Anatomy of a Bubble Buyer

08 is post-bubble. hind sight is 20/20 however the due-dilligence performed appears questionable at the surface. I will say the easy thing, that the land-lease is not a desirable situation.

RS: RE bubbles are soooooo... slow to unwind. I still see bubble pricing out there --jeez, look at 400 5th Ave. 08 might technically be post bubble but prices have gone up 300% in the past 10 years and have only come down 20% in the past two. So, we won't really know if 08 is post bubble for a few more years. That's why I prefer a good, rousing stock market bubble. Once it bursts, it unwinds in just a few short months. ah, the good old days.

Nah, this is still bubble in NYC:

Year Quarter Studio 1 Bedroom 2 Bedroom 3 Bedroom 4+ Bedroom All
2010 2 792 869 1,073 1,364 2,072 1,051
2010 1 792 893 1,048 1,402 1,835 1,038
2009 4 873 928 1,083 1,417 1,083 1,051
2009 3 722 892 1,032 1,219 1,856 996
2009 2 863 917 1,088 1,391 1,776 1,056
2009 1 906 1,097 1,381 1,626 2,473 1,259
2008 4 877 1,021 1,339 1,772 2,637 1,183
2008 3 1,018 1,014 1,305 1,734 3,076 1,193
2008 2 1,025 1,186 1,442 1,803 2,386 1,322
2008 1 1,033 1,122 1,392 1,933 3,253 1,289

nada: is this ppsf?

Apt23, you cannot fight the herd. These same people who "are not aware of the true value of RE" are not aware of the true value of other assets either. Relax, rent, and put your money in assets they are undervaluing.

nada. i have got to say, though moving was torture, i am one happy renter. I will not buy till our sluggish thugs in Albany figure out how they are going to make up for a $10 billion deficit. My bet is they are going to turn on the rich manhattanites and raise property taxes up the wazoo.

This land lease case is interesting because it seems that when you double you monthly costs, the value of the apt falls proportionally. All the apts on the market in this building are asking about half of their last purchase price. The fact that the bank is accepting these numbers in their short sales seems to reinforce the appropriate value. Can't help but wonder how many strategic defaulters are lurking out there in our streets.

Yeah, it is ppsf fro Miller Samuel.

I agree, land lease is indeed fascinating. You buy one of these at $250K and get a 30-year loan at 4.5%, you're looking at $4400 a month without the tax benefits. The tax benefits probably bring it down to the range of $3500, within spotting distance of what it'd cost to rent. Future increases in costs are comparable buying vs. renting. However, once the math becomes this obvious, all of a sudden everyone can count.

The continuation of those tax benefits with the huge deficits coming mostly thanks to the baby boomers retiring is NOT a certainty. I know it's more than obvius but many seem to believe they are there to stay. It might be true for those making say $150k per year or less. Definitely not for those earning more.

Eeeeeek. Post mortums are disgusting.

Did I die?

No but 301 east did.

I wonder how taxation, etc., plays out in the UK, landlease (way way way more common than here) vs. freehold?

Property taxes are much lower in the UK, and there is no tax deduction for mortgage interest. The rent paid on freehold properties is generally not high (parts of West London excepted) and if all the leaseholders want to buy the freehold, the freeholder is obliged to sell it to them, I believe (could be wrong but don't think I am)

Interesting ... but at what price?

Not so clear to me what assets are undervalued other than some commodities. Not gold.

London has a lot in common with NYC as the capital of a fading empire. The excolonials as well as europan immigrants and pashas keep prime London sky-high.

Zerosum game In terms of prop taxes. Most state schools in London are not patronized by the middle class.

well, waiting for albany to raise property taxes in NYC could be a long wait, since localities determine the assessment and the rate, not the state gov't.

and using an odd situation such as a land lease building that had its lease raised sharply is hardly a good way to evaluate the market. on that basis, we could look at the people who bought in atlantic yards, held out, and sold at huge premiums to their recent purchase price and say the market is on fire.

yes, printer, and based on the city's purchase of Coney Island land, how do I play that investment theme?

assuming i know, why would i tell you?

because I'm one small investor, and few others read these boards, so it wouldn't move the market.

