Stocks may be way down, but NY real estate prices are still way high

No, actually the New York Times, I believe, had a term for it, the merely wealthy. And I believe you were talking about poor and rich, and I was pointing out that more were moving toward the poor side of the equation than the rich. Also, you may have thought you were rich, but today without a job and with your net worth 80% lower than it was last October, you may not even feel merely wealthy any longer.

MMAfia, the only slithery thing is you ignoring my very valid comment on the history of the gold standard, while still blindly claiming history is on your side. What's the longest break we've ever had from the gold standard? Not including the multi-decade permanent break we're in right now.

>> I actually agree. What I think will happen is: Gov & Fed will keep pumping currency until they overpump. Excess of currency chases good. Inflation & Interest rates will skyrocket making those who waited on the sidelines in a position where its not so easy to buy again even though they have plenty of money. (10%+ mortgage rates sound fun?)

Yes, but higher interest rates will only cause home prices to fall further. Sure, techguy may have fixed his rate, but he owns a 1 bedroom so he can't live there forever. And of coure, if you can get 10% on your $$$ by putting it in a bank, you even less want to own real estate, causing further downward prices.

aboutready: As I said, either you are rich or you are poor. Thus, having a false perception of being rich is still not rich.

kspeak/rhino: Short run though, there is inherent weakness. I don't think the prices will fall "dramatically" though after things get better. The hyperinflation will pump enough money to keep prices flat or rising WITH increased rates. (1980's)

If real estate goes down because interest rates go up, I'll be very happy when I trade up. Excess inflation means it won't be long until what I'm paying is tiny compared to rent (which tends upwards with inflation). Sure, I'll be selling at a loss, but buying more at a lower cost basis, and benefit even more from the following runup.

I knew that was a very strong likelihood before I decided to buy. Its nothing new or surprising to me. If Manhattan real estate declines sharply due to externalities - excessively high crime, for example - that's what I don't see happening, and would make me regret my purchase (really, regret my decision to live in Manhattan at all).

I can't believe we are actually having a conversation about the Gold Standard. Is this a real estate blog or a convention of crackpots? for the record, the price of gold has gone from $400 to $773/ounce over the last 20 years, not adjusted for inflation. Over this period, the Dow has gone from approximately 2000 to approximately 8000--even with this incredible bear market. Gold has sky-rocketed in an insane bubble, and it still has barely managed to keep pace with inflation over 20 years. Gold is a commodity, and worse, an unproductive one. You can speculate in gold, but in the long run it is not a serious investment vehicle.

tech_guy:

you bought knowing there was a "very strong likelihood" that the value of your apartment would plummet, but that you would be able to trade up? please explain to me how that is rational. why wouldn't you simply rent and then enter the market at a lower level?

let me clarify: rent, and then enter the market after the expected decline, eliminating the interim step of losing a shit load of money on your first purchase?

"you bought knowing there was a "very strong likelihood" that the value of your apartment would plummet, but that you would be able to trade up? please explain to me how that is rational. why wouldn't you simply rent and then enter the market at a lower level?"

A bunch of reasons. I can't predict interest rate movements - even the best financial analysts out there can't decide if there will be deflation or hyperinflation. If interest rates remain low for a long time, which also has a strong possibility of happening, I don't believe real estate values will change much.

Even in the high inflation model, locking in a low interest rate insulates me a ton. If 5 years from now real property prices are down 25% but there's 50% inflation, I make a profit despite the real declines.

Ultimately, I don't think I can time markets or predict future interest rates. I don't think you can either. If either of us could, we'd be so rich that we no longer care what happens in any market.

"You can speculate in gold, but in the long run it is not a serious investment vehicle."

Stocks are pretty bad since 1998. Real estate was pretty bad from 1988 to 1998.

Happyrenter, avoid my slippery slope into a debate with tech_guy.

oh, i don't think i can time the market--although no matter how rich i get i will never want to overpay for things. that's just stupidity. but i do think i can make reasonable decisions based on fundamentals. i have no doubt that if and when i buy an apartment again i will miss the bottom, no doubt in my mind. but that doesn't mean i should buy something i consider overpriced.

Thats the issue, tech_guy didn't think 18x rent was expensive.

Rhino,
Please find me one single 20 year period in the last 80 years when gold was a good investment. Stocks are sometimes good and sometimes bad. Real Estate, sometimes good, sometimes bad. Bonds, private equity, coal mines, brick factories, advertising agencies, bars, tobacco farms: sometimes they are good investments, sometimes bad. Find me ANY 20 year period in which gold has been a good investment in the past 80 years.

Happyrenter, I never said gold was an investment. Its a trading vehicle. I only state the obvious, namely (1) that it is intrinsically worthless does not matter when people have been willing to pay as much $1000 an ounce (and currently over $700), (2) that sometimes its a good short term investment / trade under certain circumstances.

I mean the simplest retort is that gold is on of the best performing things in the world this year... So when stocks are expensive, it could be argued that many times gold is the place to go with your money.

Rhino,

Then we agree: Gold is a horrible investment. You can make money trading anything in the short-term (or lose money). Those are zero-sum games. Given that you can make money trading anything, who would you choose to trade something that basically doesn't go up over time?

Maybe I would trade it from the short side... Given the volatility, whether its uptrending or not doesn't really play into it all that much. Also, gold looks like a pretty good investment relative to stocks from 2003 to current. I would call that an investment. It doesn't need to be 20 years for me to call it an investment. One, two, three or ten can by an investment in my view. If it more than doubles as stocks get creamed...then I can it a great investment. I mean Buffett aside, many respected money managers concede a portion of clients portfolios to gold. I think its a legit asset class.

