Demonstrate with comps price-to-rent ratios are out of whack

Check out these two as they are true comps (same apt is available either for sale or rent).

http://www.streeteasy.com/nyc/building/200-west-24-street-manhattan

You're exactly right. Price to rent ratios are about in-line, maybe marginally above where they should be. In order for there to be a big decline in Manhattan RE, rents would have to come down too. Which they very well might - I have no idea.

Buy for $1.95MM:
http://www.streeteasy.com/nyc/sale/252607-condo-110-west-86th-street-upper-west-side-new-york

Or rent for $5500/month:
http://www.streeteasy.com/nyc/rental/377863-condo-110-west-86th-street-upper-west-side-new-york

I think the finishes in the rental (#4A) are a bit nicer. It's seven floors lower, so noise from 86th Street might be a concern.

buster - good one, by my calcluations 200 W. 24th is 30%-35% overpriced - after tax cost of buying is $6k per month, plus maintence/taxes of $1450, so total of about $7400.

what would be really interesting is to see historical data on RENTS in manhattan since 2000. does anybody have this?

kspeak: There was a long thread on this a few weeks ago.

http://www.streeteasy.com/nyc/talk/discussion/4803-rent-vs-buy-math

Unsurprisingly, we did not get consensus. My conclusion was fairly similar to yours - i.e. buying is more expensive, but not by as much as some people say. Many others reached fairly similar conclusions, but there were also outliers on both sides.

Even with perfect comps, you still have to make some significant assumptions (interest rate, tax rate, opportunity cost of downpayment) and decide whether some variables are relevant (assumed appreciation of property, rental increases over time).

Rent for $4900 (#7F):
http://www.streeteasy.com/nyc/rental/422408-219-west-81st-street-upper-west-side-new-york

Or buy for $1.805MM (#9F):
http://www.streeteasy.com/nyc/sale/276959-condo-219-west-81st-street-upper-west-side-new-york

#7F closed in June for $1.775MM, or 30X the current annual (asking) rent.

To be fair, it's worth noting that #9F can probably be had for $1.7MM or less, since #11F just sold for $1.72MM. That's still close to 29 X annual rent. And $4900 is just an asking number. It might actually rent for less.

well, when rents are falling, and people are still batty with prices, expect to see some more 30x prices.... but no sales.

I think that the discrepancy between rent-buy is best evidenced in new construction condos. If you pull up any given building where people have already moved in and there are rentals available, you will likely find that 1-bedroom apartments that sell for $1M+ are being rented for $3500 and 2-bedrooms at $1.7M are being rented at $4,500.

The West 86th St comp looks very interesting. The asking price for the rental truly nosedived (nosedove?) over a four month period from an admittedly insane $10k to a more-than-fair $5.5k. The final price warrants a double-take -- it's been a while since an apartment of such size and quality could be had for so little. I reckon there was an element of distress in that transaction, otherwise it would indicate that UWS prices have ways to go down until we reach a more reasonable buy/rent ratio.

The Avonova looks like a sketchy (or poorly timed) conversion that is now burning both its developers and the speculative buyers the conversion might have attracted.

kspeak - $3200 in rent is roughly the same after-tax cost to buy at $700k, assuming an 80% loan.

18x? Not quite sure about that...

The mortgage payment alone is $3500 + $600/month at least lost on down payment (if in a CD) + maintenance...

Not to mention, the principal loss in a decline.

www.housemath.us, using the 1.7M figure (lets be realistic after all) and 30% down payment at 7.5% jumbo rates (is that realistic? I have no idea what jumbo's are like) puts the equivalent rent after tax and opportunity cost considerations at: $6,288.37 today. 20 to 25% above actual rent.

Condos went up in value much faster during the boom than coops. It makes sense that they have farther to fall.

> Condos went up in value much faster during the boom than coops. It makes sense that they have farther to fall.

Sure, with the dollar back up it takes away the foreigner bid on condos.

At the Flowerbox Building, 259 E. 7th St.:

Buy 2W for $1,995,000

http://www.streeteasy.com/nyc/sale/60619-condo-259-east-7th-street-east-village-new-york

or rent the same unit for $7,250

http://www.streeteasy.com/nyc/rental/414805-condo-259-east-7th-street-east-village-new-york

It's been on the market for 650 days, so I'd guess either is pretty negotiable.

www.housemath.us = run by the real estate industry.

