"It Just Doesn't Seem Attainable."

 For as long as I've been writing this blog (yikes, I never commemorated its 20th anniversary last month!), I've tried to counter a certain negativity about "making it in New York." New York City has always been a very expensive place to live, and has always had a culture where rich people and their predilections kind of set the scene-- old money, greed-is-good Wall Streeters, all the arts and design and fashion and media people. New York is the subject of so many books and movies and TV shows that some people feel like they aren't living the dream unless it looks like an episode of Sex and the City. It can seem like an expensive lifestyle is just what's normal, so if you can't afford that lifestyle, you might feel like you haven't "made it." Or you're so busy spending money on some aspects of that lifestyle that you can't afford basic things like owning a home or saving for retirement. Some people kind of give up, just deciding that they might as well live paycheck to paycheck and get into debt since they won't be able to attain those long term goals no matter what. 

I've tried to counter that attitude-- my years in NYC were tight financially at the beginning, but I found a balance that allowed me to save money, buy homes and build wealth. I allowed myself some treats, but I also set limitations and adjusted my expectations about what was reasonable and possible. I was willing to make some sacrifices, but not some others. And things ended up working out for me-- I feel like I "made it" in the sense that I had a decent life, and could have continued to have a decent life in NYC if I'd stayed. And my attitude on this blog has always been "you can make it too," at least to some extent. I can't claim that someone making minimum wage is going to be able to buy a home and retire in comfort in NYC, or anywhere else for that matter-- that's a different issue.  My point was always more that all the college-educated middle class professionals needed to stop being crybabies about not being able to make ends meet in NYC.

But I'm not sure I can really say that anymore. 

I recently had dinner with some young women who are living in Brooklyn, not too far from where I lived in the late 1990s, when I was about their age. We talked a lot about how the area had changed and how expensive things are, and I reminisced about the neighborhood during my time there, which was the first time I became a home owner. One of the young women looked at me with a somewhat wistful expression and said "that just doesn't seem like it will ever attainable for me." I wanted to say "no, have faith, you'll start making more and if you just watch your spending, you can do it!" But when I did some math in my head, the comparisons were striking.

That first apartment I bought (with a partner) was about $135,000 in the late '90s, and that same apartment sold in 2019 for about $1,300,000. My partner's and my combined salaries to afford that apartment in the 1990s were maybe $90,000 or so, maybe even less. I think the mortgage and maintenance payments came out to maybe $1,500 a month, maybe a little more, so we were spending maybe 25% of our combined income on owning a home. (You'd think I would know all this for sure, but my record-keeping was different back then, and the spreadsheets I could find didn't mention housing costs for some reason!) The interest rates would have been lower in 2019, but the monthly cost (assuming a 10% down payment, which is what we did in the '90s) would probably have been almost $7500. So you'd need a salary of about $360,000 for that to be 25% of your income. I'm not sure what percentage of New Yorkers earned that much in 2019, but the median income today for NYC for a single person household is about $113k, and for a 2 person household, it's about $145k. 

Even if you take overall inflation into account, and adjust for how the desirability of that neighborhood has changed over the years, there's no question that it is just so much harder to afford to buy a place now. The equivalent of the $90,000-ish we were making might be around $130,000 today. 25% of that would give a budget of about $2700 a month. Depending on the maintenance, that might cover the payments on a $350,000 home. According to Zillow, there are only about 39 2-bedroom homes in that price range on the market in the NYC area right now-- and whoa, one is in Manhattan, right near Central Park! And it's actually only $189,000! But it looks like the walls might be covered with mold, and it needs a gut renovation. And the maintenance is $3500, plus an assessment of almost $1000, so it's actually not in the budget after all. The rest of the 39 possibilities are all in the furthest out neighborhoods of Brooklyn and Queens and the Bronx, and even then, they're often over budget when you see the maintenance costs. The pickings are slim for anything that might be affordable, and the commute would be a lot longer. I don't mean to sound snobby about the idea of living outside the most desirable areas of Manhattan and Brooklyn-- there are lots of great neighborhoods around the five boroughs that are safe, close to public transit, full of amazing restaurants and parks and interesting sights. But ALL the neighborhoods are expensive now, with affordability being limited to a smaller and smaller set of high-income people. 

