Anyone hit the open houses this weekend?

nice to hear of the increased traffic tina....I'm sure you'll be getting some sarcastic responses shortly.

no sarcasm here, just realism :)
I went to Astoria on Sun.
still over-inflated prices, will come down though, just a matter of time.

Saw several 2 bedrooms in Village. Very light traffic and all brokers encouraged low-ball offers.

Just curious - are all the brokers putting the hard sell on buyers to "just put in any offer" also working their sellers to "just peel off 10%"??

I went to 2 open houses at 100 W. 15th Street, #2D, a 500sq ft studio with a pretty nice sized loft had a lot of traffic, it was almost tough to walk around in there. I think everyone had the same impression...great open space, but it was in such dirty condition, the place smelled terribly of smoke, and renovations to the kitchen, bathroom and loft-area flooring were a must. Priced at $475K, that seemed about right if no renovations were needed. I also went to a FSBO on the 3rd floor, which seemed to be getting spillover traffic from 2D, noticably smaller space, nicely renovated, but too small for me.

I also went to 32 Jane Street, I think it was #1A, doesnt seem to be listed on Streeteasy, a 1-br going for $525K, listed by the owner, who happens to be a broker. I remember looking at another apt in this building a year or so ago, very small spaces, maybe 400 sq ft max, very little storage space, and extremely high maintenance at close to $1,100. Think he needs to come down a solid $100K at that maintenance price. Also the fact that you can't clean any dish in the sink bigger than a 10" pan will be a turn off for anyone who enjoys cooking. There was no other traffic here, and only 2 sign-in names before I got there.

yep, they're all saying just name your price, "we will negotiate"

but we ain't stupid, are we boys and girls...

Oh and regarding "age," most seemed to be couples in their 30's. Also, no one encouraged me to put in any sort of offer at the 3 OH's I went to.

i'm afraid many first-time buyers use open houses like a going out activity, not for serious looking. it's not a bad activity if you stayed on the sidelines, we did it ourselves. we went, left and congratulate ourselves for not buying on 2005-8 while guessing how much lower the price will get.

really, it's fun if you do it only once in a while for a house that you actually like, again, without any serious interest. pure curiosity.

i would if i saw legitimate prices on streeteasy first~

legit prices will start to emerge in April-May

Very rarely are listings sold through open houses. Most of the people who come are likely people who live in the building.

I visited 3 open houses on the Upper West Side, and learned a lot.

320 West End, Apartment 3B, asking $1,600,000

This estate sale is the rare apartment that actually feels significantly larger than it's listed square footage--in this case, 1700 square feet. It is a Candella building, so the layout and room proportions are lovely. The apartment is on the third floor with major rooms facing West End, so light and noise are issues--particularly noise in the two front-facing bedrooms. They would probably require city windows. The views are actually lovely, with trees and quality prewar buildings. The living/dining layout offers a significant expanse for entertaining. The kitchen is quite spacious. The bedrooms are private, spacious, and have ample closet space. The entire apartment is dingy, but actually needs less work than meets the eye. The kitchen needs a total gut, but the bathrooms are vintage Candella and can be salvaged. The building allows central air and w/d. The apartment currently asks $1,600,000, but the broker came right out and said that he expects it to trade around $1.4. I was there at the end of the open house and there was only one other name on the sheet; it seemed like there was essentially no traffic.

473 West End, Apartment 4C, Currently asking $2,200,000

This is a Classic 6 with the maids room incorporated into an eat-in kitchen. The apartment appears to be in good condition and is in a lovely building on a very nice stretch of West End. It seems to be in good condition, although the bathrooms, while renovated, are quite distinctive and not to the taste of every buyer--they are not prewar-style bathrooms. It is more or less a standard classic six, and should sell easily but for one major problem: it is priced at least 600k too high. This apartment is smaller than the Candela apartment at 320 West End, has a less gracious layout, and is in a less-coveted location on West End. It is in much better condition and has less noise issues, but also a worse view. It is no better than several other Classic Sixes asking at least half a million less (and those aren't selling either). The broker seems to know this. Not one other person had signed his sheet by the end of a 2 hour open house. He did not even bother to get off his cell phone when we came in. He must just be marking time until the sellers come to their senses and start cutting.

755 West End, Apartment 5C, asking $1,200,000

This is a nice, smallish Classic 6 in a prewar doorman building at 97th and West End. It feels significantly smaller than the unit in 320 West End, which just goes to show that listed square footage means very little. That said, it is a great apartment for a young family, with two nice-sized bedrooms, living room, dining room, kitchen, and a half bath. Everything is in good condition but for the half bath which definitely needs work. The views are of a side street with trees and very little noise. The only major quibble I have with the apartment is the width of the living room (under 13 feet). But clearly this apartment is priced to sell, and the price is generating traffic. There were three other couples there while we walked around, and they seemed interested. Unless the market declines further very soon I would expect this apartment to sell close to the asking price. Message to sellers: if you want to get people interested in your apartment you need to price aggressively. This was the only apartment with traffic.

what are "legit prices"?

30-40% from where they are now. if i can rent for 50% less than buying on a monthly basis, why buy?

admin: "i'm afraid many first-time buyers use open houses like a going out activity, not for serious looking."

So true. But we haven't even seen many looky-loos out at open houses in the past two months. Am I right brokers?

