Many - most especially LICComment - have been claiming that Manhattan real estate costs the same to buy and rent because of the deductibility of mortgage interest.
Let us dispel this once and for all. When you apply for a loan, banks do NOT take the deductibility of mortgage interest into account. They use PITI:
Principal, Interest, Taxes, and Insurance.
That's it.
You CANNOT get financing by taking into account the mortgage interest tax deduction.
Those of you who STILL believe that the proper way to calculate your monthly costs is by using the tax benefit, beware. YOU CANNOT get a loan.
Banks use a PITI of 28% of gross income; for higher-income individuals it can go up to 32%. But no higher, and no interest deduction.
Therefore, contrary to LICC's claim, when looking at the historic price-to-rent ratio of 12x annual rent, you cannot include the tax benefit not only because it doesn't form part of that ratio, but because you can't use that benefit to qualify for a loan.
steve, you are mixing two different issues. When comparing costs between renting and owning, you absolutely must consider tax deductions and after-tax costs. When you make statements such as "It costs half as much to rent as to buy," you are not referring to bank lending standards, but you are comparing cost to cost. Your housing costs as a percentage of income, and how this affects your ability to obtain financing, is a separate issue.
The mortgage interest deduction is no myth to owners who obtain the benefit.
and don't forget principle paydown LIC...I luv watching my investment loans disappearing and every month the priciple paydown is larger! it's a great feeling.....
"When comparing costs between renting and owning, you absolutely must consider tax deductions and after-tax costs."
HOW CAN YOU COMPARE THE AFTER-TAX COST OF A MORTGAGE WHEN YOU CAN'T GET A MORTGAGE LARGE ENOUGH TO GAIN THAT AFTER-TAX COST?
It's IMPOSSIBLE.
"The mortgage interest deduction is no myth to owners who obtain the benefit."
I never said it's not real. I enjoy one myself thank you very much. What I said is that if it costs $4,500 to rent an apartment and $1 million to buy it, you cannot equate the costs of the two because they are price levels available to completely different income groups.
None of your arguments about property prices makes any sense whatsoever.
I gave the example before. If it costs $4,500 to rent an apartment you need an income of $215,000. A $1.1 million apartment with a standard 30-year 80/20 mortgage at 8% (the national average) has a mortgage payment of $6,457.13. Maintenance on such an apartment would run approximately $1,500. Taxes would run approximately $1,000. That is a total PITI of $8957.13, call it $9,000 to make it even.
Twice what it costs to rent. Assuming a bank will give you a mortgage at 32%, you would need to have an income of $337,500.
If you tell me that it costs the same to buy as to rent, then the same people who can buy can rent. If it costs $1,000 a month to rent a Toyota and $1,000 a month to buy a Toyota, the same people can buy and rent.
The fact is, someone who can rent the apartment cannot afford to buy it using a standard mortgage. Therefore, the cost CANNOT be the same.
"Will you have that great feeling if your property falls in value below your outstanding mortgage value?
probably not... but since real estate depreciation is more of a rarity and appreciation is more likely. I most likely will have principle paydown and home appreciation at the same time and that my dear bear is a f'n great feeling! the spread keeps growing as does your wealth.
steve, why are you comparing a $4500 rental to a $1.1 million apartment? You set up a flawed hypothetical because the comparison is off. The better comparison is something around $850,000-$900,000.
steveF, since you seem reasonably convinced of continued price appreciation in your home, I'm puzzled as to why you also celebrate paying down principal. Paying down principal (i.e. increasing your equity) reduces your leverage, which compresses the return on your "investment."
"Fed - you think depreciation is more likely than appreciation over time?" No. Neither is really more likely than the other. Adjusted for inflation, appreciation has shown to be minimal. There is data that supports this (it has been posted here ad nauseum). I'm not that old but I sure as hell wasn't born 10 minutes ago.
Since the end of WWII housing prices over long periods of time adjusted for inflation have oscillated around 100.
"steve, why are you comparing a $4500 rental to a $1.1 million apartment? You set up a flawed hypothetical because the comparison is off. The better comparison is something around $850,000-$900,000."
Not in my neighborhood. Find me a 2-bedroom 2-bathroom 1,000 square foot brand new apartment in a good neighborhood that sells for $850,000, and I'll buy it.
Sales in All Downtown
We found 7 listings for no more than $900,000 at least 1,000 sqft with at least 2 bedrooms with at least 2 bathrooms
Median price: $875,000 Median size: 1,200 ft² Median price per ft²: $740
Information on All Downtown
Seven listings, all in Chinatown except one in BPC w/ enormous land lease charges.
This claim that long-term returns on real estate are close to zero is a fallacy. We've established time and again that the annualized return on Manhattan real estate for the past 40 years is around 9%.
I don't ever remember "establishing" that, you keep saying it, but never document it. And 40 years isn't long term, especially when 25% of it has been the biggest run up ever.
Pretty clearly at the 0% mark with the exception of the last few years... which makes a pretty darn huge case for a major decline (sort of like the one we're in already).
Because most of the city's owned apartments are co-ops, or private corporations, their sale prices are not publicly reported. But what is certain is that as the bankruptcy crisis of the mid-70s faded, residential real estate took off. The Corcoran Report, a privately conducted surveyed that started at that time, shows that the average price per room of an apartment, $10,600 in 1973, had nearly quadrupled by the end of the decade.
Let's say a 2-bed, 2-bath apartment was $65,000. If today a similar apartment sells between $1.1 and $1.3 million, that is an 8.5% to 9%+ annualized return. I think 35-40 years is long-term. I think most everyone else alive today would consider 35-40 years long-term when it comes to buying real estate. Eddie, your denials here are just not credible. You get me data and provide some information on real estate returns for New York City, because you haven't shown me anything.
"This claim that long-term returns on real estate are close to zero is a fallacy."
"The notion that home prices always go up is very strong, and very wrong.
It is true that, for the United States as a whole, real home prices were 66 percent higher in 2004 than in 1890, according to the index my research assistants and I have put together. But all of that increase occurred in two brief periods: the time right after World War II and since 1998.
Other than those two periods, real home prices overall have been mostly flat or declining. Moreover, the overall increase, including the booms, is not very impressive -- 0.4 percent a year."
"We've established time and again that the annualized return on Manhattan real estate for the past 40 years is around 9%."
No. You established that one apartment that in 1968 was in a marginal neighborhood may have had a NOMINAL price increase over time of 9% as the neighborhood changed to a good one went up 9%.
USING THE VERY CASE-SHILLER METHODOLOGY THAT YOU DERIDE.
Park Avenue and 92nd Street was a marginal neighborhood?
What about the Corcoran Report cited above from the Herald Tribune? What is your source for Manhattan apartment prices in the late 1960s-early 1970s? You haven't contradicted by contention on prices.
steve, maybe you have a good deal on your apartment. Maybe your apartment is cheap for some reason. But if you want to rent an apartment equivalent to a $1.1mil unit in your neighborhood, the rents are much higher. Just look at the listings to see what is available. We already went through this with you. This is why some people lose respect for you, because you repeat wrong statements even after contrary facts have been shown to you, and you do it to push your flawed arguments.
Let me get this straight, your source is a "privately conducted survey" by a broker that did it on a PER ROOM basis (because I'm sure room sizes are EXACTLY the same today), and thats the "evidence" of 9% appreciation you've been giving?
ok Eddie, let's take this through. For NYC real estate to have a 0% real return over 40 years, 2-bedroom apartment in 1968 would have had to have cost $250,000-$300,000. This is what you think?
. . .
Ok I've stopped laughing now. wow, you foolishly just walked into that one.
"Park Avenue and 92nd Street was a marginal neighborhood?"
It was Spanish Harlem.
"But what is certain is that as the bankruptcy crisis of the mid-70s faded, residential real estate took off. The Corcoran Report, a privately conducted surveyed that started at that time, shows that the average price per room of an apartment, $10,600 in 1973, had nearly quadrupled by the end of the decade."
