The Apple Peeled..

Ana Maria rocks!

At least one crack in her theory.
Cheeky and optimistic...just like steve

lol I knew it!

I don't think that's AMS in the picture, but the gratuitous nudity is a nice touch.

I don't see that the survey is in any way useful.

What, precisely, can be concluded from it?

What, precisely, can be concluded from it?

What can be concluded?????

CRACK IS WACK!

From the post:

"How the economy and their personal circumstances can improve with housing prices declining is a bit of a conundrum to us, but who said sentiment was logical?"

That's a conundrum to you guys? Geez, I'm disappointed.

Let me tell you a little story. In 2000, the S&P was at 1450. Since then, GDP is up 50%. Corporate profits are up 40%. Yet the S&P is down 20%. What gives?

ok inonada let's get it on! 10 man winner take all battle royale! Hope the girls can make it....

The equity market was way way way ahead of itself. We needed to play catch up. March of 2000 the internets/techs were running wild with PEs of 20,000 and higher. Everything was priced to the ceiling. Now with Manhattan properties people are currently very busy buying property with strict underwriting standards. 20/30% down at the minimum with strict debt to income as well. Leverage is minimal and supply is very limited not like stocks where companies can issue as much as they want. Only limited by the public's desire at that time. Which can be wildly incorrect.

stevejhx -- What survey? All I saw was a picture of a nekked woman!

"Let me tell you a little story. In 2000, the S&P was at 1450. Since then, GDP is up 50%. Corporate profits are up 40%. Yet the S&P is down 20%. What give" Now that's a conundrum (;

The S&P P/E was "just" 30-ish in 2010. NYC RE's P/E is around 50 average nowadays, assuming a 10-year holding period. In some segments, more like 100. Now you might have your own opinion as to whether that's right or not, but some of us think that's "priced to te ceiling" and will come down despite economic improvement. The fact that they could not conceive of the notion is what I found disappointing.

To all the other stuff you said, my response is "new economy". People always have stories, but if the fundamentals don't bear out, the stories usually fizzle out and end up having been just that, stories.

Anonymous blog runs a uninformative survey....and their conclusion is basically "buyers are dreaming" aka "buy now or be priced out forever"

If the authors don't have a vested interest in the RE market I'd be very surprised. Sounds an awful lot like broker-speak.

And frankly the flirtatious use of language and images is, to me, insulting.

Looks like a flea circus to me.

KeithB, in case you weren't being sarcastic, price & fundamental valuations matter.

Price and fundamentals ARE everything, even a naivete like me knows that! Though I guess if you're just trading the market, profits can be made on short term emotional/media driven rallies...in the long run that just never worked out for me.

I rarely post anymore, but I took this survey for the Apple and answered honestly. As an owner, about 6 or so months ago I got fed up with the should I sell or should I stay decision, mostly because if I were to have sold, Id have taken about a loss. Though I was bearish, I decided to dig my heels in and I made the decision stay put until I can make a profit, and decided not to think about it anymore. I know a few other people who have taken the same attitude. In the past 3/4 months, prices in my coop have come up a bit so Im happy with my decision. I don't forsee that the market is suddenly going to burst upwards, but I do feel confident that it is not going down further. Now I know its time for everyone to attack me now for my deluded thinking etc. but as a seller, that is my honest view.

"NYC RE's P/E is around 50 average nowadays, assuming a 10-year holding period."

what's the calculation going into that?....and why does holding period matter in an "E" calculation (assuming E is rent), unless you're making assumption about capital gain (or loss), which starts seeming circular, given that p/e is supposed to be an earnings based valuation model, i thought

Keith, silly of me to think otherwise as even a possibility. Pretty hard to beat fundamentals on long horizons...

inonada -- what's the p/e ratio for real estate coming from?...

Let me get this straight... the survey comclusively proves that... sellers are more optimistic than buyers...

Uh, since when was seller denial a *new* thing?

;-)

techno - quite typical that a comment of your weight is passed over, as it doesn't quite fit with the common narrative. I think your decision is hugely relevant given the course of the market over the last few years, and may very well be a primary steering factor in the market today. One only need look at the off-market / on-market gyrations to see that sellers in your position are just as capable of making choices as are those buyers with a bone in their teeth. The last decade has bred a cultural change in ownership philosophy; sellers will not accept an equity loss if they don't have to, and it's clear many are quite prepared to wait it out.

