JPMorgan cutting 55% of Bear staff

I suppose in some sense it is funny but it does suck for those laid off. Personally, I think this flush out is very good. Just kinda bad for new developments. I vaguely planned, when prices dipped enough, to buy more investment properties downtown again but more and more I think targeting middle income families way uptown will be my way forward in NYC.

in what sense is it funny eah? what a bizarre comment. we expect this nonsense from steve who clearly would be ok if NYC blew up if he wasn't there and had sold it short.

LMAO is directly aimed at JuiceMan, who was predicting that JPM would need thousands of IT staff for many years to integrate all their systems.

Along with all of his other nonsensical predictions.

Of course it's not good for the individual employees, but it is eminently good for NYC and its overinflated housing market. Bubbles need to pop, and while a few people might lose real money, and lots of people will lose money on paper, overall it will bring the market back into equilibrium, making the American Dream of owning your own property affordable to many more.

Or don't you want housing to be affordable to the middle class? Is it something that only multimillionaires and the few lucky ones who win housing lotteries should be able to afford?

What's spunky's take on this?

Spunky! Spunky! Come out come out wherever you are!

ccdevi. I do not think it is funny. i said in some sense because i was responding to steve saying LMAO. so, my point was, yes...it could be funny in a schadenfreude sense if you're that type of jerk off.

steve, where do you see the detail on who was cut vs. who was kept? Oh, and by the way, my prediction of 24 months (that’s a lot of data mapping isn’t it?), right on the money big boy. Why don't you ask some folks from JPM involved in the integration? If you got out of your apartment once in a while and took the time to actually speak to some human beings you may find that information gathered from Wikipedia does not always constitute as fact.

That said, you continue to amaze me with your celebration of bad news.

First, my LMAO was to the JuiceMan - prediction after prediction wrong, no numbers to support his cases, and so on and so forth.

Unfortunate for the affected? Absolutely. Will they recover? Absolutely.

Bad for the long-term health of NYC. ABSOLUTELY NOT. For all you convenient capitalists who love free-market economics when it goes your way, markets are self-correcting. That's why they work. They overshoot, they undershoot, they always trend back to the mean.

That's what we're seeing here: 5 years of orgylike conditions on Wall Street selling triple-A rated securities backed by junk mortgages, financial liquidity flowing like water in the Hudson, loans being offered to all and sundry regardless of prudence or risk, Masters of the Universe learning that the Universe is a lot bigger than they are - as are market forces. Bonuses averaging $150,000 PER EMPLOYEE earned precisely off the backs of the poor sods who were talking into taking out mortgages based on LIBOR when they have no idea what LIBOR is.

No sirs: this is NOT bad for NYC in the long-term. In the long-term we will all come out healthier, wealthier, and wise, PRECISELY because these self-correcting mechanisms exist. If they didn't, we would be the Soviet Union of the 80's, Cuba today, and Venezuela tomorrow.

That's why you're all wrong, that's why this HAS to happen. With a key difference from in the past: we've gone through 2 asset bubbles in the past 8 years - dot.com, now housing - all directly attributable to Wall Street. What will INEVITABLY change now is regulation, to stop these things from happening in the future.

It's not being a "jerk-off." Being a jerk-off is not understanding the cold, hard, cruel nature of capitalism, as cold, hard and cruel as the universe itself.

And that's a good thing.

steve, owning in NYC has never been what the majority of people choose to do. The American Dream doesn't seem to apply here. I am not saying it should or making a comment of what is right or wrong or who should own and who shouldn't. i just don't foresee a bubble popping causing a stampede of buying or people realizing the American Dream. even when the market was within reason, ownership levels were way less than the national average.

That's why you're all wrong, that's why this HAS to happen.

we're all wrong? um, steve...read my post. i said, i think this is good. where am i wrong? where were the posts saying this is terible and unjust. i think most of us agree this is a good, but unfortunate, thing. you just took it to a shit level with LMAO. regardless of what you were responding to.

2 years, JM? Where'd you get that figure?

"there are scant details on Bear Stearns' storage and compute infrastructure, although one vendor with knowledge of the company, who asked not to be named, told Byte & Switch that it is hardly state-of-the-art.

"In my view, the Bear Stearns IT infrastructure is close to what came off the Ark -- it’s [a] very heavily mainframe-based kit," he said. "They do use a lot of NetApp [storage] but their approach to virtualization has been very incremental, particularly if you view them against someone like Goldman Sachs or Credit Suisse."

FYI: "http://www.byteandswitch.com/document.asp?doc_id=148722&f_src=byteandswitch_FinancialContent

If that's true, they're just going to get rid of it. And all the operations people.

"If you got out of your apartment once in a while and took the time to actually speak to some human beings you may find that information gathered from Wikipedia does not always constitute as fact."

Actually, I know people who work(ed) for Bear. It's very unpretty.

"you continue to amaze me with your celebration of bad news."

No, JM, it's amazingly good news. Bad for the few people involved, good for the market as a whole. This is what capitalism is all about.

You just can't accept that.

"you just took it to a shit level with LMAO"

Not even close. What I'm laughing at is all the "Manhattan is special" arguments that have been posted over the past few months. Remember the "Idiot's Thread," or whatever it was called, "The Sky Is Falling"?

They used to post here, now don't, they're scared away because everything a few of us have been saying is now coming true.

Where is Ralph Lauren's daughter to buy up all this property on the market, now that she has a candy store in Tribeca?

Where are all the foreigners? The Martians?

JuiceMan: 24 months for a systems conversion! LMAO is right. I have more systems migration proposals on my computer than he's ever seen in his entire life. It was and is my job.

This is NOT bad news. It's the hangover after a long party - maybe we won't drink so hard next time.

Storage and compute infrastructure? Are you serious? That's how you are judging the migration effort?

steve, I'm not playing fair. I have lots of information on this subject which I will not share. You have absolutely no idea what you are talking about and it pains me that I have to refrain from making you look like a complete buffoon. Save this thread in your archives, it will be fun to address all of your "expert opinions" when the time is right.

Another thing steve, try not to LMAO and get really excited when bad news hits. It's tasteless, regardless of the reason.

No please, make me look like a buffoon. I relish it. What information do you have? Any of the hundreds of migration proposals, reports, or schedules that I have? Or first-hand experience of years? Or the fact that I just finished working on a proposal to install a private communications system in Argentina - in 120 days.

Or the computerized cargo x-ray system for Brazil, in 90 days.

Absolutely I look at the hardware they have - where it is and where what's on it will go, what the platform is - the software they have - how good is it (apparently not too good, given what happened) - and how much data they have stored, where and in what format.

Unless you have other inputs - I'd love to hear it. Make a buffoon out of me.

And I can only LMAO when you say thousands of jobs over 24 months when no such thing will happen.

"I'm not playing fair. I have lots of information on this subject which I will not share."

Yup - just like the price of housing is (the down payment * the risk-adjusted interest rate) + amortized mortgage payments.

Yup. Sure is.

Or like evillager's "corporate profits are constrained by GDP growth" when corporate profits form part of GDP growth.

Or verain's - now vverain's - financial leverage is the same thing as mortgage leverage, when the former produces income and the latter produces an expense.

Yup.

What is happening to Wall Street right now is NOT bad news. It's never bad news when a market corrects itself. What WOULD be bad news would be if there were no way for it to correct, because the system would only implode, as it does in all sclerotic economies.

You lived in London - remember the Euroschlerosis of yesteryear? Or perhaps you would like a system like the French, work 35 hours a week, can't be fired, retire at 50.

And have unemployment of 35%.

