Manhattan Q1 Report: A Story To Tell
A: As you browse all the Big Brokerage reports you will see that there is a story to tell about what this market experienced. Although the brokerage reports have variations in how they report on the first quarter of 2010, there are similarities that I would like to point out. The bigger picture on recent market activity is clear in my mind and confirms what has been discussed on UrbanDigs for the past few months.
As discussed earlier in the month, I estimated 2,400 - 2,600 sales for the first quarter of 2010 reflecting the sustained rise in sales activity since early 2009. According to Bloomberg's, "Manhattan Apartment Sales Jump, Buyers Seek Bargains":
The number of sales soared to 2,384 from 1,195 a year earlier, New York appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate said today.So readers should have been prepared for the headline of surging sales in Manhattan that is reflective of the past 2-5 months of market activity!
To make things easier for you guys, I made the following table that clearly shows the quarter-to-quarter and the year-over-year movement in Market Wide Average/Median Sales Prices from the Big 3 firms and Streeteasy.com:
Hopefully this confirms for you why I described the relative quarter to quarter improvements in past months; as I saw the bids improve. Brokers with experience and a stable business in the field everyday can easily see the uptick in sales from the depressed levels of 2009. What was more difficult to get a sense of was what everyone wants to know about: PRICE ACTION! What is going on with prices!
That to me is the ongoing challenge. I should reiterate that lagging quarterly reports that show price action really capture a deal that was signed into contract some 2-6 months earlier! To me, the best snapshot of where bids are and where this market is trading today is at the moment the contract is signed - so it will always be a challenge to close this gap before the report captures the sale and analyzes the market as a whole. For a good discussion on understanding this lag and how the quarterly reports work, please read "Understanding The Lag w/ Quarterly Reports".
By sifting through all the Big Brokerages' quarterly reports, I am seeing a clear trend that:
Therefore, as I said in previous discussions, "What I am unsure of is which quarterly report will ultimately show the improvement in price action from the extreme trades at the height of fear in early 2009". I think I am now getting more confident that the extremes of price action this market saw were spread out due to the natural lag and ultimately reflected across Q2 & Q3 reports of 2009.
Therefore, I would expect one of the next two quarterly reports to show the y-o-y progressive improvement in price action this market has seen since early 2009; again, captured and reported to you guys at a big time lag. These reports will be released July 2nd + October 2nd respectively; and I look forward to confirmation of the real time reports I have been discussing here for the past 4-5 months as I saw the changes occur.
Moving on from here, I see difficulty in sustaining the pace of rebound from one year ago and would expect the market to remain flat even as future reports start to reflect the improvement in price action I discussed. If something changes, I'll report on it. If you want to keep it real and timely, keep it here!
Posted by Eastvillboy
Fri Apr 2nd, 2010 11:35 AM
I moved this up to see if it will get any replies.
WHY OWN A HOME WHEN PRICE APPRECIATION IS NOT FORECAST IN THE NEAR FUTURE?
Let's just say hypothetically you're going to take a 30 year Fixed and stay for the duration. Don't you pay for the House TWICE or more to buy it with the Interest (aka the Vig)?
People can go on and on about the Tax breaks and this and that, but Obama has already hinted at removing the Mortgage Interest Deduction. We all know this won't happen, but what if it ever did?
People say "renting is a waste of money" but isn't paying INTEREST on a massive mortgage loan also a waste of money???
Also, Renters have a HUGE leg-up in this unpredictable environment: ZERO (or LIMITED) LIABILITY
If the Boiler in the Co-Op I live in blows-up, it's the shareholders that are going to receive an assessment. If prices for Real Estate decline 20% more: what does the Renter care? If taxes on property go up, the Renter will most likely be unaffected. Of course, Landlords can inflate rents, but the last Stat I saw: Rents were up 1% from the prior Quarter.
The mania over the "Myth Of Home Ownership" was simply founded on Fast Money and prices that seemed they would never top out. Now that the future of prices is murky, I'll ask again:
WHY BOTHER OWNING A HOME???
Thanks for all intelligent input and a great blog Noah.
EVB
Posted by Thisson
Fri Apr 2nd, 2010 11:55 AM
I happen to agree with your conclusion, but if taxes on property go up the renter will be affected too as the costs are likely to be passed through.
There is clearly an effort by the government to prop up prices, and to withhold foreclosure supply to buy time for banks to recapitalize. The best I can figure is that prices will continue to deflate slowly, and judging by the credit suisse arm-recast charts I've seen, it looks like sometime around 2014 will be the time to get a good deal.
Posted by Crosby
Fri Apr 2nd, 2010 12:50 PM
Thisson -
You wrote "but if taxes on property go up the renter will be affected too as the costs are likely to be passed through". As a landlord I can tell you renters will only pay what the market demands. Renters do not care about your expenses.