It did, and crashed between 1983 and 1993.
Robert Shiller: "real home prices overall have been mostly flat or declining. Moreover, the overall increase, including the booms, is not very impressive -- 0.4 percent a year."
"maybe you have a good deal on your apartment. Maybe your apartment is cheap for some reason. But if you want to rent an apartment equivalent to a $1.1mil unit in your neighborhood, the rents are much higher. Just look at the listings to see what is available."
You don't know what you're talking about. Here is the most expensive 2-bedroom listed in Chelsea:
I don't care what other people do. This is a theoretical question.
And LICC's per room survey - between 1973 and 1980 inflation was 83%. So of that "quadrupling" - 300% increase - you quote, nearly 100% of it was inflation. That means a tripling of prices. But between 1988 and 19988, the real value of property in Manhattan fell by 50% (20% nominal). So of that 200% real increase through 1973 through 1980, half of it was lost through 1993. Therefore, you're left with a doubling of property prices in real terms from 1973 through 1998. That leaves you with about a 3% per annum real increase from 73 through 98.
And if you remember what Manhattan was like in 1973 - I do - and remember what it was like in 1998 - I do - you can see why there was a real increase of that magnitude during that time frame. NYC became a nice place to live, and the population rose by nearly a million people.
Although the data don't exist (as you properly quote), if you extrapolate back to 1953 - when NYC was also a nice place to live - I'm sure you'd see something similar.
I will grant you a REAL 3% per annum increase in Manhattan property prices from 1973 to 1998. And from 1958 to 1973, you probably saw a REAL 2% annual DECREASE in property prices as the city slid into disrepair.
Having to make more money to take advantage of a tax benefit is nothing new. Does that make muni bonds more expensive than they are? Not to the person who makes enough money, although they don't look like a good deal to someone who doesn't.
If you live in the city and make decent money, your effective tax rate is darn near 50%. And that makes a 2:1 view go to 1:1 pretty fast (as long as we are talking about properties under $1MM). And if you live in the city, make decent money, and rent, you have to pay that rent on after tax money which means you need to gross 2x to pay it. And that is independent of the rent.
If you tax advisor doesn't recommend muni bonds to you, then agreed, the Manhattan real estate market is not for you because the people bidding against you have very different economics that make the property worth more to them than to you (again for under $1MM).
I hate to jump in again, but discounting inflation in a rent or buy calculation and focusing on real returns doesn't make sense. If you know inflation over the next 7 years was going to be net 83%, would you lock in a fixed rate by buying, or go with the floating rate by renting (that is presumably going up by 83%)?
steve, you are the only person on this entire board that thinks Park Avenue and 92nd Street was Spanish Harlem.
The point of the article wasn't to show how prices increased in the 1970s, it was to show what prices were in 1973. You can't claim this 0% real return for NYC.
"you are the only person on this entire board that thinks Park Avenue and 92nd Street was Spanish Harlem."
It was 1968. I lived here. Did you?
"it was to show what prices were in 1973"
I see. You criticize my application of case-shiller applied to a neighborhood that didn't change (West Village) to one that did, yet you use the same application to prove your point.
More mistakes by steve. You are getting sloppier and sloppier buddy.
I wasn't born yet in 1968. I'm not that old.
The reference to the Corcoran Report was for the entire Manhattan market. How is that specific to a neighborhood. The reference to 1160 Park bolstered the information. Are you denying the 8-9% annualized growth in Manhattan real estate in the last 35-40 years? Because you are going in circles with senseless arguments on discrete points that in the end, your arguments are both wrong and meaningless.
steve, find one other person to comment on this board truthfully that Park Avenue and 92nd Street was Spanish Harlem in 1968. Keep trying. Why do you insist on sticking with wrongheaded claims and making yourself look more and more ridiculous? All you need to say is "I was incorrect to say that it was Spanish Harlem. It was not Spanish Harlem, but I don't think that location was that great back then." Regardless, you still are not correct with your 0% real return claim, so you probably should just give it up already.
"The Corcoran Report, a privately conducted surveyed that started at that time, shows that the average price per room of an apartment, $10,600 in 1973, had nearly quadrupled by the end of the decade."
The per-room price? Please. What is a "room"? Is a kitchen a room? A bathroom? A bedroom?
How big are those rooms? Do they face air shafts? Does a room need to have a window? Where are those rooms?
That is perhaps the most useless measure of property prices I have ever heard of. It's akin to valuing a house by how many blades of grass are in the lawn.
There are NO reliable data for NYC real estate more than 2 years old, when co-op prices were recorded for the first time. Prior to 1964 there weren't ANY condominiums in New York State because they were illegal. The market was entirely opaque, just like the real-estate industry wanted.
1160 Park Avenue:
"LOCATION: The East Harlem's southern border is 96th street, western - Park Avenue. To the east, the East Harlem is flanked by the East River."
It is 4 blocks south of the "official" border of Spanish Harlem. Do you think that in 1968 the riffraff that lived in Spanish Harlem did not cross 96th Street? Was there a fence there? Armed guards? Dobermans?
From Wikipedia on Spanish Harlem: "However, since the 1950s it has been dominated by residents of Puerto Rican descent, sometimes called Nuyoricans. The neighborhood boundaries are Harlem River to the north, the East River to the east, East 96th Street to the south,[1][2] and 5th Avenue to the west."
steve, no need to be so stubborn here. Andrew Carnegie died in 1919, but his mansion didn't exactly turn to rubble. It was maintained by his foundation and eventually became a museum in the early 70s, so not sure what your point is. That area has been prestigious for a long time now.
i dont think guys making $43,393 were ever flipping condos at the setai there Steve. If what you mean is that there are not as many folks with $200 K liquid to plop 20 per cent down on a 700K-900K unit, then you may have a point.
steve, that last comment was really embarrassing. You are falling into joke territory. The median income from the 1999 Census? Wow. That census also had 70,000 Manhattan households with income over $200k. That was over 8 years ago. I also don't know if that is the best source for our purposes.
And for all you "marginal tax rate" proponents, I suggest you read IAS 34 on interim financial reporting.
"9. Measuring interim income tax expense. 9.1 Use of estimated annual rate The interim period income tax expense is accrued using the tax rate that would be applicable to expected total annual earnings, i.e. the estimated average annual effective income tax rate applied to the pre-tax income of the interim period. [IAS 34.B12]"
9.2 Impact of progressive tax rates. The estimated average annual effective income tax rate will reflect a blend of the progressive tax rate structure expected to be applicable to the full year’s earnings, including enacted or substantively enacted changes in the income tax rates scheduled to take effect later in the financial year. [IAS 34.B13]."
steve, you are making more of a clown of yourself by pushing your effective rate position. You are wrong. Over and out. Cite to whatever you want, quote whatever you want, you are still wrong. The whole analysis that we went through ad naseum on the other thread unequivocally showed you are wrong. Your insistence on pushing this effective rate position of yours is making me think that you are a mental case.
Why don't you take a look at a map of Spanish Harlem and get back to me on that one too?
Discussion seems to revolve around housing where the owner or renter is stretched. May exclude some of the upper income with multiple houses or where there is a lot of liquidity. Certainly would exclude from the analysis 740 Park!
"Cite to whatever you want, quote whatever you want, you are still wrong. The whole analysis that we went through ad naseum on the other thread unequivocally showed you are wrong"
Denial. More than a river. Every single datum everywhere points to the fact that I am correct - even the International Accounting Standards Board.
Has anyone noticed that Steve seems to redline neighborhoods by race? Any reason race or ethnicity always seem to be cited to marginalize a neighborhood or locale that Steve doesn't like?
"Are you denying the 8-9% annualized growth in Manhattan real estate in the last 35-40 years?"
I am. Because there hasn't been one stat to show that, only LIC guessing.