"MMAfia, the only slithery thing is you ignoring my very valid comment on the history of the gold standard, while still blindly claiming history is on your side. What's the longest break we've ever had from the gold standard? Not including the multi-decade permanent break we're in right now."

to happyrenter's point- you are correct, this is a real estate blog, but to make tech_guy happy:

The longest break we've ever had was in China with its "Chao" paper currency under Kublai Khan during the Yuan Dynasty period. From about 1264 to 1368, they forbade the use of Gold and silver as currency. Excessive printing year after year soon flooded the market with depreciated paper currency until the face value of each certificate bore little or no relation to its counterpart in Gold and Silver. Hyperinflation took over and the paper money was thrown out. So that makes that stretch about 104 years?

So I ask you, am I still "blindly" claiming that history is on my side? Or does history show that humans never learn because we are humans after all and cannot resist the greed/temptation to print fiat money?

You argue historical cycles when the last cycle that matches this one was 1264? Please tell me you're joking :)

Back to real estate: That's right, as I justified with some detailed math on that other thread, 18x is not expensive. Its the same price as renting at today's mortgage rates. Actually, at last month's mortgage rates - rates have come down a full percent since, and justify a slightly higher multiple.

It not a matter of opinion that in down markets prices fall below the price that equates your after monthly payment to rental cost. Its a matter of historical fact. You can show the math, but that doesn't much it supportable by history. When NYC was a dystopic hell on earth and rates hit double digits the ratio was 6x rent. In 1998 when banks shit all over themselves to hire MBAs and the market was reaching new highs, mortgage rates were slightly higher and ratio was still only 10x.

if people are debating whether real estate prices are down, going down or never going down obviously the market is in flux and no one knows what's going to happen.

"When NYC was a dystopic hell on earth and rates hit double digits the ratio was 6x rent. In 1998 when banks shit all over themselves to hire MBAs and the market was reaching new highs, mortgage rates were slightly higher and ratio was still only 10x."

Since your reading comprehension skills are still quite low, I'll repeat what I said earlier (and you haven't responded to): real estate is a slow to move market. 6x to 10x doesn't account for both mortgage rates dropping by half and the city changing from hell on earth to a beautiful place to live. The resulting run up since is a very lagging response to the changing conditions.

Are you going to ignore this again, and continue to quote history for me? Besides, 1 example does not create a historical precedence.

"The resulting run up since is a very lagging response to the changing conditions." I don't know how to respond to this because it really doesn't mean anything. I guess I feel the onus is on you to find a downcycle where after tax cost of ownership proved to be support for purchase prices. I have disproved your thesis because I know that is fact. Look at 2002. It was much cheaper to buy than rent...THEREFORE, why would you hold up after tax cost as 'support'? I mean your apartment was worth less in 2006, correct? Rents were similar. How do you explain this fact? I mean according to you, people should have rushed in and driven the price immediately to the 2007 level in 2006 to match rent.

"You argue historical cycles when the last cycle that matches this one was 1264? Please tell me you're joking :)"

Nope- not joking. You see, humans don't change when it comes to greed. 1264, 2008 same greed/lust to print too much money, same end result.

This is exactly my point- that history clearly shows, from the earliest of civilizations to the current modern age, that people have been fooled into thinking that with computers and digital money, that we are now 'evolved', but in reality, it's the same behavior and only the mechanism to implement fiat, now in the digital realm and through financial engineering with derivatives is what's different.

At the end of the day, it's still the same princinple which is: Overspend, can't pay it back, so print to monetize debt. Happened in 1264, continues to happen to this day.

To play devil's advocate, I can see the argument that Manhattan's "P/E" ratio (12x over the last 15 years) will not be 12x over the next 15-30 years. One argument is simply that this is lower P/E than most cities have had over the past 15 years, and why should Manhattan be lower? Manhattan is very different than it was in the 1990s and I would argue in the 1990s it was undervalued, so it deserves a somewhat higher P/E ratio now.

People usually respond by saying "rents are higher too, reflective of the improvements, so it doesn't deserve a higher P/E." However, I think there is a fundamental paradigm shift - families are choosing to stay in Manhattan and therefore people are more likely to be long-term holders. The longer you hold, the more willing you are to pay for the inflation hedge, and the less significant transaction costs become, meaning they weigh less on purchase price. This of course could all change.

Nonetheless, I would certainly say that 18x is probably high - it is above the long-term historical average for most cities. Also, rents have spiked recentely. A 15% decline in rents coupled with a decrease from say 18x to 15x (which is closer to what most cities have averaged) has dramatic implications for the real estate market. Also, just like stocks, when earnings are declining, P/Es fall dramatically. One could argue the same thing for Manhattan real estate.

My view is as follows: markets generally overreact in the near-term. I see it as very likely that we do get to 12x or lower in the next 5 years. However, I do think Manhattan - provided crime does not go back to 1990s levels - will, over the next 20 years, have a P/E of higher than 12x. I don't have a crystal ball so won't say what it "should" be, just that there are compelling reasons to think the true average over the next 15-20 years will be higher than the 1990s (which I would argue was an anomoly too). I also think long-term interest rates are going to be higher (savings are in short supply, meaning the demand for them will be greater) so I personally don't think mortgage rates are going to stay at today's levels over the next 5 years.

The last thing I'd say is that I think the P/E for 1 bedrooms and studios should be lower, simply because buyers for these places are less likely to be long-term holders, making transaction costs more significant, meaning buyers need more favorable buy/rent math to make the numbers work.

Kspeak, I like your suggestion that shorter hold times for one beds and studios should drive the multiple lower vis a vis a typically lower value of the rent inflation hedge. I agree. I also agree that 1-[(12x 85%)/18x] = 43%. But if mortgage rates go up that 12x goes down. Chances are firms like Morgan Stanley and Goldman will need to offer higher rates on savings accounts to accumulate deposits...and the banks may have to demand higher interest on mortgages. Mortgages have clearly been exposed as riskier assets than expected!

PS: Speak of the devil

http://www.breakingviews.com/2008/12/03/Deposits.aspx?email

Yes - higher mortgage rates will mean lower P/E. But rates during the late 1980s-mid 1990s were fairly high as well. Not sure they go higher than that. It's possible. I definitely think rates won't stay at the lows of the last 5 years over the next 5 years.