Posted by Noah
Fri Apr 2nd, 2010 12:58 PM
Ill agree with crosby here. Now the interesting thing is to acknowledge the extreme markets that hit rentals too. What I mean is, 2009 was a year of lower prices + insane concessions! The net effective rent is all that I care about in this situation HOWEVER we will never get an accurate picture of this. So of course, reports will show what they want to show and people will believe them, as usual, when in reality they are not showing the true picture.
Take my place. I was at 3300/mth in 2008. In NOV 2009, I negotiated down to 3000/mth + got 1 month free rent in form of 13th month free on a 1yr lease. Net effective, that brought my rent down to 2,770. Another 7.6% lower than the 10% reduction I got in general. Reports will NOT show that last 7.6% reduction.
My point? NET EFFECTIVE RENTS, which wont be shown in reports, are the true measure of how the rental market got hit and that market overshot to the downside too in terms of CONCESSIONS OFFERED! Now, as the markets normalize, the removal of concessions will settle in over time.
As crosby says, the landlord will likely try to raise rents and that may work for a bit in terms of removal of concessions or even a natural slight rebound from the rent reductions of 2009, but at some point it will cause demand destruction and the market will start to pay what the market deems the unit worthy; not what the landlord needs to cover expenses, especially if they are rising.
Posted by John
Fri Apr 2nd, 2010 01:20 PM
I Have an Idea. What if someone decides to put 20 percent down on a condo and get a low rate. Let's figure that the mortgage payment would be around the same as if the person were to pay rent for the same condo. The person would enjoy the tax breaks. Then the person saves money for another 20 percent down payment. In five years the person decides to buy another condo and rent out the first condo. The rent would cover the mortgage and the cost's of the first condo. Then the person could hold onto the condo having a renter paying down the mortgage. Sounds good to me.
Posted by Eastvillboy
Fri Apr 2nd, 2010 02:13 PM
Thanks for your comments guys.
I have "jumped" around the East Village for 10 years, having owned two 1BRs and rented two 1BRs.
Here's a brief look at the moves:
OWNED 1BR (2000-2003)
RENTED 1BR (2004-2005)
OWNED 1BR (2006-2009)
RENTING 1BR (2009 to present)
After making a sizable chunk of change on the first property, I was able to get out of the second one right around even on the whole transaction, which I was thankful for.
However, the rent I am paying now is $300 less than the rent I paid during the 04-05 timeframe.
Of course, there are subtle differences to the block and buiding but overall I would say the comps are good.
My point is: Rents are coming more into line as demand wanes and Landlords do what is needed to maintain occupancy.
I also agree with Noah about concessions. These are real, hard dollar concessions which will never appear in Stats.
Posted by Marshall
Fri Apr 2nd, 2010 02:29 PM
Does it pay to buy? There is not a universal yes or no to this question. There is a it depends. First of all buying is not soley a financial decision. Part of it has to do with lifestyle, level of psychological comfort in owning, freedoms and liabilities of owning vs. freedoms and liabilities of renting, availability of product in the for sale market vs the rental market in the location or neighborhood one desires.
That being said I believe that playing field is slanted in the favor of the buyer for numerous reasons.
Yes tax advantages of the interest deduction as well re taxes.
Sometimes tax favored class or special tax deals Tax Class 1 properties
Tax Class 2a and 2B properties and sometimes even homes with abatements
Although some of the abatements can end up being more than problematic after their expiration.
Tax advantage of the tax free first 250k or 500k for married of profits on the sale of a home assuming there are profits and assuming you qualify. This is a pretty good break while it lasts and you can do it theoretically multiple times. I havent gotten the break im to lazy to move but Ive seen others do it and its legal. How many times do you see a deal like that .
The government policies expansion and printing of money seem to favor inflation over time(lets just take the last 50 years). In 1965 I remember a hot dog or slice of pizza being 15 cents also I think a transit token was 15 cents. In not sure if inflation is guaranteed but over the long run IMO things will not get cheaper things will increase in price. Assuming that this is probable lets look at what happens when you buy.
Generally you put down what 20% 25% these days and you borrow the remainder.
The mortgage you get has been influenced by the governmental policies and guarantees.
Even if it is a jumbo the fixed rates are still artificially lower than they should be without
The governments intervention.
So if you borrow 75% of the purchase price at a fixed rate interest let say 6%
What happens? Well you have to pay the interest and the amortization. The interest is tax deductible so the 6% the government shares in the carry. Now the 6% represents the cost of the money but some of that 6% REPRESENTS inflation potential. The mortgage market even with the government guarantees recognizes there is still inflation over the long run. Whats the inflation ? I don’t know but the government numbers don’t necessarily reflect reality. The government has increased the supply of dollars through their actions eventually this will translate to some form of higher prices.