BTW, there is some real weirdness going on here. LIC is circling around the real issue...
Why are you so big on showing Manhattan price appreciation as separate from the rest of the country, and downplay the national numbers? Because you bought in the latter, not the former.
Are you trying to infer that we can learn how much your Queens condo will be worth based on PARK AVENUE PRICES?
"And Harlem was a place for rich folks well after the Carnegie mansion was built. You think neighborhoods only get better?"
What's your point? Lots of neighborhoods fluctuate socio-economically speaking, sure, but it's just wrong to lump 92nd and Park into Spanish Harlem and call it a marginal neighborhood, even in 1968.
As a young child around 1968 and later, I went to after-school activities at the 92nd St. Y. The area immediately around there was not (of course) East Harlem, but it would fairly be called Spanish Harlem to the extent that neighborhoods are defined by ethnic/socioeconomic qualities (and yes, for any particular generation they go mostly hand-in-hand). The wealthier kids in the afterschool programs lived a bit more downtown; right around there was similar to the W. 80s of the time. Marginal, even in 1968.
Furthermore, anyone who's familiar with NY in 1968 understands that every month the news featured another Fortune 500 corporation moving its HQ out of the city (and often the region), destroying the broadbased economy (manufacturing and shipping having already gone bye-bye). Add to that Federal policy that favored suburban housing and transportation at the expense (literally) of cities.
The process by which neighborhoods went into decline was one of blight spreading from its starting point. It wouldn't/didn't have any difficulty crossing 96th St. And 1968 was also the year of "urban unrest" nationally (although less so in NY than other places). It followed the 1967 blackout and its looting.
Is it clear why 1968 is a particularly obnoxious year to pick?
> What's your point? Lots of neighborhoods fluctuate socio-economically speaking, sure, but it's just
> wrong to lump 92nd and Park into Spanish Harlem and call it a marginal neighborhood, even in 1968.
The point is, it *was* a marginal neighborhood at the time, and changes in the ngiehborhood makeup contributed much to price increase - meaning its a fairly lousy example to use.
"The point is, it *was* a marginal neighborhood at the time, and changes in the ngiehborhood [sic] makeup contributed much to price increase - meaning its a fairly lousy example to use."
Well, no, as many others have said here, but it's your right to think so.
Actually, many others have said that it's not Spanish Harlem (even though Steve said *BORDERLINE* Spanish Harlem). Not many have said that 92nd & Park was not a marginal area in 1968.
So this is turning into another "Life Begins at Conception" vs. "Life BEGINS at 40" argument.
Actually, this is more of a he-said/he-said argument. Steve said borderline Spanish Harlem but explicitly said it was a marginal area. I was not alive in the 60s, so I'm not an authority, but everything I've ever read about that area points to it being an enclave for the wealthy, and at the very least an upper-middle-class neighborhood ever since (if not before) Carnegie built his mansion. But this is a tiresome argument that's really about steve's trying to poke holes in LIC's analysis of one property. He makes convincing arguments more often than not, but I felt he misfired here, and I wouldn't exactly be worried that one rather insignificant fact would sink anyone's belief in his 50% reduction in prices theory.
> Actually, this is more of a he-said/he-said argument
Only because you're circling around the point again. On the actual point, the ansswer is pretty clear. 92 and Park wasn't particularly nice at th etime in question.
Yes, 5th avenue was a nice spot when Carnegie built his place, but neighborhoods decline, and 5th isn't Park. Park Ave had particular problems for a time because of the elevated railway and the resulting noise and pollution. Much of it got MUCH nicer when the train was torn down, creating the Park Ave. we know today. But other areas took longer to build up (or recover), particuarly the more northern parts.
The bigger point is, neighborhood definitions aside, Steve was right. 92nd and Park was not "prime" or whatever you want to call it UES. Folks claiming otherwise are doing it without any knowledge of the city's history.
Eddie is missing the bigger point. Any data you look at of apartment prices from 35-40 years ago compared to today, shows an 8-9% annualized growth rate. You can look at this particular building, you can talk to people you know who bought apartments at that time, you can look at the Corcoran report information, it all leads to the same result. Therefore, this claim of steve and Eddie and others that the long-term real return on real estate is near zero is just a fallacy when you look at the NYC market. All this other discussion they raise is just their trying to misdirect the conversation away from that main point.
> Any data you look at of apartment prices from 35-40 years ago compared to today, shows an 8-9%
> annualized growth rate.
Actually, I'm still waiting for that data. That would be the bigger point if it was actually shown.
But, right now, all I've seen is you guessing...
Even the corcoran report, you've not mentioned it twice. And it didn't say anything like that, only giving room averages.
> it all leads to the same result.
Yes, LIC picking the number he wants. ;-)
> Therefore, this claim of steve and Eddie and others that the long-term real
> return on real estate is near zero is just a fallacy when you look at the NYC market.
Based on all the data we've looked at, the "claim" is 100% true. Nothing has contradicted that for the US market. Now, of course, individual pieces will change, and I'm open to NYC being higher than NYC.
But, picking a specific period of time is ridiculous when talking about "long term". You happened to have picked a time of growth, where 25% of the time is part of the biggest run up ever.
So, its possible NYC has done better than 0. But somebody has to show the stat. Not a guess, but a stat.
And the bigger point is this... in all the actual data graphs, RE does have positive returns in some parts... and then it reverts back to the 0% mean. If anything, long term data shows that the most NYC real estate went up, the more its likely to go down.
Sure Eddie, if we happen to have two world wars and a Great Depression in the next 30-40 years, I'm sure real estate values will be decreasing, but otherwise, I think looking back on the last 40 years is a good long-term indicator. Your analysis goes back to 1890; why not go back to 1860 and pick up the Civil War too. I didn't cherry-pick a period of time, I looked at the last 40 years up to current. 40 - a nice, round objective number that would be pretty long-term in most people's lifetimes.
"Yes, 5th avenue was a nice spot when Carnegie built his place, but neighborhoods decline, and 5th isn't Park. Park Ave had particular problems for a time because of the elevated railway and the resulting noise and pollution. Much of it got MUCH nicer when the train was torn down, creating the Park Ave. we know today. But other areas took longer to build up (or recover), particuarly the more northern parts.
The bigger point is, neighborhood definitions aside, Steve was right. 92nd and Park was not "prime" or whatever you want to call it UES. Folks claiming otherwise are doing it without any knowledge of the city's history."
Correct me if I'm wrong, but I think you're referring to the Third Ave elevated train, which was a) two blocks east of Park Ave, and b) discontinued in the mid-50s anyway. I've read a fair amount on NYC history and haven't really ever read about that stretch of Park Ave having enough problems for it to be considered a truly "marginal" area, unworthy of comparison. Only alanhart's post is at all convincing, but he's also talking about the Y, which is really fringe Carnegie Hill. You just seem intent on backing Steve on every last point, which is strange.
"And the bigger point is this... in all the actual data graphs, RE does have positive returns in some parts... and then it reverts back to the 0% mean. If anything, long term data shows that the most NYC real estate went up, the more its likely to go down."
Absolutely - this is what's important to recognize, but we're talking about individual investments here, and what really matters is where you place your entry and exit points. I know the mantra is "you can't time the market," but that's short-sighted, because you can certainly pick up signs of the market's health to choose those points in which investment makes more sense than it does in others.
Thank you, alanhart, for the confirmation of what that neighborhood was like in 1968. That neighborhood was bad through the 70's and, if I'm not mistaken, the Carnegie mansion was for a time a school.
So, LICC is wrong again.
BTW, LICC was a dive in 1968, as well. We were stuck at my grandmother's house during the blizzard that Mayor Lindsay never ploughed.
Some things didn't change, though.
LICC: "Any data you look at of apartment prices from 35-40 years ago compared to today, shows an 8-9% annualized growth rate"
What "any data"? THERE ARE NO DATA. Condos were illegal in NYS until 1965, and co-op prices weren't recorded until 2 years ago.