This is the upside of this board. When I bounce it around with people who get the joke, it all seems to point to a 40%+ decline at current interest rates (with rate bias up) and current rents (with rent bias down). I am not saying higher than that, I am saying higher rates than here. And what you could get with 8% interest rates and 15% lower rents is (9x 85%) / 18x = -58%. Also rents went up 15% from 2005 to 2006 so 15% may not be the most of it.

Rhino - I can't disagree. We can't say what the P/E should be for all of eternity but there is good reason to think interest rates will go up and rents will go down. All smells trouble. Glad I don't own. Glad I'm in cash. Now, to find a way to invest in foreign currencies ....

You may want to look at this site -> http://www.merkfund.com/

If you honestly believe you can predict long term interest rates, you can have an extremely lucrative job on Wall Street. I'll give you a hint though: if your prediction involves savings rates for MS and Goldman instead of 10 year treasuries, you don't know jack shit about interest rates.

Hypothetically, should mortgage rates double, it would indicate high inflation and therefore, rents appreciating with that high level of inflation. Property prices will jump down for a lower ratio, but as rents push up quickly, that pushes property prices back up again also. Should that happen, could I have found a better deal waiting a year or two? Yes, but my crystal ball is broken. Doing so would require 2 predictions to be right: that interest rates will go up, and to know roughly when they'll stop going up. I can't get one of those right, nevermind both.

Rents down 15%? The worst is over, and the most bearish reports I've seen show rents down 2-5%. Can rents go down further, as a lagging indicator of the recent turmoil - sure, anything is possible, but I don't see it happening yet.

the worst is over tech_guy? the worst of WHAT?

Assuming the fed's plan works, I think interest rates, mortgage rates, rents, real estate prices will go up rapidly once the fed stops conjuring money out of thin air.

Bottom line: Save (crazy I know) and buy when you're ready and want to live somewhere for the foreseeable future. A lot people here tend to over analyze and get trapped in paralysis of analysis.

Happyrenter, I think tech_guy is the kind of guy who takes it all at face value...no predicting for him. He hasn't sold an apartment since summer, so to him, the price has not changed. He hasn't rented lately, so rents are static. Here's a rent datapoint. This summer, I was going to move out of my building. I said to them listen, I will not pay $7000+ for a 2 bed, I just won't do it. What happened? They said wait wait there is one we can give you for $5500. I don't know that anyone ever paid the $7000, but I am pretty sure they struck deals over the summer for more than $5500. Did the rent price change? Yes, I would argue that it did...but it won't show up in data per se, so some will debate whether the rents fell at all.

happyrenter: the worst of the financial crisis / recession.

Rhino: Good job making up facts to support your conclusion. I have streeteasy searches saved for both equivalent purchases and equivalent rentals. I get emails anytime something changes. As for your data point, we've already established that you're not trustworthy at all. But keep inventing data if you want - when you have sources, I'll listen.

Keep not listening and maybe you can wish reality into something different little boy. I made up the 1990s they're actually a myth.

You know very well that my "made up" comment had nothing to do with the 1990's. But in typical Rhino fashion, you made up yet another fact in order to counter the claim that you make up facts. How hilarious.

"happyrenter: the worst of the financial crisis / recession." is over?

tech_guy, i hope you're kidding right? you really think that the worst is over?

my, now I understand why we have such differing views.

I have a fashion now? Here is the point that you refuse to get. Never in history has rental price = after tax cost of carry served as support to value in a down cycle. You show ME the downcycle where is has. Even beyond this, you refuse to believe we are in a down cycle. If you are going to say that buyers will buy apartments when cost of carry = rent, then shouldn't it be YOU who has to provide the example? I already gave an example where it did not. My example is the time period from 1989 through 2004, when prices actually first crossed up through rental cost on an after tax basis. What is your counter-example?

MMAfia, imagine Tech_guy as captain of the Titanic: "We've hit an iceberg. Some of you may have felt a sudden jolt. Have no fear. The worst is over."

Rhino: I have no desire to prove anything to you.

MMAfia: Not kidding at all. We'll see in 6 months if time has proven me right or not. That said, as I repeatedly state, I don't think any of us are capable of predicting the future of the stock market to any degree of accuracy.

Least of all you - you predict what you'd like to happen politically, not what's rational. I'd like for gay marriage to be legal in Georgia. Yet it would be incredibly stupid for me to predict that. You'd like gold to be the money standard, as well as many other things Ron Paul wants. Hate to break it to you, but that's even dumber than predicting gay marriage in Georgia.

Even if the worst is over - which I don't believe, but you seem to - salaries in Manhattan are still likely to be much lower over the next 5 years than they were over the last 5 years. So I don't see Manhattan real estate doing well either, and real estate lags the broader economy.

As for the "not having a crystal ball" or "being able to time the market" or "predict interest rates" - I think this is not entirely true. I think it is very difficult to time the market exactly. I think it is hard to say "interest rates will be ___ on this date," but assuming interest rates will rise long-term is not hard to imagine (a view held by most, if not all, of the economists who predicted the severity of this crisis). Simply put, savings are in short supply. The Fed is trying to keep mortgage rates low via Fannie/Freddie with some success. Once housing prices stabilize in the rest of the country - which have been falling for a long time now, and I think housing prices in most of the country except NY will bottom by the end of 2010, because by then they will be back to historical norms - the Fed will no longer do this.

There is a difference between trying to time the market and understanding fundamentals. It didn't take a genius to look at 2007 real estate prices in Manhattan and realize they had to come down, especially when the credit bubble started to pop in summer 2007. Prices had been going up for 10-15 years straight, and the economy was jittery. Not rocket science. Difficult to say exactly what the peak would be, but not difficult to say "in a few years, they'll probably be lower." Ditto with stocks.
The bottom will be the same - difficult to get the exact time frame, but probably less so to get within 15% of the bottom.