Not that I'm a great fan, but remember what Mrs. Thatcher did and why - she liberalized the labor market, and the UK turned around in 10 years.

This is capitalism, dude. Capitalism.

"This is NOT bad news."

you are an idiot but worse you're just mean. the news in this thread is that a bunch of people got fired. that is not good for them, its not good for New York.

as for your nonsense about people being priced out of NY. Oh now you're the defender of the middle class? The market price is exactly that, what the market will bear. Somebody is paying it. If you're not one of the people able to afford it, oh well, such is life. I'd like to be a member at Augusta but thats not going to happen either.

"Or the fact that I just finished working on a proposal to install a private communications system in Argentina"

Translating a proposal to install telephones in Argentina qualifies you how?

"Any of the hundreds of migration proposals, reports, or schedules that I have? Or first-hand experience of years?"

Is this the PWC auditor data mapping experience that you are speaking about? Really?

Give it a rest steve. You are not qualified to speak intelligently on this topic. Stick with politics.

steve - this is old news. Everyone knew there would be deep cuts at Bear resulting from the takeover. The fact they are keeping 45% is better than I had thought.
There are two flaws in your theory. The first is that there is no middle income housing in NY. This idea is both obnoxious and insulting. There are lots of great neighborhoods in Brooklyn, Queens, the Bronx, and Staten Island that are well affordable to middle income earners. Your disregard of these areas is ignorant and disrespectful.
As for your equilibrium levels, why don't you think that the Manhattan market has already slowed down to equilibrium? Real estate prices aren't as high-flying as they were a couple of years ago. There already has been a pullback. Prices are still high but they always will be in Manhattan. How much lower do you think real estate prices will fall? 30%? 50%? I don't see any basis for that kind of drop. Prices might decline slightly again, but not by 30-50%. Wall Street has been through these types of layoffs before; when the markets come back the banks will hire again and compensation levels will be strong, it is just a matter of when, not if.

"You are not qualified to speak intelligently on this topic."

LMAO, yet again.

The reason I do what I do rather than still work as a - managing consultant, BTW - with Price Waterhouse is because I enjoy the freedom I have, but I understand what they're talking about.

Yes, I used to write the things, do the work. Now I help people by acting as a linguistic liaison on their international projects so that they can get them done. Sometimes in person, sometimes in writing.

I never mapped data in my life, except in college. I did work on many systems migration projects, however, but in a management and advisory capacity, reviewing system design and migration protocols.

Why work so hard, though, when I can make just as much now in half the time?

Share some of that inside data you have, JM. Along with all the other nonsensical things you've been saying.

ccdevi, sorry you're going to lose money on Manhattan real estate, no need to take it out on me.

"The market price is exactly that, what the market will bear." Except when there's a bubble, aka overexhuberance, as we've seen.

Or should I call it "irrational exuberance"?

"there is no middle income housing in NY. This idea is both obnoxious and insulting. There are lots of great neighborhoods in Brooklyn, Queens, the Bronx, and Staten Island that are well affordable to middle income earners."

Who ever said there wasn't? In fact, on another thread I recommended a few very lovely neighborhoods that I think are FAR better than Jersey or Westchester or Connecticut.

"Prices are still high but they always will be in Manhattan."

Yes, they will always be high, because we make more money here.

"Real estate prices aren't as high-flying as they were a couple of years ago."

Actually, in Manhattan, they're higher.

"How much lower do you think real estate prices will fall? 30%? 50%?"

Yup.

"I don't see any basis for that kind of drop. Prices might decline slightly again, but not by 30-50%."

You don't know where to look. Google Columbia Fed Imputed Rents, read how to determine what the equilibrium price for housing is in New York, plug some numbers into the formulas and see what you come up with.

Every time in the history of the world that imputed rents have exceeded market rents by a lot, the market has crashed. Every time the opposite occurs property prices rise. It's a cyclical market. As far as I can tell, not even in 1988 were market rents so out-of-whack with imputed rents, and if you look at the Fed's chart it will tell you the same thing. Prices in Manhattan were in equilibrium in 2003. Since then they've doubled, and are now twice market rents.

That's where I get my data from. Economic research, not JuiceMan's "confidential information."

lose money on nyc real estate? nah. could sell the contract I'm in now for at least 10% more than I'm paying and regardless the 25% or so down I'm putting is all real estate profit. no I just say to you what you deserve.

and your comment about the market again makes no sense. the market price is always what the market will bear, that may rise or decline from time to time, but it will always be the market price.

ccdevi, only if markets are perfect, which they are not, especially in the short-term.

People may be willing to pay a price, but it is not the market equilibrium price.

I never like to see people lose their jobs. It is a very emotional experience compounded worse if you have a family that rely on you. However I have to say that my feelings on this situation are mixed. ON one hand I feel bad for some and the other I could careless. Sound messed up I know but I will try to explain.

I find it hard to feel bad for the "masters of the Universe Wallstreeters". The blame for losing their jobs is located in the mirror. When they were selling all this junk all over the world and making billions they were very well compensated for the fraud. Now people are telling me that I should feel bad for people who were making %400,000-? while commiting a crime. No way Jose. Even San Diego gets rain every so often. At those wages they should have millions in the bank. My guess is the more they made the more they spent. When this is all over you WILL SEE PEOPLE GOING TO JAIL for fraud. This whole thing was one enormous white collar crime that's going to cost the tax payers trillions. The smart ones got out early the rest were left holding the "Bear". Feel bad for them NO WAY IN HELL.

Its the back office people of these firm that I feel bad for. The secretary's, IT, accounting depts..... They are the ones that are going to feel this the most. So for them I do feel bad.

Guess what 10 years from now this to will be forgotten just like everything else and we would have moved on to the next Crime..........

steve- what market rents and apartment prices are you using? Because all your babble about imputed rents doesn't work unless the numbers are accurate. Let's be real. From what I see, a person can rent a nice one-bedroom in a desirable Manhattan neighborhood for $3,500-$4,500 per month. A person can buy a nice one-bedroom for around $700,000-$900,000. Let's assume a $600,000 mortgage. The monthly mortgage payment will be around $3,800-$4,000 per month. Throw in common charges, maintenance, taxes (depending on the type of apartment) and let's assume another $1,500. Subtract the tax break, let's say that gives a $1,000-$1,200 benefit per month. Your total after tax cost could come in around $4,500 or less, to actually own instead of rent. I know this is a quick and rough estimate, but it makes sense and blows your imputed rent drivel right out of the water.

who said anything about "market equilibrium price"?

dco, that paragraph nicely demonstrates that you have no idea what you're talking about. you should get to know some people who make over 200k, it would give you some much needed perspective.

LICC, don't forget that a portion of your mortgage goes to principal, which you need to subtract before comparing to rental costs.

Juiceman, always the financial whiz kid. No, I'm sorry, you can't disregard the portion of the mortgage payment that is principal. That, my little soft-brained friend, is part of the cost of owning. By Juiceman's logic, if interest rates were 0% and the payments were entirely principal, Juiceman would compute a monthly cost of $0 to own.

Also, LIC, you're forgetting the cost of the equity. On a $900K apartment, even at today's anemic interest rates, that $300K could get you at least $1,000/month. That, of course, is if you choose to assume a relatively risk free rate as your cost of equity. Most would probably assume something closer to 10%, although not even I will go near 60%. Sorry there, Steve-O.

faustus, you do not include the principal portion of the mortgage payment. what you should include is the opportunity cost of that portion (which is of course much less than the actual payment), just as you do with the original equity.

steve would also tell you you need to include the cost of the risk, which is correct, but of course he ignores (or scoffs at) the non-monetary benefits of owning. i prefer to simply cancel these 2 factors out, seems reasonable and its easy.

net net what you're probably going to find is that in most cases it is cheaper to rent right now then to buy. not nearly half as expensive as some people like to claim but less expensive.

faustus (aka resident moron), tell me again how principal is the cost of owning. That was a good one. Better yet, compare 10 years of renting at $5000 a month to owning at $5000 a month. Assume tax benefits and cost of equity are a wash and assume zero appreciation and zero rent increases. Would you choose to rent or buy? Why or why not?