THERE ARE NO DATA. YOUR CONTENTION IS UNPROVABLE.
And false based on that datum since it is in a neighborhood that changed vastly since that time.
Find a datum from SoHo, and you'll see the same thing, but there aren't any.
And what you say is misleading because the 1970's had one of the highest inflation rates ever in the history of the country. Fully 1/3 of that "9%" is made up of inflation, which was roaring along at 12% for a time.
FYI no looting in the '65 blackout - I remember it well, my father was stuck on the LIRR. The looting was in 1977.
"I think looking back on the last 40 years is a good long-term indicator."
The only proper way to do it is using moving averages, which prevents "cherry-picking" of data. Shiller did his research. LICC denies it, just as he denies the Fed's methodology for calculating imputed rent. He makes up his own fantasy of this "after tax" benefit, when the benefit could only possibly accrue to someone who doesn't make enough money to earn it.
Rent = PITI = 30% housing expenses = 40x monthly rent. Those are the constraints. It is an equality.
Yes it is not applicable to the uber-rich. So what.
You absolutely cherry-picked the data for place and time. Would you use an address in Detroit 1968-2008 as an example of the entire US market, without two world wars and a Great Depression?
If you like a 40-year timeframe (why?), you need to use rolling 40-year periods and average them, not just one, and not skewed by a particular block's ups and downs.
Otherwise you haven't presented any data to refute those that have been presented to you.
Nope... there were trains above the surface on Park for years. Only when they dug the trench did it become "park". And I'm not talking about the 3rd ave L....
> I've read a fair amount on NYC history and haven't really ever read about
> that stretch of Park Ave having enough problems for it to be considered a truly "marginal" area,
Then read some more...
> Only alanhart's post is at all convincing, but he's also talking about the
> Y, which is really fringe Carnegie Hill
Let me get this right.... 92nd and lex is "fringe". But 92nd and park, just ONE block over, we can't call "marginal"? Oh man, you are really grasping at straws.
> You just seem intent on backing Steve on every last point, which is strange.
Not as much as you seem intent on proving what isn't true...
"> Therefore, this claim of steve and Eddie and others that the long-term real
> return on real estate is near zero is just a fallacy when you look at the NYC market.
Based on all the data we've looked at, the "claim" is 100% true. Nothing has contradicted that for the US market."
EW, just making sure: is your claim that the long-term real return on real estate is near zero? And I am not talking just NYC, but nationwide. By long term I mean any, say, 20-year period...
Wow, LIC is still here? You think his mom pays him by the post?
> EW, just making sure: is your claim that the long-term real return on real estate is near
> zero? And I am not talking just NYC, but nationwide. By long term I mean any, say, 20-year period...
You'll see we've had down periods longer than 20 years as well. And the latest bubble looks to be about 10 years old... so 20 years is definitely not enough.
But, short answer is, yes. It constantly hovers right around the 0% range (being right at the index point of 125)... with us being in the biggest bubble of all time according to trend.
Yikes, enough with the condescension. Instead, I'd be interested in this stuff, so please point to some info (and I do mean this sincerely, as I do like this stuff). FWIW, the MTA clearly states the last elevated line in Manhattan (the Third Ave El I referenced above) closed in 1955: http://www.mta.info/nyct/facts/ffhist.htm.
And yes, Lexington Ave, though one block over, is really the dividing line between the really wealthy areas of the UES and the rest. It still is to a large degree, as very few (if any?) of those $25m+ mansions are that far east. Take a look at Park Ave and Lexington now - the differences are considerable, even for one avenue block.
alanhart, definitely agree that looking at one datum isn't helpful for looking at the overall marketplace, and though I don't care to dig back into that tedious conversation, I believe Steve wanted to look at one property's value over time and LICC provided that one.
Why would things like sample size, data, facts, logic, or such apply? LIC is the greatest RE genius of all time, so if he bought in LIC, it *has* to double.
And if ANYTHING shows that the value of a Queens apartment went up, its data on 1 Manhattan apartment that you need to switch trains to get to from Queens...
Dispelling the Myth of the Mortgage Interest Deduction
Many - most especially LICComment - have been claiming that Manhattan real estate costs the same to buy and rent because of the deductibility of mortgage interest.
Let us dispel this once and for all. When you apply for a loan, banks do NOT take the deductibility of mortgage interest into account. They use PITI:
Principal, Interest, Taxes, and Insurance.
That's it.
You CANNOT get financing by taking into account the mortgage interest tax deduction.
http://www.lendingtree.com/smartborrower/Ask-an-Expert---Home-loans/What-is-PITI.aspx
Those of you who STILL believe that the proper way to calculate your monthly costs is by using the tax benefit, beware. YOU CANNOT get a loan.
Banks use a PITI of 28% of gross income; for higher-income individuals it can go up to 32%. But no higher, and no interest deduction.
Therefore, contrary to LICC's claim, when looking at the historic price-to-rent ratio of 12x annual rent, you cannot include the tax benefit not only because it doesn't form part of that ratio, but because you can't use that benefit to qualify for a loan.
steve, you are mixing two different issues. When comparing costs between renting and owning, you absolutely must consider tax deductions and after-tax costs. When you make statements such as "It costs half as much to rent as to buy," you are not referring to bank lending standards, but you are comparing cost to cost. Your housing costs as a percentage of income, and how this affects your ability to obtain financing, is a separate issue.
The mortgage interest deduction is no myth to owners who obtain the benefit.
and don't forget principle paydown LIC...I luv watching my investment loans disappearing and every month the priciple paydown is larger! it's a great feeling.....
And don't forget that the interest deduction is limited to one million of debt (mortgage).
"When comparing costs between renting and owning, you absolutely must consider tax deductions and after-tax costs."
HOW CAN YOU COMPARE THE AFTER-TAX COST OF A MORTGAGE WHEN YOU CAN'T GET A MORTGAGE LARGE ENOUGH TO GAIN THAT AFTER-TAX COST?
It's IMPOSSIBLE.
"The mortgage interest deduction is no myth to owners who obtain the benefit."
I never said it's not real. I enjoy one myself thank you very much. What I said is that if it costs $4,500 to rent an apartment and $1 million to buy it, you cannot equate the costs of the two because they are price levels available to completely different income groups.
None of your arguments about property prices makes any sense whatsoever.
I gave the example before. If it costs $4,500 to rent an apartment you need an income of $215,000. A $1.1 million apartment with a standard 30-year 80/20 mortgage at 8% (the national average) has a mortgage payment of $6,457.13. Maintenance on such an apartment would run approximately $1,500. Taxes would run approximately $1,000. That is a total PITI of $8957.13, call it $9,000 to make it even.
Twice what it costs to rent. Assuming a bank will give you a mortgage at 32%, you would need to have an income of $337,500.
If you tell me that it costs the same to buy as to rent, then the same people who can buy can rent. If it costs $1,000 a month to rent a Toyota and $1,000 a month to buy a Toyota, the same people can buy and rent.
The fact is, someone who can rent the apartment cannot afford to buy it using a standard mortgage. Therefore, the cost CANNOT be the same.
BTW I meant $1.1 million to buy it.
"I luv watching my investment loans disappearing and every month the priciple paydown is larger! it's a great feeling."
Will you have that great feeling if your property falls in value below your outstanding mortgage value?
Unlikely.
"Will you have that great feeling if your property falls in value below your outstanding mortgage value?
probably not... but since real estate depreciation is more of a rarity and appreciation is more likely. I most likely will have principle paydown and home appreciation at the same time and that my dear bear is a f'n great feeling! the spread keeps growing as does your wealth.
". but since real estate depreciation is more of a rarity and appreciation is more likely"
Not much of a history buff are you?
steve, why are you comparing a $4500 rental to a $1.1 million apartment? You set up a flawed hypothetical because the comparison is off. The better comparison is something around $850,000-$900,000.
