What would you do?

Rent

presuming these are the only two apts in NYC and I had to live in one of them, I'd take the rental. Otherwise, I'd look elsewhere.

ccdevi- That must of hurt.

why?

ccdevi- My impression of you is that you don't think the market is overpriced and you have optimistic outlook?

So I don't understand. If it costs 11K a month to own it (plus other costs I am sure), how can they rent it for 5,300 a month. Are they really losing 6K a month????? Why don't they just under-price it and stop the bleeding? Or, did they essentially pay 5300 a month for it (i.e. they bought it when it was priced right and then they just got greedy and figured they would arbitrarily double the price)?

dco, I have said time and time again the following:

I would not buy in this market. And I'm certainly not optimistic about the short term future of real estate.

That I believe right now, that renting is cheaper than buying in general, but just that its not 2x cheaper as argued by some.

That under today's interest rate and tax conditions, a price to rent ratio of up to 20x might be reasonable.

You pick one example. Its not clear at all that the 2 apts are even the same (they seem to be the same line), in fact I don't think they are. And your example has a 29+ times price to rent ratio, hardly the norm (I think even Steve only argues that we're at 20-24x), and you feel triumphant that you've somehow made this great point. Its just bizarre.

Furthermore, I don't care if somebody chooses to rent rather than buy. I'm currently renting. How on earth you think it could pain me to "admit" that I'd rather rent one apt over buying some other (grossly overpriced) apartment, is beyond me.

dco- What the "price-decline-naysayers" would say to you:

"Yes, but do you have any concrete evidence supported by numbers and comparables?"
"You're comparing apples to oranges."
"You're skewing the numbers to support your view."
"You're ignoring the intangible aspects of ownership."
"This one isn't a valid example because (insert non-sensical reason here)"
"Buying is still better because of the tax-breaks. (with the discussion going off on a tangent about whether to use marginal or effective tax rates)
"But the ultra-rich are still buying $10,000,000+ apartments which results in raising the average prices for ALL apartments sold, so buying is still better."
"Layoffs? What layoffs?"
"Yes, but stupid Europeans with their strong currency will buy anything, no matter how overpriced."
"But this is New York City. Prices can only go up."
"Does....not....compute....error....error....error."

In fact dco, note that another apt in that building, same sq footage, higher floor, sold for $600k less 2 months ago. So you found some crazy person, listing their apt for 50% more than what is likely the best most recent comparable, and that "proves" that renting is better than buying in all cases. Well done.

imom, as always, you don't even read or understand the posts, you just post nonsense, not worth responding to.

Read this article and let me know if you want to either rent or own in this building

http://ny.therealdeal.com/articles/sheffield57-tenants-ask-city-to-take-control-of-building

This is typical of dco. He finds one off-the-wall anomaly and generalizes the entire state of the market to make some misguided point. Then you provide actual facts based on reality and all he will do is babble the same nonsense and make up more incorrect facts.

Don't be so hard on dco, it is tough to be a goldfish among sharks. I sort of look at him as an energetic 2nd grader trying to find his way. If I could pat him on the head and give him a lollipop, I would. Run along now dco and please, look both ways before you cross the street.

JM- It's funny that all you had to say in an earlier post was RENT.

Here's the original link to the rental, since the link is broken on Streeteasy. It's Apartment 20-T, 1,014 Sq-Ft (exact same size as the unit for sale).

http://www.adar2000.com/index.cfm?action=Rentals&subaction=detail&aptid=409083&aptpub=14437

If only there were some way to short-sell specific apartments on the market.

IMOM- Haven't you been reading. You are no longer able to discuss rent vs buy scenarios. BUY BUY BUY BUY
BUY BUY BUY BUYBUY BUY BUY BUYBUY BUY BUY BUYBUY BUY BUY BUYBUY BUY BUY BUYBUY BUY BUY BUYBUY BUY BUY BUYBUY BUY BUY BUYBUY BUY BUY BUYBUY BUY BUY BUYBUY BUY BUY BUY..........................