Juiceman, I'm going to illustrate your idiocy for the world to see.

You say only interest should count. Let's suppose that you buy a $10 million apartment with a 0% mortgage. In your financial fantasy world, because there is no interest, the apartment has no cost (setting aside maintenance, etc.). Juiceman, explain to all of us how that principal is NOT a cost of owning. Is it pixie dust?

You know, I read these boards and now and again read something so profoundly stupid, I can't resist the urge to post. More often than not, Juiceman, it's something you say!

LICComment, even admitting your premises (which are doubtful since most 1-bedrooms are going for nearly $900k today), a $600k mortgage @ 6% = $3,600 per month. Add in $1,500 as tax and common charges = $5,100 per month.

Here's a few 1-br 1-ba listings @ a very nice market-rental building in Chelsea:

$2,700 1-Bedroom at Chelsea Court B&L Management 01/Jul/2007 02/May/2008
$2,775 1-Bedroom at Chelsea Court B&L Management 01/Aug/2008 02/May/2008
$2,900 1-Bedroom at Chelsea Court B&L Management 01/Jul/2008 08/May/2008
$2,950 1-Bedroom at Chelsea Court B&L Management 01/Jul/2008 09/May/2008
$3,100 1-Bedroom at Chelsea Court B&L Management 01/May/2007 22/Apr/2008

Let's average them at $2,900 per month.

So, you're paying $5,100 per month for what I can rent for $2,900 per month.

Wait, yes, the tax break.

The first year (and it falls over time) interest is $35,664.44. You're in the 30% (net) tax bracket (which you're not, but I'm giving you the benefit of) you save $11,000 per year. But I'll give you $1,000 per month.

So you're paying $4,100 per month net for what I can rent for $2,900 per month.

SOUNDS LIKE A GREAT DEAL TO ME!

But wait! This is, say, an $800k apartment. That means I put down a $160,000 down payment. I can make - conservatively - 5% per year on that, or $667 per month.

Meaning that I'm paying $2200 per month to rent for what you're paying $4,100 per month to buy.

I think you're an asshole. I have the same thing you do at half the cost, & you think you're smarter than me. And in my example, I gave you every benefit of the doubt.

No, you're an asshole.

heard BSC is not the only company laying off ppl. heard lehman brothers are letting go a bunch of folks, too.

"don't forget that a portion of your mortgage goes to principal, which you need to subtract before comparing to rental costs"

No you don't, unless you add in the opportunity cost of your principal invested in another asset.

JM, you're gonna ride this real-estate wave right to the bottom, b/c you haven't been right in the six months I've been posting here, & you're getting further from right with every next post.

Soon, since I drove the others away, you'll be gone too. And then I'll have my 2-br 2-ba in the West Village for the $750k it's actually worth. Based on (falling) market rents.

ccdevi: "the non-monetary benefits of owning."

LMAO. I can pick my paint color, have marble countertops, and a custom toilet for my ass.

LMAO LMAO LMAO.

I will not pay a 100% premium to have a custom john.

I might pay a 1% premium, b/c renting, if I installed a custom john, they'd give me a blow job in thanks.

Steve, we've been over this before, but in the vast majority of cases, marginal tax rate is the relevant rate, not effective (which I think is what you mean by net) rate. The only exception is where the deduction causes you to move between tax brackets, and in that case it's a blended rate between the two marginal brackets. Mortgage interest is also deductible for both state and city taxes, which will run at ~11% for most people who we're talking about here. So the tax deduction is ~$1200 per month.

Real estate taxes are also deductible unless you're in the AMT. For 1BRs, most people are probably paying the AMT. For bigger units, they're probably not. This might add an additional tax benefit.

Also, when you're comparing investment income to the various expenses we're talking about here you're mixing pre- and post-tax dollars. I think you'd be hard-pressed to get a really safe investment that returns more than 3% after-tax right now.

All told, this only narrows the gap. In your example, this would result in a $2500 rental versus a $3900 purchase. I agree that's still a pretty big delta, although I think there are areas where the rent/buy spread isn't as stark right now.

"marginal tax rate is the relevant rate"

No actually - should I say moron - it's the effective tax rate that matters. Ask the Fed.

"For 1BRs, most people are probably paying the AMT. For bigger units, they're probably not."

Notwithstanding the regressive nature of AMT, that's douche. You have to get into the $500,000 adjusted gross - yes, an approximation - to avoid AMT. I get it every year.

"I think you'd be hard-pressed to get a really safe investment that returns more than 3% after-tax right now."

Again, LMAO. I've made 20% gross thus far this year. If you're a lesser, kewl.

"I think there are areas where the rent/buy spread isn't as stark right now."

I deal in prime. Poverty is great, as long as it afflicts somebody else.

One thing: "a really safe investment."

What makes you think that's real estate?

Wow, Steve. I think if you look back you'll note that I've never said an insulting word directed at you. I'm not sure why you've decided that calling me a moron somehow makes your argument any better, but I'm pretty sure most observers will realize who's getting the better of the discussion.

A few points:

- Why does what the Fed say have to do anything? When you compute how much your mortgage affects the taxes you pay, you lop the deduction off your AGI. This is going to reduce your tax liability in your marginal rate first, which is why the marginal rate matters. In any case, people can model the exact numbers based on their expected income in the coming years. I think they'll find the answer is much closer to the marginal rate than the effective rate. I see you've conveniently ignored the discussion of the 11% state/local tax deduction, in any case.

- I think that $500,000 gross number is about right for where you stop paying the AMT, especially if we're talking about paying a mortgage. Given the current pricing of 2BRs+ in the market, I don't think it's unreasonable to assume that a lot of those people earn $500K plus.

- It's nice that you've made 20%, but you can't do that without taking on risk. The tax savings we're talking about are essentially guaranteed, though, so the reasonable comparison is to treasuries, FDIC-insured accounts, etc.

- I never said that real estate is a safe investment right now. Notice that we're not actually discussing any gain/loss from the real estate itself. We're just comparing monthly costs of renting versus buying.

steve - you get awfully nasty when your theories are shown to be wrong or stupid. For every building that you can show with an average of $2,900 rent for a one-bedroom, I can find one with an average $4,500 or more. I also can find one-bedrooms for sale in the $600-$700k range. Just look at the hundreds of streeteasy listings. Of course if you bias the numbers in your favor you can make it look better. Do you not think $3,500-$4,500 for a rental and $700k-$900k to purchase is a fair estimate of the market? And as Jordyn pointed out, I probably am underestimating the tax benefit.
Also, don't forget that when you buy, you are controlling your future costs to a much greater extent than if you rent. When you rent, over the long term you are subject to market movements in rents, which over time will trend upward.
As for the equity cost of the principal - you have equity. Sure you can invest that money and make a return, but if you buy an apartment you will also increase your net worth by the increase in property value. Again, over time the real estate value of your apartment should match or better any low-risk return you would otherwise receive.
Maybe I'm an a-hole, maybe not, but you definitely are rude and dense.

Please, LICComment - don't waste your time. You are dealing with someone who states Manhattan real estate will drop because it's impossible for any investment to sustain 12+% annual returns while simultaneously boasting that his own portfolio yields 60% returns on average.

the name calling is an unfortunate distraction from an otherwise very interesting thread.

