Why Your Next Place May Cost More

It seems like most ny times articles are some version of that. It's sort of amazing how can such a reputable paper allows such drivel.

I meant most real estate section articles...not the paper as a whole.

>and that Wall Street whose earnings used to fuel the real estate market, now pays lower as well partly deferred bonuses (although this is somewhat countrbalanced by higher base salaries).

Wall Street may pay fewer, but it doesn't pay lower. And deferred comp has always been part of the equation.

>Fguy tosses it around like it's the inevitable final result to our excesses. What the hell does equilibrium look like anyway? School me please.

Equilibrium is not a natural human state. It's something in textbooks or Fantasyland. http://www.youtube.com/watch?v=YlVDGmjz7eM

The Times Real Estate section is(was?) a huge money maker for the paper. It's one big advertising section and it is run as such. I've also noticed that much of what appears in that section(besides not being investigative journalism) is not "special to the new york times" but purchased, and with that business model is the danger that pieces are put out by special interest groups and/or are public relations fluff pieces. And all too often they quote the NAR trade group and take such information at face value.

..And to the point that its a money maker? Well anyone notice how thin the section has become going from two thick sections to one thin one.

next you're going to tell everyone what day of the week it is.

Oh, great ... huntersburg also posts marginally relevant youtubes, just like the hfscomm always did.

Please use the comments to demonstrate your own ignorance, ability to repeat discredited memes, and of course forgo all civility in your discourse . . . you are, after all, anonymous.

I'd much rather be long RE from here and betting on recovery than still be hoping for the next shoe to drop

I'm more in the real estate is a "hold" camp. I don't see much up or down side, but if done without excessive leverage and the right time horizon , it should beat the rent option and hold up to inflation.

Spin: Here is your lesson on equilibrium.

Equilibrium is not "the inevitable final result" to anything except in the sense that death and entropy are. Economies are dynamic systems; they are stable only in death.

Equilibrium is a theoretical stable point at which investors have no incentive to increase or decrease supply, because price equals marginal cost of production. Those who think that theory is pointless, thus, can stop reading now.

Equilibrium works as an easily understood gravitational force. When the market is not at equilibrium, which is always, market-influenced fundamentals-driven rational actors, who are always present if not always common, have a financial incentive to take actions that move it towards equilibrium. Others may act differently.

In our situation, sales prices are far above the buy-and-hold-to-rent value of existing units and the cost of building. Indeed, even rents apparently are above the cost of building. Thus, profit-seeking investors can make money by selling rented units to owner-occupants or renovating/converting/building new ones. The OP article describes anecdotes of the second type. Those actions increase supply. Increased supply tends to bring prices down, unless, of course, some other force counteracts it.

Equilibrium is never the only force. But if you ignore it you cannot understand the dynamics of the market. Think of gravity. Gravity doesn't mean that planes can't fly. It does mean, however, that pilots are likely to end up with unfortunate results if they rely too heavily on bloggers who assume that because the plane is in the air it will stay there absent a "triggering event," or reject gravity as "fantasy" because common sense tells us that planes fly, or count on people seeing the Light or slogan chanting to keep the plane up, or contend that the existence of gravity means that the plane must already have crashed, or condemn any mention of gravity as self-interested and envious of the great views the passengers have, or concentrate solely on demand for air travel.

Instead, if you want to understand the plane's future trajectory, it helps to know what the forces are that counter gravity and how full the fuel tank is.

Knowing that prices are well above equilibrium is like knowing that the plane is in the air. Equilibrium analysis tells you one important thing: profit seekers driven by fundamental analysis are highly likely to increase supply which will bring prices down, unless some other force (like bubble-induced increases in demand) is stronger.

The task, always, is to identify the forces that are keeping us from equilibrium and assess their likely direction and strength going forward.

Today, supply increases are pulling prices downward. That's the easy part, because equilibrium analysis is pretty simple.

The dynamic forces are harder. If the prices people are willing to pay depend on the prices they imagine other people are going to be willing to pay in the future, the market will act like a herd. Self-referential systems like herds and markets are hard to predict, because stampedes can be caused by trivial "triggers" that can't be seen in advance and don't look important in retrospect.

For buyers who need to include in their affordability calculations future capital gains or losses at an indefinite date sometime in the future, predicting the chaotic movements of the herd is impossible -- except that prices are highly likely to oscillate around equilibrium. Herds don't head away from the food forever, and when market prices move far from fundamentals, the fundamental investors eventually have enough profit opportunities to pull them back in the other direction.

