Good reasons to buy now.

1 - you find a place that is priced right. that means that you're not paying a lot of extra $$$ to own vs renting.
2 - you think that this is as low as it's going to go and you don't want to be priced out. foolish.
3 - you have plenty of money that you don't know what to do with, so why not spend it on a worthless East Harlem condo so that your drugs will be delivered really fast and really cheap.

to be settled and make a home for yourself.... if you're totally comfortable with your financial position

If you can well afford the loss of your downpayment; the property is truly one of a kind in a good way and you don't plan on moving for 10+years.

To me, the reasons to buy a home depend very little on the timing; they should be pretty constant: you need a stable home for the next 7+ years, you can easily afford it, the premium to own is not ludicrous, and you don't really like renting. I say you need all of them to be true, but that's it. Does a market downturn help? Sure, but I think its importance is grossly overstated by many on this board. After all, you're (almost always) looking to buy just one place, so you only need one motivated seller with a home you'd love. The only factor that largely depends on timing is interest rates, which can be significant, but should never be a dealbreaker either way. And that's all moot if you're fortunate enough to be all cash. I should add that if you're looking to buy investment property, that changes the whole equation of course.

You can't find matches or a lighter to burn that pile of money and are perfectly comfortable with a unit that will depreciate 1% a month for the next 24 months.

1.You have large amounts of money, can reduce your risk by not borrowing, have other investments to cover you from the likely losses in this one, AND you or your spouse is fixated on "owning," AND the alternative is long-term therapy or a divorce that would cost even more and might not provide the same degree of happiness as simply paying to fulfill this fixation.
2.You have a strong desire to customize, idiosyncratic tastes, and understand that customization is consumption not investment, even when you aren't overpaying for the right in the first place. Of course, a long term lease would give you this in a rental, too: that's how stores deal with the issue.
3.You have idiosyncratic tastes, understand that they are going to cost you a lot of money, have found the apartment of your dreams and it is only for sale, have recognized that if the market returns to rationality or, as usually happens, overshoots on the way down, you could find yourself wanting to sell at a time when prices are half or less of current levels AND have enough money in alternative investments that you will not be trapped if you have to pay the bank large sums to move. Unfortunately, NY is a single recourse state: banks may either foreclose or hold you personally liable on your loan (not both) and if prices drop enough and your net worth is high enough, they might take the second route.
4. You have a great deal of trouble managing your finances and so prefer to have a bank forcing you to save each month, AND you have a reasonable expectation of staying in your mortgage for far longer than the national average of 5-7 years, AND you don't mind investing your savings in a single, undiversified, highly risky investment that any fundamentals-based analysis suggests will underperform inflation by a significant margin over the next several decades.
5.You think that the government intends to revive the bubble by any means necessary even at the expense of hurting most Americans AND that capitalist market forces are so weak and easily manipulated and the government so infalliable that it will be able to do so. If that happens, prices will go up and, of course, holding a highly leveraged undiversified investment in a risky market that goes up is an excellent way to make money. Unless, of course, your expectations turn out to be wrong, you hold too long and the market returns to fundamentals.
6.Renters take the risk of stupid landlords not tracking the market in their pricing or maintenance and thus forcing them to move. You need to judge whether that is more or less problematic than the risk of stupid neighbors making bad decisions about building maintenance and policies, failing to allow you to customize as you wish or imposing their renovations on you, or subleting too much or refusing to let you sublet, etc., thus forcing you to move. In NYC, the same companies manage most of the large rentals and the large coops/condos, so I suspect that the difference between renting and owning is smaller than the differences between well and poorly run buildings in each category.
7. You believe that inflation will sharply increase wages and rents, so that the necessary adjustment in the rent:buy ratio will come on the rental side. This probably requires believing either that interest rates will stay low even if inflation goes up, or that real estate investors will not bid prices down in the face of higher interest rates even if they could make more money elsewhere.
8. You believe that the dollar is going to collapse, and hordes of foreign investors will take advantage of the low dollar to buy cheap NY real estate, because they will not fear the dollar collapsing even further and amplifying their likely dollar losses even more in their home currency, and they can't find any more attractive dollar-denominated investment.
9. You believe that foreign investors will believe the dollar is going to steadily increase, so that even if they lose money in dollar terms, they will make it up in the currency trade, and they can't find any more attractive dollar investment.
10. You believe that building, renovation and conversion are impossible in NY, so they "just aren't making anymore" and that the number of wealthy people who view a NY apartment as consumption not investment is increasing, so demand for Manhattan apartments will increase regardless of what happens in SF, London, Barcelona or Brooklyn, and so prices will increase because demand is increasing and supply is fixed.

