This is not the post I expected to be writing: a tale of 3 apartments, part 1

I hardly know where to begin.
First, I'll explain my last two posts in a bit more detail.
I saw a small 1 bedroom condo in the aforementioned up-and-coming "SloGo" neighborhood. It was a 4th floor walkup in a building without any services or amenities, (no bike storage or laundry) and it needed at the very least some cosmetic work, but it had a nice layout, good closet space, windows in kitchen and bath, and an incredible open view of the NY harbor and lower Manhattan skyline. It was on a major road but in the rear of the building. The entire block behind the apartment was zoned for a mix of light manufacturing and residential use where you'd have to get a variance to build above 2 stories, so it was an okay bet that I wouldn't lose my view or have a lot of noise in the evenings. The asking price was $240k, which is way less that most studios in Park Slope, let alone 1 bedrooms. But for the location and quality of the apartment, it seemed high, so I thought I could get away with offering less, maybe $200k. I thought I might end up paying $210k or $220k.
But I started plowing through Property Shark data, and discovered that the seller must have paid about $110k almost 2 years ago. And there were no comparable sales at the price he was asking in that area. And I'd seen that brand new condos with upscale kitchens, etc, were going for less than he was asking in terms of cost per square foot. So I was vacillating about how much to offer. I arranged to take a second look at the apartment and was told he already had one offer on the table. I called a lawyer who was recommended to me by friends, who turned out to be great-- he talked to me for a while, and said he thought the asking price was out of line but that of course I could do whatever I wanted and he'd be happy to represent me. I think that was the tipping point thing that emboldened me to make a low offer of $175k.
My email to the seller (who was not using an agent) explained that I wanted to put my offer in context: that comparable properties had sold for X amount, that brand new condos were going for so much per square foot, that the neighborhood was up-and-coming but that the particular condo building would always be downscale and that it was on a main road and not a more desirable side street, that there were rezoning changes going on that might stall the pace of development of the area and in a flat or declining market, his place would be among the first to lose value. I added that I liked the place and appreciated its potential, and reminded him that I was very qualified financially and flexible about the closing date. I wished him the best and congratulated him on a great investment no matter how it worked out.
His response the next day was that I should consider a career as a real estate appraiser, and that his counteroffer was $195k!
Did I do a triumphant happy dance and feel like a kick-ass negotiater? Yes. I had visions of buying this place, sprucing it up a little or maybe a lot, living in it for a couple of years, staring out my windows at the Statue of Liberty, maybe even sitting on my fire escape to watch 4th of July fireworks over Manhattan... and then keeping the place to rent out after I had enough cash saved again to buy a better apartment for myself, which would have been in 5 years maximum unless I lost my job or totally changed my spending habits. And that I'd be making more money and be buying in a cooled-off market in 5 years, so I'd get a bargain that would allow me to buy a 3rd apartment in another 5 years and launch me on the path to real estate mogul-dom (as encouraged by 2cWorth and Nina of Sitting Pretty.)
But of course, I'd had my little bombshells about these other two apartments being possibilities again. I had not only the stress of considering one offer, but of weighing it against two other places, with pros and cons all over the place! What to do???
Tune in tomorrow for Part 2...

What Does This Say about Today's Market???

Here's the update: I did send my very cordial, reasoned, nicely worded email to the seller, and we'll see what he says.
But get this: literally the second before I was about to hit send, an email pops up from the broker who showed me this apartment, saying it looks like the buyer won't pass the co-op board and my offer might be reconsidered! Given that the best feature of that apartment was its lovely outdoor space, November is not the best time for the seller to have it on the market, so now I have to reconsider my offer there.
And then, this really takes the cake: about an hour after I get that email, I get an email from another broker, telling me that a previously sold-out condo development I was interested in now has 2 units that didn't go to contract and are back on the market!
Next I'll be getting a call begging me to live in Trump Tower...

I'm either a Genius, or an Idiot, or...

...or I've just got a big swinging set of brass ones, because I just composed an email to the seller offering about 30% less than his asking price, even though he told me he already has one offer on the table!
Even at the asking price, this place is a good deal financially compared to anything else I've seen, but I had some serious concerns about actually paying that much. I did a lot of research on comparable sales, prices per square foot, price increases over the past couple of years, and after talking to a great lawyer, I decided that even in relation to housing bubble heights, the asking price was out of line. The last few days' news articles only helped seal the decision.
I don't want to get stuck in one of those situations where the bank appraises the property for way less than you've agreed to pay and then you have trouble with the mortgage.
Tomorrow morning, I'll reread that email and hit the send button... if the suspense is killing you, just think what it's doing to me!

Another offer?

I am in freak out mode. I am probably going to make an offer on another apartment before the end of this week-- I'm going back to the place for a second look tomorrow. I don't want to go into the details yet. It's a slightly risky proposition in some ways, but in others it could be a slam dunk! There are some drawbacks, but it makes my spreadsheet results look like this:




By "in the bank" I just mean my non-retirement savings. Now wouldn't that be a pretty picture? And given the latest news about trouble in the housing market, here's the best part-- note the annualized percentage gains for investing my money (top) vs. annualized percentage gain in price of real estate:

Lunch spending

I will be eating lunch in a restaurant with a friend today and that will mark the end of my 7 straight working day streak of NOT BUYING LUNCH! I've been bringing sandwiches or leftovers from home, and it's really helping me stretch out my cash.
What I've found really helps is to make a meal plan for a few days ahead, for lunch and dinner. It reminds me to think about whether I should buy two portions of whatever I'm having for dinner one day so I can cook extra for lunch the next. It also reminds me to use the groceries I've bought that week-- sometimes I can be flaky about buying more food just because I've forgotten there's already something in the fridge that needs to be used up.
I've been keeping a combined meal plan and shopping list on an index card on top of my microwave, which is right by the door so I'm sure to notice it before I leave for work, thereby correcting another of my flaky traits, which is to prepare a lunch but then forget to actually take it to work with me.
I'm on a roll here, hope I can keep it up!

Naming Names in NYC

One of the quirks of New York real estate is the proliferation of neighborhood names and acronyms. From the fully "stuck" SoHo, TriBeCa and Dumbo to the still questionable NoLIta and the far-fetched BoCoCa, people have come up with lots of cute abbreviations for neighborhoods. Then there are all the neighborhoods that have been newly named and created out of larger areas. Toss some of these names out to a bunch of New Yorkers, especially Brooklynites, and you'll suddenly have a dogpack argument with people claiming that Carroll Gardens used to be considered part of Red Hook, or that Park Slope ends at 9th St., not 15th.
But one thing is certain-- if a neighborhood gets a name that sticks, prices are going to go up.
When I first moved to NY, I lived in Manhattan in an area that wasn't quite Gramercy Park, wasn't Stuyvesant Town, wasn't the East Village, wasn't Murray Hill. In fact, in the stickers that they have in taxis that show different neighborhoods in different colors, my neighborhood was part of an odd grey area that wasn't labeled with a name. My rent went up and I decided it was time to move to Brooklyn and buy an apartment, and sure enough, right around the time I moved, there was a "If You're Thinking of Living in ___" article in the NY Times Real Estate section that declared that my neighborhood was called "Stuyvesant Square," so I felt like I'd gotten out just in time.
When I moved to my first home in Brooklyn, there was no doubt about it-- I was in Park Slope. But when I moved again several years ago, I was in that area below 9th St. that used to be considered borderline, but is now pretty universally known as a sub-neighborhood of Park Slope called the "South Slope." But I am now considering a move further south to a hotly debated area known variously as "Greenwood Heights," "South Brooklyn," "Park Slope South," or "South Park Slope," and considered by some to actually be part of Sunset Park. There are a lot of new condos going in, and some rezoning controversy that could change that, but the area reminds me of how parts of 4th and 5th Avenue closer to Flatbush used to be 10 years ago. Do I want to get in now and wait for the amenities to follow in a few years? Or do I wait to see how it pans out and hope I can still afford it? If the housing market cools, will it totally stall the development of this area? And most importantly, what will they call it?
PaSloSo? SoBro? GroHo? Because of its proximity to the Gowanus Expressway, I think I'm going to call it SloGo. But that kind of has bad karma.

Carnival of Personal Finance

If you haven't already, please check out this week's Carnival of Personal Finance, hosted by Blueprint for Financial Prosperity.

I'm the flame-swallowing bearded lady contortionist.

