FYI - Interesting, educational, and balanced RE article...
This Real Estate Rout May Be Short-Lived
Jim Paulsen, chief investment strategist of Wells Fargo's primary investment unit, expects home prices to steady by year end, with the pace of foreclosures slackening shortly. Most of the subprime debt at the center of the current crisis already has been written down by financial institutions, he notes, while many subprime borrowers who lost their homes are returning to rental units. "Folks who compare this home-price cycle to the one that occurred in the early '80s obviously have short memories," Paulsen says. "In the 1980s the economy was in a deep recession, mortgage rates were at 17% or more, and unemployment [was] hitting a post-Great Depression high of nearly 12%."
Jim Paulsen must have a short memory. In the 1980s, the continuing deep recession, high unemployment and high interest rates were triggered by an event that occurred several years earlier (the OPEC embargo). All indications are that the triggers of the past couple of years are leading us down the same path.
The only difference is that last time around, the economy was weakened by massively irresponsible deficit spending to fund the Vietnam Conflict.
And explain why, throughout history, the lines hovers around the mean (100), except in the last 5 years, and that chart ends in 2005, when prices continued to skyrocket in Manhattan through 2007.
I copied over the walk down memory line on the '80s for a reason since it MAY be the closest in timeline and I am trying to delve into whether there IS a correlation between that period and today. In this vein, does anyone recall exactly what happened to the buildings that were part of the '80s building boom in Manhattan? Given the number of buildings that are now condo and built in that period, I'm starting off the thought-gathering at they've remained condos and weren't necessarily converted into rentals...
There weren't a lot of condo conversions in the 80's - they were co-op conversions, many of which went bankrupt. Many sponsors held on to units and rented them out rather than selling them at deflated prices.
From 1983-1993 real property prices in NYC fell from 20% to 50%, depending on the location.
But of course that can't be true, since property prices in Manhattan never go down.
Yes, there definitely was a glut of coop conversions back then. Very good deals for those who were fortunate enough to get in. I don't think many went bankrupt though...which areas are you referring to? I peronally know some that bought and haven't regretted that purchase one day (not to gloat but to point out that there are benefits to buying but, yes, timing is everything).
However, getting back to the '80s retelling, there were also a good number, despite the underwhelming ratio of condos to coops back then, of condo buildings that went up. Insights on what happened to the condos, i.e. did they stay as condos or become rentals?
Steve - The Shiller chart certainly notes the dislocation of the US real estate market in the last 5 years. I think the more important point or question, however, is where you see the housing index measure returning to. Don't you think that given the acceleration of the population, inflationary pressures, and the general upward trend of the charts over the last 80 years, that it is fair to say that the "Mean" or normal point of the Housing index to return to is more like 140 or 150 rather than 100 like you state? That's an important differentiation. A return to 100 would break through the 80-100 yr trend not to mention be a calamity.
"where you see the housing index measure returning to."
It will undershoot the mean, then return to it.
"Don't you think that given the acceleration of the population, inflationary pressures, and the general upward trend of the charts over the last 80 years, that it is fair to say that the "Mean" or normal point of the Housing index to return to is more like 140 or 150 rather than 100 like you state?"
No. The only time in the history of America that prices increased in real terms and stayed there was after WWII. Shiller proved that over 350 years, by researching the price of a single house in Amsterdam, that those ratios proved true.
"A return to 100 would break through the 80-100 yr trend not to mention be a calamity."
A calamity it will be, and that's what we're seeing right now. Just ask yourself this simple question: "Where does the money come from to support these home prices?"
a) Wages
b) Leverage
Wall Street wages did prop up the Manhattan market. Credit was loose. Now Wall Street is in tatters, credit has all but dried up.
i get it steve but your assumptions basically call for wall street, the financial markets, or any related professions or wages to not exist. That's not going to happen.
"your assumptions basically call for wall street, the financial markets, or any related professions or wages to not exist."
No they don't. They call for a realignment prices based on:
a) Tighter credit standards: interest rates, down payments, amount of bonuses allocable to income, etc.
b) Lower overall wages.
Market rentals in professionally managed buildings are a very good indicator of the supply and demand for housing. Go to nybits.com, compare market rentals to roughly equivalent sales. Use the 12x rent ratio, or the imputed rent method found here:
Unsustainable at this rate. I agree. But Manhattan has always been expensive and has probably always been over that mean of 100 while North Dakota, for example, has always been under.
"But Manhattan has always been expensive and has probably always been over that mean of 100 while North Dakota, for example, has always been under."
No. That would be like saying more than half the population has an IQ over 100.
Not possible - 100 is the mean.
Now then, Manhattan may have a HIGHER mean than North Dakota - precisely because it is wealthier - but it does have its own mean, and that mean is 100.
Using the Shiller index, the base value (not mean) is 100. Yes, we do see the pricing index component of this measure peak in '05 as the stevejhx's chart highlights. If you look at the raw data and '08 is available, you'll see it peaks in '07 BUT there's been a huge retrenchment since then till now.
In other words, it doesn't mean that a correction would be indicated by a return to 100. If that happens, that just means that we'd return pricing levels back to the base year, which in this case, is 2000. Now, no one would want THAT to happen, would they?
So, if you've been looking for a pricing correction back to '05 levels, which I've read is the target by others, now's your chance. Caveat is that this measure is good for 20 cities but not Manhattan-specific since this doesn't take into account coops and condos. Empirically, Manhattan is the first to lead OUT of a slump.
There goes steve with the rent ratio again. I debunked him on the other thread ("Ouch"), but he keeps at it. Ask him why 12x, or 15x, must be the standard in NYC and he can't tell you.
"No. That would be like saying more than half the population has an IQ over 100.
Not possible - 100 is the mean."
stevejhx, pretty sure you mean the median here. If the population is 3, two people have an IQ of 110, and one has an IQ of 60, the mean is below 100, no?
Ever hear of the real estate Rule of 15? I mentioned it yesterday on a segment with Al Roker on the TODAY Show as we discussed a question tossing and turning through many American heads these days: “Should I buy or rent?”
Here’s how the rule goes: Let’s say you’re looking at a 2-bedroom house or apartment:
1) Find the going rent in the neighborhood or location you’re interested in—which you can track down through sites like Zillow.com and Trulia.com—and calculate how much you’d spend in rent a year. Say, $2,000 a month would mean an annual rent of $24,000.
2) Multiply that number—your annual rent—by 15. (in this case: $360,000)
3) Now look up and compare the going price of a comparable space in the same area, to buy.
4) If that number is much greater than your annual-rent-times-15, the location probably still has a way to go down in home value. The bubble here ain’t done burstin’ and you should rent for a while. The last thing you want to be is upside-down on a mortgage—owing more than your new home is worth.
It "does not signify that more than one-half of your data set cannot be above or below that figure."
A normal distribution curve for IQ is not self-correcting. A market - liquid or illiquid - is. If prices are not clustered around the mean / median, they will quickly correct.
Sheesh - the 100 isn't a mean/median. It's a base. So, for all of you avid statisticians, there is no clustering or standard deviations or distribution curves to consider in relation to 100
To reiterate:
Using the Shiller index, the base value (not mean) is 100. Yes, we do see the pricing index component of this measure peak in '05 as the stevejhx's chart highlights. If you look at the raw data and '08 is available, you'll see it peaks in '07 BUT there's been a huge retrenchment since then till now.
In other words, it doesn't mean that a correction would be indicated by a return to 100. If that happens, that just means that we'd return pricing levels back to the base year, which in this case, is 2000. Now, no one would want THAT to happen, would they?
So, if you've been looking for a pricing correction back to '05 levels, which I've read is the target by others, now's your chance. Caveat is that this measure is good for 20 cities but not Manhattan-specific since this doesn't take into account coops and condos. Empirically, Manhattan is the first to lead OUT of a slump.
manhattangood, the 100 reference was to the distribution of IQ's.
There is a standard deviation for mean property prices.
The Shiller curve represents 100 as a base, with real increases or decreases as they fluctuate around that. They go up, they go down, but not very much.
Even if this guy is right, why is anyone thinking this is good news.
Case Schiller has us down about 20% overall last time I checked. If we continue at this pace for the rest of the year, we're down another 10%, 30% total nationwide. Some markets (Miami/Vegas) down 30% already, that could be 40-45% by year end.
So, if the "rosy" projection is that we end the year down 30%, and 40% or more in some markets, the sory projection is still a CRASH, no? I think 30% rings the bell, don't you?
Coopowner98, I remember the 80's co-op boom because I lived through it. This is how I remember it. Your building would decide to go "co-op" and you were given a prospectus on how much your unit would cost and what the proposed common charges would be on your unit. In order to go "co-op" a certain percentage of tenants had to agree to buy. The percentage escapes me now, but it was at least 50%, probably more.
Several determining factors on whether you would "buy-in" were:
1) Comparing rent vs ownership costs-How much more was it going to cost you on a monthly basis to buy the place vs rent it. In many cases the monthly cost was more to buy, but you would get it back with the tax deductions. So if you had the money, it made sense to buy rather than piss it away in rent. But Stevejhx is correct, the costs were similar. For some of my friends it was even cheaper to buy on a monthly basis if you had the down-payment, which leads to the next point.
2) Could you come up with the down-payment-I was young then, had no money, so this was a big stumbling block for many would be "co-op" participants.
3) Did you like your apartment enough to buy it?- For people with the best apartments in the building, that was a no-brainer. But for others who were not living in their "ideal" apartment, this was crucial. After the prospectus went out, "insiders" could vie for apartments not committed to. I remember a lot of maneuvering around for prime apartments or apartments that could be combined. After the insiders got to pick and choose their apartments, then outsiders were permitted to buy in but at higher prices.
4) Could you get the financing?- Interest rates were @ 17% at that time, but I remember buildings getting some insider rates for their buyers which were more attractive.