"It didn't take a genius to look at 2007 real estate prices in Manhattan and realize they had to come down"

You could have said that any year as far back as 2004, maybe even 2003. Hindsight is 20/20. I'm still not convinced that you can predict this with any degree of accuracy. Not even 15%.

"Ditto with stocks."

Do you put your money to work for you, predicting stock market tops and bottoms within 15% accuracy? No offense, but this is downright ridiculous. If anyone could predict the stock market that well, they'd be the most famous mutual fund manager in the world.

OK Bulls, I just have to share this one, it is too stunning. This apartment, a potential 11 room combination in one of the best buildings on Riverside Drive, in the 70s, was just reduced from $5 million to $3.6 million, from an original price of $6 million:

http://www.streeteasy.com/nyc/sale/188862-coop-50-riverside-drive-upper-west-side-new-york

The price has not shown up on streeteasy yet but it is up on the broker's sight. This means that the apartment is selling for somewhat less than comps in the same lines in the building from 2004--even without any premium for the combination potential. Add in that premium, and we are looking at 2002 or at best 2003 prices. Today. This is not a prediction of the future, this is where things stand right now, as we speak.

And there is no guarantee it will even sell at this price.

Techguy, it saved me 40% of my net worth by getting the f* out of the market last summer, but yes. I didn't invest during the tech bubble - smelled fishy to me. Put my money in bonds when I finished college and people thought I was crazy. I got back in to stocks in March 2003, pulled out in summer 2007.

The key is it is not about *timing* it's about fundamentals. If you buy on fundamentals you aren't trying to time the market, you are doing the opposite. You are saying "this is roughly what this is probably worth and I think at some point the market will come up/down to that, although I don't know when." In 2003-2004 the rent/buy math was much more in one's favor is the difference. Not saying that 2003-2004 prices are "correct" but clearly the valuations were more favorable than 2007; this is a fact as the price of condos/coops went up way faster than rents.

So, I'd say its worked for me so far. Better than for you, actually.

You're now claiming you're better able to play the stock market than the 90% of hedge funds that lost miserably. Its possible - I'm sure Warren Buffett is that good - I personally am not, and am skeptical that you are either.

wow, ok tech_guy, so you really do think the worst is over??

at least that's not as bad as petrfitz who vehemently tried to argue with me that now is the best time EVER in Manhattan's entire history of existence to buy real estate earlier this year.

in any event, i'm not sure what all this talk about politics and ron paul you keep alluding to is all about, because i'm not even american, nor do i even care about american politics whatsoever. i do care about economics and fiscal policy however, and since the world uses USDs as the reserve currency, i have a very vested interest on how and what the US does with it, which is essentially to debase it like we have so many times in the past to pay off huge debts that we can't ever repay otherwise (think: Chinese, Romans, Germans, and yes, even Americans, multiple times to boot).

so, again, as factual history shows, we are essentially doing the same thing over and over again.

step 1: create fiat money
step 2: borrow, borrow, borrow and spend spend spend!!!
step 3: get into monstrous debt
step 4: print more fiat money to pay off the debt
step 5: repeat steps 2-4 over and over again
step 6: say hello to massive inflation (zimbabwe is the currently in this phase)
step 7: confidence in fiat money finally collapses
step 8: revert back to money that can't be created out of thin air to regain confidence
step 9: get greedy again and go back to step 1

Nothing's changed and it's not different this time around.

>>> You're now claiming you're better able to play the stock market than the 90% of hedge funds that lost miserably. Its possible - I'm sure Warren Buffett is that good - I personally am not, and am skeptical that you are either.

I am not claiming to smarter than everybody, just that bubbles are pretty clear and there is a herd mentality. It is difficult to know when a bubble will pop, but not that it is happening. I am sorry this is hard for you.

As for "90% of hedge funds" ... I don't know percentages and there are some smart people at these places. I don't work at a hedge fund, but certainly went to college and business school (both Top 5) with plenty who did, so I don't think that everybody or even MOST people who work at these places are smarter than me. I just know too many of these types and many of them are smart analytically (they can crunch numbers) but often lack vision or common sense or the ability to think differently than the herd. Ever heard the expression "whatever the hot career is amongst Harvard MBAs, do something different." Most people are sheep ...

LOL, love how everyone just breezed past the actual data I tried to introduce into the conversation.

kspeak:

"I just know too many of these types and many of them are smart analytically (they can crunch numbers) but often lack vision or common sense or the ability to think differently than the herd."

LOVE it- that's exactly "Dr. John" and "Fat Tony" in Taleb's Black Swan:

(btw- Taleb is hired by Funds that made a killing in the market collapse)

----------------
“Fat Tony…[is] more politely, ‘Brooklyn Tony’, because of his accent and his Brooklyn way of thinking, though Tony is one of the prosperous Brooklyn people who moved to New Jersey twenty years ago…He started as a clerk in the back office of a New York bank…and figured out the game of how you can get financing from monster banks, how their bureaucracies operate, and what they like to see on paper…Tony has a remarkable habit of trying to make a buck effortlessly…Tony’s motto is “Finding who the sucker is.”…Finding these suckers is second nature to him. If you took walks around the block with Tony you would feel considerably more informed about the texture of the world just “tawking” to him. Tony is remarkably gifted at getting unlisted phone numbers, first-class seats on airlines for no additional money, or your car in a garage that is officially full, either though connections or his forceful charm.”

“Dr. John is a master of the schedule; he is as predictable as a clock…Dr. John is a painstaking, reasoned and gentle fellow. He takes his work seriously, so seriously that, unlike Tony, you can see a line in the sand between his working time and his leisure activities. He has a PhD in electrical engineering…Since he knows computers and statistics, he was hired by an insurance company to do computer simulations…Much of what he does consists of running computer programs for ‘risk management’.”

Taleb then brings these two completely different people together in a make-believe encounter to ask them a question in order to compare their answers. He tells them that he has a coin and that it is “fair”, meaning that it has an equal probability of coming up heads or tails when flipped. He then tells them he has flipped it ninety-nine times and the coin has landed heads each time. Taleb then asks them to calculate the odds of the coin landing tails on the next throw.