The young women in this story are currently paying $4500 in rent for a very small 2-bedroom apartment. One is making somewhere over $100k working for a tech company, and the other is a grad student. Their neighborhood is great-- Brownstone Brooklyn charm with shops and restaurants galore. (In my day, the brownstones there had the potential to be charming but were mostly grungy, and there was one "nice" restaurant and maybe a fried chicken place on their block, while the neighborhood I lived in nearby was already more gentrified.) The average rent for a 2-bedroom in that neighborhood is about $6000 so their apartment seems like kind of a bargain. They are splitting the rent unequally given their different financial circumstances at the moment-- a generous move on the part of the tech worker, but they are old friends and she knows the value of having a roommate you can trust. The tech worker also has access to some money from her family, but happily, she seems quite focused on saving that for later and living within her means now. The grad student's family is less well-off, but I don't know more than that. I'm not sure what the salary prospects will be in her field but it at least seems like something that won't be replaced by AI.

Whatever happens, I'm sure these young women will be fine. They will have a roof over their heads and they won't starve. They've benefited from stable childhoods and good educational opportunities and have had advantages some people can only dream of, even more so than I had. People like them (and me) have always been part of the gentrification that makes cities get more expensive in the first place, but when I first moved to New York, there was still more diversity in the income levels and employment types of people who could afford to live in the city. Now it seems like all the working class and middle class people have fled, to be replaced by finance bros and homogeneous hordes of young people whose parents are willing to subsidize their life style. (See this very sad New York Magazine article: It Must Be Nice to Be a West Village Girl.) 

Maybe my young friends will stay in New York and maybe they won't. But "making it in NYC" will look very different for them than it did for people my age.

Selling My Apartment, Part 2

I found a very nice broker and we were immediately in agreement about the listing price for my apartment. It was more than what I'd agreed to with my friends, and left me some room to negotiate down a bit and pay a 6% fee and still come out with close to the same net. The broker took lovely photos, did a couple of open houses, and the offers rolled in, fast! I forget the sequence of all the various offers playing out-- we juggled around the various pros and cons of a few for several days-- there were some investors who offered a little low and didn't want to come up to match higher offers. There was an offer above asking price but we were worried we'd have trouble with the bank's appraisal coming in too low later. I ended up accepting an offer at asking price where the sellers said they'd waive the mortgage contingency. This could have been a good thing, as they had plenty of cash, but they did want to finance the purchase, and before the contract was ever signed, they backed out because, guess what, they couldn't get a mortgage! But meanwhile, another offer had come in for asking price, from an all cash buyer. My excellent and slightly sneaky broker told them there was a contract about to be signed, but that I'd back out of the other deal if they upped their offer to $5k over ask-- and they did, with the only contingency being that they wanted to close fast. That was fine with me, so finally, after several failed attempts, the deal was done. A few weeks later, I walked out of my lawyer's office after the closing with several checks totaling over $180k-- my equity after paying off my outstanding mortgage balance plus a nice profit.

The whole experience happened quite quickly, so I never really got to the point of panicking too much about the failed transactions. But it did leave me feeling profoundly relieved after the sale was done-- not only had my apartment become a financial and logistical burden because I wasn't really using it, it had also become a source of stress as I realized there were some maintenance issues in the building that I hadn't really noticed, and if not actual irregularities, the potential for some irregularities in how the building was being managed. The buyer's inspector found a little mold in the basement, but otherwise seemed to think the building was in decent enough shape physically, which I was happy about, as I'd had my issues with leaks at the very beginning and worried there could be other problems. So I was glad to be done with it by the time I moved out.

A couple other observations: I tried to sell most of my furniture, without much success-- people on Craigslist can be really flaky! I ended up giving a lot of stuff away to friends' children, either in or just out of college-- in exchange I got a nice bottle of wine and a lot of goodwill and appreciation, which was fine with me! I also found it very difficult to donate stuff-- only one charity who offered pickups even bothered to return my call, and when they got my voicemail that one time, they never called back again or answered any of my calls or emails. I ended up paying Junkluggers to haul away lots of stuff and donate it (they provided a receipt so I could deduct the value on my tax return).