Saturday Night Special Live Fever

I usually try to have a relatively internet-free weekend, but I'm online tonight doing a little homework for some open house attendance tomorrow.
So, I shall tell you that today I dumped a load of stuff at the Salvation Army, thereby collecting one handy tax deduction, and that I spent $3 on a hot dog and a bottle of water. (Yes, I'm against buying bottled water, but I forgot to bring my own.)
I also did a little browsing at J&R, the computer/music/electronics/small appliance/video/etc etc superstore on Park Row in Manhattan. I've always liked this store. When I was in high school and college, my Dad used to mail order stuff from J&R. Then when some friends first moved to NY after college and I was helping them move, they wanted to buy a stereo and started out by looking at all these sketchy places in midtown that made us all feel like we were being scammed. I told them there was this place called J&R that would be much more reliable-- none of us even knew where Park Row was, but we looked it up on a map and that was where they bought their stereo.
J&R has gotten about 10 times bigger since then and I am always kind of amused at the range of things they sell. Today's latest discoveries were a "sonic toothbrush," some kind of battery-powered, cartridge-loaded device that dies strands of color into your hair (The Conair QC1CS ProColor Accents), and a $49.99 chocolate fountain! I had already seen a chocolate fountain in action at a party a few months ago. It was in a sort of low-light situation and at first no one knew what it was, but it ended up being quite the object of delight and fascination. But do you really need to own one?!? What do people do, sit around on a Saturday night and say "hey, honey, let's watch a movie and fire up the chocolate fountain!" Actually, the chocolate fountain is so visually mesmerizing, you might end up watching it instead of the movie. A little fondue now and then is a lovely thing, I'm sure, but that is why people are supposed to own fondue pots, not chocolate fountains. And anyway, what about cheese fondue? Can you even use it for cheese? Why don't they market it as a "Cheese Fountain?" Does that just make it start to sound a little gross?
The other funny thing I saw for sale today, in a drug store, was a line of products under the brand name "Bald Guyz" which included "Bald Guyz Head Wipes." I think that is what hankerchiefs and bandannas used to be for. And finally, there was the "Conair Body Benefits Remote Control Foot Spa." Remote control? Just how far away is anyone going to get from their own feet?

More on the rent/buy conundrum

Commenter (& new blogger) 2¢worth suggests "rent AND buy" as an alternative to "rent OR buy." I've thought about this-- I have a sweet deal and love my rental apartment, even though I wish I had more space. I've even wondered if I could somehow sublet it after buying another place, just to not let it slip away! And in general, being a simultaneous renter in one place and landlord in another could be the perfect thing for someone like me who has a down payment saved up but needs to keep the monthly budget in line-- I'd get the tax break now and own a place I could move into later when my income caught up with its monthly costs.

But here's the reality of the situation in New York:
I'm looking at studio apartments in the Park Slope Brooklyn area. The going rate for most studios in this area seems to be around $270-280,000 and up. The NY Times website currently shows only 34 apartments listed for sale in the "Park Slope Prospect Heights" area at prices of $300,000 or less. Almost all of these are small to average size studios. About half are over $250k, and actually a few at the bottom end are listing errors, so really there are probably 30 apartments for sale at that price. I've been tracking the number of apartments that are on the market and this is a pretty typical level. If I assume a price of $275k, with maintenance of $500 (probably average for a studio co-op) and a 6% interest rate, with a 20% down payment, my monthly cost would be about $1,819 up front, or about $1,489 after taking tax refunds into account. So let's say I want to cover my after-tax costs and make $100 or so on top of that to break even after any incidental expenses. (Which seems like a pretty thin margin to me.) Based on that, I'd want to ask for about $1,600 in monthly rent. I'd be in the red by $200 every month but would hopefully make it up when I got my tax refund.

So what about the rental market in this neighborhood? There are 88 apartments listed for rent at $1,500-2,000 a month. A few are studios, but most are 1- and even 2-bedrooms. There are 52 more apartments listed at $1,000-1,500, and most of these are 1-bedrooms until you get down to around $1,200. Even if you figure some of these are bogus bait & switch listings, see how out of whack this is? For the kind of studio I'd be likely to buy, I'd be incredibly lucky if I could rent it for $1,300 or $1,400, let alone $1,600 or $1,800. So I'd be losing maybe $4,000 or $5,000 a year before you even factor in things like tenants trashing the place, or a month's gap between renters. My landlord recently had a studio go empty for more than 3 months even though the rent was under $1,000-- and this is a small but newly renovated studio with a big kitchen and lots of sun from a southern exposure overlooking gardens.
It's true that Park Slope has gotten incredibly expensive in the past few years, but the story remains the same even if you go further out in Brooklyn-- the sale prices drop, but so do the rents. This rent vs. buy price gap wasn't always the case, and it's part of the reason I think some air has to come out of the housing bubble soon.

Here's a link to my (new & improved!) real estate spreadsheet that I used to calculate the purchase costs. (Hope it will work, these free file-hosting things can be a little unreliable.) [UPDATE: the download link seems to work now. You can skip past the ads, just hit "cancel" in the popup box and click the link that says "download ready".]

Interest Rates

Since opening my Presidential account, I decided to pay more attention to the actual interest rates I'm getting on my other accounts. I knew they were pretty pathetic, but here's a rundown:
Chase Checking: 0.29%
Chase Savings: 1.01%
Chase 2-yr CD: 2.57%
E*Trade Money Market: 2.2%
E*Trade Savings: 1.01%
E*Trade Checking: 0% (I only have $100 in this account.)
E*Trade 2-yr CD: ??? maybe 4.7%?
E*Trade 6-mo CD:??? maybe 4.33%?

E*Trade is getting on my nerves. Their rates used to be quite good, but over the last few years, they've really lost it. And what drove me nuts as I tried to compile this list was that I could not find out how much interest my E*Trade CDs were earning! There was no online statement or screen anywhere I could find that just told me what my rate was, which seems crazy. (I've listed their current rates being offered above, but I don't know exactly what I'm getting because I don't feel like calling E*Trade's 800 number or digging out the account paperwork from my files at home. I'm sure mine are a bit lower.) I want to keep some money in E*Trade, as the combined balance with my brokerage account saves me a little money on fees, but I am going to pull out every penny I can and transfer it to Presidential, where I can earn 4.12% on up to $35,000.
The rates at Chase don't bother me so much-- I like having a local bank, and I just keep as much money there as I have to for avoiding fees, and I frequently transfer into other accounts.

I have over $70,000 spread among the accounts above-- I need to keep it fairly liquid so I can be ready to buy an apartment, but I want to make the most of my returns on this money. And since my stock investments have been so stagnant lately, this is almost the only investment income I have!

Net worth update

Well, it wasn't pretty this month. My net worth declined to $244,664.50. I was actually afraid it would be much worse. My E*Trade and Fidelity 401K accounts suffered, as did most people's, I'm sure. But I'm still doing ok in terms of saving money. My "cash and bank accounts" in Quicken rose from $76,017.55 to $78,194.30, despite my having taken $1,000 out of that to buy another I-Bond (which lives over in the "investment accounts" group).
The gain is mainly due to some business expense reimbursements and my raise coming through. My expenses were actually quite high this month, due to my vacation and having a friend staying with me for a while. My food expenses actually hit the 4-figure mark this month, despite my valiant efforts to eat most of my breakfast at home and buy lunch less often. I am getting much better at cooking dinners that provide tasty leftovers for the next day. I just hope no one at work notices that I am gnawing on chunks of cold steak at lunchtime. Like an animal.

Quick summary of the spending:
Embarrassing amount on food. Okay, $1,091.
$862 travel/vacation
$20 charity
$97 clothes
$74 entertainment
$70 gifts given
$105 telephone
$10 gym/fitness (guest pass to go swimming while on vacation)
$50 household (laundry etc)
$89 "miscellaneous" (a haircut, some tips and {shudder} a couple of Lotto tickets. I was weak.)
and the usual other stuff like rent, insurance, newspaper subscription, etc...
Anyway, despite a few splurges I am still living within my means, at least if you define that as not spending your entire paycheck!

New tax proposal

I spent most of my subway ride this morning gasping at the various provisions of the new tax plan proposed by President Bush's advisory commission, as I realized that almost every single facet of the plan seems to negatively impact me.

New tax brackets: I would pay more tax on my income. Not that much more, maybe, but if I assume $70,000* of taxable income, under the 2005 brackets, I'd pay tax of $14,165 and under the new plan I'd pay $14,500.

But some of the deductions are also changing. Since I itemize my deductions every year, I might not be able to reduce my taxable income as much, and I'd end up paying even more than that $14,500 in tax. For example, they want to deny any tax break for charitable donations that are less than 1% of your income. My charitable donations (cash donations and the value of stuff I give to the Salvation Army) wouldn't come to much more than that, so I would lose most of what I can currently deduct for that.