"if i can rent for 50% less than buying on a monthly basis, why buy?"

i know! in my case is less than 40%. there's the stigma of renting though, but when it's financially such a better deal, i can deal with the stigma just fine.

I went to a few open houses at The Caledonia and was kind of surprised how busy it was.

Thanks all for the descriptions. I always enjoy them, even when they're not my niche.
alpine292- I'm curious about your comment. Are you saying that most people who buy don't attend an open house first? Do you mean that they see the apartment through a private appt instead or that they buy without seeing it. I can't imagine the latter.

"the stigma of renting"

That's pretty funny. Are all your friends so judgmental?

why rent when you can own?

"if i can rent for 50% less than buying on a monthly basis, why buy?"

A few months ago I bought a place that cost 10% less than renting. Sure, rents have come down about 5% since, but I just refinanced and so my monthly cost went down a little over 5% also. Why rent?

Tried to go to 2 on the UES. First one I was getting there near the end and broker had left 15min early -- doorman told me that not a single person came. For the second one I got there over halfway through and I was the first person to sign in. Broker was happy just to have a conversation (although the apartment was nice).

exactly. You are a part of the American dream, versus the people that only wish they can achieve the American dream.

I don't know of any "stigma" of renting in Manhattan. For most it doesn't make financial sense.

For those that don't make enough money or have enough savings. They should rent and continue to rent and make me RICH

tech_guy, where do you live that owning is cheaper then renting?

I went to see a cheapie in Gramercy . . . it's big for the price because there is no view whatsoever, literally a wall, and the place is in "estate condition" -- but the low price had drawn seven or eight visitors before me. The broker said there are currently no offers.

ali r.
{downtown broker}

jgr: prime Manhattan. No, I won't get more specific than that :P

This is including tax benefits. Does not include any appreciation, depreciation, or opportunity cost.

Non-exact math to get the 10% number, but quick to calculate. I've gone into all the other details before (opportunity cost, etc) and am still very confident there, but thats a more in-depth conversation that I don't want to get into now.

$700/sf in Astoria?? meshugah

"the stigma of renting"

That's pretty funny. Are all your friends so judgmental?

LOL, here in USA it seems that people believe that those that rent do so cause they cannot buy. even though even homeless people could buy using an Alt-A loan since not so long ago. for me, it's more like "those that can do math rent" but this in nyc. there are many parts on the country were owning is cheap.

In New York City, only about 33% of the population owns property. Nationwide, that number is about 68%. So I'd venture there's less of a stigma here than in other places.

So that doesn't include your 50% down payment? :)

sure tina, it only takes some explaining to do with family members that live in cheap states (ok, tx). once you tell them that a nice 1br goes for 1million they just don't believe you. lol "you can buy a lot of productive land for that!", that's what htey say, and it's right. anyway, far away from here people believe that if you rent is cause you cannot come up with the downpayment. if you have a rent stab (our case) it might never make sense to own in nyc.

Tina, in some ways I think it makes it worse. Because it's more "exclusive" and harder to own, it (to some people, mind you) confers greater status than owning someplace else. I have a perfectly decent apartment (in a location, alas, that I am not so fond of), but sometimes I feel like living in Peter Cooper is the equivalent of announcing that I live in a double wide, or maybe a van down by the river.

admin & aboutready:
Wait five minutes. Everyone will think you're the smartest people they know!
Look, we own because it makes sense for our family. We don't like other people's rules, we like our privacy, we live in a neighborhood where our current mortgage equals our previous rent, etc.... We're in that income zone where the mortgage deduction makes a big difference. We're not investors, and we don't feel clever or smug. But we're happier this way, even if we're less solvent than if we'd bought gold, or treasuries.
As a broker, I work with buyers and sellers who tend to share this perspective, skewed as it may be. We like owning. It feels natural to us. But my in-laws live in a rent-controlled classic eight on the upper west side, and that's hard to argue with, if it comes your way.

of course tina, i look it as a purely financial decision, and as such it just doesn't make sense.

if you value your privacy and you don't care about being less solvent as you say, then owning is not bad. of course you have to put up with other people's rules when you rent, no doubt about it. all that has a cost that only you can assess, it's 100% personal.

I like owning, just not through a broker!!

Renting sucks, no matter whatever anyone says. And absolutely, there is a stigma attached to renting. The "American Dream" by definition doesn't include "renting".

BigApple, with all due respect, you're wrong about the stigma attached to renting.

In fact, I can't imagine being more impressed with anyone who tells me that they sold in the last 2-3 years and are now renting. In fact, the stigma now, i believe is attached to people who currently own.

And if you don't get that, you are out of touch with reality.

Went to one on the UES. Right at the end of the O/H and only two people had signed before us. Nice apt. My second visit, this time with hubby. Overpriced.Broker said there's interest but no offers yet. I guess everybody is waiting for the price reduction before making a bid.

jgr: 20% down payment. If it was significantly more, I'd volunteer it. I'm about open communication / information (so long as its not personally identifiable) - I wouldn't pretend my monthlies were good if it required an unusually large down payment.

Sounds like you got a good deal then :)

2009 would be THE year to buy if you've been planning to own in NYC. Find those sellers in distress, bargain hard, but don't get left behind.

Funny how "don't get left behind" is repeated by everyone on the way up and on the way down. When is not not time to buy?

