even if you buy now and market collapses

If you ever need the money for some other reason.

A very good question. Assuming the market dips, and you can ride it out, it shouldn't be too much, if any, of a problem. The only minor issue I could come up with would be if nothing else sold for a long period of time in your building, and the last sale was at a low point in the market. Then, when looking at comps, people might think that you are overpriced when you are correctly or competitively priced. But, like I said, that is minor, and if the market is up and people are buying, they will see the value in comparison to other apartments in a similar price range.

(Matthew Russell - Brown Harris Stevens)

Op asked what happens if the market collapses. And you're talking about the market being up. Perhaps you need to slow down or work on your reading comprehension skills.

Leave Seacrest alone, he's only a child.

You might feel like you wished you waited and bought the same thing for less. I mean, unless several hundred thousand dollars isn't something that matters to you.

Locking in a lower payment can be potentially life changing, even if you never move. If you are forced to move, seeing a huge portion of your downpayment go up in smoke, along with transaction costs = ditto. I'd have a lot less trouble with your premise if an honestly 'costed' cost of ownership was less than renting. At least then you are 'paid' monthly as you ride out storms.

Rhino - I totally agree with your point. If you're purchasing with leverage and you have an investment horizon then you could have a huge problem. However, if you were to pay all cash, then aren't you essentially assigning a portion of your worth to a residence. Then, ceteris paribus, if the housing market fell off the cliff, would it really matter if you were locked in at a high? I agree with cc that in this scenario, it's an awful use of resources, but there is an equilibrium between looking at your residence as an investment and as a "home". In today's world of relative efficiency and speculative mortgage derivative trading, aren't we foolish to assume that our homes should always be appreciating assets? Not to mention technology could effectively turn nyc into a "ghost town" for the lack of a better term? Why do firms need to be here? Today its more about the panache than actual necessity. But as we slip further and further into the world of facebook, twitter, and flickr, when does society in the physical world matter less than it does today?

Sorry for the rant. I'm anticipating some interesting responses.

Before, everyone was more than positive the market had to go up. Today they are equally positive the market has to go down. They were wrong before. Why listen to a bunch of people who only make good forward looking calls..

Equity is not dead money, it will generate the returns of the asset class. Stocks are 40% over-value, Bonds are also grossly over valued. Cash yields 0%. We know the Fed(if you listen to Summers , Bernanke and Krugman) are itching to create inflation, twelve months from now that real estate purchase may not look so bad.

Riversider - econ 101 here but if they create inflation, don't mortgage rates come off historic lows and put negative pressure on home values? While locking in a good rate now is a good move, isn't an all cash purchase counter intuitive?

And by "econ 101", I wasn't asserting authority I was expressing my general lack of understanding many economic principles

In an Inflationary period Mortgage rates would be expected to go up. What matters though is the real rate, not the nominal rate the return after expected inflation. Real Estate is often seen as a hedge against inflation. Real Estate would be a slam dunk as an inflation hedge were it not for the over-supply created these last few years. NYC as crazy as it sounds, is not as over-built as say Florida, Nevada or California. It's not 100% certain, but neither are the other asset classes. A year out, I think real estate has a decent chance of being OK, and probably much better than say stocks, bonds or cash, and if you take out a 30 year loan at today's rates, you will be paying it back in dollars worth considerably less than the lender would like.

As usual, you are making the case for inflation out of thin air. There should be inflation so there will be? How about a more basic idea? That which goes up must come down?

Riversider - gotcha. I hope (for my sake, as well as others positioned similarly) that you're right.

Cc - are you calling for deflation?

I'm not calling for it. I'm observing it. Whether or not the government can overcome it is anyones guess. What I'm trying to point out ismthat theta is no evidence whatsoever of inflation. Many are saying there should be inflation based on ten governments actions. Yet there isn't. So the next argument is that it's right the corner. Fair to say that there is greater risk of deflation than ever before in our lifetimes.

I think you make the case for the underlying risk of NYC in general. If it becomes too expensive relative to the rest of the country, businesses will exit without looking back.

not sure what you guys define as inflation or are reluctant to admit that it is here. My real experiences are that it cost more to buy food, go to the movies, pay for my health insurance, buy my airline tickets and pay my real estate taxes both in the country and in the city. Yet I read that there is a deflation? Government can manipulate statistics but my personal experience is that I pay more to live.

007, You are preaching to the choir. The CPI is a terrible measure of inflation. Check out Sadow Government Statistics website. They calculate a second version of CPI using pre-1980's methododology. There's a huge P.R. campaign by Rubin, Summers, Geithner, Bernanke & Krugman to debase the currency, but to do that they first have to convince the populace that deflation and not inflation is the enemy.

