Dispelling the Myth of the Mortgage Interest Deduction

And still waiting on that "data"....

I don't read Steve's posts, but from other ones I gather that he is still talking about the 12x price-to-rent ratio. Here is something for you guys to consider:

http://morris.marginalq.com/DLM_fullpaper.pdf

Nation-wide, average price-to-rent ratio for owner-occupied homes has NEVER been under 15.5 (at least not since 1960. And the "norm" is considered to be more in the 18-20 range. Manhattan is no different than the rest of the country, right?

"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."

As you can see from the same paper, EW, the average nominal return between 1960 and 2000 is a little over 6% a year. And that is discounting the last 8 years (were they to be included, returns would be more like 7-8% on average since 1960). Unless you can show me that infaltion has been running on average at more than that rate in that 48-year period, I will have to assume that the real return on RE between 1960 and 2008 has been anything but 0.

Oh, and you are welcome, EW and Steve. You can use the conclusions in the paper to bash the market at will.

"The count continues.... 151 posts in a row from LIC without a fact or a brain..."

It's not him, it's the toxic chemicals leaching up from the EPA superfund site that he cheerleads. Good thing for those developers that they were able to abate the toxins . . . by way of liability exemption legislation.

Thanks, BGaria, that is good data. And, as I said, I'm open to NYC having increased more than 0%, particularly in recent periods...

But 1) 6% sure 'aint 9% and 2) I don't actually have inflation data handy, but remember this includes periods of 10-15% inflation.... 3) I don't believe this guy is adjusting for the housing stock itself, the average house size increased DRAMATICALLY in those years. 4) even this guy spells it out pretty well:

"for the rent-price ration to return to historical average over, say, the next 5 years, house prices would likely have to fall considerably".

"bjw, it was years before the third ave. el, but well after Carnegie built his place... Park ave was much less desirable, even in Carnegie's time."

Well, ok (I still would like to see something about that, as I've never come across it, so please provide if possible), but that's completely irrelevant to the late 60s/early 70s time period we've been discussing - that's called grasping at straws, to use one of your favorite expressions.

"So, I see, one block makes all the difference one way, but being 20 blocks north of the prime areas in the 60s and 70s is nothing... I'm sorry, but you are *really* grasping at straws here. 92nd street was way out of the "prime" zone back then..."

Look, borders are borders. Lexington Ave happened to be one, as was 96th St. I'm not grasping at straws by saying 92nd and Park was within those borders.

steve, you don't even believe that. Eddie is possibly the rudest person to post on this board, and he insulted me and many others many times before I ever commented negatively back to him.

You and Eddie can go around and around with your nonsense all you want, it doesn't stop everyone from seeing how mistaken and off-base you are. 0% real returns on NYC real estate long term, use of effective rate instead of the marginal rate, 12x ratios, Park and 92nd was Spanish Harlem - these are all ridiculous claims or positions of yours that make everyone laugh.

> I'm not grasping at straws by saying 92nd and Park was within those borders.

You definitely are when you're completely ignoring the north/south factor... that was waaaaay north of the prime border...

And everything LIC has ever posted is absolute proof that his condo won't decline 20% in value this year, so there!

Is there anyone on the board LIC *hasn't* insulted?

Wait, I think they all beat him up first, so its ok.

Here are other properties from 1968 cited in the article. You see how much they would sell for now and do the math.

124 East 80th Street, a six-story, Georgian-style mansion between Park and Lexington Avenues: $560,000.

535 Broadway, a five-story cast-iron loft building near Spring Street: $58,000.

A half-floor loft on Greenwich Street in the far West Village: for sale at approximately $20,000.

A six-room co-op on the Upper West Side: $60,000, with a monthly maintenance of $400.

120 East 37th Street, a five-story brownstone between Park and Lexington Avenues: $210,000.

49 Bond Street, a four-story brick building with commercial space on the ground floor and rental apartments above: sold for $24,999.

254 East 4th Street, an old-law tenement building off Avenue B: $20,100.

39 East 68th Street, a six-story limestone purchased by Roy Cohn: $325,000.

You've cracked the case! Now your condo in Queens will double!

Let us not forget that Park Avenue is really 4th Avenue (a small stretch of which still exists). They named it "Park" to get people to want to live there.

I'm sure LICC believes that all of 5th Avenue is luxurious, as well, especially at about 112th Street because it is - well - 5th Avenue, and has Central Park Views.

"You definitely are when you're completely ignoring the north/south factor... that was waaaaay north of the prime border..."

No, absolutely not. I think you're inferring that I meant this area was THE (only) prime area. I don't know about that, as I'd suspect the E70s and lower 80s were quite wealthy as well, but there's no denying this area had plenty of money, and those mansions always attract that demographic, even in tougher economic times. Here's some nice history: http://www.carnegiehillneighbors.org/history/index.htm

"Well, ok (I still would like to see something about that, as I've never come across it, so please provide if possible), but that's completely irrelevant to the late 60s/early 70s time period we've been discussing - that's called grasping at straws, to use one of your favorite expressions."

Wait, let me get this right... you bring up ANDREW CARNEGIE who built his house over a century ago, before any period we're talking about, and use it to rationalize that a certain neighborhood was "prime" in 1968, and now you're going after *me* for addressing the period you mentioned?

You HAVE to be kidding here. YOU brought that up. I addressed it as irrelevant, and, when I do that, suddenly I'm grasping at straws because I referenced the period. Sorry, but that was *your* mistake, not mine.

Look it up... you brought up the Carnegie Mansion and used it to try and justify the neighborhood almost 100 years later.

> but there's no denying this area had plenty of money,

Uh, its been denied several times over. The only person still claiming otherwise is you, and you don't seem to have any facts to go along with it, just mentions of Andrew Carnegie.

Here, I'm denying it once again!

You're only evidence is that there were once really nice houses there. If that were the case, the worst parts of Brooklyn would have been the best according to you as well.

> those mansions always attract that demographic, even in tougher economic times

If this were really the case, the 60s/70sand 80s would have seen IMHO 25% less slums in the older cities than there actually were. Some of the nicest mansions I've ever seen have been in scary neighborhoods in DC, Baltimore, Brooklyn... Hell, did you see what it was like around Pratt only 10 years ago?