"I will not pay a 100% premium to have a custom john. I might pay a 1% premium"

Its interesting that you're lyao, because you agreed with my point, that in fact their is a non monetary benefit of owning. I never tried to quantify it (other than to say for purposes of ease I'd just ignore it and consider it evened out with the risk of owning) and yet you felt the need to be a jerkoff in "disagreement." Whats interesting is that I believe you have argued for a 2% risk premium, so in fact even in your world, my premise is not to far off, and yet again you acted like I was saying something incredulous.

Now again its really hard for me to quantify the non monetary benefit of owning but clearly some (including myself) value it more than you (notwithstanding that you admit that its worth something). Thats ok to each his own. You should consider that others might have a different (legit) point of view.

Are you single no kids? I've thought for a long time now that I'd bet that the folks who denigrate owning are likely more often single no kids, while those who really appreciate owning are more likely married with kids. Just generalizations but they make sense. Perhaps others would care to comment on this theory?

In any event I've reported your repeated unprovoked abuse in this thread. Hopefully others have done the same.

oops, "there" not "their" and "too" instead of "to," just trying to appease the grammar police.

LIC - did you and Juiceman sleep through the same finance class?

"As for the equity cost of the principal - you have equity. Sure you can invest that money and make a return, but if you buy an apartment you will also increase your net worth by the increase in property value. Again, over time the real estate value of your apartment should match or better any low-risk return you would otherwise receive. "

You ALWAYS have to include the opportunity cost of equity. If you don't, by your logic, if you were to pay 100% cash for an apartment (no mortgage), you would calculate zero cost for the apartment. This is absurd.

For instance, if you ignore the cost of equity, by your logic your cost of carrying an apartment that cost you $100 million in cash would be zero. Zero. So, your analysis would tell you that it's better to buy a $100M apartment all cash rather than rent it for $1.00 per month.

again faustus you're only partly right (I noticed how you ignored the point I made about the principal portion of a mortgage payment).

yes of course you have to count the opportunity cost of the equity (both the down payment and the subsequent principal payments). I believe what LIC is saying, and what you are ignoring, is that you also need to account for expected appreciation. Now of course this is variable that must be estimated. LIC is saying that this expected appreciation cancels out the cost of the equity. I don't know that I agree. Steve would tell you that over time real estate does 0.7% over time and that the S&P does 8% and that you should use those numbers. In any event you need to account for leverage (which would make that .7% effectively about 3-3.5% on principal, and also you should factor in taxes incurred on both investments, which of course should benefit owning). I think this is too complicated (and variable). I like to simply apply whatever interest rate you're using for the mortgage, apply it to the downpayment as a cost of owning and be done with it (ie I ignore potential appreciation and the tax factor and in return I use a lesser rate of return and ignore the subsequent principal amort. Not perfect but I think reasonable and more important, much easier.

faustus - you also are pretty slow when it comes to comprehension. Why can't you follow the concept, it's pretty simple - the equity cost of the principal is offset by the equity growth of the property. If anything, buying property with equity and debt is more likely beneficial because your equity growth comes from the full property value. You are attaining leveraged returns. Maybe you should dust off your old textbooks and re-read them before you post something silly again.
Taking your approach, I'll see if I can explain it to you so you can understand. If you pay 100% cash, your monthly cost would be zero plus common charges and taxes. The cost of equity would be the return you could otherwise have gotten investing the equity elsewhere. This is offset by the growth in value of the property. Strictly from a return standpoint, it would be better to buy if the risk/return outlook for the property, given its purchase price, is better than the risk/return options available were you to invest the money. If your $1 per month rental allows you to receive a low-risk long-term return of 3%, but the $100 million apartment will increase in value by 10%, then yes it is better to buy. Of course, your example is extreme and this analysis doesn't factor in any other life factors, availability of funds, etc.
I can look up some continuing ed classes in finance for you faustus . . .

ccdevi makes a good point - gains on the sale of a primary residence are tax free up to $250k. Your after-tax return on equity on a property investment is even better when compared to the equity cost, unless you only invest in munis. That hasn't even been factored in to this discussion.

faustus, if you are so smart, why don't you just answer the simple question I posed to you above? $5000/mo to rent and $5000/mo to buy which would you choose and why. Do you understand what principal is faustus?

"don't forget that a portion of your mortgage goes to principal, which you need to subtract before comparing to rental costs"

No you don't, unless you add in the opportunity cost of your principal invested in another asset.

faustus, read what steve wrote here, because he is absolutely right. For now on steve, when you are calculating your month to month rent vs. buy costs, do not include principal and add ~10% of that principal amount to the cost of owning.

" b/c you haven't been right in the six months I've been posting here, & you're getting further from right with every next post."

steve, if I'm further from right than you are left of Obama.

jordyn, your effective tax rate is used not your marginal tax rate precisely because if you use your marginal tax rate you are assigning the full tax benefit of your real-estate assets to your highest rate, and therefore making them more valuable than any other deduction.

They are not more valuable. They are equally valuable. Therefore, your effective rate is used.

"Why does what the Fed say have to do anything?" Because - if you didn't know - the Fed is in the business of making economic forecasts and managing the economy. The Fed does research, and their research unequivocally PROVES that whenever imputed rent - the amount it costs you to carry an apartment to own - exceeds the market rent for an identical property - then property prices fall to meet market rents.

Always.

"It's nice that you've made 20%, but you can't do that without taking on risk. The tax savings we're talking about are essentially guaranteed."

You fall into the JuiceMan trap. First, owning a property is far riskier than renting (recognized as such by the Fed) and therefore that risk must be calculated into the equation, as the Fed does. Second, tax savings are contingent on 1) income, and 2) tax law. You have no guarantee that those will not change in the future.

= risk.

"if you buy an apartment you will also increase your net worth by the increase in property value. Again, over time the real estate value of your apartment should match or better any low-risk return you would otherwise receive."

Not likely. Over long periods of time the gains in the S&P 500 far exceed the gains in owner-occupied residential real estate. In real terms on a moving average basis since the end of WWII, 0.7% vs. 8%. And real-estate is not a "low-risk" investment. In fact, given its high price and relative illiquidity, it is considered by the Fed and other economists to be high-risk, and is assigned a risk premium when calculating imputed rent.

Yes I am rude, but not dense.

LICComment, no I didn't "skew" anything. Here are 1-bedroom listings in Chelsea - the same neighborhood that I showed for rentals - between $600k and $700k:

Sales in Chelsea
We found 14 listings for between $600,000 and $700,000 with at least 1 bedroom
Median price: $669,500 Median size: 700 ft² Median price per ft²: $927

There are 14. Now for all prices:

Sales in Chelsea
We found 410 listings with at least 1 bedroom
Median price: $1,825,000 Median size: 1,450 ft² Median price per ft²: $1,324

There are 410, and the median price is $1.825 million.