Reasons can be "good" without being completely rational. Imagine a family of five that has been looking since 2007. During the boom, they submitted offers on a few apartments that would have been a stretch financially, and they were outbid. Meanwhile, the wife has resumed her career, the husband has moved up and their gross income has risen by 60%. Meanwhile, they have been saving their discretionary income to beef up their downpayment, and the price of their "dream" apartment has dropped by 20%; so the home that would have overextended them four years ago is now well within reach. When they started the search, their kids were ten, six and two. Now the oldest is about to start high school, and the parents realize that their days together as a family are growing short.

Even if they expect prices to fall another 25% over the next two years, now may be the right time for them to buy IF THEY ARE EVER GOING TO DO IT. From a strictly rational standpoint, it may NEVER make sense for them to buy; but it may make more sense now than at any other time in their lives, past or future.

so it appears everyone on this thread feels prices will continue to move down over the next few years? if i am looking i should keep looking because in two years time i will have more to choose from at an even lower price?

Don't forget that certain buildings or lines of apartments trade infrequently. The last time a unit in my line traded was a month ago, but that was for a unit below the roofline and one of those trades about once a year. Of the eleven units in my line above the roofline, with a view of the Hudson, you have to go back four years for the last trade.

A rational financial decision should take into account the utility of the asset (cash, home, etc...),how good do you feel consuming it (for residential real estate consumption==living in it).

I would think the rational course for the risk averse would be to buy property they can afford and they will enjoy for years to come, can grow into, someplace that isn't "up-and-coming", etc... If this type of place becomes available I would expect the risk adverse to pounce on it using an all-cash/small mortgage finance package. If you don't take out a mortgage you're not exposed to the fluctuation in the value of your home until you go to sell (or mortgage, etc...). If you sit in it for 10, 20 years or, better yet, never sell it, you never take a loss, you're only out the purchase price which is a known (fixed) outlay. You can say there's an opportunity cost for purchasing, spending money, but that cost could be positive or negative, hence it's risky. Buy purchasing you avoid that risk. So the risk averse should always be on the lookout for their dream place if they can afford it and are settled enough into a lifestyle/career.

For the risk averse the choice is more about a single opportunity, a point. For the risk seeking it's about a line, a series of decisions about rates and inflation, rents and taxes, etc... Risk seeking people need to do a lot more forecasting and calculation to figure out the value of a purchase.

I'm in the risk-averse category.

W81: I was going to say the same thing about families wanting to buy. There are a couple of inflection points - you buy when the kids are young, to get a sense of permanence. Buy too soon, and the space may be much smaller than you need and with the market the way it is, you may be stuck. But if you end up postponing for a few years, you realize that they are going to be out of the house soon, so your needs change. Based on this, there are only(!) 13 years when it makes sense for most families to want a "family-sized" apt. Before that, the kids are young/too hard to project your wants/needs and after that, kids start leaving.

I should add that if you are overly worried about the value of your asset decreasing you are risk-averse and should try to neutralize your exposure to price fluctuations so you can sleep easy at night and concentrate on things that are more important to you.

Some people enjoy looking at the market values everyday, one moment jumping for joy, the next crying and breaking the keyboard.

"Even if they expect prices to fall another 25% over the next two years, now may be the right time for them to buy IF THEY ARE EVER GOING TO DO IT. From a strictly rational standpoint, it may NEVER make sense for them to buy; but it may make more sense now than at any other time in their lives, past or future."

Well put, w81.

Some people just really, really (REALLY) want to own, and are looking for the reasons to support the decision (as opposed to the other way around) so its not a matter of finding not the right time to buy, just the least costly time.