So the likely hood of asset prices increasing in an environment with built in inflation is good.
Theoretically your house should increase in price just because of inflation. Keep in mind when you borrow at a fixed rate you also can get the advantage of leverage (which I guess has become a drty word).
And then when you sell if there is a profit you don’t have to pay taxes on the first 250k/500k. This stuff is all artificial but it tilts the scale in favor of buying for many buyers.
Now theoretically one could rent pay less than the amount of the mortgage payment take his savings and the money he would use as a downpayment and invest it in some tax advantaged investment with leverage where he would make a killing. After making the killing he would turn around and purchase a home assuming the prices are low, the inventory is what he wants, the interest rates are good and he would have done better than just buying. There are a lot of ifs in that scenario. I don’t believe most people are that adept at timing and making alternative investments.
The again you can just keep renting. What if the market rents go up ? What if the landlord doesn’t want to renew ? What if you don’t like the landlords rules or the way he does things or the speed at which he makes repairs? I guess you can always move. From my experience moving is not a lot of fun and its costs plenty.
You make your choices but this theoretical everything is wonderful in rental land is just not reality.
I have seen people knowledgeable people who have decided to rent hoping to time the market perfectly and for some reason or the other they have not been able to pull the trigger and I think they probably lost out at least financially.
It comes down to lifestyle and probabilities but the game is somewhat rigged in favor the the buyer. I thought in August 2007 when the money funds didn’t roll over we were in a lot of trouble. I was scared and I assumed that most of the big banks would go under or at least become worthless at times I even lost some money betting against the banks. I forgot the game was rigged that the government would do what was necessary for the banks to manufacture profits. They lent the banks basically unlimited amounts of money for near free and allowed them to invest in government securities and make the spread.
Talk about free lunch at the expense of the taxpayer. Anyway the banks would have failed but for the welfare of our government and taxpayer. So its sought of the same the system is slanted or rigged in favor of the buyer. Don’t discount the governments hand on the scales. Just for the record in not against banks I understand we need banks and Im glad the government kept them alive. I just figured if the taxpayers money was going to be used and given to the banks at a time when they had very little bargaining leverage I would have thought we could have done a bit better to avoid the damage caused by the abrupt switch from banks over lenient lending to overly restrictive (frozen) policies
Posted by Eastvillboy
Fri Apr 2nd, 2010 02:48 PM
Wow, first off Marshall: thanks for a Fantastic Post.
Let me just say that for years I have been in the BUY Camp. But after this recent Meltdown and looking at the Landscape, I can see that the entire country (in fact, the world) became brainwashed by a Property Owning mentality.
One need look no further than Spain to see what can happen when a hard asset like Real Estate becomes a full blown, cancerous Bubble. Our Bubble was horrific, but looking at Spain makes our situation look like Disneyland.
Now, let me address your Post:
The benefit of the 250k/500k tax free gain is going to be something that MANY people who bought in the 05-07 will never enjoy. In fact, that along with the Mortgage Interest Tax deduction is what helped to fuel reckless flipping and speculation.
I agree with you that much of it comes down to lifestyle and the things people want out of a home. And this is not always attainable in the Rental market, but you would be surprised... especially in the current environment. Renters today have more power than they have in MANY years and the supply of product from 1BR to Townhouses to Farms is quite plentiful.
Part of the reason behind my post was this: It became the mantra of our Nation that OWNING a home is the foundation of accumulating wealth and being able to retire. This was built on the false assumption that prices only went up over time. Well, guess what: we know that's no longer true. Many people in America and the the world over have built vast fortunes and have rented their entire life. I would argue that we've seen a paradigm shift and I for one would hope that the Ownership Myth has been completely debunked.
Sure, people can and should own homes. But, it's not every Americans God-Given Right to own a home or property. These things should be earned, over time and when suitable down-payments, etc can be made. The Liar Loan scandal and Negative Amortization Fiasco that took place should never be allowed to happen again.
Stock Bubbles are brutal and can destroy wealth faster than a host of Locusts can destroy a field of crops. But, a Housing Bubble is far more insidious and destroys not only wealth, but confidence and this time it almost took down the entire Financial System.
Lastly, I agree with you about the Gov't and the Banks. They have sold out the Taxpayers at the expense of the Banksters. Sadly, NYC and the surrounding area are beneficiaries of this so perhaps we shouldn't complain. But, I disagree that because the Gov't is rigging the game you have to play along with them. This has worked with the S&P 500 and Apple shares, but I'm not convinced it's going to work on Main Street where everything is determined at the Local Level.
