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Friday, September 19, 2008

economic meltdown averted?

This has been just a flabbergasting week of news, with the global financial markets showing unprecedented volatility and fragility. Clearly the Bush administration's simplistic dogma of deregulation and tax cuts as the answer to wealth creation, has lead us to a cataclysmic failure; and a government intervention which so far benefits those most responsible for the failure. The fate of the ordinary homeowner who may be facing foreclosure remains largely unresolved and has been virtually unspoken about this week. The President has been disturbingly disengaged from the crisis. His direct engagement could be instructive to the American people, yet he chose to lay low, come out for brief statements, then retreat. He's let Treasury Secretary Paulson do the heavy lifting alone; who thankfully seems to be strong enough to handle it.

economyIn panic mode, the questions of moral hazard, and who stands to gain, have taken a back burner to more tactical maneuverings. They are probably necessary, yet are not a strategic or systemic solution to better governance of our financial system. Let's hope that a solid national debate ensues about how to rewrite the rules of the game, with better stewardship of the taxpayer's money. We want to hear intelligent solutions on the economic issues, not just sound bites about who's to blame from both Presidential candidates. It will be one of them that will struggle to set policy that gets us back on the path to growth next year. Most of us should recognize that whatever the final intervention looks like, it is a sour deal, that will pass bad debt onto all of our books. It should not free up those who caused it to carry on business as usual.

Q. In effect, is the U.S.A. declaring that profits are privatized and losses are socialized. And if so, where is the incentive to stave off those investments that might cripple our financial markets again in the future?

A. The answer to these two questions is really the same. If the government is going to be on hook to rescue a company when it fails, then the government has to be able to regulate that company — to try to minimize the chance of failure."

— Q&A, David Leonhardt, New York Times

There has been a lot of information absorb this week. David Leonhardt at the Times, wrote an excellent question and answer on the economic turmoil this week in the New York Times which was an insightful explanation of very complex problems. Frankly, I've had a hard time understanding the implications of this week's news. I'm glad its not just me that's confused, and that smart guys like economist Steven Levitt at Freakonomics can say "To be honest, however, I haven’t got the foggiest idea what this all means". He posted another excellent Q&A about the financial crisis this week. You'll find more news bookmarked in the 'newsreal' column at right.

But perhaps the most insightful commentary that I found today comes from British comedians John Bird and John Fortune in this clip from earlier this year, about the failure of British bank Northern Rock which lampoons the greed and sense of entitlement which led us to a bigger global crisis point this week. It is interesting to watch it in the context of this week's news environment, and even better to end this business week with a laugh. Enjoy!


Monday, August 4, 2008

video: Reed Kroloff; architecture, modern and romantic

architecture and designCritic and scholar Reed Kroloff seeks a new lens for judging new architecture: is it modern, or is it romantic? In this TED talk from 2003, which has just been released, he delivers a blistering critique of the Ground Zero planning process. It serves as a springboard into a discussion of architectural approaches which he then filters as being "technocratic" or "romantic". The first being an approach in which design systems and technology are at the heart of the process and aesthetic. While the latter attempts to evoke our senses, culture and memory in the creation of immersive environments.

He uses examples from the works of two New York based architectural firms.SHoP representing the technocratic approach, citing projects such as the Rector Street Bridge in lower Manhattan and the Dunescape installation at MoMA's PS1 a few summers ago (they are also working on, or have completed, several downtown NYC condominium projects including 290 Mullberry, M127, and The Porter House). Representing the romantics is the Rockwell Group. David Rockwell has designed the green residential interiors at Riverhouse in Battery Park City, and is best known for his interiors of Tribeca's Nobu and Nobu Next Door restaurants; as well as his conversion of the W Hotel Union Square. He's also designed sets for several Broadway musicals including Hairspray, Dirty Rotten Scoundrels and Legally Blonde.