I think it depends. Let's take gas and heating oil out of the equation because those numbers gyrate so much that it's hard to keep them straight. Of course, if you trade in an suv for a car that gets 30 mph, then thats another matter. High end grocers are charging more but non manhattan normal grocers seem to be the same. Health insurance Is more. Parking garage in manhattan still down significantly. Cable tv down if you press at all. Cars down at least ten percent. Below sub zero appliances down as well. Clothing down. Property taxes up. Income taxes up.

General on line purchases down. Electronics down a lot. Wine and liquor down, in some cases a lot Overall, it feels to me that with reasonable trade offs, you can maintain your lifestyle and spend less.

007,
The gov't statistically removes inflation by saying when Fish goes up in price, we switch to rice, The CPI also gives a lower weighting to items that increase in price thereyby further understating the effects of price increases.

Lastly if say the price of a car goes up because of anti-lock breaks being standard, the improvement is factored out. While I can appreciate this last point, if I as a worker need a car to get to work and the cost of buying one is now higher, I think this can be viewed as a form of inflation.

Homes cost more today(purchase of homes used to be included in CPI instead of "rental equivalent"), Food costs more, cable TV costs more(it used to be free with a roof antenna), utilities cost more, drugs and health care costs more, the list goes on...

Riversider - http://www.shadowstats.com/article/hyperinflation-2010

Thanks for the SGS reference. The first paragraph of the above article is enough to dissuade me from buying anything. Want to weigh in on that piece?

I think hyper-inflation is inevitable, but it will take a while. M3 is currently contracting.

If you think prices are going to fall then be patient. You'll be able to buy a bigger and better apartment for the same amount of money. Then for the next 10/20/30 years (however long - could be 50 years right) you get to live in a bigger and better apartment. So your patience now could lead to 50 years of better living.

From the piece cited by e76

Gold and Silver. In a hyperinflation, gold and silver would be primary hedging tools that would retain real value and also be portable in the event of possible civil turmoil. At some point, the failure of the world’s primary reserve currency will lead to the structuring of a new global currency system. I would not be surprised to find gold as part of the new system, structured in there in an effort to sell the new system to the public.

Real Estate. Real estate also would provide a basic inflation hedge, but it lacks the portability and liquidity of gold. That could become an issue if the political environment shifted so radically that ownership of private property became impossible.

Taking on Debt. Inflation is supposed to be the debtor’s friend, where debtors, like the U.S. government, end up paying off their obligations in cheap dollars. A note of caution is offered here. The current circumstances are extraordinary. Borrowers should consider their ability to carry debt through extremely difficult economic times, including possible loss of employment, etc., before high inflation might kick in. Consider, too, the U.S. government recently has intervened in altering terms and conditions of mortgages. Could a radical political change end up recasting the terms of personal obligations?

Jazzman - I'm not sure if prices are going to rise or fall. While we've steered a bit, my original question was if it is important to try to time the RE market for a primary residence purchase if relative values are subject to market fluctuations. In essence, if $10 of today's NYC RE money is worth $5 in a decade, does it matter? (given the relativity)

If its a huge chunk of your net worth, you've locked yourself into a situation that could have significant negative impact on the rest of your life.

And I'll give you the same answer--If you need the money for something else. Do not assume that all real estate will move in lock step with other real estate or other assets. Particularly in an environment that we have now where so much is new territory. Riversider talks about hyperinflation as though this is a known phenomena in the US. Same for deflation. These are all theoretical concepts; no one has the slightest idea of how they would actually manifest.

"In essence, if $10 of today's NYC RE money is worth $5 in a decade, does it matter? (given the relativity)"
I think it matters.
Whatever you do live somewhere where you're happy (you've got the funds to do so). That could be a $5,000 2 bed in a Glenwood rental or it could mean a $3M loft in SoHo. I would venture that if a $3M loft is needed for happiness than you'll never really be happy. For me it's an elevator 2 bed for significantly less than $5K.

For me I'm happy renting - I have a nice apartment in a small non doorman building on the UES. My apartment is old (not stabilized) - if I were to buy an apartment in the neighboring buildings (all have doormen) then my monthly outlay would be 5x for the same sqft - certainly the space would be nicer and I'd have a doorman, but I don't need granite and I can open doors for myself just fine.

For me I actually get a little buzz from not owning. Writing my rent check each month puts a nice smile on my face.
I just think the rent/own calculations in today's market scream that one should be a renter.

If you have cash then I'd find small businesses to buy right now. Very viable businesses are having difficultly getting loans, so I'd be looking to give participating loans or buying equity in these companies Cash is king and there is a lot of opportunity right now for those with cash.

CC - agreed.

Jazzman - agree on the small biz move. I happen to like the benefits of owning (improvements, wiring, etc.) but I see where you're coming from...