This is year one of the Manhattan downturn after 10 years of appreciation way above inflation and already people think the bottom is in. With respect, you don't know 2009 is THE year to buy or not:

1) You have no idea what the extent of the downturn in NYC is going to be. Due to the concentration of finance jobs the city's downturn is not going to be over quick. To think otherwise is to completely ignore what has happened in the past six months and to ignore the guidance the banks themselves are giving (which is still overly optimistic).

2) You are making the assumption that a ~10-15% correction will account for the entire real estate downturn. No other city in the case-shiller survey has stopped there. What makes New York so special, especially given we're at the heart of the recession. A city with a much better forward-looking economy, Washington DC, is down >20% (pre-credit crunch), with no signs of easing. Manhattan price declines are accelerating rapidly and show no signs of declaration.

jgr: I did get a good deal, but it wasn't unusually good. An 18x price to rent ratio is supported by current interest rates (probably lower, at this point). I don't believe for a second that now is the "best time to buy" (2002 or 2003 clearly wins).

It may be an "okay" time to buy, it may turn out to be a terrible time to buy. If rents go down significantly, the rent vs. buy math goes out the window. If someone doesn't have a good safety cushion, they have no business buying in this market.

Why are we not going to go down as much as other markets? I don't know, I can't predict the future, but my best guesses are a combination of the following: we were hit much harder during the 80's, we had a much smaller runup in the late 90's early 00's, and rents went up considerably in that same time period, justifying a higher purchase price.

"In fact, I can't imagine being more impressed with anyone who tells me that they sold in the last 2-3 years and are now renting. In fact, the stigma now, i believe is attached to people who currently own."

That is I guess because you judge this based solely on economics. Thats fine for you but not everyone looks at their home simply as an investment.

I won't get into the stigma thing, its too personal, and of course it varies based on what kind of circles you hang out in.

Two close friends of ours bought apartments in 2005 &06, now both have outgrown them because their families have grown. We continued to rent although we could afford to buy, and when our two year lease was up last month I was able to move my growing family into a larger apartment in a better building (same neighborhood) for 15% less than what we were paying on our last lease which was signed in Nov of 2006. When our friends who own and now cannot sell their apartments to trade up in sisze saw our new place you could just see the deflation and regret in their faces, if there was a stigma attached to our renting before, it certainly isn't there now. It's no fun to be an owner trying to sell right now.

ccdevi, I can tell you for sure that you run in the wrong circles if your friends attach a stigma to renting in nyc.

mrsbuffet, why don't your friends rent out the current place for the time being and find a larger rental for themselves? (Serious question)

as I said dmag, its too personal, you make that point quite well.

Look, we own because it makes sense for our family. We don't like other people's rules, we like our privacy, we live in a neighborhood where our current mortgage equals our previous rent, etc.... We're in that income zone where the mortgage deduction makes a big difference. We're not investors, and we don't feel clever or smug. But we're happier this way, even if we're less solvent than if we'd bought gold, or treasuries.
As a broker, I work with buyers and sellers who tend to share this perspective, skewed as it may be. We like owning. It feels natural to us. But my in-laws live in a rent-controlled classic eight on the upper west side, and that's hard to argue with, if it comes your way.

tina..g-ddamn..that was well written, owning vs renting...it's a quality of life issue.

hvd_free - just this morning I had a look at the apartments for rent on the Elliman site. Back in the day (early last year or so) they had a few hundred rental listings. Now they have a few hundred listed within the last three weeks, and a couple of thousand total. That's just Elliman.

There are not that many people looking to rent right now at an amount that will come close to covering the total costs for an apartment bought in 2005-06.

Happyrenter appreciated reading your posting on the open houses.

anyone who attaches a stigma to another person's choice to rent or own an apartment is both a moron and a busybody. and anyone who makes her or his decision to rent or own based on some purported stigma is an even bigger moron. clearly there are financial reasons to rent and to own, but despite my extreme bearishness i actually think the life-cycle are issues matter more.

mrs. buffet nails it, in fact. if you can afford to buy the apartment of your dreams, with enough bedrooms for as many kids as you plan to have, in a neighborhood you have strong confidence will remain a great place to live, and you have no plans to leave the city, it makes perfect sense to buy an apartment. if, on the other hand, you are single, plan to get married eventually, but can only afford a big enough place for one, you would be a fool to buy. if you have, say, one kid with a baby on the way, DON'T buy a 2 bedroom with a plan to sell and buy a 3 bedroom a few years later.

at a minimum, you need to be as close as possible to certain that you could happily stay in the apartment for five years in order for it to make sense to buy. for myself, i'd need to be reasonably sure i could stay in it for ten years before i'd make that decision. i bought an apartment in 2003 that i could have stayed in for ten years (i was 22), although because of the market i sold in 2007. but now at 27 i would never buy that apartment. i am renting a great place in the village, but i've been considering the upper west side because i really want a classic 6 and i can't find a decent one down here. advantage of renting: i can try it for a year, and if i hate it up there i can move back down town. even better: there are now tons of no fee rentals, so moving up for a year and then moving back won't be that expensive. have you seen a lot of no fee sales options lately? a few fsbo, that's all.

so yes, it is not a purely financial decision, but somehow those who own take that as an argument for owning. sometimes, that argues for owning, and sometimes for renting.

aboutready - I see this a bit differently. The incremental cost for this trade up is the diffenrece between the rent of the new place (e.g $8k) and the rental income of the current place (e.g. $5k). A weak rental market should reduce both and might even help to make this diffenrence smaller than usual.