Serious question, bjw... when did you move here?

Because it seems to me that there is a relatively recent era in this city that you completely missed...

Sorry, Bgaria, that's not the price-to-rent ratio that I am discussing. That is "owner's equivalent rent." You can tell by reading it - they discuss risk premiums and dividends, and they add in utilities. None of that is the 12x ratio.

Using owner's equivalent rent, that is, in fact, the ratios. Same with imputed rent.

Sorry.

"0% real returns on NYC real estate long term"

Never said that. I have said there are NO reliable data on Manhattan property prices more than 2 years old.

"use of effective rate instead of the marginal rate"

Absolutely true. The Fed uses it, the CBO uses it, everybody uses it but you. Find me one credible source that uses the highest marginal rate as you claim. It can't be done, because any time you have deductions that cause you to cross a tax bracket, you must BLEND the rates.

As you yourself were forced to do - and now deny.

"12x ratios"

Absolutely, positively true.

You make $100,000. You can afford 40x monthly rent / 30% PITI. That is $2,500 per month.

12 x $2,500 x 12 = $360,000. An 80/20 mortgage on that at 6.5% = $1,820.36. Add in property tax of $300 a month, maintenance of $300 a month = $2,420.36 PITI. That's ALL you can afford because PITI does not take the tax deduction into account. EVER.

Yup. $2,500 a month. Or 12x annual rent.

You see why your formula is different, bgaria? Do you see a risk premium anywhere? A "dividend"? Utilities?

No.

LICC - if my math is wrong show me why, using PITI underwriting standards. You can't, because PITI won't allow you.

"Park and 92nd was Spanish Harlem." I said "Borderline," alanhart confirmed it. I was there in 1968, you weren't even alive. It was a nasty, nasty place, as was SoHo and TriBeCa, and the West Village. Sorry, they just were. Manhattan was not a sweet place to live back then.

"Manhattan was not a sweet place to live back then. "

I guess LICC denies the Columbia riots of 1968, the Stonewall Riot, race riots (which did not affect NYC as badly as other places).

I guess LICC denies the general decline in all of New York City starting in the 1940's, when Levittown was built. He denies that the Cross-Bronx Expressway severed the Bronx in half and led to unprecedented urban decay. He denies what was happening in the 60's - 1964 demolition of Penn Station, the 1968 demolition of Madison Square Garden, which led to unprecedented decay in the already-bad neighborhood of Hell's Kitchen. The 1967 razing of the old Metropolitan Opera House. The 1968 teachers strike. Norman Mailer running for mayor in 1969.

LICC has NO CLUE what Manhattan and New York City were like in 1968. Pick that date as your start, and end today, and you'll get FAB results. FAB. Pick 1976 and Hell's Kitchen and you'll get better results. Pick 1980 and SoHo, and they'll be better.

Just like I said of where my wealthy great-grandmother lived - Stuyvesant Heights. F.W. Woolworth lived down the block. Now it's Bed-Stuy.

The entire country was in turmoil. Remember the 1968 Democratic Convention? Probably not. But pick that as a GRAND date to start your analysis. Pick a borderline neighborhood on the decline in a city on the decline. And you'll get the answer you want.

OK, Steve, I just HAD to read your response...

"My" formula is not different. I am only posted a link to a paper, that's it. I use different criteria when buying the home I live in.

It doesn't matter if you look at the gross rent or net rent, the ratio is never even close to 12x. Do the math and you will see. The two different rents could be used to determine a viable price point where it would be viable to buy and live there (owner occupied) or buy and rent it out (investment). Point is, neither one gives you anything even close to 12x...

They are talking about risk premium and dividents when they describe the appreciation of an asset... ANY asset...

In your "12x"-world, do you make a distinction between owner-occupied and rental? Would the logic be the same for both? Don't pay more than 144 times "monthly contract rent" or you are losing money, whether you live there or rent it out?

Bgaria, I did the math. I'll copy it again:

You make $100,000. You can afford 40x monthly rent / 30% PITI. That is $2,500 per month.

12 x $2,500 x 12 = $360,000. An 80/20 mortgage on that at 6.5% = $1,820.36. Add in property tax of $300 a month, maintenance of $300 a month = $2,420.36 PITI.

Now - YOU do the math and come back with a different answer.

Imputed rent, owner's equivalent rent, price-to-rent ratio, price-to-incomes ratio are all different ways to measure the same thing. The results will be different, but you can't compare the price-to-rent ratio to the price-to-incomes ratio, and make a valid comparison.

Do the math I did above and get different answer using PITI, as the banks do. Can't be done except if you change the interest rate, which I acknowledge.

"do you make a distinction between owner-occupied and rental"

Absolutely, positively. Owner-occupied residential real estate is a capitalized expense. Therefore, as a net expense it should never cost more than renting since that's what you get back from buying: the right not to rent. Both owning and renting have their benefits, and in fact I both own and rent because the circumstances are different.

When you buy an investment property your goal is to break even the first year, on an 11-month rent cash-flow basis. If you can do that it will be a likely money-maker as rents do go up over time, and someone else is paying off your principal. The economics are entirely different.

"It was a nasty, nasty place, as was SoHo and TriBeCa, and the West Village. Sorry, they just were. Manhattan was not a sweet place to live back then."

This is a zealous overstatement, as well as a direct clash with my values. 92nd & Park was marginal or seedy -- not nasty, nasty.

And I consider NY a much sweeter place then than now, including the three other neighborhoods that you mentioned. Yes, they were filthy, soot-encrusted post-industrial wastelands that catered to various (mostly) victimless crimes of pleasure, but not generally the places that inspired the cop phrase of the 1970s, "misdemeanor homicide". People in NY then were much smarter than those (like LICC) who live here now, and that includes working-class guys like hot dog vendors, etc.

And there was a basic conversational civility that is entirely missing in people who grew up in suburbs (throughout the country), who are used to speaking only to people they know or are in structured organizations with (PTA, church, etc). For example, it was very common then for someone on the subway to ask a seated passenger to slide over so two people can sit together. . . I haven't heard that for years, and New York is supposed to be less scary now. To me, it's disgraceful that people wait on a single-file zombie line for the Fifth Avenue buses at 79th Street, because they're not civilized enough for a give-and-take old-people-first boarding, and because they're too stupid to realize that there are four different Fifth Avenue bus lines that go to different places. It figures that it would be at that bus stop, several yards from Boston Bloomberg's house.

