A Craning Skyline (Abatements Gone Wild)

The NYC real estate market is in for a rough ride. The Manhattan skyline is one big row of cranes. Call it Murphy's law or just sheeple being sheeple, but there's a ton of supply coming online at exactly the worst possible time. It's much cheaper to rent than own -- and it has been for a while. With confidence waning, most will be waking up to this reality (sheeple have been denying it for years to justify their purchases).

New developments on face look reasonable compared to renting bc the taxes are so low from tax abatements. But noone reads the fineprint to see how much the taxes will be jumping up in 10 years when the abatements expire because they expected to be flipping. Well now they'll just be flipping out.

Here's a quick sketch on how much cheaper it is to rent than own using midtown west as the example:

Purchase price for 700 sq foot apt @ ~$1,200 sq. foot: $850k

Money Down: $170k
Mortgage: $680k
Monthly Mortgage Payment @ 7%: 4,500 or $2,700 tax effected @ 40% tax rate
Maintenance: $1,100 or $880 tax effected @ 40% tax rate assuming 50% of maintenance is tax deductible..
Opportunity cost of $170k downpayment: $700 of tax-free interest a month invested in a 30-year muni bond @ 5% coupon.

Total monthly tax-effected ownership cost: $4,280
Rent for 700 sq foot apt: $3,400

So it costs you over $800 more a month to own than rent and that doesn't take into consideration upfront and backend closing costs, which would probably run about 10%of the apt price or $84k in this case. If you plan on living in the apt for 5 years; however, you would have paid down principal by $41k and thus, assuming no appreciation, the net costs would be $43k or $8k per year or $666 a month.

Clearly, in order to justify purchasing at today's prices you have to be assuming there will be some nice price appreciation since the renting proposition is much more economical.

In other words, look out below.