I ended up buying a 3 bedroom house in NJ for less than the cost of a small 1 bedroom apartment on the upper westside when the upper westside was not definitely not a fashionable area in which to live. Even at 17% interest rates houses were selling, although slowly. Why would you buy with 17% interest rates. We were young and naive, for one. People's lives continue during tough economic times, they get married, have children. The real estate prices were lower. Stevejhx is correct. When you have to spend so much on financing, the prices of the real estate must come down to get to a price that people can realistically afford on real salaries. But it was also a good time to buy. We got the house cheaper, but as the economy improved, the value of our house went up and the interest rates came down allowing us to trade up in a few years. So during tough economic times, it can actually be the best time to buy rather than the worst time to buy. Does that make sense?
The bottom line to this story is, I've been trying to get back to NYC ever since! Ha!
coop and newbie - the story was different for coop conversions in not-prime "hot" neighborhoods, especially in Queens - no one who was an "insider" wanted to buy, usually could not afford to because did not have dwnpmt - therefore the process worked differently from in the good Manhattan buildings:
"nonevict" plan scenario post-Koch changes (the answer to how to stabilize all manner of 'hoods), but in working class and poor neighborhoods:
A RS building would hold back vacant apartments from the market so that the landlord/eventual "sponsor" would control the requisite 15% of total shares or apts (can't remember which) were needed to choose to buy in order to have the plan declared effective. Yes, 15%. "Warehousing" is the term used to describe this practice, which made searching for a rent stabilized apt nigh impossible. As a co-worker said to me in around 1984, "Right now you can't @#$* for a lease, much less pay key money for one." "Key money" was a scam you'd find in the prime buildings described by newbie: in those buildings, the landlord/sponsor knew they'd get enough insiders to buy to get the plan declared effective because of the insiders' discounts. In some cases, though, rather than warehouse the highly sought-after vacant RS apartments, they would rent them out. The prospective RS tenant knew they would be getting not only a RS lease, but the opportunity to buy eventually at the insiders' price. So they would pay an additional sum of money called "key money" for the honor. It was absolutely illegal, and every broker in town was in on the practice.
Back to the working-class 'hoods: When the landlord had his 15%, he'd offer those for sale, at the same time he was offering the occuped RS apts to the not-interested long-term tenants. The 15% would immediately sell out because anyplace to live in was scarce. Before the tax code changes, the "occupied apartments" or "unsold shares" also had a brisk market. The idea was supposed to be like the Paris apartments, where you were essentially betting on the RS tenant to die before the age of 90, absorb the difference between their RS rent and your monthly maintenance charges, so you'd buy the apt for the insiders' price but have no right to occupy it.
It all crashed. No one ever blamed financing problems for the crash. The market for "unsold shares" crashed overnight when the investors could no longer deduct the negative rental income they were getting, more or less. The stock market crashed, having nothing whatsoever to do with real estate. Supply flooded the market all at once in the form of new conversion vacant units, resales of existing coop units, and the increasingly popular condominiums, which were priced at nowhere near today's premium over coops and usually had lower monthly common charges (most of the '80s coops were scams, with wrapping interest only balloon mortgages socked to the buyers in their monthly maintenance).
The other thing that fed into the crash was landlord/sponsors not able to meet their obligations to pay the monthly maintenance charges for their unsold shares with the RS rental income.
Condominium projects that entered the market right at the worst possible time in that downturn included The Corinthian and The Future in Murray Hill/Kips Bay. They did sell out, but slowly, and lots of foreign investors bought, especially from Japan.
The iBankers and RE pros on the board can fill you in on the other factors going on, whether or not and to what extent the S&L and junkbond crises affected it, but the biggest culprit was massive unemployment in all walks of life in New York City.
People have been hoping for a repeat of that, but we have a long way to go to get to that unemployment rate.
Things were so bad that you could open the newspapers' RE ads and see column after column of foreclosure sales. The most foolhardy subprime lender then was Dime Savings Bank, who did lots of no-doc liars' loans, most of which defaulted.
So nothing going on today is absolutely new, but the landscape is a little different.
The condo market left coops trailing in the dust. The shaky coop is a thing of the past, but condo prices will drag down prime coops.
Lowery, you are right. I do remember the key money! And maybe my percentage was incorrect, maybe it was less than 50%. I'm not clear on that part anymore. Thanks for the flashback!
Lowery, "The year 2007 was the third year in a row with over 30,000 units permitted%u2014the first time that this has happened since records began being kept"
Yeah, I was already astounded by the amount of new condos being built two or three years ago. It's going to be a glut.
Forgot to mention this -- another way to look at buying into a building that has lots of RS tenants -- they will not foreclose or sell at a loss, so depending how this shakes out, if you buy into a mixed building where the oldtimers are RS........ that may be safer than the new condos!
Steve In the Federal Reserve Bank of New York Staff Report Assesing High House Prices which you gave hear in an earlier post it says and I quote Annual cost of home ownership, People should be willing to pay 20 times market rent to purchase a house Page 8. Am I misreading this???? I also assume the 15x rent ratio is telling the renter if he is overpaying for the the right to own.
It's not going to be just a glut. You're going to see alot of buildings go tits up. I wouldn't buy new construction/conversion unless I were one of the last two or three to buy in a completed complex. I don't think the discounts for early purchasing will continue, au contraire, so waiting until a building is proven to be solvent will become VERY important.
"People should be willing to pay 20 times market rent to purchase a house Page 8. Am I misreading this????"
That is correct if you use the IMPUTED RENT model, which is highly complicated. If you use the price-to-rent ratio, it's simple, and 12.
But if you put the two together you will see that they are actually 2 different ways of calculating the same thing. The ratios are different b/c the inputs are different, but the result is the same.
Indeed, if you use the imputed rent ratio, if expectations are that real estate will fall in value, it states that no one will but.
is that assuming the purchase is a house? is a condo different?
continuing with the Proust's "Remembrance of Things Past" theme here, the worst case scenario in that '80s/'90s bust was new RS-to-coop conversions that went bankrupt - here's how it worked - buyer of coop "owns" a coop in a building mostly RS apts, pay "maintenance" to coop corporation, which then goes bankrupt - result: bankrupt coop no longer owns apt, so coop unit owner now has to pay rent to ... whoever ... to live in the apt he supposedly bought but no longer owns - his mortgage against his worthless shares, however, is still a personal debt to his bank which he still owes on - very bad - yes, it DID happen, and yes it was in Manhattan coops - only way out was personal bankruptcy
I don't know what would happen to new unit purchasers in a condo if it went insolvent.
And now let's listen to that 1970s golden oldie, Barbara Streisand in "The Way We Were."
"Memories........."
stevehjx, you know I simply ADORE reading your posts and not necessarily because I agree with them (I do only a part of the time), but really this one is too much... "who do you think buys the cuckoo coffee." Tsk, tsk, tsk, you can't possibly mean that cappuccinos and lattes are a sign that gays are moving into a neighborhood? Time to get out of the Chelsea/Fire Island gayboy ghetto, my dear.
Of course, steve can't tell you why 12x is right or 15x is the level where things get overpriced, and when you look at actual numbers at 16x that make perfect sense to buy, steve's brain gets overheated and he posts some piece from the Today Show where someone said 15x must be the guide.
lowry, it makes no difference whether it's a condo or a house. BTW it's "Barbra" Streisand.
LICC - 16x time makes absolute sense if you make up your own way of doing the calculation, fail to assign a risk premium on ownership, fail to include expected price increases/decreases, use the marginal tax rate rather than the effective tax rate, and fail to account for the opportunity cost of investing elsewhere.
This from the Federal Reserve Board of New York.
But they're not as smart as LICComment.
The 12x figure was calculated by Shiller (of Case-Shiller) and Fortune Magazine, and the link is provided. It is due to the 28%/40x constraint on housing expenses as a percentage of total income, which does NOT include the tax benefit. The tax benefit is included ONLY if you use the imputed rent method, as per above.
"some piece from the Today Show" is the personal finance editor from cnbc.com.
Steve 0n 675sq ft condo midtown east facing east river, pool, doorman, gym for 645,000. Rents are 3200 right now all day so 3200 times 12= 38,400 times 20 = 768,000.2005 price levels for this apartment. How is that too high a cost. Now the rent model at 12x comes out to 460,800.If you are calculating the same thing how can one be 12times and the other 20times.Please use this example to explain.
zorter, they are just two different ways of measuring the same thing. The historic price-to-rent ratio implicitly measures the things that the imputed rent method explicitly measures. Though LICC and others (JuiceMan) dismiss the arguments and make up their own formulas with no economic or financial basis, using only the factors they feel should be included whether supported by theory or data or not, they're talking out of their....
The easiest way to look at this is the price-to-rent ratio. This from cnn.com / money magazine today:
Is it cheaper to rent than to own?
Here's a useful back-of-the envelope calculation: Take the price of the type of home you want in your market. Now call around or ask your broker to see how much it would cost annually to rent a similar property in the same region. For example, if you can purchase a home for $540,000 but can rent a similar one for $36,000 a year, your so-called price-to-rent ratio would be 15.
In general, buying starts to look attractive when the P/R ratio is around 15 or lower, says Newport. (The current national average is 12.5.) As your market's P/R ratio falls, more sellers are likely to come into the market. So demand could pick up and help stabilize home prices.
Of course, 15 is just a ball park. For a more sophisticated analysis, see how your market's current P/R stacks up to its pre-housing-boom levels. For price-to-rent ratios for dozens of key markets, check out the table at the bottom of the page. Then, for comparison, ask local realtors and rental agencies for an estimate of prices and rents back at the start of this decade.
In Miami, for instance, the ratio jumped from 12 in 2000 to nearly 30 in six years, according to Moody's Economy.com. It has since fallen to 22, but that's nearly double what it was at the start of the decade. "That's a pretty big premium," says Larson.
Scroll down to New York - which is the region, not Manhattan per se - and you will see that the 15 year average price-to-rent ratio is 12ish, and it reached a maximum of 18+, for 50% above the norm. In Manhattan prices went up even more, yet rents remained approximately the same.
Note the source of these data: "Sources: Moody's Economy.com, Fiserv Lending Solutions, National Association of Home Builders, California Association of Realtors"
And LICC dismisses them, makes up his own model.
