Where did he say mortgage? This guy has $2M in the bank.

The argument is that eliminating the rent expense ($2000/month or whatever) by spending $500k to buy a house outright is better than the tax-adjusted potential return on that $500k if invested.

In the long-term, you can expect the tax advantages of ownership to be priced into the housing market. This is one of the reasons (rampant speculation is another) price/rent ratios are so absurdly high. Fair value, without the tax benefits, would be a ratio of 9-12, given the costs of ownership and the illiquid nature of an owner's position. With the tax breaks, the fair value's higher, but it still doesn't make sense to buy at a P/R ratio of 20+, especially since rents are also likely to drop across much of the country.

In New York, price/rent ratios are above 40. A $2500/month apartment will sell for over a million. It only makes sense to buy at such a P/R ratio if you expect rents to skyrocket in the near future, and Manhattan rents are already starting to turn back.

How do you calculate rent, there? $2500 * 40 = $100,000 ...

$2500 * 12 * 40 = $1,200,000

But grandparent said:

In New York, price/rent ratios are above 40. A $2500/month apartment will sell for over a million.

And $1,200,000 > $1,000,000! The first sentence implies the second, but not vice versa... am I the only one to stumble on this?

To me, it sounds like saying "I have over 20 cats. I have more than a dozen cats!".

Price/rent ratio almost certainly varies by neighborhood and general price level. What I meant to say, and should have said, is that price/rent ratios are mostly over 40. The specific data point that followed was one case of that.

The data points I actually know about are in the $2000-3000 range. One of my friends tried to buy his $2800/month apartment and got a quote around $1.5 million.