I was also somewhat surprised that many of my potential buyers were parents buying apartments for their children. I mean, I know this must happen a lot in NYC, but it was still kind of annoying to have  the reality of it in my face. I guess I thought of my apartment as being the kind of place that was accessible to a middle-class first time home buyer, a young couple or a single person like me-- it was small, a bit further out in Brooklyn than a lot of people wanted to live, and just not somewhere I would have pictured a rich kid living. But I guess it's just a sign of how things have been changing in NYC in general that even my not-that-fabulous neighborhood is all that relatively wealthy people can afford-- the super-rich are pushing the merely affluent into neighborhoods that used to be more middle-class, and everyone feels the effects.

But I'm out of that game now-- for the moment, I'm a renter, as I pay Sweetie each month to cover my share of our bills. At some point, we may make some arrangements so that I'll actually have a mortgage in my name again... but that is a story for another post!

Selling My Apartment

I realized I never wrote in much detail about selling my apartment, and it's now been over a year since that happened!
As a refresher, I had owned the apartment for a couple of years when I met Sweetie. Once Sweetie came along, I gradually started to spend less and less time there, to the point where I was almost never home and kept a lot of things at Sweetie's place. This made me a bit sad, as buying my own home had been a milestone for me, financially and emotionally-- it felt great to have that independence. But as Sweetie and I gradually got to the point of being committed to each other and wanting to live together, it began to seem very indulgent to hang onto this extra apartment that I was basically using for storage. Yet I found it a bit difficult to take any action to change things until a situation fell into my lap-- a friend of a friend needed a place to stay temporarily. It started out as just being for a couple of months, which seemed like the perfect chance to test the waters and make a little money. It worked out well, and turned into a full year arrangement, and during that time, I didn't really miss having my own space. It was actually a relief not to have to visit it weekly to check on things. But being a landlord brought a few other headaches-- somehow having to repair the heat or the toilet seemed a bit more annoying when I was doing it for someone other than myself! Although I realized I could make a decent profit as a landlord, I decided to try to sell the place when my tenants told me they'd be moving out.

From doing some research about the market, things seemed pretty good. And I had actually already had an offer from an interested party, an investor who already owned another unit in the building. I emailed him to see if he was still interested, and he was-- until he couldn't get a mortgage. I figured it wasn't that surprising that banks might not want too many units in the building to be owned by an absentee landlord, so I didn't think too much of it, and took the next step, which was asking my Facebook friends if anyone wanted to buy an apartment!
I kind of knew the "for sale by owner" thing could bring some headaches, but it also seemed worth a try. I was sure that my apartment would sell for more than I'd paid, but I worried that a 6% fee might eat up a lot of the profit. So I was happy when I immediately had some interest from some college friends who I hadn't been in close touch with in recent years. I had all the worries you'd expect about mixing friendship and business, but it also seemed like the friendship was at arm's length enough that it wouldn't cause any big problems. There was a bit of negotiation, but we pretty quickly agreed to what seemed like a fair price, and got our lawyers talking.

And then... they couldn't get a mortgage either. This started to worry me a bit-- their finances were good but they weren't rolling in dough (or they wouldn't have wanted my apartment anyway!). It wasn't that they couldn't qualify for a mortgage, it was that there was an issue with the building. Because I'd changed my address on my taxes, I'd tipped the owner-occupancy rate under 50%, and in the climate of recent years with banks being so much more cautious after the financial crisis, this and a couple other quirks of the building seemed to make it challenging. It was a bit of a surprise, as some another unit in the building had just sold and those new buyers had managed to get a mortgage. But now that 2 potential buyers had bitten the dust, I decided it was time to get a broker involved....

Stay tuned for part 2 of this post later this week!

Refinancing a Mortgage

As you've no doubt heard, mortgage rates once again at historic lows. I've thought about refinancing, but I think I may just leave it alone for now, as it just may be too much trouble. The background on why relates to the story below.