Techno, good on you. A death by a thousand cut it is!!!!! Merci! How does one say bunghole sniffer in French? Merci.

I no take equity loss. U mothefker take my equity loss.

Jacques

Parfum de ville longue aielund

technologic, it's arguably sellers such as yourself who have kept inventory lower than many predicted it would be (it's relatively flat YoY, with some fluctuation in between), which I think is a powerful indicator of the flat market I've expected for some time now. I'm not sure that's a vote of confidence for your strategy either way, but I suspect you're right in thinking that the time for a major second leg down has passed, at least for the next couple months.

technologic: I believe your reaction is exactly what the Fed hopes for. Here's the scenario: I'll use the word "you", but I don't mean you personally in particular -- I'm not saying anything about you specifically, just the way I see it from a policy perspective.

Say you have 20% equity in your place on day 1. Prices go up 10% because of the continuation of a bubble, then drop 20% at a value 10% below your original purchase price. This drop is buffered on the downside by low interest rates from the Fed, explicity govt guarantee of Freddie/Fannie putting mortgage/treasury spreads at near-zero.

Now, you have a loss of nearly all your original equity (10% loss nominal + 10% on transaction costs). You can't really walk away either: it's not like the loss is hitting the debt portion of the financing, just your equity, buffered by govt policy. So you sit on it. Meanwhile, you lose 2% to carry each year, and another 2% in equity anually as buffering from govt is removed slowly. Each year, the lost carry is water under the bridge, and the 2% equity loss is offset by you adding 1% to your equity position in the home through the mortgage. So the next year comes, you've got a 4% effective loss, but you can't really walk away since you're still not that underwater.

i think you are correct.

the problem arises when life circumstances change requiring a move. then its time to sell or attempt to rent out the property.

Here's why I said a 50 P/E. Say you've got a $2M condo, a little shy of 2000 sq ft. Let's say the rent on that is $8000 a month (someone motivated find it for a lower rent, but let's say the renter's motivation here is just average). That place's monthlies run around $3000 a month, tax benefits are de minimum (AMT), but you've got upkeep & insurance, let's call it $3000 a month.

So you're left with $5000 a month, or $60K a year. But the round trip transaction costs on a $2M apartment run around $200K. Let's say you amortize that over a 10-year holding period, so you end up at $20K a year. That leaves you with $40K earnings a year on a $2M condo, or a P/E of 50.

Right-o, CC. However, govt policy is designed to have someone else take the loss: either the new buyer (in which case the equity buffer is upped to 20% again), or the original buyer. Maybe not fair to the new buyer, but better than leaving the taxpayer with the loss IMO.

Question, technologic. Was there a life circumstance that had you thinking about selling/leaving? Did you put it off?

Merci!

yes but...

assuming that there are a lot of people like techno means that the only sales going through now are to buyers who either aren't aware or don't care about market risk and from sellers who forced to reduce their prices due to life change circumstances.

so it would seem that there could well be the reverse of pent up demand, ie. pent up desire to sell. the larger that group, the more that some tipping point could emerge causing those people to suddenly decided that waiting is now a mistake.

Well barring a life circumstance of lost job, I don't understand why someone wouldn't sell in this market and take the loss.
Unless one bought in 2005/6/7 and now has to downsize, yeah thats a terrible situation to sell.
But if you need more space and on one you'll spend 5/7 years minimum it's a good time to trade up or "double down."
If you bought a 2 bed /2bath in 2007 for $1,500,000 and can get only $1,200,000 today,(as long as you could afford it) I would take the $1,200,000 and then buy the 2007 $2,000,000 apartment for $1,600,000 today. Same 20% but 200K in savings in real money. Or just plain pretend you were paying some rent instead.

The mindset can be silly sometimes for real estate. No problem dumping a bad stock so you can get into a better or just plain other stock.

Somewhat bullish from a bear? Well there is $800 a foot out there in the market. I think it's relatively safe to buy at that number, or if it comes crashing down, even to $500 it won't be an average of $500 per foot. I think $700 is the new $500 (inflation, etc).
I think WORST case scenario Manhattan could average $700 per sq ft. On that note paying $800 psqft for something you like is not the end of the world.