It's not uncommon for owning to be 2x rental for the same apartment.
http://realestate.nytimes.com/sales/detail/56-903856

Memnonhi, this building is a conversion with many rent stabilized tenants still in place. It's a sponsor sale, so it isn't costing the owner $11k to hold it.

iMom - to go short the housing market I think you can buy puts on the Case Shiller index - NY includes all of New York Metro area, so already has showed declines. I'm curious, has anyone on these boards has actually done that trade?

mrsbuffet- I wasn't talking about shorting the entire market. Just shorting specific apartments, like the one listed above. To use the stocks analogy, I would be shorting an individual stock, not the entire index.

JuiceMan, it must have hurt you to say "rent."

R-r-r-r-r-r-r-r-rent?!

Using the 8.5% interest rate for jumbo mortgages that BofA is quoting, that apartment would cost $14,000 per month to buy, $5,200 to rent. Even if you did knock off that $600,000 that was mentioned, it'd still cost you about $10,000 to own versus $5,200 to rent.

Oh wait, JuiceMan, there are deals to be had....

HQI - the average Manhattan condo in May 2008 is $1,500,000/1,100 sq ft. If you get 80% financing at 6% 30yr fixed, add in CC, total monthly nut comes to about $9500. The average 1 BR doorman rental is $3700, 2BR $5,500 (TREGNY). Say you rent a 2BR. The $4000 a month you save is approx 3% of the unit cost per year which is less than the historical 5% a year appreciation according to Case/Shiller. So, the average owner would make 2% a year by owning as opposed to renting. If the renter puts the extra $4000 a month into the stock market he/she gets a 7% return on average. The primary benefit of home ownership is that 1)you get to live in your house/can't be evicted very easily 2)it forces you to save, albeit at a rate lower than other instruments with comparable risk. Since Americans are notoriously poor savers (we buy, buy, BUY!!!) having a mortgage is a way of enforcing discipline. The fact that homeowners can sell their homes after 30 years and get a chunk of cash is no different than a renter saving money every month for 30 years and having a mutual fund worth a lot of money. If today's market persists, the renter with savings will actually come out ahead. Note that if you include mortgage fees and broker commissions the renter who invests in the stock market does a lot better.

80sMan - try adjusting your analysis for taxes; I'm sure your conclusions will be different.

ccdevi: "That under today's interest rate and tax conditions, a price to rent ratio of up to 20x might be reasonable."

Fact: the price to rent ratio in New York right now is about 25x on average. Historically it is 12x.

http://money.cnn.com/magazines/fortune/price_rent_ratios/

One year ago, for the entire New York area, the price to rent ratio was 17.8. We know it's climbed since then. The historical average is 11.7, meaning that prices should decline by 34.6%.

Now, here's a very interesting article about the Florida real estate market:

http://www.heraldtribune.com/apps/pbcs.dll/article?AID=/20051009/BUSINESS/510090452/0/INDEPTH

"Realtors are skeptical about price-to-rent as a means to answer that question. John Lafabregue, a Re/Max agent who has sold real estate in Sarasota for 16 years, calls the ratio misleading. Even if rents aren't keeping pace with prices, the number of rentals in the region represent a fraction of the region's homes. Given that, he says, how can price-to-rent explain broader housing trends? 'We're not in a bubble, not Sarasota and not Florida,' Lafabregue insists."

LMAO. That was 2005.

"But economists maintain that lower rents and surging home values might be a telltale symptom of a bubble. Chen acknowledges the Economy.com's formula isn't perfect but the logic behind it is inescapable: If a home's appraised value jumps way beyond its rental capability, it's probably overvalued.Or, looking at it another way, in a normal housing market prices shouldn't double in a few years, like they have in parts of Sarasota-Bradenton."

"Normal price growth goes hand-in-hand with income growth."

NOTHING supports a 20x price-to-rent ratio. It's impossible because of the 40x monthly rent / 28% total housing expenses ratios, which are market-imposed constraints. At times of low interest rates the 12x ratio may go up a bit, but then interest rates go up.

Just go here:

http://angrybear.blogspot.com/2005/03/housing-speculation-and-price-rent.html

and take a look at the chart.

LICC, do the calculations with the tax and let me know the result you get. Because to rent the place you need an income of about $200,000. To buy it you need an income of $600,000.

Same property.