"30% down payment"

Even cheaper with a 50% down payment.

"after tax"

You can't get a mortgage using the tax benefit, so you can't include it in the rent comparison.

What was your "Price Increase" rate? 25% a year forever? Or the likely -25% over the next two years?

Of course you can count the mortgage deduction, it reduces the yearly cost of ownership provided you are realitic (realize you can't deduct much over $1mm, etc.). The point is to try to compare equivalent costs of buying vs. renting assuming you can afford to buy the place.

By the way - Flowerbox building started selling in 2006 for $1.45mm ....

Of course the result is real, but you can't use it when calculating how much of a loan a bank will give you because PITI doesn't include it. Banks - if they'll give you a loan - don't take it into account.

steve, do yourself a favor and attempt the tiniest bit of research before you make a fool of yourself. First of all, its more *expensive* with a 50% down payment (opportunity cost was set at 8% returns on the stock market - more money tied up in down payment hurts the buy side of the equation). Second, you can't *get* a jumbo mortgage without 30% down at least these days. Third, the site takes the 1M limit on the mortgage deduction into account when doing the comparison. Its not that you can't get a deduction at those limits - the deduction is just capped to the first 1M of loan principal's interest.

I forgot the best part: that it's run by the real estate industry. Its default (which I left alone) says real estate appreciates at 0.5% per year over *long term* averages. What real estate industry representative would ever admit to such low numbers? If you took 5 seconds to look at the site, you'd realize how stupid you sound.

"the site takes the 1M limit on the mortgage deduction into account when doing the comparison."

Exactly what you can't do because banks won't lend you money on it.

If you took 5 seconds to look at the site, you'd realize how stupid you sound.

We've had this argument several times before. You always drop it because its hopelessly lost. If you don't qualify for a mortgage, rent vs. buy decisions are completely moot. You can hold your head in the sand and stick to that defense all you want, but the rest of the world only cares about real people who can get mortgages on the properties they're considering, and want to know the rent vs. buy math on those properties.

The rent vs. buy calculators all pretty much blow up when you factor in a 20% market decline...
I'm amazed that this is still being debated at all.

Even if it did cost more to rent than carry the propert for a year, I am more than happy to pay 5k or 10k extra for one year to save $200k or $300k on the purchase price...

If we all had your crystal ball, we wouldn't need rent vs. buy calculators :) Or debates!

Us mere mortals without crystal balls do rent vs. buy calculations to see if prices are out of whack, and if so, by how much. So far it seems that sub 1M coops are in line with rents. 2M condos are overpriced 20-25%. Will rents go down significantly, thereby bringing purchase prices with it? Well, I still don't have a crystal ball, but I'll venture a guess yours says "yes".

kspeak: By the way - Flowerbox building started selling in 2006 for $1.45mm ....

I know. This is one of those ridiculous listings that started at $1,595 in Jan 07, then was increased to $2,195 a month ago (as if), so now it's "reduced." Now that I think about it, maybe the increased sales price is just being used as bait to make the high-priced rental seem like a good deal. Certainly the buy/rent comparison is better balanced at the original asking. Meanwhile, they haven't finished construction on the supposedly $10MM penthouse that was supposedly pre-sold. There are 7 closings, another 7 discontinued listings that never closed, and the current listing by the original brokers. It's as if they hold off on multiple listings for appearances sake. It's a beautiful building, but those early lies that the press ate up ($10MM near Ave D!!!) took broker BS up a notch.

"but the rest of the world only cares about real people who can get mortgages on the properties they're considering"

Then you don't know what you're talking about. In economic terms, since the output of residential real estate - a place to live - is the same whether you buy it or rent it, then it should cost the same to buy it or to rent it. But it doesn't cost the same if you can't afford to get the mortgage you'd need to buy it: by definition it's more expensive. That's why your argument falls apart.

Yes there are short-term tax and other benefits, but any economist will tell you that all of those factors are taken into account in the price through discounting. Which is why it MUST cost the same to buy and to rent.

You've got the ultimate strawman argument. There are people out there who can afford both, do the calculations between the 2, and conclude that buying is cheaper for them. That doesn't change just because you yell at them. It doesn't change because there's somebody else out there who can afford to rent, but can't afford to buy. How does that fact change the number of dollars going into or out of the buyer's wallet?