One thing I don't see for sure is any sense of urgency for the next 6 months.

Now all of the above is not for people living month to month or at the edge of min requirements for mortgage, for coop board, etc. Anyone who has to worry about buy vs rent.....should be renting.

Techno's perspective is quite common in all real estate downturns. Residential real estate prices, like wages, are very sticky in the downward direction, because people go to extraordinary lengths not to realize nominal losses.

The usual course is for nominal prices to remain flat until inflation raises rents and cost of building to the point where sale prices make sense again. That's what happened, for example, after the mini-bubbles in NYC and LA in the late '80s: nominal prices dropped very little, while inflation adjusted prices dropped by almost a third.

This time, however, there is no inflation and no sign of any coming soon. Building prices are down, not up. Wages for the middle class have been flat for a generation. Even among the professionals, who are more relevant to Manhattan, lawyers, publishing, advertising and real estate are all suffering and finance, despite unusually massive government handouts, isn't exactly expanding either. Without job or income growth, it is hard to see what could attract tenants to pay significantly higher rents. So there is no particular reason to expect rents or building costs to rise to fill the gap.

The prognosis for the next few years, therefore, is more likely for W67's death by a thousand cuts then CC's tipping point. Homeowners are likely to balk at realizing their bubble losses. (Techno) Homebuyers are likely to be reluctant to sign up for guaranteed losses in the future. (W67). So, volume is likely to be low and adjustment slow.

Still, however, some owners will want to move on with their lives, and some investors will prefer to realize their losses and put their remaining money to work more productively (and in NYC, there will be plenty of investors and long-time homeowners who have not yet lost their equity and are not in the trap Inonada describes). Those who really want to sell will provide a slow flow of lower marks.

More important, professional RE developers can still see that the same housing continues to sell for far above its rental value when sold to owner-occupants -- so they will continue to convert rental housing to sales, which adds supply to a declining market. Prices are still far above construction costs -- so eventually banker greed (or ability to shift losses to the government) will overcome caution and the banks will begin to finance developers again. Sooner or later, conversions and new construction will either bring sales prices down or constrict rental supply to the point where rents rise even without job or income growth.

And there are no guarantees. Panic is always possible. So is a sudden new influx of jobs to NY. So is political crisis making NY unlivable.

truthskr, wouldn't you be concerned about doubling up your transaction costs if you were trading up now? Those are big hits.

It's a balancing act, CC, I agree. We coud always ask.

Hey techno: suppose my scenario plays out. I.e., we have a 2% drop in prices every year for the next, say, 10 years. Do you ever give up and sell, or do you stay the course? Is there any change that would make you veer from "stay the course"?

Yes, they eat a chunk of it up, and I think transaction costs are higher for the seller than buyer....so here you are taking the bigger of the 2 hits on the smaller number as well, but my example was still poor, you'd want to trade up substancially higher,maybe the $2.5 in '07 for $2.0

financeguy: "Without job or income growth, it is hard to see what could attract tenants to pay significantly higher rents."

Are there no arguments for rent being relatively low currently and therefore a steady rise is expected to bring it back inline even without inflation? In other words, is it not possible for RE prices dropping and rent going up at the same time?

financeguy: interesting perspective.

one factor that might be of relevance is real estate property taxes. If taxes are not capped then there might be a sudden increase due to the NY state dismal budgets. RE taxes has been the main engine for the current suburban slaughtering. Prices in Westchester, NJ and LI have gone back to 2000-02 levels and still going down due to high RE taxes. However, I don't know whether this will have an effect on the city prices--maybe for the outer boros.

Bubba -it may be death by a thousand cuts if people played by your rules, but they're not playing. So we had a one time hit that played out rapidly, followed by a slow, grudging chop by others to catch up. That's been it for 2 yrs now.

Relax, it's all good, soon you'll only need a 2 br. That's as good as a 250k lump of coal under the tree.

"Are there no arguments for rent being relatively low currently and therefore a steady rise is expected to bring it back inline even without inflation?"

Sure, but where's the argument for rent hanging around and bringing a steady decline for sales...right now the most likely. Can't see a substancial increase in rent until unemployment is below 7%.

Inonada: we had a baby and live in a one bedroom. A very large one bedroom so we are hardly cramped, but it would have been nice to have immediately move into a 2. Of course, at some point we will move and at that point I will sublet indefinitely. If I sell in 5 years, fine, 10 years is fine too.