Also, if you've been reading this site for long, you may have guessed that I am somewhat interested in possibly owning a home someday! One of the great benefits of doing so would be the tax break on mortgage interest-- it's one of the things I am counting on to make home ownership affordable. Under current law, if I took out a $200k mortgage, the interest payments in the first year would lower my taxable income by almost $12,000. Going back to the scenario above, if my taxable income was $70k before, that would bring it down to $58k, and my tax would go down to $11,165. Under the new scenario, I would only get a tax credit of 15% of my mortgage interest, so my tax would be $12,700.

They also plan to eliminate the deduction for state income taxes-- since New York has quite high state taxes, this would be a real hit for me.

Are there any mitigating factors in this plan that would benefit me? One thing cited as an upside is that families with many children will make out better-- should I try to get pregnant instead of buying a home?? I don't think so! And profits from stock sales and dividends will be taxed less-- my stock holdings aren't large, and I hardly ever sell them. My dividends are not huge either, and I may be wrong about this but I think many of them are non-taxable anyway, since they are from bond funds or Roth IRA holdings. The proposed simplification of retirement plans might benefit me in the long term, but the amount I could contribute each year would be lowered (from 2006's $15k limit to $10k), again preventing me from cutting my taxable income.

Who knows if this thing will come to pass, but I sure hope it doesn't. Maybe these changes would only make a difference of a couple thousand dollars to me, but for someone in my position, that money is significant. Meanwhile, tax rates are being cut for people making over $300,000, and those who make make large profits from stocks and dividends. The NY Times article gives the example of a top-bracket taxpayer who sells stocks for $1 million of profit. That person would most likely pay $150,000 of tax on that profit under current law-- under the new plan, they'd only pay $82,500. Does an extra $67,500 really make a big difference to a person who is making million dollar stock sales? Do they run out and spend that money in ways that drive the US economy or do they take a private jet to Europe and spend the money there? And on the flip side, if you told that person they would be taxed $67,500 MORE, would they really throw up their hands and decide being productive wasn't worth it anymore? Would their spending and charitable donations come to a grinding halt?

I won't rant on and on about it... I'm sure you get the picture.


*I don't have the real number handy but I believe it was somewhat less because of all my deductions-- this is just a ballpark example.

Blasts from the past on the housing bubble/bust

I found some old articles online that give an interesting perspective on the housing boom/bubble phenomenon:
This one, from CNN Money, dated December 2, 2002, notes that since 2001, housing prices had gone up 6.3% annually (ooh, 6.3%! look out!) and in some hot markets, increases had even been in the double digits from the previous year! (big whoop, lately they seem to be double-digit increases from month to month!) But there is also a nifty chart looking at how a few of those hot markets did in the last crash-- what % prices declined by, and how many years it took for prices to recover. The article goes on to look at several factors that can influence price declines: "population shifts", "local recessions", "fast run-ups in housing values", and "rising interest rates." I'm not sure NYC is likely to lose a lot of population any time soon, and I don't know about a local recession, but we've certainly had the fast run-up in prices and interest rates have been rising... but they said interest rates were starting to rise back then too, and mortgage rates still went down.
There are also links to a series of other articles about the bubble debate back in 2002. All of them sound eerily familiar-- maybe someone just changed the dates and republished them last month!

This article, from City Journal in Spring 1993, says "The city's economic downturn and the declining real estate market raise the strong possibility of a severe fiscal crisis within the next few years. The city cannot count on a Wall Street boom to bring about a recovery as it did in the 1980s." It describes the city's real estate bust at that time as "nothing short of catastrophic. New York City is one of the two or three worst real estate disaster areas in the country, the center of what may be the region’s worst real estate slump in fifty years." The whole article really paints quite a gloom and doom picture of New York. A lot has changed since the early 90s, but some things remain the same: "With its manufacturing base almost totally gone, New York City’s economy is critically dependent on the Manhattan-based financial services industry..." Back then, what they didn't realize was that there was indeed a big stock market boom right around the corner, fueled by the explosion of the internet. But what will the next boom be, and how long will it take to get here? And why did the big slump between '01 and '03 coincide with real estate prices soaring up? Perhaps one reason was that people were investing in real estate instead of stocks. But then when the stock market was doing well in '03, real estate prices soared up even more...
Here's another fascinating quote from the City Journal article: "The days when financial services served as a well-paid affirmative action program for presentable, moderately literate Ivy League graduates are ending— as, sadly, are the days when the stock market provided ready employment for legions of semiskilled clerks and runners. The industry that is emerging will be completely computerized, almost entirely without paper transaction records; much less labor- and space-intensive; and with much tighter cost and profit constraints. A long-term recovery in financial services, in short, no more implies a healthy New York City than the recovery of the American automobile industry means a healthy Detroit; just as the automobile industry has done, financial services is becoming less dependent on its traditional geographic base. The financial services industry, which has sustained the city through multiple cycles of contraction and recovery, is unlikely to do so again." This again sounds amazing when you look back at it now. So much more is done electronically now-- but have we seen the rampant unemployment that this article suggests would happen? I don't know about that, but maybe all those warehouses that used to hold paper stock certificates are what's being turned into loft condos now...
I'm no economist, so I don't really feel qualified to comment on all the questions this article inspires now, but I'd love to know what others think...

As for my home search...

I can't say it is going all that well. There just isn't much in my price range in my neighborhood. I have seen a couple of things that were ok but too expensive, a couple of things that were not ok and still too expensive, and one thing that was really inexpensive (by today's sick and twisted definition of the word) but really not ok.
I guess the upside to all this is an evolving definition of what "ok" means to me. I can live in a very small amount of space (350 sq ft can feel luxurious). I don't need a doorman or an elevator. I don't need a place to be in immaculate, brand-new condition. But I do need to be able to look out the window at something other than a wall, and get some sun for at least a few hours a day. I saw a studio this weekend that was almost perfect in so many ways. I didn't love that it was a 4th-floor walk-up, but I could have dealt with that. It was a condo with access to a common roof deck (with an incredible view of the Manhattan skyline and the Statue of Liberty), it was right across the street from the park, convenient to transit, beautifully renovated, huge kitchen, great closets, and the monthly costs would have worked out to be really low (though I kept suspecting that the agent was wrong about the taxes being included in the common charges). But the total lack of light was a killer. I just couldn't do it. I kept thinking how depressed I would be all winter not being able to see anything but a brick wall or someone else's window right in my face. I lived in a place like that once, and aside from the intriguing voyeuristic opportunities, it made me miserable.
I'm trying not to be too much of a demanding buyer here-- I know I will never find the perfect apartment. In fact I bid on one that was far from perfect, and it still burns me that I didn't get it!
But at least I was slightly reassured by the agent who showed me the place. She was quite frank about how the market is cooling down-- places are staying on the market longer, and if sellers don't get offers within 2 weeks, they're lowering prices. Keep your fingers crossed for me, dear readers!

New account: Presidential Direct

I finally got around to opening a savings account with Presidential Online Bank, to take advantage of their 4.12% interest rate. I took $25,000 out of my E*Trade money market and the deposit finally cleared. This is part of the money I have earmarked for a down payment on a home someday soon, so who knows how long it will remain in this account, but for the short term at least, I'll be earning a bit more interest on it. As some of my CDs mature, I may move that cash into this account also. I'm a little nervous about putting more money into stocks and mutual funds right now, and I want to keep some liquidity in case I find an apartment.

Zero-Percent Certificate of Indebtedness

I bought another $1000 I-Bond at Treasury Direct today, after reading various things about where the interest rates might be headed on these. (see here and here, for example)
The weird thing I noticed on Treasury Direct is this thing called a Zero-Percent Certificate of Indebtedness. You basically would buy this so you can have money ready in your account to buy other bonds at a later point. I have to say, I don't see the point. That would be like if your bank said you could open a no-interest account and put money in it so you could then conveniently transfer it to your savings account whenever you wanted to start earning interest. Why would anyone need that in-between step?
Given that you can automatically transfer money from your bank account into Treasury Direct anyway, and given that the minimum purchase is $25 for an I-Bond, this C-of-I seems like a pretty stupid thing to offer.
The other nice thing is that I noticed that my existing $2000 worth of I-Bonds is now actually worth $2116.40. (A tip o' the keyboard to Caitlin at Clutter to Cash for inspiring me to actually update my bond values in Quicken!)

Lucent... ouch

There was an article in the business section today about how things aren’t looking good for Lucent, and sure enough, I just checked E*Trade and it is down by more than 7% just today! It’s still up by more than 50% from when I bought, but the long term view isn’t looking very pretty. Still, I don’t think I’ll bother to sell. I could make about $180 in capital gains right now, but even in the worst-case scenario, I’d only lose $338, so I think I’ll just sit tight and see what happens.
(The weird thing is that just yesterday Fitch raised Lucent's rating from a B to BB-minus, saying "the outlook is stable.")

