Interest Rate Predictions

Rates are still "relatively low." Many of our parents had 9-12% mortgages when we were growing up. And if the market drops 10+%, I think the money you save will outweigh any increase in mortgage rate, but that's for a financial person to say--and I'm not that.

This said, trying to market-time your life is good if you will live forever, but otherwise life is too short. Do what you must and weigh your options when the time comes for doing so. You'll close, see if you find a new home you like to buy, you'll crunch numbers then and decide to wait and rent or get back into an owned property. Trying to figure this out now, with so many variables, may be just confusing and produce no answers.

Good advice. It's just that I'm planning on moving from Queens to Manhattan and as I'm not independently wealthy, I can use all the help (rates, market) I can get. You're right though, if I can find an inhabitable apartment in Manhattan in my price range, I probably shouldn't wait.

I just did the same- move from Queens to Manhattan. I found the cheapest and what I perceive is the best valued 1 br I could find and sank my teeth into it. I don't have the big income and bought out of fear of further price increases. Now I'm glad I did because I have only seen prices go up in my coop.

I would wait till the fall to see where the market is headed. More price drops or stabl1zation? You are not going to be priced out as the prices are going nowhere.

Newaccount- I find it hard to believe that if you bought this year that you have seen an increase in prices in your coop.

Quite a risky proposition to purchase at a time when market inflection has been confirmed by the largest drop in sales transactions in 10 years.

However, that is NO *guarantee* that prices will drop precipitously. If there were such guarantees, we'd all bet the farm on it and become billionaires. It may, it may not. Obviously, my opinion is that there will be a sizeable correction in prices.

Everybody has different risk tolerances, and so it DOES really depend on each and every person's unique situation to a degree. Just as long as the decision to purchase is an educated, and well analyzed decision and not an emotional or impulsive one.

Look in Coop Village in LES. I bought in late 2007. Average prices have increased 15%. As I said, best value I could find.

new account - what bldg? Is this 15% appreciation in the asking price or a closed sale?

newaccount,

I lived in co-op village for 13 years and I do not beleieve at all that prices there have appreciated by 15% since 2007.

Here is some data for building #2 of Seward Park:

05/23/2008 #A1107 $835,000
05/22/2008 #D1004 $720,000 -9.9

The first apartment is in building #1 and the second one is in #2, just to clarify.

This apartment at Seward Park appears to have been withdrawn after originally being listed last August (don't pay attention to the listing date at the link since the apartment was previously withdrawn). Too bad, especially since the sellers used to be close friends of mine.

http://www.streeteasy.com/nyc/sale/167399-coop-417-grand-street-lower-east-side-manhattan

MMAfia--I hear you but isn't real estate always largely emotional? I mean plenty of people think I'm being irrational in moving to Manhattan in the first place for what will be a smaller place for more money but it's about quality of life for me at this point. As a native NYer I'm over the boroughs and I no longer see the point in living here if I'm not living in Manhattan. It's what I've always wanted and in a down market where there's time to actually blink before you have to make an offer, this might be my best chance to do it. Will I be able to sell and make money in two years, probably not but that's ok. For me right now all I care about is getting the most I can for my money and trying to play this odd market correctly to finally make my dream a reality.

kimerama- Just wait and you will get an extra bedroom this time next year for the price you will pay today. That is a fact. Buy now and you will lose at least 25% in value by this time next year. (You will already be behind 10-15% if you closed in the next 6 months). Good Luck and remember. It's your job to keep your money and it's the Realtors job to get as much of your money for themselves.

kimerama, you are absolutely correct- real estate can be very emotional because:

1. it is usually the largest investment many people make in their lives

and

2. people live in it

as a result, it triggers many heated debates as you can see in this and other forums.

I share many of your thoughts- best luck to you.

This is titally off topic, but I'll answer to Alpine. Maybe you can start a new thread.