LICComment: The numbers are still against buying at these levels given the taxes

I just ran the numbers assuming a 33% annual capital gains tax on the mutual fund (assuming that the cap gain is re-invested into the fund). Owning still comes out worse than buying. In 30 years your mutual fund has an expected value, after tax of approx $3.1MM Your home, purchased at $1.5MM is worth $6.1MM. You owe the government taxes on capital gains of 33% on your $4.6MM price appreciation which knocks your total rake-in down to about to $2.5MM after you take into account transaction costs (fees, etc...).

I also re-ran the numbers assuming you put your $300,000 down payment and $75,000 closing costs into the mutual fund as seed money. You end up with $4.6MM after 30 years AFTER taxes while the homeowner ends up with $2.5MM (also after taxes).

steve go away, you're making the same bogus pts that multiple people have refuted again and again. its no longer interesting, presumably for us or you.

dco, I love how you just completely ignored my utter destruction of your original points, and just hit the caps button and typed buy again and again. Nice comeback. JM described you perfectly.

fyi, imom's link proves that these are 2 different apts, same size apparently, yes, but not the same apt.

$5250 Rent is worth buying at $1.2mil

maintenance is also close to $2000 on this apt.

ba294, that would be a 20% drop in price from where we are today. Yes, I agree, $5250 in rent is about the same as buying at $1.2MM with the caveat that you can get 80% financing at 6% 30 year-fixed.

thesupertrooperwerd, did you just lift that from the dialog of an 80's teen movie? I feel like I just overheard a cheerleader bitching out the girl who beat her for captain.

Everyone's entitled to his/her opinion, just please don't try to speak for "all" of us, OK?

I don't always use the best language thesupertrooperwerd, but you may want to avoid using the word worthless. Some people may find it offensive.

Anger-management much?

80sMan, your analysis has a lot of flaws. Are you taking into account the tax break on mortgage interest payments and property taxes? Are you taking into account increases in rent over the 30 year period? What appreciation rate are you using for the real estate? There is no way you can conclude renting is better than buying unless you manipulate the numbers or fail to account for material factors in your analysis.

LICComment, OK, even with a 4% annual rent increase (so in 30-years you're paying $15,000 a month for the same $5500 2 bedroom), renting still beats buying in terms of the value of your savings account, with a 33% annual capital gains tax, relative to your after commission and taxes home value. The difference is down to around $700,000 better for the renter who saves like a machine. I'm giving real estate 4.5% annual increase.

The 4% annual rent increase is the average increase in Manhattan between 1997-2007 (43% increase in 10 years== 4% annually compounded)
The 4.5% annual home price increase is an average yearly increase calculated from the Case/Shiller Index

By the way, my scenarios are very apples-to-apples. The type of person who would save a consistent amount of money every year is similar to a person who lives in the same house/apartment for 30 years. If you change houses every 5 years the homeowner's terminal value goes negative. In other words, if you "trading up" your home even a few times over 30 years you surrender all of your gains to taxes, broker commissions and transaction costs.

"assuming a 33% annual capital gains tax"

what planet are you on?

"you're making the same bogus pts that multiple people have refuted again and again."

who, and when? Because I don't remember that anybody has ever posted anything remotely like a real number, instead of me.

Humor me and repost it. Because I've shown you the historical price to rent ratio in NY, and it is 12. I've also shown you that 40x/28% = 12x. Show me who refuted it. Spunky?

"Steve, you are cunt and everything you say and think is worthless. Just cut your losses and go to hell. We all fucking hate you. I know it's a strong comment but someone had to say it. Fuck you Steve, you piece of shit."

Thank you.

"$5250 Rent is worth buying at $1.2mil."

$756k, not a penny more. $1.2 million = $7,381.57 mortgage payment alone. Plus $2k per month tax and common charges = $9,400 to buy what you can rent for $5,250. Doesn't seem to make sense to me.

"43% increase in 10 years== 4% annually compounded"

Do the math again. It's 3.5%.

"the tax break on mortgage interest payments and property taxes? Are you taking into account increases in rent over the 30 year period? What appreciation rate are you using for the real estate? There is no way you can conclude renting is better than buying unless you manipulate the numbers or fail to account for material factors in your analysis."