Unless they paid all cash, I'm surprised the bank went along for the ride too

printer: the point was not that land lease is a reflection of the market. the point was that there is a plethora of buyers that don't know what they are doing. don't know what values are except for what a developer says their condos are worth, and do no homework. Would the buyer in 301 pay almost full ask if he knew the maintenance might nearly triple and therefore halve the value of his apt? There was no research regarding risk here. And, it is doubtful that the broker raised the possibility. Many buyers have been mindless about purchases which has been an additional support for the market. This was just a random case in point.

And, there are many, many ways Albany can squeeze the city -- and the result will be property taxes going up. that deficit has a lot of power behind it.

are you sure on the ppsfs?

wow, if those stats are right.... Q2 numbers are...

studios - 30% off peak
1 bed - 36% off peak
2 bed - 34% off peak
3 bed - 42% off peak
4+ - 57% off peak

Yep, I posted the link to Miller Samuel's build-your-own table generator on the other thread.

Some caveats about your calculations, though. If peak were 1000, and current is 750, "25% off peak" would be more accurate than "33% off peak". I think your numbers are the wrong way around.

The large apartment numbers are too small a sample size and are too noisy to give an accurate picture of anything.

The notion of using the highest number on the list as peak is probably overstating the peak. Suppose there's some real underlying ppsf, but the number published is plus or minus 50 because of statistical issues (e.g., apartment mix). If we got a new one of these numbers every minute, then the largest would be 50 higher than the true underlying peak ppsf.

nyc10023,

all assets in all classes across the globe cannot be overvalued--if that's what you think, then you simply have to adjust your definition of value. clearly, there are many wonderful business and investment opportunities out there. you (and possibly i) may not be capable of ferreting out those opportunities, but that hardly means they don't exist.

unfortunately, we may have entered a long period in which capital itself has less value--that is, in which returns on capital should be expected to be lower. after the incredibly growth of corporate profit in the united states over the past 30 years, far outstripping economic growth and wage growth, that is to be expected. internationally, the picture is more complicated. this does not mean that assets are necessarily overvalued, but that our expectations for reasonable returns on capital need to be readjusted.

Yes. I agree that all assets can't be overvalued. It was clear to some that RE, oil, was undervalued in the mid-90s (oil for much longer). But it isn't clear to me right now what to invest in. There are of course, those gold bugs...

Back to apt23's point. In this case, the bubble buyer was a fool, couldn't be bother to do due diligence or did it but loved-the-apt-insig.-fraction-of-wealth.

A commonality to all bubble buyers is optimism. Optimism that somehow the economy would expand to dig us out of our hole or Manhattan would become uber-uber-desirable or that personal wealth would increase to the point that down 20% wouldn't matter or that one's personal situation was stable enough to ride out any bumps in macro economy. As an '06 buyer, I fall into bubble-buyer-category. I would describe my mood then as optimistic. Lehman/Stearns was unforeseeable.

> I think your numbers are the wrong way around.

inonada, you are correct. I reversed 'em. Here are the adjusted:
all numbers down...

Studio - 23%
1 bed - 27%
2 bed - 26%
3 bed - 29%
4 bed + - 36%
overall - 20%

here is median sales price:
Studio - 18%
1 bed - 20%
2 bed - 24%
3 bed - 40%
4 bed + - 61%
overall - 12%

goes to show the blend is deceiving us. All categories are down 18% at least...

Is the overall % decline not as bad because of increase in relative volume for the higher priced homes?

yes, its the mix that is shifting.

If apples cost $1 and oranges cost 50%, then they both go down 10% in price, but you buy more apples than usual, it could look like fruit got more expensive.