Look at Property Shark to see the long term trend. You will see prices going up for Seward, Hillman, and East River. Alpine, you are comparing 2 units which closed around the same time. One may have an elaborate renovation.

Kimerama, I had the same thoughts when moving out to Manhattan. I'm glad I did. Check out Coop Village. 1 BRs start at ~$450k asking for 700-800 sq-ft. It's not your ordinary tenement closet. On the negative side, some apts will be further away from the train, a la STPCV. But as you get further from the train, you may get a better view of the East River.

not to tick people off, but personally, I'd prefer staying immediately outside Manhattan WITH multiple express and local train connections within 2 mins walking distance (e.g., LIC, Brklyn Hts), rather than inside Manhattan with 10 mins walk to a single local stop (e.g., F train stop near the farther out Seward buildings) - but that's just me.

"Just wait and you will get an extra bedroom this time next year for the price you will pay today. That is a fact."

A fact dco? Could you post the report where you are able to look into the future and find this to be a fact? While you are at it, can you also share with us where the stock market, interest rates, and the cost of oil will be a year from now?

eric- you pay more for LIC or Brooklyn Heights, granted you may be getting a condo vs. coop. But as I said, Coop Village may be undervalued. A 10 min walk is nothing when you don't need to go in and out of a train station. Does your thinking make the UES near York or Hell's Kitchen undesirable? LIC is a 10 min walk to the train from the waterfront. Also, LIC advertises 5 mins to Grand Central, but you try timing that from the point you leave one of the buildings to the street at 42nd and Lex and you'll have yourself 20 mins on the clock. I walk to the nearby hot spots in the LES (Orchard/Ludlow) and I'm close enough to the EV, Soho, Tribeca, and Chinatown that I don't need to take the train to get to most places.

newaccount--thanks I will check it out.

eric_cartman--I get your logic as well, it's why I initially bought in Astoria/LIC. I looked in Manhattan first but four years ago it was either a box on 1st ave, a HDFC tenement in the hood that I would have to get a commercial loan on, or a decent place in the border of Astoria/LIC with an easier commute that everyone I worked with who lived in Manhattan. But in the end for me, having lived in Queens my whole life, I'm just over it. Manhattan is still Manhattan no matter what borough hotspot is deemed the flavor of the week. I still go out in Manhattan, I still shop in Manhattan and I just know it's where I want to be and I don't want to leave NY (which I know I will eventually do) without having lived in Manhattan.

Having said that, given the choice, living in BK Heights does make more sense then say Yorkville, but I don't have the money to live where I'd want to live in BK Heights either.

kimerama, that's exactly why I chose Manhattan! I had a 2 BR in Sunnyside for 5 years when I first started out, renting the second BR to friends to help pay half my expenses. Last year, I was ready to move into Manhattan and have no regrets whatsoever.

I looked in LIC, but in all the new buildings, you have to pay for your own heat and the thought of the tax abatements expiring scares me. Also, they have amenities that I don't want or need. All buildings in Coop Village have a gym and that's all I need or am willing to pay for. Our low maintenance is as low as you can get. Check it out. It sure beats a tenement. If you're interested in those, there's the Tenement Museum on Orchard St and Delancey.

I think you guys are all making a good argument for why Manhattan real estate will hold up just fine in the storm -- people want to live there no matter what, and will pay the extra cost if at all possible. That LIC "5 minute" commute is BS - there are times of day you can't get squeeze your body onto the train. LES is a nice place these days. I'm glad I lived in Manhattan, though I got over that too. I always think of what a co-worker said to me in 1983 when I asked her how she liked Queens: "It's awful! People don't live in Queens; they sleep there!"

"I think you guys are all making a good argument for why Manhattan real estate will hold up just fine in the storm -- people want to live there no matter what, and will pay the extra cost if at all possible."

This kind of argument was applied to other 'desirable hit spots' including Florida. While I do agree that there is some merit to the argument, I caution against relying on it as absolute backstop as we have seen that it is by no means a guarantee.