As to your second question, if I REALLY believed we would have a 2% drop every year for even the next 5 years, then you bet that I'd be selling now and would be glad to get out with a mere 10% loss. But I simply do not think that is going to happen. Granted, I am not nearly as good on the statistical analyses as most on here, but I do keep up with prices, read Urban Digs, and just general sentiment and what I hear in conversations and the like - which may make me an object of derision - and nothing I have seen/heard makes me think that will happen.

I see, techno. It's nice that your coop allows indefinite subletting.

Of course you don't believe there's going to be a 2% drop every year for the next 5 or 10 years. My question was slightly different, though. What if there was? I.e., if you've saw 5 years pass and a 10% cumulative drop during that time, do you think you'd hold the line and hang on, or just cut your losses at that point?

Hahahahahaaaaaaaaaa. Techno. Here iz the trade. Sell 1bdrm, rent 3 yrs, when baby 2 comes go past park place and get 3bdrm for 1bdrm sold price. U r welcome. Flmaoz.

Yo spinny, u mistake me for a naughty child. I'm expecting a nice brazillian gift this Xmas nite.

"The prognosis for the next few years, therefore, is more likely for W67's death by a thousand cuts then CC's tipping point. Homeowners are likely to balk at realizing their bubble losses. (Techno) Homebuyers are likely to be reluctant to sign up for guaranteed losses in the future. (W67). So, volume is likely to be low and adjustment slow. "

Well argued (the whole post) fg. I think I agree.. Without the superunderwater factor present, I think its about the slow pain. I think I argued that a couple years ago, that the quick drop isn't usually the worst part.

Financeguy just got my vote for post of the year.

"And there are no guarantees."

financeguy, there definitely aren't, but your whole post kind of comes off as a pre-determined lock-step chain of events, no? And completely dismissing the possibility of inflation seems a bit strong. There is plenty of downside risk, don't get me wrong, but when I've seen rents rise in my neighborhood, despite all that's been going on, I have to wonder if things are as pat and predictable as you intimate.

Sunday - there is a high correlation between rents and incomes. Therefore you have to look at what has happened to incomes in the various tiers that rent. When the numbers get out of whack then supply and prices tend to adjust so the correlation shifts back to historical levels.

bjw, I think the inflation card is a red herring. Right now, real short-term rates are around -2% (0% nominal rates with 2% inflation expectations). Say inflation expectations spike to 4%. What do you think Fed policy will be, to keep real rates negative? Unlikely: one of their two primary mandates is to keep inflation controlled (around 2%). Their response will be to take real rates to, say, +3%, meaning 7% short-term rates, making financing / cost-of-capital more expensive.

The point is that for each percent increase in inflation expectations, rates will go up a percent (offsetting the rental gains with financing cost loses), but this will be paired with another percent or so shift in real yields to fight inflation (increasing financing costs in real terms).

Things can happen differently, of course, but with Fed policy where it is at today (prevent deflation), increases in inflation expectations will be met two-for-one with rate increases.

Inonada: if I crossed the 5 year mark and it was still dropping, then I'd probably cut my losses at that point and move on. What would you do? Didnt you just buy (or so I thought I read here a few months ago...)

Yes, I am very lucky that my coop permits flexible subleasing, though in truth not many residents actually take advantage of it. Seems like most people leaving prefer to move rather than sublet, which makes sense most are probably buying another place and can't/dont want to support two homes.

BJ: No, sensible economic models are not deterministic.

Still, it is hard to understand how airplanes stay in the sky if you view gravity as just a "pre-determined" "pat" and "predictable" slogan. Or if you ignore the existence of air traffic controllers.

AvUWS, I understand the correlation between rents and incomes. I am asking whether we might be at a point of relatively historical low rents and is in the process of shifting back to normal levels. That's assuming increase in income has outpaced increases in rent in the past x-years. Even with some income and rent data, the answer might still be subjective because it probably depends on how far back you look. It just seem like most people just dismiss the possibility that rent can increase and RE prices decrease at the same time in the future. If rents go up more than expected, then RE prices would have to come down less than expected to hit the various ratios that people look at.

i don't follow your logic.

rents and prices are correlated with incomes not with previous rents and prices.