Then, if you want to use the imputed rent model, go to:
where the Federal Reserve Bank of New York sets out the parameters for the imputed rent model (the one that includes calculation of the "tax benefit"):
The formula for the annual cost of home ownership, also known in the housing literature as the “imputed rent,” is the sum of six components representing both costs and offsetting benefits. The first component is the cost of foregone interest that the homeowner could have earned by investing in something other than a house. This one-year cost is calculated as the price of housing times the risk-free interest rate. The second component is the one-year cost of property taxes, calculated as house price times the property tax rate. 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. The fourth term reflects maintenance costs expressed as a fraction of home value. Finally, the fifth term is the expected capital gain (or loss) during the year, and the sixth term, represents an additional risk premium to compensate homeowners for the higher risk of owning vs. renting.
So basically, LICC and others ignore the Federal Reserve Bank of New York, Moody's Economy.com, Fiserv Lending Solutions, National Association of Home Builders, California Association of Realtors, the personal finance editor of cnbc.com, Case-Shiller, Fortune Magazine, etc., and come up with their own baseless calculations and claim victory.
Zorter, if you don't want to do the complex math yourself, and without having seen the apartment myself, I would stick to the 12x annual rent as reasonable, would never buy above 15x. If you expect prices to fall in the near-term, the imputed rent model says not to buy at any level.
The 12x-15x rent-to-buy model is affected by interest rates; lower interest rates will give you a higher multiplier. But make sure you have that financing locked in.
Then, make sure that that's the actual rent, not the asking rent.
Personally, in this falling market, I wouldn't buy at all, but that's just me.
Just as an example, I rent in Chelsea for $4,500 per month. 12x that annually is $648,000. 15x is $810,000. I would definitely buy an equivalent apartment in this neighborhood for an amount somewhere between those.
Unfortunately, the starting price for 1000 sf 2-br 2-ba apartments in Chelsea is $1.2 million, nearly 24x the annual rent. Hence - tax "benefit" or not - it makes ZERO sense to buy.
steve loves to inappropriately cite to all these sources because the actual numbers show he is wrong. He also loves to talk about the risk premium but ignore the equity appreciation in real estate you receive when owning, ignore the risk premium of owning other assets other than real estate if you are a renter, ignore the appreciation in rents over time, and he incorrectly understates the mortgage tax deduction benefit.
Why is 28% of income the constraint to use in all areas? Doesn't it make sense that as a person's income rises, especially in high income areas, that one would be more willing to spend a higher percentage on their home? A person taking home $10,000 or $15,000 per month would be more willing to spend a higher percentage of it on their home than someone taking home $3,000 per month. Of course, you like to just read things in a magazine and parrot the statements; you have a hard time thinking things like this through.
steve, how many times are you going to bring up your $4,500 rent as if that is typical in the market. You just ignore facts that prove you wrong. Just look on streeteasy for Chelsea 2-bedroom listings, 95% will be substantially more that $4,500. You know this but you keep using your apartment as a basis for your argument. $5,500 - $6,000 is the more accurate number to use.
"steve loves to inappropriately cite to all these sources because the actual numbers show he is wrong."
There are the numbers.
"He also loves to talk about the risk premium but ignore the equity appreciation in real estate you receive when owning, ignore the risk premium of owning other assets other than real estate if you are a renter, ignore the appreciation in rents over time, and he incorrectly understates the mortgage tax deduction benefit."
They are included in the imputed rent model, if you care to figure it out.
"Why is 28% of income the constraint to use in all areas? Doesn't it make sense that as a person's income rises, especially in high income areas, that one would be more willing to spend a higher percentage on their home? A person taking home $10,000 or $15,000 per month would be more willing to spend a higher percentage of it on their home than someone taking home $3,000 per month."
Actually, I make more than that and the limit was 40x monthly rent.
"how many times are you going to bring up your $4,500 rent as if that is typical in the market. You just ignore facts that prove you wrong. Just look on streeteasy for Chelsea 2-bedroom listings, 95% will be substantially more that $4,500."
Asking rents and actual rents are completely different things. streeteasy is mostly condo owners looking to cover their costs. Go to nybits.com - market rentals, real rents. There are some rents higher, some lower; I'm comparing an apartment that I physically live in to one that I look at across the street that is virtually identical.
Do the comparison. Find the same apartment for sale and for rent on streeteasy, see the difference. There was a whole other thread posted the other day on Manhattan rents, and it showed purchasing prices 24x that.
How about the NY Times? They have 659 2-bedroom listings for rent in Chelsea, which include 1-bathroom apartments as well at 2-bathrooms. The median was $5,000.
Why do you argue with Steve? One day his neighbours will walk past his rental, smell something funny and call the cops. He clearly has no family/friends. Let him just rave on about the the 24x his current rental cost.
The NY Times is the same as streeteasy - mostly condo owners looking to meet costs. Nonetheless I would say that $4,500 to $5,000 would be a reasonable median for Chelsea 2br 2ba.
The problem is that when you do the same for sales in Chelsea, you get:
Sales in Chelsea
We found 208 listings with at least 2 bedrooms with at least 2 bathrooms
Median price: $2,625,000 Median size: 1,802 ft² Median price per ft²: $1,413
That is 2+ br 2+ ba. 3+ 3+ are:
Sales in Chelsea
We found 50 listings with at least 3 bedrooms with at least 3 bathrooms
Median price: $4,972,500 Median size: 3,000 ft² Median price per ft²: $1,678
Information on Chelsea
So - ballpark - you have about 160 2-2's for sale in Chelsea, figure an average size of around 1,200 sf, average psf of $1,200.
1,000 square feet at $1,200 psf = $1.2 million. That is going to give you a price-to-rent ratio of 24 if you use the Chelsea median rent of between $4,500 - $5,000.
I still can't get a straight answer Steve Apartment sells for 645,000 the imputed rent chart says 20 times annual rent is a good purchase which comes out to 768,000 and I will pay 645,000, that sounds like a great deal, What am I missing. I am going by Federal Reserve Bank Staff Report.Will you ever admit that anything is a good deal based on your charts???
Steve I have to say that 4500 for a 2bed 2 ba in chelsea is not accurate. More like 5500-6000. Many people I know are paying 4800 for a 1 bed in a high end doorman building. I pay 4000 for a one bed in Chelsea with no doorman.
If you can get $3200 for a $645k apartment- more power to you. But that is generally not happening. Condos valued at a million are asking $3500 for rent and getting between $3000-$3500. So your tenant must be stupid to pay that kind of rent in today market unless he is stuck with a lease he signed sometime ago.
I believe you and have no argument with your fact that "there are some deals out there" with a caveat that it is not limited to sales only, the deals are also in rentals.
buddyparker, sorry you're overpaying, but check out rents on nybits.com.
"I still can't get a straight answer": Zorter, I can't do the calculation of imputed rent for you because you have to plug in all the information pertinent to what you're looking at, including interest rates, expected appreciation/depreciation, etc. You need to read the paper and figure out what it says. They provide a formula for you to follow.
If you want to use the price-to-rent ratio, I gave you that answer.
The reasons the ratios are different is because they measure things differently.
rent v buy - if you want to be comparing apples and oranges, look at condos and the rents they are fetching -- 45 Park Avenue sold out before the market softened -- I received glossy ads with photos for a one-bedroom unit offered to rent for $4,000/mo. It was not the 600-sq-ft variety that were listed for sale at $800,000 and up; it was the 1.5-bath variety, something like 800-sq-ft. Listed asking price for those units was over $1.1 million, I think. Photo showed the unit to be on a high enough floor to have a good view.
In that 45 Park Ave case, the price (haven't checked ACRIS) was over 20x the annual rent.
Now, how disastrous is that? I suspect the owner put much more than 20% down. Probably more like 50% down, maybe even 100%. They are not looking to rent it for what it costs to cover mortgage payments at an 80% of value rate. And if they are not looking to do that and in fact put down what we used to call on Fire Island "SOME gay money" then they are not destitute and not leveraged and not likely to foreclose and/or sell at a loss.
Steve, what will your rent be in 10 years? I think you might have to pay a little more than $800K to get a large two-brm condo in Chelsea, but given Chelsea's status relative to other 'hoods in the City and how it has gone from being undesireable to alternative to a destination spot to chic, I don't think paying a premium over your current rent would be a bad idea.
And stop listening to "Barbra." She's out of tune and melodramatic and belongs in the same attic as your old Frye boots.
bjw, the average rent is going to change significantly with such a small sample (8 apartments). Last month (I looked) it was lower.
Nonetheless, the average price of Chelsea 2-bedrooms is also significantly higher than $1.2 million; it's closer to $1.8 million. I just compared my apartment with one very similar across the street.
"Steve, what will your rent be in 10 years? I think you might have to pay a little more than $800K to get a large two-brm condo in Chelsea"
I have no idea what my rent will be in 10 years, nor how much apartments will be worth in 10 years, except I suspect they will be worth a lot less than they are today.
You'd have to pay minimum $1.2 million for a decent 2-br 2-ba in Chelsea.
I haven't listed to "Barbra" in years - since "People," which made me barf.
Wow bjw, steve is wrong again? Get ready for some convoluted, out-of-context explanation for why he isn't wrong. steve, why don't you link to some piece from Oprah this time to defend yourself?
Steve they have done the calculation for me already Imputed Rent "Annual cost of home ownership( as per Federal Reserve Bank) People should be willing to pay 20 times market rent to purchase a home. Page 8.They have already done ALL the calculations. You also just said the reason the ratios are different is because they measure things differently.
"People should be willing to pay 20 times market rent to purchase a house Page 8. Am I misreading this????"
Steve these are your words
That is correct if you use the IMPUTED RENT model, which is highly complicated. If you use the price-to-rent ratio, it's simple, and 12.
But if you put the two together you will see that they are actually 2 different ways of calculating the same thing. The ratios are different b/c the inputs are different, but the result is the same.
The result is not the same.Lets not beat a dead horse.
