Sideline Buyers - How Have Your Circumstances Changed?

Well, I am actually out there looking but taking my sweet time. Main reason I relocated here and need a roof. Things that make me nervous is the continued fall in price, so anytime you lock into a unit I wonder what price to offer to reflect the expected value a couples of years out. I mean we all know we are coming down in prices. Still most sellers out there expect us to switch places with them and seat under a falling knife with no cushion.

In this market conditions I feel like looking and selectively pulling the trigger is the best choise, still I have dealt with many brokers and sellers and I beleive that there is a mixture of self denial and hope that some white knight buyer will show up and save the day.

I am on the sidelines with you.

i. Net worth, down about the same, much better than market but not happy about it.
11. Job. Own my own firm, but not worth the stress, thinking of retiring.
iii. I will eventually own and live in NYC for the rest of my life though I may establish a tax domicile elsewhere and limit myself to less than 180 days a year here to avoid the coming 14% NYS and NYC tax rates.
iv. Agreed. Outlook looks bad, no hurry to buy.

I sold in late 2007 (fortunately).

1.)Got somewhat hit by the market (15% off)
2.)My sense of staying in nyc has changed. i always thought I would stay here forever. Now renting, thrilled that my exit costs amount to a moving van...
3.) More interest in building a liquid nest egg to throw me my annual expenses than to own anything. A ten year game plan. I am anticipating working for the next 30 years as I love what I do -- but would only buy a place by cutting a check at this point.

Great thread - hope we can keep the trolls out of the discussion. Amazing that you guys are only down 15 - 18% from peak. Guess you steered clear of financials. Good luck to you all, hope you find something you like.

I sold in late 2004, own upstate (bought in late 2004 20% lower than initial list, for reasons that shall not go into here, but basically do not think am underwater there).

Made 35% in sale in 2004, made about the same when I sold condo in Seattle, made almost 200% in intermediate sale.

Went all cash over a year ago. Really. At about 13000.

I agree w/mfox, I always thought I'd stay here, but I'm now so sure now, despite the fact that my daughter goes to a really great schhol.

I second that, down 18%? Nice work. If you are buying at a price point above 2004 maybe 2005 you are crazy! If you are buying NOW and plan to stay 10 years okay, I get it...maybe.

My outlook has changed a lot, with one side of me more likely to buy and one side of me less:
1) I used to think NYC RE would drop maybe 20% and so I wasn't planning to buy for a long time if ever, but now that it looks like it might actually make it to reasonable levels, I'm probably more likely to take the plunge. Not yet though, we're definitely not at reasonable levels yet.
2) BUT, it has become less a question of comps for me and more a question of the rent v. buy math. I mean, what comps do you possibly look at? Those from last year, obviously not, but from what year then? Comps are great for market movement and for arguments when you're ready to make the offer, but I feel much less confident using them to value individual apartments. Therefore, I feel less confident in my analysis of the value (different from current market value) of the apartment and less likely to buy.

Another thing that I've noticed: Since I was passively looking for so long, I became an "expert" on my niche. However, this is actually something I have to be really careful about because it makes me more likely to anchor to what I saw at peak. I'm aware of it, but I have to make a conscious effort not to go "whoa, that's quite a discount!"

I'm amazed that we have three OP's with asset losses since the peak of only 18%. You guys should go help out Warren.

I consider myself a new breed of angry real estate owner. I bought an apt in 2004, though I haven't lost money, I was better off in a CD for the last five years then owning. I bought real estate because I bought into the idea that it was safe investment, meaning 'it would never go down'. I wasn't expecting 20% annual returns, but I was expecting a return about of about 4-5% a year, which means 5 years later I should be up 20-25%. Basically the rate of inflation. I am up about 10% right now. If I were to sell today I probably won't even break even after the taxes and brokers fee, along with renovation work I have done. I am incredibly fortunate that I haven't lost any money in the stock market, I have only lost money in real estate. I am so disgusted with the system that when I do eventually sell my home I will rent until I am very, very old and then I will buy a shack and pay cash for it.

Although I don't consider myself poor (40 years old making between 100-200k, not in finance), I feel poor when the issue of buying manhattan real estate arises. Using a conservative metric of 20 x my current annual rent, that would put me at a entry purchase point of around 600k. Manhattan would have to drop a lot to make it feasible for an "average joe" (for purposes of manhattan) like me to buy in the city (note that I have a family, so I am looking 2 bed+). As well, these calculations are calibrated to MY comfort level of debt, not some broker formula, so please lets not bicker and argue about why or why not 20 x annual is or is not the right multiple. Call me crazy for wanting to keep a few bucks in the bank for a rainy day.

Still, I have no burning desire to own and actually in some ways see it as a burden. However, my wife would prefer to own something, so we have looked into it some and watch with some interest. Right now, I have been redeemed in our "discussions" over renting v. buying so there is not a lot of current marital pressure to "buy now or be priced out forever". In fact, if rents decrease it is a no brainer for me and an easier sell to my wife to continue renting, especially if the favorable tax treatment of deducting mortgage interest gets diluted.

As well, I am not even committed to the city. As I get older, on one hand I see more and more cost to living in NYC yet on the other hand I indulge in fewer and fewer of the convenience "benefits" which were the original draw to moving to the city. My wife is more committed to the city than I since she orignally hails from this area, so its not like I can just pick up an leave. So I guess time will tell if we continue to rent or find something to buy probably in an outer borough in a decent school district or if she gets her fill of the city too and we simply find a greener pasture.

Not sure if these circumstances technically make me a "sideline buyer" or not (is there a formal definition of such?), but I thought I would add my 2 cents regardless.

I would like to congratulate my fellow SE readers for being smarter than the shmoes who make up the rest of the market. I too am down only 18%. Let's all have a hearty laugh at the idiots who are down 40% - ha ha ha!!

It's interesting, while 18% down hurts, it is a lot less than the market. But I don't owe that to any "great calls" - yes, I've had some good sells in 2007, but the real reason is because I'm generally a conservative investor. Meaning, if I am not really comfortable with the gamble, I probably won't take it.

I actually put my bonuses over the last few years in cash and sat on most of it, largely because I didn't like allocating much of my net worth to high risk assets. I'm already exposed to Wall Streets gyrations through my job. My attitude was very similar with respect to Manhattan real estate. I never bought into the idea that anything goes up forever. Nothing genius, just didn't see the value proposition of NYC real estate at all compelling.

I would bet that a number of other sideliners were also conservative in their overall investment attitude. I also would bet that many people who bought the whole "Manhattan real estate only goes up" also bought into the equity markets for the same general disregard for risk and valuation. If that's the case, there are probably many owners out there who have taken devastating hits to the rest of their portfolios, compounding the problem.

I'm down 40% on my stocks, but I was extremely cash heavy so I'm only down 10% overall.

The more the RE prices went up, the more I saved and refused to buy at stupid high prices.

What concerns me now are the tax increases for NYS and city.. I might actually abandon NYC/NY if they jack up taxes too much (unless of course NJ and CT jack up also).. squeezing me for more money is just going to make me spend less

1) I think RE prices will go down at least 40-50% to get to equilibrium, so why pull the trigger now?
2) I'm not sure if quality of life in NYC will remain as it is. I'm afraid there is a reasonable chance violence will increase significantly and render NYC less hospitable.
3) I actually work in NJ and I have to pay extra taxes to live in NYC. The more the taxes go up, the more incentive I have to leave.
4) If there is a reduction of the mortagage deduction, prices will also decrease to account for it.