Here are the current market rentals available in the same neighborhood:

Apartments in Chelsea:
$2,350 1-Bedroom at 112-116 Seventh Avenue
$2,700 1-Bedroom at Chelsea Court
$2,775 1-Bedroom at Chelsea Court
$2,900 1-Bedroom at Chelsea Court
$2,950 1-Bedroom at Chelsea Court
$3,100 1-Bedroom at Chelsea Court
$3,450 1-Bedroom at Chelsea Centro
$3,505 1-Bedroom at Chelsea Centro
$3,540 1-Bedroom at Archstone Chelsea
$3,600 1-Bedroom at 434 West 19th street
$3,610 1-Bedroom at Archstone Chelsea
$3,620 1-Bedroom at Chelsea Centro
$3,625 1-Bedroom at Chelsea Centro
$3,650 1-Bedroom at Casa: 155 West 21 street
$3,650 1-Bedroom at London Terrace Gardens
$3,655 1-Bedroom at Archstone Chelsea
$3,675 1-Bedroom at 777 Sixth Avenue
$3,725 1-Bedroom at The Capitol
$3,775 1-Bedroom at London Terrace Gardens
$3,825 1-Bedroom at Chelsea Centro
$3,865 1-Bedroom at Archstone Chelsea
$3,900 1-Bedroom at London Terrace Gardens
$3,975 1-Bedroom at Archstone Chelsea
$3,995 1-Bedroom at The Tate
$4,075 1-Bedroom at Archstone Chelsea
$4,195 1-Bedroom at Chelsea Landmark
$4,225 1-Bedroom at The Sierra
$4,240 1-Bedroom at Archstone Chelsea
$4,295 1-Bedroom at Chelsea Landmark
$4,295 1-Bedroom at Chelsea Landmark
$4,345 1-Bedroom at Archstone Chelsea
$4,350 1-Bedroom at Casa: 155 West 21 street
$4,395 1-Bedroom at The Westminster
$4,420 1-Bedroom at Archstone Chelsea
$4,495 1-Bedroom at The Sierra
$4,515 1-Bedroom at Archstone Chelsea
$4,525 1-Bedroom at Archstone Chelsea
$4,695 1-Bedroom at The Tate
$4,895 1-Bedroom at The Westminster
$5,995 1-Bedroom at The Westminster
$6,700 1-Bedroom at The Capitol

There goes that theory of yours. Even the most expensive 1-bedroom available, at $6,700, is far less expensive than the MEDIAN price for a 1-bedroom apartment.

ccdevi: ""I will not pay a 100% premium to have a custom john. I might pay a 1% premium" Its interesting that you're lyao, because you agreed with my point, that in fact their is a non monetary benefit of owning."

That's another LMAO. I might also pay a 10% premium not to be saddled with an apartment that I can't get rid of, or that's losing value. What I said IN NO WAY supports what you said.

"you also need to account for expected appreciation."

You're right, you do. An for expected depreciation, as well.

Oh wait, this is Manhattan. Property prices never fall here!

LIC: "This is offset by the growth in value of the property. Strictly from a return standpoint, it would be better to buy if the risk/return outlook for the property, given its purchase price, is better than the risk/return options available were you to invest the money. If your $1 per month rental allows you to receive a low-risk long-term return of 3%"

Real estate is NOT a low-risk asset. Get that through your head. It is very expensive and highly illiquid, not subject to bankruptcy protection, and price increases / decreases occur over long periods of time. It is less volatile than some other assets, but no less risky.

Ask the Fed.

JuiceMan, again, a moronic question: "$5000/mo to rent and $5000/mo to buy which would you choose and why. Do you understand what principal is faustus?"

I would choose to rent a 2-bedroom 2-bath apartment for $5,000 per month over paying $5,000 a month for the honor of owning a studio.

Do you understand what "value" is, JuiceMan? Do you understand that buying a property to live in is merely capitalizing your long-term rent, so if it's more expensive to buy than it is to rent is makes sense to rent? ESPECIALLY when the differential is 2:1.

steve, don't be an idiot, your not nearly as dumb as faustus. Assume your treasured "equilibrium", same size unit, same price, and then faustus should answer the question, if he can.

By the way, it is good to see that you will no longer include principal in your calcs, that is a big step for you. You lack consistency but at least now the calculation will be done correctly. It only took you 6 months to admit you were wrong.

What do you mean that I "no longer include principal in my calcs"? I didn't discuss principal specifically, I don't think, so please explain. All I said about it was that it is capitalized rent.

"same size unit, same price" is a nice scenario, but that's not the current market situation in Manhattan - is it? given the figures I posted. But, in that hypothetical situation, it would depend on what I thought the market would do, how much money I had for the down payment, and what my plans for the future were, and so on. So, you haven't provided me with enough information to answer the question.

BTW I support Bloomberg, not Obama.

stevejhx: The 410 apartments "...with at least 1 bedroom" would include all the bigger apartments too, wouldn't it? Isn't that $1.825MM median skewed upward by 2+ BR units?

funny steve, we may not agree on much regarding real estate, but politically we are very much aligned. Bloomberg would have made this race very interesting.

Regarding the $5000 a month question, it is an easy one that you are over complicating. Let faustus answer it.

Skewed substantially, it appears, since 244 of the 410 have 2+ BRs and a median price of $2.465MM.

The following sure contradicts steve's imaginations regarding rents - http://www.observer.com/2008/economy-tanking-real-estate-plunging-tell-aspiring-manhattan-renters
From the article:
As this column has noted before, Manhattan rents (and those of much of brownstone Brooklyn) have remained very much the same since 2002. The rents went up as the city recovered from Sept. 11, and they%u2019ve stayed up, with only minor fluctuations unnoticeable to the pocketbooks of many renters.

A big part of this stubborn rent stagnation is, of course, demand. Another report last week, from investment-sales brokerage Marcus & Millichap, put the vacancy rate for large, market-rate Manhattan apartment buildings at under 3 percent for the first quarter of 2008. It is not expected to rise above that percentage this year.

Why not? After all, conventional wisdom holds stubbornly that even the mighty Manhattan economy has begun an irreversible turn, joining the nation and the state in the prolonged doldrums. Not really: Four of the five boroughs in April had unemployment rates no higher than the nation%u2019s 4.8 percent (the Bronx was the exception), and Manhattan%u2019s, at 3.9 percent, was well under New York State%u2019s as well. Plus, the imagined tens of thousands of layoffs in the financial services sector, that great driver of both commercial and residential real estate locally, have yet to materialize.

For all the bluster and fuss, the local economy remains on the precipice rather than over it. And that is why Manhattan rents haven%u2019t dropped in any meaningful way in time for the spring rental season. The island%u2019s doing just too damn well right now

steve - your comparison of real estate appreciation to the stock market is similarly flawed. See the below from Forbes regarding using Fed data to make such a comparison:

We used home sale price data from OFHEO, which includes mortgage data from the two institutions it oversees: Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ). The data set only includes single-family homes, not condos and co-ops, which might put cities such as New York and San Francisco at a disadvantage in our comparison. Also, it doesn't include mortgages where the principal exceeds $333,700.

We used the S&P 500 because, as its name implies, the index tracks the market value for the stocks of 500 leading companies. That allows us to do a broader price comparison than if we had used the Dow Jones Industrial Average, which averages out the prices on 30 large-cap stocks.

Real estate is at another disadvantage here, because we're not taking into account potential income tax breaks. And, though dividends aren't included in the S&P 500, Jeremy Siegel, an expert in financial markets and economics at the Wharton School of the University of Pennsylvania, points out that a house pays a benefit that is not measured in its price. In other words, you can live in it. Rent free.

come back from vacation, hoping for some good entertainment, and it's just the same ol' thing. you guys are boring and trite.

Well, that rent article directly contradicts other ones that state that rents are falling; the link was published elsewhere. Even if that article is true about prices not falling(doubt it):

"Manhattan rents (and those of much of brownstone Brooklyn) have remained very much the same since 2002."

WOULD THAT PROPERTY PRICES HAD DONE THE SAME!

What have I been predicting? That property prices will fall to 2003 levels. What does this article say? That rents have not changed since 2002. Since property prices ALWAYS fall to correlate with rents, property prices will fall.

That's what the article says.