Sturdy I agree that there are deals in rentals, thats why I try to stay in top end condos with pools and gym, to offer as much as I can as far as ammenities, and the view doesn't hurt either.
stevejhx, I think it's a bit disingenuous to consistently cite to back your claims and then dismiss that same one when sample size is too small for your tastes. Where are we going to pull rental info from them? I think that we probably need at least 35 examples to get a strong idea of the mean 2/2 rent in Chelsea, but it's tough when you dismiss every source out there. Let's not forget that these are no-fee apartments, which means what you actually pay to rent a place may be even greater once broker fees are factored in. I'm 100% on-board with you about RE for sale being overpriced in this city, but I think rentals aren't far behind.
bjw2103, I didn't dismiss them, I said they're very volatile from month to month. Before LICC gave his example, I never compared average rents to average purchasing prices. As a ballpark figure it's interesting and may be useful, but all my other postings on all other threads have been either for the same apartment for sale or for rent, or similar-sized ones in similar buildings.
That is how I do the comparison.
"Let's not forget that these are no-fee apartments, which means what you actually pay to rent a place may be even greater once broker fees are factored in."
What? There are no broker fees with no-fee apartments.
zorter, I'm sorry you don't understand it. "Imputed Rent "Annual cost of home ownership( as per Federal Reserve Bank) People should be willing to pay 20 times market rent to purchase a home."
Okay - "annual cost of home ownership" is NOT the purchase price of the home, which is what the price-to-rent ratio uses.
Do you understand that?
That's why the ratios are different.
LICC: "Wow bjw, steve is wrong again?"
No. See above. My examples are not for the average of 8 apartments for sale on a particular day. They are based on an analysis of the rental price and sale price for the same or a similar unit.
it isnt because of rent v. buy ratios that prices will go up or down or stay the same, so I'm not sure how useful it is to predict anything - of course, if your personal rule is not to buy anything that falls outside of your formula, more power to you -- but people are indeed paying prices way out of that formula, and it looks to me as though many of them can afford to and are not looking to recoup their carrying costs via rents
steve, your rent in your present apartment will not be lower in 10 years, nor will it stay the same - as for purchase prices, I don't think they're going to go up anytime soon, but you still may end up spending more for your living quarters over the course of decades if you hold out for a narrowly defined formula - and if the formula is what the purchase price is as a multiple of annual rent, that doesn't take into consideration interest rates, unless you're assuming that that's going to be the factor that drives everything back to the mean - I agree with you that now is the time to stay in a holding pattern - I don't agree that it always ends up being more prudent to rent rather than buy - anyway, that lady who can't sing, as you've noticed, I can't spell her name - not within my value system to know anything about gay icons - now, why are you in Chelsea and Fire Island? There's a world out there, and it sounds like you're in a ghetto
stevejhx, how volatile are they? And if that's the case, why use nybits as a source of reliable information at all? That's what I was getting at.
As for the no-fee comment, I meant that other apartments we'd look at (non nybits) would likely have a broker fee attached, making them more expensive. I know there are cases where no-fee apartments are really apartments where the fee's been factored into the yearly rent already, but that's not universally true.
Take a look here as well: http://dsarealty.com/. 19 apartments - a bit more - average over $5500/mo, not including potential broker fees. And these include the 2/1 apartments, which are ostensibly cheaper.
"if the formula is what the purchase price is as a multiple of annual rent, that doesn't take into consideration interest rates"
Of course it does and I said it did. That's why the factor is normally 12x, but in times of high interest rate it falls below that, and vice versa.
"unless you're assuming that that's going to be the factor that drives everything back to the mean"
Lots of things will drive it to the mean: strict underwriting standards, loss of equity in the stock market, loss of jobs on Wall Street, loss of Wall Street bonuses.
"I agree with you that now is the time to stay in a holding pattern"
Which is what I'm doing.
"I don't agree that it always ends up being more prudent to rent rather than buy"
If you look at buying a home to live in as an "investment" it is; if you look at it as capitalized rent (which is what it is), it's better to buy when your amortization is below market rents, and vice versa.
"stevejhx, how volatile are they? And if that's the case, why use nybits as a source of reliable information at all? That's what I was getting at."
They are as volatile as which apartments happen to be up for rent this month. Sometimes there are dozens of apartments; sometimes none. It's not valid to extrapolate the entirety of a market based on 8 non-scientifically selected samples.
"19 apartments - a bit more - average over $5500/mo, not including potential broker fees."
Now then, based on that you can definitely put an average price on those properties, and may even be able to extrapolate for the whole market. But:
1) Do you know how big they are?
2) What views they have?
3) Whether they're co-ops with restricted sublet policies?
4) Whether they take pets?
5) Where they're located?
6) Do they have laundry facilities?
No. So you can't use that vague figure to say, "Seems like Chelsea real estate isn't overpriced to me." It makes no sense.
LICC: "By using data based on averages of the market, steve can't cherry-pick his information to suit his theory."
Again, you're out of your mind, and out of your league. People here used to criticize me because they thought I was extrapolating median market data to a specific property (which I never did). You now do the opposite.
My analysis has always been (and always will be) comparing the same or very similar units. The same thing that Case-Shiller does. If you don't do that then your sample is skewed based on which particular apartments are for sale / rent in a particular month. So that 15 CPW and the Plaza can make it seem like median prices are rising in Manhattan, when excluding them, they are not.
You can use market averages for lots of things, like getting a general picture of price levels and inventory movement. You can't use them to say property x or y is overpriced compared to an equivalent rental. You can use them to say that property x or y is priced at z% of median / mean prices.
I don't cherry-pick information. I gave you all sorts of sources that say the same thing. You just like to say, "Nanny nanny boo boo, I live in Prime Long Island City aren't you envious you old man you!"
I'm sorry, but I just have to keep coming back to this. IT DOESN'T MATTER ANYMORE.
The rent/buy calculations we're all used to take into account flat or more usually rising markets.
When prices are declining, the ratio we're used to using goes out the window.... mortgage savings is *not* going to undo even a 10% loss if you're leveraged 5x or 10x.
If owning or buying today cost 10% more than the other, it doesn't really matter next to 50% or 100% equity loss.
Sneaky, that's good to know. In English, "crisis" comes from the Greek "kresis," meaning "decision." "Opportunity" comes from the Latin "opportunus," meaning a favorable wind blowing into port.
So I guess that, via Chinese, your post means that during a crisis you have to DECIDE whether the WIND is blowing into the PORT, which is a HARBOR, which comes from the Old English "herebeorg," meaning SHELTER, which is derived from SHIELD a.k.a. something to hide behind.
Right now it seems not to be. Someday it will, just not now. So stand behind your shield.
The NY Times had over 650 listings, but that wasn't good enough for you either . . .
Also steve, median prices won't be skewed as much from extremes on the high or low end, the way average prices would. Looking at only one unit in one building over time over-emphasizes factors that are unique to the one buildings. You have to be the densest person around to believe it is better to only look at one building when determining general prices in an entire area. Talk about out of your league, you are not even playing A ball . . .
"They are as volatile as which apartments happen to be up for rent this month. Sometimes there are dozens of apartments; sometimes none. It's not valid to extrapolate the entirety of a market based on 8 non-scientifically selected samples."
I was asking how volatile to get a sense of what you've seen in previous months, but no biggie. I'll ask again though - where should we get data on rentals from? And is nybits useful at all for data then?
"Now then, based on that you can definitely put an average price on those properties, and may even be able to extrapolate for the whole market. But:
1) Do you know how big they are?
2) What views they have?
3) Whether they're co-ops with restricted sublet policies?
4) Whether they take pets?
5) Where they're located?
6) Do they have laundry facilities?"
I don't know, but what's your point here? Are you assuming the rents are all high because they all have those amenities? I don't see how this helps your argument and I don't see how you can assume they're somehow all atypical.
petrfitz, in French the words for lawyer and avocado are the same.
"The NY Times had over 650 listings, but that wasn't good enough for you either."
I didn't say that, but you don't know anything about the sample, do you? You don't know how many of those are active listings, how many are duplicates, how many are shills just to get people into the office. Real estate agents are known for that, you know.
I said that general market price data are a good reference for comparing where an individual unit stands with the market, but you need to look at each property individually, just like you look at each stock or bond individually, and then compare it to the benchmark. I don't deny the analysis is useful, just not for what you're trying to prove.
This Real Estate Rout May Be Short-Lived
FYI - Interesting, educational, and balanced RE article...
This Real Estate Rout May Be Short-Lived
Jim Paulsen, chief investment strategist of Wells Fargo's primary investment unit, expects home prices to steady by year end, with the pace of foreclosures slackening shortly. Most of the subprime debt at the center of the current crisis already has been written down by financial institutions, he notes, while many subprime borrowers who lost their homes are returning to rental units. "Folks who compare this home-price cycle to the one that occurred in the early '80s obviously have short memories," Paulsen says. "In the 1980s the economy was in a deep recession, mortgage rates were at 17% or more, and unemployment [was] hitting a post-Great Depression high of nearly 12%."
http://www.smartmoney.com/barrons/index.cfm?story=20080715-real-estate-rout-may-be-short&cid=1108&&pgnum=1
Jim Paulsen must have a short memory. In the 1980s, the continuing deep recession, high unemployment and high interest rates were triggered by an event that occurred several years earlier (the OPEC embargo). All indications are that the triggers of the past couple of years are leading us down the same path.
The only difference is that last time around, the economy was weakened by massively irresponsible deficit spending to fund the Vietnam Conflict.
coopownr
Thanks for providing the joke of the day. That went well with my morning coffee.
Really? Maybe he should look at this chart:
http://en.wikipedia.org/wiki/Image:Shiller_IE2_Fig_2-1.png
And explain why, throughout history, the lines hovers around the mean (100), except in the last 5 years, and that chart ends in 2005, when prices continued to skyrocket in Manhattan through 2007.
Correlate that real incomes, and get back to me.
Great thoughts, for the most part...
I copied over the walk down memory line on the '80s for a reason since it MAY be the closest in timeline and I am trying to delve into whether there IS a correlation between that period and today. In this vein, does anyone recall exactly what happened to the buildings that were part of the '80s building boom in Manhattan? Given the number of buildings that are now condo and built in that period, I'm starting off the thought-gathering at they've remained condos and weren't necessarily converted into rentals...