The best thing to do with all these variables is to wait and see what pans out.

you people are still stuck on 12/31/08 stock prices...the market has dropped an additional 20% since the start of the year. most people's equity portion of their portfolio is down 55% - 70%. So many of you down only 18% ...that is incredibly impressive

I AGREE WITH hsw9001,need to wait.The market is done to 1997 levels,unemployment what is was 25 years ago but sellers still stuck as well as brokers.I lost 30% in my pension but young enough to hopefully recoup and heavy in cash just waiting and waiting.Seems like there is much less to see.I used to go to 4-6 open houses per weekend ,now maybe 1 open house.I am also worried about taxes,and less deductions but guess it is the new era ,time to really screw with people that WORK and also pay for Tarp and increase taxes

I'm not very positive these days, but one way in which my circumstances have changed for the better is the cost of certain things that are very important to me, albeit discretionary, such as travel.

We will be traveling for Spring Break and I was amazed at the hotel prices. $97 per night for Le Meridien in a top city. I wound up splurging at around $200 for the W instead.

bugelrex,

if your stocks are down 40% but you are only down 10% over all because of a heavy cash weighting, does that mean you were 70% in cash? interesting. i'm down a lot more than you guys from the peak, assuming your numbers are accurate (about 25%) but fortunately i had two years of over 50% performance before that so i'm still a lot better off than i was several years ago. it isn't so much my situation as my outlook that has changed. why pay up when so much is coming on the market at prices not seen since 2004, and almost certainly headed even lower?

I held (stocks) long enough to be up somewhat. Then again, I'm into stem cell companies, and knew that when biblethumper is out of the office, the progress will resume.

happyrenter,

Yes 70% cash because the money was primarily targeted to buy a house (didn't want to gamble it away).. the bubble went on so long that I saved so much... I can now actually buy the apartment I want in cash.. but this has made very VERY nervous of the government creating hyper inflation!

My 15% is also of net worth -- I am still in cash and corporate bonds. no confidence in govt bonds...

I'd say that about each quarter my thoughts about when I might seriously buy get extended by another month... I can't see even thinking about anything seriously for at least a year.

The sad thing is that holding real estate has been a disaster for peoples' net worths. Take LICC/tech_guy, who bought within the last 18 months. Unless he has other savings/wealth, there's a possibility he has zero net worth at this moment.

Down 70%+ on financial stocks (too lazy to sell stock in former Wall Street employer) and ~50% on other stocks, but held a lot of cash and muni bonds (partly out of caution but mostly laziness), so down something like ~25% on overall portfolio. Two years of income/savings (so far unaffected by downturn) have filled some of the hole, so net worth down maybe 15% from late 2007 peak and much of that is in cash. The other aspect of circumstances is confidence, and I don't see anything that suggests that I need to try to catch the falling knife that is Manhattan residential real estate. I'll be an active browser of listings and SE to stay current, but I feel like I am getting paid (via lower purchase price) to wait.

I'd also like to respond to faustus' original post.

First, thanks for this. Good premise for a thread and potentially quite useful if people use it to share perspectives rather than pound their chests and vent.

Second, I think we are in similar circumstances and I see a lot of me (both facts and mindset) in your post, the main difference being on the job front where I am in the fortunate position that I have confidence in both longevity and comp. This makes me very encouraged about the hand I could be playing in the real estate market, say, 12-24 months from now, but does nothing to make me want to act now.

Third, I agree with your premise about the profile of sideline buyers and you(we) being representative. If the premise is halfway right, there will be a lot more sitting than jumping in for a while yet.

i. My net worth had increased a lot, thanks to the crash (i was short).
ii. My job circumstances: husband with stable job that he enjoys but that doesn't pay a whole lot. i'm a stay at home mom and manage the family finances.
iii. My commitment to NYC is declining by the hour. my portfolio could already comfortably generate the equivalent of a salary, so we are playing with the idea of relocating to a much cheaper place (in terms of taxes and cost of living). his salary will be obviously lower but my returns will be the same, so it pays a lot to play geographic arbitrage. nyc seems to me more and more a place for the ultra rich and the welfare recipient, i'm none so it makes no sense to stay here. we are starting to believe that visiting a couple of times per year to enjoy the city makes much more sense than living here. we would also prefer nicer weather and a local economy that's more promising.
iv. "My general outlook for NYC and the local real estate market. Bloody, grim and worsening. I fail to see what the catalyst will be to bring it back." same thing here. rising tax rates that are already high in comparison to the national level instead of cutting public spending doesn't give me hope at all.

Very interesting posts. Please keep them coming.

Interesting that many of the sideliners here have fared relatively well in the markets. There's definitely self-selection at play in that those who've done okay are more likely to post about it. But I also suspect that many have done okay in the markets for the same reason they've known not to invest in NYC real estate over the past few years.

There is absolutely no rush to buy. I'm not concerned about buying at the "bottom." But when prices dip 40 percent from peak, then I might get ready to jump from the sidelines and into the game. Circumstances are bad everywhere, but from a buyer's perspective, they are good.

i. Most of our money was invested in stocks but cashed out 70% of the stocks earlier last year for a profit in anticipation to buy real estate.
ii. Remaining stocks are really down. At the peak, they doubled, now we're losing and probably down 20% or so.
iii. Stopped looking at the 401K investment, I'd say it's down 40% or more.
iv. Company is laying off people, nothing is guaranteed but still feels secure of the job.
v. Intended's career roadmap may require international assignments, relocations, etc.
vi. Getting less and less enthusiastic about owning and carrying the financial burden, esp. that you can rent for much less and have financial freedom.

faustus, it could be selection bias that sideliners are relatively unscathed compared to the general market. If you are serious about buying, you'd keep cash on hand b/c of the large deposit. This may have been serendipitous for the people who kept the majority of their assets in cash compared to those who had it in the market.

cleanslate...i'm with you..i keep going back and forth on renting vs. owning.

Great discussion. I, too, am in absolutely no rush. We have been long-term renters who made the silly mistake of not buying in 1990. We found the perfect apartment a year ago but choked because the prices of apartments in Manhattan just seemed too bizarre to accept. Some marital stress resulted, but we both now breath signs of relief. But here's the thing: I know that NYC is in for a struggle, but NYC is and will remain one of the top three cities in the world. I want to live here for the rest of my life (with possible year or two -- or season -- abroad from time to time). We took a little more than 18% hit on net worth, but not much more, having been heavily in cash. I am waiting for sellers to recognize that if they bought, say, in 1990 they really can't reasonably expect to get four times what they paid for the place. That harsh reality clearly has not yet set in, but I am confident that it will. Also, as we are not in a hurry, we are thinking that a gut renovation might be less costly now that contractors are looking for work as opposed to recent years in which hooking a good contractor seemed like it was like getting a kid into a top preschool. So, this has opened up the possibilty of an estate purchase, which we would not have considered previously.

I'll jump in just to say:

1) We want to buy (in Brooklyn), but (like others) will wait because we're betting prices will come down more than they already have.

2) We're not as pessimistic about NYC as some on this thread. Yes, taxes will go up. But we'll have to have jobs anywhere, and there's a LOT more opportunity to make good $$ in NYC than many other places. Sure, crime will rise, but I don't think we're headed back to the 1970s (which I know only from legend).