Fed - you think depreciation is more likely than appreciation over time?
The Fed....either u r joking right or your insane. It hurts to hear you say that. But now I know why I'm weatlthy and your not.
> Fed - you think depreciation is more likely than appreciation over time?
In terms of history - as fed inferred - in real terms, no...
steveF, since you seem reasonably convinced of continued price appreciation in your home, I'm puzzled as to why you also celebrate paying down principal. Paying down principal (i.e. increasing your equity) reduces your leverage, which compresses the return on your "investment."
"Fed - you think depreciation is more likely than appreciation over time?" No. Neither is really more likely than the other. Adjusted for inflation, appreciation has shown to be minimal. There is data that supports this (it has been posted here ad nauseum). I'm not that old but I sure as hell wasn't born 10 minutes ago.
"but since real estate depreciation is more of a rarity and appreciation is more likely"
Okay!
Now, take a look at this:
http://bp0.blogger.com/_SfxDExxUukY/RvpYc_LhARI/AAAAAAAAAJM/Pe3JgMUfGXU/s1600-h/housingmarket_nytimes.jpg
and get back to me.
Since the end of WWII housing prices over long periods of time adjusted for inflation have oscillated around 100.
"steve, why are you comparing a $4500 rental to a $1.1 million apartment? You set up a flawed hypothetical because the comparison is off. The better comparison is something around $850,000-$900,000."
Not in my neighborhood. Find me a 2-bedroom 2-bathroom 1,000 square foot brand new apartment in a good neighborhood that sells for $850,000, and I'll buy it.
For real.
"either u[sic] r[sic] joking right or your[sic] insane. It hurts to hear you say that. But now I know why I'm weatlthy[sic] and your[sic] not."
Is this supposed to prove something? I can't imagine someone with such poor grammar and spelling has managed to amass much "weatlth"...
Sales in All Downtown
We found 7 listings for no more than $900,000 at least 1,000 sqft with at least 2 bedrooms with at least 2 bathrooms
Median price: $875,000 Median size: 1,200 ft² Median price per ft²: $740
Information on All Downtown
Seven listings, all in Chinatown except one in BPC w/ enormous land lease charges.
steve, find the practical rental price for he same apartment. It is in the $5500-$6500 range.
For real.
This claim that long-term returns on real estate are close to zero is a fallacy. We've established time and again that the annualized return on Manhattan real estate for the past 40 years is around 9%.
I don't ever remember "establishing" that, you keep saying it, but never document it. And 40 years isn't long term, especially when 25% of it has been the biggest run up ever.
Here is the actual long term return:
http://infoproc.blogspot.com/2005/08/shiller-index.html
Pretty clearly at the 0% mark with the exception of the last few years... which makes a pretty darn huge case for a major decline (sort of like the one we're in already).
> This claim that long-term returns on real estate are close to zero is a fallacy.
So much for credibility....
See this from an old Herald Tribune article:
Because most of the city's owned apartments are co-ops, or private corporations, their sale prices are not publicly reported. But what is certain is that as the bankruptcy crisis of the mid-70s faded, residential real estate took off. The Corcoran Report, a privately conducted surveyed that started at that time, shows that the average price per room of an apartment, $10,600 in 1973, had nearly quadrupled by the end of the decade.
Let's say a 2-bed, 2-bath apartment was $65,000. If today a similar apartment sells between $1.1 and $1.3 million, that is an 8.5% to 9%+ annualized return. I think 35-40 years is long-term. I think most everyone else alive today would consider 35-40 years long-term when it comes to buying real estate. Eddie, your denials here are just not credible. You get me data and provide some information on real estate returns for New York City, because you haven't shown me anything.
"It is in the $5500-$6500 range."
No dude, I'm sitting in one.
"This claim that long-term returns on real estate are close to zero is a fallacy."
"The notion that home prices always go up is very strong, and very wrong.
It is true that, for the United States as a whole, real home prices were 66 percent higher in 2004 than in 1890, according to the index my research assistants and I have put together. But all of that increase occurred in two brief periods: the time right after World War II and since 1998.
Other than those two periods, real home prices overall have been mostly flat or declining. Moreover, the overall increase, including the booms, is not very impressive -- 0.4 percent a year."
Robert Shiller. http://money.cnn.com/2005/01/13/real_estate/realestate_shiller1_0502/index.htm
"We've established time and again that the annualized return on Manhattan real estate for the past 40 years is around 9%."
No. You established that one apartment that in 1968 was in a marginal neighborhood may have had a NOMINAL price increase over time of 9% as the neighborhood changed to a good one went up 9%.
USING THE VERY CASE-SHILLER METHODOLOGY THAT YOU DERIDE.
So much for credibility.
Park Avenue and 92nd Street was a marginal neighborhood?
What about the Corcoran Report cited above from the Herald Tribune? What is your source for Manhattan apartment prices in the late 1960s-early 1970s? You haven't contradicted by contention on prices.
steve, maybe you have a good deal on your apartment. Maybe your apartment is cheap for some reason. But if you want to rent an apartment equivalent to a $1.1mil unit in your neighborhood, the rents are much higher. Just look at the listings to see what is available. We already went through this with you. This is why some people lose respect for you, because you repeat wrong statements even after contrary facts have been shown to you, and you do it to push your flawed arguments.
Oh my lord, you MUST be joking with this.
ROTFL.
Let me get this straight, your source is a "privately conducted survey" by a broker that did it on a PER ROOM basis (because I'm sure room sizes are EXACTLY the same today), and thats the "evidence" of 9% appreciation you've been giving?
OH MY LORD!
Once again...
> So much for credibility....
next!
ok Eddie, let's take this through. For NYC real estate to have a 0% real return over 40 years, 2-bedroom apartment in 1968 would have had to have cost $250,000-$300,000. This is what you think?
. . .
Ok I've stopped laughing now. wow, you foolishly just walked into that one.
Sorry, I'm still laughing.
"Park Avenue and 92nd Street was a marginal neighborhood?"
It was Spanish Harlem.
"But what is certain is that as the bankruptcy crisis of the mid-70s faded, residential real estate took off. The Corcoran Report, a privately conducted surveyed that started at that time, shows that the average price per room of an apartment, $10,600 in 1973, had nearly quadrupled by the end of the decade."
It did, and crashed between 1983 and 1993.
Robert Shiller: "real home prices overall have been mostly flat or declining. Moreover, the overall increase, including the booms, is not very impressive -- 0.4 percent a year."
Robert Shiller. http://money.cnn.com/2005/01/13/real_estate/realestate_shiller1_0502/index.htm
"maybe you have a good deal on your apartment. Maybe your apartment is cheap for some reason. But if you want to rent an apartment equivalent to a $1.1mil unit in your neighborhood, the rents are much higher. Just look at the listings to see what is available."
You don't know what you're talking about. Here is the most expensive 2-bedroom listed in Chelsea:
http://www.nybits.com/apartmentlistings/ab1fdaa83372f030c76db89f87ae43f1.html
It is approximately 1800 square feet.
For $5,500 you get a 1200 square foot apartment in a high-rise.
http://www.nybits.com/apartmentlistings/e48012e2e135ec5fa84d58d2a8bd9601.html
Sorry dude.
I don't understand why steve cares if people buy instead of rent. Who cares.
"if people buy instead of rent"
I don't care what other people do. This is a theoretical question.
And LICC's per room survey - between 1973 and 1980 inflation was 83%. So of that "quadrupling" - 300% increase - you quote, nearly 100% of it was inflation. That means a tripling of prices. But between 1988 and 19988, the real value of property in Manhattan fell by 50% (20% nominal). So of that 200% real increase through 1973 through 1980, half of it was lost through 1993. Therefore, you're left with a doubling of property prices in real terms from 1973 through 1998. That leaves you with about a 3% per annum real increase from 73 through 98.