Frank Ghery: Guggenheim, Bilbao, Spain
Frank Ghery, Guggenheim, BilbaoI was left wondering after Mr. Kroloff's presentation if there was any real difference between these approaches. It seems certain architects, Frank Ghery and Norman Foster come to mind, who are able to get an expressive and seductive environmental experience, out of their modernist, and less culturally/historically referential, formal languages. Isn't Ghery's Guggenheim in Bilbao a fusion of the modern and romantic? Isn't the best of all architecture designed to seduce, give comfort, stimulate the senses, and generally transform perceptions? Whether you agree or not, Mr. Kroloff is a compelling speaker. His presentation gives great insight into how two local shops are making their mark on our city; and in fact, I couldn't agree with him more about his comments on the redevelopment of the World Trade Center site.

continued+

Wednesday, July 23, 2008

What are the income tax benefits of owning a home?

buying a manahattan co-op or condoReal estate Attorney Keith Schuman posts the next part of his guide to buying a co-op, condo or townhouse in Manhattan. He discusses the tax deductibility of interest, maintenance, second home mortgages and other considerations. Most people will engage several professionals to help in the acquisition process. These will likely start with a a real estate broker, and include a NY Real Estate Attorney, mortgage broker or bank. Since tax consequences are an important part of the decision, I personally think that it's always a good idea to discuss your plans to purchase with your accountant or financial adviser, right at the beginning of the process too. It will fine tune your understanding of the after tax cost of your real estate purchase. You'll find that all Corcoran Group and Comitini.com listings have a 'purchase cost analysis' tool online, that can be helpful as a first opinion on the after tax costs— like the one in the red column on this listing. You can plug in new variables to help envision different scenarios based on size of down payment, interest rates, deductibility of maintenance and your personal tax bracket.

A guide to buying a Manhattan home (part 2)
Tribeca penthouses along Greenwich Street
tribeca penthouses on greenwich and jay streets, including the bazzini buildingOne of the greatest benefits to home ownership is that you can deduct from your taxable income certain expenses of owning a home. Practically speaking, when figured on an after-tax basis, the costs of home ownership are lower than the actual out-of-pocket costs. The higher your tax bracket, the greater the benefit these deductions are to a homeowner. The tax benefits are derived from two basic expenses: mortgage interest and real estate taxes.
Mortgage Interest
When you make a mortgage payment, a portion of the payment goes toward repaying the principal amount of the loan and the rest toward paying the interest on that loan. During the first few years, almost all of the loan payments consist of interest, which can be deducted from your taxable income. At the end of each year, your lender will send you a statement denoting how much you paid in interest for the year. This figure then can be reported on your annual income tax return. There is, however, a limit of $1 million on loans used to acquire or to improve a home and a limit of $100,000 on additional debt (i.e., second loans and home equity loans). If your loan exceeds these amounts, interest on the excess amount is not tax deductible. Interest on a home equity loan also is tax deductible, even if you use the money to pay off other debts or for other non-housing purposes.
Real Estate Taxes
All real estate tax payments, whether paid out of an escrow account maintained by your lender or paid by you directly to the taxing authorities, are tax deductible. If the lender pays the tax bill out of the escrow account, the lending institution will provide you with a statement at the end of the year indicating the amount that was paid
Taxpayer Relief Act
As a result of the Taxpayer Relief Act of 1997, individual taxpayers can now realize up to $250,000 in tax-free gains on the sale of a principal residence. For married taxpayers who file jointly, the exclusion is $500,000. These exclusions cover any property that has been used as a principal residence for at least two of the five years preceding a sale. The deductions may be taken each time a taxpayer sells a principal residence, although the exemption may not be claimed more frequently than once every two years. This exclusion is available regardless of the taxpayer's age and is not affected by whether a homeowner had previously claimed the one-time $125,000 exclusion under the prior tax law.
Taxation of Second and Vacation Homes
The tax benefits of ownership also apply to second home or vacation home buyers. However, if you rent out your home for more than 14 days per year, the rules are more complicated. If you rent the property to someone for two weeks or less, you can treat the property as your residence (and you do not have to report the rental income). Generally, you can deduct interest on a loan (subject to the $1 million limitation) to acquire two homes and the real estate taxes on the two properties.
Maintenance Charges (Coops Only)
Because coop monthly maintenance charges include a portion of the debt service on the building’s underlying mortgage and the real estate taxes, a portion of the maintenance (usually around 50 percent) qualifies for an income tax deduction for the coop owner.