A friend of mine, who I'll call Maud, is currently in the process of refinancing a property. In the course of talking to her about this, she told me all this interesting stuff about the history of her home-ownership. This all starts about 30 years ago, when Maud's parents sold their share of a small business and suddenly had some cash to invest. They decided to buy an apartment in NYC, figuring that their kids might rent it from them while they were students, and they could rent it to other tenants as well. After one of those other tenants left, Maud decided she wanted to settle in the apartment long term, but the problem was that she wanted to buy rather than rent, but the apartment was too expensive for her at that time. Meanwhile, her parents had also decided to buy another property elsewhere as a vacation home. They ended up inviting Maud to buy a share in the vacation home at a level she could afford.
Now this sounds weird, but it all ended up being part of some complicated tax shelter scheme, which allowed Maud to swap her part-ownership in the vacation home for shares in the NYC apartment over time. There was a big tax advantage for her parents, and for Maud the advantage was that she borrowed privately from her parents and stretched out the purchase in a way that made it more affordable. Over time, Maud's income increased and she was able to pay off the loan from her parents early, leaving her in full possession of her apartment. This all sounds kind of odd, but Maud insisted that she paid her parents the full appraised value of the apartment plus interest. As a real estate investment, it didn't turn out that well for her parents since the market crashed after they first bought the place, but I guess they at least saved on paying some capital gains taxes. This would be an example of the sort-of-rich getting sort-of-richer based on hiring good lawyers!

Anyway, a few years after Maud paid off the apartment, she was doing very well in her career and had saved a lot of money, since her monthly costs were quite low without the mortgage. She started thinking about real estate investments herself. She looked at properties outside the city and came across an inexpensive, very small, but charming house. It was so charming, in fact, that she decided she wanted it for herself and bought it to use on the weekends. She admitted that it was a rash decision and not exactly the kind of "investment" she'd had in mind! But she loves having the house as a retreat, especially since her city apartment is also fairly small and she can use the extra space, which seems cheap compared to buying a bigger apartment in the city.
When she bought the place, she got a fixed-rate mortgage of about 6.5%. So of course the rates we've been seeing in the last few months were very attractive to her, and she decided to refinance. But here's the reality of what's happened in the last couple of years: banks are actually being a lot more picky about who they'll lend to these days. Because the market value of her house was down since she bought it and because there were some other complicating factors, the bank that held her existing mortgage didn't want to refinance it, and it was unlikely any other bank would either.
(At this point, my question to Maud was why the same bank would ever want to voluntarily lower the rate on a mortgage from 6.5% to 4.5%-- sounds weird, doesn't it? But aside from not wanting to drive you to their competition, and benefiting from the fees that the refinance transaction generates, Maud pointed out that the rate itself is a wash for the bank, as they are always pricing the mortgage as a spread from the prevailing rate set by the Federal Reserve.)
Back to the problem with refinancing: Maud was a bit dismayed, but her very sharp loan officer came up with a great solution: instead of refinancing the weekend house itself, why not take out a new mortgage against the paid-off apartment and use that cash to pay off the house in full? The apartment had gained a lot in value over the years, so she had way more equity there than the value of the house. She'd be nowhere near the usual loan-to-value ratios banks would require for a mortgage. All in all, it was a brilliant solution, so Maud forged ahead with the application.
As the process went along, I began to compare her updates with the process I'd gone through to get my mortgage at the height of the real estate boom. It was amazing to me how exacting they were being about every little detail, verifying addresses she'd lived at 30 years ago, asking for all kinds of documentation on the monthly costs of both her homes and the finances of the co-op. An appraiser came and did a whole report with photos and floor plans of every room attached. And this is all for someone with a high income and a perfect credit score, whose apartment is in an established building with other recent sales. This was definintely not a "liar loan!"
Maud also said that the good faith estimate and other application paperwork she received was very clear in its disclosures of the terms. So if anything good has come out of the economic crisis, it may indeed be that our real estate market will now have more stable underpinnings, with mortgages only given to people who can afford them, for properties that are actually worth it.