“Dr. John: Trivial question. One half, of course, since you are assuming 50 percent odds for each and independence between draws.

NNT [Taleb]: What do you say Fat Tony?

Fat Tony: I'd say no more than one percent, of course.

NNT: Why so? I gave you the initial assumption of a fair coin, meaning that it was 50 percent either way.

Fat Tony: You are either full of crap or a pure sucker to buy that “50 pehcent” business. The coin gotta be loaded. It can't be a fair game. (Translation: It is far more likely that your assumptions about the fairness are wrong than the coin delivering ninety-nine heads in ninety-nine throws.)

NNT: But Dr. John said 50 percent.

Fat Tony (whispering in my ear): I know these guys with the nerd examples from my bank days. They think way too slow. And they are too commoditized. You can take them for a ride.

As Bill Murphy noted, free markets just don’t trade the “same way over and over and over.” If the gold market were a ‘coin’ flipped ninety-nine times in recent years, each time it came up heads. As Fat Tony understands, da coin gotta be loaded.

Taleb goes on to write: “Now, of the two of them, which would you favor for the position of mayor of New York City? Dr. John thinks entirely within the box, the box that was given to him; Fat Tony almost entirely outside the box…Have you ever wondered why so many of these straight-A students end up going nowhere in life while someone who lagged behind is now getting the shekels, buying the diamonds, and getting his phone calls returned?...Some of this may have something to do with luck in outcomes, but there is this sterile and obscurantist quality that is often associated with classroom knowledge that may get in the way of understanding what’s going on in real life.”

I don't have a sense of your datapoint. Is that basically two classic sixes? I am not sure $6mm ever made any sense for two classic sixes available for combination. My sense is that they sold individually for anywhere from $1.9mm to $2.4mm at peak.

On bubbles. It is difficult to call the top and make money shorting it...But if you simply don't own stocks for instance at market multiples over 20x, you might miss the peaks of bubbles but you will not get run over. Same goes for real estate. The analysis is easy, the selling of expensive things and the buying of cheap things is the difficult part. There will always be people rationalizing the opposite move. Ironically, yes people called real estate a bubble since 2004...that's why it is probably going to crash through that level. Stocks were called a bubble from 1996 through 1999. What happened? They crashed through that level.

rhino,

comp the combination--which is a very easy combination, in a top building--to similar apartments in the area. As for the building itself, there are comps available. In 2004 apartments in that line were selling for around $2 million, which puts this at around 2003 pricing, perhaps 2002.

I think 6 million was a doable, possibly slightly aggressive, price point at the peak of the market. But even if it was never realistic, there is a lot of distance between between 6 and 3.6. And it still hasn't sold.

Is there a big scarcity premium per square foot? I am only familiar with the step up per square foot to 3 beds...is there another one when you go this huge? I guess anyway you slice it 1/2 this place at $1.8mm is down from $2.4-2.mm say?

"I don't think that everybody or even MOST people who work at these places are smarter than me. I just know too many of these types and many of them are smart analytically (they can crunch numbers) but often lack vision or common sense or the ability to think differently than the herd."

Now you're splitting hairs over dictionary definitions. Call it whatever you want - you're saying you can earn better returns than a large majority of the hedge funds - and not from individual stock picking, but by proper market timing. I think that's ludicrous. You're saying there is many many billions of dollars being lost, and if only those investors were smart enough to listen to you instead of their hedge funds or investment advisors, they'd save those many billions. Right.

Tech_guy the other people in this thread have something to teach you insist on being teflon when it comes to logic.

From what I've been reading... looks like:

tech_guy = Dr. John

kspeak = Fat Tony

Right, tech_guy thinks buying an apartment is just what you do.... and buying stock for the long term is the right strategy all the time. He doesn't consider that Barbara Corcoran and Charles Schwab might have an ulterior motive. Happyrenter, the reason why I can say your story is plausible is this. If you buy and sell stock for a living, it can be much more difficult to stand down and call the rally bullshit. Investors want to see positions, and investors are also inherently hopeful/bullish. As someone who trades oil stocks and thought the price of oil above $80 was pretty off the wall, when your peers are long and making money, your boss can begin to imagine they know something you don't. Also the psychology is when everyone has made money long stocks, when you don't get your shorts perfectly, management can go berserk and accuse you of shorting the bottom (because they themselves hope it is the bottom). It can be as if losing money short is worse than losing money long. Hedge funds also evolved to a long bias during the bull market. People shooting for 10-12% returns on a market neutral basis don't accumulate as much capital during bull markets as those who turn bullish and insist "it's different this time, China and India have an insatiable appetite for oil". Just an example. Individual are not immersed in the group think.

Dr John = a strawman argument. Amusing to those who want to celebrate their own fat-ness, but hardly telling. Any mathematician worth his salt knows 99 heads is absurdly unlikely. We know it better than all you fat people.

Charles Schwab does have an ulterior motive. One that supports my point, not yours. Even Fat Tony knows this. Charles Schwab wants their customers to be actively trading - they only make money on commissions. By telling their customers to buy and hold, they're hurting themselves.

How does it feel to be dumber than both Dr. John and Fat Tony?

Everyone on this page things you are the dope. Go up the whole page. Check it out. Consider it. Then realize your down payment has negative value.

Whatever suits you, Dr. John.

Keep chugging along inside your box of computer programming and systems constructs. All is well. Nothing to see here. Keep it moving.

But after spunky and petrfitz, I am somewhat surprised I still have the interest and energy of calling the wrongs-way-ones out.

You are just another in that line of disbelievers of a coming severe price correction in Manhattan real estate.

I will admit that I was very thankful that spunky ended up understanding Gold in the end after battling it out with me years ago.