I can certainly see why people would leave NYC, but not if they're just moving to NJ or CT. I just don't see the point of that (particularly if you continue to work in the city). When/if we'd leave, it would be for a wholesale change (a smaller city out of NY/CT/NJ, a college town).

Right now, a move like that actually doesn't look so attractive. NYC's getting hit, other cities and towns are getting crushed.

Oh, I'd talk about our 'portfolio,' but our money probably doesn't merit the name. We're heavily in cash because we were saving for a downpayment. It's turned out well, but that's just a happy accident of timing not some genius move on our part. We've been killed in our retirement accounts.

I'm just like JKB -- All cash -- spouse wouldn't allow me to go into equities after the 2001 debacle :) Have been saving/paying off private loans for the last 3+ years in anticipation of buying. Renting, thinking of trading down to save extra $$$ for the next 12 months so as to be able to strike when the time is right. I don't look at my 401k, but I'm sure it's bad.

Surprised (pleasantly) by the amount of people on the sidelines. Mixed views on NYC long term -- we lost 3 home town banks to foreigners -- from a staffing perspective, JP likes to spread people global, BofA is Charlotte and BarCap is in the UK, plus Citi (which has always been crappy) is likely to be split apart. So we will have only have GS and MS as NYC centric ... hopefully visa laws will not change much, if congress makes it even harder to hire non-us green card holders and us citizens, NYC is finished. Otherwise, NYC will come back, but I think people underestimate how bad the carnage is. It is NYC (this from a Chicago native) so my instinct says it must return. But my intellect is with HWK in thinking that NYC is the next Detroit.

I'll probably end up in bklyn, but i'll still dream of a steal in the west village.

I decided that I would be buying an apartment in the near future in late 2006. At that point, I allocated my investments so that I was 85% in cash and other very safe investments. Overall, my net worth is down about 5%. I was lucky though - at that point, I had no inclination the markets would crash as hard as they have.

I poked my head into the real estate market in mid 2007. Luckily, my job gave me much more of an understanding than most that we were heading into a rough patch. I still probably would have bought at the time (I didn't expect it to get this bad) if any sellers or developers demonstrated some understanding of where the market might go and were willing to negotiate a bit, but none really were, so I backed off.

At this point, while I'm still committed to buying an apartment in NYC, I expect that the market will end up somewhere around 2002 prices. All the price appreciation that happened between 2002 and 2007 has to be ignored. Those prices were the result of an enormous real estate bubble and were not real prices based on fundamentals. They're meaningless and not valid comps in any way. When we get to that point, I'll be back in.

Sideliner here also watching the market. Sold my coop and upstate home 5 years ago to move to the suburbs. Survived one year there and sold that house for a tidy profit. Been renting in Manhattan and lease up end of April. Live in luxury hi-rise in HK and landlord tried to raise my rent! They eventually offered 8% off but we have found much better deals elsewhere. Right now the plan is to purchase something next year. But a few things have to happen.
1. stock market bottoms which I think it did last week( I day trade and this is based on my technical analysis)
2. no more advertorials in the NY times like the one this past Sunday where the top echelon of real estate(the self-serving idiots who always say it's a good time to buy) tell us the bottom is at hand.
3. a huge inventory surge in a short period, capitulation if you will.
4. some really negative articles in the press predicting armageddon for New York real estate. We saw that this past week with regards to the stock market. Maybe the CEO's of Elliman, Corcoran even chiming in agreement. Now that would be extremely bullish.

AS with my day trading I buy at maximum fear. Doesn't always signify a bottom but is usually close enough. Right now all eyes should be on the upcoming auctions in April of the bloated condo inventory in NYC. Will be interesting to see the price/sq ft these units go for. Or if the opening bid, 600/sq ft, is even hit.

I'm a sideliner... and our outlook has changed. We will be renting for the forseeable future because of i) uncertainty about future income, ii) concern over rising property taxes/ maintenance charges, and iii) overall macro economic view which is predicated on a further decline in growth, asset prices, and business activity.

"I feel poor when the issue of buying manhattan real estate arises."

Amen to that. My net worth is down a lot (not yet half, but I can't bear to calculate the percentages). My company shares vested in a couple of months and they are down about 80%. I love the city but it's hard to argue that going elsewhere and putting down a large down payment on something I can afford wouldn't be the wiser move. I hate to think I'd be working like a slave to pay for decent housing here. If I get laid off, it is game over for my time in the city. Therefore I am no longer looking to buy.

"2) We're not as pessimistic about NYC as some on this thread. Yes, taxes will go up. But we'll have to have jobs anywhere, and there's a LOT more opportunity to make good $$ in NYC than many other places. Sure, crime will rise, but I don't think we're headed back to the 1970s (which I know only from legend)."

But there is the interesting thing... you don't HAVE to be pessimistic about NYC. You just have to admit that the overdone optimisim is over.

If NYC comes out ok, still the best city, some more crime (but not 70s), some good money (but not Wall Street peak)... you're STILL talking about a city whose real estate is worth substantially less than it was.

It had priced in continued increases in quality... so even flat quality means down. And this decrease in quality means significantly less in prices.

No matter how smart you are, no one has escaped this economic downturn unscathed. In our case, we have just returned from 5 years overseas and are still actively looking for place in NYC. We now feel that God was watching over us when our 4 previous offers were turned down. If we found the right place at the right price we would jump, but I still feel sellers are unrealistic in their expectations in this market. I can't tell you how many rabbit warrens I have been shown at 1.5 million dollars or above. Yikes! If anything I have become even more discerning as time passes.

Seems to be broad consensus on this thread on a general attitude toward NYC real estate - there's little danger in waiting (or opting out completely).

nyc10022, since you quoted me, I thought I'd just clarify -- my comment about quality of life in the city had nothing to do with the direction of real estate prices. I was responding to those who'd suggested that the damage to the city's economy was likely (or very possibly) going to make it unlivable.

I agree wholeheartedly that NYC real estate prices are headed for a new equilibrium, one based on a new reality in disposable incomes and the end of 'excessive optimism' about the future.

I'm just not convinced that that's a disaster for the city. I know plenty of people who get by on <$100K for a family of four. They're not robbing people in the streets, nor are they miserable slaves to their abodes. They like NYC city living, and they're willing to accept the sacrifices that go with it.

Also realized I never answered the initial question of the thread -- our circumstances haven't really changed (more job uncertainty, I guess), but our outlook has -- we'll wait for a while unless we see a great deal.

My bad then. Sounds like we are in agreement.

No, it won't be a disaster overall. Just a new equilibrium.... and, ha, I was going to say something just like this but you beat me to it:

'I agree wholeheartedly that NYC real estate prices are headed for a new equilibrium, one based on a new reality in disposable incomes and the end of 'excessive optimism' about the future.'

I think that sums it up very well.

:) Oh nyc10022.... "excessive optimism" => GREED. :)

Yep, me thinkz the "greed" factor no longer plays into anything RE related... it's more like how much do I not lose mentality.....

This one's called "Broker's Lament" - it goes out to Agent Rachel

Interest rates have dropped to zero
Ben Bernanke, he's my hero
To one and all, my price won't last
(And that's because it's falling fast!)
So bring your kids and bring your spouses
To unattended open houses.
I'll bring the cookies, I'll bring the beers
And I'll be smiling through my tears.

