Breaking $1,000 psf in Northern Greenpoint

Scanning back over the last few weeks here at Brownstoner, there are more and more of what can only be called "laugh-out-loud houses" -- $1.7m for 2 bedrooms in Gowanus on Seventh Street, $1.5m for a townhouse in Atlantic Commons, $1.15 for an empty shell in Fort Greene. This may take the cake, however.

Greenpoint, including north Greenpoint, is a nice neighborhood, but it's not close to the subway. This seems like it's priced as though it's actually in Union Square, not a 20 minute walk + 20 minute subway ride away.

Looking over the recent sales in the papers this weekend, I didn't see anything that would justify this kind of pricing.

Krugman has an interesting article in today's NYTimes, in which he suggests that the bubble is already beginning to deflate in many areas. These may be last gasps, frenzied attempts to cash in before "laugh-out-louds" turn into foreclosures.

nytimes.com/2005/08/08/opinion/08krugman.html

Posted by: Sloper at August 8, 2005 12:21 PM

I must correct myself -- it's apparently 2 blocks from the G train. HA!! While that's technically the subway, it's no 20 minutes to Union Square.

The best part of the realtor's description: "Greenpoint is poised to become one of the city's most sought-after neighborhoods."

Again, it's nice, but most-sought after?

Posted by: Sloper at August 8, 2005 12:25 PM

It's not too hard to do the sort of calculation Krugman mentions in that NYTimes article, regarding future rental income, for this place.

If we assume that the annual rental income is $48,000 ($4,000 a month), and that rent increases at 3 percent a year, then the sum of rental income over the next 30 years is $2.3 million. This amount needs to be discounted, because a dollar 30 years from now is not the same as a dollar today, etc.

Using a 5 percent discount rate (which is pretty low, but I picked 5 percent as it seems to be the current long-term mortgage rate), the present value of 30 years of rental income on this property is $1.1 million.

To get to the asking price, $1.75 million, you need to calculate the present value of 70 years of rental income, which seems like way too long of a time horizon to be realistic.

If you raise the discount rate to 10 percent, the present value of 30 years of rental income drops to $590k.

I think a reasonable price might range somewhere between $590k and $1.1m, assuming you could really get $4,000/month in rent.

The remainder, getting you to $1.75m, is pure speculation that the housing market is going to keep increasing at astronomical amounts each year, and thus deliver enormous capital gains. That doesn't seem realistic, as incomes are not growing that fast.

Posted by: Sloper at August 8, 2005 1:02 PM