But back to my situation: I put 20% down when I bought, and I've paid off some extra principal over the last couple of years, but I'm not confident that my apartment would be appraised high enough if I tried to refinance now. It might also be a concern that the developer still owns some of the units in the building. I'm also wondering about selling the apartment in the next few years-- I think I'll be renting it out soon and moving in with Sweetie, but I don't want to be a landlord forever. So it's a dilemma... I may make some inquiries anyway, so I can assess this based on real info rather than my own gut feelings. I'll of course keep you posted when I do!

Madame X Is Moonlighting on "Real" Websites

Not content to just blog away in obscurity, I've decided to branch out into the world of legitimate journalism. That may not make me legitimate or a journalist, but hey, I'm proud that they'd have me anyway:

My first contribution was recently posted at FiLife, a personal finance web community affiliated with The Wall Street Journal. It's called "Can I Afford to Buy a Home, and Do I Want To?"

I've also contributed an article to More Magazine's new website, which just launched:
What We Talk About When We Talk About Money.


Check 'em out!

Wow. This is a Must-Read.

Here's how the story begins (all emphasis mine):

If there was anybody who should have avoided the mortgage catastrophe, it was I. As an economics reporter for The New York Times, I have been the paper’s chief eyes and ears on the Federal Reserve for the past six years. I watched Alan Greenspan and his successor, Ben S. Bernanke, at close range. I wrote several early-warning articles in 2004 about the spike in go-go mortgages. Before that, I had a hand in covering the Asian financial crisis of 1997, the Russia meltdown in 1998 and the dot-com collapse in 2000. I know a lot about the curveballs that the economy can throw at us.

But in 2004, I joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages. Nobody duped or hypnotized me. Like so many others — borrowers, lenders and the Wall Street dealmakers behind them — I just thought I could beat the odds. We all had our reasons. The brokers and dealmakers were scoring huge commissions. Ordinary homebuyers were stretching to get into first houses, or bigger houses, or better neighborhoods. Some were greedy, some were desperate and some were deceived.

So, the author starts a new family with a second wife, and buys too much house-- his budget is stretched to cover alimony payments so he gets a no-doc mortgage. Then his credit cards get maxed out, not just because he and his wife are spending a lot, but because his overdraft protection hits his credit card with a minimum $100 charge every time he's overdrawn! Before you know it, he's broke:

I felt foolish, ashamed and angry as I confessed to Bob. Why had I been trying to live a lifestyle that I couldn’t afford? Why had I tried to keep up the image of a conventional suburban family man, when nothing about my situation was conventional? How could I have glossed over the fact that we had been spending about $3,000 more than we were earning, month after month after month? How could a person who wrote about economics for a living fall into the kind of credit-card trap that consumer groups had warned about for years?

But guess what, it gets worse. Bob the mortgage guy helps him "solve" his money problems by consolidating his debt into a new, even bigger adjustable rate mortgage that could potentially hit rates of 11.5%:

The paperwork was so confusing that I was never exactly sure who was paying what. I hazily understood that I was paying most of the fees, one way or another, but I couldn’t figure out how, and I couldn’t see any better alternatives. After it was all over, I figured we had paid about $5,800 in fees to Bob’s mortgage company and the settlement company, on top of the sales commission that came out in higher interest rates every month.

I won't spoil the rest of the story for you-- it's a long article, but read it all!

My Personal Credit Crisis, by Edmund L. Andrews. The web article is a preview from the 5/17 New York Times Magazine.

Links I Liked

A few recent items of interest from around the blog world and beyond:

April Showers Bring May Flowers @ Fabulous Financials

Amortization Schedules and Principal Repayment @ My Money Blog

A Step-By-Step Guide to Creating a Deal-Finding Homepage @ The Simple Dollar

Do Rich Women Spend Less Than Rich Men? @ The Wealth Report

Properly Destroy a Credit Card @ Bargaineering

'I-Bond' Payments Get Wiped Out from the Wall Street Journal

Extra Mortgage Payment

Since I was feeling rather more flush with cash than usual, I decided to make an extra payment on my mortgage this month. It was so easy! I have it set up for electronic payment from my bank anyway, and if I send them an amount that doesn't match the monthly payment exactly to the penny, it's automatically taken as a payment against principal. It took about 5 seconds to send them $2,000.