Oh God, what will become of me?
Seven months, and just one fee.
Selling homes, there's no enjoyment -
And now I'm facing unemployment.
I'm at the point where I would kill
To have a single mark'table skill.
So now my only lasting thrill:
To be Streeteasy's resident shill.

So come on tech_guy, L-I-C-C -
Sing of naive denial with me!
Come on waverly, come on alpine -
Here's to flat prices in 2009!
Juiceman and spunky, SteveF and Ali -
We all know the market is ready to rally!
But blindfolds and earplugs can't stop me from thinking
Not all is okay, as values keep sinking...

That's just great! Big smiles :)

(I have to get off this site!!!!)

WOW great post, great skill! On line real time improv rocks!

Great discussion of sideline buyers. My wife and i are sideline buyers. We both still have jobs tho uncertainty levels are high, since we both work for recognizable financial firms. We'd been saving cash for last few yrs to buy home and were thinking 2009/2010 to buy.

Now, we're sidelined for the forseeable future for several reasons.

First, the depreciating asset problem. There's NO WAY we're buying property now when all prices are falling and falling rapidly. We're in a deflationary period. We have NO IDEA when prices bottom or at least stabilize, particularly as unemployment rises, which is single biggest determinant of housing prices. Low mortgage interest rates are NO DEAL/irrelevant when the price of the property you just bought falls another 30%. We will wait until the rate of decline in real estate prices stabilizes for several months/qtrs at approximately ZERO. There's no way to judge value until you know prices have at least stabilized. Prices are unlikely to rise for years, perhaps a decade, if history is any guide. Waiting as long as possible to buy is the smartest thing one can do, in our opinion.

Second, renting is such an easy and readily available alternative, both in the city and outside. There's no lifestyle compromise, even though we have young children.

Third, we are convinced the stock market will appreciate much earlier and more significantly than NYC real estate over the next 5 yrs, so would prefer to push a portion of the real estate downpayment cash into the market, at the appropriate time, and for a few years, rather than real estate.

Fourth, though less significantly in our minds, our job uncertainty prompts caution.

Importantly, there's one reason we're NOT sidelined. We have the cash available for a substantial down payment and enough other assets, such that we could even buy a reasonable property outright. We have no barriers with down payments or obtaining a mortgage, even though we'd prefer to get a reasonable mortgage rather than pay for the property outright.

We know two other couples that are sidelined for exactly the same reasons as us.

None of us even bother looking at real estate, other than to discuss, amongst ourselves, how happy we are that we never bought and took on those ridiculous mortgages. We're sad, however, that so many are suffering and that the numbers will only grow over the next few years.

Well, I lived through the devastating times in the 1970s...city flight and all that.
I watched people leave this city and watched from the sidelines as there children came back. Moving into the same buildings, in the same neighborhoods their elders had run away from.

Guess what, New York is here to stay, as, if not THE center, one of the centers of our world.

35 years ago few people bought. Most buildings were rentals. I grabbed a very overpriced rent stabilized apartment in the West 80's. Drugs were being dealt on my corner. Prostitutes walked Amsterdam Ave.
In the 80's there were crack houses, the same building where chic euro trash live today.
I still have my 800 dollar a month one bedroom in a good building on a great block. I invested with my day to day life, not my money.
Now look at the neighborhood I live in. My apartment rents now for 2800 a month.

I'm not trying to give you guys a history lesson. All I'm saying is that history has taught me that, after this debacle of an economic crisis, after the period of inflation that is bound to follow. Inflation that will be possibly as bad as in the 1970s, after all of this is over people who buy today will be very well off.
Can you imagine mortgage rates at 16%? I lived through those days. Can you imagine holding on to a 30 year fixed at 5.5%, when inflation is that bad? And when that period is over, where do you think prices will be? 30% higher? 50%, 75%, keep going.
In 1977 you could buy a Brownstone in the West 70s for 75,000. What were they worth 10 years later?
350,000+.
Long way to say, Guys if you have the ability, now is the time to buy and apartment.
I wish I could.But then again, I invested well all those years ago.

Jasmine,
A good story, I know it's true.
When you buy or rent a home, yes you are making an investment but ya gotta pay for a place to live.
Better to own then to give the money to the landlord and pay his mortgage.
I agree with you.
Decide your budget.
Stick to that budget (OK you can go up a tad)
Be realistic about your life and your goals.
Get into a 30 year fixed at a low low rate, if you have good credit.

If you live there for 10 years, I'd bet a million you won't lose money.
Real Estate is long term invest.

But the argument is a bit flawed considering where we came from and how; when comparing to 70s. Did Manhatan prices rise 200-300% in the 8-10 years prior to the 70s? Was there a boom like we had from 1998-2008? Just deciding to remove that element right there is a flaw.

If inflation is going to be real bad as a result of policy, where will inflation show up? Food? Energy? Health Care? Metals? Housing? What will the system of credit look like? How tight will regulation stranglehold the new securitization market/leverage/capital ratios? What if the fed eventually raises reserve limit after we get through deflationary spiral?

Think outside the box here folks. Yes history repeats itself, but careful what you relate it to. If inflation gets out of control, and rates rise, and mortgage rates rise big time, do we really believe with all that is going to happen to financial sector / and where home prices came from, that house prices will start a new bubble? Im afraid that is not too likely. The pain runs deep after experiencing this and the new system that lies ahead will be designed so this never happens again, at least not for decades. Any inflation on the horizon is more likely to show up in food, energy, health care, metals; furthering a crunch on consumers. That is what is called an unintended consequence. Lets see how the bond market handles its issues over next few years and how high rates go by 2011 - 2012. If mortgage rates hit 9% or higher as an unintended consequence, how many people will be rushing to buy homes?

For some reason people ONLY see the good in fiscal/monetary stimulus; and decide to ignore WHY its being applied so aggressively in face of current crisis and negative side effects it brings later on.

PS: I am a sideliner and plan to buy in future too, but Im in no rush and the place I buy will have to be properly discounted. I dont see a V fall/recovery by any means so I truly feel that time is on my side. Luckily, I did well and made some money by adjusting portfolio in late 2007. But my industry and my business has been very slow over past 6-7 months and I dont see that coming back anytime soon. I seriously doubt I will be matching my salary from the past 2-3 years, and so, lifestyle changes have to come; just like with everybody else.

I plan to take urbandigs to next level in very near future, and that means putting up some of my own capital and perhaps a period of development time where little time is spent with buyer/seller clients. My partner and I will try to raise some capital, but in this environment/sector, it will prove tough. I do plan to switch to more of a consulting based model though in terms of real estate transactions. But you never know what final model will be. In any event, salary will see pressure for 2009, and probably 2010, and unless that changes, Ill be on sidelines for another year or two. 'Missing the bottom', as a phrase or an argument, means nothing to me.