Financeguy: Great posts.

As an addendum to CC's tipping points. There must be many like me who sold into the bubble (in 2005 and 2007) and rented while living with the fervent hope to buy back in at a lower price point. Now, five years closer to retirement, I am liking the liberated life-choice options of a renter. I rent an apt that would sell for about $2.5M for $7000 month with 3% increases. The growth of my portfolio of RE profits has covered all my rent costs for the past five years (although it looked like I was screwed in 2008 when the market tanked). If NYC RE prices took a hard fall, I would probably buy in (depending on reasons for downturn) but I have lost the burning desire for my "own" place. For all the financial upside of being a renter, I decided I can live with white walls. I think I am part of a growing breed and I think the ranks will grow as more and more people fail to make profits on their RE sales.

Problem is that's only part of the equation, then you have your last line "to hit the various ratios that people look at" which went from 10 times rent roll to 18 times rent roll after all the tax incentives,financing vehicles,widespread use of 1031 exchanges, etc. and peake lasy year around 25 times because sales didn't catch down to rent though rent has rebounded a little, still looking at 20 times rent roll everywhere.
This ratio CANNOT STAY.

"and peake lasy" is >>>> and peaked last year

so whats an acceptable rent roll ratio range ?

"I think I am part of a growing breed and I think the ranks will grow as more and more people fail to make profits on their RE sales."

You may be right, but that would be a major cultural shift in this country (and one that many on here openly pine for). While I do think renting is more attractive for some people, as long as families are part of the equation, I don't see a radical change. I know some posters here disagree with me on this, but I truly believe that renting and owning are not perfect substitutes.

Not to mention the fact that we live in a city where the majority already rent - it would be even harder for that shift to manifest itself here.

Marco
Well NYC was tugging along at 18 times. That was with chronic 10% increases in equity every year, the "scandolous" Bush tax cuts,the never ending availabilty of cash, and most tenants who paid their rent.

I would think 18 times would be overpaying today...I like my 200 time monthly rent formula, or 16.66 times rent roll.

apt23's $7000 rental is worth $1.5/$1.6 to buy, not $2.5.....to me

Sunday - that depends on whose incomes have gone up and what did they do with it. Rents are much more elastic than sales prices. In '98/'99 as demand increased (we were having a .com bubble in the economy, including financing those companies) and supply ran low (few were building after the blood bath of the late '80s) rents started moving up fairly rapidly. They are up significantly again since that time. I am not sure exactly how much. That was in response to increased incomes. They dropped in '09, probably 10-20% depending on market/type etc. mainly because of employment and income. Barring changes in those two factors I don't see any way rents track back up just because sales prices are high.

Rents will track with employment and income. That is it. If sales prices are too high relative to that then fewer sales will happen. If inflation raises rents it will only be because it also raised income. And if inflation does happen then it is possible rates will also have to go up.

I just don't see the scenario where rents go up because the buy/rent ration is out of whack and the response is that rents go up to accommodate if there is no corresponding increase in employment/income.

BTW, I am in the camp that thinks inflation is a bad idea. You just don't know which part of the economy will blow and by the time it happens it will likely be too late to stop it.

Marco -- It's hard to make money as a landlord if you pay more than 8-12 times annual rents -- and the high end assumes very low real interest rates.

Run the numbers and you'll see: even at 12 times RR, to project a profit, you will need to assume that the bank has mispriced inflation, or that you're going to make bubble profits when you sell, or that houses don't need to be repaired and good tenants are always easy to find. (The first two, of course, are always possible, if not terribly likely).

truthskr: apt23's $7000 rental is worth $1.5/$1.6 to buy, not $2.5.....to me

And I would buy it if it ever hit that price. Same apt line sold for $2M in 2008 in dark days after Lehman but same apt line was recently on mkt with ask of 2.8. -and sat for months. Waiting to see the closing price.

whats the maintenance on your place? $3000?

why would you buy it even for $1.5?

the only reason that i could see would be your fear that you couldn't replicate it for the same rent.

"They are up significantly again since that time."

AvUWS, I don't think your history on rents is really right. On an inflation-adjusted basis, rents are now 20-30% lower than in 2000 in NYC. Granted, it was a peak. Even on a nominal basis, we are flat since the 2000 peak. It's not a perfect data source, but here's Miller Samuel's data:

http://www.millersamuel.com/charts/gallery-view.php?ViewNode=1249522147RFeuS&Record=1
http://aggregate-data.millersamuel.com/

But during that same time, I think incomes went up appreciably on an inflation-adjusted basis.