There's always the debate as to whether it's better to hang onto the cash if you have a mortgage at a relatively low interest rate. Right now, I feel like interest rates are so low for savings that paying something off on my 5.85% mortgage is a very good investment. The other issue is liquidity, but I have enough cash on hand right now to cover my expenses for about a year, so I'm not too worried about shifting this $2,000 into equity I can't easily access right away.

Someone might argue that real estate values are going down and I'm just throwing good money after bad, but that's only true if I went into foreclosure and walked away from my condo-- otherwise, even if its value goes down, by paying off principal early, I have less of a mortgage balance to pay off, and will pay less interest over the life of the loan.

Another argument might be that I should put that money into the stock market-- it's been so battered lately that it may have potential for strong gains over the coming years. But I already put other money into the stock market. And who knows, the market could still go even lower. I don't want to have all my eggs in one basket-- even if paying off my mortgage could possibly be a lower rate of return, it's also much lower risk, so it's a good hedge against my other high-risk investing.

But really, the reason I want to pay off my mortgage early is so I can be like my idol, Frugal Zeitgeist!

Some Progress on Mortgage Escrow

Happy news: I got a check in the mail for almost $800 yesterday! On some of my monthly recaps, I've mentioned that my mortgage escrow account is a bit messed up-- the bank has set an unneccessarily high escrow amount because they were assuming that my property taxes would remain at their full unabated amount, even though the abatement kicked in a couple of quarters ago and my actual taxes are now 90% lower.
I had contacted my bank a while back and even faxed them my new lower tax bill, but their response was completely unhelpful and my payment remained the same. But finally, I've gotten one of their routine escrow statements and they've realized there is a surplus! My monthly payment will go down by over $200, and that refund check was much appreciated. The situation still isn't ideal: they are still projecting ahead as if my taxes would be the higher, unabated amount. I'll probably try contacting the bank again to see if I can get my payment adjusted again, but eventually, I should get another refund check the next time they do an escrow analysis even if I do nothing. Of course, it's in my interest to do something, as I could be earning interest on all these overpayments! Perhaps in these troubled times banks are deliberately playing dumb when errors are in their favor but I'm not inclined to let them get away with it!

Additional Payments to Mortgage Principal

I pre-paid some of my mortgage principal last week-- unfortunately, I didn't do it on purpose!

My payment due March 1 was the first one with a new, higher escrow amount due to the ongoing tax abatement confusion. I entered all of this correctly in Quicken, but I forgot to change the auto-pay amount I have set up to go out of my checking account! I was looking at my account online and saw that the amount debited didn't match my Quicken records. I realized what had happened and immediately thought I'd better send another payment to make up the balance. So I sent the missing $370 by an immediate electronic payment.

Can you say "dumb and dumber?"

AFTER doing this, I logged onto the CitiMortgage website to look at the status of things. I'd never actually used their site before, so I enrolled right then. Nice site, easy to get all your info: it only took me seconds to discover that because the amount of my original payment didn't match my official amount due, and didn't arrive with a payment coupon in the mail designating how it was to be applied, they considered the whole thing to be an additional payment toward the principal, instead of applying it first to the interest, then principal, then tax escrow. And of course this is exactly what will happen with the additional $370 too! So in order to fix things, I went back to my checking account and sent a third payment for the exact amount that was originally due on my mortgage statement. Let's hope they know what to do with it this time!! And let's hope it's close enough to the due date that they don't charge me a late fee.

Oh well. I was lucky enough to have the cash on hand to pay extra on the mortgage this month. I'd been thinking I might not make any extra payments towards my principal just yet since my interest rate is pretty low vs. potential investment returns, and I'm still rebuilding my liquid savings after buying the condo. But I figured it would eventually be good to pre-pay a little here and there, as I really like the idea of paying less interest over the life of the loan. So I was really waffling about it. Isn't it nice when decisions are made for you, even when what makes the decision is your own stupidity???