When you construct a rigged comparison and insist that comparison is the only valid comparison, you've got a strawman argument. Personally, I prefer to count the number of dollars in the guys wallet when all is said and done - I think that's quite a bit more objective.

> There are people out there who can afford both, do the calculations between the 2, and conclude that
> buying is cheaper for them.

I can do both, and renting has been cheaper for all the apartments I have looked at. That could be different at this moment, depending on the price chops, but a bargain about to become a bigger bargain is no bargain at all...

Good grief Steve. Can't you just realize that this discussion is not about how much someone is qualified to borrow? It's about the relative costs of buying versus renting. Let's presume for this debate that we're talking about a multi-billionaire who needs to decide whether to buy or rent an apartment. He can qualify for anything he wants.

Good grief Steve. Can't you just realize that this discussion is not about how much someone is qualified to borrow? It's about the relative costs of buying versus renting. Let's presume for this debate that we're talking about a multi-billionaire who needs to decide whether to buy or rent an apartment. He can qualify for anything he wants.

It's easy for me to research Sunnyside, Queens, because I lived there for 15 years. Here's the most recent sales in a pre-War coop whose address I have deleted from this post. Then I compared it with the rentals currently advertised in NYTimes, most with photos which I can compare with my knowledge of the building I pulled sales prices off of ACRIS for (floor plans, views, interior details):

Apt 1E (studio?)
$110,000 (12/19/07)

41-16 47th Ave
Apt 5B (one bedroom?)
$280,000 (8/22/07)

41-16 47th Ave
Apt 1D (1 brm?)
$190,000 (10/23/06)

41-16 47th Ave
Apt 1B (1brm?)
$260,000 (9/21/05)

(none of apts in above bldg is 1100 sq ft;
1brms are 700-800 sq ft, 2brms might be 900)

rentals same zip code advertised NYTimes:

$2,200 1100 sq ft 2brm
(per photos: newly painted, polyed floors,
new kitchen; 1100 might be exaggerated)

$2,150 2 brm no further info

$2,100 2 brm (photos: large, being painted)

other 2brm rentals lower priced, including
a 2-brm (fotos look like small rooms) for
$1,750, overlapping 1-brm rents range

most expensive 1brm - $1,800
(1000 sq ft per ad, but based on
photos I'd guess 750 sq ft; I've
seen units exactly like this in
person)

$1,650 reno 1brm

other reno 1brms $1,400, $1,450, $1,500, $1,550

Take $1,500 as a typical price for a prewar Sunnyside 1-bed renovated. Assume about $600/mo. at most for maintenance in a prewar S'side coop (most are less, but Celtic Park is probably higher, with much smaller apartments)

assume 20% downpayment - based on coop building I refer to above, $260,000, mortgage of $208,000.

We are talking well under the confirming limits for mortgages, and you can debate what the average maintenance costs are (they were under $400 for a 750 sq ft top-floor corner 1brm in 2001 in the above-referenced building), as well as what coop rates are, but IMO, you arrive at nearly the same monthly GROSS outlay for purchasing at pre-slump prices in pre-war Sunnyside Qns coops as the current NYTimes ads are asking for to rent in the same buildings. I'm willing to bet that all these $1,500/mo rentals are actually coop sublets, because I know the area.

The worst one could argue that one "overpays" by buying is perhaps $300 per month.

Sunnyside is not a hot, up and coming area in a chic neighborhood. Sunnyside is not in Manhattan. But if you go further out into Queens, where people aren't paying for the convenience of Sunnyside, you will
find nicer apartments, nicer neighborhoods, and lower prices to buy.

oops, forgot to delete the address - sorry

conforming limit, not confirming - sorry

The question isn't how much can I afford to pay if I buy versus how much can I afford to pay if I rent. The question was, what would it cost me to rent versus what would it cost me to buy. When you buy you get a tax break and that should be counted in the out of pocket cost.

steve was doing ok for a while, but turn the conversation to rent v. buy calculations, and his illogical, nonsensical self just rises up again . . .

You should like pre-tax. Or if you look after tax, you need to view interest on the down payment as a cost of owning. HouseMath.com is a good site.

Guys, give Steve a break. His line of work does not require any use of logic.

put a 10% annual decline into housemath and see what it says...