There weren't a lot of condo conversions in the 80's - they were co-op conversions, many of which went bankrupt. Many sponsors held on to units and rented them out rather than selling them at deflated prices.
From 1983-1993 real property prices in NYC fell from 20% to 50%, depending on the location.
But of course that can't be true, since property prices in Manhattan never go down.
Yes, there definitely was a glut of coop conversions back then. Very good deals for those who were fortunate enough to get in. I don't think many went bankrupt though...which areas are you referring to? I peronally know some that bought and haven't regretted that purchase one day (not to gloat but to point out that there are benefits to buying but, yes, timing is everything).
However, getting back to the '80s retelling, there were also a good number, despite the underwhelming ratio of condos to coops back then, of condo buildings that went up. Insights on what happened to the condos, i.e. did they stay as condos or become rentals?
Steve - The Shiller chart certainly notes the dislocation of the US real estate market in the last 5 years. I think the more important point or question, however, is where you see the housing index measure returning to. Don't you think that given the acceleration of the population, inflationary pressures, and the general upward trend of the charts over the last 80 years, that it is fair to say that the "Mean" or normal point of the Housing index to return to is more like 140 or 150 rather than 100 like you state? That's an important differentiation. A return to 100 would break through the 80-100 yr trend not to mention be a calamity.
"where you see the housing index measure returning to."
It will undershoot the mean, then return to it.
"Don't you think that given the acceleration of the population, inflationary pressures, and the general upward trend of the charts over the last 80 years, that it is fair to say that the "Mean" or normal point of the Housing index to return to is more like 140 or 150 rather than 100 like you state?"
No. The only time in the history of America that prices increased in real terms and stayed there was after WWII. Shiller proved that over 350 years, by researching the price of a single house in Amsterdam, that those ratios proved true.
"A return to 100 would break through the 80-100 yr trend not to mention be a calamity."
A calamity it will be, and that's what we're seeing right now. Just ask yourself this simple question: "Where does the money come from to support these home prices?"
a) Wages
b) Leverage
Wall Street wages did prop up the Manhattan market. Credit was loose. Now Wall Street is in tatters, credit has all but dried up.
So where does the money come from?
The guy works for Wells Fargo. Of course they want the rout to be short lived. :)
i get it steve but your assumptions basically call for wall street, the financial markets, or any related professions or wages to not exist. That's not going to happen.
"your assumptions basically call for wall street, the financial markets, or any related professions or wages to not exist."
No they don't. They call for a realignment prices based on:
a) Tighter credit standards: interest rates, down payments, amount of bonuses allocable to income, etc.
b) Lower overall wages.
Market rentals in professionally managed buildings are a very good indicator of the supply and demand for housing. Go to nybits.com, compare market rentals to roughly equivalent sales. Use the 12x rent ratio, or the imputed rent method found here:
www.ny.frb.org/research/staff_reports/sr218.pdf
and tell me what you come up with. The increase shown in that chart is unsustainable.
Unsustainable at this rate. I agree. But Manhattan has always been expensive and has probably always been over that mean of 100 while North Dakota, for example, has always been under.
I agree 100%. Problem solved. Everyone can turn off CNBC. Thanks for playing.
"But Manhattan has always been expensive and has probably always been over that mean of 100 while North Dakota, for example, has always been under."
No. That would be like saying more than half the population has an IQ over 100.
Not possible - 100 is the mean.
Now then, Manhattan may have a HIGHER mean than North Dakota - precisely because it is wealthier - but it does have its own mean, and that mean is 100.
Using the Shiller index, the base value (not mean) is 100. Yes, we do see the pricing index component of this measure peak in '05 as the stevejhx's chart highlights. If you look at the raw data and '08 is available, you'll see it peaks in '07 BUT there's been a huge retrenchment since then till now.
In other words, it doesn't mean that a correction would be indicated by a return to 100. If that happens, that just means that we'd return pricing levels back to the base year, which in this case, is 2000. Now, no one would want THAT to happen, would they?
So, if you've been looking for a pricing correction back to '05 levels, which I've read is the target by others, now's your chance. Caveat is that this measure is good for 20 cities but not Manhattan-specific since this doesn't take into account coops and condos. Empirically, Manhattan is the first to lead OUT of a slump.
There goes steve with the rent ratio again. I debunked him on the other thread ("Ouch"), but he keeps at it. Ask him why 12x, or 15x, must be the standard in NYC and he can't tell you.
"No. That would be like saying more than half the population has an IQ over 100.
Not possible - 100 is the mean."
stevejhx, pretty sure you mean the median here. If the population is 3, two people have an IQ of 110, and one has an IQ of 60, the mean is below 100, no?
First, bjw, IQ is the mean, not the median. Look it up. It's a bell curve.
Now LICC: "I debunked him on the other thread ("Ouch"), but he keeps at it."
No you didn't dude. But just in case the Federal Reserve, Robert Shiller and Fortune Magazine weren't enough, here's from cnbc:
http://www.cnbc.com/id/25625777
Buy or Rent? Learn the Rule of 15
Ever hear of the real estate Rule of 15? I mentioned it yesterday on a segment with Al Roker on the TODAY Show as we discussed a question tossing and turning through many American heads these days: “Should I buy or rent?”
Here’s how the rule goes: Let’s say you’re looking at a 2-bedroom house or apartment:
1) Find the going rent in the neighborhood or location you’re interested in—which you can track down through sites like Zillow.com and Trulia.com—and calculate how much you’d spend in rent a year. Say, $2,000 a month would mean an annual rent of $24,000.
2) Multiply that number—your annual rent—by 15. (in this case: $360,000)
3) Now look up and compare the going price of a comparable space in the same area, to buy.
4) If that number is much greater than your annual-rent-times-15, the location probably still has a way to go down in home value. The bubble here ain’t done burstin’ and you should rent for a while. The last thing you want to be is upside-down on a mortgage—owing more than your new home is worth.
Well, ok, but a mean does not signify that more than one-half of your data set cannot be above or below that figure. That's what I was pointing to.
It "does not signify that more than one-half of your data set cannot be above or below that figure."
A normal distribution curve for IQ is not self-correcting. A market - liquid or illiquid - is. If prices are not clustered around the mean / median, they will quickly correct.
meaning, the standard deviation in a market is far lower than it is in a random population sample.
Sheesh - the 100 isn't a mean/median. It's a base. So, for all of you avid statisticians, there is no clustering or standard deviations or distribution curves to consider in relation to 100
To reiterate:
Using the Shiller index, the base value (not mean) is 100. Yes, we do see the pricing index component of this measure peak in '05 as the stevejhx's chart highlights. If you look at the raw data and '08 is available, you'll see it peaks in '07 BUT there's been a huge retrenchment since then till now.
In other words, it doesn't mean that a correction would be indicated by a return to 100. If that happens, that just means that we'd return pricing levels back to the base year, which in this case, is 2000. Now, no one would want THAT to happen, would they?
So, if you've been looking for a pricing correction back to '05 levels, which I've read is the target by others, now's your chance. Caveat is that this measure is good for 20 cities but not Manhattan-specific since this doesn't take into account coops and condos. Empirically, Manhattan is the first to lead OUT of a slump.
manhattangood, the 100 reference was to the distribution of IQ's.
There is a standard deviation for mean property prices.
The Shiller curve represents 100 as a base, with real increases or decreases as they fluctuate around that. They go up, they go down, but not very much.
I hope that explains what I meant.
manhattan - exactly.
"expects home prices to steady by year end"
Even if this guy is right, why is anyone thinking this is good news.
Case Schiller has us down about 20% overall last time I checked. If we continue at this pace for the rest of the year, we're down another 10%, 30% total nationwide. Some markets (Miami/Vegas) down 30% already, that could be 40-45% by year end.
So, if the "rosy" projection is that we end the year down 30%, and 40% or more in some markets, the sory projection is still a CRASH, no? I think 30% rings the bell, don't you?
When confronted with realistic numbers proving him wrong, steve resorts to Al Roker and the Today show. Priceless.
"steve resorts to Al Roker and the Today show"
LICC, you're engaging in what in psychology is called "denigration." I refer you to here:
http://books.google.com/books?id=13jlmrj7sAQC&pg=PA298&lpg=PA298&dq=denigration+defense+mechanisms&source=web&ots=M3Wpv96Cml&sig=NfuP7-HUO49XMcRLADMJ0GLfNpA&hl=en&sa=X&oi=book_result&resnum=3&ct=result
I "resorted" to cnbc's personal finance editor.
You deny her, as well as the Fed (NY, SF), Fortune, Shiller, etc.
Coopowner98, I remember the 80's co-op boom because I lived through it. This is how I remember it. Your building would decide to go "co-op" and you were given a prospectus on how much your unit would cost and what the proposed common charges would be on your unit. In order to go "co-op" a certain percentage of tenants had to agree to buy. The percentage escapes me now, but it was at least 50%, probably more.
Several determining factors on whether you would "buy-in" were:
1) Comparing rent vs ownership costs-How much more was it going to cost you on a monthly basis to buy the place vs rent it. In many cases the monthly cost was more to buy, but you would get it back with the tax deductions. So if you had the money, it made sense to buy rather than piss it away in rent. But Stevejhx is correct, the costs were similar. For some of my friends it was even cheaper to buy on a monthly basis if you had the down-payment, which leads to the next point.
2) Could you come up with the down-payment-I was young then, had no money, so this was a big stumbling block for many would be "co-op" participants.
3) Did you like your apartment enough to buy it?- For people with the best apartments in the building, that was a no-brainer. But for others who were not living in their "ideal" apartment, this was crucial. After the prospectus went out, "insiders" could vie for apartments not committed to. I remember a lot of maneuvering around for prime apartments or apartments that could be combined. After the insiders got to pick and choose their apartments, then outsiders were permitted to buy in but at higher prices.
4) Could you get the financing?- Interest rates were @ 17% at that time, but I remember buildings getting some insider rates for their buyers which were more attractive.