I did your math and all it tells me is that you max yourself out on the rent (given your income), you "shouldn't" pay more than 144 times rent for it. Well, is "shouldn't" interchangeable with "can't"? That's all you can afford to do, after all. Seems like a no brainer... In your example, everything over 360k is out-of-reach. It doesn't matter if you get the opportunity to own a 3-million place for 1 million. You can't do it.

I am still confused as to why every renter should be able to buy the place he is renting with the same out-of-pocket expenses. Why whould the property be priced within his budget? I missed that law in the econ books...

By "do the math" i meant "do the math with net rent and gross rent given Table 1 in the paper". Again, neither calculation will give you 12x or less for any period.

I can understand the differences between a owner-occupied unit and a rental, thank you. I was sure that you understood them too. What I meant it, do you make a distinction between the two when it comes down to the purchase price. In your example above, according to your math, it makes sense to pay no more than 360,000 and live in it. How much would you pay for it if you were considering it as an investment? Is the math the same?

I am a little murky on the breaking-even-in-the-first-year thing. Let me give you an example...

I bought two units downtown in 2001. I moved in one of them (still own it), and have been renting the other one since... On the rental, I was not breaking even till 2006 (even after refinancing in 2004). That's 5 years of being cash flow negative. Now, however, I am financing about a third of the current market value of the unit at 5.5%, and I am cash flow positive. Lest we forget, I have about 175%-or-so paper gain on it. The unit has been vacant for a total of 9 weeks in the 7-year period.

I didn't break even for the first year, so did that make it a bad investment? Not in my book...

alan - "there was a basic conversational civility that is entirely missing in people who grew up in suburbs (throughout the country), who are used to speaking only to people they know or are in structured organizations with"

That's putting a lot of things very politely. I don't go back to 1968 in NYC, but I agree.

Alan -

Absolutely. It seems so far away that it was just fiction, but I have enough shards of memories left to make me realize we're in a whole different place now. 95% of the folks I see moving in are the ones who would have been moving out (or never made it) 20 years ago. I remember when the default was a neighborhood was bad unless you knew it was good, when folks completely avoided subways and preferred to travel by bus (for 2-3x the amount of time) because the bus driver would supposedly protect them, and when the assumption was that things got worse, not better. I remember a time when Times Square was so bad that it makes it clear now that anyone who "misses it" was never actually there.

Do I want those things back, no, not at all. But there was definitely some baby that went out with the bathwater. It doesn't take much to call yourself a New Yorker these days, and I think New York is a hell of a lot worse off for that. Its like they lowered the admission standards at the Harvard of cities.

"is "shouldn't" interchangeable with "can't"?"

If you require credit it is, if you use a standard 30-year 80/20 mortgage. You can put down a higher down payment, as some people do (and I have done as well), or you can imprudently overextend yourself, which is what I believe most people have done to cause this bubble. This is a credit bubble - too much money available at too low a cost in an unregulated market. All of that is being reversed.

"How much would you pay for it if you were considering it as an investment? Is the math the same?"

To do that calculation you would need to use a different model: owner's equivalent rent or imputed rent. I'm more familiar with the latter, wherein expectations for future price changes plays a major role: basically, if expectations for future price increases are high, people would be willing to pay up to 24x annual rent (using the imputed rent model, not any other model) because that would have the effect of reducing the capitalized expense.

For instance, if I buy a home for $100,000 and I expect it to increase in value by 10% next year, I would be willing to pay a higher premium for it because at the end of next year it will be worth $110,000, which offsets my capitalized expense by 10%, reducing it to $90,000.

IF you think prices are going up. If you think they're going down and use the imputed rent model, it will tell you that NO ONE will buy.

"I have about 175%-or-so paper gain on it. The unit has been vacant for a total of 9 weeks in the 7-year period."

That works in a rapidly increasing market. Ask flippers everywhere: it doesn't work in a stagnant or falling market. The fact is, however, despite LICC's absurd claims, real estate does not always go up in value forever, and it does crash, and crash hard. But it takes a long time for it to crash, which is another problem: its very illiquidity makes the possibility of a long-term loss greater.

"I am still confused as to why every renter should be able to buy the place he is renting with the same out-of-pocket expenses."

For the simple reason that you get the exact same thing back: a place to live. In economics, goods are valued at their output value, and the output value of buying is not renting, so it shouldn't ever cost more on a macro level. There are advantages and disadvantages to both buying and renting, but the data do bear out a near 100% correlation between owner's carrying costs and rents over long periods of time.

"92nd & Park was marginal or seedy -- not nasty, nasty."

Point taken.

The 11 months' cash flow from a rental is what a bank will count toward a mortgage in a multiunit building.

steve, it is amazing to me how unaware you are. People show with clear facts and data that your theories are wrong and mistaken, it is incontrovertible, everyone sees how you are wrong, but you still sit there and babble on and on like a robot. You looked just plain silly trying the defend your effective rate position on the other board, laughably silly, but you can't admit it and drop it. Your 12x ratio has been completely exposed as not applicable in real-world situations, but you just keep regurgitating it. You definitely have an accountant's personality - you can count the numbers and recite them back, buy you have no understanding of the analysis behind them or how to apply the analysis to actual situations. Keep taking solace in your flawed numbers and analysis while you pay your rent, and let those of us who have owned our homes for years enjoy the great positions we are in for having owned.

"To do that calculation you would need to use a different model: owner's equivalent rent or imputed rent."

Well, let's do one... Make some projections for future rents and price appreciation/depreciation, look at the interest rate you would get on a commercial loan, assume an opportunity cost of x% and let's see what you come up with.

On a side-note, if you come up with anything other than 360,000, you made a mistake somewhere because it's simply not possible. By your own logic, the two numbers MUST be the same.

If you "should" pay less, then you would never get to buy it because an owner would always out-bid you. The apartment is worth 360k to someone who would live there, so why would he let you buy it for, say, 300k, and then rent at a price that would imply a 360k-property?