About the author: Keith A. Schuman, Esq. is the founder of Schuman & Associates, LLC, a full service real estate firm that provides legal services to its clients, through all aspects of their transactions. Keith is a frequent contributor to comitini.com. Contact him at keith@schumanlawfirm.com or phone 212.490.0100.


related posts:
tips on shopping for a home
Who are the key advisors in buying a Manhattan home?
What are the actual differences between townhouses, coops, condos and cond-ops?
When should I buy a home?


updated 10.03.2008

Thursday, July 3, 2008

Manhattan real estate market trends report

click on the map below to see how your neighborhood is doing

manhattan real estate market trends map, west side,east side, downtown, tribeca, greenwich village, east village, chelsea, flatiron, soho, FiDi, midtown west, midtown east, uptown, new developmentscorcoran reportThe Corcoran Group has just released the second quarter 2008 sales figures on the Manhattan real estate market. Today I'm posting a market wide snapshot and you can download the full Q2 2008 Corcoran Report [1.3mb pdf] here too. The big picture is that the market did have strong gains with the overall median price of a Manhattan apartment increasing 13%. Co-op sales posted across the board gains too in every size apartment. In my opinion co-ops are one of the leading indicators of the overall health of the Manhattan real estate market, as they represents about 80% of the city's housing inventory being traded by individual owners, at arms-length. By that measure the housing market here seems to be holding its own— even more remarkable when compared with the rest of the nation, which has continued to experience an unprecedented correction downward in values over the past 2 years.

This Corcoran Report leads a wave of information about Q2 2008 released by all of the large New York brokerages as well as newcomer StreetEasy.com. For the first time, Corcoran's report has the been compiled in collaboration with PropertyShark, propertyshark logo which is a leading resource of New York City marketplace information for real estate professionals. Corcoran has re-thought how the data are presented by isolating new development sales, from resales, reflecting a similar methodology to how national stats are compiled and often presented. The underlying assumption is that there are two distinct market segments at play. Corcoran's CEO Pam Liebman explains, "New development closings typically lag behind the market by one-to-two years and are therefore a poor barometer of what happens when a seller lists the home she has lived in for ten years on today’s market. Moreover, brand new, highly-amenitized luxury properties are much more likely to sell at a higher price point than the average property competing on the open market. In this report, therefore, we examine re-sales in isolation while our colleagues at Corcoran Sunshine analyze new development property sales."

Click on the overview map to find out how your neighborhood is doing. Click on any of the charts below to zoom in closer; and check out the press coverage on the state of the market in the NewsReal column entries at the right.


download the second quarter 2008 manhattan residential real estate sales report from corcoran
click on the cover to downoad
a complete copy of the report
overview report: second quarter 2008

Waning consumer confidence took its toll on residential real estate this quarter. With widespread concern about the national economy, the credit crisis, and near-term political uncertainty in the face of the upcoming election, sales activity in Manhattan slowed to its lowest level in five years, falling 38% from the peak in the Second Quarter of 2007. While no part of the market was entirely immune from buyer reluctance, perhaps the hardest hit was the first-time homebuyer market; 38% fewer studios and 34% fewer one-bedroom apartments traded this year.

five year trend of sales activity (number of sales)
click on any chart below to enlarge manhattan real estate sales volume

However, the sales that occurred were generally at a higher price point in most market sectors, a fact that holds true for both the re-sale market and new developments. Taken as a whole, Manhattan apartments reached an average sale price of $1.675M, a median price of $975,000, and a price per square foot of $1,262 – all of which represents a substantial increase. Moreover, when new development is taken out of the picture, homeowners selling their apartments still did quite well this quarter as the average price for re-sale apartments climbed to $1.431M and the price per square foot rose to $1,129. With luxury apartment buyers focusing more energy on new development, the median price for re-sales was the one major statistic to slip, falling 2% to $819,000.

market wide
all sales of manhattan apartments
market wide resale
manhattan apartment re-sales compared to new developments

download: second quarter 2008 corcoran report [1.3mb pdf]

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