This is the kind of thing that makes me crazy

Residential Sales in Brooklyn

BROOKLYN HEIGHTS $235,000
166 State Street
400-sq.-ft. studio co-op in a prewar building; eat-in kitchen, high ceilings, oak floors, original moldings and detail; maintenance $586, 35% tax-deductible; listed at $225,000 (multiple bids), 1 week on market. (Broker: Harbor View Realty)

from today's NY Times

Rental car savings tip

Here's how to get a 10% discount on a car rental without even asking! Exchange your car somewhere en route and complain that the brakes "sounded weird" or that you had some other problem. This past week, I realized after a few miles that the brakes on my Avis car felt really jittery, which I think means that the brake pads are warped or something like that. I called the 800 number for roadside assistance and then exchanged the car at the Hartford airport, with no hassle. When I returned the car a week later and got my receipt, I saw that they had given me a 10% discount. The same thing happened to me a few years ago when after driving a few miles while sneezing uncontrollably, my travelling companion and I discovered that the back seat was covered with pet hair that hadn't been vacuumed out after the last renter returned the car. I think that one might have even gotten us a 15% discount!
I don't recommend inventing problems with cars just to get a discount, but if you are already on the road and are dissatisfied with anything about your car, exchange it the first chance you get and chances are you'll save a few bucks.

Vacation

Thought I'd share a few photos from my Massachusetts trip:

The view from atop Mt. Norwottuck:

A tricky spot along the way-- you had to climb under a fallen tree and then squeeze through a crevice between two huge rocks:

My Andy Goldsworthy (see link or this amazing book) rip-off:

A big-ass rock known as the Devil's Football, with Madame X's hiking partner (blurred to protect the innocent) for size comparison purposes. The freaky thing was standing on the downhill side of this-- it's like vertigo, you could swear it's about to roll over on you!

View of the Connecticut River from atop Mt. Holyoke:

The Evergreens, a house that is part of the Emily Dickinson Homestead and Museum in Amherst. Worth a visit if you want to see a late 1800's house eerily frozen in time.

And yes, there was some nice foliage:

Thank ye Mr. Bernanke

According to the NY Times front page story today, the announcement of the nomination of Ben Bernanke to succeed Alan Greenspan as Federal Reserve Chairman caused "a jump in prices on Wall Street."
I did indeed see a bump in my E*Trade accounts, which have been a bit sluggish recently. My net worth has actually slumped to around $240k again, just because of stock values slumping. But today's gains might put me near $241k again, for the moment, at least.

401k contribution maximum

Well, I'm back from my little vacation and unfortunately, my first post will not be a recap of the trip, but rather an "oh shit" moment!
While continuing to noodle around with real estate spreadsheets, and trying to squeeze more money out of my budget to afford more apartment, I had the idea to change my 401k contributions. Last year, I maxed out my contribution before the end of the year, so I thought, great! If I spread out the maximum amount over all 12 months, I'll have a little more cash each month instead of suddenly getting a few bigger paychecks at the end of the year. Conveniently enough, when I got back to work this morning, there was a memo from the HR department about how to change your 401k contributions and reminding what this year and next year's maximums are. The maximum I can contribute for 2005 is $14,000. In 2006, it goes up to $15,000. As per my Rule #6, I fully intend to maximize this tax break. But what I realized in my "oh shit" moment is A) I'm not going to get to $14,000 this year! $493.75 is contributed from my paycheck every two weeks. Back in March when I got my bonus, another $1226.40 was contributed. That only comes to $13,076 for the year! Whooops! If my bonus had been bigger I would have been all set, but now I think it may be too late for me to make an additional contribution. As for B), if I want to max out to $15,000 in 2006, I'll have to contribute at least $600 or so per paycheck, since my bonus might be even slightly lower than it was this year. Even though I got a raise, I think this may leave me with less spendable cash each month, when I was hoping I could end up with more! (Though of course it is a good thing to have a higher maximum amount that I can contribute pre-tax.)
I guess the moral of this story is that I really need to pay close attention to my 401k every single year, rather than just thinking I'm definitely going to hit the maximum automatically. You can't take your hands off the wheel or your eyes off the road... when you're driving the mini-van of personal finance... down the highway of life.... to the rest-stop of retirement... or something like that...

UPDATE: All may not be lost for this year! I just went online and it looks like I can change my contribution percentage monthly, rather than quarterly as I had thought. So I've bumped my contribution up to 50% for the rest of the year! And for 2006, I'll set it at 18% and see how it goes.

Leaf-peeping for a week

Well, I'm off to spend some of my travel budget instead of writing about it. First I'll be doing some hiking in western Massachusetts and hopefully gazing awestuck at the natural majesty of beautiful autumnal foliage without any more of the week-long deluge of rain that we've had here in NY. And then I will be enjoying the company of my adorable baby niece and nephew, and trying to resist the temptation to buy them lots of presents that they are too young to appreciate. I have to wait and spoil them when they are older, so they will be grateful enough not to let good old Auntie X rot in some horrible nursing home.

See y'all in about a week!

How I COULD be living...

I like these "what if" scenarios.
I'm always telling myself I can't afford things, but that is because I have certain rules for myself and certain goals in mind. What if I didn't? What if I lived by other rules?

First off, basically a lot of Americans save NOTHING. Let's say I make somewhere around $85,000 with bonus, gross. If I didn't have any 401k deductions, didn't use a flex spend account, I estimate my spendable income would be about $4332 per month after taxes.

Many New Yorkers spend more than 30% of their income on housing. But let's just say I spent about 28%, or $2000 a month. That might get me a studio in Manhattan or a 1-bedroom in Brooklyn, maybe a small 2-bedroom in parts of Brooklyn, if I was renting.
If I was buying, with 20% down and a 5.5% interest rate (which would probably have to be one of those interest-only ARM deals), I could buy an apartment priced at about $350,000, assuming the maintenance would be $500. If I put 10% down, I could only spend about $300,000. $300,000 is about the minimum going rate for studios in the more desirable neighborhoods of Brooklyn. In Manhattan, maintenance charges tend to be higher, so I really wouldn't be able to find anything at this price beyond the tiniest of unrenovated studios (with a hotplate for a kitchen) unless I went way uptown, which would be a longer commute than being in Brooklyn.

In any case, I'd be left with about $2332 to spend on the rest of my expenses:
Food: as it is, I sometimes spend over $800 a month on food, without eating in restaurants more than once or twice a week. Most New Yorkers eat out a lot more often than that. $1000 a month is probably still quite conservative compared to a lot of people at my income level or less, who buy their lunch every day and eat dinner out 3-4 times a week and order in Chinese food the rest of the time. So that leaves me with only $1332 for everything else:
Subway pass would be $76 a month
Gas/electric maybe $80 a month
Telephone is around $120 a month
Renter's insurance about $13 a month
AOL about $24 a month, but if I had DSL that could be more like $50 a month, I think.
And what if I had cable TV with premium channels? Say another $60 a month? (Maybe a cable modem package deal would be less, I admit I'm not that well informed about it!)
Now I'm down to $1173 a month.
Haircuts are $80, almost every month. (I could easily spend more than that, especially if you also accounted for things like makeup, manicures, laser hair removal, etc.)
Clothes: I managed to spend an average of $300 a month last year on fairly basic things like a couple of suits, a couple pairs of shoes, some basic jeans, pants and tops from stores like Ann Taylor, the Gap and J.Crew, often on sale. What if I'd thrown in the almost obligatory Seven for All Mankind jeans at $180 and a pair of Manolo Blahniks at $600? A handful of designer items at full price could easily double my clothing expenses to $600 a month.
What if I had a car? I guess I could lease one for a couple hundred dollars a month. Parking in Brooklyn would probably be $150 a month or more. And car insurance must be a fortune here, though again, this is not an area I really have a clue about!
Suddenly I'm pretty much out of money, without covering all these things I haven't even talked about:
Gifts
Travel
Charity
Entertainment (a movie every other weekend is already $20+ per month)
Gym (easily $100 a month and more in NYC)
Medical
Books/newspapers/magazines/music
and good old "miscellaneous"

Of course this is very New York-centric view. If I lived outside NYC some of these expenses (food, rent, gym, clothes) could be a lot less, but I still think I wouldn't be able to afford a lot of things that most people take for granted. And of course it's hardly a sob story if someone making $85,000 a year can't afford Manolos and Seven jeans. But the things I'm describing are how a lot of people live here, and as always, that keeping-up-with-the-Jones thing comes into play. Not everyone might do all of these things, but I bet there are plenty of $30,000 a year assistants who are eating PB&J for lunch every day, not just because they heard Anna Wintour does it, but so they can afford to buy clothes, do Pilates, have a dog and drink $12 cosmos all night, just like everyone else they see. The idea of putting a few dollars in the bank is the last thing anyone thinks of, because it's not a conspicuous marker of status in any way. If we all had to display our net worth on our foreheads, it might be a different story! This is one of the ironies about the way people deal with money. It's considered inappropriate to publicly discuss how much money one earns and has in the bank, but it's practically required to discuss or at least display how much money one spends.