Here's some anecdotal evidence that no one needs to rush-in to buy a home: I heard that Brooklyn Foreclosures are on a 3 year backlog. THREE YEARS. This Crisis is still evolving in slow motion. All the Fed has done is extend and pretend.
Posted by Marshall
Fri Apr 2nd, 2010 07:48 PM
East About that anectodotal evidence and the 3 year backlog of foreclosures in brooklyn Im very familiar with the brooklyn market I just sold out two small projects new construction 8 units each one in fort green and one in what is called park slope south whatever. I d like to see the location breakdown of the lis pendens or foreclosures in brooklyn Im willing to bet they are in the fringe neighborhoods where a lot of properties were sold or flipped to unsophisticated buyers at inflated prices with little down cozy appraisals and conflicted mortgage brokers and time bomb mortgages. From what I see the downtown areas Brooklyn Heights Fort Green , Park Slope , Cobble Hill, Dumbo, dont seem to have a foreclosure problem. I dont know about Williamsburgh there seems to be a ton of sponsor owned new development product out there
much of which will turn into rentals and a bunch of which will become the banks problem. So I guess if you willing to live 'anywhere" in brooklyn you will be able to get a so called "deal" on a foreclosure. But I dont think that works for the majority of people. As far as as the purchasers in 2007 never getting any benefit from the 250/500k I would say never depends more upon where and what they bought f they overpaid for something that is desireable solid product solid location give it some time
maybe its five years maybe seven years but I wouldnt be surprised if they made out. Its guess its like buying apple when it peaked maybe you overpaid but there is still hope over time
it may not be a NEVER
Posted by Engel Volkers
Fri Apr 2nd, 2010 08:28 PM
I think the amount of luxury real estate being sold is going to start to really go up especially with foreign investors.
Posted by foodforthought
Sat Apr 3rd, 2010 10:10 AM
Perhaps I'm missing something here about how the numbers were prepared. But if average (or median) prices go up, it could still be that the value for each individual apartment is dropping. If there are more high end apartments being sold in this quarter than the last then the average and median will go up. This is plausible due to 2009 bonus purchases.
The statement is just as misleading as saying that prices are dropping because almost all price changes on streeteasy.com are decreases. Although I believe this reflects reality better.
Posted by Noah
Sat Apr 3rd, 2010 01:35 PM
fft - its a good point, but then again what will these reports use for a unit of standarization if not average and median on sale prices? price per sft? I dont even want to use that metric because of the amount of overinflation in the assigned sft data to coops; that are not verified by offering plan.
this is one reason why we developed our systems the way we did, which you will see soon. We want to build charts/trends/stats on data that is reliable and accounted for, not that is open to adjustment by the individual broker. With that said, a majority of our stats will cover the inventory side of the marketplace. The closed stats system is still in development, and honestly, Im not sure how will that will end up. Data is limited.
Posted by Fred
Sun Apr 4th, 2010 06:57 PM
It's interesting that folks still want to make comparisons to past cycles when we haven't come to terms with the fact that this cycle - whatever it may end up looking like - was (a) artificially inflated by nonsensical credit terms, (b) over leverage and (c) an expanding job market. What we do know is now is (a) credit (and the availability of it) is contracting and will continue for some time, (b) de-leveraging is the name of the game and (c) the job market at best will be sideways. Finally, NYC is about to enter an extended period of monetization of real property due to retiring boomers who will be looking to lock in their retirement nest eggs that are basically the product of the previous cycle.
The bond market is telling us that while the Fed's policy may be to keep rates low, the real cost of capital is going up nonetheless. This is mainly due to the fact that the system is gamed to prop up the banks. Geithner et. al. are only interested in creating a spread for the banks since you and I of course don't get any benefit from the Fed Funds rate at zero. Real interest rates and persistently high unemployment are real deal killers for home ownership in NYC.
That said, I think we'll see a pick up in rental rates in the short term. Smart money is selling and renting or leaving the city. I am not talking about 1 beds but the $1.5mm+ price points.
Posted by Marshall
Mon Apr 5th, 2010 06:50 AM
Fred the smart money people are selling and renting or leaving the city Where are they going? Please let me know And what are they doing with their money ? I don’t disagree with most of your observations What are you predicting for the 1.5 million dollar price points ? And what are you predicting for single family brownstones ? How many of these smart money people are actually going to do this and when. Either I don’t know any smart money people or if I do they are not Selling and Renting and or moving out of nyc. Sure I hear talk that one day they will sell and move to their house in Maine but Ive been hearing that dream for a long time. Are you saying if a person was smart they would sell and get ahead of the crowd before the wave of monetization by boomers occurs ? Is this the same advice for the stock market equities and other assets ? Do you believe the economy is healing at all ? Is the economy heading south, muddling along and moving slowly up.