If you "should" pay more, then you are not breaking even in the first year (you can only get 2500 in rent, remember?). That makes it a bad investment, so you shouldn't buy it.

Sit back and think what a 12x ratio would do for you. You are asking the market to effectively let you lock in your rent "forever". The CC and RE tax would increase overtime, but far less than your rent would. And any RE tax increase would be offset by the property appreciation it implies. Economics would not let that happen. It would not let you lock in your rent.

"For the simple reason that you get the exact same thing back: a place to live. In economics, goods are valued at their output value, and the output value of buying is not renting, so it shouldn't ever cost more on a macro level."

That's simply not true, I am sorry. You can't look at real estate based on what happens in the next 12 months. That's flippers mentality. $2500 of rent is simply not comparable to $2500 made up of mortage payments, RE taxes and maintenance. They will not be comparable next year or the year after that or the year after that. The two will not be comparable for tax purposes, in nominal dollars or real dollars.

Let's say we live in the exact same units on the same floor in the same building. Both of us LOVE our homes and would live there for the next 30 years. You rent at $x/month, I bought at 144 times $x. Makes no difference which one you do, right? Well, from the paper I posted, you can see that between 1960 and 2000 (long enough time-span with some boosts and some busts, enough to give you some ideas of some avergaes), RE prices and rents have gone up at roughly the same rate in nominal dollars. The rate is about 6%, give or take.

Well, in 30 years our "financial situations" would be anything but the same. And if you continue to claim that it doesn't matter whether you own or rent, it would be nice to post your math on here.

"Steve, it is amazing to me how unaware you are. People show with clear facts and data that your theories are wrong and mistaken, it is incontrovertible, everyone sees how you are wrong, but you still sit there and babble on and on like a robot." You looked just plain silly trying the defend your effective rate position on the other board, laughably silly, but you can't admit it and drop it. Your 12x ratio has been completely exposed as not applicable in real-world situations, but you just keep regurgitating it. You definitely have an accountant's personality - you can count the numbers and recite them back, buy you have no understanding of the analysis behind them or how to apply the analysis to actual situations. Keep taking solace in your flawed numbers and analysis while you pay your rent, and let those of us who have owned our homes for years enjoy the great positions we are in for having owned."

LIC, if you took 1% of the time that you currently spend explaining how you have all this facts and insight, and actually applied it toward, well, facts and insight, you might actually contribute something here.

And are you stating that because you bought in LIC, you are now in a great financial position?

Mama mia.

> You are asking the market to effectively let you lock in your rent "forever". The CC and RE tax
> would increase overtime, but far less than your rent would. And any RE tax increase would be offset
> by the property appreciation it implies.

You are leaving out that your mortgage deduction declines every month and year. So, if you are playing up the mortgage deduction, your mortgage costs increase substantially.... going from something like 90% of it deductible to 0% of it deductible at th end..

And, as I've said like 20x now, its all for naught if you are talking about a declining asset. No multiple is going to account for a 20% loss on a 10 x 1 leveraged asset...

"You are leaving out that your mortgage deduction declines every month and year. So, if you are playing up the mortgage deduction, your mortgage costs increase substantially.... going from something like 90% of it deductible to 0% of it deductible at th end.."

Where does the mortgage deduction come into play in Steve's 12x ratio? It's not taken into consideration in PITI, so of course I would not take it into account.

But OK, I am leaving it out... Aren't you leaving out the fact that in the last year of my mortgage, for example, virtually my whole payment will go toward the principle of an asset which I own.

"And, as I've said like 20x now, its all for naught if you are talking about a declining asset. No multiple is going to account for a 20% loss on a 10 x 1 leveraged asset..."

I was not talking about a declining asset. In fact, I wasn't talking about the Manhattan RE market today at all. I was talking about Anytown, USA, in Steve's "12x" world, where nominal prices of real estate and rents go up and down at the same rate as they have NATIONWIDE SINCE 1960, as described by that paper.

> But OK, I am leaving it out... Aren't you leaving out the fact that in the last year of my mortgage,
> for example, virtually my whole payment will go toward the principle of an asset which I own.

Not at all... its balance by the fact that you had severe carrying costs in terms of interest payments (paying the bank for the money you rented) up until that point...

But, bigger picture... this THREAD is about the mortgage interest deduction. If we leave it out, doesn't Steve win the argument?

> I was not talking about a declining asset. In fact, I wasn't talking about the Manhattan RE market
> today at all.

I was. I thought that was what this board was about.

But other than that, thank you... That's exactly why the 2500 to own and 2500 to rent cannot be compared as simply "2500 bucks out of my pockets to live somewhere"

Well, why is Steve talking ON THIS THREAD about a 12x rent-to-price ratio which does not take into account mortgage interest rate deductions?

I have no idea.... I just know that I'm paying about half the carrying costs of a mortgage on my place.

And I just know that my renter covers all of mine and more... And that my place has appreciated a whole lot since 2001

Not quite the same thing, I'm definitely getting each month, you might actually be falling behind.

Just because you are cash flow positive doesn't mean you aren't losing money. Your asset might be losing more each month than you take in in cash... you already had the appreciation, staying longer isn't increasing it, but might be decreasing it.

"Not quite the same thing, I'm definitely getting each month, you might actually be falling behind."

Would you please tell that to Steve and explain it to him. Because when I say it, it doesn't seem to register.

Make sure you expalin how you could be cash flow psitive and losing money and how you could be cash flow negative and making money. How merely looking at the rent vs. price for the next 12 months doesn't give you the big picture...

"I'm definitely getting each month"

What exactly are you "getting"? "Yeah, I skipped lunch today and I "got" 20 bucks!!"

That kind of "getting"?

Great points BGaria. You have shown how sound logic, common sense, practical application and supporting data are what people should look at, and not fantasy world theories and out-of-context application of theoretical data.

Sorry, I meant getting ahead....

> How merely looking at the rent vs. price for the next 12 months doesn't give you the big picture...

Sure, you also have to look at the change in asset values. Even if renting took $1000 more in cash each month, if your asset is declining 1% a month and you are leveraged, buying looks like a pretty horrible deal.