LIC, since you didn't give the link, if you're referring to this article:

http://moneycentral.msn.com/content/invest/forbes/P119557.asp

here's what it says:

"Where's a better place to put your money: the stock market or real estate? These days the accepted wisdom (at least at cocktail parties) says to pick real estate. But is the accepted wisdom right? It is -- in the short term. U.S. real estate sale prices increased more than 56% from the beginning of 1999 to the end of 2004, as tracked by the Office of Federal Housing Enterprise Oversight, part of the U.S. Department of Housing and Urban Development. The S&P 500 index ($INX) dipped nearly 6% during that same period. But if you take a longer view -- say, 25 years -- you'll find that the S&P 500 has actually stomped the real estate market, from Boston to Detroit to Dallas. From the start of 1980 to the end of 2004, home sales prices increased 247%. A pretty sweet deal, it would seem. Over the same period, however, the S&P 500 shot up more than 1,000%."

Talk about a selective quote!

West81st, the point is that there are virtually NO 1-bedroom apartments in the $600k-$700k range. I just realized that you can only search on 1+ bedrooms, not just 1 bedroom, so here are the figures for the next price range, more representative:

Sales in Chelsea
We found 251 listings for between $700,000 and $1,250,000 with at least 1 bedroom
Median price: $990,000 Median size: 834 ft² Median price per ft²: $1,195

14 vs. 251. And a median price of $990,000 is far higher than the average rent from the prior post, of about $3,500.

I did it a different way, searching on "total monthly cost" with a $200,000 down payment:

Sales in Chelsea
We found 3 listings with monthly payments of between $3,000 and $4,000 with at least 1 bedroom
Median price: $680,000 Median size: 580 ft² Median price per ft²: $1,091

EXACTLY 3 1+ bedroom apartments for sale in Chelsea with a carrying cost of between $3k-$4k per month.

Exactly 3.

JM, I hope Bloomberg runs for governor. We need him more than for president.

Let's talk reality in NYC. In 1968, you could have bought a great one-bedroom apartment in a good area of Manhattan for under $35,000 (and probably even less than that - three-bedrooms were under $100k, lofts on Greenwich Street were selling for $20,000). Just looking at principal appreciation, and assuming the high $35k number, let's assume the same type of one-bedroom apartments go for $800k now. Assuming an 8% stock market return, your present value on $35,000 in 1968 would be around $760,000. 8.5% would be around $915k. I'm not even factoring in taxes, rents, etc., but again, this rough analysis shows how delusional steve is.

steve - the quote from the article was an admission from the author that its facts were limited. You are one to talk about selectivity, when you are judging all of NYC by searching just for Chelsea apartments. Look at all of Manhattan and you will find a couple hundred one-bedrooms in the $600-$700k range. I have said that $700k-$900k is the more appropriate range. I was just pointing out that if you want to bias your comparison with a selective listing, there are also enough listings at the lower range to do the same thing.

By the way, I agree - Bloomberg for gov.

LIC, take the gains on a moving average basis since the end of WWII - the beginning of the modern age - and you will see that I am correct.

I chose Chelsea for two reasons: 1) I live here so I'm familiar with it, and 2) there are more market rentals here than in other neighborhoods in the city, so the comparison is easier.

However, since you asked:

Sales in Manhattan
We found 162 listings with monthly payments of between $3,000 and $4,000 with at least 1 bedroom
Median price: $650,000 Median size: 702 ft² Median price per ft²: $864

162 with monthly payments between $3,000 and $4,000 per month.

Then do it for no-fee market rentals, for all of manhattan:

You searched for apartments in Battery Park City, Central Village, Chinatown, East Village, Financial District, Little Italy, Lower East Side, NoHo, NoLiTa, SoHo, TriBeCa, West Village, Central Midtown, Chelsea, Flatiron District, Garment District, Gramercy Park, Hell's Kitchen, Kips Bay, Midtown East, Murray Hill, Stuyvesant Town, Central Park, Morningside Heights, Upper East Side, Upper West Side, Central Harlem, East Harlem, Inwood, Washington Heights, West Harlem, Roosevelt Island. Per your request, the results include only the following apartment layouts: 1-Bedroom. The list is ordered by Neighborhood.

626 records found

The ratio remains the same.

sorry, I did that wrong:

with rents between $1,500 and $4,000. Per your request, the results include only the following apartment layouts: 1-Bedroom. The list is ordered by Neighborhood.

512 records found

That is 1-bedroom rental apartments in all of Manhattan for $4,000 and under.

versus 162 for sale.

Steve, let's demonstrate something with actual number so you can see how silly it is to use effective tax rate. I'll do two scenarios, including one that is most favorable to your position.

For simplicity's sake, let's say you're single, your AGI is $250K and you have $20,000 in deductions other than your mortgage payment. (I'm ignoring AMT, but also ignoring state and local taxes, once again for simplicity's sake.) You'd be in the 33% federal tax bracket, but you'd owe $61,651 in taxes so your effective tax rate would be 24.6%. Now you get a $35,664 mortgage tax deduction. This lowers your taxable income from $230K to $194,336 and lowers your tax due to $49,882. The $11,769 decrease in your taxes is exactly 33% (your marginal tax rate) of your mortgage interest. This doesn't "favor" your mortgage deduction, it treats it identically to all of your other deductions, which also get the same tax treatment. We can add on about another $30,000 worth of deductions before this matters, and I picked an AGI about halfway into the bracket.

However, let's compute this in the way that is most favorable to you. Let's say your AGI is $184,551 with the same $20,000 of non-mortgage deductions, which puts you $1 into the 33% bracket. You owe $40,053 in taxes, making your effective tax rate 21.7%. Now you add the $35,664 mortgage deduction, which reduces your tax owed to $30,067. In this case, essentially all of the effect of the deduction is in the 28% bracket. Even in this scenario, where you would otherwise be exactly on the border of the two tax brackets with the largest change in rates (i.e., the scenario that most favors the point you're trying to make), using your marginal rate gives a result that is $1783 off. Using your approach of using effective tax rate, you'd end up with an answer that is $2247 off. So, in the best possible scenario for you, using marginal tax rates is still considerably more accurate than using effective tax rates. As demonstrated above, in many cases using marginal rates will give exactly the right answer; unless you earn less than $8,000 or your tax deduction eradicates your income entirely, using effective tax rate NEVER provides the exact answer.

The rest of your response to me has nothing to do with what I wrote. You think I'm falling into a "trap" of treating real estate as a risk-free investment, whereas (as I pointed out previously) I'm not treating it as an investment at all. I'm comparing monthly costs and for the benefit of your position, letting you assume that you can make some return on your downpayment while not considering any gain in property value. If you want to model out the risk/reward of the underlying real estate investment, feel free, but it's a rather more speculative endeavor.

"What I said IN NO WAY supports what you said."

Did you or did you not say that you might be willing to pay a 1% premium to own rather then rent?

Of course you did. But now you're saying that does not support my contention that their are non-monetary benefits of owning. Do you really disagree with that by the way?

If so again thats fine, for some people its just about having a place to live. For others, its about having a home and customizing that home exactly how you want it with the intention of staying long term. But of course thats not a legit point of view because you don't happen to share it.

Again I really believe a lot of this has to do with single versus married with kids.

damn, "there" not "their" again, I really should proof before I post

"Did you or did you not say that you might be willing to pay a 1% premium to own rather then rent? Of course you did. But now you're saying that does not support my contention that their are non-monetary benefits of owning. Do you really disagree with that by the way?"