If the family in question can not afford this increase, then they probably can't afford to buy a larger place either.

happyrenter - very well said, and quite consistent with my mantra. The first time I could afford to buy anything I was 25-26, and I decided not to precisely because I knew my time horizon was too short. In retrospect, if I had and sold at the peak, I'd have made good money. But I didn't and don't want to rely on timing the market/bubble perfectly.

Now I have a family, and, other things being equal, I'd much prefer to own. We made the painful decision to rent (moving twice sucks, and does cost $$, even with no-fee, plus aggravation), because (1) we can rent a convertible 3-bedroom for under $5K, whereas in order to stay there a while, we'd have to buy a 4-bedroom and have carrying costs of more than double that and (2) I think the chances of RE prices going down in the next 1-2 years are a whole lot better than going up, so I think we gain more than lose by waiting.

But, barring extraordinary changes in lives or finances, we plan to buy within the next two years pretty much no matter what, for exactly the reasons you and others here have mentioned. If we are too early, which we may be, so be it.

mrsbuffet congrats! seems you made the right moves.

it is so true how homeownership could turn out to be a headache when the liquidity disappears from the market. even labor mobility gets impaired. on the other hand, the bigger homes that would be a target for somebody upgrading also went down in value, so making a low ball offer contingent on selling the previous home might work to their advantage.

i'm amazed at how big are the transaction costs that go into upgrading (going up the real estate ladder). how many upgrades do the typical american family have during their lifetime? around 3? of course depends on how frequently do they move due to their job situation, but it would be interesting to know the average.

it might not be a bad thing for those on the sidelines like us to just go for our final home (location and size wise) skipping the starting and middle altogether. that would save transaction costs and the possibility of getting stuck if liquidity doesnt' come back full force.

"so yes, it is not a purely financial decision, but somehow those who own take that as an argument for owning. sometimes, that argues for owning, and sometimes for renting"

happyrenter, I generally agree with your whole post but wanted to comment on this. The reason it seems this way is because the owners or bulls or whatever you want to call them are constantly barraged with the fact that the rent/buy math doesn't work. So pointing out the non-financial reasons for buying makes perfect sense. The renters have the math in their favor. You are right of course that one's personal situation can in large part dictate this decision, one way or the other. Its a point I've tried to make before but folks like steve and the like don't want to hear it, the math doesn't work, end of story.

i found surprising that the reasons to like owning changed almost overnight.

since not so long ago it was for financial reasons "own to build wealth, i earn more with my house than working...". but i've seen in san francisco, where prices went down very fast, that owners stop talking about the financially super savvy move of owning and now talk about the non financial reasons. in terms of consumption of discretionary, if they are being honest, that would mean that they shouldn't change their consumption patterns (if they are honest about not caring that htey home price went down like they say), right?

i find the asymmetry puzzling in a way. it sounds like denial but it might be true. when the thing in not good money-wise it begins to be the best thing for the heart.

I am in the buy/rent financial decision camp, with a fair amount of personal desire to own, but not enough desire to have led me to buy in the last four years. Under most circumstances, buying a property that meets your long-term needs does more than just provide shelter. It is a forced savings/retirement plan. Not the best one, by far, but many people don't have the discipline to put aside money as they ought to. It's not really the paradigm for recent purchasers (and often not one for this market in particular), but owning a home for thirty years and paying it off gives you a place to live at low cost when you retire, or as is more common, a place to sell when you retire. The math may be ugly, but the long-term consequences are often better. As we are only 15 years from retirement, I'm more committed to buying toward the bottom of the market.

ccdevi,

the problem is this: on the way up owning was all about financial brilliance and renting was "throwing a way money." on the way down, owning is all about the wonderful lifestyle it provides. the truth is, there are some benefits to owning, and there are some benefits to renting, and there is a financial consideration. i'm glad you at least acknowledge that renters "have the math in their favor." if someone acknowledges this but simply says "but i don't care about money, i just want to own no matter what," who can argue with that? that's just personal taste. it wouldn't be my taste, it doesn't really make sense to me, but fine. but what owners seem to take to is arguing that renting is horrible, renting is miserable, renting is stigmatized, and finally, many still refuse to acknowledge that buying real estate in NYC over the last, say, four years is turning out to be horrendous from a financial perspective. this makes it a frustrating conversation.

if i found my dream home i'd be willing to pay up for it--say, pay 20% more than i think it would be worth on a rent/buy equation. but i would not pay 50% more, or double, or triple, which has been the situation. nor would i pay more to own than to rent for an apartment that was less than ideal. for a less than ideal apartment i'd much rather rent--that way, i could move on when the time came.

happy renter, that is exactly our situation, too - 20% premium to own seems reasonable if it's going to be the "forever" (10 years +) apartment. But at 50% or more, which is what every ownership opportunity presented to us in the last 3 years represented, I would happily rent in New York City 'forever'. There are more palatable ownership opportunities outside of this island we call home.

You guys may be looking at difference price points than me - the 1 mil max deduction on mortgages may be a real matter to you, while I can largely ignore it - but in my range, rent vs. buy math *does* work out in a buyer's favor.

