Armchair psychology - why are people buying now?

10023, i'd love to buy. we could afford it. it's my particular personality that keeps me where i am, and now we're too close to retirement, so i'll be here probably until we move to a different city.

i don't think you can discount the nesting urges. and many people have been steadily saving, waiting for a moment when prices seem sane. they still don't seem sane to me, but maybe that's because i've been active in this market since 1995. if you've only been looking post 2002, today might seem like a veritable bargain.

Usually it's the wife who's sick and tired of the living situation.

AR: you're in an entirely different situation. Your child will head off to college before you know it. I know that once my oldest heads off to college many years from now, I'll probably start looking to downsize.

but that's kind of my point. i still would like to buy. i won't, because i won't let my heart rule my head, it doesn't make sense, but still there is this huge desire to own.

i do wonder what will happen over the next few years. will we remain a society that puts such store in home ownership, or will the mood become more cautious for an extended period of time? if you just think about how many homes have been built over the last seven or so years, and then compare that to population patterns, we have an abundant supply of property, enough to last for years. and if people decide that the second home is a luxury, we have even more.

Interesting that you still have an emotional desire to own + wanderlust.

Brits value homeowning even more than Americans. In many areas, this is a self-perpetuating cycle - it becomes impossible to find rentals for families because the rental stock is so small and geared towards recent grads.

wanderlust is part of my owning pattern. i don't settle easily.

rentals are what will be so interesting going forward. we seem to have created a robust and much higher quality rental stock with our overproduction of homes.

Not as much infill uptown, so people will always quibble over location. And there's an absurd (to some, no others) preoccupation with prewar.

i was speaking nationally, but yes you're right. the family-sized prewar is still a rare rental beast.

nyc10023 -- I think you hit the nail on the head with the Brits comparison ... owning vs. renting is largely a cultural issue. In some places/families/societies, renting is equated with transience, unsettledness, impermanence; owning with stability, success, rootedness, solid/stolid existence, and a [false] sense of self-determination.

In many places (Phoenix comes to mind), single-family houses are very solidly built of concrete, while apartments are made of papier-mache blown over chicken wire on a wood-stick frame. The latter are noise-transmission nightmares, among other things, but few people care because they're just supposed to be transitional housing for young people.

I know one couple looking to buy in better school zone; only child goes to K a year from Sept. They put in a bid 20% below current ask; ~30% below peak comps on a 3br condo; seller response so far is f' you. Their view is that they are comfortable on value at their bid price. Both have jobs that are very stable (one tenured faculty) but don't pay tons by NYC standards, so this purchase is a big bite for them. I think that the price they bid must be a real stretch in terms of absolute equity dollars and monthly carrying cost and that they've come to their price view with too much focus on the rear view mirror and not enough on the road. Why they don't rent in the school zone they want and wait for more air to come out of the market the next year or three is beyond me, but it's not my place to judge.

That sounds silly. For one child, it hardly seems worth it to buy in desired school zone, or even live there for than a year.

Why are people buying now? Because they can. Not everyone is an idiot for choosing to (or being forced to) buy a home at this particular point in time.

So far our buying-now regulars (e.g. spinnaker) have had cogent, well-reasoned, uh, reasons for buying. Not that anybody's going to come here and say "oh, I just felt like it"....

We are buying because:

1) we have had pent-up trade-up demand for a long time (around four years);
2) we can get something nicer than we can rent for our money because
a) interest rates are historically low (even though we've been getting slammed in the past week)
and b) we can buy something nicer than we can rent because we're not 20% down buyers;
3) we plan to stay in NYC for a long time (both work and family are here).

All the rent-vs.-buy calculations I see on this board assume that you're going 20% down, but there are a lot of people, including us, who aren't rich but who have more cash than that -- and no good alternate place to put it. It's not like the equity market feels safe.

Also, I value the downside risk differently than the nonbuyers do. All the bears assume that if the real estate market went down 50% we'd all have to sell our co-ops and live in a box, but if the real estate market went down 50% we'd just stay in the apartment.

ali r.
{downtown broker}

"Also, I value the downside risk differently than the nonbuyers do. All the bears assume that if the real estate market went down 50% we'd all have to sell our co-ops and live in a box, but if the real estate market went down 50% we'd just stay in the apartment."