The extreme fear/panic seems to have passed people still seem anxious certainly not euphoric Do you thing the people current state of mind lets call it just anxious is overly optimistic or in denial
Given the present state of the economy ?
Posted by Fred
Mon Apr 5th, 2010 09:24 AM
Marshall - First, I would say that transaction volume levels in Manhattan are about half where they were at the peak and inventory has risen to about 2x what it was at the peak. If volume increases and inventory drops, then I'd have to revisit my assumptions. But as it stands, those two figures tell us a lot about the depth of the market. Second, where are folks buying? I-95 corridor (Fairfield County especially) in the $2mm to $5mm range. Why? You get so much more for your money and property taxes actually pay for services that a typical family uses (schools especially). They are also buying their second home out on Long Island instead of locking into Manhattan. Third, while I really believe that the right price level for Manhattan, generally speaking, is $500 psf, the slide could be over years not months or quarters. Until we see a meaningful, consistent return of transactions at the $1.5mm level and above, the future will remain opaque. The non-agency market is the key and that segment is very closely tied to employment in NYC. Real estate and jobs are intimately connected so not knowing what the driver of jobs growth will be, means you can't say what housing demand will be like on the ownership side. It does probably mean that renting will see more demand. Lastly, I don't disagree with the "moving to Maine" thing having been around for a long time, but we're at the start of a decadal shift towards monetization of retirement savings which for most folks who own homes in NYC, means selling their home. Whether or not they downsize or exit completely is irrelevant because the issue is this process, I believe, will create a growing oversupply of homes in the 1,500 sf and larger range. How it all plays out in the 1 bed world is a guess but to think that 1 beds are immune to a serious downtick in 2 and 3 beds, is shortsighted.
I don't know much about brownstones except it sure would be nice to have that kind of wealth! As for equities, I spend much more time looking at bottoms up opportunities that offer growth, value and a hedge against USD debasement than trend following the broader market. My main theory is premised generally on a stagnant US for the next few years, experiencing above average inflation, a declining currency relative to commodity export currencies and robust growth in Australia, Brazil, Canada and some Asian markets. Clearly the US will re-emerge but that's several years out. We've got a very very large debt to pay, economically as well as politically.
Posted by Noah
Mon Apr 5th, 2010 09:45 AM
Ill add to the discussion.
First off, the peak year or late 2006 to late 2007, to me should be considered an outlier and not looked at similar to how the period between late 2008 and early 2009 should not be looked at; one was euphoria on the upside, the other was despondency/depression on the downside - all included in the psychology of asset cycles.
Second, I dont want to address the 'smart money' and how that money is leaving the city because there really is no way to quantify that. If the seller is the smart money, is the buyer the 'stupid money'? I wouldnt say that. For every buyer there is a seller, and in the end, the parties in the transaction are buying and selling for individual reasons and what specific reason one may be selling for may not be the same reason another one is selling for. Same for buyers.
Third, I do agree with Fred in that we are entering a new phase of the cycle where the cost of money is rising as the fed tries to maintain a dollar carry trade bank recap environment. This is the market doing what the market wants, regardless of fed policy. That was a matter of time and discussed in my STAGES OF THE SLOWDOWN: END GAME piece a long time ago.
http://www.urbandigs.com/2008/10/stages_of_the_credit_beast.html
However, if there is another hit to the tradable markets from an unforseen event, that will CONSTRAIN Treasury yields in a flight to safety. I think 2011-2012 will show this.
Fourth, I dont like to put a preset dollar psft number on the general market with the idea of saying the market is not normalized until it gets to that level. Time and again this market has proven to be fast paced, deep with interest, and resilient market. It can get hit with major events, and recover. Not many markets can do claim that track record. With that said, I do question the reflation foundation and I do have concerns that Fred discussed. But I think the markets will move slowly in that direction, not a jolt, over time as the cost of money rises without the accompanied expansion in labor markets and/or salaries at the end of the day; especially with tax hikes expected. The market will continue to function, and doesnt operate in a vacuum, even at levels above the 500/sft mark for some time. If we do hit those levels, I wonder if perception on life in the city will have changed drastically from what we have come to know of city life in the past decade.
All good stuff.
Posted by Thisson
Mon Apr 5th, 2010 11:40 AM
Noah,
I understand you don't want to use psf. I actually think the appropriate metric is one that expresses some measure of how far the purchaser had to stretch to seal the deal. Maybe this could be expressed in terms of a ratio of median income to price. Not sure.
I still think prices are way to high and I would not make a purchase now unless I planned to live in the place forever, or unless I expected massive inflation (and I'm still in the deflation camp).