Also, keep in mind that not every bull is the same (in fact, a year ago I wasn't even a bull - "housing will remain flat" isn't what most people consider bullish - some might even call it bearish). The fact that some bulls ridicule renters for "throwing money away" doesn't mean we all do. I mean, it is throwing money away, but so is maintenance, property taxes, the portion of your mortgage interest after the deduction is taken away, etc.

Not so sure that people with kids who recently sold and are now renting were all that smart...

The thing to have done was (in 2004-2007), go to the suburbs and find a house your family would grow into in a decent school district with low taxes and low costs. I just went house-hunting in the 'burbs, and the only places on the market (or so it seems) are these ridiculously over-priced McMansions that were built on spec in 2007 and can't sell. The taxes are crazy, and the utility bills on a 5000 sq. foot house with 10-foot ceilings are ridiculous, too. The other option is existing homes on big land with outrageous tax bills. Unless you want to start a farm, or something, I can't see paying $50K/year plus maintenance for land you won't use, apparently, no one else can either which is why they've been languishing for so long.

It's now rare to find what everyone with kids wants in the 'burbs...a 3,000 square foot 4Br house in move-in condition with property taxes under $15K, close to the schools and close to the train, with some walkable routes to school, stores, tennis, etc.

I think the family renters will be in tough competition to find this set-up, just like they were to find the city equivalent a few years back. Perhaps there will be some opportunity to fix up small suburban homes and flip them for a profit.

Back to Open Houses. We went to 670 West End Avenue #12C not too long ago and liked it quite a bit but the layout wan't quite right. We need to have some sort of office space in our apt, and couldn't figure out a way to take away from a room without ripping out the nice cabinetry they had in their kids' room. It sounds like 320 West End is worth checking out. Not sure why it wasn't on our radar.

tech_guy: renting is not "throwing money way," and to repeat that idiocy is to buy into the craziness of this bubble. renting is CONSUMPTION OF HOUSING. When you buy something, have you thrown your money away? Not if you get something valuable in return. I think we can all agree that housing is valuable; indeed, it is a necessity. My rent check pays for my housing. That is not throwing money away.

you insist that the rent/buy math works in your price point. i've analyzed every price point and find that not to be the case. now, in any individual deal i can't say, because i don't know what you paid for your apartment. if you got an incredible steal, then ok, good for you.

if the math you are using to justify purchasing includes the maximum mortgage deduction and THEN puts an 18x ratio on the after-tax dollars, well, i just completely disagree with your math, and you are fooling yourself if you think that 18x is going to pay off in the long run.

lostintransit,

if noise is not a problem for you i think 320 west end could be a great apartment. i can't live with the bedrooms facing west end on the 3rd floor personally.

happyrenter,

Thanks for the advice. Any others you like? We are going to see 175 W 93rd 7A tomorrow. It's another Candela building and looks potentially nice.

"if the math you are using to justify purchasing includes the maximum mortgage deduction and THEN puts an 18x ratio on the after-tax dollars, well, i just completely disagree with your math, and you are fooling yourself if you think that 18x is going to pay off in the long run."

Not sure I understand... 18x is price/rent. It's a pre-tax concept be definition because there is no after-tax price and there is no after-tax rent. Maybe you are referring to some other ratio. Could you please elaborate why 18x is never going to pay off?

hvd:

sorry, i spoke in shorthand that made my post nonsensical. let me explain what i mean: he uses an 18x ratio, which he believes makes sense because of the mortgage tax deduction. this is a problem, because the ratio inherently uses pre-tax dollars--that is, it assumes that the unit in question has been purchased for cash. if you purchase for cash, you don't get a mortgage tax deduction, and hence you cannot use a mortgage tax deduction to justify the purchase price of your apartment. Since an 18x rent ratio does not work without the deduction, it should not be employed to justify the purchase.

if you want to use the deduction to justify your purchase of a home, you have to calculate the monthly costs and see which will be more favorable. in nyc in recent years the monthly cost of owning a home has been far greater than the monthly cost of renting. essentially, they should be equal.

lostintransit,

personally, i don't think the 90s between amsterdam and columbus are particularly pleasant, so i wouldn't be interested in 175. i assume you are looking at what they are calling a 3 bedroom, but is in fact a Classic 5. I think that apartment is significantly overpriced, especially given the less-than-ideal location.

If you want an office, you should really be looking at Classic Sixes. Check out 755 West End, which I commented on above. You might also look at 250 West 94th, where there is a Classic 6 and a Classic 5 available.

And, quite frankly, you might consider renting. There is a lovely Classic 6 on 77th and Amsterdam being advertised by Rachel Realty for $5,500/ month with no fee. There is nothing for sale that comes even close to this as a value proposition.

Thanks a bunch happyrenter!

happyrenter - once again I agree with all/most of your points in your reply to ccdevi. 20% is about the premium I'd consider paying for my dream, long-term home.

I also agree with you that I've yet to see an example in Manhattan where buying is cheaper than renting, as tech guy claims (although we're getting closer on some of the recent chops). Obviously very difficult to do apples-to-apples, and there are a lot of assumptions. This has been discussed on other threads, and while I can't say that tech guys is definitively "wrong", he has certainly failed to convince me, in his specific case or more generally.