Corporate hotel rates

I just booked a hotel online for my trip next week. This was on the Best Western website, which gives a drop-down menu for rate types. "Corporate Rate" was one of the offerings, for a price of $79 vs. about $105 under "Standard Rate." I selected it, figuring at some point they might ask me what corporation I worked for or something. But they didn't, and I booked the room and got a confirmation at that rate. So now I am slightly paranoid about why it was so easy to just say "yes please, I would rather pay 25% less."

Retirement Planning

JLP at All Things Financial posted a list of questions everyone should ask themselves about retirement (from a book called The Savage Number, about how much money you need to retire). I have asked myself these questions but find some of them difficult to answer.

1. How long will I live? I expect to live well into my 90s based on my health and family history, knock on wood.
2. What will inflation do to the value of my savings? Uh, make them worth less?
3. How can I save enough? I'm saving money already, but I've posted on this site about a few things I could do better.
4. How should I invest the money I’ve saved for retirement? I think I'm still young enough to invest aggressively in stocks, but I also try to hedge my bets a little with bonds, CDs and other conservative investments, maybe more than I should.
5. How much will I spend to live in retirement? All I know is I want it to be more than I spend now! I want to have a car! I want to travel! I don't want to have to live in the boonies somewhere to lower my housing costs!
6. How much can I withdraw each month without running out of money? I've read that 4% of the principal per year is usually the rule of thumb-- if I have $2 million when I retire, that would give me $80,000 a year. But by the time I retire that may not be enough because of inflation.
7. What’s the biggest danger to my retirement plans? The city I choose to live in now, and my desire to stay there. Also the industry I choose to work in. New York is expensive, and publishing doesn't pay very well.
8. How can I earn money during retirement? Exotic dancing probably won't be an option for me by then, but I could probably do freelance consulting work within the publishing industry.
9. How can I retain control of my financial life? I'm not quite sure what this question means! It makes it sound like some nefarious villain is trying to seize control of my financial life. I think I'm ok on this one.
10. What if I have money leftover when I die? I'll leave it to my niece and nephew.

JLP posted a follow-up with his alternate list of questions:

1. How much will I need to live on during retirement? See above.
2. Have I factored in what effects of inflation will have on my retirement income? Whenever I run the little retirement calculator in Quicken, I put 3 or 4% in the inflation box.
3. How much do I currently have saved toward retirement? About $135,000 of my net worth is specifically saved for retirement.
4. How should I invest my savings in order to meet my retirement goals? (This is an asset allocation question) See above.
5. Do I plan to work during retirement? If so, what will I do and how much can I realistically earn? See above-- I think I'd enjoy working part time in retirement.
6. What effect will taxes have on my retirement income? Am I or should I be utilizing a Roth IRA? I do have a ROTH IRA but I don't know what my tax rate will be when I retire.
7. What threatens my retirement plans? Am I allowed to say George W. Bush?

Obviously retirement planning is a complex issue, and some of the variables are unpredictable. I think I have some of the basics covered, but I need to learn more about the tax issues, and make sure I really have my retirement portfolio balanced properly to make the most of its potential returns.
There are a couple of other books about retirement that I am planning to read and review soon:

If anyone else has any recommendations for books about retirement planning, please let me know!

A strange calm...

Does anyone else feel like the last couple of days have been very quiet in terms of personal finance-related news? After all that housing bubble furor last week, suddenly there is a dearth of articles to tear out of the paper and blog about! Perhaps it is the calm before the storm....

As for my actual daily life, I'll tell you what I spent money on this past weekend:
Next Wave Festival at Brooklyn Academy of Music-- I went to a great Phillip Glass concert, a piece called Orion. We got good balcony seats for only $20 each. The piece featured a variety of soloists from various parts of the world, so it actually felt like 10 concerts for the price of one. Compared to what a movie costs these days, I think that is a real bargain.
Technically, I didn't spend money on the concert, as my date bought the tickets. But I sprung for dinner afterwards at the excellent Chez Oskar in Ft. Greene. Somehow the bill for 2 with entrees and drinks and dessert only came to about $70 before tip. I keep thinking this had to be a mistake, as the food was great and it seemed like it should have cost more!
All in all, it was a good Saturday night-- one of those rare occasions when I felt that I had taken full advantage of NYC's cultural & culinary resources.

What else... I had a freak-out when I thought my laptop had died and I would have to replace it, but it turned out to be a false alarm and cost me $0.

I tipped the locker room attendant at my gym $3 when she provided an iron for me to use to try to dry my jeans after being caught in a downpour. It did seem to work better than a hairdryer.

I spent about $20 on various snacks and meals, and another $40 or so on groceries.

And I had another minor windfall-- a gift of a bagful of US coins from a friend who who lives in London and won't be here to spend them. Almost $5 worth!

Massive infusion of extra cash

The other day I went to open a new deodorant and found that it was a weird brownish color, had a crystallized texture, and smelled rotten. So of course I brought it to work in a ziploc bag and called Colgate to express my concern. A very nice lady had me read her some numbers off the package and was able to determine that my deodorant was about 2 years past its proper shelf life when I bought it. She asked me if I would like a refund, and about 4 days later, an envelope showed up with a check for $2.19 and about $4.00 worth of coupons on many Colgate Palmolive products that I happen to already use! Thank you Colgate!
This and a raise, all in the same week! I'm just overwhelmed!

I Got a Raise

I had my annual review this week, and got a 3.8% raise. So now my salary is $82,000 per year, not counting bonus, which could be around 10% of that. It's ironic to think of 3.8% as being a cost of living increase when the cost of owning a home has increased by 10 times that much since last year!
I was a little disappointed in the percentage, as the review was extremely complimentary, but raises at that level seem to be fairly typical in my industry these days, for people who are lucky enough to get annual raises at all! And I did negotiate for a bigger increase last year, so I didn't think I could pull it off 2 years in a row. Also, my boss volunteered the information that I am in line for a promotion and bigger salary increase next year, so I'm feeling all warm and fuzzy and appreciated.
This raise will be retroactive by a couple of months so my next paycheck should be a whopper.

New York City Housing Data

It's amazing what you can find online nowadays.
When I was looking at that studio apartment, I was told at first that the seller had lived there for about 4 years. But I was able to use Property Shark to discover that he had actually only lived there for 2 years. To do a search, if you have the address of the property, start at Property Shark to look up the block and lot number. You can also see all kinds of information right there-- size of the lot, a map of the location, building violations, certificate of occupancy, tax assessments, title history, etc., sometimes even mortgage amounts. Unfortunately, for co-op apartments you can only see when the apartment changed hands--transactions are recorded differently since it's technically a sale of shares in a corporation rather than a sale of physical property.
Once you have the block and lot number, you can go to ACRIS and see actual scanned documents. Again, for coops, not much detail-- but for condos and houses, you can usually see how much of a mortgage was taken out to buy the property. Even if you can't see the actual selling price, that is a great thing to know if you are planning to make an offer on a place.
I was able to discover that my landlord bought the building I live in in 1998. It's supposed to be a 3-family, though he has actually divided it up into more apartments than that. There were citations for no hot water and exposed wiring at various points over the years. He took out a mortgage of about $130,000 to buy the building. This made my jaw drop at first, but then I remembered that it must have been pretty much an SRO at the time, and in really bad condition. One of the original tenants was still renting a room (that didn't have a kitchen or its own bathroom) when I first moved in. But now my landlord has renovated the whole place from top to bottom. This building is assessed at around $600,000 but I've heard of similar places going for around $1 million lately.
I'm not sure what I'll do with this information, but it is nice to know it's out there! (And if anyone knows how to find out the mortgage amount or sale price on a co-op, let me know!)

News vs. Life

No, I'm not asleep at the wheel! This post was already in draft form when the comment was left on the last post!