Exactly. The premise is flawed because it assumes that all buyers are using interest-only or balloon-style ARM mortgages, rather than 30-year fixed rate mortgages. Regardless of real estate market fluctuations, everything else being equal, if you can afford to pay your mortgage today, you can afford your mortgage tomorrow, regardless of whether the value of your home rises or falls.

Ali, BTW, how's the closing schedule going? Looks as if you'll be close to six-year anniversary of the old place.

In my case, I really want to but now, but I have the feeling that my patience will be rewarded. One of the places I have been following dropped an additional 15% 2 days ago. This tells me that prices are still going down. In my case, I don't need a place to live right away, so I might as well not get anxious. For some people (the ones with high mobility, for example) it is paramount to be smart when buying property, as we might need to sell in the wrong moment. Even if you don't see your property as an investment, it might end up signifying a good or bad investment in your life, sooner (divorce, sickness) or later ( your estate.)
There IS a difference in buying at peaks or bottoms. I happened to always buy at bottoms, I am lucky that way, I guess. I don't dare time the stock market, but I really feel that I have more to gain if I wait some months than if I pull the trigger now. The economic situation is still ridiculously bad, and I don't think that major risks have vanished, as our abnoxious new poster of the month ericho thinks.

I second pretty much everything Ali says. We are also in contract. The only reason we don't own a home now is that we sold the home that we had in Australia in 2006 to come to the U.S. We moved to Miami originally and then last year to New York.

A lot of people have said "Aren't you lucky you didn't buy in Miami in 2006 / 2007". Lets look at that: We did actively look at Miami Beach property in 2006 and 2007 - even then, prices were cheaper than Sydney but we decided not to because of the (accurate) rumblings that the Miami market was dangerously hot. I go to Miami regularly for work and my obvservation between 2007 and 2009 is that prices are definitely down but at the type of places we were looking to buy at Miami Beach (actual single family house with pool), I would say asking prices are "only" down 20 - 30%. Anyway, instead of buying a Miami Beach house, we invested our proceeds from our Sydney home in various investments with a (good) investment adviser and ultimately lost about one third of those proceeds in last year's meltdown. So were we better off not buying in Miami Beach? On the one hand, it was easy to liquidate our investments because they were liquid whereas a house is obviously not. But I don't think we would have been that much worse off actually. I really don't think it would have made that much difference.

So now we are buying in New York. We will be in New York long term. We are also putting down more than 20% (and I realise the opportunity cost of that money but still it reduces are monthlies). We love the fact that, in the U.S., you can actually fix the low interest rates now for 30 years (in Australia, the maximum fix period is 3 years with the caveat that you can fix for 5 years but the extra you pay for such a "long" fix is not worth doing. We are definitely getting something nicer than we can currently rent.

But there is also intagible factors involved for us - clearly not the case for most of the Streeeasy posters which is a little odd given this is a real estate site. We are both nearing 40. We have owned a home before and enjoyed it. We want to own a home! I get satisfaction out of that which is beyond ecomonic. We have both spent the last 6 months OBSESSED with Streeteasy - in the entire 12 years I have spent using the internet, I don't think there is one site I have visited more than this one. I don't want to be doing this in a year's time! I don't want to be going to open homes every Sunday, checking the new listings, the price reduced listings, the stuff in contract, the listed sales. I have more things that I want to be doing with my life that looking at (possible) real estate purchases! I want certainty and closure on my living situation so I can move on to do other things. I feel really good about our impending purchase. Do I think the market has bottomed? Probably not. Might I lose more value in our purchase. Possibly although I doubt more than a further 10%. In any event, we purchased something we thought was well priced. But the best thing for me about all of this is I have now done it, its actually consummated instead of the endless thinking about it and now I can move on - and enjoy our new home.

sydney... the first thing I saw out the Ritz Carlton when i woke up there was a row of brightly colored parrots all lined up across the street... apparently your pigeons r very colorful :)

having said that, if you only lost 30% in equities last year, you are relatively way way way ahead. Typical well to do person = max 2x leverage on equities, almost infinite leverage possibilities on home ownership. And almost the entire planet (except North Korea) was ALL IN on homes, then doubled down w/ equities for good measure.... :)

Sydney: I am an owner, with no need to change my living situation, but I'm still on SE and haunting OHs. Not today, too tired. There are some scheduled for tomorrow evening.