Similarly, I can't know whether the planets will be on this side of the sun or that at an unknown date in the future, but I can safely predict that they won't get too far from it, and, given that we are currently at the furthest recorded point from the sun ever, that they are going to be closer than today and quite possibly on the other side.

Markets are less orderly than planets, but equilibrium works much the same way. The prediction is not that the planets are going to be at equilibrium, which would mean in the sun. Instead, given that we know they will be on one side or other other of the sun in roughly equal likelihood, "in the sun" is a pretty good approximation of where a planet will be at an unknown time in the future, even though it is never going to be correct (except at the death of the system).

Fools will misunderstand, and others will use the prediction for what it is worth.

Airplanes have trouble staying still and staying up at the same time. Equilibrium analysis combined with post-bubble herd dynamics mean that price stability is the least plausible prediction of all. Is seller reluctance to realize losses that strong a force? Is there any other force pressing towards stability?

spinnaker1: establishing pricing is one of the main jobs of a well functioning market. it is established by supply and demand levels and it sends key information for both supply and demand going forward (do players demand more, do players supply-build in this case or putting the house for sale- more?).

markets don't have unique equilibriums (as there are feedback mechanisms that keep on changing supply and demand and also external variables have feedback among themselves, like cost and availability of credit) so a "phony equilibrium" is not about not being "the one"...

it's about the lack of transparency about the real supply and demand information so pervasive in real estate. a player on the demand side doesn't know how much supply is really there thanks to the shadow mkt (new developments lying about how many units closed, withholding units that will be for sale to create phony scarcity).

hence the uneducated ones (naive demand players) bite the bullet and act as if that revealed supply (less than what it really is cause of withholding units) and the revealed demand (overdone by making up transactions) were in fact the true ones. bidding prices higher than what they should be if they knew that in fact, only 15% of units closed, not 60% like the realtor is saying, for example.

so a phony supply and phony demand gives you a phony equilibrium price. with gifts from heaven like Street Easy the phoniness of the supply and demand go down, making the pricing eventually less phony, less sticky, more efficient. real supply/demand transparency benefits the buyer the most imho.

No use guys. Spiny probably majored in maple syrup making and skipped Econ. Not his fault, syrup making is serious business up north.

Bravo. Fguy/notadmin.

fguy/notadmin - I confess there was a rhetorical element to my question, but thank you both for taking the time to write up those great missives on my behalf. I suspect I wouldn't survive a verbiage-athon with either of you so I won't even try. Neither of you mentioned anything about asymmetry, which for me is where all the opportunities lie. Also, the onset of paralysis brought about by uncertainty makes the supply and demand numbers less about transparency than psychology IMO.

Teach me about asymmetry, please. How is it relevant here?

psychology plays a huge role, through the formation of expectations on how demand, supply and many other variables will behave going forward

> Neither of you mentioned anything about asymmetry, which for me is where all the opportunities lie.

the lack of transparency always brings asymmetry of information, in RE the damage fall mostly on the buyer imho.

Just guessing on asymmetry;

Wars, Natural Disasters, Government TARP funds....... :)

Is this the theory that if the US political system collapses, if inflation goes completely out of control, or NYC just cuts back on garbage pickups, Park Avenue coops and LIC condos will rise in price? I'm too dim to see the logic here; perhaps someone could lay it out for me slowly.

Let me answer your question with a question. Do you believe all properties to be equally distant from equilibrium?

I lost the point here (not that I ever had it) but your buying in early 2009 has some similarities to my buying in 1991. Nothing was moving. I didn't discuss it online, so never heard "Are you insane! What if this isn't a bottom?" nor was otherwise dragged over the coals.

We'll never know how it plays out, but the worst case'd be your not having an extra room for the money. No big deal in the end.

w67, use your other hand instead until it evens out again. It'll feel like another woman, but don't worry, it's not really cheating.

my ex-wife has breast asymmetry

seen cases of ass-assymmetry

re psychology and occasional irrational market behavior,reread this carefully (fg's "verbiage"):

predicting the chaotic movements of the herd is impossible -- except that prices are highly likely to oscillate around equilibrium. Herds don't head away from the food forever, and when market prices move far from fundamentals, the fundamental investors eventually have enough profit opportunities to pull them back in the other direction.

my words: the herd can get very far from the food, dont disrespect that, but to run with the herd when it's already miles from the food is stooopid

Spin -- Ah - By asymmetry, you just meant to point out that sometimes there are $100 bills on the sidewalk in Times Square.

and before you know it there will be a university degree in waiting in times square to collect $100 bills.

>Equilibrium works as an easily understood gravitational force.

Really?