The problem is that prices are falling...and it's only a question of where they stop. Why try to guess. Wait for them to start going up. Miss the first 10% up. But don't wait so long the market is in bidding war mode like 2005-2006. Think 1997 style.... Which by the way was like 10x rent. You could buy a $1100 rental studio then for like $130k.

nyc10022, you think if someone buys today and sells in say 10 years that there will have been a 65% decrease in the value of their home?

Yes that would be very hard to overcome in the rent/buy model.

There is no valid argument not to wait to buy here... Of course in 10 years, you may be up but who knows or cares. In Manhattan you can rent easily not like the burbs. You can't tell me that the real estate market reflects what has happened in the financial markets and industry. Sellers are scared frozen. Nothing is happening. There is not real bid out there to gauge.

when the market is down it's cheaper to buy than to rent - not sure how useful rent v. buy is in predicting market movement, but thrinald as the timing strategy right: wait for things to go up to know that it's hit bottom

Real estate is such a slow market, not like stocks. There are rarely false starts. You buy in 1997, not 1993 and you get the "meat" of the big move anyway. Conversely, wait for it to start falling to sell. I mean buys before 2005 are still great sales here because there are enough people in denial, or with a bossy enough wife.

nyc10022: this is getting very circular. Bears believe prices will go down because price vs. rent ratios are too high. Bulls show that some (certainly not all) price vs. rent ratios are in-line. Bears say because of the decline, the calculation changes, and the ratios are out of line.

Sorry, but such circular arguments mean nothing.

Now, if you show that rents are dropping 40%, I'll believe that real estate prices will also drop 40%. That's a perfectly valid (non-circular) argument - but so far, all I've seen are tiny single-digit declines. We'll see what the future brings us though.

"It's about the relative costs of buying versus renting."

Of course it is. It should cost the same to buy and rent. If you can afford to rent but can't afford to buy an identical apartment, then it's more expensive to buy.

What's so difficult about that?

> Sorry, but such circular arguments mean nothing.

Thats not a circular argument at all.

In short, rent/buy is a valid calculation, but it takes on less meaning with significant jumps or declines in prices. Rent/buy was more valid a year or two ago.

Now, with us being in the middle of the crash, the rent/buy formula shift crazily toward renting if you factor in the decline.

Do you believe rents will drop as hard/fast as you believe purchase prices will drop?

"Of course it is. It should cost the same to buy and rent. If you can afford to rent but can't afford to buy an identical apartment, then it's more expensive to buy.

What's so difficult about that?"

Such a person isn't doing rent vs. buy calculations.

Actually if you go back to the 1990s, people were so scared, even after prices started rising...that it was much cheaper to own BEFORE TAXES even. Issue is that the market will "pay" you to buy in the worst markets...that's even before taxes and including a rate of interest on the down payment. In hot markets people chase, and pay for the right to own... And sometimes its the right call (like 2004) if rents and values are on the rise...Provided that you punt before the turn.

> Do you believe rents will drop as hard/fast as you believe purchase prices will drop?

They don't have to to make renting the much better deal... but, likely, no, they won't be going down as much, because they've been relatively cheaper.

Hell, even if rents went UP, I'd easily pay $5k or $10k more this year to shave $200 or $300k off an apartment purchase.

And, I'm with Thrinald... expect the market to overcorrect, where it becomes cheaper to buy than rent. I'm figure 25-30% decline in prices, and maybe a 10% in rents...

Also remember, rents went up a lot in the last two years...and back in 2002 they fell 15-20% depending on the neighborhood. We haven't even gotten an official real estate report like Corcoran showing year over year price declines. We're down 20% (if you actually priced to sell) and people aren't even crying yet. Buy when there's no one denying it will continue to go down. Or wait, like I said before, really buy when it goes up.

"Such a person isn't doing rent vs. buy calculations."

Actually, if you looked up the research (published here a few months back by me) people do that calculation every day as, except for recently, there has been a nearly perfect correlation between rents and home prices. When it's too expensive to buy people realize there's a problem, and they rent.

Just a fact.

"They don't have to to make renting the much better deal... but, likely, no, they won't be going down as much, because they've been relatively cheaper.

Hell, even if rents went UP, I'd easily pay $5k or $10k more this year to shave $200 or $300k off an apartment purchase."