That being said, in terms of risk-aversion, I think that is a crock.

Given that most of the scenarios we're talking about involve mortgages, hence leverage.

What you're talking about is one person/family putting a MULTIPLE of their net work into one property in one location in one city in one asset class.

You can say all you want about reducing risk, but imagine the family bought 3x their net worth in IBM stock...

The first answer is always "well you can live in it", but I believe IBM pays dividends. Or pick whatever stock you want. Or, worse, pick the stock you work for.

Point is, its awful diversification.

Imagine something happens in Manhattan again. Thats a lot of eggs (including some borrowed ones) to have in one basket.

Meh, then you walk on your mtge if you lose your job. If you lose your job, you're sunk eventually anyway. It's just a question of how long you can last on your savings. I'm not an advocate for buying right now.

It's not a good time to stretch to buy NYC property, however if your income is increasing and/or is very stable, why not buy? Paying a few multiples of your income doesn't have to be multiples of your net worth if you have many years of savings under your belt.

Somewhereelse: I think you're opening a Pandora's Box of philosophical and economic questions that the OP didn't really pose.

One can always make the utilitiarian argument that concentration risk is minimized if people who just need lodging rent it from professional landlords (or corporations) who achieve diversification by owning multiple properties in multiple markets. The logic is unassailable, and in many affluent countries, that logic prevails: most people rent, even if they can afford to buy, and property ownership is mostly a business. In fact, New York City (unlike most of the U.S.) follows that model. We are a city of renters. But within that city, there are many people who prefer to own their homes. Some are fabulously wealthy, so concentration risk isn't an issue for them. For others, the urge to own is strong enough to override caution. That's not stupidity; it's a matter of personal values and priorities.

That said, I agree that a lot of people bought apartments who probably shouldn't have, because they mispriced the attendant risks.

I'll give a dumb example. Say you make 100k, have 100k savings. Buy 300k house, say payments are $1200 monthly, at a little under 5% on 240k mtge. Say, with taxes, income tax deduction all in, you're at $1200 when renting would be $900. You lose your job, you quit paying mtge instantly because you're not getting another job soon. Assume house is now underwater. Is that better or worse than living in a 900 rental from which you may be more easily evicted? You have 40k savings as opposed to 100k. How much longer would that extra 60k last you? You may stretch it out approx. 3-4 years longer unemployed (minus length of time you can stay payment-free in your house before foreclosure-eviction).

> Meh, then you walk on your mtge if you lose your job. If you lose your job, you're sunk eventually
> anyway

Though the same 20% down requirements that supposedly would save NYC mean this is not a simple proposition. Thats a HUGE chunk of money to lose.

> however if your income is increasing and/or is very stable, why not buy?

If your income is increasing and/or stable, why not buy lottery tickets? Or a Porsche?

You need it to make financial sense. Just because you can afford something doesn't make it a good idea. The ability to shoulder a loss doesn't make taking one a good idea either...

> Paying a few multiples of your income doesn't have to be multiples of your net worth if you have
> many years of savings under your belt.

Again, not sure how that in itself makes it a good idea...

Why not use the stable income, but pay LESS for housing and save more?

Somewhereelse: my point exactly. Don't buy unless you can swallow the fact that you could be underwater. Don't go there. If you lose your job and don't get another one right away, STOP paying your mortgage immediately. That's the only benefit I see in owning (buys you a little time).

And especially, do NOT buy if it eats more than 50% into your liquid funds.

And don't forget the lack of insight/bad luck/whatever that many people have (myself prime example) in "investing". So I save and save, being a frugal person, and I throw all this $ into equities, munis, bonds commodities, foreign $, whatever is HOT at the moment. From personal experience (I alluded to this on another thread), poof that $ disappears in an instant when the markets perpetually work AGAINST me. Somehow I feel less bad about being underwater on my primary residence already.

somewhereelse, your portfolio theory is fine, but no one ever got rich with a well "diversified" portfolio. That's how you invest if you are risk averse or what to stay rich. Many an entrepreneur has chosen a path of unbridled risk-taking to build their personal fortunes.