If LIC likes practical application, I guess there is no more practical application then DON'T OWN PROPERTY IN A MARKET CRASH.

Buy/rent ratios are out the window if you are comparing losses turned into bigger losses through the magic of leverage.

I honestly don't know why you are picking a fight with me, EW. I have said that prices are going down and will continue to go down for at least a year. I have said that I expect a 15-20% correction. I agree 100% that, yes, you shouldn't buy real estate right before a crash. You happy?

I was just trying to show why, in my humble opinion, Steve's 12x ratio (given a 8% rate on jumbo's) is too good to be true from a buyer's perspective. If it's too good to be true, we won't get there. If you are waiting to buy your place at 12X your annual rent, you will have to wait a long, long time...

So, let me repeat: I have tried to show why we won't get to the 12X ratio and the 40-50% price cut that Steve and his 12X ratio model are suggesting, but will rather see a lot more moderate decrease in prices. I am in no way, shape or form suggesting that anyone should go out tomorrow and buy anything and everything at the list price.

> I honestly don't know why you are picking a fight with me, EW.

I didn't pick a fight, I answered your post... I even started with "Thanks, BGaria, that is good data." We do seem to disagree on the relevance of the interest deduction, but I'm not sure what other issues you have.

"I have said that prices are going down and will continue to go down for at least a year. I have said that I expect a 15-20% correction. I agree 100% that, yes, you shouldn't buy real estate right before a crash. You happy?"

Sure, sounds like we're in agreement there...

"We do seem to disagree on the relevance of the interest deduction."

As an owner, I will be the first one to say that interest deductions are VERY relevant. However, they don't play in Steve's 12X ratio, and that's why I ignored them. If I took them into account, the 12X-annual-rent pipe-dream falls apart even more quickly...

a little off-topic, but just to throw a wrench in this whole interest deduction and renters paying the mortgage subject --

I own a modest investment coop whose net rental income could not be matched by selling the coop for cash and reinvesting it to generate income. It's a laughably small place compared to what people on this forum own, but it's in New York City. It is free and clear now, but wasn't for 18 years. So when I hear all this talk, I'm looking backwards at those early years of ownership and all the stresses of whether it's worth it. Long-term, it's a no-brainer. The mortgage interest deduction helped, but the real payoff is when there's no mortgage.

for the grammar police, "throw a wrench into," not "in"

Hmm, another person think Eddie Wilson is a combative ass. Interesting . . .

"Wait, let me get this right... you bring up ANDREW CARNEGIE who built his house over a century ago, before any period we're talking about, and use it to rationalize that a certain neighborhood was "prime" in 1968, and now you're going after *me* for addressing the period you mentioned?

You HAVE to be kidding here. YOU brought that up. I addressed it as irrelevant, and, when I do that, suddenly I'm grasping at straws because I referenced the period. Sorry, but that was *your* mistake, not mine."

Eddie, no reason to take this personally - yes, I brought up the Carnegie mansion (not the guy himself, but no biggie) to point out that large mansions were being built up in that neighborhood a long time ago. These properties are still standing, whereas this mythical elevated Park Ave train (which you have yet to point me to) is not. I fail to see how that's "irrelevant."

"Uh, its been denied several times over. The only person still claiming otherwise is you, and you don't seem to have any facts to go along with it, just mentions of Andrew Carnegie. You're only evidence is that there were once really nice houses there. If that were the case, the worst parts of Brooklyn would have been the best according to you as well."

Well, it's really just you and Steve (who started this little brouhaha) denying it. Did you take a look at the link I posted? http://www.carnegiehillneighbors.org/history/index.htm It gives a nice overview of the neighborhood and makes it pretty clear that it has been a wealthy area for over a century now. As for when I moved here, you got me there, as it's only been a handful of years, but I did know the city well before moving here, as I've lived my whole life in Boston and DC (except for a brief stint in Spain), so I know these cities and the changes they've faced in the last few decades.

And the beautiful houses in Brooklyn are in Brooklyn Heights, Cobble Hill, and elsewhere. Sure, there are nice brownstones in less desirable parts of Brooklyn (and not the "worst" as you claim), but that's a function of many other variables as well.

"Just like I said of where my wealthy great-grandmother lived - Stuyvesant Heights. F.W. Woolworth lived down the block. Now it's Bed-Stuy.

The entire country was in turmoil. Remember the 1968 Democratic Convention? Probably not. But pick that as a GRAND date to start your analysis. Pick a borderline neighborhood on the decline in a city on the decline. And you'll get the answer you want."

I think this is very true Steve, but this is exactly my point from earlier - it's about choosing your entry and exit points. And while the real return on investment RE might be 0, or thereabouts (and when you think about it, why wouldn't the real return on any investment be 0 as well, if you held on indefinitely?), there's no denying that people can make money by choosing those points wisely. As for neighborhoods changing, I'm curious as to which direction is more changing: poor to affluent, or vice-versa? Stuyvesant Heights is still rather nice, though it is surrounded by Bed-Stuy, so it has suffered tremendously, but how many neighborhoods has that happened to? Harlem was once wealthy, as was Williamsburg (believe it or not) and Dorchester in Boston, but for every example like that, there are probably more that improved. And indeed Harlem and Williamsburg are already "back." It's always a risk to invest in "up-and-coming" areas of course, but those who get in at the right time (and out again) can certainly do very well.

*changing more* - sorry.

"Eddie, no reason to take this personally - yes, I brought up the Carnegie mansion (not the guy himself, but no biggie) to point out that large mansions were being built up in that neighborhood a long time ago. These properties are still standing, whereas this mythical elevated Park Ave train (which you have yet to point me to) is not. I fail to see how that's "irrelevant.""

Uh, BJW, you have to stop contradicting yourself. Its becoming a pretty regular thing for you.

YOU were the one who said it was irrelevant...
> but that's completely irrelevant to the late 60s/early 70s time period we've been discussing

I only pointed out that it was YOU who brought up the "irrelevant" area...

> I've lived my whole life in Boston and DC

And here you are, still trying to tell the folks who actually lived here what things were like... interesting.

> there's no denying that people can make money by choosing those points wisely

By your logic, anyone buying for the "long term" was making a mistake...