Absolutely, positively not true. Sometimes - for owner-occupied real estate - it's better to buy, sometimes it's better to rent. It's better to rent when it's more expensive to buy, and vice versa.

Your comment implies that not matter what, it's always good to buy.

Not.

It's a question of price.

"with the caveat that you can get 80% financing at 6% 30 year-fixed."

Jumbo rates are currently 8.5%, from Bank of America's website.

6% would make a world of difference. It's just not real right now.

mrsbuffet asks about going short housing by trading derivitave contracts on the Case-Shiller NY Metro housing index, in particualar about buying puts. The base contracts are cash settled futures contracts that are electronically traded on CME Globex. Certain contract months have options on futures which would allow you to buy a put on a futures contract. However, the simplest way to go short is to sell a futures contract rather than throwing a retail order into the (non-electronic) options pit (at your peril). I however, had taken long positions on several contract months as I though that the futures was oversold, and my positions turned out to be generally profitable. As the real estate market has softened, the spread on these contracts had widened to the point that I didn't see an opportunity to profitably short. These contracts are thinly traded and the spreads have always been wide -- to give you an idea as to how thinly traded they are I had at one point 15% of the open interest for the NY contracts as an ordinary retail investor. Bear had been the market maker for these contracts and I stopped paying attention to this market months ago after my long positions cash settled and I didn't see the opportunity to short so it may be the case that this market is even more illiquid after the fiasco at Bear. I can check tonight after the Tokyo open.

stevejhx, I meant 30% capital gains tax. And 3.7% annual compounded 10 periods = 43.81%. The point is clear enough. The thing brokers don't talk about is transaction costs. Which are staggering. At a 4.5% annual price appreciation buyer sees a 24% return in 5 years. Transaction costs are minimum 12% (closing costs, broker commission and mansion tax). That's half of your profit. Gone. Poof. Into thin air. Seems the worst possible thing to do is to buy a "starter apartment" and "trade up". Or to "get in small", etc..

jrd, it's pretty scary that the housing futures market isn't active. That means that banks aren't hedging their exposure to the housing market. I'm not sure why this is the case. Could be that the mortgage bets the banks have made aren't hedgeable. Which would be bad. Which would mean the losses can't be contained. I'd be interested in hearing any actual information as to why banks aren't trading housing futures when so many of their fates are tied to mortgage bets.

80sMan - this is a new market that CME is trying to create based on the Case-Shiller housing indices. There are many other opportunities for the institutions to lay off risk in the OTC markets. It is just that these are wholesale markets that you and I cannot participate in and there is very little transparency that we can have for these markets.

Having said that, it is not my understanding that mortgage lenders hedge their risk in this way - in the past I have come to know that certain lenders did not even hedge their interest rate risk for rate locks that they were writing to customers.

jrd, back in the 90's the major risk on mortgage backed securities was pre-payment. The homeowner refinanced his 12% rate down to 8%. When he did, you just paid out that tranche and the investor was out of luck. My feeling is that, today, the major risk is credit rating. Banks package up loans as BB-, whatever, and after 10% of the homes go into default/foreclosure the rating goes down to C-,D. And the bank has to pay back the principal or some such mess occurs that causes multi-billion dollar loss. Guess you can't hedge this risk. Any MBS traders want to fill in the blanks?

Why aren't you factoring in the $250k/$500k(for married couples) property tax exemption on gains of a primary residence? Interesting how you conveniently leave out factors that don't support your conclusions.

Does the rental increase rate you used include rent stabilized apartments? This discussion focuses on market rate rents. If it does, you have grossly understated the rent increases. Hmm, that would also be convenient for you.

LICComment: math + engineering = ABS = Always Be Selling = $$$. Props to the brokers. Get money.

Nice try 80sMan. I'm not a broker and have nothing to do with the real estate business. Good try to change the subject when you look bad.

80sMan: "stevejhx, I meant 30% capital gains tax." Long-term capital gains are 20%. Short-term is calculated a regular income. Gains are taxed as regular income in NYS/NYC.

"it is not my understanding that mortgage lenders hedge their risk in this way - in the past I have come to know that certain lenders did not even hedge their interest rate risk for rate locks that they were writing to customers."

Hedge = securitization. Most banks don't keep mortgages on their balance sheet. That's part of the problem. They thought they had no risk - until the defaults started.