Posted by Fred
Mon Apr 5th, 2010 11:48 AM
10 Yr is pushing 3.998%.....psychologically, if it breaks out, we could see the long end of the curve move 100bps before it settles.....who was it Morgan Stanley that projected 5% for the 10yr by 2010 end?
Posted by mike
Mon Apr 5th, 2010 12:27 PM
@Eastvillboy
The answer is fairly simple.
In 30 years I wont have to pay rent when I own a home outright.
In the meantime your rent will more than likely cost double its current price. So while you are close to retiring age you have the burden of having to keep a decent income to pay rent month over month. Whereas a buyer would have had a fixed cost and it would have been paid off by then.
Posted by Fred
Mon Apr 5th, 2010 12:42 PM
Mike - You will pay interest on 75% of the purchase price over that 30 year period which is about double. In addition for taking equity risk, you get to pay increasing property taxes, energy and insurance at the point of increase, full fare. The difference is you are betting that appreciation in value will more than offset these expenses over time, leaving you with a nice gain on investment. That logic clearly worked over the last 60 years. What we are discussing here is if that will hold true over the next 10 or 20 years? And more importantly, will the market have to dip again BEFORE it begins any meaningful climb?
Posted by Noah
Mon Apr 5th, 2010 12:44 PM
In terms of buy vs rent, I cant help but see a big chart in front of me embedded on a glass see through screen; kind of like those verizon map commercials that float around the wireless user.
The picture is a 'X' with stretched out ends.
Given the up front transaction costs to both buy and sell, and clear a trade to analyze if buying or renting was worth it over the same period of time, the benefits of owning will always come shining through with the passage of time. The few things that are variable are market conditions and the bid for the asset, rates (cost of money), and inflation. Then you got employment, taxes, sociological, demographics, development, crime, desirability, confidence, etc..all stuff I cant control on my own.
Back to the picture. Renting is clearly the better play if you end up owning for 4 years or less; if because of transaction costs of buying/selling by itself. But over time, the two lines will cross, as renting becomes the worse play (trends down with time) as you get way out there to 10+ years - Buying becomes the better decision (trends up with time); again, assuming no shocks from the second tier list of variables noted above. To break it down prior to the 4-5 yr crossing point, is to expose to so many variables that are out of our control and who the heck knows where they might be so far out.
So, for me, the type of place that I would need to hold for 10+ years and be able to grow into with time, is simply outside what I can afford. Done. So I stick to renting and saving until either my situation grows to the point I can buy OR prices/total carry drops to the point I can buy. I wonder how many people are out there with future intentions to buy, but are saving up for it? If 4 years passes and I now have the money except it now costs 1.3x to buy the same property I talk about today, then I WAIT UNTIL IT MAKES SENSE. Thats how I think about it. Everything else is just conversation.
Am I alone?
Posted by Fred
Mon Apr 5th, 2010 01:23 PM
LOL Noah - yes, until there are kids and school and soccer games which won't wait as patiently for four years to go by......
Posted by LB
Mon Apr 5th, 2010 02:20 PM
I'm in a similar boat to you Noah and my plan is more or less the same... my wife and I can comfortably afford a nice 1BR, but can't realistically afford something that we'd be happy living in for 10+ yrs. So we continue to rent, save, and wait. If we have a kid before we can afford/are ready to buy something bigger, we'll just upgrade to a bigger rental apartment in our current building.
The point being, we're not trying to time the market (though its current conditions don't suggest to us that there's any downside to waiting), we're just trying to time our own complicated financial and life situations.
Posted by Marshall
Mon Apr 5th, 2010 03:23 PM
Fred Im betting on nyc as opposed to the suburbs I think if you work in nyc there is a lot to be said for living here especially sinnce i believe many people in nyc trying to get ahead really put in so much effort and time working. when i was younger i tried commuting in from Long Island it didnt work for me I felt i would be better off using that time and energy trying to make some money. I guess even when I was younger i had a limited level of energy and while ive heard stories abut how one can relax commuting reading and doing work on your laptop I dont buy it.
I beleive the trend will be towards living in the city, living in smaller spaces, living in much more energy efficient spaces, living close to work and minimizing your commute. I also believe the price of energy eventually will go up. Living in the city for many reasons is a lot more energy efficient I believe city residents have 1/3 the carbon footprint of those in the suburbs. Ive believe the energy used for commuting to work
exceeds in many cases the energy one uses in ones home.