1

jasmine, today's situation is different from the 70s in countless ways (none of which shine favorably on real estate today). making those comparisons is simply irresponsible. inflation would crush real estate values (via higher interest rates) now that homes are such a levered asset class.

background - have worked on wall st for close to a decade. have done well, but largely missed the boom pay that you see on the nbc nightly news. came from a very low-middle class background, and saved most of my earnings. never bought because i couldnt wrap my head around paying the same price for a studio apt as a nice family home would cost in my home town. got married last year after being together for quite a while. i have wanted to buy for the last 2-3 years but could never "afford" it (didnt want a huge amount of debt but wanted a 2+ BR for the long haul). now that we can "afford" it (net worth down 20-25% depending on the day since i have a decent exposure to financials in terms of deferred comp), i still dont feel like we can. i worry about the stability of my job, and even if i have a job, my comp could be down 75-90% if the populists get their wish.

on nyc - i dont believe nyc will be the next detroit unless city and state govts make it that way. the war on corporate america is directed here. we need our politicians to stand up for us (and sorry guys, by us, i really mean us, bc whats good for corporate/financial america is good for nyc). if they continue to engage in witch hunts and tax increases, i will worry more. but just bc a bubble burst doesnt mean we'll be detroit. look at toyko for a more apt comparison. prices were close to $100K a sq ft at the peak of their real estate bubble! they are down close to 99%, but they didnt become a dead city, ie detroit. still one of the greatest cities in the world. but that doesnt mean prices dont have a long way to drop. we'll see a continued destruction of wealth and prices will get lower. im waiting until 2010 when ill have a better feeling about my job stability or when prices get to 2000-2002 levels, whichever comes first.

I also held back because I just didn't understand who was paying $700k for a studio. If that was all you could afford, you could rent a much bigger place. I'm waiting for prices to come down to mid-90s levels, which is where my stocks are.

undecided,

Would it not be better to wait until rent = 20% down 30yr fixed mortgage ?

Fixating on a certain price in the 90's may be a little unrealistic. Rents adjust must faster so if they they go back to 90's level you are correct..

undecided,

Would it not be better to wait until rent = 20% down 30yr fixed mortgage ?

Fixating on a certain price in the 90's may be a little unrealistic. Rents adjust must faster so if they they go back to 90's level you are correct..

Well, I was being a little facetious there. I actually own, but just moved into a bigger rental, because I think it's going to be a while before prices stop coming down, and as everyone has been saying, why buy when prices are coming down. And I think it'll be a very long while before prices stabilize and start inching up, which is why I want to sell our place now (or try to), but my husband thinks it's better to rent it out.
Any thoughts?

undecided,

If the the rent you can get = mortgage, or if you break even after the tax depreciation.. my personal opinion would be be rent it out.

This crisis will end eventually (at least 3-5 years in my opinion) and the longer you can hang on the better.

Unless you really think we're entering a Japan style deflation you should sell now..

Bugelrex, it's funny that you mention Japan's deflationary 90s, because I just read yesterday about Gary Shilling in the WSJ, who thinks that's exactly where we're headed. If you look at just the opinion of posters on this board, you can see how it could happen--not that I think or hope it will. But I feel like...well, things that seemed unlikely (a money market breaking the buck, Lehman going down, Madoff being a Ponzi artist)...you just don't know any more.

Urbandigs
I believe, had the fed raised interest rates a few years ago and continues to raise them, instead of lowering them, to falsely stimulate the economy, some of this mess we’re in would not have happened.
Inflation in it's definition, will raise all prices across the board. Credit will come with higher interest rates.
I agree there are flaws in Jasmine's argument.
I think what she is saying that even if you pay a little more today, if you stay in the apartment, or home for a long period of time, not only will you get a good return on your capital investment but you also will be getting a place to live. Your monthly costs are going partly to the bank and partly to you.
Sound advice...if you have a 30 year fixed.

unless asset deflation continues, credit contraction continues, yet we see inflation show up in commodities, health care, etc..Certainly its hard to imagine upward wage inflation in near future

the fed is scared shitle$$ of asset deflation, which is what we have now. I tend to look at inflation the way Mish does, in terms of money supply/credit. If credit is contracting, or even stabalizes, how can we expect to see inflation in home prices?

I agree though, the fed, fractinal reserve lending, ratings agencies, micromanaging interest rates, securitization model rewarding quantity/fees, deregulation, use of excessive leverage all played a role here. Deleveraging is a bitch and will take time. Household deleveraging will linger for years.

I've seen people here and in other discussions refer to "deals" or"good deals" in nyc or any real estate. I'd like to propose a very specific definition of a "deal" that should serve to eliminate many of the most unpersuasive and ineffective arguments I think folks make about real estate.

A "good deal" means paying a price for a home/condo/coop, such that the gain the owner experiences from the time between when he/she buys the unit to when he/she sells it, is greater than the return available from renting and investing the downpayment in some alternative. All taxes, tax deductions, fees, renovations etc. etc. must also be included in evaluating both scenarios. Said simply, did you sell the place for more than you paid and earn a rate of return higher than other alternative investments over that time frame.

Sorry to be so complex, but the point Im trying to make is that what the unit is selling for now vs what it sold for 1 month ago, 1 yr ago, 5 yrs ago or 10 yrs ago is IRRELEVANT. All that matters is what the price does from the time you buy it til when you sell it. The past is IRRELEVANT. All buyers know this implicitly.

If you want to argue that something is a deal, you must explain why it will gain, in the FUTURE time period you intend to own it, more than the alternative of renting and investing your money elsewhere, such as the broad market. Conversely, if you want to argue something is not a good deal, you must explain why the gain in the FUTURE time period you intend to own it, will be lower than the alternative of renting and investing your money elsewhere, such as the broad market.

(As an aside, I believe the real estate finance literature shows that on average (emphasis here; on average), the rental and owner markets are in equilibrium in active real estate markets (most), meaning there is NO economic difference between renting and owning. ie. Buying real estate is purely a consumption decision, but that's a whole other conversation and will prompt howls from the Real Estate industry who want us to believe that a house is a 'good investment,' when its entirely unsubstantiated by the data/evidence. Again, i emphasize, on average. Some people clearly make real relative returns on a purchase and some lose, but they offset each other for the most part. My motto: If you like the house and can afford it, buy it, but dont delude yourself into thinking you're making some brilliant investment decision.)

Back to predicting the future...

Measures of housing affordability such as OER or Price to Income Ratios etc. etc. are interesting, but only in so far as they suggest what the price will do in the future. They seem helpful at times, from what Ive seen.

Its quite possible NYC remains vibrant and central to the world of business, culture, entertainment etc. etc., but that housing prices fall precipitously and remain depressed for years. Its also possible that NYC retains its status and prices fall, but ultimately rise again in a short period. "Believing" in NYC or understanding what happened in the 70's is almost entirely irrelevant to what happens to future prices.

Neither inflation nor deflation are "inevitable" but economic consequences of monetary and fiscal policies. Arguing for either one must be done on that basis alone. There are myriad indicators of inflation/deflation available now. The fact is we're currently experiencing deflation, particularly in housing. There is a raging debate among economists and policymakers about whether we will have long run inflation or even hyperinflation, because of the massive monetary expansion underway. However, most recognize deflation as at least a short to medium term consequence of the credit bubble bursting, as happened in Great Depression and described by Minsky. (As in, we're in A Minsky Moment.)

I would suggest focusing arguments about real estate prices around unemployment, wages, credit availablity and deflation/inflation, since those seem to me to be the most important factors influencing the trajectory of prices.

I'm of the opinion, per Goldman Sachs Jan 2009 study and Ivy Zelman's work, that NYC has between 30-50% further to fall. NYC has just started to experience its challenges relative to Las Vegas, Phoenix, Florida, California etc. Of course I recognize I could be wrong if my expectations of unemployment and the timeliness and effectiveness of govt monetary and fiscal policy are too pessimistic.