CC: I looked full time for three months so I am sure I couldn't replicate it. It is also the perfect location for me. The owner has owned it for 20 years so he was flexible and we looked good on paper for the board. . Yes, The maintenance is about 3000.

Unless there's a significant drop in number of renters or a big jump in rental inventory, I think there's a good possibility that rent would increase faster than income inflation even as RE price decreases, especially after the 2009 drop in rent. Renters like to believe that increases in RE taxes and maintenance charges are just the owners' problems and won't effect their rent, but the reality is, in the long run, it get passed down to the renters.

"I think I am part of a growing breed and I think the ranks will grow as more and more people fail to make profits on their RE sales. "

That... plus don't forget the people who don't have direct experience, but will have stories to tell about someone else who did x and y. I can't think of how many people have said to me over the hears "aunt so and so doubled her $$$, she told me to put my money into a house as soon as I can". We now have examples that tell other stories, whether completely indicative of reality or not.

Residential RE as a wealth generator is a fairly new creation... the shift back wouldn't be that groundbreaking.

you're talking in circles. if rents are a function of income (with which i agree), what difference do owner's expenses have to do with it? that's one of the unpleasant aspects of owning in this environment. property taxes, as an example, can go up even if incomes stagnant or go down and there's no way to pass them along.

sunday, unemployed renters have far more mobility than owners do. they can move in with others, including family, or move to a cheaper location altogether.

demographics are impossible to track real time. but they are still building, and developers may very well look at a possible increase in interest rates as the catalyst to start up again. existing work permits were extended for four years, but 2012 or 13 isn't that far off now.

nada, i think for the vast majority of the population incomes were flat.

Hi everyone - Honeycrisp here (from The Apple Peeled) - so, I posted the results before leaving the country and have only gotten to have internet access now. And what do I see? a thread about the survey :) it's a great start to begin a broader conversation about buyer and seller sentiment (forgive me for the speedy writing of this response, as my internet access is sporadic at best right now)

i don't disagree with any of you in the relative disappointment in the sexiness of the results (no, that's not me nor my partner on that chair :) ) do i wish that there were controversial take-aways? yes. was i hoping for something more headline grabbing? absolutely

that said, our goal was not to have the first and only survey - our goal is to track the shift in buyer and seller sentiment over time, going forward. we didn't create the survey expecting earthshattering take-aways. the results are what they are, real and representative of the answers we received. i think that, with all the quantitative indicators people point to in analyzing the NYC real estate market, it's about time to insert a more qualitative, forward looking one that we will launch early next year

cc, in a way it is circular.

"Residential RE as a wealth generator is a fairly new creation... the shift back wouldn't be that groundbreaking."

There's an important distinction to make though - those who are seeking primarily to generate wealth from real estate, and those who are seeking to own their own home. The shift away from the first is pretty easy to buy, especially since it's a relatively new phenomenon (at least in the ease and prevalence). The shift away from the second would indeed be groundbreaking though, as that's long been a central tenet of the "American dream" (an arguably silly ethos, but a very real and powerful one nonetheless).

"Inonada: if I crossed the 5 year mark and it was still dropping, then I'd probably cut my losses at that point and move on. What would you do? Didnt you just buy (or so I thought I read here a few months ago...)"

I guess CC was right on that point, at least in your case.

I didn't just buy. I did, however, just move into a new condo I'm renting. At my market segment, the price vs. rent is even wackier than the average, and I place no premium on owning from a lifestyle perspective. Anything I want done to the place that is easy (e.g., paint color, floors), I just work it out with the owner; anything major (new kitchen), I just pass on the place. So, to me, it's all financial.

On the "What would you do?" question, it's a circular answer. The first answer is that I would never have bought, because it never made sense from a fundamental long-term valuation perspective. The second answer is that if I had bought because I thought it made sense from a fundamental long-term valuation perpsective, then I'd simply hold on. That also means that the place would have been cash-flow positive, though, so holding on is pretty easy. Hell, at that point I've buy even more because with the lower price, the cash-flow would be even stronger.