My point is that a decline in RE is not as much of a guarantee as you'd like us all to believe, unless rents come down too. If buy vs. rent calculators show some apartments with correct ratios at today's prices, there will be strong buyer support at that price. Unless rents drop too.

thrinald, why I certainly agree with you that prices are declining, and I agree that in general waiting is the thing to do. That said to say there is no valid argument for not waiting is ridiculous. For one thing, its not all about the money and catching the bottom or close to the bottom. People have other interests when they buy a home. For another you're ignoring that already people may be able to negotiate significant price reductions.

Tech_guy, who do you think can afford these apartments in this market? The main industry of the city has had 50,000+ layoffs. How many $250k+ earners do you think are in Manhattan and not in finance, and who don't already own apartments? I can't imagine there's the buyer pool to absorb this supply. And no one in finance can expect a big bonus this year. Seriously dude.

"people do that calculation every day...When it's too expensive to buy people realize there's a problem, and they rent. Just a fact."

When they do that calculation, how often do they think: "Oh, it would be cheaper for *me* to buy, but my poor neighbor can't qualify for a mortgage. He has to rent, and you know what, so will I."

ccdevi, there is no negotiation here than can be made with enough information to be wise. OK, so there is no valid FINANCIAL argument to be made. Happy? People like you are why people who own should punt their apartments while there is still a shadow of a doubt and an emotional happy face in the world. The investment industry is being steam rolled. It will be born again but it will take a while and won't be fun in NYC real estate in the interim.

> My point is that a decline in RE is not as much of a guarantee as you'd like us all to believe

Doesn't need to be a guarantee.... spending a few grand for a 50% chance of saving $200-300k, and a 50% chance of saving $50-100k.

I'll take that bet in a sec...

> If buy vs. rent calculators show some apartments with correct ratios at today's prices,
> there will be strong buyer support at that price.

Not in a panic. Welcome to how real estate markets work.

BTW, anyone renting this year in prep to buy ALREADY saved quite a bit... we're down 12% already since Q1...

So, I guess you could say the decline *is* guaranteed... because its already here...

again you look at this from a purely financial point of view which is fine, that works for you, but others have other interests, if that makes them suckers in your eyes so be it.

"BTW, anyone renting this year in prep to buy ALREADY saved quite a bit... we're down 12% already since Q1...

So, I guess you could say the decline *is* guaranteed... because its already here..."

course the market's down a lot more....

"Doesn't need to be a guarantee.... spending a few grand for a 50% chance of saving $200-300k, and a 50% chance of saving $50-100k."

Its still a guarantee. Adding probabilities to 2 buckets doesn't change things. You're still pulling numbers out of a crystal ball and acting as if they're set in stone.

NYC - You bring up a number of good points. I did want to mention that it is only a loss for you when you own if you decide to sell when it has gone down. If you hold onto the property you lessen the rik and increase the probability of profit.

I just don't think that point is made often enough in relation to people in NYC who will hold their properties.

tech guy, what do you think the chances are that real estate is higher this time next year? if its any less than 35-40% why would you buy, even with all the emotion ccdevi can muster?

My own person thought process went roughly like this: I was going to move regardless, either to a nicer rental or to a place I bought. Not having to move twice in a short period of time is worth quite a bit to me personally. I think mild declines, mostly in real terms (inflation eating value while nominal prices stay steady) are the most likely case. housemath.us says, even given mild declines, that buying is better than renting. So I bought.

Another secondary factor: the temporary increased jumbo limit means buying this year has a 1% cheaper mortgage rate.

What is mild? If you closed this summer, you are already down 10-15%.

I bought 8% below 2006-2007 comps. Where's this 10-15% number from - have a link?

It's a guess. We won't see it in the data till Q1 on Q4, because things didn't really die till September.

To be more clear: I bought a coop resale. If new construction condos are 15% below their peak... well duh. That market is very different from coop resales.

I hope you can stay in your apartment for at least 7 years. If you think the real resale market hasn't fallen, we will have to check back later to see it in the Q4 data for sales negotiated after August.

tech guy, rents have already been dropping, not coincidentally peaking late last year/early this year just like the sales market. Read the tregny report.

The plan is 5+ years. I bought well below what I could afford - if there's a decline, I'll be sad, but I'll do just fine. I certainly wouldn't buy if it was a stretch to do so, and/or if a decline would significantly affect my financial future.