Even in Manhattan itself, we have seen this falter, especially during the last downturn when the crash of '87 happened, and the real estate market entered into an inflection point which took 2-3 years to complete, resulting in price decreases starting in '89-'90. People lost jobs, the 'desire' to live in the city diminished as crime increased, and on and on.

Now, that is necessarily what will happen this time around- but it is definitely a possibility one *should* consider given that it has happened here before.

A better argument as to why Manhattan may yet 'withstand' the storm would be, in my opinion, is that financing was much more controlled thanks to coop regulations (although ARMs were rampant still) than in, Florida for example.

"A better argument as to why Manhattan may yet 'withstand' the storm would be, in my opinion, is that financing was much more controlled thanks to coop regulations..."

That leves condos, which make up 25% of the inventory. They have a much greater risk of going into foreclosure.

I forgot to mention, re kimerama and interest rate timing --

Queens prices, if you're selling now, congratulations -- you may have timed the market perfectly.

If interest rate timings and Manhattan prices don't time out exactly perfectly for you, not the end of the world, because had you waited another year or two to sell in Queens, you'd have less cash. Just a hunch :)

MMafia, nothing is a sure thing, but the reasons articulated for why someone wants to live in Manhattan don't exist for Queens, for instance. In that horrible inflection after the '87 Dow crash, all five boros went down. However, Manhattan came out of it soonest. In Sunnyside, Queens prices did not start to increase until 2000/2001. The inflection is hard to figure out when it started, but conservatively you can figure it was in the toilet for 12 years.

The financing concerns, availability of mortgage money, at what price, the employment picture, etc., are the same in NYC whether you're in Manhattan or Queens. What is different between the two is that people don't dream about having the great opportuntity to finally be able to afford to live in Woodside :)

You know my opinion -- all of Manhattan is overpriced, and although Steve's rent-v-buy posts have generated lots of scorn and nitpicking, it is one way of describing how expensive is expensive. In Manhattan people can always say, "look, Manhattan is ALWAYS expensive" or "but it's always been this way." How can anyone put a number figure on how much is too much? I think comparing gross out-of-pocket outlays between renting and owning basically similar apts in the same neighborhood is a way of trying to get one's hands around it. But if a person owns long-term (not seven years; anyone who thinks seven years is long term has a very short-term horizon) they can expect rent increases and huge interest rate fluctuations and changes in neighborhood amenities, fashions, etc.

There is no hard, cold, scientific "fact" database to absolutely prove or disprove the things people are debating. You can make a case for a point of view. I have been struck after reading hundreds of argumentative posts between people about who's "right" and who's "wrong" that they are also proving why there will always be people who will always pay whatever it costs to live in a prestigious neighborhood with the right zip code. It's the intangible values that economics can't measure. Manhattan is a hotspot for people who are very concerned with prestige.

Exactly alpine292- make no mistake, the condos were fueled to a large degree by foreigners as they were much easier purchases than finding pied-a-terre coops.

Also, even though coops were regulated to a degree, many still used ARMs with impending resets. Given the jump in interest rates lately due to tightening credit (albeit still at a historical low, the trend has now shifted to going up steadily), there will still be some effect even in coops as refinancing is nowhere near as easy as it used to be.

However, even with those caveats, if I were to make an argument FOR Manhattan (which clearly I am not), it is still a better one to make than the typical two which are:

1. Everyone wants to live here

2. They are not building any more land!

The aforementioned two are great selling points during an spiraling upwards real estate market used by the broker community.

lowery,

"In that horrible inflection after the '87 Dow crash, all five boros went down. However, Manhattan came out of it soonest. In Sunnyside, Queens prices did not start to increase until 2000/2001."

That is correct- but remember, inflation adjusted Manhattan prices fell by about 60% back then according to Shiller.