And, the only way to make money is market timing... meaning that getting out of the market in 2008 (and definitely by now) would be the only money making move if you're currently in, no?

> Hmm, another person think Eddie Wilson is a combative ass. Interesting . .

Wow, 242 posts in a row without a fact or a brain from Kettle Black!

When he hits 300, his condo next to duane reade is guaranteed to double in value!

BTW, LIC, why are you so completely infatuated with me as to follow me around and post the same comment over and over again?

Why don't you become a useful member of society and open a hot dog stand in LIC. God knows, they need some cuisine...

"Uh, BJW, you have to stop contradicting yourself. Its becoming a pretty regular thing for you.

YOU were the one who said it was irrelevant...
> but that's completely irrelevant to the late 60s/early 70s time period we've been discussing"

Yikes - I was saying that your mentioning the still mythical Park Ave elevated train was irrelevant, especially since you said it was gone by 1968 (supposedly), that is all. Read the posts more carefully - I don't see how you think I'm contradicting myself at all.

"And here you are, still trying to tell the folks who actually lived here what things were like... interesting."

Well, I fully admitted what I actually know and don't know. But I'll repeat, everything I've ever read/come across (including the history I posted above) about Carnegie Hill contradicts your assessment. Now tell me - did you live in the area/vicinity in 1968? And were you old enough to appreciate the neighborhood for what it was? If so, I'll concede you have a more authoritative vantage point, but otherwise I don't see how you can think yours is any more valid.

"By your logic, anyone buying for the "long term" was making a mistake...

And, the only way to make money is market timing... meaning that getting out of the market in 2008 (and definitely by now) would be the only money making move if you're currently in, no?"

Not at all what I meant. No, you can't pinpoint the market, but you can read the signs to know when it's a better bet to buy or sell - you MUST inherently believe this if you believe all your "crash" posts. If you sold in 2007, wouldn't that have been better than if you sold say, in 2009, generally speaking?

> Yikes - I was saying that your mentioning the still mythical Park Ave elevated train was irrelevant,
> especially since you said it was gone by 1968 (supposedly), that is all. Read the posts more
> carefully - I don't see how you think I'm contradicting myself at all.

Yes, because it was gone before 1968, its irrelevant, but the mansions built YEARS before that are super relevant.

That is called hypocrisy.

And, it doesn't matter.. you are still wrong. You moved here last week, and you're telling us about what were good NYC neighborhoods in 1968.

Just liked how you were the expert on DUMBO, too, but you haven't apparently been there in 5 years and no tourists go there.

Sorry, bjw, but I'm done with you... you clearly don't know much about the things you speak of.

Here's what EddieWilson wrote:
"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."

If we want to nitpick, he was intentionally vague (so as not to sound like a know-it-all, presumably) about the railroad. In fact, it originally ran at grade, and was buried in the 1870s (yes, eighteen-seventies) from 42nd up to 96th St. Carnegie Hill was still too far uptown for upscale development, even through Manhattan's 1880s -90s building boom, until Carnegie built his mansion in 1901. Then it took off, mostly on the side streets on either side of Madison -- that's where the original landmark district was, not so much on 5th or Park.

Because you don't really care, I'll provide you with two bits of insight as to Carnegie Hill's status in the 1960s:
PAINSTAKINGLY ACCURATE FICTION GENRE: On Mad Men last season, that insipid WASPy young suckup who's a descendent of the Dyckmans tells his patrician parents that he's found a coop to buy -- Park and 83rd. Dad says something like "doesn't it get bad above 79th St.?"; Mom says "No, dear -- 86th St. is the cutoff." Paraphrased.
SEMI-FICTION GENRE: In the NYT RE advertorial section, in a 1982 "Thinking of Living In", they vaguely allude to its recent past by stating "Recent years have seen a revitalization, particularly on Madison Avenue" . . . semifiction because that section's articles exist only to generate ad revenue, of course, and journalistic standards don't apply.

http://query.nytimes.com/gst/fullpage.html?res=9E05EFDB1538F935A25756C0A964948260&sec=&spon=&pagewanted=all

Boston had precisely the same tanking of once-upscale neighborhoods (Back Bay, even Beacon Hill), so it shouldn't be a surprise to anyone who used to live there.

Eddie, I think you take this a little too personally. As I said before, the mythical Park Ave El (starting to think you made this up or confused it with the Third Ave El, since you've repeatedly ignored my requests for some kind of proof) was long gone, but the mansions WERE AND ARE STILL THERE. Things that are no longer existent don't really have the same impact on neighborhoods as things that are still around.

And please, don't distort things to your liking - I did not move here "last week," and I was in Dumbo last month. If you disagree with me, that's fine, but no reason to be so arrogant and combative. Yeesh.

"I was just trying to show why, in my humble opinion, Steve's 12x ratio (given a 8% rate on jumbo's) is too good to be true from a buyer's perspective. If it's too good to be true, we won't get there."

Actually, Bgaria, we were at 12x as recently as 2003, when rents stagnated and property prices doubled.

It's not so far away - you're just used to these price levels.

Now then, if you say prices fall 20% and then let's say they stay there a while, 12x won't be far off because of the effects of inflation.

I think minimum 30% fall nominally - that's what's happened even in prime San Diego.

"there's no denying that people can make money by choosing those points wisely."

Absolutely I myself made over $1 million on real estate. Just don't expect a run-up like we've just had ever to occur again, though it is cyclical.

alanhart, thanks for the info. I had read about the railroad you mention, but was surprised I hadn't ever come across anything on an elevated train once EddieWilson brought it up.

This is directly from the Carnegie Hill page I referred to:
"Whereas at the turn of the century the great majority of society lived in private residences, by 1935 most of society lived in luxury apartments. Although the first construction was on Fifth Avenue, large elevator buildings soon appeared and were fashionable on Park Avenue, as well. The popular styles of the time were French and Italian Renaissance."

"the mythical Park Ave El"

There was never an elevated train on Park Avenue. What was on Park Avenue were the Harlem and Hudson Railroad tracks from Grand Central Terminal, which is why there is an island between the uptown & downtown lanes.