So I think the city got some of the less is more going for it. And a lot of the suburban areas are going to struggle with functional obsolescense when energy is fully priced. That 500 sq/ft thats pretty low for anything above the financial district and below 96th street. I just dont see it unless we take another leg down and or we have another "event". Consruction in nyc is only getting more expensive and the city itself with its paperwork fees and overkill inspections have insured that costs will stay high and future supply will be more constrained. The technology is there to build homes that are much more energy efficient and I expect to see residences built that use 10%-30% of the energy of typical residence of the same size. The city has the natural advantage when it comes to energy and resource efficiency. Just wait till the government figures out it is good policy to have high energy prices what will that do for the 95 corridor. Fred your right about having kids it changes a lot about how you look at things.
Posted by topper
Mon Apr 5th, 2010 04:00 PM
Sorry to change the subject - but does anyone know what has happened to streeteasy.com? Seems to have been frozen for almost a week. Thanks. (I note that Noah has often posted there.)
Posted by Noah
Mon Apr 5th, 2010 04:03 PM
SE works for me Topper...
Posted by anonymous
Mon Apr 5th, 2010 04:26 PM
I find it interesting that some people keep on using contruction costs to put a floor on real estate. This type of analysis works for a good that gets used up, but not with real estate which is clearly reusable by many parties. The supply isn't a function of construction costs, it just is what it is, a fixed number that can increase if prices justify further contruction. However, existing units have no such floor to their price as all of those costs are sunk and irrelevant. Thus, price is really only a function of demand.
Marshall, BTW, you bring up interesting points, but it seems to reflect your preferences while many think otherwise. Even I have similar preferences to you, but the census data is showing that the population in Manhattan has decreased over 5% in the last decade, so I would question whether your thesis, as logical as it is, reflects reality.
Posted by Idigress
Mon Apr 5th, 2010 05:17 PM
Digression to rent v buy argument is not what I come to this blog for and it's exhausting to come here when there's constant rumbling of why you should rent and why smart money is getting out. I come here because I want to know what's happening when it comes to owning and it's very frustrating when the commentary here is from renters who will never be buyers.
Posted by Noah
Mon Apr 5th, 2010 05:27 PM
Idigress - Ill tell you its frustrating for me not having time to write more discussions now. Im literally stuck to the computer working on site dev w/ 2 teams between 5-6 hours a day.
Please hang in there for another month or so until I get this new site launched. Everything will soon revolve around the real time data and that is how the new platform is being designed from ground up. That is the hope at least. Content should come from great places soon and enhance the discussions on whats happening out there.
Until then, content will be minimal from my end. Sorry.
Posted by topper
Mon Apr 5th, 2010 06:05 PM
Streeteasy.com
Thanks, Noah.
When I explored further it seems like something quirky is happening with my computer. The front page is frozen. However, if I click on "More Discussions" I get into updated discussions.
At least now I know that it's apparently not Streeteasy's problem but mine.
Posted by nycjoe
Mon Apr 5th, 2010 06:54 PM
It's refreshing to see a thread that for a change focuses a little more on the psychology of renting vs owning instead of pure long term carrying cost analysis. In my opinion, the psychology should be given more weight because it includes both near term carry cost analysis and current living needs.
Marshall has made a few points that are especially interesting to me. I have owned in Manhattan for 10 years now, and am very recently married. We have a nice 1BR, but it's hardly large enough for my wife and I- never mind kids, which we anticipate in the coming years.
I have refuted the median income / price and reversion to the "mean" argument in the past, but this time I will do so using myself as an example. We cannot afford to upgrade to the larger space we need, and still remain in Manhattan as we wish we could. I'm an IT developer, making a decent salary for NYC. I don't believe that the market needs to "correct itself" so that I can comfortably house a family in Manhattan. I feel privileged to have owned here. I believe prices more than any other single factor reflect the premium people are willing to pay for quality of life.
So, we are faced with a trade-off. For the past 20 years I have been a "commute baby", insisting on a cushy trek into work. I felt bad for all those poor slobs coming and going during rush hour from the burbs of NY, NJ and LI. But now, I'm looking at becoming one of them. In the burbs, we can't afford anything worth showing off, probably something fairly modest. But, if I sell our condo at current market value we should be able buy entirely in cash in a commuter-town market an hour out of the city that looks to be near it's bottom (but that's my opinion). If we end up doing this it will be hard to adjust to commuting, I'll bitch about it for sure- and I have no illusions about suddenly realizing I'm not at the "center of it all".
The whole point I make though is that my median income would be removed from the city, and replaced with that of someone who will pay the same premium I was years ago. This is why I think the NYC market will not respect median income as a price moving factor over time. Unemployment, bonuses (or lack thereof), macros are another story.