Juice, if you're still around, I'm still keeping my promise of keeping it 'real' and not degenerating threads into the hogwash it turned into before. =D

I'm just crushed to tears that a spineless flunkee and a clueless Ron Paul supporter don't like me.

Tech_guy why are you here? Your addition to this site is 'I paid 18x rent this summer for my one bed, prove me wrong with data.'

I'm here to learn about the market, and share the knowledge I have.

Why are you here? Your contribution was to start a thread demanding answers from bulls, whine that the bulls weren't answering you a few hours later during a holiday weekend, then later whine louder that the bulls were answering you and won't leave you bears alone.

What knowledge do you have other than the multiple you paid for your apartment?

I may have given nothing, although at least a couple of people on that other thread engaged me in real discussion. More importantly, what I have gotten is no reasonable argument for why your one bed isn't going to be cut in half by 2010 along with everything else in this city. This allows me to feel more confident about my prediction and course of action.

Tech_guy, what have you learned?

You learn from spinelessly demanding that bulls stop talking and bothering you? Interesting. The knowledge I give is the mathematical analysis - so sorry that its above your head. I suppose that means I offer you nothing.

The issue is, there isn't a person here who would say that you have offered anything.

"I'm just crushed to tears that a spineless flunkee and a clueless Ron Paul supporter don't like me."

Oh, well, this is where I draw the line. I've been down this path before.

In any event, nice educating you tech_guy! Remember my words in the coming years for it is never too late. If spunky can come to terms, so too can you.

As usual, you're wrong :)

MMAfia: I'm not sure how I can make this more clear. What you're trying to teach me is extremely fringe conservative politics. I'm not interested in learning. I doubt most of the other gold traders here want or expect a gold standard.

>>>> Now you're splitting hairs over dictionary definitions. Call it whatever you want - you're saying you can earn better returns than a large majority of the hedge funds - and not from individual stock picking, but by proper market timing.ght.

No, NOT timing, looking at fundamentals and saying "I am not going to buy now, it is too expensive"

>>>> I think that's ludicrous. You're saying there is many many billions of dollars being lost, and if only those investors were smart enough to listen to you instead of their hedge funds or investment advisors, they'd save those many billions.

Over and over again, the Wall Street Journal has shown that professional money managers don't do any better than throwing darts at a wall. I grant this is less focused on hedge funds, but let me tell you a secret about hedge funds. The reason so many had outsized return over the last 5 years is they borrowed money at 4% and invested at 7% in a market that was going mostly upwards. Not that difficult. There are some exceptional hedge fund managers out there, but not many. This is why so many are failing.

>>> On bubbles. It is difficult to call the top and make money shorting it...But if you simply don't own stocks for instance at market multiples over 20x, you might miss the peaks of bubbles but you will not get run over. Same goes for real estate. The analysis is easy, the selling of expensive things and the buying of cheap things is the difficult part. There will always be people rationalizing the opposite move. Ironically, yes people called real estate a bubble since 2004...that's why it is probably going to crash through that level. Stocks were called a bubble from 1996 through 1999. What happened? They crashed through that level.

Well said. This is my general philosophy. Not "buy at the peak, sell at the trough" - this is difficult - but buy when things look cheap and sell when things look somewhat high. It is ABSOLUTELY true you miss some of the super high gains. But that is okay. I still think you can do a bit better - not a lot, but a bit - than the overall market without those crazy swings. I'd take 9% gain each year on average over up 20% for two years, then down 35% the next.

"Over and over again, the Wall Street Journal has shown that professional money managers don't do any better than throwing darts at a wall."

Agreed. The same is true for individual active investors. All these people losing so much money, but if only they listened to you - you're quite different - those darts would be so much closer to the bulls eye. Really? You honestly believe that?

If it were true, the opportunity cost of you *not* starting your own fund and making a killing investing other people's money in such a smart way is tremendous. If that were true, its like you're sitting on a winning lottery ticket, and just don't feel like cashing in. That opportunity cost is more damaging than if I bought my entire building and had it tank to nothing.

I've had some amazingly great calls over the past few years, most that I haven't described because they're not relevant and I like to keep my personal life personal. How else do you think I started over 50k in student loan debt <5 years ago, and now can easily afford a 1 bedroom? I'm just not deluded enough to think my bullseye darts were anything but lucky.

Stock markets are extremely difficult to time.

RE markets, however, are usually fairly easy. You might not be able to catch the exact top, but its pretty easy to see overbought markets...

Again, when you are not a professional, you can stand aside more easily. When you are, its tougher. You need to keep up with peers in rising markets. Also there is survivorship bias. Bulls get bigger than bears in rising markets. Hedge funds have done so poorly this year because it was the bullish ones who proliferated between 2004 and 2007.

Kspeak nailed it "No, NOT timing, looking at fundamentals and saying "I am not going to buy now, it is too expensive"...You can extend that to "I am not going to hold [stocks, real estate, anything] now, because it is too expensive." Shorting is very different, and much more difficult, than selling and walking away. Not to take anything away from Kspeak and happyrenter for seeming to manage their finances pretty sensibly.

>>> I've had some amazingly great calls over the past few years, most that I haven't described because they're not relevant and I like to keep my personal life personal. How else do you think I started over 50k in student loan debt m just not deluded enough to think my bullseye darts were anything but lucky.

Tech guy, this is not about timing the market. It's about knowing when things are overvalued or undervalued. You never know when the stock market is going to peak or bottom exactly. I sold before the exact market peak in 2007 and before the bottom in 2003. But I really don't think it took a genius when the credit crisis started to appear in earnest in summer 2007, and it became clear this was not just a "subprime" problem, that the market going up more was stupid. You may miss the peak - things can go up a long, long, long time before reality catches up as shown with both the real estate bubble and the tech bubble in the 1990s. I've admittedly missed the peaks. It's the tradeoff you take not to take a bloodbath at some times. I said I think you can probably do a "bit better" than the market and just miss the crazy swings. I like to sleep at night ...