Having done a bunch of examples (all where the mortgage is fully deductible) and played with assumptions, I typically come up with buying being anywhere from 10-30% more expensive than renting. When you get to bigger/nicer/more expensive places, I think the gap grows because the tax deduction decreases, but I also recognize that it becomes even tougher to do apples-to-apples.

newbuyer,

i think the gap is bigger than 10-30%, but you are definitely right that at the high end renting makes even more sense. honestly, since i started considering a move to the UWS (reluctantly, but there is just so little inventory in the village) i am amazed at how easy it is to find a very nice Classic 6 for under $6,000/month in an ultra-prime location. i did not expect that. you're not going to find a nice classic six in a nice area in a nice building in decent condition for anywhere close to that.

last sentence, of course, refers to a classic six to buy.

"and hence you cannot use a mortgage tax deduction to justify the purchase price of your apartment."

happyrenter, I respectfully disagree. The tax deduction is a financial mechanism that does justify paying more to own on a monthly basis than to rent. It is even more important in high value / income markets. I'm not saying it should justify the purchase, but not figuring it into the calculation is incorrect.

"if you want to use the deduction to justify your purchase of a home, you have to calculate the monthly costs and see which will be more favorable"

I disagree with this as well. You have to look at the total costs of owning vs. renting over a period of time. We can argue all day about the assumptions that go into a long term model, but you have to look at it over a term, not just on a monthly basis. 12x, 15x, 18x are guidelines. Nothing replaces doing the math over the ownership term based on your personal situation.

Maxing out the $1.1M deduction has big implications for some and will have bigger implications as Mr. Obama starts his tax increases.

"and hence you cannot use a mortgage tax deduction to justify the purchase price of your apartment."

happyrenter, I respectfully disagree. The tax deduction is a financial mechanism that does justify paying more to own on a monthly basis than to rent. It is even more important in high value / income markets. I'm not saying it should justify the purchase, but not figuring it into the calculation is incorrect.

"if you want to use the deduction to justify your purchase of a home, you have to calculate the monthly costs and see which will be more favorable"

I disagree with this as well. You have to look at the total costs of owning vs. renting over a period of time. We can argue all day about the assumptions that go into a long term model, but you have to look at it over a term, not just on a monthly basis. 12x, 15x, 18x are guidelines. Nothing replaces doing the math over the term you plan to own based on your personal situation.
Maxing out the $1.1M deduction has big implications for some and will have bigger implications as Mr. Obama increases taxes.

hapyrenter,

I think we are both making assumptions about what tech_guy really meant. My assumption is that the annual rent for his property would be $R, and he spent 18R to buy the place. If that's the case I woundn't rule out the possibility that after-tax cost of owning comes out less than $R per year.

juiceman, i get the sense that you didn't read my comment, or that you quoted selectively to change my meaning. the actual sentence read: "if you purchase for cash, you don't get a mortgage tax deduction, and hence you cannot use a mortgage tax deduction to justify the purchase price of your apartment." what about that do you disagree with? if you purchase all cash, you don't get a mortgage deduction, so how can you use a mortgage deduction to justify your purchase?

you certainly CAN use the mortgage tax deduction to justify the purchase of a property, as I said, but to do so you have to look at what you are actually going to be paying out if i buy an apartment all cash, i have no right to use the mortgage deduction to justify the purchase because i will not be getting the deduction. a calculation that uses the purchase price as if paid in cash and compares it to monthly rent CANNOT then turn around and use the mortgage deduction to justify the ratio. if you want to use the mortgage deduction to justify your purchase, you have to look at the actual payments that you are going to be making, which will not be a lump sum payment but monthly installments.

hvd,

you clearly did not read my comments. THERE IS NO AFTER TAX COST OF OWNING IF YOU PAY CASH. How can I make that more clear? If you SPEND 18x yearly rent to buy an apartment, you do not get a tax deduction for a mortgage, because you don't have a mortgage. Clear enough?

"the problem is this: on the way up owning was all about financial brilliance and renting was "throwing a way money." on the way down, owning is all about the wonderful lifestyle it provides."

Well what you saying, is that was the position of the owners/buyers in places like this board. Not sure why thats a problem.

"i'm glad you at least acknowledge that renters "have the math in their favor." if someone acknowledges this but simply says "but i don't care about money, i just want to own no matter what," who can argue with that?"

well there certainly are some very vocal persons on this front.

"but what owners seem to take to is arguing that renting is horrible, renting is miserable, renting is stigmatized, and finally, many still refuse to acknowledge that buying real estate in NYC over the last, say, four years is turning out to be horrendous from a financial perspective. this makes it a frustrating conversation."

well as a general matter some people are deluded or just angry. but part of the problem is the hyperbole. My guess is people who purchased 4 years ago are doing just fine. I purchased in 03 and sold in 07, I did great, but even if I hadn't sold, I'd be living in an apt that is at least as good as the one I'm currently renting (imo, some may disagree), and paying less, and a lot less depending on how you do the math. Or flip forward I bought again in 07, will move in soon. My total cost is going up dramatically from my current rental, perhaps 90%. But of course the apts aren't in the least bit comparable, my rental sucks and my new place is awesome (imo). Could I have rented the new place for less per month then it will cost me, I would think so, but for half as much? Nah. Is it horrendous from a financial perspective? Well on a current cost basis no, on a total cost basis we'll only know when and if I sell it.