However, its easy to figure out if real estate prices are bottoming. Simply watch the rate of change in prices. (Tons of data available re. NYC) Prices are falling now, but will fall less rapidly and ultimately stop falling altogether before turning higher. All you have to do is wait til prices stop falling for a significant enough period with normal transaction volumes and you'll know that you're pretty likely close to the bottom. Of course addtl economic forces could change things after that, but thats the general idea.

Of course, its true that if you intend to own an apt for 30 yrs, buying now and riding out the declines may not seem so bad, but I'd sure rather get it 30-50% lower.

PS. A friend went to a new condo building on 64th and 2nd (dont know the name) today. They told him they couldnt sell nearly enough units, so its gone all rental. They told him to make an offer, because they just wanted him to move in. I havent verified this myself and would welcome anyone to confirm or refute it. Just trying to get to the truth, rather than talk in vagaries.

I think the explanation above for so many being all/mostly cash is dead on. We were also very cash-heavy, party due to timing (hate grad school debt, were paying that off), party caution regarding investing in overheated markets, but mostly simply because we were saving up for a downpayment. So net worth today is actually at an all-time peak after 2008 bonuses. We started putting some money into equities in October 2008 (obviously too early in hindsight) and have been dribbling it in, but in total it's only about 20% of our liquid assets, so the losses are not significant enough to affect buying decision.

We stay on the sideline because

(1) we are still comfortable in our rental, even though we won't be in 2-3 years,
(2) we want to have at least one, maybe two more years of bonuses under our belts and
(3) have a hard time imagining prices going up anytime soon

We are no more or less likely to buy today than we were 6-12 months ago (since both are close to zero), and we are no more or less likely to buy in the next 1-2 years. In other words, sticking to the plan.

Alot of comments because alot of sideline buyers waiting, waiting...yes circumstances have changed. It's amazing how fast economic perceptions can change. Now equity markets are pricing in recovery by the end of 2009. Let's get there!

sirwinston...i agree with most of what you have said but isn't the proper alternative for comparison a leveraged investment in another asset class (as opposed to just the down payment)? that makes it a like comparison.

"Now equity markets are pricing in recovery by the end of 2009. Let's get there! "

your kidding right? Markets are down 60% before this latest bear rally. Bull markets dont rally 10% in a week, bear rallies do. I can see it already, stocks up. Bottoms in. BUY BUY BUY. Nothing but smooth sailing from here, and all of a suddenc, people have jobs, high paying ones, their debts are gone, and their losses from markets plunge have been recouped. YAY FOR ALL

Sirwinston, thanks for your very helpful post. Quick question: When you say, "ll you have to do is wait for prices to stop falling "for a significant enough period," what do you mean by "significant"? Can you quantify?

> your kidding right?

No, he's just another sucker in denial. This is the guy who said this...

"Looks like we've got a house full of bears...well then it's time to buy. The fed has pumped 1 TRILLION dollars into the market already. What does that mean a year from now...inflation. Which in turn means assets become more valuable. It's not rocket science here, it's all been done before, this time is no different."

Oh yeah, and that was a YEAR AGO.

mbz: Thanks for the feedback. I think you make a very good point and could probably do the compare you suggest. The challenge Ive always had is that its very difficult, in practice, to rent and make a leveraged investment of size in an alternative. For example, if, instead of buying a $3m property with $1m down payment, you would need to rent, place your $1m downpayment in the Wilshire 5000 and then borrow an additional $2m and invest that in the Wilshire 5000. Of course you'd then have the non-deductible interest payment on that loan over the applicable time frame. Although I suppose possible for some, it doesnt seem an option for most given collateral requirements. I understand your conceptual point, however, and think its a valid one. My recollection from a grad school lecture many moons ago, is that the comparison performed by real estate economists is done without levering the investment in the case of renting. Happy to hear if my recollection or approach is wrong.

undecided: Thanks for the feedback. I think it would be arrogant and irresponsible of me to claim I know exactly how long the bottoming process will take. I have not looked at data series for local market real estate prices over cycles, so cannot offer any historical precedents. I'm sure there are plenty of real estate experts, however, who have. My opinion, which is worth what your paying for it, is that its a few quarters (2-3) with normal transaction volumes, which realtors and others aggregate. If you feel like the economy and local market conditions are really improved, perhaps you shorten the time frame to 1-2 qtrs and go for it or go 3-4 qtrs if you feel conditions are really poor. My sense is that you just need to see enough price stability that you can believe that the declines are over. I doubt real estate prices rapidly bounce upward, so dont think you have to worry about 'missing it' or timing the bottom perfectly. NYC apartments are NOT small cap stocks, last I checked, and real estate cycles are quite long (yrs/decade+).

urban....
Are you talking to me or Bernanke? he's the one who said recovery is in late 2009/early 2010. So why don't you call up the Chairman and ask him if he's just kidding.

Bernanke's words cant be trusted. He has an obligation to maintain order, prevent chaos, and prevent bank runs do to complete loss of confidence, in addition to his other duties. Actions speak louder than words, and the feds balance sheet is expanding like mad for this crisis.

If we listened to his words for past 18 months, Bernanke would be a man that totally underestimated this crisis. So how can we trust them now. That is not to say he didnt know how bad this was, rather, that he didnt publicly acknowledge it. has a political tone to it doesnt it.

Remember the whole SUBPRIME IS CONTAINED thing in 2007, that Bernanke even admitted was a major mistake on his part?

http://blogs.wsj.com/economics/2008/07/15/bernanke-about-that-housing-crisis-being-contained/

Bernanke: About That Housing Crisis Being Contained…

Fed Chairman Ben Bernanke may never be allowed to forget his onetime expectation about how the subprime housing mess would affect the broader economy.

Sen. Robert Menendez (D., N.J.), asking about the housing crisis during a Senate hearing Tuesday, cited Mr. Bernanke’s March 2007 comment that “the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.”

Replied Mr. Bernanke wryly, invoking Capitol Hill terminology: “Of course, I would like to revise and extend my remarks.”

"Are you talking to me or Bernanke? he's the one who said recovery is in late 2009/early 2010. So why don't you call up the Chairman and ask him if he's just kidding. "

Only SteveF could confuse a prediction recovery in one year with "buy real estate today".

We haven't even SLOWED DOWN the RE decline yet...

Also, what is Bernanke going to say? "We are totally screwed and there is just no end in sight. I just tried to dump my house at 20% below market because this thing is just a black hole that nobody knows how to solve!"

Agree w/ UD, he has an agenda to try and calm things down. But not sure how many people are still listening to him and the rest of the crew in D.C. at this point.

look at nyc10022, urbandigs little b-tch, she follows him around all day saying "YA YA what he said!"

My net worth has not declined much as I only had small % of money in the market because I was saving for a home. 401k is down a lot, but I'm not counting that for now.

My job circumstances. Still employed, but highly uncertain as to both longevity and comp levels.

My commitment to NYC. Weaker, since prices in suburbs have fallen so much than I can buy an amazing house for the price of a 2b/2b in the City. I love the City and goal was to stay for another 10 years and then reevaluate, but now its more up in the air.

My general outlook for NYC and the local real estate market. Bloody, grim and worsening. I fail to see what the catalyst will be to bring it back. I think anything bought today will not appreciate for at least 5 years.

I've put my search on indefinite hold, although I still wander into open houses to see whats available. Would no longer settle for a 2b/2b though, since its possible that I will get stuck in the apartment for longer than I want depending on how the market is down the road.