Mathematically if you buy the stock market under 14x earnings and sell it over 20x you just do better. You might miss the tech bubble though. Market technicians would tell you simply to sell once it falls more than 15-20%...idea being, capture all the fluff you can reasonably even if it upsets your sensibilities for a time. I graduated college in 1995 and this is probably the first time the stock market has been cheap since the early 1990s. 2002 was a good buying opportunity, but it really didn't meet the historically cheap threshold...and arguably only rose from there as much as it did because of an unpredictable credit orgy.

No, I get it. All the other active investors out there, both professional and private, are generally wrong - a fact we both accept (in fact, you brought it up first). 99 heads in a row. But its a fair coin, so you've got the 50/50 shot at hitting tails after 99 other heads.

>>> Again, when you are not a professional, you can stand aside more easily. When you are, its tougher. You need to keep up with peers in rising markets. Also there is survivorship bias. Bulls get bigger than bears in rising markets. Hedge funds have done so poorly this year because it was the bullish ones who proliferated between 2004 and 2007

Exactly. Professional investors can't just say "we're sitting in cash for 2 years because stocks are overvalued" ... it doesn't work that way. Shorting is very difficult to implement and much risker, simply because your losses are unlimited and it's much more about timing the market. I don't short ever.

>>> If it were true, the opportunity cost of you *not* starting your own fund and making a killing investing other people's money in such a smart way is tremendous

First of all, you have no idea what I do and without knowing you can't assess what my opportunity cost is. Second, this is a difficult strategy to implement as a professional investor (see above). Thirdly, I wouldn't enjoy working for a hedge fund and it's important to like what you do.

>>> I like to keep my personal life personal. How else do you think I started over 50k in student loan debt m just not deluded enough to think my bullseye darts were anything but lucky.

ROLF!

Your have revealed a lot more than me. Your SCREEN NAME says what you do roughly, you talk about your dating life, the fact that you own a 1 bedroom, and how much student loan debt you started with. What have I revealed about myself? None of these things.

I used to think people on these boards were harsh on you as name-calling is not my style. But, I am starting to say the point

"Mathematically if you buy the stock market under 14x earnings and sell it over 20x you just do better."

You clearly don't understand mathematics. Or else I could just counter that mathematically, if you buy the stock market under 13x earnings and sell it over 21x you just do better. 12x and 22x. 2x and one BILLION x. Clearly there's a bit more to it than that.

If you buy at the average multiple, you can make average stock market returns. If you buy above that you are mathematically more likely to make below average returns. Below, conversely you have a mathematical probability of above average returns. Rather than average in all the time, average in during periods of below average valuations. Like now. Unlike 1998-2000. Unlike 2005-2007. New money into a market at above-average valuations is a mathematically losing proposition over the long term.

Tech_guy if you understood what I was saying about valuation trends and opportunities, you wouldn't have paid 18x rent for a one bed. Just assume I am not directing my comments to you any longer.

If anyone likes this stuff, Understanding Stock Market Cycles by Ed Easterling is an excellent book. It is written about the stock market, but the conclusions could be applied to real estate using whatever ratio you thing is equivalent to a P/E.

[Exactly. Professional investors can't just say "we're sitting in cash for 2 years because stocks are overvalued"]

Warren Buffett does. I hear he's doing pretty well for himself. His investors like him too!

"Your have revealed a lot more than me. Your SCREEN NAME says what you do roughly, you talk about your dating life, the fact that you own a 1 bedroom, and how much student loan debt you started with"

Apparently the fact that I date is personal? You really need to stretch that far to argue with me, or is dating so unusual in your circle of friends? I gave a whole bunch of generalities, some deliberately changed just for fun, and have done a good job remaining anonymous. Less so than you, sure, but more so than, say, stevejhx or nyc10022.

"I used to think people on these boards were harsh on you as name-calling is not my style."

Its typical when people are losing a debate to resort to such tactics. Have fun deluding yourself that those first 2 bullseye darts were anything more than luck. 99 heads, but you're convinced you've got a good chance at a tails.

Warren Buffet is a proven investor so he has the option to remain in cash. You can't join a hedge fund and say "my strategy is to sit in cash." It doesn't work that way. Very few people have pulled this off. And you still haven't explained why you were able to calculate my "opportunity cost" without having the slightest idea what I do.

The "looking to marry" was the personal bit and kind of pathetic. I think guys think this is something only women can't say, but as a woman, I think it reeks of desperation when a guy says it. It sounds like they just want a wife, not you specifically. A bit of dating advice: generally better to not be "looking to marry in the next few years," it is better to be "looking to marry when I meet the right person." But really, the point was that you said I revealed personal information on these boards and you didn't, when the opposite was in fact true.

Have fun deluding yourself that buying a 1 bedroom in Manhattan was a good investment, following a 15 year run up in prices and an explosion in Wall Street compensation followed by a dramatic collapse, heading into the worst recession in 50 years and made worse by the fact that 1 bedrooms always get hit worse than larger places in a downturn. You and your mail-order wife will have fun being stuck there for the next 10 years before you can get your money back!

Ditto. That's 10 years to a break even easy. Tech_guy, you are like the 10 year old kid being kicked around by the 14 year olds. You keep wiping the shit off your face and coming back for more. Your math illiteracy is symptomatic of one of our national ills. Maybe you can convert the one bed into a two with a wall in the living room like a recent college grad. Or maybe just move to Georgia and throw yourself at a southern gentleman.

PS: You might want to walk away from your mortgage. Its probably the strategic optimum for you.

You read all that about my dating life simply because I plan my real estate and financial decisions around the likelihood of marriage? Wow, that's pretty sad. How does being so judgmental affect your sex life?

Back on target, you're still claiming that all the current hedge funds are simply wrong, but you're right. 99 heads, 1 tail. In a game that is so dirt simple to measure who wins, you'd think someone, anyone, would have come in fresh, done things right, and blown the competition out of the water. Billions, maybe trillions at stake, and nobody bothered to try your superior strategy out.