"There was never an elevated train on Park Avenue. What was on Park Avenue were the Harlem and Hudson Railroad tracks from Grand Central Terminal, which is why there is an island between the uptown & downtown lanes."

Thanks Steve. Eddie, can we at least agree on this now?

Easily verifiable, and the reason why Park Avenue (4th Avenue) was so awful is because they were steam locomotives that burnt coal, and ash and steam were flying all over the place. After the tracks were buried under 4th Avenue, to get over the stigma they renamed it Park Avenue. Naturally, there was land available so that's why so much got built.

It does not take away from the fact that the particular building sneaky was talking about was in a marginal area in 1968. In fact, most of Manhattan was marginal in 1968 - the city was in decline.

> Thanks Steve. Eddie, can we at least agree on this now?

Sure, as long as you've changed your tune. As I said - and Steve confirmed - there was a huge polluting train running right down the ave you claimed was so glorious....

And, as Steve said again, we were both right in that in 1968 the area noted was definitely marginal...

Steve, true, though those train switched to electric around the turn of the century.

Ah, if you put it in that perspective, yes, much of Manhattan was in decline around that time, so compared to today, things were surely worse - tough to argue against that. Have to agree with alanhart though, that this area was by no means like what Soho and Tribeca once were.

Wow, once again irrelevant points. Yes, there were neighborhoods that were even worse.

But the big point is, the original "analysis" picked a property and assumed it was prime, and that was just wrong. Case closed.

Eddie, you can stop spinning things. Facts are, you were dead wrong on this elevated train business, and Park Ave was populated by large French and Italian Renaissance buildings during the time period we've been looking at. And yet you condescend.

oh jesus, you are still arguing. god, some people never learn. Let the guy from ohio keep telling us about NYC neighborhoods.

I'm off this thread. Enjoy, bjw, its all yours. Go ahead and tell the rest of us all about NYC and its history now.

> Eddie, you can stop spinning things.

ROTFL.

Wow, talk about hypocrisy. I was right, a hugh polluting train running right down it, as I said, and the putz is still claiming it was prime neighborhood because it had the same buildings as in Harlem.

Well, thanks for resorting to Curbed-style putdowns (Ohio, etc., even though I'm from Boston/DC, and my family owned in this city in the 60s and 70s). I don't usually engage in these longwinded arguments, but you're so obstinate about your position in the face of legit fact and argument. Let's just agree to disagree and not waste much more time on this.

You can keep repeating yourself, but you were still wrong.

"Nope... there were trains above the surface on Park for years. Only when they dug the trench did it become "park"."

Again, I was right. It was you who don't know, it was you who were confused (confusing it with the 3rd ave L).

And, you are still massively wrong overall. The area was marginal, you tried to claim otherwise, and you were wrong.

Insult me all you want, but you don't know anything about this subject, and you don't know much about Brooklyn Heights and DUMBO (yet you made 100 posts on that one, too).

Face it, you just don't know, and all your posts just serve to make that clear.

Hmm, another instance where Eddie Wilson is both wrong and condescending. Interesting . . .

Oh, like the two of you are really going to stop wasting much more time on this.

The Park Avenue tracks were electrified between 1904 and 1908, by state mandate.

Park Ave was populated by large French and Italian Renaissance buildings built until the 1920s; then they went into decline. That's the point Eddie and Steve were making: decline. Not on par with the Silk Stocking District. First nice, then not so nice and not so valuable. Just like the beautiful buildings of the Back Bay in Boston, and many neighborhoods in DC.

Steve, thanks, but you're not exactly agreeing with me on Carnegie Hill vis a vis SoHo or TriBeCa. I would have a lot of trouble comparing a residential neighborhood in decline with a manufacturing district in decline.

And did I just hear the wind whistling across the East River?

"those train switched to electric around the turn of the century."

The trains were electrified in 1906/1907. I believe the electric trains never ran above ground.

"What? FWIW, that area's been upscale for 100+ years."

"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,"

So who was it again that kept making mistakes?

Ok, Eddie, there's only so much you can argue with someone who barks "2+2=5" non-stop. You specifically claimed the Park Ave train was elevated. It was not. You continually ignore the mansions and luxury apartments that were in the area (and remain there), and the wealth that resided in them. And you keep going back to Dumbo, as if that had much to do with this, even though you're the one who claimed that the 1 train went to Brooklyn.

Also, the original point was made because steve asked for one datum of a Manhattan apartment that rose in value more than 8% since 1968, and I provided one. I have since posted several other Manhattan apartment or home prices from 1968, and referenced a Corcoran report from 1973, to show that Manhattan real estate has risen 8-9% annualized long-term. The original "datum" is credible. So what if Park and 92nd wasn't as nice in 1968 as it is now. This was no slum in the 60s, as bjw has ably noted. Eddie you must be a terrible Texas Hold 'Em player, because you don't know when to fold your hand when you're losing.

> Hmm, another instance where Eddie Wilson is both wrong and condescending. Interesting . . .

LIC, 249 posts without a fact or a brain. But he sure DOES like following me around all day. What is he so infatuated?

And the second in a row where he tried to jump on the "Eddie is wrong" bandwagon, only he was too stupid to actually read the thead... because I was right...

> And did I just hear the wind whistling across the East River?

Yes, the Manhattan expert from Queens is here.

> Ok, Eddie, there's only so much you can argue with someone who barks "2+2=5" non-stop.

Yet I keep doing it for some reason. Maybe if you stop yelling things you made up, I'll stop arguing against them.

"Park Ave was populated by large French and Italian Renaissance buildings built until the 1920s; then they went into decline. That's the point Eddie and Steve were making: decline. Not on par with the Silk Stocking District. First nice, then not so nice and not so valuable."

But what do we know? BJW read something on a web site once, and LIC can insult faster than us... so they must be right.

How would the fact that Park Avenue had an above-ground train in the 1870s affect 92nd Street and Park Avenue in 1968? Eddie Wilson had implied this and is obviously wrong, again, and now is arrogant about it to bjw.

alanhart, true, and funny. I can't help myself this time!

Eddie, those last statements you reiterated by me are not "mistakes." If we're going to differ on what the definition of "marginal" is, fine, but as alanhart points out, this wasn't Soho or Tribeca.