I ended up buying a 3 bedroom house in NJ for less than the cost of a small 1 bedroom apartment on the upper westside when the upper westside was not definitely not a fashionable area in which to live. Even at 17% interest rates houses were selling, although slowly. Why would you buy with 17% interest rates. We were young and naive, for one. People's lives continue during tough economic times, they get married, have children. The real estate prices were lower. Stevejhx is correct. When you have to spend so much on financing, the prices of the real estate must come down to get to a price that people can realistically afford on real salaries. But it was also a good time to buy. We got the house cheaper, but as the economy improved, the value of our house went up and the interest rates came down allowing us to trade up in a few years. So during tough economic times, it can actually be the best time to buy rather than the worst time to buy. Does that make sense?
The bottom line to this story is, I've been trying to get back to NYC ever since! Ha!
coop and newbie - the story was different for coop conversions in not-prime "hot" neighborhoods, especially in Queens - no one who was an "insider" wanted to buy, usually could not afford to because did not have dwnpmt - therefore the process worked differently from in the good Manhattan buildings:
"nonevict" plan scenario post-Koch changes (the answer to how to stabilize all manner of 'hoods), but in working class and poor neighborhoods:
A RS building would hold back vacant apartments from the market so that the landlord/eventual "sponsor" would control the requisite 15% of total shares or apts (can't remember which) were needed to choose to buy in order to have the plan declared effective. Yes, 15%. "Warehousing" is the term used to describe this practice, which made searching for a rent stabilized apt nigh impossible. As a co-worker said to me in around 1984, "Right now you can't @#$* for a lease, much less pay key money for one." "Key money" was a scam you'd find in the prime buildings described by newbie: in those buildings, the landlord/sponsor knew they'd get enough insiders to buy to get the plan declared effective because of the insiders' discounts. In some cases, though, rather than warehouse the highly sought-after vacant RS apartments, they would rent them out. The prospective RS tenant knew they would be getting not only a RS lease, but the opportunity to buy eventually at the insiders' price. So they would pay an additional sum of money called "key money" for the honor. It was absolutely illegal, and every broker in town was in on the practice.
Back to the working-class 'hoods: When the landlord had his 15%, he'd offer those for sale, at the same time he was offering the occuped RS apts to the not-interested long-term tenants. The 15% would immediately sell out because anyplace to live in was scarce. Before the tax code changes, the "occupied apartments" or "unsold shares" also had a brisk market. The idea was supposed to be like the Paris apartments, where you were essentially betting on the RS tenant to die before the age of 90, absorb the difference between their RS rent and your monthly maintenance charges, so you'd buy the apt for the insiders' price but have no right to occupy it.
It all crashed. No one ever blamed financing problems for the crash. The market for "unsold shares" crashed overnight when the investors could no longer deduct the negative rental income they were getting, more or less. The stock market crashed, having nothing whatsoever to do with real estate. Supply flooded the market all at once in the form of new conversion vacant units, resales of existing coop units, and the increasingly popular condominiums, which were priced at nowhere near today's premium over coops and usually had lower monthly common charges (most of the '80s coops were scams, with wrapping interest only balloon mortgages socked to the buyers in their monthly maintenance).
The other thing that fed into the crash was landlord/sponsors not able to meet their obligations to pay the monthly maintenance charges for their unsold shares with the RS rental income.
Condominium projects that entered the market right at the worst possible time in that downturn included The Corinthian and The Future in Murray Hill/Kips Bay. They did sell out, but slowly, and lots of foreign investors bought, especially from Japan.
The iBankers and RE pros on the board can fill you in on the other factors going on, whether or not and to what extent the S&L and junkbond crises affected it, but the biggest culprit was massive unemployment in all walks of life in New York City.
People have been hoping for a repeat of that, but we have a long way to go to get to that unemployment rate.
Things were so bad that you could open the newspapers' RE ads and see column after column of foreclosure sales. The most foolhardy subprime lender then was Dime Savings Bank, who did lots of no-doc liars' loans, most of which defaulted.
So nothing going on today is absolutely new, but the landscape is a little different.
The condo market left coops trailing in the dust. The shaky coop is a thing of the past, but condo prices will drag down prime coops.
Lowery, you are right. I do remember the key money! And maybe my percentage was incorrect, maybe it was less than 50%. I'm not clear on that part anymore. Thanks for the flashback!
Lowery, "The year 2007 was the third year in a row with over 30,000 units permitted%u2014the first time that this has happened since records began being kept"
Source: http://www.nyc.gov/html/hpd/html/pr2008/pr-03-03-08.shtml
If it takes 2 years to go from permit to C to O, the condo market could remain glutted through at least 2009.
Yeah, I was already astounded by the amount of new condos being built two or three years ago. It's going to be a glut.
Forgot to mention this -- another way to look at buying into a building that has lots of RS tenants -- they will not foreclose or sell at a loss, so depending how this shakes out, if you buy into a mixed building where the oldtimers are RS........ that may be safer than the new condos!
Steve In the Federal Reserve Bank of New York Staff Report Assesing High House Prices which you gave hear in an earlier post it says and I quote Annual cost of home ownership, People should be willing to pay 20 times market rent to purchase a house Page 8. Am I misreading this???? I also assume the 15x rent ratio is telling the renter if he is overpaying for the the right to own.
Steve or any other people to shed light on this
It's not going to be just a glut. You're going to see alot of buildings go tits up. I wouldn't buy new construction/conversion unless I were one of the last two or three to buy in a completed complex. I don't think the discounts for early purchasing will continue, au contraire, so waiting until a building is proven to be solvent will become VERY important.
"People should be willing to pay 20 times market rent to purchase a house Page 8. Am I misreading this????"
That is correct if you use the IMPUTED RENT model, which is highly complicated. If you use the price-to-rent ratio, it's simple, and 12.
But if you put the two together you will see that they are actually 2 different ways of calculating the same thing. The ratios are different b/c the inputs are different, but the result is the same.
Indeed, if you use the imputed rent ratio, if expectations are that real estate will fall in value, it states that no one will but.
That is, inventories will rise.
Uhm....
"no one will but."
How's about, "no one will buy"?
The rent/buy calculations we're all used to take into account flat or more usually rising markets.
When prices are declining, the ration we're used to using go out the window....
about 20x market rent = purchase..........
is that assuming the purchase is a house? is a condo different?
continuing with the Proust's "Remembrance of Things Past" theme here, the worst case scenario in that '80s/'90s bust was new RS-to-coop conversions that went bankrupt - here's how it worked - buyer of coop "owns" a coop in a building mostly RS apts, pay "maintenance" to coop corporation, which then goes bankrupt - result: bankrupt coop no longer owns apt, so coop unit owner now has to pay rent to ... whoever ... to live in the apt he supposedly bought but no longer owns - his mortgage against his worthless shares, however, is still a personal debt to his bank which he still owes on - very bad - yes, it DID happen, and yes it was in Manhattan coops - only way out was personal bankruptcy
I don't know what would happen to new unit purchasers in a condo if it went insolvent.
And now let's listen to that 1970s golden oldie, Barbara Streisand in "The Way We Were."
"Memories........."
stevehjx, you know I simply ADORE reading your posts and not necessarily because I agree with them (I do only a part of the time), but really this one is too much... "who do you think buys the cuckoo coffee." Tsk, tsk, tsk, you can't possibly mean that cappuccinos and lattes are a sign that gays are moving into a neighborhood? Time to get out of the Chelsea/Fire Island gayboy ghetto, my dear.
Of course, steve can't tell you why 12x is right or 15x is the level where things get overpriced, and when you look at actual numbers at 16x that make perfect sense to buy, steve's brain gets overheated and he posts some piece from the Today Show where someone said 15x must be the guide.
lowry, it makes no difference whether it's a condo or a house. BTW it's "Barbra" Streisand.
LICC - 16x time makes absolute sense if you make up your own way of doing the calculation, fail to assign a risk premium on ownership, fail to include expected price increases/decreases, use the marginal tax rate rather than the effective tax rate, and fail to account for the opportunity cost of investing elsewhere.
This from the Federal Reserve Board of New York.
But they're not as smart as LICComment.
The 12x figure was calculated by Shiller (of Case-Shiller) and Fortune Magazine, and the link is provided. It is due to the 28%/40x constraint on housing expenses as a percentage of total income, which does NOT include the tax benefit. The tax benefit is included ONLY if you use the imputed rent method, as per above.
"some piece from the Today Show" is the personal finance editor from cnbc.com.
Dude, you're a real loser.
Steve 0n 675sq ft condo midtown east facing east river, pool, doorman, gym for 645,000. Rents are 3200 right now all day so 3200 times 12= 38,400 times 20 = 768,000.2005 price levels for this apartment. How is that too high a cost. Now the rent model at 12x comes out to 460,800.If you are calculating the same thing how can one be 12times and the other 20times.Please use this example to explain.
zorter, they are just two different ways of measuring the same thing. The historic price-to-rent ratio implicitly measures the things that the imputed rent method explicitly measures. Though LICC and others (JuiceMan) dismiss the arguments and make up their own formulas with no economic or financial basis, using only the factors they feel should be included whether supported by theory or data or not, they're talking out of their....
The easiest way to look at this is the price-to-rent ratio. This from cnn.com / money magazine today:
Is it cheaper to rent than to own?
Here's a useful back-of-the envelope calculation: Take the price of the type of home you want in your market. Now call around or ask your broker to see how much it would cost annually to rent a similar property in the same region. For example, if you can purchase a home for $540,000 but can rent a similar one for $36,000 a year, your so-called price-to-rent ratio would be 15.
In general, buying starts to look attractive when the P/R ratio is around 15 or lower, says Newport. (The current national average is 12.5.) As your market's P/R ratio falls, more sellers are likely to come into the market. So demand could pick up and help stabilize home prices.
Of course, 15 is just a ball park. For a more sophisticated analysis, see how your market's current P/R stacks up to its pre-housing-boom levels. For price-to-rent ratios for dozens of key markets, check out the table at the bottom of the page. Then, for comparison, ask local realtors and rental agencies for an estimate of prices and rents back at the start of this decade.