Yesterday, it suddenly seemed like there was an explosion of news about the housing bubble starting to burst, with a front page story in the NY Times and plenty of other coverage of last month's NYC real estate stats. (prices down, inventory up, basically) And today there is a story covering data from the IRS on income levels and taxes paid, showing that income inequality continues to worsen. (One intriguing contradiction found within these stories: it is the high end of the real estate market that is dragging down averages, and apartments at the low end are still showing huge increases. Ironic given that the IRS story shows that the people who buy luxury properties have more money than ever and the people that would want 1-bedrooms don't!)
Sometimes it's hard to locate yourself in these macro trends. If my offer had been accepted on that apartment, I'd probably be a nervous wreck seeing all these stories. I'd be furiously cranking out spreadsheet calculations with doomsday numbers, feeling like an idiot for buying at the height of the market. As for income inequality, I can look at those graphs and plunk myself somewhere in the 60-80th percentile range, but what does that really mean? Am I benefiting from current tax policies or am I getting screwed?
Obviously I am somewhat obsessive about certain topics and am constantly trying to analyze numbers and plan my life according to spreadsheet formulas, but sometimes you can only take this so far. Life goes on, I go to my job, earn my salary, pay taxes, live in one home and think about owning a nicer one someday. I'm not going to put blinders on and ignore where things are going in the world, but I can't live by my position as a demographic data point either.
So I was actually less gleeful about the housing market news than you might think. At least right now, there are fewer apartments on the market in my desired area and price range, and who knows what next month's data will say. I'm going to keep watching and waiting before I do the happy dance, and if a great apartment popped up tomorrow, I might still make an offer. In the meantime, what I really need to focus on is the price of Gatorade.

Cheap eats!

No one will ever mistake me for being one of the "ladies who lunch." I actually become rather anti-social when noon rolls around. But since I'm trying to save money on food, I figured I should also be better about business networking and bonding with clients, which conveniently allows me to expense more meals! I've booked two lunches in the next two weeks already! And who knows, this could eventually lead to a new job or a promotion, which would also benefit my bottom line. (And don't worry, I'm not talking about the kind of abusive unjustified spending that would get me fired.)

But when I'm not on the company's dime?
Half a tuna sandwich and some leftover steak is my new definition of "surf and turf."

Infuriating real estate article

There was an interesting article in this weekend's NY Times Real Estate section, looking at the New York (particularly Manhattan) housing market and how the various factors that define a real estate bubble might apply to today's market.
The piece makes some interesting points-- that NYC does not seem to be a market where a lot of flipping is going on, and that the prevalence of co-op apartments, with their notoriously picky boards, keeps properties from changing hands as much as they otherwise might. They also point out that low interest rates haven't lowered the cost of buying at all, since higher prices mean people have to borrow so much more. They look at the history of one apartment that changed hands several times over the last 20 years and how even adjusted for inflation, the same apartment costs a lot more today in terms of monthly outlay, despite the double-digit interest rates of the past.
But here's the part of the article that just burned me. After pointing out that "Manhattan apartment prices have grown about one and a half times faster than median household income," the article goes on to say that since "it is mainly earners at the top end who can afford to buy an apartment in Manhattan, a group of economists argues that, despite the galloping price increases of recent years, real estate on the island has actually become more affordable."
Wwhhaaaat? I just couldn't believe this. It's like saying that a Ferrari costs $200,000 but since only billionaires buy Ferraris anyway, it's actually an economy car. Last I heard, Manhattan was not a gated community. It's a big island full of all kinds of people who work at all kinds of jobs, some of whom really should live in the community where they work, such as firefighters and police officers, as people often point out. Yes, there is a high concentration of wealth here, but there are still plenty of normal people who have lived here for years and have every right to live here. The fact that the rich keep getting richer is part of the problem, not a reason to shrug off the problem as non-existent. If real estate is more affordable for the wealthiest people, no wonder they buy multiple apartments, apartments for their children, investment properties, etc. and crowd the rest of us out.
To pull out some more relevant quotes: in Manhattan, "household income for the bottom 20 percent rose just 7.9 percent from 1989 to 1999, in real terms, [while] the income of the top 20 percent went up 61.5 percent," yet since 1981, average prices "are up 50 percent for co-ops and 37 percent for condos." Yep, no need to cry for the top 20 percent of Manhattanites, but guess what, the forgotten 80 percent actually exist, and they're having a tough time.

September summary

I'll just call out a few key things:
Food spending in September was only $514.20! My belt-tightening efforts paid off. I thought I might even come in under $500 but I bought a couple bottles of wine last night that pushed me over. I was a little over budget on groceries and liquor but well under on restaurant meals, buying lunch, etc. I'm still $300 over budget year to date for food overall, but maybe I can balance this out by year's end.

Areas where I am under budget year-to-date:
Travel: I didn't take any big trip this year, so I have $1300 left to spend in the rest of the year. I'll probably spend about $500 of that in a couple of weeks when I go up to Massachusetts to do some hiking and visit family, and another $200 or so at Christmas, but I should still have some leftover money to put into savings.

Clothing: I have about $300 left for the rest of the year. But I also have a 15% off coupon that is good on any one day's worth of purchases at Macy's this month, and it's that dangerous change of season time, so I doubt that $300 will last long!

Miscellaneous: I have about $300 left. Somehow I managed to buy less random unclassifiable crap, I guess. But who knows what kind of random unclassifiable crap I could spend money on in the next 3 months. Part of the reason I'm under budget is that haircuts fall in this category and I have been getting my hair cut less frequently. I'll have to make that Rule #11: Grow your hair out!

Gym: I'm $650 under budget. This is a weird one, because I pay up front for a year's membership, and sometimes they throw in an extra month or two for free, so this isn't a regularly scheduled expense. If I buy a new pair of running shoes or something, it will go under this category rather than clothing, but I think I'll manage to just save most of this money.

Over budget areas: most notably Household (new futon) and Medical (illness), and also payroll taxes. I'll have to go back and look at how I budgeted that, I"m not sure why I'd be so far off.

Net worth today is $245,124.76! I've already hit the goal I set for year-end. Aside from cash savings and investment gains, what really helped me this month was remembering to submit my work expenses-- over $1000 in reimbursements came through!

Onwards and upwards!

Welcome Housing Bubble readers

Thanks to a nice mention on Ben Jones' excellent Housing Bubble blog, I've had a lot of new visitors to the site! Sorry I don't have posts indexed by topic, but try putting "real estate" in the Google search box for items of interest.
Otherwise, please check out the posts linked under "About Me," "My Rules," and "Other Favorite Posts" for a good sampling of what this blog has to offer.
Thanks for stopping by!

From the clipping files...

The ratio of the average CEO's pay to that of the average production worker is 431 to 1, according to a study of 367 large corporations done by the Institute for Policy Studies and United for a Fair Economy. If minimum wage had kept pace with CEO pay levels since 1990, it would be $23.03 an hour. Interestingly, this is not as bad as it's ever been-- during the last two years of the Clinton administration, the ratio was over 500 to 1, I guess due to the booming economy and larger CEO bonuses.

Gift bags at this year's Academy Awards were supposedly filled with $100,000 worth of free stuff. I've also read about the rooms at benefit events where celebrities can "shop" for free gifts. Why do people who already have money get all the good free stuff? I've gone to benefit events and never gotten anything better than a crappy bottle of perfume and some gardening gloves. Obviously all this stuff is donated by companies who want to promote their products, and if someone sees Angelina Jolie wearing those gardening gloves, it will probably have a different effect than if someone sees me wearing them. But is Angelina Jolie going to tell all her friends "hey, I got an awesome pair of gardening gloves for free!" I'm sure she has better things to do. And if she does tell her friends that, then all they'll probably do is call the company and ask for their own free samples. If I tell my friends I got a great pair of gardening gloves for free, they might actually go out and buy a pair.

The poverty rate increased last year to 12.7% nationwide. Median pretax income was $44,389, which is lower than it's been anytime since 1997 (adjusted for inflation). In New York City, the poverty rate rose to 20.3% last year, but many economists think this statistic is misleading because it doesn't adjust for the high cost of living here compared to the national average. The real percentage would be even higher. A family of 4 is considered to be at poverty level if their household income is $19,157 or less a year. That is less than 25% of what I made last year as a single person with no dependents, so I shouldn't complain, but I feel like even people at my income level have to struggle to have what most Americans see as a middle-class lifestyle. For all that our politicians talk about our wonderful American way of life and high standards of living, I think it is a joke that a family of 4 living on $20,000 a year is somehow not counted as being poor.

On a related note: the middle class is shrinking in Manhattan. It is the county with the highest income inequality in the US. The top 5th of households make 52 times more than the bottom fifth. In 1990, the ratio was only 32 to 1. In 1980, it was only 21 to 1. There are 50,000 fewer families making between $35-100k this year, while the number of people making less than that, and more than that increased.