"if its any less than 35-40% why would you buy, even with all the emotion ccdevi can muster?"

emotion?

> I bought 8% below 2006-2007 comps. Where's this 10-15% number from - have a link?
> It's a guess.

No, its not. Q3 over Q2 median was down 9.4%. That got a ton of threads on this board. And add in the 2-3% Q2 over Q1 blip, you've got your double figures. No guess, just actual Manhattan medians.

Also remember that the Q3 numbers really didn't include any panic closes (because whatever closed in September likely signed before). So, Q4 is almost guaranteed to be down further.

"think mild declines, mostly in real terms (inflation eating value while nominal prices stay steady) are the most likely case. housemath.us says, even given mild declines, that buying is better than renting. So I bought."

I think once you've cross double digits, the idea of "mild" is pretty much out the window. Remember, nationally, its the biggest housing decline since the depression. I think its safe to say we're down 15% already (which would mean just 3% reduction because of the panic), if not 20%.

"NYC - You bring up a number of good points. I did want to mention that it is only a loss for you when you own if you decide to sell when it has gone down. If you hold onto the property you lessen the rik and increase the probability of profit. "

This is basically an old wives tale. Riding out or absorbing a loss doesn't make it any less of a loss.

If the value of the place goes down 20% the first year, and then takes 15 years to go back up 21%, you still lost money Inflation kicked your ass. Then, you were leveraged the whole way, meaning you paid 200% of what you're getting back. To call that "profit" is a bit crazy.

Otherwise, I have some bonds to sell you at .01% interest. You cool with that?

> > So, I guess you could say the decline *is* guaranteed... because its already here..."

> course the market's down a lot more....

A 10% loss on MSFT isn't any less of a decline because Google is down 20%. Noone should have been investing down payment money, or anything else needed within a few months...

It is important to understand that certain apartments in certain neighborhoods selling for 10-15% lower prices does not mean that anyone who owns an apartment has seen a 15% decline in the value of their apartment. The same way that one apartment appreciating doesn't mean every apartment in NYC has appreciated.

There is WAY too much of a generalization on SE about the price declines that apartments will suffer. A few sales and overall market numbers and specific apartments are all different numbers. Real estate is local, but in NYC it goes even further. Each apartment, neighborhood, quality of apartment, floor, etc all factor in to the equation.

It is not so cut-and-dried as, some apartment on 102nd and Broadway sold for the 2005 price so all of NYC is now trading at the 2005 price. Yet, this impression is constantly thrown about on SE and it is just not accurate at all.

Waverly of course it isn't uniform, but of what use to us is that observation?

"It is important to understand that certain apartments in certain neighborhoods selling for 10-15% lower prices does not mean that anyone who owns an apartment has seen a 15% decline in the value of their apartment. The same way that one apartment appreciating doesn't mean every apartment in NYC has appreciated."

Yes, it means basically 50% declined less, and 50% declined *more*...
Median is an average...

Again, people, we are talking about median Manhattan price, including the high end sales. The average for the lower-end apartments (say under $1.5 mil) is likely down substantially more.

The use is that that number that is thrown out is always used as a set number. For example, thrinald, you stated that "if you closed this summer you are already down 10-15%."

You have absolutley zero evidence supporting your statement. Maybe it is down, but guess what, maybe it's not down at all. Maybe he got a good price. Maybe he will renovate the apartment. To say it's down 10-15% on your part is nothing more than an off-the-cuff statement with nothing supporting it.

That is exactly why I posted what I did.....too many unsubstantiated generalities thrown out as facts.

NYC - I also disagree with your price-point analysis. I think the higher-end apartments and condos are significantly overpriced and the lower end is going to suffer smaller declines.

hmm.... I know this raging battle is about high-end Manhattan condos and coops, but I've just researched the rent/buy question in an overflow neighborhood, long blue-collar in character, where all recent emigres come from pricey Manhattan and have driven prices and rents UP. It is after a terrific run UP (see "Sunnyside Up" thread) that rent/buy appears to be near the oft-debated magical equilibrium. I find it unlikely that resale prices in S'side will remain at such levels, don't know about rents (suspect they'll slip down), and yet, what does that do the equilibrium theory?