"Does the rental increase rate you used include rent stabilized apartments?"

No, and it wouldn't be material in any case. Outside of Manhattan, most rent-regulated apartments go for less than the regulated rent. There's just not that much demand.

"Why aren't you factoring in the $250k/$500k(for married couples) property tax exemption on gains of a primary residence? Interesting how you conveniently leave out factors that don't support your conclusions."

That comes to a maximum of $50,000 - $100,000 in federal taxes at the long-term rate, and it's not a "property tax exemption." At the prices we're discussing, it's offset by transaction costs, which don't exist for rental.

Real estate agents make a bigger commission on sales than on rentals. It's the best marketing story ever told, added to the fact that buyers don't (directly) pay the commission so they think they're getting something for free (when they're not). It's Kool-Aid.

steve - those are some of the most contrived, meaningless responses I have seen you give yet, and that says a lot given your history.

Why?

And for good measure, take the net present value of your tax break assuming a sale after 30 years, and get back to me.

I LUV when people say that I give "contrived, meaningless responses," especially when they themselves don't post any calculations, give any sources for their data.

steve - you really believe that if you look at the rates of rental increases in Manhattan over time, it would make no difference if you include rent stabilized apartments rather than looking at only market rate apartments? That is a ridiculous, meaningless response.

LICC, it wouldn't be meaningless, but it would be ridiculous.

Which is why I didn't say it.

What I said was that the data are for the NY metropolitan region; not all of NY has rent control (NYC and Yonkers I think do). In factual terms (from an article in the NY Times) most rent-regulated apartments outside of Manhattan rent below the legal limit. Therefore, rent regulation has virtually no effect outside of Manhattan.

The TREGNY data that were mentioned above are exclusively for market-rate apartments.

LICC, it wouldn't be meaningless, but it would be ridiculous.

Which is why I didn't say it.

What I said was that the data are for the NY metropolitan region; not all of NY has rent control (NYC and Yonkers I think do). In factual terms (from an article in the NY Times) most rent-regulated apartments outside of Manhattan rent below the legal limit. Therefore, rent regulation has virtually no effect outside of Manhattan.

The TREGNY data that were mentioned above are exclusively for market-rate apartments.

steve, go back and read 80sMan's post. He said he used rent increases in Manhattan from 1997-2007, not the entire NY metropolitan area.

"ba294, that would be a 20% drop in price from where we are today. Yes, I agree, $5250 in rent is about the same as buying at $1.2MM with the caveat that you can get 80% financing at 6% 30 year-fixed."

80s man, I guess I don't know why you're saying that would be a 20% drop from where we are today. That would be a 20% drop from the 1.5 mil average you mentioned but only about a 6% drop from the most recent price paid for the same space on a higher floor in this building.

I'm not referring to what 80sMan posted. I'm referring to what I posted:

Fact: the price to rent ratio in New York right now is about 25x on average. Historically it is 12x.

http://money.cnn.com/magazines/fortune/price_rent_ratios/

One year ago, for the entire New York area, the price to rent ratio was 17.8. We know it's climbed since then. The historical average is 11.7, meaning that prices should decline by 34.6%.

steve, according to your "numbers" if you use a $5500/mo rental cost, prices have increased from $1.18M (18x) to $1.65M (25x) in one year, close to a 40% increase. Would you care to pull more numbers out of your arse or ...better question, have you ever posted a credible number on this board?

JuiceMan, this from Miller Samuel's 1st quarter report:

Average Sale Price: $1,722,991
% Change: 19.7%
Prior Quarter: $1,439,909
% Change: 33.5%
Prior Year Quarter: $1,290,391

The average price per square foot was up 20.5%, and the median price was up 13.2%.

So yeah, I stand by my figures.

So much for my arse.

"So yeah, I stand by my figures"

steve, interesting how you used mean for your little arse exercise. Being that you are a big time economist, auditor, systems guru, real estate expert, etc. you may want to reconsider the travesty of logic you used for that post. Are you strong enough to correct yourself or would you like me to do it?

Steve is an economist. He doesn't understand markets.