Sources: NY Times and Wall Street Journal

Information Access & the Economy

Whenever people discuss real estate, the stock market, etc. they tend to predict the future in terms of the extremes of the past. I myself have talked about how I doubt NY real estate prices will fall drastically because historically they have never declined by more than a small percentage (before adjusting for inflation).
But I wonder if there is a fundamental difference in today's world that makes all comparisons invalid: the internet.
Stocks used to be something that only wealthy people really had access to-- price quotes may have been printed in newspapers but the average person was unlikely to be able to obtain the kind of advice and research that a broker could provide. Today, anyone can open an account with an online brokerage and have access to incredibly detailed information about stocks, mutual funds, etc. More people own stocks and pay attention to the market, so more of a herd mentality can come into play if prices start to move in one direction or another.
Real estate is the same. When I bought my first co-op apartment in the mid-90s, my major sources of information were the classified ads in the NY Times and real estate agents (and the signs in their windows). I couldn't just go online and use search filters to see what was available and then view photographs and floorplans. Is this kind of information part of the reason prices have gone up? Does the typical home buyer know what is out there and feel more confident about bidding up the price of a home because they know it's the only one that has come on the market in months with certain amenities in a certain price range? Will prices stay more stable than they otherwise might because any property that goes on the market that looks like a bargain will immediately be spotted and snapped up? Or will people notice that there is suddenly more to choose from, and less desirable homes will start to stagnate at the bottom of the heap?
Some people would argue that when consumers have more information, prices are driven down, which might be true for cars, electronics, household items, etc. But I think real estate is different. Instead of taking a certain amount of power away from brokers, it may have just made their jobs easier. They don't have to expend as much energy driving people around to view different homes-- they can just post a listing, stand around at a few open houses, and let market data sell the home for them.
What do you think? Are there other examples of markets being affected by a democratization of information access?

Contemplating a Time Machine (while the iPod is on shuffle)

If I had ever been here before I would probably know just what to do... don't you? If I had ever been here before on another time around the wheel I would probably know just how to deal.

I always have these moments when I regret decisions and delays and wish I could turn back the clock and do things differently. And don't we all think about what we'd do if we could travel back in time? To change things we've done, or experience things we missed... My first priorities might not be financial actually-- I think I'd want to see James Brown at the Apollo in the early 70s, (shake your moneymaker), see some early shows by Siouxsie & the Banshees and the Clash, and I would have to dance to "Push Push in the Bush" at Studio 54. I'd also have to somehow meet Greta Garbo, spend some time in Shanghai in the 1920s, and see what ancient Egypt was really like. To bring this closer to my actual experience, I would have worn something less sorority girl-looking and not been carrying a foil "Happy Birthday" balloon, a Halloween trick-or-treat sack and a large turqouise duffel bag when I saw the Dickies at CBGB in 1986 (waaayyy too long a story... and on second thought, I don't think I would change a thing-- it wouldn't have been as memorable any other way!)
...but then let's see, there was 2001 when I got my first home cash-out check for $50,000 and said "I think I'll just bank this, real estate is too expensive right now." (To do myself full credit, I have to say that even then, it's not that I thought real estate would become cheaper. It's just that I didn't have much other money at the time, and I had this notion that I might be about to chuck it all and move to another country for a while, which I of course did not do.)
Then there was the phone conversation in around 1994 or 1995, I think, when someone told me about this great coffee company that would be big soon, and I said "Star-what? Never heard of it." There were also moments when I contemplated buying stock in Apple, Amazon, Home Depot, etc. It's so annoying when your watchlist on E*Trade does better than your real portfolio! And as for my actual portfolio, I would have bought more than 200 shares of Lucent at $1.69, since it's up about 75% since then.
I also find it ironic that my aptitude for and interest in technology and geeky math stuff didn't develop until about 20 years after those junior high school lessons in Basic. It's probably just as well, since I had plenty of other ways to be nerdy, but people my age, including a couple of college classmates, were exactly the ones who were just the right age to get jobs at Microsoft, work like dogs for a while and then somehow mysteriously manage not to need real jobs for years afterwards. (Can we hit it and quit?) If I had a do-over, I might paid a little more attention in math class, and maybe taken freshman economics in college, and ended up in some wildly more remunerative profession.
Ah well...
Non, Je ne regrette rien
Non, rien de rien, non, Je ne regrette rien
Ni le bien qu'on m'a fait, ni le mal
Tout ça m'est bien egal
Non, rien de rien, non, Je ne regrette rien

Coupons

I am really good at clipping coupons. Every time I see one, snip snip snip. Or rip rip rip, but I always go back and trim the edges if I tore it out in a hurry. I even tear out coupons for brands I don't usually buy, being completely open-minded to a temporary switch if it will save me a few bucks.
The only problem is that I am not good at using coupons. I just threw out $15.30 worth of savings, because the dates had all expired. I always find myself at the supermarket checkout buying something that I need right away, and realizing that I've left a coupon for it at home. Or I'm on my way home after buying groceries and I realize I didn't take the coupon out of my bag and give it to the cashier.
Does anyone have any organizational tips on how to remember to use coupons before they expire?

How much should you spend on housing?

This article was exactly what I've been thinking about lately. How much of your "lifestyle" should you sacrifice in order to have a nice place to live? People often say you should spend no more than 30% of your gross income on housing. Whenever this is mentioned in discussion of New York housing prices, people always point out that in an expensive market like NYC, many people spend a lot more than 30% on housing. 50% and more is not uncommon.
First of all, I think a flat percentage isn't necessarily the right way to look at it. 30% of $30,000 and 30% of $100,000 leave very different amounts behind to cover all the other basic needs of life, and if you make $30,000 a year, you really shouldn't be paying $10,000 a year for housing, because $20,000 minus taxes, minus food, minus commuting expenses, basic clothing, and even some slight attempt at retirement saving, doesn't leave much.
If I spent 30% of my income on housing, that would be about $2000 a month, more than double what I spend now. It could buy me a 1 bedroom condo in my neighborhood that a broker wanted to show me, a nice place with a brand new kitchen and a terrace which I declined to look at because I didn't think I could afford it. My current budget allows me to save around $5-600 each month not counting my 401k, so I have some room to pay more, but where would I find the other $550 a month? I could cut back on some travel, telephone and food expenses, and stop taking my French lessons, but that is about all the leeway I have and it might not be enough. (Not to mention that there goes half of the pleasures in my life that make me feel like I am not a robotic wage slave!) Then what? Start cutting back on my 401k deductions each month? That just seems like a bad idea, but if you read the article linked above, some people do exactly that.
Hopefully these sacrifices would be temporary, presuming I would get raises over time that would outpace any housing cost increases and allow me to phase some fun and savings back into my life after a few years. When I think about it this way, I wonder if I am being too conservative. Of course you have to make sacrifices to own a home, am I just being a wuss about it? (Keep in mind that this wuss has spent the last 5 years living in a 240 sq ft studio in order to maintain her current lifestyle!) What would you do if you were me???

Miscellaneous Spending

Here's my non-food expenditures over the past 2 weeks:
Haircut $80
Credit score $6.45
2 shirts on sale at the Gap $38.93
Laundry & drycleaning $23
Plus these regular monthly expenses:
Renter's insurance $12.66
NY Times subscription $37.00
Verizon phone bill $23.22

That's it.

There was also $10.28 for a tape measure at Home Depot but I returned it the next day when I managed to locate the one I already owned. I might have returned it even if I didn't already have one. The interesting thing about this tape measure was that it came in one of those plastic packages that hang on a hook. The plastic was impossible to tear off without scissors, but the tape measure was completely useable while still attached to the package. So I used it, and then returned it completely intact for full credit. It was the first time I was ever glad something came in one of those horrible nuclear-blast resistant plastic packs.

Free association lunch

Thanks for all the birthday wishes, everyone!
In the spirit of renewed enthusiasm for saving money, I can report that I have managed not to buy lunch at all this week! There was one day when I had a work lunch and one when I was too busy to eat, but I managed to cover the other 3 days with sandwiches from home, so yay for me.
For some reason, today this made me think about the brown-bag lunches that I used to take to school as a kid. Up til about the 4th grade, I had one of those classic red plaid metal lunchboxes, which had a tendency to pop open when I'd be in the middle of crossing the street. Then when lunchboxes became uncool, my mother would pack my lunch in the actual brown paper bags. But even that had potential for embarrassment, as she would write my name on the bag and draw a little cartoon of my face to distinguish it from my father and sister's lunches. Then there was the time when she sent me to school with a tupperware container full of tuna without mayonnaise, and one of the school aides complained that it smelled too fishy. This was in first grade, when I was assigned to sit at the "slow eaters" table, whose other residents included a kid named Richard who would blow bubbles in his milk, and another boy named Scott, always known as the "grossest kid in class" because he would chew up baseball cards and swallow them.
Yeah, I have come a long way, baby...