> look at nyc10022, urbandigs little b-tch, she follows him around all day saying "YA YA what he said!"

Steve, really.. why so bitter?

Did you lose that much in your apartment (all the while down telling folks "now is the time to buy"). Are you underwater in your brick wall view condo?

Really, why so bitter? And so much denial?

btw, I think craberry's comments from above that "I have only lost money in real estate" and "I am so disgusted with the system that when I do eventually sell my home I will rent until I am very, very old and then I will buy a shack and pay cash for it" are VERY VERY important comments....so many people are underwater (I've seen estimates of 30-40% of all homeowners, eventually) and in a similar situation that attitudes about real estate will likely change for a generation, with huge consequences...similar attitude changes occurred post Great Depression when Americans largely abandoned the stock market for a generation and in Japan in the 90's where savings skyrocketed and consumption fell permanently...a broad consumer behavioral change to disfavor real estate will result in step function lower demand for purchasing and for taking on debt to purchase...govt policies to catalyze borrowing and purchasing are likely to be ineffective against the personal experience of so many people...imagine if the govt tried to convince/incent people to start investing in stocks in 1930...the outcome would be laughable

"Did you lose that much in your apartment (all the while down telling folks "now is the time to buy"). Are you underwater in your brick wall view condo?"

He is so underwater, he makes Aquaman look dry.

sirwinston, I agree with you. We lose bunches of stock investors all the time, but we don't need EVERYONE to participate.

Real estate, we're now losing generations worth of interested investors... and because America needs somewhere to live, we're talking a LONG time before the market moves.

I remember reading that Japan bubble housing prices were like 3-4x where they were just a few years ago (which is decades later). I can't imagine they got better recently.

We had several generations who were used to RE as a wealth-building tool. Thats been blown away, and the recovery will be a long time coming.

good point nyc 1022

thanks.

I just remember my aunt (65-70 now) saying for the last 30 years "this is how you make money, you trade up houses" bla bla. And a friend from Boston saying "I want what my folks had, they bought in Boston and made 5x" or whatever.

We're talking about an era of unprecented growth in real estate, particularly real estate in cities. The overall Re mania was pretty high, but it was worst in cities.

Folks just don't get that we went from a period of cities dying (and everyone running to suburbs) to a period where everyone wanted to be in the city. This happened all across america. I think people figured out suburbs stink. Boston proper also skyrocketed, hence the earlier reference.

But, the bigger point is that this simply can't happen again (at least without cities going back to crap again). You can't go from the bottom to the top twice unless you hit bottom again.

So these expectations of future returns were baked in, even though it was really a one time thing. Now that folks are going to understand that (and there is still more learning to go), we'll be in a very different era.

Thanks for the thread Faustus,

I think UES_Buyer is nearly identical to us.

Net worth: is basically unchanged if not slightly better (Sep IRA and 401Ks for us are affected but we aren't counting on them now). Still middle class.

Employment: We are both currently employed with one of us in an uncertain position (more than 55% of staff laid off so far) and the other freelance, but doing well currently. However this does concern us as mortgage lenders and coop boards are being stricter about all of this. Will we need to have extra cash after closing in order to 'prove' we can afford maint and mort? Seems like this may be the case.

Commitment to NYC: slightly weaker, but we still plan on being here for a while yet (years)

General thoughts and prognosis for NYC real estate: as UES_Buyer said: "Bloody, grim and worsening." Also we are sidelining as we are just not sure if some of the neighborhoods we were willing to look in are going to be 'okay' -- with MTA projected cuts, and general financial pain - neighborhoods will be affected I think. It has likely narrowed down our "willing to live in" neighborhoods.

We are sidelining at least until beginning of May, if not longer. We are now very aware that the idea of an apartment that is just big enough may not do since we may find ourselves unable to 'trade up' -- so actually many items on our wish list have become non-negotiables. While I am not as obsessive in my real estate search I am still noticing that in our price / neighborhood bracket (Sunnyside, Woodside, Jackson Heights, Wash Hts, et al) properties are being pulled from the market left and right. Some relisted, some not. And some brokers or sellers are still being quite ambitious with pricing when it is relisted.

That's it in a nutshell.

we will see about how bloody grim it gets...don't forget what goes down must come up and visa versa, just depend on if you are in it for the long haul.

I think what a lot of people on this thread seem to forget is that historically real estate has appreciated and it will again. We are just coming off a nasty credit/housing bubble that needs to be completely deflated. We've seen bubbles of many different types before. This country has experienced other real estate bubbles as well. Unfortunately, real estate, as an asset class has historically been a poor investment - especially when compared to equities (see Schiller for specific data).

I know we all want to buy at the absolute bottom and ultimately sell at the top -- that is hardly realistic. Real estate prices will eventually inflate again, if for no other reason, than owning a piece of real estate (whether it be a co-op or a house) is part of the American dream and promotes positive societal benefits. I believe that if we become a nation of renters out of fear of this housing bubble collapse, the government can and will do things to incent home ownership. They can create tax credits for new buyers, as has been proposed recently, or increase the tax deduction on mortgage interest.

Decisions are ultimately affected by financials, and while there are plenty of people under water on mortgages and others who feel burned or duped, there is also a generation coming down the pike called the Echo Boomers (I think called Millenials) that are the children of the Boomers. These kids are in their 20s-30s and will eventually represent an enormous wave of demand. Does that mean that NYC prices are near bottom? Hell no. It just means, to me, that this too shall pass. So be patient, stay liquid, and zig when they are zagging!

As of the third quarter 2008, homeowners with mortgages had on average 25% equity in their abodes after all mortgage debt was removed and that number will probably drop to the 10%-15% range with the further decline in house prices we are forecasting (Chart 3). At that bottom, after a 37% peak-to-trough collapse, almost 25 million homeowners, or nearly half the 51 million with mortgages, will be under water, with their mortgages bigger than their house values. In total, the gap will be about $1 trillion.
source Gary Shilling

my situation:
been looking to buy for well over a year, but never bought due to reasons most others have mentioned. orignally, i didn't buy because prices were silly (versus my rent) and more recently, i've been holding off due to lack of financing and even more grim outlook on prices.
i have a steady job with steady bonus (indirectly related to wall st) and well over $600k in liquid assets (plus deferred comp that i get in a year). my investment portfoio was only down about 10% from peak (lots of cash and muni bonds), but i'm not really sure if thats even relevant.

i've put a few bids in on places in the mid $1m-2m range and i think they would trade about 15-30% off peak if i was wililng to close today (which i'm not). i've mostly been looking in between chelsea and tribeca.

Since most here admit that buyin a condo is an important investment, i'm suprised that more people aren't comparing the drop in prices and expected returns to the other options. For instance, REITs are off well over 70% from highs. if one wants to speculate in US real estate, it seems like this shoudl at least be a consideration (transaction costs are certainly a lot less and liquidity is better). others more familar with distressed mortages and corporate bonds will know that those have also suffered comparable drops and offer double digit returns. assuming you are in my financial position, where a NYC condo woudl represent well over 50% of your net worth, it would seem that you would have to expect better than 20% returns to be so undiversified. even with a 40-50% drop, i'm not sure its sensible to expect those kind of returns from NYC condos anytime soon.

mortgage availablility - clearly required down payments have gone up from 20% 6 mos ago to 25-30%. in addition, some banks have added additional restrictions that i can't even meet ($500k in liquid assets after closing). have others been able to secure a pre-approval letter from a bank in the last 2 weeks with better terms? my fico is around 750, so i doubt it has to do with my credit.

bottom line - although i have no clue where prices will go, down seems more likely than up and with only a 25% peak to trough drop, renting still seems way cheaper. it seems apparent that most sellers are overly optimistic (largely due to the reassurance of thier brokers) which means it will take at least 3-6 months just to see enough sales data to find out where prices really are. if i'm going to buy before things shake out, it seems reasonable that i would get an extra discount for the uncertainty (hence my bids of around 50% of peak prices). i'm actually worried that i'm offering a bit too much, but the places i'm bidding on are nicer than my rental, so it doesn't seem so bad if i overpay a bit.