Posted by Marshall
Mon Apr 5th, 2010 07:33 PM
Anon I didnt realize the census indicated that the population of manhattan has dropped 5% in the last ten years I think you have to look beyond the gross numbers If we lost 5% of the population how did that occur Who were the people that moved away (or died) and Who were the people that arrived (or were born) They are not fungible from a market standpoint NYC is a great city but its not a place that its easy to be without a bunch of money. I think that the number of good deals low cost rentals stabilized or controlled decrease over time. Thereby putting pressure on those less able to pay to move and many times replacing them with others with a greater ability to pay. When it comes to selling a condo lets say for arguments sake a 1.5 million 1500sq/ft your not concerned with the overall population or census of manhattan you want to look at the population of potential purchasers those basically those with the ability to purchase at condominium for 1.5 million I live in an area where many of the homes have been converted from more than one family to single family I think the population of the neighborhood may have actually decreased over the last ten years. Gentrification doesnt necessarily increase the population.
Im just saying for each price point we have to look at the increase and decrease in the number of qualified buyers not necessarily the overall census.
nycjoe i would try commuting for a couple of months before you make that move also i would check out brooklyn its not bad
Posted by Fred
Tue Apr 6th, 2010 12:28 PM
Marshall - You raise a central theme: the size of the relevant prospective buyer pool for a price point. Would be interested in hearing why you think the $1.5mm+ price point is expanding?
The way I see it, that pool has been hobbled by de-leveraging, tighter credit, sluggish unemployment and no clear future for a rebound for jobs on Wall Street. My guess would put that pool at less than half of what it was pre-recession.
The buyer pool that is robust is in the sub $1mm price point, but that's only because of FNM.
Lastly, the census figures actually break down by economic segment and what it shows is a steady outflow at the upper end. So what you are left with are middle and lower income earners who simply can't afford to move up to larger digs (kind of what's been echoed in past comments).
NY is a great place but it's mainly great if you have money, which is kind of sad but it's what it is....
Posted by Marshall
Tue Apr 6th, 2010 01:55 PM
fred i have no idea if the pool of 1.5 million dollar purchasers is expanding or declining I know that generally a 1.5 million dollar purchaser needs a jumbo loan and for awhile the banks were so freaked that anything they could offload to the to the government gse they really werent interested in providing. This had the effect of lowering the pool of potential purchasers and damaging the market for product in the jumbo range. Which also further damaged the banks collateral. They tell me (mortgage brokers) things are loosening up for jumbos rates are converging with conventional loans and availibility is better. I dont believe you will have a lot more supply from new construction going forward at least for 2 years. Im just trying to figure out where the market is now and where it will be in 6 months a year and a year and a half.
I think there will be buyers at least i hope there will be buyers anyway I have to decide wether I will be able to sell whatever i have coming on line and I want to start some new niche projects that i believe will work provided the market doesnt go to hell
If I my gut told me i wont be able to sell at the price points I need I wouldnt go forward. Right now im making preparations to go forward my gut tells me it will sell but im not anywhere near 100% confident maybe 70% .
Posted by louboutin evening
Fri Apr 9th, 2010 01:12 AM
Im just saying for each price point we have to look at the increase and decrease in the number of qualified buyers not necessarily the overall census.
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Posted by Penny
Tue Apr 13th, 2010 01:14 AM
I saw the Goldman Sachs report that the total drop in NYC would get to about 38% from peak to trough. They may be right; they may be wrong. Still, I for one don't generally want to take the other side of Goldman's trades.
I also recall that the last drop in NYC began in in '89 and bottomed in '95. It was a slow, drawn out water torture affair. Some years a mere drop of 3-4% but it just went on and on.
Lots hinges on how many jobs in finance are gone for good. I don't know how to quantify it. But i doubt that things will be as wild as before. Bonuses having to be taken in stock that vests over 5 years should slow down the rebound.
And the drop in the Euro means foreigners won't be flocking here to pick up bargains.
I love living here. I'm willing to pay a premium to stay. I'm just not willing to take on a jumbo mortgage to do it.
Posted by Property To Sell
Wed Apr 21st, 2010 03:04 AM
Has anyone done a short sale in Real estate? Let me know what the lenders are looking for. Anyway thanks for this great post.
Posted by How To Sell A Property
Wed Apr 21st, 2010 03:06 AM
Has anyone done a short sale in Real estate? Let me know what the lenders are looking for. Anyway thanks for this great post.
Posted by Russ Froneberger
Mon May 3rd, 2010 06:39 AM
Hello from stormy Atlanta!
Decided to tune in to UrbanDigs. What a wonderful resource for both buyers and sellers, especially for those of us not living in NYC. Keep up the good work, Noah!
Cheers............Russ
Posted by coach handbags
Thu Aug 12th, 2010 10:05 PM
Let's just say hypothetically you're going to take a 30 year Fixed and stay for the duration. Don't you pay for the House TWICE or more to buy it with the Interest (aka the Vig)?