Well, he spent 18x to buy, of which 3.6x is down payment, 14.4x is mortgage. (80% loan to value) He does get a tax deduction, right?

ccdevi i don't follow. did you buy in 03 and sell in 07? or did you sell in 03 and buy again in 07? it can't be both.

i actually DID buy in 03 and sell in 07. i currently rent a slightly better apartment around the corner and pay half per month what the guy who bought my place pays per month. and for the pleasure of paying over twice per month what i pay, he is losing money practically by the day as the price of his home declines. so i just disagree with your numbers.

as of right now someone who bought in 04 might be able to get out with a minimal loss, but it would be hard. there are very few people buying right now. if i still owned the apartment i bought in 03 and had to sell it now, i would price it for just about exactly what i originally paid for it, and there is still no guarantee it would sell.

all i can say is, on a CURRENT cost basis it is financially horrendous to have purchased in the last several years. on a total cost basis obviously we can't say for sure, but it definitely doesn't look good right now.

hvd,

look at what you just wrote. that is such a bizarre way to calculate the relative value of an investment that it demonstrates my very point.

Happyrenter, I wasn't selectively quoting; I may have misunderstood what you were saying. To clarify, are you saying that the 12x, 15x, 18x ratios are based on comparing annual rent vs. the cash cost of purchasing? If so, I agree 100%. This is why I have argued many times on this board that the ratios are completely useless for high value / high income areas. These ratios were built for real estate market comparisons in places like Albany, NY not Manhattan. The tax deduction has such as huge impact in places where people are maximizing their deduction and have high incomes, these ratio's DO not and CANNOT be used to accurately estimate a rent/buy equilibrium.

You have to take these ratios and modify them for this market, which I believe is what tech_guy attempted to do.

happyrenter,

I didn't expect to have to put it all in made-up $ amounts for you:
Annual rent $30k
Purchse price $540k, 108k down, 432k mortgage

Chill, bro. Don't get too worked up.

juiceman,

if you believe (as i do not) that the mortgage deduction is so much more valuable in nyc than in albany, then you should completely abandon those formulas and use ones that actually make sense for someone financing a home: looking at the monthly costs of renting v. owning, and factoring in down payment, frictional costs, renovation expense, wear and tear maintenance, and the mortgage tax deduction. you should not just invent a new, higher number and plug it into a formula that calculates something very different from what you are trying to calculate. if you believe that these ratios "DO not and CANNOT be used to accurately estimate a rent/buy equilibrium," then why in the world are you defending tech_guy's use of them?

I agree with you happyrenter, there are much better formulas to calculate rent vs. buy that will give you a more accurate picture of true equilibrium for Manhattan. I defend tech_guy's use of the ratios because 12x, 15x has been thrown around this board for the last year as if these ratios were law. Tech_guy is simply pointing out the issue with the ratios and modifying them to be closer to the truth. I won’t speak for him, but it’s my bet is that he would say that these ratios are complete garbage. There are others on this board that will argue that a 12x rent to buy ratio is where Manhattan is headed and that the monthly cost of owning should equal the monthly cost of renting before any tax benefits. We get all kinds here.

juiceman,

i believe that the monthly cost of owning should over time be slightly LESS than the monthly cost of renting, because owning requires capital to be put at risk whereas renting does not. i also believe that 12x is very reasonable ratio for real estate; personally, i'd be more comfortable with 10x. this makes me a crazy person?

as for factoring in the tax advantages of owning, i believe that they should certainly be taken into account. i also believe that they are generally offset by several factors that are almost never included in these discussions: 1. the outrageously high frictional costs of owning, 2. the capital risk that should be compensated (this market is showing us what it means for capital to be at risk), and 3. the huge and perpetual cost of wear-and-tear maintenance and for most of us, periodic renovations. any particular reason not to include those factors?

"if you believe (as i do not) that the mortgage deduction is so much more valuable in nyc than in albany"

happyrenter, what don't you believe regarding mortgage deductions and their value difference for high vs. low incomes? Do you also believe that a mortgage deduction is the same regardless of your tax rate or income tax levels?

"i also believe that 12x is very reasonable ratio for real estate i'd be more comfortable with 10x"

I'd be more comfortable with 5x, but it doesn't make it true.

As for your list above, I could ask the same questions in your rent scenario calculations:
1) for what would be down payment money did you factor in the negative return in your portfolio over the past 6 months as a cost of renting? 2) Do you factor in rent increases, moving costs, broker fees appropriately? 3) Over the long term, have you factored a loss of appreciation or general inflation into your calculations?

Regardless of your answers to these questions or my answers to yours above what is important is that people include whatever is necessary to be comfortable with buying or renting. happyrenter has chosen to rent based on comfort with his numbers. JuiceMan chooses to own based on comfort with his numbers. We could argue who is right or wrong but in the end, it may be that we are both right.