In Miami, for instance, the ratio jumped from 12 in 2000 to nearly 30 in six years, according to Moody's Economy.com. It has since fallen to 22, but that's nearly double what it was at the start of the decade. "That's a pretty big premium," says Larson.
http://money.cnn.com/2008/07/07/real_estate/price_to_rent.moneymag/index.htm?postversion=2008071604
[splitting my comment up!]
Scroll down to New York - which is the region, not Manhattan per se - and you will see that the 15 year average price-to-rent ratio is 12ish, and it reached a maximum of 18+, for 50% above the norm. In Manhattan prices went up even more, yet rents remained approximately the same.
Note the source of these data: "Sources: Moody's Economy.com, Fiserv Lending Solutions, National Association of Home Builders, California Association of Realtors"
And LICC dismisses them, makes up his own model.
Then, if you want to use the imputed rent model, go to:
www.ny.frb.org/research/staff_reports/sr218.pdf
where the Federal Reserve Bank of New York sets out the parameters for the imputed rent model (the one that includes calculation of the "tax benefit"):
The formula for the annual cost of home ownership, also known in the housing literature as the “imputed rent,” is the sum of six components representing both costs and offsetting benefits. The first component is the cost of foregone interest that the homeowner could have earned by investing in something other than a house. This one-year cost is calculated as the price of housing times the risk-free interest rate. The second component is the one-year cost of property taxes, calculated as house price times the property tax rate. 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. The fourth term reflects maintenance costs expressed as a fraction of home value. Finally, the fifth term is the expected capital gain (or loss) during the year, and the sixth term, represents an additional risk premium to compensate homeowners for the higher risk of owning vs. renting.
My question was my example has two different results. please use the 645,000 purchase price. Is that a good deal or not???
So basically, LICC and others ignore the Federal Reserve Bank of New York, Moody's Economy.com, Fiserv Lending Solutions, National Association of Home Builders, California Association of Realtors, the personal finance editor of cnbc.com, Case-Shiller, Fortune Magazine, etc., and come up with their own baseless calculations and claim victory.
Not.
Zorter, if you don't want to do the complex math yourself, and without having seen the apartment myself, I would stick to the 12x annual rent as reasonable, would never buy above 15x. If you expect prices to fall in the near-term, the imputed rent model says not to buy at any level.
The 12x-15x rent-to-buy model is affected by interest rates; lower interest rates will give you a higher multiplier. But make sure you have that financing locked in.
Then, make sure that that's the actual rent, not the asking rent.
Personally, in this falling market, I wouldn't buy at all, but that's just me.
Just as an example, I rent in Chelsea for $4,500 per month. 12x that annually is $648,000. 15x is $810,000. I would definitely buy an equivalent apartment in this neighborhood for an amount somewhere between those.
Unfortunately, the starting price for 1000 sf 2-br 2-ba apartments in Chelsea is $1.2 million, nearly 24x the annual rent. Hence - tax "benefit" or not - it makes ZERO sense to buy.
steve loves to inappropriately cite to all these sources because the actual numbers show he is wrong. He also loves to talk about the risk premium but ignore the equity appreciation in real estate you receive when owning, ignore the risk premium of owning other assets other than real estate if you are a renter, ignore the appreciation in rents over time, and he incorrectly understates the mortgage tax deduction benefit.
Why is 28% of income the constraint to use in all areas? Doesn't it make sense that as a person's income rises, especially in high income areas, that one would be more willing to spend a higher percentage on their home? A person taking home $10,000 or $15,000 per month would be more willing to spend a higher percentage of it on their home than someone taking home $3,000 per month. Of course, you like to just read things in a magazine and parrot the statements; you have a hard time thinking things like this through.
steve, how many times are you going to bring up your $4,500 rent as if that is typical in the market. You just ignore facts that prove you wrong. Just look on streeteasy for Chelsea 2-bedroom listings, 95% will be substantially more that $4,500. You know this but you keep using your apartment as a basis for your argument. $5,500 - $6,000 is the more accurate number to use.
"steve loves to inappropriately cite to all these sources because the actual numbers show he is wrong."
There are the numbers.
"He also loves to talk about the risk premium but ignore the equity appreciation in real estate you receive when owning, ignore the risk premium of owning other assets other than real estate if you are a renter, ignore the appreciation in rents over time, and he incorrectly understates the mortgage tax deduction benefit."
They are included in the imputed rent model, if you care to figure it out.
"Why is 28% of income the constraint to use in all areas? Doesn't it make sense that as a person's income rises, especially in high income areas, that one would be more willing to spend a higher percentage on their home? A person taking home $10,000 or $15,000 per month would be more willing to spend a higher percentage of it on their home than someone taking home $3,000 per month."
Actually, I make more than that and the limit was 40x monthly rent.
"how many times are you going to bring up your $4,500 rent as if that is typical in the market. You just ignore facts that prove you wrong. Just look on streeteasy for Chelsea 2-bedroom listings, 95% will be substantially more that $4,500."
Asking rents and actual rents are completely different things. streeteasy is mostly condo owners looking to cover their costs. Go to nybits.com - market rentals, real rents. There are some rents higher, some lower; I'm comparing an apartment that I physically live in to one that I look at across the street that is virtually identical.
Do the comparison. Find the same apartment for sale and for rent on streeteasy, see the difference. There was a whole other thread posted the other day on Manhattan rents, and it showed purchasing prices 24x that.
How about the NY Times? They have 659 2-bedroom listings for rent in Chelsea, which include 1-bathroom apartments as well at 2-bathrooms. The median was $5,000.
Why do you argue with Steve? One day his neighbours will walk past his rental, smell something funny and call the cops. He clearly has no family/friends. Let him just rave on about the the 24x his current rental cost.
The NY Times is the same as streeteasy - mostly condo owners looking to meet costs. Nonetheless I would say that $4,500 to $5,000 would be a reasonable median for Chelsea 2br 2ba.
The problem is that when you do the same for sales in Chelsea, you get:
Sales in Chelsea
We found 208 listings with at least 2 bedrooms with at least 2 bathrooms
Median price: $2,625,000 Median size: 1,802 ft² Median price per ft²: $1,413
That is 2+ br 2+ ba. 3+ 3+ are:
Sales in Chelsea
We found 50 listings with at least 3 bedrooms with at least 3 bathrooms
Median price: $4,972,500 Median size: 3,000 ft² Median price per ft²: $1,678
Information on Chelsea
So - ballpark - you have about 160 2-2's for sale in Chelsea, figure an average size of around 1,200 sf, average psf of $1,200.
1,000 square feet at $1,200 psf = $1.2 million. That is going to give you a price-to-rent ratio of 24 if you use the Chelsea median rent of between $4,500 - $5,000.
"24x his current rental cost."
Calculated mine... depending on which PSF you use - I picked a high and low from comps, fairly wide spread - and I got 32.5 or 40.
I still can't get a straight answer Steve Apartment sells for 645,000 the imputed rent chart says 20 times annual rent is a good purchase which comes out to 768,000 and I will pay 645,000, that sounds like a great deal, What am I missing. I am going by Federal Reserve Bank Staff Report.Will you ever admit that anything is a good deal based on your charts???
Steve I have to say that 4500 for a 2bed 2 ba in chelsea is not accurate. More like 5500-6000. Many people I know are paying 4800 for a 1 bed in a high end doorman building. I pay 4000 for a one bed in Chelsea with no doorman.
Zorter
If you can get $3200 for a $645k apartment- more power to you. But that is generally not happening. Condos valued at a million are asking $3500 for rent and getting between $3000-$3500. So your tenant must be stupid to pay that kind of rent in today market unless he is stuck with a lease he signed sometime ago.
Surdy That apartment 2 years ago was 750,000.Believe it or not there are some deals out there.
Zorter
I believe you and have no argument with your fact that "there are some deals out there" with a caveat that it is not limited to sales only, the deals are also in rentals.
buddyparker, sorry you're overpaying, but check out rents on nybits.com.
"I still can't get a straight answer": Zorter, I can't do the calculation of imputed rent for you because you have to plug in all the information pertinent to what you're looking at, including interest rates, expected appreciation/depreciation, etc. You need to read the paper and figure out what it says. They provide a formula for you to follow.
If you want to use the price-to-rent ratio, I gave you that answer.
The reasons the ratios are different is because they measure things differently.
steve, you are wrong about so many things, so many times, why can't you once just admit it?
LICC, your are dismissed.
rent v buy - if you want to be comparing apples and oranges, look at condos and the rents they are fetching -- 45 Park Avenue sold out before the market softened -- I received glossy ads with photos for a one-bedroom unit offered to rent for $4,000/mo. It was not the 600-sq-ft variety that were listed for sale at $800,000 and up; it was the 1.5-bath variety, something like 800-sq-ft. Listed asking price for those units was over $1.1 million, I think. Photo showed the unit to be on a high enough floor to have a good view.
In that 45 Park Ave case, the price (haven't checked ACRIS) was over 20x the annual rent.
Now, how disastrous is that? I suspect the owner put much more than 20% down. Probably more like 50% down, maybe even 100%. They are not looking to rent it for what it costs to cover mortgage payments at an 80% of value rate. And if they are not looking to do that and in fact put down what we used to call on Fire Island "SOME gay money" then they are not destitute and not leveraged and not likely to foreclose and/or sell at a loss.
Steve, what will your rent be in 10 years? I think you might have to pay a little more than $800K to get a large two-brm condo in Chelsea, but given Chelsea's status relative to other 'hoods in the City and how it has gone from being undesireable to alternative to a destination spot to chic, I don't think paying a premium over your current rent would be a bad idea.
And stop listening to "Barbra." She's out of tune and melodramatic and belongs in the same attic as your old Frye boots.
stevejhx, average rent for a 2BR in Chelsea, as per nybits.com is $6,060.
bjw, the average rent is going to change significantly with such a small sample (8 apartments). Last month (I looked) it was lower.
Nonetheless, the average price of Chelsea 2-bedrooms is also significantly higher than $1.2 million; it's closer to $1.8 million. I just compared my apartment with one very similar across the street.