You make a good point about the unavailability of 30-yr fixed rate mtges. They are NOT available in Canada or the U.K., so I'm wondering that if they are an American phenomenon. W/o the comfort of 30-fixed rate, people should have been more conservative in those countries with home purchases.

NY10023 - Not trying to suggest that, because some (many?) people are on Streeteasy for fun and happen to enjoy going to open homes that this is a worthless exercise. If this is your hobby then good for you - its just that, personally, I would like to move on to other things. Not that I will be moving from this to anointing-the-sores-of-the-poor on my weekends but hope to spend the time by taking the dog to the park, going to the movies and watching more television :)

Re: UK, Canada and Australia should be more conservative because there are no fixed rates, I don't know about Canada but the market in the UK has been even more overheated than the U.S. In Australia, prices are ridiculous and not only are there no fixed rate mortgages but there is no tax deduction for mortgage payments AND you have to pay a whopping 5% of the home value (varies from State to State and the value of the home but this is the rate in New South Wales for homes above $1m) AND you have to pay tax on the total amount of your mortgage at about 0.5%. You would think all of this would have Australians running to the hills, screaming, desperate to ever avoid any real estate purchases. Guess again - Australia is by far and away the most real estate obsessed place I have ever lived (and I lived in Miami!). If the Rent vs Buy calculation doesn't work in New York (and it does work in ours, and others, purchases) it NEVER worked in Australia. We were far better off renting but still we bought!

There is so much about real estate that it just not economically rationale. I guess it is like buying an expensive car or suit. We could all wear Walmart clothes and drive 3rd hand Hyundais but, for some of us, we feel good and happier in a nicer car and a nicer suit even though it costs more and does the same thing as the cheaper version. Thats the way I feel about owning a home - personally, it makes me feel good and happy and, to me, that's what life should be about.

People that are buying now don't know 5th grade math.

I guess my only problem with people buying now is that I felt we were "this close" to a true tipping point. Things were coming down and starting to come down fairly rapidly. Not quite to 2003/04 levels but moving there. And those are the levels I feel are most realistic for me as a buyer. But for some reason everyone under the sun appears to be diving in because I suppose in their minds prices must seem "right"....geez, I can't help but feel that another six-months of no buying would have tipped the scales towards real deals. And most buyers I see on these boards, or happen to speak with, say that they have been waiting so long and now seems to be the time to buy. Come on! If you've waited this long would a few more months really have killed you?

Now I feel like I'm about to be priced out again.

So the OH sojourns continue. Speaking of which, the OH's today were annoyingly busy!

Not to worry. There're always up-ticks on the way down.

People jumped in when they saw interest rates fall below 5%. Plus this is always the busiest time of the year so I am suprised that none of you SE bears saw the recent uptick in advance.

NWT- I certainly hope so. I think what is giving me the jitters is the fact that we are supposed to be moving into the slow season and things are actually heating up. Now I realize the up-tick is all relative to the past few months of nothing happening, but nonetheless the radar is up.

also, I was in NJ today and when I was walking past an open house, I saw prospective buyers coming out of it and they seemed very interested in the house. I've been to tons of open houses before and this ia the first time I have actually seen SERIOUS buyers at one.

Well let's see how SERIOUS folks stay if mortgage rates continue their trend northward. I also think the flurry of activity now is directly attributed to the sub-5 rates that were out there.

NWT -- we punted (or rather, onside kicked) our early June closing date forward to see if rates come down because we are not yet locked. other than that we are ready to go, and getting kind of excited . ..

ali r.
{downtown broker}

Sideline sitter, still sitting.... still renting for far, far less than the cost of owning. Still socking away the savings. Agree with gutter86, somewhat puzzled by the activity but holding fast to hopes that the market is still headed downward. If not, it's still more cost effective to be renting (for us anyway).

NYT above said it: people are buying because they want to and they can or they think they can. why did the housing prices go up so much in the first place? because people thought and endlessly told each other that it was fool proof.

One person I know is looking at new development because their waaay under-market apartment lives in is on the market. It is not rent stabilized so there's virtually no hope that the new owner won't jack the rent when the lease is up, assuming whoever buys it doesn't want to live in the place. This person has saved long and hard and is looking to lock in housing costs and get a toehold in the New York real estate market at a time when prices are comparatively low and new developments are under pressure. Makes sense to me.

out of curiosity, why do they have such a sweetheart deal? how much is the owner asking for the place, i.e. what is the liklihood that it will sell?