My main point is that I think the 12x type ratios are stupid because they exclude many viable scenarios, specifically in high income, high value markets.

juiceman,

we MAY both be right, but that's highly unlikely. what is certainly true is that most people decide in advance what they want to do and then find numbers that reenforce their decision. it is the rare person who really brings an open-mind to a decision and actually makes a decision based on weighing the evidence. believe me, i looked for all kinds of reasons to justify owning--i had no desire to sell my apartment in 2007 as i was quite happy living there. but the number did not add up and eventually the cost of ownership became so astronomical that i sold and now rent. i had mixed feelings at the time, but certainly not any more.

if you could justify why a 5x rent ratio made economic sense, then it WOULD be true. i believe that i am capable of generating 10% investment returns, so i would look for an expected investment return of 10%/year. if the yield is lower than that, i'd rather be the renter than the landlord.

happyrenter, for stuff where you get the full mortgage deduction, I've gotten 10-30% premium for owning fairly consistently. Admittedly, a lot depends on the assumptions, thus the wide range. Nonetheless, my experience suggests that both "it's cheaper to own" and "it costs twice as much to own" examples are very, very rare, and don't justify extreme views on either side.

I started a thread on this a few months ago, and gave some examples on how I calculated the premium, all hypothetical, but based on my knowledge/understanding of the two markets. Also, all based on full use of mortgage deduction.
http://www.streeteasy.com/nyc/talk/discussion/4803-rent-vs-buy-math

There are a ton of other threads on this as well, with extreme views on both sides, as well as some moderate ones.

Also, I haven't refreshed the analysis in the last 3-4 months, as rents have clearly been softening. Rent market is more liquid that buy market, so it might be that the movement down is faster in rents (with isolated exceptions of distressed sellers), but not sure.

"i believe that i am capable of generating 10% investment returns, so i would look for an expected investment return of 10%/year. if the yield is lower than that, i'd rather be the renter than the landlord."

That's a key point too. I certainly don't believe I can consistently generate 10% returns after tax (which is the relevant metric, since we're doing everything in rent vs. buy after tax). Therefore, I would buy with a much higher ratio than 10x, assuming my time horizon was long enough.

The extreme example of that view is susan (I think) on another thread, for whom it's cheaper to buy because she can put a ton down, and considers her opportunity cost zero because she is not comfortable with investing in ANYTHING right now - right or wrong, she is just not comfortable.

Very individual, that's my only point.

newbuyer,

people really do cling to yesterday's investment du jour, don't they? it will take a few years for new york real estate prices to really collapse, i have no doubt about it. given that rents have come down as well, i have actually increased my prediction from an average decline of 50% to an average decline of 70%, and it could get even worse than that. i'm reminded of friends who kept predicting a recovery of the Nasdaq in 2002 and 2003. the truth is, it may take 20 or 30 years for the nasdaq to get back to the level of that bubble. it just takes people a long time to recognize big changes. a year from now we could see nice classic sixes in prime areas selling for 800k.

I didn't think I was ambiguous with my statements. Let me respond to a few people in 1 post to try to clarify.

happyrenter: "renting is not "throwing money way," and to repeat that idiocy is to buy into the craziness of this bubble"

You'll notice I said maintenance, tax, mortgage interest were also throwing money away, exact same as rent. To call my comment "craziness of this bubble" is just plain wrong. Define it whatever you want - throwing money away, buying housing, I don't care - my point was that rent is NO DIFFERENT from mortgage interest and maintenance. Do you disagree? This is a very non-broker, non-bullish, non-bubble thing to say.

hvd: "I think we are both making assumptions about what tech_guy really meant. My assumption is that the annual rent for his property would be $R, and he spent 18R to buy the place"

Exactly. Thats whats very commonly meant (and used) when valuing real estate, and never means an all cash purchase. I put 20% down, 80% mortgage.

In fact, I believe putting 100% down is a terrible choice. The benefit of housing (at these levels, where the deduction matters so much) is almost exclusively from the tax advantage. That's why you can make out well financially, even given zero appreciation.

happyrenter: "if you want to use the deduction to justify your purchase of a home, you have to calculate the monthly costs and see which will be more favorable"

That's exactly what I do. Assuming 100% of the mortgage interest can be deducted, and with today's prevailing mortgage rates, 18x is a very good buy.

As for happyrenter's numbered items above:

1) I strongly believe you shouldn't buy unless you plan to stay there 5+ years, and 10 years isn't out of the question

2) There's risk in the stock market too, which is where my down payment money was before I decided to move it into cash in preparation for a purchase. By pure dumb luck, that move happened to be within 5% of the peak of the stock market.

3) Wear-and-tear is a tiny issue in a coop. Remember, maintenance is already counted in the calculations. What significant wear-and-tear costs are there beyond that? Periodic renovations should not be counted at all. You're trying to compare it to a rental, where that isn't even an option. Just make sure the rentals you're comparing buy vs. rent math on are similarly renovated, and you're fine.

obviously i disagree with your analysis, but enough is enough, we're never going to agree. you bought, and you want to justify the decision. i sold, and i'm weighing whether and when to buy again. as someone who is not in the market either as a potential buyer or a potential seller i'm surprised that you spend a lot of time on this board--your decision to buy has already been made, who cares if other people you don't even know consider it smart or dumb? but one thing i do have to correct:

wear-and-tear is not a tiny issue at all, in a coop or any other property, and in a rental there most definitely ARE periodic renovations--you just don't have to pay for them. my landlord is required to repaint, to make repairs, to fix and replace appliances, to refinish the floors, even to clean the windows. if you think that stuff isn't expensive, you just haven't lived in your apartment long enough.

"we MAY both be right, but that's highly unlikely."

I disagree. I think you are convinced that your scenario is the only scenario.