I remember my economics courses ... we measured things in "utils". ... anyone here ever used or spent a util?

vverain - why cant your utility function just be wealth, surely you can spend wealth.

oh lupus, you are an economist's dream.

hey, anyone see this: http://www.actorspages.org/forum/profile.php?mode=viewprofile&u=445&sid=f8bb88c12c537ae308e1e072d7cdcbeb

thankyou vverain. let me know what you understand about markets that economists seem to be getting wrong.

and dude why are you stalking steve ? no-one trusts a stalker.

Steve, 750k not a penny more? your math equates to no rental increase, no tax benefit (pretty significant in this amount) and equity after 30 years.
This is why this apt is not worth more than 1.2mil. Given the fact that the cc is $2000, I'd take it at $999,000

Steve, you seem to pick out certainly the over priced apt and generalize the market. Where there is a pricechop, you can't simply generalize that the market is tanking.

The bottom line is, if this is the only place left on NYC it makes absolutely no sense to buy. THere are many others at $1mil range with 1/2 to 1/3 of the CC.

ccdevi said
"80s man, I guess I don't know why you're saying that would be a 20% drop from where we are today. That would be a 20% drop from the 1.5 mil average you mentioned but only about a 6% drop from the most recent price paid for the same space on a higher floor in this building."

Excellent point taken. That 6% drop is also due to high CC.

Steve, 750k not a penny more? your math equates to no rental increase, no tax benefit (pretty significant in this amount) and equity after 30 years.
Given the fact that the cc is $2000, this apt is not worth more than 1.2mil. I'd take it at $999,000

Steve, you seem to pick out certainly the over priced apt and generalize the market. When there is a pricechop, you can't simply generalize that the market is tanking.

The bottom line is, unless this is the only place left on NYC it makes absolutely no sense to buy. THere are many others at $1mil range with 1/2 to 1/3 of the CC.

sorry late hours with typos

Hey vverain, thanks for finding that link - it's a scam website, a knockoff of actorspages.com, who won't delete the profile if I don't pay $10 - which I won't - and I have several complaints filed against them. I've just sent out some reminders to where I've complained (as far away as Israel!).

But if you don't understand utils, you'll never understand that there is very little intrinsic value to owning versus renting, since the same utility is achieved from both of them. Therein lies much of your problem.

I do think that you're stalking and constant mention of my mantits might mean you have a man-crush on me, which would be unfortunate.

JM - humor me. Post a number or two, I'd love to see them.

Because 08/04/04, at 350 Bleecker apartment 3DEF sold for $1,282,000; the same apartment right now is for sale for $2,695,000, or a 110% increase in less than 4 years.

www.350bleecker.com

So yeah, show me your affordability numbers.

ba294, show me your math please. Don't just hold your finger in the air and say, "It's worth $999k."

I didn't pick out the apartment - dco did.

As long as you use the 28%/40x market constraints and a standard 80/20 fixed-rate 30-year mortgage, there is no way you can pay much more than 12x annual rent for an apartment and make it make sense. No way.

steve - "Fact: the price to rent ratio in New York right now is about 25x on average. Historically it is 12x. One year ago, for the entire New York area, the price to rent ratio was 17.8. "

JuiceMan - "steve, according to your "numbers" if you use a $5500/mo rental cost, prices have increased from $1.18M (18x) to $1.65M (25x) in one year, close to a 40% increase."

steve - "So yeah, I stand by my figures."

So steve's logic says the following:

Assume that there were 5 sales last year for:

$1M, $1M, $1M, $1M, and $1M

and this year there were 5 sales

$1M, $1M, $1M, $1M, and $3M

According to steve's logic the entire market is overpriced by 40%.

Is that simple enough for you to understand steve? Do you still want to justify your 25x price to rent ratio on your "numbers"? What a joke. Once again, have you ever posted a credible number on this board?

What, JuiceMan? What you posted is complete nonsense.

What do the sales figures have to do with the price-to-rent ratio, if you haven't posted any rental prices.

You give sales prices, but no rent prices. Ergo, how do you come up with a price-to-rent ratio, since the ratio by definition requires both things?

The reason I posted that apartment for sale, JM, is that - as everyone has agreed to - rents are virtually unchanged since 2004, yet prices seem to be up 110%. That's the disequilibrium.