And if you remember what Manhattan was like in 1973 - I do - and remember what it was like in 1998 - I do - you can see why there was a real increase of that magnitude during that time frame. NYC became a nice place to live, and the population rose by nearly a million people.
Although the data don't exist (as you properly quote), if you extrapolate back to 1953 - when NYC was also a nice place to live - I'm sure you'd see something similar.
I will grant you a REAL 3% per annum increase in Manhattan property prices from 1973 to 1998. And from 1958 to 1973, you probably saw a REAL 2% annual DECREASE in property prices as the city slid into disrepair.
That's my take.
Having to make more money to take advantage of a tax benefit is nothing new. Does that make muni bonds more expensive than they are? Not to the person who makes enough money, although they don't look like a good deal to someone who doesn't.
If you live in the city and make decent money, your effective tax rate is darn near 50%. And that makes a 2:1 view go to 1:1 pretty fast (as long as we are talking about properties under $1MM). And if you live in the city, make decent money, and rent, you have to pay that rent on after tax money which means you need to gross 2x to pay it. And that is independent of the rent.
If you tax advisor doesn't recommend muni bonds to you, then agreed, the Manhattan real estate market is not for you because the people bidding against you have very different economics that make the property worth more to them than to you (again for under $1MM).
One thing not mentioned in this thread so far is the impact of AMT on mortgage interest deductions.
I already cannot deduct a good chunk of my NY state/city taxes from my federal taxes thanks to AMT.
Would I be able to deduct mortgage interest if I bought an apartment?
I hate to jump in again, but discounting inflation in a rent or buy calculation and focusing on real returns doesn't make sense. If you know inflation over the next 7 years was going to be net 83%, would you lock in a fixed rate by buying, or go with the floating rate by renting (that is presumably going up by 83%)?
OnTheMove: consult your tax advisor, but the AMT disallows taxes for me as it does for you but has no impact on my mortgage deductions.
The AMT allows a deduction for interest on mortgage borrowings used to buy, build or improve your home.
"the impact of AMT on mortgage interest deductions"
None. AMT does not affect mortgage interest, which since the 1980's (Ronald Reagan) has been set at $1 million in principal.
I'm self-employed, my effective rate is about 50%. It's still more advantageous to rent.
Great point jrd.
steve, you are the only person on this entire board that thinks Park Avenue and 92nd Street was Spanish Harlem.
The point of the article wasn't to show how prices increased in the 1970s, it was to show what prices were in 1973. You can't claim this 0% real return for NYC.
this board sucks
"you are the only person on this entire board that thinks Park Avenue and 92nd Street was Spanish Harlem."
It was 1968. I lived here. Did you?
"it was to show what prices were in 1973"
I see. You criticize my application of case-shiller applied to a neighborhood that didn't change (West Village) to one that did, yet you use the same application to prove your point.
Another LICC inconsistency.
More mistakes by steve. You are getting sloppier and sloppier buddy.
I wasn't born yet in 1968. I'm not that old.
The reference to the Corcoran Report was for the entire Manhattan market. How is that specific to a neighborhood. The reference to 1160 Park bolstered the information. Are you denying the 8-9% annualized growth in Manhattan real estate in the last 35-40 years? Because you are going in circles with senseless arguments on discrete points that in the end, your arguments are both wrong and meaningless.
steve, find one other person to comment on this board truthfully that Park Avenue and 92nd Street was Spanish Harlem in 1968. Keep trying. Why do you insist on sticking with wrongheaded claims and making yourself look more and more ridiculous? All you need to say is "I was incorrect to say that it was Spanish Harlem. It was not Spanish Harlem, but I don't think that location was that great back then." Regardless, you still are not correct with your 0% real return claim, so you probably should just give it up already.
"The Corcoran Report, a privately conducted surveyed that started at that time, shows that the average price per room of an apartment, $10,600 in 1973, had nearly quadrupled by the end of the decade."
The per-room price? Please. What is a "room"? Is a kitchen a room? A bathroom? A bedroom?
How big are those rooms? Do they face air shafts? Does a room need to have a window? Where are those rooms?
That is perhaps the most useless measure of property prices I have ever heard of. It's akin to valuing a house by how many blades of grass are in the lawn.
There are NO reliable data for NYC real estate more than 2 years old, when co-op prices were recorded for the first time. Prior to 1964 there weren't ANY condominiums in New York State because they were illegal. The market was entirely opaque, just like the real-estate industry wanted.
1160 Park Avenue:
"LOCATION: The East Harlem's southern border is 96th street, western - Park Avenue. To the east, the East Harlem is flanked by the East River."
http://www.nybits.com/manhattan/east_harlem/
1160 Park Avenue: corner of 92nd and Park Avenue
http://www.cityrealty.com/sell/building.cr?bid=7916
It is 4 blocks south of the "official" border of Spanish Harlem. Do you think that in 1968 the riffraff that lived in Spanish Harlem did not cross 96th Street? Was there a fence there? Armed guards? Dobermans?
Case closed.
Thanks for admitting you were wrong and that Park and 92nd was not Spanish Harlem.
Thanks for not addressing and therefore not denying the 8-9% annualized growth in Manhattan apartment values over the last 35-40 years.
Case closed.
92nd and Park is and was Carnegie Hill. Certainly not a marginal neighborhood.
"Thanks for admitting you were wrong and that Park and 92nd was not Spanish Harlem."
Dude - read the original post. I said "borderline Spanish Harlem," and I stick to it for 1968.
Case closed.
Carnegie Hill = 1968.
"Thanks for not addressing and therefore not denying the 8-9% annualized growth in Manhattan apartment values over the last 35-40 years."
I deny that it can be proved since there are no public data. I even deny it happened.
But if it did, and prices fall by 50% as I predict they will, that will be cut to 4% - 4.5%, adjusted for inflation 1%.
"Carnegie Hill = 1968."
What? FWIW, that area's been upscale for 100+ years.
Not that part.
Below it was.
The Carnegie mansion is on 91st and 5th.
From above: "you are the only person on this entire board that thinks Park Avenue and 92nd Street was Spanish Harlem."
steve's response: It was 1968. I lived here.
steve - please keep arguing this point, you are just making yourself lose more and more credibility . . .
From Wikipedia on Spanish Harlem: "However, since the 1950s it has been dominated by residents of Puerto Rican descent, sometimes called Nuyoricans. The neighborhood boundaries are Harlem River to the north, the East River to the east, East 96th Street to the south,[1][2] and 5th Avenue to the west."
"The Carnegie mansion is on 91st and 5th"
Andrew Carnegie died in 1919.
"you are just making yourself lose more and more credibility"
Yup. Like by counting a mortgage interest tax break for people who don't qualify for the financing? Is that how I lose my credibility?
You don't think there are lots of people in NYC that can qualify for a $700k loan?
steve, you are getting weaker and weaker.
steve, no need to be so stubborn here. Andrew Carnegie died in 1919, but his mansion didn't exactly turn to rubble. It was maintained by his foundation and eventually became a museum in the early 70s, so not sure what your point is. That area has been prestigious for a long time now.
"You don't think there are lots of people in NYC that can qualify for a $700k loan?"
The last census data on median household income in New York County was 1999. It was $43,393.
So apparently, there aren't.
You're getting weaker and weaker, LICC.
steve, why do you assume one would buy the max apartment possible by PITI guidelines? I am at around 16-17%, and that's pre-bonus
i dont think guys making $43,393 were ever flipping condos at the setai there Steve. If what you mean is that there are not as many folks with $200 K liquid to plop 20 per cent down on a 700K-900K unit, then you may have a point.
steve, that last comment was really embarrassing. You are falling into joke territory. The median income from the 1999 Census? Wow. That census also had 70,000 Manhattan households with income over $200k. That was over 8 years ago. I also don't know if that is the best source for our purposes.