OH MY LORD! Because something else was worse, suddenly its better?

Wow, you lost the facts game hours ago. Now your logic game is completely gone, too.

Jesus, the area was marginal, game over. You can post all you want, but you've still been wrong the entire time.

To reiterate, I'm not saying that SoHo and TriBeCa were worse, just different. Or maybe better. Desolate. It's like comparing an urban residential neighborhood in decline to the Appalachian backwoods in decline -- where do you start?

"How would the fact that Park Avenue had an above-ground train in the 1870s affect 92nd Street and Park Avenue in 1968? Eddie Wilson had implied this and is obviously wrong, again, and now is arrogant about it to bjw. "

Oh jesus, LICComment, are you really THAT illiterate?

Even bjw is smart enough to know I didn't claim that. You, on the other hand... well, maybe its the toxic waste in Jersey Cit.. I mean LIC.

"To reiterate, I'm not saying that SoHo and TriBeCa were worse, just different. Or maybe better. Desolate. It's like comparing an urban residential neighborhood in decline to the Appalachian backwoods in decline -- where do you start?"

Thanks, Alan. I'm admittedly impressed that continue to share your valuable and honest take, when the folks its aimed at either won't or can't read, or pretend it said something else, but I'm glad you continue.

Eddie Wilson't direct quote:
"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."

You talk about Park Avenue not being nice at the time in question because of problems related to the elevated railway and it getting nicer once the train was torn down. Now you are saying that you didn't claim that the area was affected by the train. Wow.

Wow, finally LIC stops insulting, and all he comes back with is LYING. You can claim I said it all you want, you're just lying again.

Nice! Wow, you are REALLY not one for facts.

Wow, it must be awful painful watching your LIC "investment" crater, but you don't need to lash out at others...

Is this what they call idol worship? You follow me around for weeks. Put my poster up. Reply to every thread I post on. And then you try and take me down. Do you think I'm Britney or something?

4th grade must be REAL hard for you...

Eddie, why are you angry? We disagree on this, big deal. No need to get personal, and we can and should discuss other topics without such vituperative posting. Take a look at your Brooklyn brownstone thread - I'd like to see better data before we get to those kinds of conclusions.

Eddie Wilson's comment, quoted above, is on the first page of this thread- the 22nd comment from the bottom.

What else do you lie about Eddie?

> Eddie Wilson's comment, quoted above, is on the first page of this thread- the
> 22nd comment from the bottom.

Which your 4th grade reading level CLEARLY keeps you from comprehending. You claimed that I said Park ave in the 90s wasn't nice in 1968 because of the train being there, and thats either a lie, or the mark of the dumbest person I've ever met trying to read what he can't understand.

> What else do you lie about Eddie?

I think I once lied and said LIC would be a good investment.

> No need to get personal, and we can and should discuss other topics
> without such vituperative posting.

Not interested, bjw. You clearly will think what you want to think in the face of opposing facts. I'm not interested in that discussion.

*Yes, 5th avenue was a nice spot when Carnegie built his place --> true: overlooking Central Park is a nice spot
*but neighborhoods decline --> undeniable
*and 5th isn't Park. --> that's right: 5th was always the preferred location for mansions, such as the one that's now the Helmsley Palace (I think it's still called that). Park was for other things, like clubs.
*Park Ave had particular problems for a time because of the elevated railway and the resulting noise and pollution. --> true. When they sank the railway in the 1870s, they had to give it a cloying name like "Park Avenue" instead of 4th Avenue because it had such a bad rep
*Much of it got MUCH nicer when the train was torn down, creating the Park Ave. we know today. --> true: farther south than Carnegie Hill, tearing down the grade-level tracks around the 1870s was a boon
*But other areas took longer to build up (or recover), particuarly the more northern parts." --> true: For two decades the more northern parts near the submerged tracks remained shanties, until Carnegie built his mansion at the end of the Gilded Age.

So you see, LICC, Eddie didn't reference the time in question (1968) in any of this. Try "Hooked on Phonics" -- it might be a better method for you.

BTW, I found the original lie/claim, to get this stright...

BJW - 9nd and park was "at the very least an upper-middle-class neighborhood ever since (if not before) Carnegie built his mansion."

The presence of the train and the descriptions from alan, steve, and I clearly contradict that. THAT was what the thread response was.

LIC can keep screaming from LIC, but the train reference was made in response to THAT point. If he thinks its 1968, well, he also thinks LIC will track Manhattan, so why are we surprised.

So you see, LICC, Eddie didn't reference the time in question (1968) in any of this. Try "Hooked on Phonics" -- it might be a better method for you.

Hey, alan, thanks very much for the assist. And a very funny one at that. But, as it gets fairly plain to see, facts and logic and LICC don't mix. And BJW seems to want to follow in those footsteps (only without the insults). But I do appreciate the effort.

But it still does give me absolute chuckles to know that we're being "corrected" by folks who seem to have gotten their "educations" about NYC Friend and Seinfeld.

(crickets, crickets)

my my, that was a fairly quit shut up from the out of towners...

I guess LICC is still trying to come up with a comeback... maybe that Jerk Store one will work...

Eddie and Alan are like TweedleDee and TweedleDum here. Eddie, just look at what you typed. "On the actual point, the ansswer is pretty clear. 92 and Park wasn't particularly nice at th etime in question."

The "time in question" for "the actual point" was 1968. That was a pretty bad try at spinning now trying to say that you were talking about the time the mansion was built. See Eddie, when you lie, and then try to lie more to cover up your lies, you just look more and more foolish.

"When they sank the railway in the 1870"

They sank the railroad in 1906.

Park Avenue was originally known as Fourth Avenue and carried the tracks of the New York and Harlem Railroad starting in the 1830s. The railroad originally built an open cut through Murray Hill, which was covered with grates and grass between 34th and 40th Street in the early 1850s. A section of this "park" was renamed Park Avenue in 1860. In 1867, the name applied all the way to 42nd Street. When Grand Central Depot was opened in the 1870s, the railroad tracks between 56th and 96th Streets were sunk out of sight, and, in 1888, Park Avenue was extended to the Harlem River.

Hooked on phonics, LICC, hooked on phonics...