While not snorting contemptuously down at steve's steadfast pounding the table with "fact - rent must equal buy!", I might gently inquire as to whether factors other than rent-v-buy are more significant. I I have also stated before that that same neighborhood saw prices for coops in the early '90s at 5 times annual rent, back when annual rents were less than half what they are today in those same coop buildings. The crystal ball is not so clear, nor is hindsight, when one narrows one's focus excessively. Now back to Proust's "Remembrance of Economies Past".....

nyc you're so full of it

"This is basically an old wives tale. Riding out or absorbing a loss doesn't make it any less of a loss.

If the value of the place goes down 20% the first year, and then takes 15 years to go back up 21%, you still lost money Inflation kicked your ass. Then, you were leveraged the whole way, meaning you paid 200% of what you're getting back. To call that "profit" is a bit crazy."

Thats not at all the point. The point the other poster made was that a decrease in real estate value is not "a loss" unless and until you sell. Thats just a fact. This isnt a company where we need to mark to market.

The example you give is certainly not a good outcome but of course you just made up the #'s, I can do that too to get the result I want. You also continue to act like inflation only affects real estate investments not all investments.

"A 10% loss on MSFT isn't any less of a decline because Google is down 20%. Noone should have been investing down payment money, or anything else needed within a few months"

You were talking about someone who was waiting to buy, not someone who's in contract. The money isn't needed in a few months. Its absolutely reasonable to believe that people who may have been waiting to buy an apt had the cash they otherwise would have invested in real estate invested in the market. So the point which I'm sure you knew was that they suffered a loss in value in that investment. So your comment about msft and google is irrelevant. The point you could have made is that the real estate investment would have been levered and thus a 12% loss in value may be a lot greater in absolute terms then the x% loss in value of stocks.

> That is exactly why I posted what I did.....too many unsubstantiated generalities thrown out as
> facts.

Again, no, check the facts. Its the median numbers from the market reports. Crain's pretty well covered it. We are down 12-13% through Q3, median Manhattan apartment.... and almost all of that pre-panic.

This isn't a made up number or an anecdote. This is the entire market. Which, btw, also saw number of sales tank and inventories up...

> Thats not at all the point. The point the other poster made was that a decrease in real estate value
> is not "a loss" unless and until you sell. Thats just a fact.

No, its not actually a fact. An unrealized loss is just that... a loss. Literally by definition. Just because you don't admit the loss doesn't mean you didn't have one.

> Its absolutely reasonable to believe that people who may have been waiting to buy an apt had the
> cash they otherwise would have invested in real estate invested in the market

I'm sure there were some folks that were that dumb. But thats like stocks 101... long term horizon. You don't put in anything for just a few months. Thats ridiculously stupid.

BTW, I have already made the point about the leveraged loss in RE on this board, several times.

But, I'm sorry, riding out a loss or "absorbing" one doesn't make it profitable. ESPECIALLY when leveraged.

NYC - I am not suggesting there aren't declines. I am suggesting that you have absolutely zero proof that a certain apartment is down anything at all. You cannot say that about any apartment becasue there is too much that goes into the analysis to make a broad statement like that. It could be down 25%...but maybe it's not down at all.

The market is down, but this apartment or another apartment...maybe and then again maybe not. If someone is willing to buy an apartment for 5% more than the asking price is the market suddenly up 5% in NYC?

There are so many different neighborhoods, different types of buildings, sizes and qualities of apartments that you just can't say every apartment is NYC is down. The same way that not every apartment apartment appreciated in value over the past 5 years.

"No, its not actually a fact. An unrealized loss is just that... a loss. Literally by definition. Just because you don't admit the loss doesn't mean you didn't have one."

Well ok an unrealized loss. Thats a much different thing. Especially when you're talking about your home which is not primarily an investment.

"I'm sure there were some folks that were that dumb. But thats like stocks 101... long term horizon. You don't put in anything for just a few months. "

Again you're just changing the premise. We're talking about people who were waiting to buy. Why wouldn't they be fully invested? Because they might buy a place next year? Thats ridiculous. You're talking about a wholly different situation.

Where is this article saying prices have declined 12% ???

aptometrist: I'm not sure, but it looks like the deal on that $5500 3br/2ba on 86th may have fallen through. Could it actually go even lower?
http://www.bhsusa.com/detail.aspx?id=915413

> Again you're just changing the premise.