"The median income from the 1999 Census?"
I agree that it's not best, but that's all that exists right now. Unless you can find different.
"i dont think guys making $43,393 were ever flipping condos at the setai"
Only an idiot will try to flip an illiquid asset. Maybe those $43,393 guys were right.
"Why do you assume one would buy the max apartment possible by PITI guidelines?"
It's not an assumption - it's an example to prove why the argument is false.
And for all you "marginal tax rate" proponents, I suggest you read IAS 34 on interim financial reporting.
"9. Measuring interim income tax expense. 9.1 Use of estimated annual rate The interim period income tax expense is accrued using the tax rate that would be applicable to expected total annual earnings, i.e. the estimated average annual effective income tax rate applied to the pre-tax income of the interim period. [IAS 34.B12]"
9.2 Impact of progressive tax rates. The estimated average annual effective income tax rate will reflect a blend of the progressive tax rate structure expected to be applicable to the full year’s earnings, including enacted or substantively enacted changes in the income tax rates scheduled to take effect later in the financial year. [IAS 34.B13]."
OOOOH! A BLEND! LICC, did you read that?
steve, you are making more of a clown of yourself by pushing your effective rate position. You are wrong. Over and out. Cite to whatever you want, quote whatever you want, you are still wrong. The whole analysis that we went through ad naseum on the other thread unequivocally showed you are wrong. Your insistence on pushing this effective rate position of yours is making me think that you are a mental case.
Why don't you take a look at a map of Spanish Harlem and get back to me on that one too?
Discussion seems to revolve around housing where the owner or renter is stretched. May exclude some of the upper income with multiple houses or where there is a lot of liquidity. Certainly would exclude from the analysis 740 Park!
"Cite to whatever you want, quote whatever you want, you are still wrong. The whole analysis that we went through ad naseum on the other thread unequivocally showed you are wrong"
Denial. More than a river. Every single datum everywhere points to the fact that I am correct - even the International Accounting Standards Board.
But LICC is correct.
Denial. More than a river.
740 Park - yup. They need the deduction.
"Only an idiot will try to flip an illiquid asset."
Well many idiots made money doing same in the last 4 years. Granted many idiots have not.
"Well many idiots made money doing same in the last 4 years. Granted many idiots have not."
It's very risky.
Has anyone noticed that Steve seems to redline neighborhoods by race? Any reason race or ethnicity always seem to be cited to marginalize a neighborhood or locale that Steve doesn't like?
"Steve seems to redline neighborhoods by race"
LMAO. You know nothing about me.
> The Carnegie mansion is on 91st and 5th.
And Harlem was a place for rich folks well after the Carnegie mansion was built.
You think neighborhoods only get better?
"Are you denying the 8-9% annualized growth in Manhattan real estate in the last 35-40 years?"
I am. Because there hasn't been one stat to show that, only LIC guessing.
BTW, there is some real weirdness going on here. LIC is circling around the real issue...
Why are you so big on showing Manhattan price appreciation as separate from the rest of the country, and downplay the national numbers? Because you bought in the latter, not the former.
Are you trying to infer that we can learn how much your Queens condo will be worth based on PARK AVENUE PRICES?
We kidding with that?
"And Harlem was a place for rich folks well after the Carnegie mansion was built. You think neighborhoods only get better?"
What's your point? Lots of neighborhoods fluctuate socio-economically speaking, sure, but it's just wrong to lump 92nd and Park into Spanish Harlem and call it a marginal neighborhood, even in 1968.
As a young child around 1968 and later, I went to after-school activities at the 92nd St. Y. The area immediately around there was not (of course) East Harlem, but it would fairly be called Spanish Harlem to the extent that neighborhoods are defined by ethnic/socioeconomic qualities (and yes, for any particular generation they go mostly hand-in-hand). The wealthier kids in the afterschool programs lived a bit more downtown; right around there was similar to the W. 80s of the time. Marginal, even in 1968.
Furthermore, anyone who's familiar with NY in 1968 understands that every month the news featured another Fortune 500 corporation moving its HQ out of the city (and often the region), destroying the broadbased economy (manufacturing and shipping having already gone bye-bye). Add to that Federal policy that favored suburban housing and transportation at the expense (literally) of cities.
The process by which neighborhoods went into decline was one of blight spreading from its starting point. It wouldn't/didn't have any difficulty crossing 96th St. And 1968 was also the year of "urban unrest" nationally (although less so in NY than other places). It followed the 1967 blackout and its looting.
Is it clear why 1968 is a particularly obnoxious year to pick?
1965 blackout, and I'm not so sure about the looting, actually. But still.
> What's your point? Lots of neighborhoods fluctuate socio-economically speaking, sure, but it's just
> wrong to lump 92nd and Park into Spanish Harlem and call it a marginal neighborhood, even in 1968.
The point is, it *was* a marginal neighborhood at the time, and changes in the ngiehborhood makeup contributed much to price increase - meaning its a fairly lousy example to use.
I might add that it was almost certainly a redlined area, which effectively means paying cash.
"The point is, it *was* a marginal neighborhood at the time, and changes in the ngiehborhood [sic] makeup contributed much to price increase - meaning its a fairly lousy example to use."
Well, no, as many others have said here, but it's your right to think so.
"Well, no, as many others have said here"
Actually, many others have said that it's not Spanish Harlem (even though Steve said *BORDERLINE* Spanish Harlem). Not many have said that 92nd & Park was not a marginal area in 1968.
So this is turning into another "Life Begins at Conception" vs. "Life BEGINS at 40" argument.
> Well, no, as many others have said here
I don't believe that anyone who was anywhere near NYC in the 60s (or even 70s) is part of that group...
Actually, this is more of a he-said/he-said argument. Steve said borderline Spanish Harlem but explicitly said it was a marginal area. I was not alive in the 60s, so I'm not an authority, but everything I've ever read about that area points to it being an enclave for the wealthy, and at the very least an upper-middle-class neighborhood ever since (if not before) Carnegie built his mansion. But this is a tiresome argument that's really about steve's trying to poke holes in LIC's analysis of one property. He makes convincing arguments more often than not, but I felt he misfired here, and I wouldn't exactly be worried that one rather insignificant fact would sink anyone's belief in his 50% reduction in prices theory.
> Actually, this is more of a he-said/he-said argument
Only because you're circling around the point again. On the actual point, the ansswer is pretty clear. 92 and Park wasn't particularly nice at th etime in question.
Yes, 5th avenue was a nice spot when Carnegie built his place, but neighborhoods decline, and 5th isn't Park. Park Ave had particular problems for a time because of the elevated railway and the resulting noise and pollution. Much of it got MUCH nicer when the train was torn down, creating the Park Ave. we know today. But other areas took longer to build up (or recover), particuarly the more northern parts.
The bigger point is, neighborhood definitions aside, Steve was right. 92nd and Park was not "prime" or whatever you want to call it UES. Folks claiming otherwise are doing it without any knowledge of the city's history.
Eddie is missing the bigger point. Any data you look at of apartment prices from 35-40 years ago compared to today, shows an 8-9% annualized growth rate. You can look at this particular building, you can talk to people you know who bought apartments at that time, you can look at the Corcoran report information, it all leads to the same result. Therefore, this claim of steve and Eddie and others that the long-term real return on real estate is near zero is just a fallacy when you look at the NYC market. All this other discussion they raise is just their trying to misdirect the conversation away from that main point.
> Any data you look at of apartment prices from 35-40 years ago compared to today, shows an 8-9%
> annualized growth rate.
Actually, I'm still waiting for that data. That would be the bigger point if it was actually shown.
But, right now, all I've seen is you guessing...
Even the corcoran report, you've not mentioned it twice. And it didn't say anything like that, only giving room averages.
> it all leads to the same result.