That is a very significant change, and something I am being very careful about. While the crash of '87 is not the exact same situation and dynamics as what is going on right now, the problems we are facing now are very, VERY serious (many economists debating that is worse this time around) and is not something I would want to take the risk on.

Especially after seeing that we have data confirming the largest sales transaction drop in about 10 years.

btw- you are absolutely correct in stating:

"but the reasons articulated for why someone wants to live in Manhattan don't exist for Queens, for instance"

I completely agree.

Here's a worthwhile interview with Shiller from back in Jan 2008:

http://www.observer.com/2008/shiller-new-york-we-re-ancient-rome-right-fall

Some interesting comments on the article as well.

MMafia - yes, Manhattan dropped 60% - no argument
I would never rain on anyone's parade, however, who wants to spring for it now and feels they can do so comfortably -- those LES coops are a nice option

Now, here's another twist on the whole downturn nightmares:

60% downturn of an asset priced at $1MM is worse than a 60% downturn of an asset one-quarter that nominal face amount - depending on the person's finances

I made the reverse leap back out to the outer boros knowing the asset could become worth a fraction, but knowing it would still be more than affordable to me, and I don't look at a mortgage as a low monthly interest-only payment -- I look at the principal and how fast can I pay it off

I thought of waiting for prices to go down, but had to balance my risks in a time when I needed to make much-needed changes

There are people who can withstand a downturn in higher-priced real estate prices. If they make their decisions wisely a bad downturn in prices won't be so bad for them. We'll both be interested to see just how much real estate purchased at these recent levels are supportable by liquid assets and solid employment. People make snide jokes about Irish carpenters, but ...... brokers, lawyers, title insurance people and others are bound by confidentiality rules. Rumors of great wealth from abroad buying up Manattan R/E are based on facts, believe me.

Do you think the Fed can let interest rates go up? I think they're scared to death of what it could mean for real estate, which is already grim in parts of the US

newaccount.... are all of the buildigs down there NO DOGS?

"Do you think the Fed can let interest rates go up? I think they're scared to death of what it could mean for real estate, which is already grim in parts of the US"

lowery--that was exactly my feeling and what I was wondering to begin with. I mean Manhattan real estate is such a strange thing and we are all still shell-shocked from the recent past and assume that we should grab anything up that's in our price range that we can sort of live in (those of us who aren't rich anyway), but I wonder if this may be the first time that waiting is wise. And by waiting I don't mean for a few years I just mean maybe I can afford to wait until at least the end of the year (if I close within the month) to really see what's out there. I'm torn because my conditioning says jump on anything good ... yet waiting til summer passes is always smart when looking for real estate, in any market. My fear was interest rates but I mean I'm not sure they'd hit close to 7 percent this year, at least I really hope not.

kimerama- Remember this day. Wait and 1 year from now you will be able to get an extra bedroom for the same price you are willing to pay today. People can try to compare different times in our history that "best fits" our troubles of today. The truth is they can't. Never in the history have we been faced with so many financial problems at one time. No matter how "unique" one thinks Manhattan is, it's going to hit Manhattan just as hard as the rest of the world. Don't be fooled to think that this will all blow over in the next year. This is going to be around for many years and lending as we knew it will never be as relaxed as it was in the past. That fact alone will eliminate tens of thousands potential buyers in the years to come. Just be Patient and you will very grateful you didn't allow yourself to get fooled by the real estate marketing machine.

lowery:

"I would never rain on anyone's parade, however, who wants to spring for it now and feels they can do so comfortably"

Again, I agree 100%. Like I posted earlier, everyone has a different situation and risk-exposure tolerance, so there cannot be an absolute blanket rule.

However, those that do "spring for it" must make sure that they know exactly what they are doing, have done their due diligence, and are making the decision not based on emotions or impulse (i.e. fear, etc.).

Easier said than done, but that's how many people accumulate wealth. Those who master it can be very wealthy.

yes Susanbnyc. No dogs are allowed in coop village. I lived there for 13 years. I was able to have a dog because I was one of the original people who got in before the place went private.