No, I'm not.. .someone else brought up "but you would have lost it in market", which is bullshit.

> We're talking about people who were waiting to buy. Why wouldn't they be fully invested? Because
> they might buy a place next year? Thats ridiculous. You're talking about a wholly different
> situation. "

Yes, absolutely. You don't put down payment money in the stock market, or you are an idiot.
Its the opposite of ridiculous. You'd be an idiot to risk down payment money.

I have a good chunk in munis for exactly that purpose (or an emergency). I am waiting to buy.

> Where is this article saying prices have declined 12% ???

Check any of the market threads from last week.... Crain's covered it as well. 9.4% Q0Q median decline, after a 2-3% decline previous quarter.

nope

QoQ numbers don't take seasonality into consideration. Summer was slower than winter even during the boom times. YoY is the factor that has less seasonal noise, and doesn't show 10% drops.

Tech_guy we have never had sequential declines in price in this boom, just in sales volumes. The problem with this market is there is no sales volume. Unless you think demand is going to pick up, I am not sure what conclusion you can draw here other than much lower prices. Do you think banks are ready to lend aggressively again?

> QoQ numbers don't take seasonality into consideration. Summer was slower than winter even during the
> boom times.

Uh, suuuure....

(guess what, prices didn't decline 12% Q3 to Q1 in any other year this decade).

We are running out of rationalizations here. 12% declines and tanking sales as "noise".

Well, guess what, if its all seasonality, Q4 is gonna be a beeeeatch.

thrinald: 2007 showed a 3.4% Q2 to Q3 drop in median price:
http://www.mgroupnyc.com/prudential-douglas-elliman-manhattan-market-overview-3q-2007-excerpted-data
2006 showed 4% down same quarters:
www.prudentialelliman.com/NYCPhotos/retail_reports/mmo3q06-locked.pdf

nyc: You seem to only see the extremes. I never claimed that 12% was common in other years. I simply said some of that was seasonality, some was slowdown. Claiming it all as slowdown makes it look more extreme than it really is.

Why did you shift the time frame?

I said pretty clearly Q3 to Q1.... Q2 is big season, this year showed a drop there...

It's also interesting to see what is happening ... a lot of owners are clearly trying to rent their places. Check out nytimes.com, lots of listings that look like by owner. People are offering pretty low rates to try to get tenants in. The more people who try to rent their units, the more prices for rentals fall, making selling at a loss more attractive. Most people would say the condo/ coop inventory is small relative to the number of rental units in the city, but I am not so sure, not with so many condo/coops for rent hitting the market at the same time.

Impossible to measure, but I think a lot of sellers are stuck with their new apartment and their old apartment that they thought would be easy to sell.

absolutely.... take a look at 20 pine. Its like every freaking owner is trying to rent, and prices are racing to the bottom. When I calculated it last, sales prices were like 35x rent...

The cash returns on renting a condo purchased in 1997, even if you paid cash, and after covering maintenance...Are pathetic. That's another way to look at real estate. If you cash return on 100% equity in an apartment purchase and rental is like 3%-5%, the investment probably sucks. But people think its 3-5% + 10% a year in appreciation.

Sorry 2007! 1997 it made a ton of sense!

nyc: I assumed your "Q3 to Q1" was a typo. If it wasn't, you're the one shifting the time frame. Everybody else (including your earlier comments) was talking about the statement that we've already declined 15%. Q1 to Q3. I don't know why you shifted to talking Q3 to Q1, but that was very clearly your shift, not mine.

Yikes- I would never buy a new place unless I'd sold the other, unless I was very comfortable that 1) real estate prices had just started increasing again after being in the dumps for years (the opposite of 2007-2008 or 2) if i had a good feel for market rents and knew I could rent my place 20% below that and cover my mortgage and maintence. I think people who want to rent their condos/coops need to discount the rent ... I would never move into one without a discount to a true rental, just because a lot of them are short-term and don't automatically renew.

That said, I still think if you bought in 1997 and rented the place out you didn't lose money. No way -it was cheaper to buy than rent the equivalent place then, and rents have easily doubled, and prices have tripled to buy a place. You couldn't do it now, the numbers just do not work by any stretch of the imagination. Plus, if you put money in the market in the late 1990s, stocks are lower now.