"Steve, what will your rent be in 10 years? I think you might have to pay a little more than $800K to get a large two-brm condo in Chelsea"
I have no idea what my rent will be in 10 years, nor how much apartments will be worth in 10 years, except I suspect they will be worth a lot less than they are today.
You'd have to pay minimum $1.2 million for a decent 2-br 2-ba in Chelsea.
I haven't listed to "Barbra" in years - since "People," which made me barf.
But that's how she spells her name.
Wow bjw, steve is wrong again? Get ready for some convoluted, out-of-context explanation for why he isn't wrong. steve, why don't you link to some piece from Oprah this time to defend yourself?
Steve they have done the calculation for me already Imputed Rent "Annual cost of home ownership( as per Federal Reserve Bank) People should be willing to pay 20 times market rent to purchase a home. Page 8.They have already done ALL the calculations. You also just said the reason the ratios are different is because they measure things differently.
"People should be willing to pay 20 times market rent to purchase a house Page 8. Am I misreading this????"
Steve these are your words
That is correct if you use the IMPUTED RENT model, which is highly complicated. If you use the price-to-rent ratio, it's simple, and 12.
But if you put the two together you will see that they are actually 2 different ways of calculating the same thing. The ratios are different b/c the inputs are different, but the result is the same.
The result is not the same.Lets not beat a dead horse.
Sturdy I agree that there are deals in rentals, thats why I try to stay in top end condos with pools and gym, to offer as much as I can as far as ammenities, and the view doesn't hurt either.
Is Steve now ignoring another person? LICC? Wow, he really can't handle the heat.
Dow up 200 Happy Days Are Here Again
stevejhx, I think it's a bit disingenuous to consistently cite to back your claims and then dismiss that same one when sample size is too small for your tastes. Where are we going to pull rental info from them? I think that we probably need at least 35 examples to get a strong idea of the mean 2/2 rent in Chelsea, but it's tough when you dismiss every source out there. Let's not forget that these are no-fee apartments, which means what you actually pay to rent a place may be even greater once broker fees are factored in. I'm 100% on-board with you about RE for sale being overpriced in this city, but I think rentals aren't far behind.
* sorry for the typo - I meant it's "disingenuous to consistently cite one source to back your claims," etc.
bjw2103, I didn't dismiss them, I said they're very volatile from month to month. Before LICC gave his example, I never compared average rents to average purchasing prices. As a ballpark figure it's interesting and may be useful, but all my other postings on all other threads have been either for the same apartment for sale or for rent, or similar-sized ones in similar buildings.
That is how I do the comparison.
"Let's not forget that these are no-fee apartments, which means what you actually pay to rent a place may be even greater once broker fees are factored in."
What? There are no broker fees with no-fee apartments.
zorter, I'm sorry you don't understand it. "Imputed Rent "Annual cost of home ownership( as per Federal Reserve Bank) People should be willing to pay 20 times market rent to purchase a home."
Okay - "annual cost of home ownership" is NOT the purchase price of the home, which is what the price-to-rent ratio uses.
Do you understand that?
That's why the ratios are different.
LICC: "Wow bjw, steve is wrong again?"
No. See above. My examples are not for the average of 8 apartments for sale on a particular day. They are based on an analysis of the rental price and sale price for the same or a similar unit.
it isnt because of rent v. buy ratios that prices will go up or down or stay the same, so I'm not sure how useful it is to predict anything - of course, if your personal rule is not to buy anything that falls outside of your formula, more power to you -- but people are indeed paying prices way out of that formula, and it looks to me as though many of them can afford to and are not looking to recoup their carrying costs via rents
steve, your rent in your present apartment will not be lower in 10 years, nor will it stay the same - as for purchase prices, I don't think they're going to go up anytime soon, but you still may end up spending more for your living quarters over the course of decades if you hold out for a narrowly defined formula - and if the formula is what the purchase price is as a multiple of annual rent, that doesn't take into consideration interest rates, unless you're assuming that that's going to be the factor that drives everything back to the mean - I agree with you that now is the time to stay in a holding pattern - I don't agree that it always ends up being more prudent to rent rather than buy - anyway, that lady who can't sing, as you've noticed, I can't spell her name - not within my value system to know anything about gay icons - now, why are you in Chelsea and Fire Island? There's a world out there, and it sounds like you're in a ghetto
stevejhx, how volatile are they? And if that's the case, why use nybits as a source of reliable information at all? That's what I was getting at.
As for the no-fee comment, I meant that other apartments we'd look at (non nybits) would likely have a broker fee attached, making them more expensive. I know there are cases where no-fee apartments are really apartments where the fee's been factored into the yearly rent already, but that's not universally true.
Take a look here as well: http://dsarealty.com/. 19 apartments - a bit more - average over $5500/mo, not including potential broker fees. And these include the 2/1 apartments, which are ostensibly cheaper.
By using data based on averages of the market, steve can't cherry-pick his information to suit his theory. No wonder he doesn't like it.
In Chinese, the words for crisis and opportunity are the same. That's how I see this current market.
"if the formula is what the purchase price is as a multiple of annual rent, that doesn't take into consideration interest rates"
Of course it does and I said it did. That's why the factor is normally 12x, but in times of high interest rate it falls below that, and vice versa.
"unless you're assuming that that's going to be the factor that drives everything back to the mean"
Lots of things will drive it to the mean: strict underwriting standards, loss of equity in the stock market, loss of jobs on Wall Street, loss of Wall Street bonuses.
"I agree with you that now is the time to stay in a holding pattern"
Which is what I'm doing.
"I don't agree that it always ends up being more prudent to rent rather than buy"
If you look at buying a home to live in as an "investment" it is; if you look at it as capitalized rent (which is what it is), it's better to buy when your amortization is below market rents, and vice versa.
"stevejhx, how volatile are they? And if that's the case, why use nybits as a source of reliable information at all? That's what I was getting at."
They are as volatile as which apartments happen to be up for rent this month. Sometimes there are dozens of apartments; sometimes none. It's not valid to extrapolate the entirety of a market based on 8 non-scientifically selected samples.
"19 apartments - a bit more - average over $5500/mo, not including potential broker fees."
Now then, based on that you can definitely put an average price on those properties, and may even be able to extrapolate for the whole market. But:
1) Do you know how big they are?
2) What views they have?
3) Whether they're co-ops with restricted sublet policies?
4) Whether they take pets?
5) Where they're located?
6) Do they have laundry facilities?
No. So you can't use that vague figure to say, "Seems like Chelsea real estate isn't overpriced to me." It makes no sense.
LICC: "By using data based on averages of the market, steve can't cherry-pick his information to suit his theory."
Again, you're out of your mind, and out of your league. People here used to criticize me because they thought I was extrapolating median market data to a specific property (which I never did). You now do the opposite.
My analysis has always been (and always will be) comparing the same or very similar units. The same thing that Case-Shiller does. If you don't do that then your sample is skewed based on which particular apartments are for sale / rent in a particular month. So that 15 CPW and the Plaza can make it seem like median prices are rising in Manhattan, when excluding them, they are not.
You can use market averages for lots of things, like getting a general picture of price levels and inventory movement. You can't use them to say property x or y is overpriced compared to an equivalent rental. You can use them to say that property x or y is priced at z% of median / mean prices.
I don't cherry-pick information. I gave you all sorts of sources that say the same thing. You just like to say, "Nanny nanny boo boo, I live in Prime Long Island City aren't you envious you old man you!"
Nope.
I'm sorry, but I just have to keep coming back to this. IT DOESN'T MATTER ANYMORE.
The rent/buy calculations we're all used to take into account flat or more usually rising markets.
When prices are declining, the ratio we're used to using goes out the window.... mortgage savings is *not* going to undo even a 10% loss if you're leveraged 5x or 10x.
If owning or buying today cost 10% more than the other, it doesn't really matter next to 50% or 100% equity loss.
Sneaky, that's good to know. In English, "crisis" comes from the Greek "kresis," meaning "decision." "Opportunity" comes from the Latin "opportunus," meaning a favorable wind blowing into port.
So I guess that, via Chinese, your post means that during a crisis you have to DECIDE whether the WIND is blowing into the PORT, which is a HARBOR, which comes from the Old English "herebeorg," meaning SHELTER, which is derived from SHIELD a.k.a. something to hide behind.
Right now it seems not to be. Someday it will, just not now. So stand behind your shield.
Nanny nanny boo boo Eddie, Nanny nanny boo boo . . .
The NY Times had over 650 listings, but that wasn't good enough for you either . . .
Also steve, median prices won't be skewed as much from extremes on the high or low end, the way average prices would. Looking at only one unit in one building over time over-emphasizes factors that are unique to the one buildings. You have to be the densest person around to believe it is better to only look at one building when determining general prices in an entire area. Talk about out of your league, you are not even playing A ball . . .
"They are as volatile as which apartments happen to be up for rent this month. Sometimes there are dozens of apartments; sometimes none. It's not valid to extrapolate the entirety of a market based on 8 non-scientifically selected samples."
I was asking how volatile to get a sense of what you've seen in previous months, but no biggie. I'll ask again though - where should we get data on rentals from? And is nybits useful at all for data then?
"Now then, based on that you can definitely put an average price on those properties, and may even be able to extrapolate for the whole market. But:
1) Do you know how big they are?
2) What views they have?
3) Whether they're co-ops with restricted sublet policies?
4) Whether they take pets?
5) Where they're located?
6) Do they have laundry facilities?"
I don't know, but what's your point here? Are you assuming the rents are all high because they all have those amenities? I don't see how this helps your argument and I don't see how you can assume they're somehow all atypical.
petrfitz, in French the words for lawyer and avocado are the same.
"The NY Times had over 650 listings, but that wasn't good enough for you either."
I didn't say that, but you don't know anything about the sample, do you? You don't know how many of those are active listings, how many are duplicates, how many are shills just to get people into the office. Real estate agents are known for that, you know.
I said that general market price data are a good reference for comparing where an individual unit stands with the market, but you need to look at each property individually, just like you look at each stock or bond individually, and then compare it to the benchmark. I don't deny the analysis is useful, just not for what you're trying to prove.
"median prices won't be skewed as muc