Yes, LIC picking the number he wants. ;-)
> Therefore, this claim of steve and Eddie and others that the long-term real
> return on real estate is near zero is just a fallacy when you look at the NYC market.
Based on all the data we've looked at, the "claim" is 100% true. Nothing has contradicted that for the US market. Now, of course, individual pieces will change, and I'm open to NYC being higher than NYC.
But, picking a specific period of time is ridiculous when talking about "long term". You happened to have picked a time of growth, where 25% of the time is part of the biggest run up ever.
So, its possible NYC has done better than 0. But somebody has to show the stat. Not a guess, but a stat.
And the bigger point is this... in all the actual data graphs, RE does have positive returns in some parts... and then it reverts back to the 0% mean. If anything, long term data shows that the most NYC real estate went up, the more its likely to go down.
sorry, that should read " and I'm open to NYC being higher than the US market as a whole"
Sure Eddie, if we happen to have two world wars and a Great Depression in the next 30-40 years, I'm sure real estate values will be decreasing, but otherwise, I think looking back on the last 40 years is a good long-term indicator. Your analysis goes back to 1890; why not go back to 1860 and pick up the Civil War too. I didn't cherry-pick a period of time, I looked at the last 40 years up to current. 40 - a nice, round objective number that would be pretty long-term in most people's lifetimes.
I'm still waiting for there to be actual data...
"Yes, 5th avenue was a nice spot when Carnegie built his place, but neighborhoods decline, and 5th isn't Park. Park Ave had particular problems for a time because of the elevated railway and the resulting noise and pollution. Much of it got MUCH nicer when the train was torn down, creating the Park Ave. we know today. But other areas took longer to build up (or recover), particuarly the more northern parts.
The bigger point is, neighborhood definitions aside, Steve was right. 92nd and Park was not "prime" or whatever you want to call it UES. Folks claiming otherwise are doing it without any knowledge of the city's history."
Correct me if I'm wrong, but I think you're referring to the Third Ave elevated train, which was a) two blocks east of Park Ave, and b) discontinued in the mid-50s anyway. I've read a fair amount on NYC history and haven't really ever read about that stretch of Park Ave having enough problems for it to be considered a truly "marginal" area, unworthy of comparison. Only alanhart's post is at all convincing, but he's also talking about the Y, which is really fringe Carnegie Hill. You just seem intent on backing Steve on every last point, which is strange.
"And the bigger point is this... in all the actual data graphs, RE does have positive returns in some parts... and then it reverts back to the 0% mean. If anything, long term data shows that the most NYC real estate went up, the more its likely to go down."
Absolutely - this is what's important to recognize, but we're talking about individual investments here, and what really matters is where you place your entry and exit points. I know the mantra is "you can't time the market," but that's short-sighted, because you can certainly pick up signs of the market's health to choose those points in which investment makes more sense than it does in others.
Thank you, alanhart, for the confirmation of what that neighborhood was like in 1968. That neighborhood was bad through the 70's and, if I'm not mistaken, the Carnegie mansion was for a time a school.
So, LICC is wrong again.
BTW, LICC was a dive in 1968, as well. We were stuck at my grandmother's house during the blizzard that Mayor Lindsay never ploughed.
Some things didn't change, though.
LICC: "Any data you look at of apartment prices from 35-40 years ago compared to today, shows an 8-9% annualized growth rate"
What "any data"? THERE ARE NO DATA. Condos were illegal in NYS until 1965, and co-op prices weren't recorded until 2 years ago.
THERE ARE NO DATA. YOUR CONTENTION IS UNPROVABLE.
And false based on that datum since it is in a neighborhood that changed vastly since that time.
Find a datum from SoHo, and you'll see the same thing, but there aren't any.
And what you say is misleading because the 1970's had one of the highest inflation rates ever in the history of the country. Fully 1/3 of that "9%" is made up of inflation, which was roaring along at 12% for a time.
FYI no looting in the '65 blackout - I remember it well, my father was stuck on the LIRR. The looting was in 1977.
"I think looking back on the last 40 years is a good long-term indicator."
The only proper way to do it is using moving averages, which prevents "cherry-picking" of data. Shiller did his research. LICC denies it, just as he denies the Fed's methodology for calculating imputed rent. He makes up his own fantasy of this "after tax" benefit, when the benefit could only possibly accrue to someone who doesn't make enough money to earn it.
Rent = PITI = 30% housing expenses = 40x monthly rent. Those are the constraints. It is an equality.
Yes it is not applicable to the uber-rich. So what.
You absolutely cherry-picked the data for place and time. Would you use an address in Detroit 1968-2008 as an example of the entire US market, without two world wars and a Great Depression?
If you like a 40-year timeframe (why?), you need to use rolling 40-year periods and average them, not just one, and not skewed by a particular block's ups and downs.
Otherwise you haven't presented any data to refute those that have been presented to you.
I'm sorry, I meant "cherry-picked the datum" because there was only one.
Nope... there were trains above the surface on Park for years. Only when they dug the trench did it become "park". And I'm not talking about the 3rd ave L....
> I've read a fair amount on NYC history and haven't really ever read about
> that stretch of Park Ave having enough problems for it to be considered a truly "marginal" area,
Then read some more...
> Only alanhart's post is at all convincing, but he's also talking about the
> Y, which is really fringe Carnegie Hill
Let me get this right.... 92nd and lex is "fringe". But 92nd and park, just ONE block over, we can't call "marginal"? Oh man, you are really grasping at straws.
> You just seem intent on backing Steve on every last point, which is strange.
Not as much as you seem intent on proving what isn't true...
"> Therefore, this claim of steve and Eddie and others that the long-term real
> return on real estate is near zero is just a fallacy when you look at the NYC market.
Based on all the data we've looked at, the "claim" is 100% true. Nothing has contradicted that for the US market."
EW, just making sure: is your claim that the long-term real return on real estate is near zero? And I am not talking just NYC, but nationwide. By long term I mean any, say, 20-year period...
Not to mention the sample size...
Good point bjw, when did Eddie Wilson become steve's little lap dog?
steve, thanks for another post of your babble. It doesn't make what you say correct if you repeat it over and over.
Wow, LIC is still here? You think his mom pays him by the post?
> EW, just making sure: is your claim that the long-term real return on real estate is near
> zero? And I am not talking just NYC, but nationwide. By long term I mean any, say, 20-year period...
Long term means long term, not 20 year periods...
Here is the long term trend again... and, yes, nationwide...
http://infoproc.blogspot.com/2005/08/shiller-index.html
You'll see we've had down periods longer than 20 years as well. And the latest bubble looks to be about 10 years old... so 20 years is definitely not enough.
But, short answer is, yes. It constantly hovers right around the 0% range (being right at the index point of 125)... with us being in the biggest bubble of all time according to trend.
"Then read some more..."
Yikes, enough with the condescension. Instead, I'd be interested in this stuff, so please point to some info (and I do mean this sincerely, as I do like this stuff). FWIW, the MTA clearly states the last elevated line in Manhattan (the Third Ave El I referenced above) closed in 1955: http://www.mta.info/nyct/facts/ffhist.htm.
And yes, Lexington Ave, though one block over, is really the dividing line between the really wealthy areas of the UES and the rest. It still is to a large degree, as very few (if any?) of those $25m+ mansions are that far east. Take a look at Park Ave and Lexington now - the differences are considerable, even for one avenue block.
alanhart, definitely agree that looking at one datum isn't helpful for looking at the overall marketplace, and though I don't care to dig back into that tedious conversation, I believe Steve wanted to look at one property's value over time and LICC provided that one.
> Not to mention the sample size...
Why would things like sample size, data, facts, logic, or such apply? LIC is the greatest RE genius of all time, so if he bought in LIC, it *has* to double.
And if ANYTHING shows that the value of a Queens apartment went up, its data on 1 Manhattan apartment that you need to switch trains to get to from Queens...
;-)
Wow, Eddi