Property Values in Today's Market

This has been discussed endlessly on other boards - search the discussions. I personally do the math on what the after-tax cost of buying is and it has to be less than what the apt would rent for given the uncertainty on where prices are heading and the increased cost of capital these days - by that I mean what I could make by investing in variety of fixed income. Prices haven't declined to that point yet but I'm not buying unless they do.

And don't forget about Chicago - you have to use the real estate value of a Lincoln Park townhome as a coefficient in the complex equation!

I think it also depends on the zeitgeist of the times. For example, now that we're faced with the economy from hell, what will the new lifestyle trends be? Will people still want multi-million dollar Manhattan housing with 4 kids in private school, full-time household help and a weekend house outside the city? This lifestyle choice seemed to drive demand in the new luxury condos with 3, 4 and 5 BR apartments starting at $3.5 million!

Will suburban McMansions with sky-high tax and maintenance bills still be in hot demand?

Or, will people now want the Mayfair-ish lifestyle? Smallish house, low taxes, good public schools, walk-to-town livability, lots of community-run events, kids play in the cul-de-sac, etc.? Will people start having less kids, or NO kids, thereby causing demand for large-sized homes to diminish? Will $300K be the new $3 million? Will unpretentiousness become the new opulence? If people start rejecting "over-the-top" housing, then certain buildings (i.e. those targeting the luxury market with out-of-sight maintenance costs) could get slammed much harder than lower key ones. Have single-family townhouses in Manhattan just had their day? Could they start converting back to MFDU's (multi-family dwelling units)? Might this be an investment opportunity for those currently out of work who seek employment as a landlord?

Seems like CHANGE has arrived...for better? or worse?

Don't forget to factor in the tax savings from buying.

In order to make the equation "work," though, you need to believe that Manhattan real estate will "rise" X% over the long term. As you might expect, though, people reach very different conclusions as to what that rise is - or even if it will be a "rise." Most people expect a decline over at least the next three years. Another key question is "what is your investment horizon?" and what is the opportunity cost inherent in such an investment, i.e., how much could you have alternatively earned with this money had you invested it elsewhere.

Check out housemath.us for a convenient comparison of renting versus buying. You'll reach different conclusions based upon the numbers you insert. Good luck.