PMG: I am very frustrated with my "well-diversified" portfolio. I have done absolute crap with the diversified portfolio suggested by many "wealth" managers. Forget maintaining wealth, down 50%+. I suppose if you want to say that real estate is down 30% and on a leveraged basis, that's greater, that's fine. But even underwater, you get locked into a fixed payment for shelter which may be much higher than rent but at least you are getting something for it. And like I said, you get to stay on for a while after default.

I bought a last year, so this discussion is not theoretical for me. My husband and I bought because we found our dream apartment, in an area where inventory of comparable apartments does not come up often (and where it is virtually impossible to rent a comparable apartment). We can easily afford the monthly payments even on less money than we make now, and have enough in liquid assets to cover the monthlies for quite some time (years) in the event one or both of us becomes unemployed. We intend to stay indefinitely -- maybe for decades -- so the potential for short-term or even medium-term losses don't give us too much pause. And I think we got a decent deal even for this market, frankly. Some on this board may think that buying in 2009 makes me an idiot no matter what the circumstances, but I haven't spent a single night staring up at the ceiling regretting the purchase.

Miette, very well said. Amen.

Diversification eliminates some kind of risk. PMG is right that some undiversified investors will get richer by luck or, less frequently skill, but on average the diversified will outperform, because the undiversified are assuming risk that they aren't being paid to hold.

But our system has multiple routes to diversification.

Owners can diversify: commercial landlords, as W81 says.

However, we can also shift the risk to lenders through non-recourse (legally or practically) loans and they can diversify. Diversified LENDERS take much of the risk of the owner-occupied market, and in an efficient market they'd take more (i.e., it'd be easier to get a non-recourse loan).

Unfortunately, in the last decade, the lenders learned how to shift the risk to people who were LESS diversified but also able to price the risk they were assuming and therefore undercharged for it. Frontwards to homebuyers and backwards to CDO buyers.

10023, I'm saying that few people can afford to be "well-diversified" if they are looking to build or protect wealth today. Look at the stock market in the last ten years. Look at the discrepancies in interest rates around the world. Investing today is treacherous and only the risk taking are rewarded. It is a form of risk seeking to be out of equities in 2008 in advance of the stock market decline. Now it may be time to rent in NYC, and that may be the case for a while. However, if you call NYC home and are not worried about your income, the fact is that you need to live somewhere so it is not as risky to buy your home, relative to another investment. If we have inflation, the homeowner is partially hedged.

PMG: you should add, relative to another investment on the same scale. So if you're plunking 100k on a downpayment, that better be 100k out of 400k total savings.

Aussie deposit accounts were looking pretty juicy, until the Aussie $ started dropping. It's one of the currencies I have a watch on. Buy in at 80 cents? We'll see.

When banks support high risk investments it is a bad time for the risk averse. As the pendulum swings the other way, the risk averse (cash heavy) buyer has the advantage.

The risks of owning a home free and clear, without a mortgage, are less than the risks of renting. You have a lot less control over whether you can live where you rent from year to year, whether maintenance is done, upgrades, rent change, etc... Because owning (again, when you own free and clear) is less risky so it should cost more. Anything that reduces your financial risk, like a hedge or insurance, should cost money. So buying is more expensive then renting but less risky. Taking out a mortgage is risky, you could lose your job, you could go underwater in terms of LTV, you could get hit with a rate reset, new appraisal, etc...

Risky doesn't mean an asset will lose money, risky means you don't know whether it will make you money or cost you money in the future. The riskier something is the more of a gamble. Some people love the gamble. some people hate it.

It's a good time to buy if you have money, don't own a home and want to remove most of your housing risk (you still have property tax risk but that probably gets passed on the renter as well so it's a wash).

Tell that to someone who bought in Detroit from 50s to 80s. No doubt, NYC was on an upswing in the mid-90s. The question is: are we on the edge of a precipice?

I should extend that to the U.S. Granted, 300m+ people can't pick up and relocate but some can and will.

You might buy because you are a financial dadaist that believes that money and consumption have no relation to utility -- as the notion of "pursuit" of utility is fruitless, hopeless, and bourgeois. You use your assets without respect to utility -- in fact, in opposition to utility -- as a critique of adam smith and the resultant capitalist system.