Of course I said that I MIGHT be willing to pay a 1% premium. MIGHT. But I MIGHT be willing to pay a 1% premium to rent, as well, depending on my circumstances. There are nonmonetary benefits to both - your implication is that only buying has those benefits.

Or do you deny there are nonmonetary benefits to renting?

jordyn, do you know the difference between the LIFO, FIFO, and average cost of goods methods of valuing inventories? You're using FIFO for your example: "with the same $20,000 of non-mortgage deductions...You owe $40,053 in taxes, making your effective tax rate 21.7%. Now you add the $35,664 mortgage deduction."

Let's say you do it the other way around: take the mortgage deduction before you take the non-mortgage deductions, and you get an entirely different answer. That's why you use your effective rate: it values all deductions the same.

Steve:

1) We're not talking about inventories.

2) I'm completely agnostic about the order in which deductions are applied. My first example demonstrates that in most cases the order is completely irrelevant and the marginal rate dominates.

3) Using effective tax rate gets you the average tax rate for all of your INCOME; if you were going to use an average rate, you'd want to calculate the average tax rate for your DEDUCTIONS. These are not the same thing, as much of your income is taxed in brackets that will never be reached by your deductions.

4) If you take the mortgage deduction before you take the non-mortgage deductions, the results get closer to the marginal tax rate and farther from the effective tax rate. (In scenario #1 they stay the same, and in scenario #2 the deduction on mortgage interest is ~31%.) Your logic ends up being something along the lines of, "If you go in a plane instead of a stagecoach, you get there at a different rate of speed. That's why you should take a stagecoach."

Sorry, my analogy was wrong. "If you go in a plane instead of a rocket, you get there at a different rate of speed. That's why you should take a stagecoach."

Just read this and then get back to me:

www2.gsb.columbia.edu/faculty/cmayer/Papers/Assessing_High_House_Prices.pdf

A Formula: The formula for the annual cost of homeownership, also known in the housing literature as the “imputed rent,” is the sum of six components representing both costs and offsetting benefits. [...] the third component is actually an offsetting benefit to owning, namely, the tax deductibility of mortgage interest and property taxes for filers who itemize on their federal income taxes. This can be estimated as the effective tax rate on income times the estimated mortgage and property tax payments.

Case closed.

The inventories comment was for LICC: "For every building that you can show with an average of $2,900 rent for a one-bedroom, I can find one with an average $4,500 or more. I also can find one-bedrooms for sale in the $600-$700k range. Just look at the hundreds of streeteasy listings."

Sorry, not true: Sales in Manhattan
We found 162 listings with monthly payments of between $3,000 and $4,000 with at least 1 bedroom
Median price: $650,000 Median size: 702 ft² Median price per ft²: $864

Now, Jordyn and JuiceMan (again), I invite you to read the paper, plug in some real numbers and get back to me with what you think the ratio between imputed rent and market rents are.

Check out the charts in the back - specifically the one on NYC, look at where market rent / imputed rent was in 2003 (when this report was written), then figure out what's happened to market prices since 2003, and compare it with what's happened to market rents (they've stagnated).

Ergo, what do you think is going to happen in the future?

Just go read this and get back to me:

http://en.wikipedia.org/wiki/Appeal_to_authority

"An appeal to authority or argument by authority is a type of argument in logic consisting on basing the truth value of an assertion on the authority, knowledge, expertise, or position of the person asserting it. It is also known as argument from authority, argumentum ad verecundiam (Latin: argument to respect) or ipse dixit (Latin: he himself said it). It is one method of obtaining propositional knowledge, but a fallacy in regard to logic, because the validity of a claim does not follow from the credibility of the source."

Steve, ironically enough I basically agree with you that real estate prices are out of whack and that some regression to mean is likely to take place. I'm too lazy to run all the formulas, but in the areas I'm familiar with I'd estimate the ratio at about 1.3. I think there are places in the City where it's quite a bit higher (where rents are not substantially higher, but condos/coops are more expensive).

steve - just run the Manhattan listings on streeteasy for 1 bedrooms in the $600k to $700k range. There are over 700. Can you not tell when you are sinking further and further down the lack of credibility hole? Or do you think distorting the analysis will always save you?

Also, your inventory comment started with "jordyn", and then proceeded to discuss LIFO and FIFO as applied to mortgage deduction and effective and marginal tax rates. I don't see how that comment was for me.

just skimmed through that article you linked, Steve. here's some stuff from page 2:

"For all of the above reasons, conventional metrics for assessing pricing in the housing market such as price-to-rent ratios or price-to-income ratios generally fail to reflect accurately the state of housing costs. To the eyes of analysts employing such measures, housing markets can appear “exuberant” even when houses are in fact reasonably priced. ... As of the end of 2004, our analysis reveals little evidence of a housing bubble. In high-appreciation markets like San Francisco, Boston and New York, current housing prices are not cheap, but our calculations do not reveal large price increases in excess of fundamentals."

anyone care to comment? not a loaded question. just seriously asking for commentary.

No LIC, here are:

Sales in Manhattan
We found 490 listings for between $600,000 and $700,000 with at least 1 bedroom
Median price: $660,000 Median size: 750 ft² Median price per ft²: $868

You have to take out listings that are already in contract, and some would argue also has an address, in which case the number is:

Sales in Manhattan
We found 446 listings for between $600,000 and $700,000 with at least 1 bedroom with an address
Median price: $659,000 Median size: 750 ft² Median price per ft²: $868

Those same figures for all properties available in Manhattan are:

Sales in Manhattan
We found 7,020 listings with at least 1 bedroom
Median price: $1,299,000 Median size: 1,186 ft² Median price per ft²: $1,186

We found 6,613 listings with at least 1 bedroom with an address
Median price: $1,330,000 Median size: 1,198 ft² Median price per ft²: $1,195

So that's about 7.5% of all properties in Manhattan. Alas, I can't say only 1 br., but 1+ br.

"but a fallacy in regard to logic, because the validity of a claim does not follow from the credibility of the source"

Very true, jordyn, unless you're discussing definitions, and "imputed rent" is a definition, thus its validity is not affected by the credibility of the source.

LICC - I'm confused!

That said jordyn, your post is self-defeating and illogical ipso facto because you are appealing to an authority (of sorts: wikipedia) to prove your point:

http://en.wikipedia.org/wiki/Appeal_to_authority

"An appeal to authority or argument by authority is a type of argument in logic consisting on basing the truth value of an assertion on the authority, knowledge, expertise, or position of the person asserting it. It is also known as argument from authority, argumentum ad verecundiam (Latin: argument to respect) or ipse dixit (Latin: he himself said it). It is one method of obtaining propositional knowledge, but a fallacy in regard to logic, because the validity of a claim does not follow from the credibility of the source."

Juiceman - come to my aid on wiki! LOL.

Actually, I was just too lazy to type it all in myself and wanted a reference for people to be able to read more so I provided a reference. Wikipedia doesn't give an argument any particular authority.

In any case, I'm not arguing about the definition of imputed rent. As I've said about six times, I'm comparing the actual monthly costs of buying versus renting. I really don't care very much about imputed rent.

ok steve, you started with 3 apartments for sale, went to 162, and now you're at 446. I think we can safely say that there are available one-bedrooms in that price range ($600-700k), but that you need to look higher ($700-900k) if you are analyzing the median. Which was my point all along.

LICC, I did the analysis different ways, but I'm limited to what this website will allow me. One analysis was for apartments in all price ranges up to $700,000. The other - probably more accurate - is to compare total cost for the apartments based on a certain down payment. I used total cost up to $4,000 per month, for which you can get a more than decent 1-bedroom in a luxury building in Manhattan.

3 was the figure for the up to $4,000 monthly carrying cost in Chelsea.