But I'm an odd creature, perhaps. When stocks crashed in 2008/2009, many people pulled out. I on the other hand couldn't figure out why things had gotten so low from a long-term valuation perspective, thought and scratched my head real hard, still couldn't figure it out, took a big gulp, and then added significant amounts to my position (which are long-term in nature).

The point here is that I won't buy unless the long-term valuation is attractive, and if prices fall, then long-term valuations become even more attractive, so rather than sell I'll actually buy more. Somewhere between confidence/stupidity in my convictions...

"you're talking in circles. if rents are a function of income (with which i agree), what difference do owner's expenses have to do with it? that's one of the unpleasant aspects of owning in this environment. property taxes, as an example, can go up even if incomes stagnant or go down and there's no way to pass them along."

They don't have much to do with it. If the market won't bear increases, owners eat them.

"But I'm an odd creature, perhaps. When stocks crashed in 2008/2009, many people pulled out. I on the other hand couldn't figure out why things had gotten so low from a long-term valuation perspective, thought and scratched my head real hard, still couldn't figure it out, took a big gulp, and then added significant amounts to my position (which are long-term in nature)."

Nicely done.

Of course, I actually felt better about buying in *because* folks were pulling out. The American public gets it almost 100% wrong.... they're always pulling out most at the times they should be jumping in, and vice versa.

'I'm expecting a nice brazillian gift this Xmas nite'.

Grilled meat on a skewer?
Cold Mojito?
A country ripe with potential destined to fail?
No floss at the Y?

> The shift away from the second would indeed be groundbreaking though, as that's long been a central tenet of the "American dream" (an arguably silly ethos, but a very real and powerful one nonetheless).

agree, the replacement of the "American Dream" by the "Swiss dream" (renting cheap w/ a fat portfolio) will tempt the young, but it's too late for the boomers imho. they've been exposed to the RE idea for very long time and for many their peak savings years are over.

It isn't just the American public. It is human nature. When the rest around you are panicking it takes effort for the normal person to move against the herd. The fear amongst people in situations like that can be palpable and you have to train yourself not to react to those emotions. Some are unsuccessful doing that, or don't know to do it.

and of course sometimes everyone is right.

when the saber tooth tigers attacked the cavemen, and people starting running away from them, it wasn't the time to run in the other direction.

http://www.fanniemae.com/newsreleases/2010/5247.jhtml

According to the study findings, 51 percent of current owners and renters say that the housing crisis has not affected their overall willingness to buy a home. However, while homeownership aspirations are high for the long-term, Americans have near-term doubts about buying. Overall, according to Fannie Mae's National Housing Survey third quarter results, one-third of Americans (33 percent) would be more likely to rent their next home than buy, up from 30 percent in January 2010. Among renters, 59 percent said they would continue to rent in their next move, compared to 54 percent in January 2010.

> Renters like to believe that increases in RE taxes and maintenance charges are just the owners' problems and won't effect their rent, but the reality is, in the long run, it get passed down to the renters.

higher carrying costs mean lower home prices. hence renters are compensated by these increases. but as any supplier knows, not every cost increase can be passed. rentals are not the exception.

"Of course, I actually felt better about buying in *because* folks were pulling out. The American public gets it almost 100% wrong.... they're always pulling out most at the times they should be jumping in, and vice versa."

Yes, but the problem is that the same public can take a wrong thing and make it even more wrong to an extent that boggles my mind. In 2005, anyone with even a modicum of sense should have seen that housing was stupidly high, I thought. Same in 2006. Same in 2007. Yet prices went up.

The only thing that kept me from putting on serious leverage in 2009 (and by that, I mean compared to my net worth) is that I have learned that I cannot predict how the public can make a wrong thing even more wrong. Sure, the S&P was cheap at 900/800/700, but if you 2x levered your net worth at 900 (which was a very good price from a fundamental valuation, IMO, conceivably as good as it was going to get), who's to say the public wouldn't have taken it down to 500? I certainly wasn't going to put it past them. So even my confidence/stupidity has bounds.

Just for yutz, I decided to have some fun on the issue. Sometime around 2005, I found myself with a gold position. A fine chunk of money, but very tiny compared to my net worth. It was trading at $400, so I figured let it ride. It went up to $700 or $800 or whatever it was in 2007. I said to myself, "Well, this is clearly getting nutty. I have no long-term view on gold, so I should sell. On the other hand, I'm always making my 'nutty' call way, way to early." So I've let it ride. It is my tiny experiment in "If you can't beat 'em, join 'em." I'm predicting it'll all end in tears for me ;).