Yes, buying what you could otherwise rent for less in Manhattan right now is your way of flipping the bird to adam smith and the superstructure that falls out from his beliefs. Buying is your little act of rebellion against the imperialist financial know it alls and their utility based theories of happiness.

Screw the canvas, I never could paint anyway. In the new millennium, I paint with leveraged consumption.

Why is the following logic virtually taken for granted by the bears:

A. Rent multiples are currently higher than historical averages (TRUE)...SO:
B. Buying now will be more costly - over time - than renting. (NOT necessarily true)

There have been countless examples on various threads of properties that have roughly similar monthly costs to rent vs. buy on a tax-adjusted basis (usually coops). Bears will say -- any sort of equivalence that you can prove is due to (artificially) low interest rates. But...if you buy to hold, do you really care why your rate is low, so long as it's fixed?

Make an assumption on what rents will do over the next 5 or 10 years, and compare total outflows over the time period. It is FAR from clear whether you will be better off renting or owning, unless you have a crystal ball to predict future rents, maintenance, taxes, etc. Yet a lot of people seem to take it for granted that renting is cheaper (and will remain so) as compared to a purchase in today's market.

And yes, if the owners is forced to sell, he loses almost everytime. Looking at this on a longer horizon, as some are also trying to do.

nyc10023, there is a risk that a neighborhood becomes unlivable and you need to leave. You obviously shouldn't buy if you perceive that as a risk in a particular location. On the other hand, having more owners than renters helps in terms of organizing block patrols, security, etc...

seg, if a risk averse owner sells it's probably because he's already lost in some other way (e.g. death, disease or divorce).

It's a great time to buy for the cash buyer who's looking to remove housing risk in terms of cost and overall happiness.

"Somewhereelse: my point exactly. Don't buy unless you can swallow the fact that you could be underwater."

Actually, this is sort of the opposite of my point. What I said was that just because you can swallow the fact doesn't mean you should necessarily do it.

Like Chris Rock said... you can drive with your feet, that doesn't make it a good idea.

"but on average the diversified will outperform, because the undiversified are assuming risk that they aren't being paid to hold. "

Bingo.

And if you want the extra risk, buy the diversified portfolio on margin.

But a non-diversified portfolio means you are getting less return for the same risk, or more risk for the same return. In other words, leaving money on the table.

There are lottery winners, too... but that doesn't mean dropping your salary on the roulette wheel is a good idea.

seg... et al. gonna put my head in the snow for 20 yrs....

For the most part, I live by the credo "make a choice, live with the consequences".... here IS why I DON'T BUY RIGHT NOW in nyc re. The fact most of you are on SE by definition means "ya wanna know" whats' out there. I can comfortably afford $2MM, no real hardship... lose $1MM in equity... Who cares, gonna make it up in the next 5 years. At $2MM, decent 3 bdrms.. nuthin to write my ex-girlfriends about. Now every once in a while the RE porn getz me... and my fingers tickle up to $3MM (nice).. .then $4MM (double nice)... now you and all the other ninnies may say add'l 30% down, not gonna happen.... but I believe in 2 years there is a better than 50% chance that we will be down another 30%. So my double wow $4MM is now priced at $2.8MM, and I've banked $500K more... now ALL the lemmings can pretend they'll NEVER NEVER EVER look up and look for that $5MM trophy or that $10MM in 2 yrs time.... BUT I KNOW myself... i'll looks.

I HAVE a GUT feeling this bubble is nowherez near deflated. We went from 34B to a 34DDDDDDDDDDDDD... we just lost maybe 2 Ds... therez plenty left to deflate. Go get your shopping carts and fill it w nyc re., apparently it's 20% off this season.

"There have been countless examples on various threads of properties that have roughly similar monthly costs to rent vs. buy on a tax-adjusted basis (usually coops). Bears will say -- any sort of equivalence that you can prove is due to (artificially) low interest rates. But...if you buy to hold, do you really care why your rate is low, so long as it's fixed? "

Well, we've said it over and over again, do the math for yourself.

But, in my situation, I've been WELL paid to keep renting, and that was before the 20-30% haircut (or 100% with leverage) I avoided.