446 was the total number of 1-bedroom + apartments for sale in Manhattan between $600,000 and $700,000,
which is the range you gave

162 was for the total number of 1-bedroom apartments in Manhattan with a carrying cost of between $3,000 and $4,000.

"you need to look higher ($700-900k) if you are analyzing the median."

I don't understand that.

"I'm comparing the actual monthly costs of buying versus renting. I really don't care very much about imputed rent."

Well that's a shame, jordyn, because that's what imputed rent is - the risk-adjusted monthly carrying cost for buying versus renting including opportunity cost (investing your down payment elsewhere) and actual tax benefits, plus expectations of rising or falling prices.

Clever, Steve. You've neatly sidestepped the fact that your approach to tax deductions didn't make any sense by shifting to a discussion of the definition of imputed rent. I'll allow others to weigh in on your new "fascinating" topic, and let readers note that (as demonstrated above) when they want to figure out how much in taxes that they might actually save, the marginal rate is generally the correct one. If they want to calculate an economic concept that has no direct bearing on their bank account, I'm sure you're the first person they'll chat with.

"Or do you deny there are nonmonetary benefits to renting?"

No I do not deny that, and never said or implied that there weren't. See I just answer questions honestly, without reference to agenda. It all depends on one's situation. Cartman used to argue (what happened to that guy?), that the ability to just get up and leave the country for a year or change jobs and switch cities, etc, was a huge benefit of renting. I doubted that many in Manhattan would consider that much of a benefit, but again its person specific, some obviously would and do.

"You've neatly sidestepped the fact that your approach to tax deductions didn't make any sense by shifting to a discussion of the definition of imputed rent."

No, actually, I didn't. You don't understand it. The proper way to do the calculation is by giving all deductions equal weight - I even got JuiceMan to agree to that - because otherwise you are saying that mortgage interest and tax are better, say, than self-employed health insurance, because you deduct that one first.

But it's not better - it's the same thing: a deduction.

"calculate an economic concept that has no direct bearing on their bank account"

You really don't know what you're talking about, so I recommend being careful spouting nonsense. Imputed rent is the only way to calculate the mean 1:1 correlation between market rents and property prices, and it takes into account risk, interest rates, tax benefits, tax disadvantages, amortized transaction costs, EVERYTHING.

Steve wrote: "No, actually, I didn't. You don't understand it. The proper way to do the calculation is by giving all deductions equal weight - I even got JuiceMan to agree to that - because otherwise you are saying that mortgage interest and tax are better, say, than self-employed health insurance, because you deduct that one first."

Only one of us doesn't understand the math here. In my examples, I applied the mortgage deduction last. Last as in "most likely to be applied to lower tax brackets". In other words, I treated it *worse* than all of the other deductions, not better than them. And even using this approach, and even in a scenario in which the mortgage deduction came closest to being taxed at your effective rate, it was still more accurate to use marginal rate than effective rate.

Why don't you run some numbers yourself and see what you come up with? Try and find a scenario in which mortgage interest deduction comes off at a rate that is closer to your effective rate than your marginal rate. Only one of us has done anything in this thread other than spout words. Until you do something to substantiate your position, it seems to me that you're acting like a drowning man: flailing around for any thin reed to grab onto before going down for the last time.

jordyn, what does this mean: "Try and find a scenario in which mortgage interest deduction comes off at a rate that is closer to your effective rate than your marginal rate."

On average, if you weight all of your deductions, each and every one of them "comes off" - as you say - at the effective rate. It is called a "weighted average," FYI.

Your way, if you apply it last you are applying it to your highest tax bracket - your marginal tax bracket - and gives you a greater tax benefit applied to mortgage interest than all other deductions because you're reducing your tax at your highest rate.

Example: you have no mortgage. You make $100,000. Your marginal rate is 30%. You pay $300 in tax for every $1,000 you make.

You pay $1,000 in mortgage interest. You deduct it from your wages giving your wages giving you $99,000, yielding you a tax benefit of $300.

Your marginal rate is 25%, you get a $250 tax reduction.

Your effective rate is 27%, you get a $270 tax reduction.

Those are my numbers. What are yours?

Checkmate.

huh?

so about JP Morgan & Bear

Notice how when you present steve with actual numbers based on realistic present day factors in NYC, he tries all sorts of misdirection, distortion and conceptual theories to try to justify his arguments.

Steve,

I put a straightforward tax return in Turbo Tax and added various mortgage interest rate deductions and found the tax savings at the highest marginal rate(s). If the deduction moves you between brackets you may save in multiple rates but always at the highest first. I did not find the tax savings to be at effective rate of 100% of the income.

Steve, do you understand what these words mean? In a progressive tax system, your marginal rate is never lower than your effective tax rate. I have no idea where you are inventing your numbers from, but they have nothing to do with the US tax code. Just as a for instance, there's no 30% tax bracket.

If your taxable income is $100,000, you're in the 28% bracket (that's your marginal rate) and you owe $21,978 in taxes. This gives you an effective tax rate of 22%. If you have $1,000 in mortgage interest, your taxes are reduced to $21,698. This is $280 (28%, or exactly your marginal tax rate) less than what you would owe without the deduction. If you used your effective tax rate, you'd conclude that you only got a $220 tax deduction. This would be wrong.

The 28% tax bracket starts at $87,350. So unless you are deducting more than $12,650, all of your deductions are at your marginal tax rate.

As Pez points out, just try this in TurboTax. You'll see that the tax deduction comes out at something very close to the marginal rate, or perhaps a hybrid of your top two brackets, but never anything resembling your effective tax rate.

everyone, imputed rent = market rent... Don't you get it by now??

SteveEasy, no, you are wrong and a moron, PLEEZE, DISMISSED AND DENIED

Imputed Rent ALWAYS = Market Rent, go ask the Fed and Miller-Samuel, Black-Scholes, Penn-Teller and Siegfried-Roy.

Don't you know anything?

Check and mate and another mate for a 3 way

steve: "But it's not better - it's the same thing: a deduction."

For a guy with previous audit experience, you don't grasp the difference b/w above the line vs. below the line deduction? Seriously though, when is your next stand up gig in the city? Thanks.

Steve,

See http://en.wikipedia.org/wiki/Tax_rate#Effective.

It seems likely that the reference to "effective tax rate" in the article you mention is to the effective marginal tax rate, NOT the effective average tax rate.

Cheers,

JD

steve, seriously, why can't you just admit that you were mistaken and Jordyn is right? It is clear as day - really, what is your problem with conceding the point?

stephen: "Your marginal rate is 25%, you get a $250 tax reduction.

Your effective rate is 27%, you get a $270 tax reduction."

Wtf, Omg, Lawl. How would your effective rate be higher than your marginal rate under the current system? Unless you're assuming Ron Paul took over and inverted the cake. Run the numbers in ProSeries, ATX, etc. and come up with a legit argument. Please don't try to argue with imputed rents, numbers out of your ass, or that it has to do with the fact that you've filed single, with no dependents for so long that the IRS started feeling sorry for you.

PS, I'm a CPA/CFA (2nd year), also with Big 4, Tier 1 client experience - read SSB, GS, SAC, not your plebeian BofA, I'm guessing previous Fleet division based on your age/salary ratio. You can technically be my dad. But I'm lucky enough to have friends who'll physically kick my ass without warning should I name drop my previous clients or pedigree, in attempts to boost my worth. Do you have any in real life? MMMafia doesn't count.

But on a more serious note, you've been dodging my previous question of when you're performing your underrated standup gig in the city. Give me and my boys a show, please. Keep us posted, hugs.