At this point we're not talking 99 heads and you still believing you can get tails. Its more like thousands of heads, and you're thinking you'll get tails.

Happyrenter and Kspeak lets stay in touch. I am limit out of this string.

>> Have fun deluding yourself that buying a 1 bedroom in Manhattan was a good investment, following a 15 year run up in prices and an explosion in Wall Street compensation followed by a dramatic collapse, heading into the worst recession in 50 years and made worse by the fact that 1 bedrooms always get hit worse than larger places in a downturn. You and your mail-order wife will have fun being stuck there for the next 10 years before you can get your money back!

Harsh, but true. It is what it is. Good luck and I hope for your sake that we're all wrong and you are right tech_guy.

Techguy, it is amazing how irrational people are. Over and over again, it has been shown that professsional money managers don't on average beat the market. And people PAY management fees for this, which dilutes their returns.

I would never discuss my sex life on a public forum, but I am hapilly married.

"[Exactly. Professional investors can't just say "we're sitting in cash for 2 years because stocks are overvalued"]

Warren Buffett does. I hear he's doing pretty well for himself. His investors like him too!"

You shouldn't just read the book cover, you should read the book.

Buffett has made it ABSOLUTELY clear that he thinks the best way for individual investors to be in the stock market is through index funds, and NOT timing it.

"Buffett has made it ABSOLUTELY clear that he thinks the best way for individual investors to be in the stock market is through index funds, and NOT timing it."

Which is exactly what I do, and what I'm arguing here. Where have you been?

There is a HUGE difference between trying to time and realizing when something is bubble. During Summer 2007, it became very clear there were some severe problems in the housing and credit markets. It also was clear the American consumer was overtapped, and once credit was reigned in, the party was going to end, and end badly. Yet the stock market continued upward until October 2007. I didn't know when it was going to end, but I suspected equities were generally overvalues. So I got out. But I didn't short the market, because that would be too speculative and too dependent on timing.

I am sorry, but I do not believe the BS people spew "always be in stocks if you are young" - it's just not true. Do I think I'll always be able to see every single bubble ever? No. But when stock prices are so CLEARLY out of whack with fundementals, selling isn't stupid, it's smart. You may miss out on another year or two of the bubble, but you know that when the market corrects, it'll correct way lower than where you sold. I don't think this makes me a great investor. It's just common sense.

When Warren Buffet is saying the "individual investor" should not do this, he of course, is saying he is smarter than the average individual investor. No doubt he is. I consider myself smarter than the average individual investor but not as smart as Warren Buffet. That's why I manage my own money (and do well at it) but don't professional invest. Makes sense to me.

50/50 stocks/bonds (or whatever ratio you feel is a suitable risk / reward tradeoff), followed by either periodic rebalancing or rebalancing whenever the ratio gets too far out of sync, also allows for you to benefit quite a bit from the top (selling stocks to buy bonds) and the bottom (selling bonds to buy stocks). I rebalanced within 5% of the trailing bottom a few weeks ago.

The benefit is I never risk missing a bull market because I wrongly thought fears were justified, or miss a bear market because there were no warning signs. Like I said, you got 2 bulls eyes in a row, but you're still throwing darts. I'm glad you were lucky (I was too) but calling it a strategy is pretty delusional. It won't last forever.

This isn't an average investor vs. smart investor debate. Its not a race where the top 50% get a profit and bottom 50% pay for it. I bet 1% or less of the money changing hands is controlled by smart people taking it from the other 99% of active investors. And, those people being so good, control much more than average, so we're talking far, far less than 1% of the investors out there. You think you're that smart?

99 heads, and you're the tail... it still boggles my mind that you don't see how fitting that analogy is.

By definition, at any given time, half the people outperform the market and half the people underperform the market. I am saying I can do *slightly* better than the market - admittedly missing some of the crazy peaks but also avoiding the losses - so yes, you just have to beat 50% of the market to do this.

I am sorry - people show how stupid they are over and over again. That why people bought houses with zero percent down in the middle of nowhere that cost double what they did 2 years before that. A survery of ECONOMISTS - people who look at the economy for a living !!!! - are saying this recession will end in mid 2009 (according a recent nytimes survey). You don't have to be a genius to do slightly better than average. The "professionals" aren't always that smart. This has been shown over and over and over again ...

tech_guy,

i essentially agree with you that active investing is a very bad idea for most people. but what you don't seem to realize is that your supposedly passive strategy is in fact very active. Rebalancing, only investing in stocks and bonds, investing domestically or internationally, in large cap or small cap, in developing or developed markets, mainting and 50/50 ratio: you have to make tons of decisions.

if you believed that you could make more money by switching to a 60/40 stock-to-bond split, would you not do it because you are so convinced that you are incapable of making a smart decision? If you visited India, say, and became convinced that it was on the verge of a spectacular boom, would you refuse to invest in India because, statistically speaking, most investment decisions are bad decisions?

Your strategy really amounts to willful ignorance: if I just don't pay attention to things and stick with my strategy, then I won't be accountable if things go badly. But you will be accountable; you are responsible for your decisions.

That said, I think rhino and kspeak are off-base as well. They imply that it is easy to make outsize returns in the market: "the analysis is easy" kspeak says. Actually, no. The analysis is not easy. Simply refusing to own a stock at a 20x multiple, say, is just silly--that is, it's fine, but if you think it is going to protect you from losing your shirt you are wrong. Some stocks are cheap at 20x earnings, while others are expensive at 5x earnings. And some stocks that were cheap at 20x earnings five years ago may be overpriced at 15x earnings now. Circumstances change. Security analysis is extremely complex--part of the reason it is possible for some people to make so much money in the public markets is that other people think it is easy to do. It's anything but easy.

I said owning the stock market above 20x is a losing proposition given a 5 or 10 year time investment horizon. In other words, the expected returns by holding the S&P over 20x are almost as bad as the expected returns of a one bed purchased at 18x annual rent. So you are addressing something I didn't say. Not sure what kspeak said.