You offered 50% below peak prices and think you are offering too much? Dude, if your that cheap, Manhattan is no place for yu to be buying. Sorry.

sir winston, i'm just curious at what level you think prices woudl be compelling (given your own math on tx costs, tax deductions, expected returns on other assets, available mortgage leverage, etc).
i agree with you that a 50% peak to trough is about the right base case projection, but it still isn't obvious that i personally would be better off buying at the trough versus renting and investing in my own portfolio. If other people are clearly better off buying after a 50% drop, i'd be interested to know what assumptions they are making that are so different than my own.

also, is anyone else concerned about the unlikely but possible (and sensible, i would argue) chance that the gov't will reduce or eliminate the mortgage interest tax deuction on high earners (lets say over 500k or so)? it would certainly affect me and i'm guessing it would affect a lot of people who own condos above $1.5m or so.

let me clarify. i'd be happy to live in the apartments i bid on at 50% less than peak. however, i'm not sure that it would be the optimal finanical decision over the long run given a) how much i would pay to rent a comparable apartment and b) the expected returns on the capital used for a down payment.

i think you are probably right that manhattan is no place for me to be buying, which is why i've chose to rent until now. however, when i try to look at the supply demand dynamics, i dont really understand who else has the $500k or so of free cash required to buy a $1.5-2m condo right now and it seems to me that i might be tha marginal buyer. If thats not the case then i'm happy to continue to get outbid. however, it does seem like there are a lot more condos that have been on the market for over 6 mos (or are about to come on the market) than there are buyers with the ability to close on a jumbo mortgage or pay cash. in the mean time, the buyers won't be feeling much pain, but some of the sellers will and those will likely be the transactions that reset people's expectations.

gutterballs, just out of curiosity, with $600k liquid, are you really comfortable buying $1.5-2.0mm? Let's say that its a $1.75mm apartment. 25% down would be $440k plus 4% closing costs would be another $70k, so you're right, your all in costs are about $510k. So you'd have about $90k left over. On a $1.31mm mortgage, your pre-tax monthly carrying costs would be around $8-9k. If you lost your job, you would also lose the tax deductibility of your interest (no income, no deduction). So that's about 10 months of reserve. More like 6 or 7 if you add in your other living costs.

K- good point. i'm talking $1.5-2m in what i would consider today's prices/values ($1.7-2.4m at peak), and assuming prices fall another 20-25% from today (purchase price of $1.1 to $1.5). I wouldn't feel comfortable closing on any apt without less than $200k or so left over, but i think i would have that on a $1.5m purchase price (i was being a bit conservative on the liquid asset estimate as well).

gutterballs: for me, i honestly dont know the price at which i would buy, but rather the circumstances under which id buy, regardless of price. As i laid out above, I would buy when the rate of decline in prices is zero and/or rising for 2+ quarters with normal transaction volumes, regardless of what the prices are or when we get there. I simply want to make sure I do not lose an additional 30-50%, after I buy and seeing price stability gives me comfort that that wont happen. If my expectation of 30-50% downside from here is incorrect, no worries, the data will show prices have stopped declining very soon and I'll consider buying. If I'm right, prices may continue declining for another 1-2 yrs, in which case I'll buy then. I dont much care and dont need to try to predict a suitable entry price level, ever. I know what I dont know and I have no firm idea where prices stabilize, but I sure know how to figure out WHEN they've stabilized.

On another note, my personal risk tolerance is such that I'll never allow my net worth to be negative. Tangibly, that means I will never buy a place where my mortgage is greater than all my remaining liquid assets at that moment. I want to be in a position where I can pay off my mortgage entirely, if I need to. This is a very personal decision which I have the good fortune/luck to make. I'm not suggesting anyone else adopt it. I'm comfortable renting or only paying a price, such that I can achieve that objective. That's, in part, why I haven't purchased real estate to date. It felt like a pretty bad decision in early 2000's, but its starting to feel like a pretty good one now. Time will tell.

One interesting theme I see from the responses are that most sideline buyers are
- very liquid and very wealthy
- very conservative
- do not allow emotions to sway their decision

Not the bitter renter's that they are made out to be during the boom....

bugelrex, You crack me up. You call 600K very in liquid assets very wealthy??? Funny!!

"i dont really understand who else has the $500k or so of free cash required to buy a $1.5-2m condo right now and it seems to me that i might be tha marginal buyer."

Older people who have already own real estate, whether it be a McMansion in the suburbs os a small apartment in the city. If you go out to the burbs of northern NJ, Westchester, etc. there are plenty of people with big empty houses who want to move to the city. First time buyers who are currently renting would not fall into this category.

uppereast,

Yes, I would still call someone with 600k cash very wealthy. And remember, that is the cash they are committing to RE purchase,. I'm amusing they have at least a couple of hundred thousand more for other purposes.

This might be the new reality in New York if the government has any say (No more million dollar bonuses, an honest pay for an honest days work)

After this mess is over, i wouldn't be surprised to see a complete end of the bonus culture in NYC.. the public outcry is just so extreme right now

$600k in cash is not wealthy. When I bought, I was in the same position. Now I am sure a $600k downpayment is a lot of money in Iowa, but in NYC? Come on, give me a break. Hardly middle class!

And if the bonuse disappear on Wall St. don't worry. They will just raise their salaries to make up. Personally, why is any comapny getting TARP money still paying bonuses? Any CEO with half a brain should dump bonuses and raise salaries by 20% across the board.

per WSJ
May 2, 2007, 1:45 PM ET
Where Do All the Millionaires Live?

-There are 61,000 millionaires in Manhattan, but nycblogestate says its dropped to 44,000 in 2009
-pop is approx 1.62m
-doesnt even put NY in top 10 millionaire counties
-but its still plentiful and not sure how calculation is done (does it count value of home or not, liquid assets or not etc.), so stats seems too low to me
-feels like a whole lot of VERY wealthy people live here, however, and i think its safe to say in fin svcs and other higher paying careers in the city, many could name dozens if not hundreds of people with ability to plop down $500k-millions in cash down payment
-because of space constraints and fact that 1m units remain rent controlled (drives up non-rent controlled and owner occupied prices, since general equilibrium exists between rental and owner markets), problem is also scarcity of available units
-this drives rent/income and housing costs/income to very high levels relative to rest of country
-its simply very expensive to live in nyc, relative to most of the rest of country

And if the bonuse disappear on Wall St. don't worry. They will just raise their salaries to make up. Personally, why is any comapny getting TARP money still paying bonuses? Any CEO with half a brain should dump bonuses and raise salaries by 20% across the board.

Do you think DC won't catch that 20% move?
I think there should be a freeze on salaries and compensation on all companies that take tarp money.