I have more than enough cash and income to buy as much home as I can stand without feeling gawdy, but I have preferred renting for both economic and non-economic reasons. It's nice to change places every few years as you get different flavors of NYC architecture and life, I'd probably feel different if I had 3 rugrats running around, but I don't.

Do I think people are crazy for buying now? Not so as much as I did last year. Between the price drops and the Fed's propping of the market through mortgage purchases, the monthly nut is probably 30-40% lower than it was last year. Yeah, rents are lower and prices are probably heading lower (if nothing else, the govt will eventually stop propping the market as things ease), but it's not as crazy as last year when the monthly nut comparison was much worse and the writing was on the wall thanks to the early warning coming from the entire rest of the country.

CC: the situation of a "sweetheart" deal is more common than you think. Long-term landlords of small buildings rent to friends of friends for years. The apt is not in ideal condition, the tenant puts up with it because ll keeps rent low. LL doesn't raise rent because they couldn't be bothered fixing things and they bought so long ago that it's not a big deal to them.

sounds good to me...but its actually not quite a sweet heart deal then, right? below market rent for below market quality? a year ago it didn't matter...ll probably could have gotten more but things have changed. who is going to buy this place? why? seems like the status quo is most likely to continue. so, what's the reason to buy something else?

CC: I saw this situation in a few townhouses for sale on the UWS. Long-time owners renting apts in poor condition to friends/friends of friends. These townhouses would most likely be converted into single-family or have a fewer # of apts. Rarely is it something for nothing. Or it could be plain laziness on the part of LL to bother finding a new tenant.

All of my NYU colleagues in subsidized housing totally REGRET not buying when they got to NYC. Esp those who came in the mid 90s (yeah yeah, I know, a different time). So we are looking to buy because as someone said above, we finally can.

Or it could be a long-term "unofficial" sublet in a co-op. Say the owner is a sponsor or 1st buyer (sometimes exempt from sublet restrictions).

WHY NOW?

Lot's of folks want to own their own primary residence reguardless of market conditions. The last few years simply priced quite a few hard working New Yorkers right out of the market. Those are the squirrels that have been saving their nuts that are out now, that the apartment they dreamed about has drifted within their grasp and their going to go for it. If you got the credit you can score a loan for a rate worthy of a life time of bragging. Are things going to drop more? Well we sure think so but, no one can really tell the future. If the prize is right in front of you and you've been waiting and the stars are lining up you pull the trigger. RE in Manhattan is going to implode? Who knows this for sure?

falco, no one knows it for sure, but what would prevent it? you're a smart cookie, look at the factors, and then decide. and do you think, in the absence of drops, that increases are at all possible? if increases are not in the cards, and they're not, then at a minimum you'll be ok waiting. and decreases are in the cards. and i think that most people who make a living in mbs and cmbs would tell you, if you could get them to be honest, that this market is heading for a shit storm.

definitely not knowable particularly for sure. but if you are putting up anything close to 50% of your current and future net worth, caution at this time seems prudent. buy a place, for example, for $ 1million and lose $400 K on it could take the better part of your lifetime to recoup.

CC,
point well taken.

we all want this to go away...to go back to the good old days (except, for current non owners, they like the price reductions!). was exchanging posts with rhino earlier today about how shocking and inconceivable things are today. GM goes bankrupt tomorrow... yeah, the government wants us to think its gonna be ok but they don't know any more than we do.

its time to be super careful...pure and simple. its one thing to decide not to sell...something different to decide to take a plunge and buy.

A 25-30% discount might be enough for folks who have desperately wanted to buy but couldn't before.

That being said, given that sales are in the crapper (I believe we're still down 50+%), note that its becoming more the exception than the rule....

And lets not leave out estate sales, etc...

nyc10022 How can you look for estate sales? So are you saying that we are down 50+ now or will be in the near future?

Read the obituaries...

As for down 50%+, yes, but I'm talking sales volume (I saw stats as much as 60-70% down). I think you mean prices... last round of data had medians down 25-30% from peak (in an incredibly short time for RE). We still seem to be sinking pretty fast.