as to see a friend get rich."

Charles P. Kindleberger

Unsustainable?
my father bought his first house in 1970 for 20k sold it in 1992 for 180k that is an 900% return in 22 years ...900%!!!!! your propery was worth 9X more. The same house in Queens is now worth about 600k.....if you bought in 92 you made a 333% return...333%! in 16years almost 3.5X your LEVERAGED money. You self destructing bears....look at the big picture....don't look at the finger pointing to the moon look at the glorious moon............

I think this was the guy who told me to buy pets.com in 2001

Hey Eddie boy I'm just trying to help....you bears are a mess...paralyzed by fear of the unknown....you know everything, yet your afraid to even buy a newspaper. But you can change, learn from others, stop with the paranoia......Good Luck.

I think real estate is a fine investment for the long term. I wouldn't characterize myself as a "perma real estate bear," but rather a "cyclical real estate bear."

Assuming your father bought his house at $20 K in Dec 1970 and sold for $600 K in Dec 2007 he would have gotten a compound annual return of:

House: 9.63%
Inflation: 4.61%

For the same period the S&P

Stocks: 11.25%

But in the case of your house, you got to live in it "rent free" - albeit less taxes, utilities, insurance, etc. But all in all a fine investment / lifestyle.

But during that period there were periods when the price got way out of line - but under and overvalued based upon fundamentals.

That said, "market-timing" is a risky thing to do and there is, indeed, a lot to be said for long term holdings.

However, Manhattan residential real estate feels too much like Internet stocks in March, 2000. A long term holding is Cisco will probably pay off very well - but it wasn't a pretty holding in the years imediately after 2000.

"There is nothing more deceptive than an obvious fact." Sherlock Holmes

> yet your afraid to even buy a newspaper.

huh?

BTW, my parents bought in NYC for $60k in 1974, sold for $230k in 1995. Traded up, and even the new house they bought peaked at about $800k, its probably worth $700k at this point.

So, they didn't even come close to the 9%....

Just like stocks, residential real estate returns are episodic, although they do, indeed, experience lots of serial correlation (trending).

Most of what I have seen suggests that Manhattan real estate has, indeed, experienced outsized returns versus the rest of the country over the past several decades. But that also reflected very low prices starting in the seventies when Manhattan was a fairly tough place to live with grafitti, crime, poor infrastructure, and bankruptcy. Now, I'd say Manhattan is priced to perfection.

"Fasten your seatbelts. It's going to be a bumpy ride." Betty Davis

Nice to see you back out there swingin', EddieWilson!

thanks, Topper.

Of course, you slightly inferred this, but outsize returns generally "revert to the mean"...

Also, we had record low "grafitti, crime, poor infrastructure, and bankruptcy" years back, we're no better (and actually worse in many cases) now, with some fear of worse... meaning further price declines from peak would be expected.

Either way, I agree, here comes the bumpy ride...

Topper...Manhattan is priced to perfection. I think it must be me but I think it's crazy high.

Correct me if I'm wrong, I think Topper meant NYC is priced as if were "perfect" (as oppsed to when there was major crime and such). This to me infers that declines are likely if anything non-perfect seems to rear its head...

Yes, Eddie. "Priced to perfection" is a phrase that is often used in finance to suggest that an investment is expensive. All possible good news is already priced into it - and no potential negative news is priced into it.

I think "outsized" returns from the period when Manhattan was flat on its back (and cheap!) were at least partially reasonable. That said, the pendulum always swings too far and I think that is the case today. Manhattan is simply overpriced. That's why there is so much construction going on here while in the rest of the country construction is grinding to a halt. "If" new construction can be sold at current prices it remains very profitable to put up new buildings. Until...

That's the glory of a market economy. Then, things return to equilibrium.

In another thread I demonstrated how Manhattan real estate price % increases since 1989 have far exceeded the price increases for the New York "metropolitan" area. There comes a point when Manhattan - as nice as it may be for many of us - just gets to be too expensive for what you get. And businesses and individuals vote with their feet. In the early nineties, the Manhattan prices per square foot were about twice the price per square foot in the suburbs. Now that figure has risen to about four times the price in the suburbs. At what point do people vote with their feet - or at least their pocket books? (And the rent versus buy is a related element of this question. Where do you get the best relative "value?")

No place left to build in Manhattan? Nonsense! Look at what's taking place in Chelsea's gallery district. And you can "generally" always build "up" when land is really scarce. Yesterday's "edge" district is today's "in" district. Chelsea again. And Park Slope. Etc.

I recall the old Chinese curse. May you live in interesting times!

Timing market shifts, though, is never easy. It is worth recalling that Alan Greenspan wondered if stock prices had reached a point of "irrational exuberance" in late 1996. Prices didn't crack until early 2000.

has anyone figured out that EddieWilson and Stevejhx are the identical person?

Same positions
Same style of posting a negative article as worthy of its own discussion topic
Same argument style
Same style of rebuttal, interspersing the original quote and his response
Same claim to have worked at an investment bank, but seemingly not in the investment banking group itself
Same language style and pedantry related to language
Same self-corrections of their own posting
Same imperfect ability to do math
Same level of anger
Same reference to "they" and "them" as out to get people who don't think real estate is going up

what else is the same ... anyone care to point it out?