A turning point

Yesterday I officially entered my late 30s. I am not "mid" anymore, at least not in my opinion. I was taken out to dinner to celebrate, at the fabulous Blue Ribbon in Brooklyn. I think this will be my last blow-out meal for a while, both in terms of calories and price, but what a good way to do it! (The chocolate chip bread pudding is breathtakingly good.)
This situation with the apartment has given me a new impetus to change my habits and focus myself on making smart decisions with my money instead of being passive about it. Sometimes passivity is ok-- it's probably not a good idea for someone like me to constantly trade stocks as opposed to holding them for the longer term. But I've been letting money sit in low-earning accounts, and I've been too lazy about following leads on apartments. I missed the lowest mortgage rates, I missed seeing apartments that I could have afforded over the past few years because I wasn't really sure I wanted to buy. It's all water under the bridge now, and maybe it's for the best, but going forward, I need to get more out of my earnings. I need to put more of my cash into better investments. And I should also probably start thinking about my next step on the career ladder. I want to own a home before I'm 40!
I also need to use more moisturizer and go to the gym more, but I'll have to start another blog to cover that...

Financial Literacy Ad Campaign

There was an article in the NY Times today about an ad campaign being launched by the non-profit National Endowment for Financial Education. Starting this week, TV, radio, magazine and internet ads will attempt to draw people to this website, where financial assessment tools and other resources are available.
The campaign is directed at middle class Americans, age 35 to 55, with incomes of $35k to $100k, with the goal of improving savings rates and financial literacy in general.
I went to the website and took the personal assessment quiz. It's full of somewhat silly questions like "Are you concerned about your credit rating?" Whether their score is good or bad, is anyone who made it as far as the website really going to say "No, I don't give a shit about my credit rating?!" They could have designed a much more focused questionnaire. After answering these 21 questions, I was told
Based on your answers to the questionnaire, the following categories have been identified to help you achieve your financial goals: Financial Planning, Investing, Retirement, and Saving.
Gee, thanks!
When I first started reading the article, I thought "oh, what a great thing, people really need this." But I'm not so sure these ads and a website are the best way to spend $2 million.

Oh, the humanity of it all...

I made an offer on that apartment, but someone had snuck in with a full-price offer right before me and the seller accepted it. There may yet be a chance that the other offer could fall through, as the broker thought there might be some issues with the buyer's finances and ability to get past the coop board. That could work out well for me, because the seller is in a hurry and I could get a better price as a backup candidate after it's been off the market.
Of course I am very disappointed but this was an interesting experience overall. I got a better idea of the kind of traffic openhouses are getting (mediocre, which bodes well for me) and I was forced to really nail down my finances and what kind of mortgage rate I'd be likely to get, which was actually slightly better than I had thought. I also went to some other openhouses over the weekend to get more of a sense of what is out there.
I may have let one get away, but I feel like I did my due diligence and didn't allow myself to rush into something without all the details I needed. Next time, I'll be even more ready to go for the gusto!

Today's Shopping

I went to Lowe's today to check out some prices. I'm sort of breaking the "don't count your chickens" rule again, but if I am going to bid on that apartment, my maximum price has to leave me some money to completely renovate the bathroom right away. At first I thought it would be something I could live with for a while, but then it occurred to me that I really should just do it before moving in if I didn't want to be peeing in a bucket and taking all my showers at the gym for a few days. So I very quickly ran through the aisles jotting down prices for tubs, vanities, medicine cabinets, toilets, faucets, wall tile and slate flooring and now I have this very rough total of about $1600 for the materials. I ruled out the $800 whirlpool tub, but didn't limit myself to the rock-bottom cheap stuff either. (What can I say, I've always had a weakness for cool old-fashioned faucets.) Who knows how accurate my estimating is, given I whipped it up in about 15 minutes, but I think I covered all the major items and padded it enough to account for unexpected things. Now I have to see how much the labor would be, hopefully at a discounted rate through a family connection!
I also took a moment to covet barbeques, refrigerators, stoves and plants. I would have coveted patio furniture too, but unfortunately, this section of the store already seemed to have transitioned to Christmas trees.
Total expenditure: $7.50 for an Italian sausage and a coke and $2.70 for a styrofoam cooler.
Why a styrofoam cooler? To put food in while I defrost my freezer, the door of which will no longer close due to a sudden explosion of a minor glacier in there. I will have to attack it with a hairdryer, pots of hot water, ice scraper, etc. This is one thing about my current apartment that I won't miss.

High-tech vacillation

I'm still contemplating my possible bid on an apartment. The good news is that so far, there doesn't seem to be anyone else who's seriously interested in the place. The bad news is that on a second visit with a measuring tape, it's a little smaller than I thought, and I decided I might really want to renovate the bathroom before I moved in.
Then, there's the ????? news.
After noodling around with various numbers, I did a serious re-vamp of my real estate spreadsheet. The old version just told me whether I could afford to buy based on my monthly costs, overall budget, and savings goals. Those are not factors I can ignore. But then there is the next level, of deciding whether higher monthly costs make sense, even if I can "afford" them month to month. I put the whole "capital loss" calculation into a new tab on my spreadsheet, and also added a comparison of my potential gains from buying vs. potential results if I keep renting and invest my money.
I'm looking at two timeframes, 5 years out and 10 years out, with just two variables to input, potential investment returns percentage and potential real estate appreciation percentage.
Here's a few scenarios:
1) What if the real estate market slows down a bit from its recent insane levels of growth, but continues to show moderate gains each year, say 5%?



















I'd have to have really strong gains on my investment accounts every year to beat the advantages of buying. I wouldn't want to count on earning 12% every year.

2) What if the real estate market slows down and prices decline a little bit, but basically stay flat, as they did in the mid-1990s?



















Yowza, in that scenario, I could keep my money in a savings account and probably make out better!

3) Some of the in-between scenarios kind of defy conventional wisdom:



















I'd be better off buying in the short term in this scenario, but over 10 years, if I kept up a 10% annual gain on the investments, it would start to outweigh the benefits of owning a home. This was a surprise. At first I thought it was because the tax benefits of owning decrease over time, but then I realized that I actually don't have that factored into this spreadsheet at all! But I think tackling that would be beyond what my brain can handle right now, so for the moment, the 10 year scenarios will always have a slight bias in favor of buying!

4) This would be another possible scenario-- the real estate market flattens out but gains very slightly. However, there's a crash in the stock market and my investments don't do very well. Long-term, I still come out ahead by owning a home, but in the short term I might not be able to sell my apartment at a worthwhile price.



















Remember that I'm setting the bar very high in all these scenarios because my rent is abnormally low. If my current rent was $1200, which is probably average for a studio in my neighborhood, it would be much easier to justify buying:



















It's really interesting to experiment with, though it may all be moot if I can't get anyone to sell me a studio apartment for $245,000, which is the price all these scenarios were based on!
If you want to play with the spreadsheet yourself, you can download it here.

My Eating Disorder, Part 2

I recently took a detailed look at my credit card expenses for food. Now I'll look at what I've been spending in cash. August was actually a pretty good month for cash expenses. The only things I tend to pay for in cash are daily coffee and lunch on workdays, maybe some fruit or minor groceries from a deli, and the occasional restaurant meal or drinks at a bar.
Groceries: $20.62 (3 items)
Liquor: $47.32 (3 items)
Dinner: $105.50 (5 items)

Breakfast:
On the weekends, I went to a diner once and bought a couple of bagels, totaling $14.50
Then on weekdays, I bought breakfast 18 times. Total $53.45, average per day $2.97. This usually buys coffee and a banana or a bagel or a hardboiled egg. In previous months my spending on breakfast had been higher, but I started eating cereal at home and bringing supermarket yogurts to work instead of buying expensive yogurt & granola at the deli.

Lunch:
On the weekends, I bought sandwiches or pizza or ate in a cafe a few times, totaling $40.33.
On weekdays, I bought lunch 6 times, for a total of $36.90, averaging $6.15 per day. This is really great for me. I was much better than I usually am about bringing food from home. Unfortunately I can't say I kept it up in September! I think I've bought pizza, a sandwich, or a salad every day this month. But $6-7 is still a typical daily lunch expense.

So total cash spent on food in August was $318.62. Add to that the $455 I spent on my credit card, and the total food for the month was $773.62, or an average of almost $25 a day.

My resolutions for the future:
Buy bananas by the bag instead of from the fruit man for .25 each? I'll have to see if they're really cheaper by the bag.
Make hard-boiled eggs at home instead of paying .75 each at a deli
Coffee: maybe I could live with a small instead of a large.
Lunch: continue to try to bring food from home at least half the time
Dinner: eat out at inexpensive restaurants no more than once a week, and allow myself a nice meal at a more expensive restaurant no more than once a month
Liquor: try to be less of a boozer, I guess. :(