If the downturn in Manhattan intensenifies, coop village will be one of the hardest hit areas since msot of the residents are young and they will be the first to get laid off from their jobs.

Manhattan is not immune to the extent most people think it is. One city that is VERY similar to Manhattan is San Francisco. Just like Manhattan, it is urban, they have some of the highest prices in the country, and there is very little land. YET, they are seeing price declines, although not to the extent that Los Angeles and San Diego are seeing.

Enjoy the apartment. It's a great area to stumble home drunk to. Safe, although it looks a little bleak at night. Close to everything LES/Downtown and friends in Brooklyn. Used to live in an illegal sublet in Seward Park when I moved to town in !996. Eventually booted and owners sold in 2002 for $360K. The way the east side is changing I wouldn't worry about buying there. It's the best deal in Manhattan for sq footage. And will continue to be. As for Alpine292's comment, when I was living there the buildings were very Orthodax/Hasidic and very geriatric. Every floor had a couple 90-something widows who bought in the beginning for $8000 or $12000 through the Garmet Workers union. The demographics changing and getting younger and more e.village will only integrate the eastern bloc architecture into the community. When that happens prices will go up. Kimerama shouldn't look back, she/he has a piece of the island. And I'm bearish regarding the Manhattan re market.

Oh, and if anyone's interested 360K in 2002 was for a 14th floor 2 bed/1 bath with balcony.
And yes, it was bought be young professionals. Dentists or something. With infant.

383 Grand.

Oh, and to answer tour question, you won't get a better rate. Last rate cuts didn't lower interest rates.
Up, up, up.

Selling in coop village is expensive due to the flip tax they charge you. When I sold, I had to pay 15%, plus 6% to the agent, and closing!

Alpine, you sold too soon, but still took a lot of cash out since you got the apt basically for peanuts. You really don't seem to know the area now because there are still plenty of old people here. Lots of flip taxes to be taken in as younger families move in. Coops tend to be better protected than condos in that you have the 20% cushion, not 10%.

Coop Village is not for everyone. No dogs are allowed and many people just don't like the majority of residents here (Hasidics). I don't have a problem living among them and I see more diverse families moving in. You also need accept the fact that you need to give 5% of the selling price.

Kimerama, A Fed rate change will not have very much affect on your interest rate.

In general, mortgage rates are tied to the 30-year bond because banks tend to use the 30-year bond to manage (hedge) mortgage risk. Fed rate changes only apply to how much banks are charged for borrowing money from the Fed, which is an overnight loan.

And then you have to consider credit which is probably the data that most determines your rate. By credit I mean the combination of how much money you need and how willing the bank is to lend it to you. I would talk to a reputable mortgage banker about what kind of loans are available to you.

There are a lot of things you can say about Fed rate changes and long term yields. I won't get into that on this blog. I just want to make sure you understand there is no 1-1 correspondence with a Fed change and mortgage rates.

"There are a lot of things you can say about Fed rate changes and long term yields. I won't get into that on this blog. I just want to make sure you understand there is no 1-1 correspondence with a Fed change and mortgage rates."

Exactly. The Fed has no direct control of the long-term rates. Only the market does.

It's the 10 year bond, no?

Yeah, it's the 10-year. They don't auction many 30-year bonds anymore do they? Wow. I've out away from the Fixed Income market for a looong time. But the fundamentals remain the same.

In a downturn of the economy, crime might scare people away, especially in a neighborhood like LES. That's to be determined, just like dco's prediction on that extra room. As a rule of thumb, don't put all your eggs in one basket. My goal was to move in and then go on to the next investment. If the market turns south, pick up another property.

kimerama, there is always the option of long term locks with free float down. You can lock in for 4 months to up to 2 years. And you get a free float down 60 days within closing if rates drop. It is a rate protection program. sunny_hong@countrywide.com