"...but as any supplier knows, not every cost increase can be passed."

Perhaps not "100%" of the cost increase and certainly not all at once, but one way or another, they will make a certain average profit margin that is worth while for them to continue.

"...but as any supplier knows, not every cost increase can be passed."

Perhaps not "100%" of the cost increase and certainly not all at once, but one way or another, they will make a certain average profit margin that is worth while for them to continue.
===========================

only if they can. not every investment pays off. RE is not risk free. landlords will have to deal with negative cash-flows if they cannot pass them. those that are leveraged the most will have to call it quits. nothing new, it's part of the cycle.

there are different ways to make money and still remain within your comfort level. having gotten out just after the top of the stock market, i underestimated the effect that the monetary stimulus would provide (and also the increased profits that would come from cost cutting and emerging markets). but still i had no stomach for getting back in. so i went the bond route, mostly. have i made a killing? no. but certainly a lot more than the .55 savings rate that RS is always bemoaning. after an 10%ish year, i got out of bonds a couple of weeks ago and went all cash again. now i need to decide where to plant the money.

you don't always have to "win" to win.

inonada: "I'm predicting it'll all end in tears for me"

Since you sound like someone who won't bet your whole net worth on one thing, it'll likely end in tears of joy.

i'd bet in favor of nada as well.

notadmin, i'm living in the definition of "negative cash flow."

> notadmin, i'm living in the definition of "negative cash flow."

indeed, the quintessential predatory equity scheme

"It is my tiny experiment in "If you can't beat 'em, join 'em." I'm predicting it'll all end in tears for me ;)."

And thats at the heart of every bubble. The big ones get so big that even the people with some common sense say "maybe I'm missing something".

But, in the end, as long as the world wasn't ending, when the dow was at 6700, yes, it could have gone down more, but it still represented a historical buying opportunity, even if a bigger opportunity was coming...

Hi everyone

This quarter's poll is now open

http://theapplepeeled.com/uncategorized/polling-is-now-open/

We enthusiastically invite the SE community to contribute to the NYC Real Estate Sentiment Index and shed some light on what buyers and sellers are thinking!

Honeycrisp, don't forget to pay StreetEasy their advertising fees for this, yet another, blatant commercial promotion.

Hi Alanhart

I'm sorry that your cynicism gets in the way of believing that some people are actually just trying to add value and promote transparency in our market.

We're inviting people to take a part in the index to provide them insights that may empower their decision-making ... god forbid that someone within our industry takes the initiative to do so.

Noah at Urban Digs tries to do so, Jonathan at Miller Samuel tries to do so, Malcolm Carter, and the list goes on ... I'm not sure what criticizing the advancement of a dialogue and the gathering of useful data accomplishes.

How many times can I vote?

Hey Alan, she's helping you fool. The more knowledge/transparency the better for everyone. What are you the champion defender for SE? What do u care? I'll bet even SE welcomes all informative posts. Thx Honeycrisp for the new index.

Now Honeycrisp, what are you doing this Sat night? hahaha just kidding. Beauty and brains are tough to resist. Believe me I know :) lol..best of luck!

Thanks, SteveF for your support :)

Stevejhx - you can only vote once, otherwise the integrity of the index is shot.

Thanks, Honeycrisp--just took the survey. Looking forward to seeing the results! Should be interesting.

you're welcome. I'll say one thing. I just rented an Eastside studio. I'm a little dissatisfied as I feel I rented it too low. The place was snapped up within 5 days with the buyer paying full fee. I looked back and all the comps I had looked at were rented as well with nothing left. The lease is signed but I have remorse that the market is priced higher and I missed it. Seems like inventory is just non-existant. Anyone else with any rental market evidence/stories?

The "index", as you loftily refer to it, has no integrity ... and you really flatter yourself by comparing it to the work of Noah, Jonathan or Malcolm. You have a sample size very close to zero, no correlation whatsoever between behavior and opinion/expectation, et cetera et cetera et cetera. It's an index of nothing. But that's okay, because it's just a marketing vehicle.