When I jump up, I know with certainty that gravity will work, that it will work immediately and swiftly, and I know exactly where I will land. In fact, I know it so well that I can swing a rope above my head and then below my feet after jumping, and do so repeatedly and with such accuracy that I can vary the speed.

What is the easily understood equilibrium price of real estate?

>Similarly, I can't know whether the planets will be on this side of the sun or that at an unknown date in the future, but I can safely predict that they won't get too far from it, and, given that we are currently at the furthest recorded point from the sun ever, that they are going to be closer than today and quite possibly on the other side.

What is the equivalent to the Sun in real estate? Can I see it like I can see the Sun?

do you really not have anything better to do?

my ex-wife had a breast on her back...not much to look at but boy could she dance.

but I can safely predict that they won't get too far from it, and, given that we are currently at the furthest recorded point from the sun ever, that they are going to be closer than today and quite possibly on the other side.
--------------------
Mean Reversion-A theory suggesting that prices and returns eventually move back towards the mean or average. This mean or average can be the historical average of the price or return or another relevant average such as the growth in the economy or the average return of an industry.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
I can tell you first hand that models I work with use it , and would be worhtless without it.

If mean reversion is such a strong "theory", why are there fluctuations at all?

so, we can safely assume that you don't have anything better to do than write this drivel?

Market's that move too far in one direction tend to move back some. No idea why it works. Perhaps it's due to investor psychology. Market falls 40% people think it's cheap. It rises 50% people view it as over-valued. Technicians follow mean reversion by looking at trend-line.

so you serve up the questions to yourself to answer. and you don't think you have a problem?

What is "too far"? Is too far the same each time, i.e. does it follow a mean reversion rule?

What is the time period to "move back"? Is the time period the same each time, i.e. does it follow a mean reversion rule?

how do you spell awkward?

R I V E R S I D E R

huntersburg, exactly. fg waxes eloquently (depending on your view) on theorum but he has gotten too far afield here with his parallel to a an equation that can be solved with applied mathematics/physics - the law of gravity.

he will argue that equilibrium has the same base concept and can apply calculated variables for a certain outcome but thats a load of crap.

and w67, i have a lefty leaner.

Ranger, I used an old rightie curve..victoriaville..super tacks

wbottom, sherwood old woodies and bauers. couldnt afford the super tacks.

>huntersburg, exactly. fg waxes eloquently (depending on your view) on theorum but he has gotten too far afield here with his parallel to a an equation that can be solved with applied mathematics/physics - the law of gravity.
he will argue that equilibrium has the same base concept and can apply calculated variables for a certain outcome but thats a load of crap.

I particularly like theories about reversion to the mean. I always wonder, does the mean change over time as the current circumstances then get back-calculated into the new mean? I guess technically mean reversion only works if the mean is steady, in which case there can be no diversion from the mean to begin with, and then no need for mean reversion in the first place. Now I'm confused. I'm going to jump and see if I land, hopefully gravity won't have changed while I contemplated this ever changing fixed mean.

"I keep hearing about this 30% NY drop even though for quite some time the market is not doing anything remotely close to that."

How is it that so many bulls still have their heads stuck in the sand?

For the one millionth time...

> Current Median vs. Peak Quarterly Median (and max peak to trough in parentheses)
> Studio - 24.8% down from peak (this is the lowest point)
> One Bedroom - 22.6% (23.3% at low point)
> 2 Bed - 25.8% (28.8%)
> 3 Bed - 39.9% (48.0%)
> 4 Bed - 55.0% (67.3%
> Overall - 17.6% (21%) (lower than any single category because of blend shifts)

here's more detail for ya...

> 3 Bed - 39.9% (48.0%)

wow SWE, this is the most orgasmic line i've seen in a long time. we were looking for a 3 Bd long time ago but settled for a 2 bedroom rent stab instead for the long haul. i bet there's been a change in teh mix as when i look into 3 bedroom listings, i never come across a bargain that beats the current rent stab (maybe that's too much to ask for).

> here's more detail for ya...

[blank]

now if that isn't the story of SteveF, I don't know what is.
;-)

> i never come across a bargain that beats the current rent stab

Well, rent stabilization is often really a free apartment... where your rent can be the equivalent of just maintenance... you'll never beat a super rent stabilized deal. Its pseudo-ownership.

> Well, rent stabilization is often really a free apartment... where your rent can be the equivalent of just maintenance... you'll never beat a super rent stabilized deal. Its pseudo-ownership.

yes, yes and yes. but still, there were periods where some apartments would be cheaper than rent stab rentals, at least according to Jonathan Miller (he says not that long ago he was able to put an apartment in his credit card, and not a Centurion). if i do remember correctly, it was in the early 90s?