Do you buy bigger because you can?

Don't pay off the mortgage if you can invest at a better rate than your tax adjusted mortgage cost. You might need that liquid savings if something bad happened.

If you do start a family, just sit tight for now until you know you'll have a kid and think it thru fully. A kid changes your whole calculus about what you want and also changes your budget in a big way.

Could you comfortably live in your current home with a child?

Keep in mind also that if you are looking to purchase in a co-op the debt-to-income ratio requirement will likely be lower (perhaps in the range of 25% or so).

Re: whether or not to pay down the mortgage--it's a very personal choice. Some people prefer not to have the psychological burden of debt. But do keep in mind that, as George points out, if you are able to invest the at a higher growth rate and offset your mortgage payments then it may make more sense from an investment point of view to retain the mortgage.

Either way, you should ideally have approx one year of living costs liquid (and again, some co-ops would want to see more). If paying down the mortgage would allow that and it would make you feel more comfortable to be debt-free then it may be something to consider.

Another thing to note--real estate market is definitely in a down cycle at the moment. There may be merit in looking around at possible purchase options of larger apartments now, before you have children, and educating yourself on value etc. If something comes along that really fits the bill you can pounce but you won't be under duress to buy immediately if not.

It is certainly a buyer's market and likely will be for some time.

If you have job stability and your earnings have bright out future in terms of growth and you can commit for a number of years, now seems like a great time to buy with a mortgage to take advantage of low prices and low rates. I think a mortgage on one’s primary residence with current tax benefits is the right move for someone of that profile, but I think you really have to be prepared to commit/know what you want, and the first year of merging finances with a partner and moving in together might not be a point where your preferences have stabilized.

>MCR - what tax benefits exist now??

Can’t they deduct mortgage interest on principal up to $750,000 such that effective rate of borrowing up to that amount is X% lower than on face with X being dependent on tax bracket? Assuming tax payer still itemizes, which many do. I am no tax expert but our financial advisor advised us to keep mortgage on our primary residence even though we could easily pay it off.

To avoid confusion from my posts on other threads, NY apartment is not our primary residence. It is were, I’d have no problem having a mortgage on that apartment. I am not averse to individuals taking out mortgages and believe they have place in sound financial management plan; I feel very differently about underlying mortgage on coop; I would like our coop to pay off its underlying mortgage and let individuals leverage their personal shares per their own financial management plan.

If you get to the point where you have paid off the underlying mortgage And most of the people with large capital gains have sold you could consider a condo conversion.

The mortgage rate is pretty low, and yes we can deduct the interest form taxes too, so we would very likely get a better a return if we invested the money. but my partner is very risk averse. Also being released from the mortgage would mean we have more money available to spend each month and as we have been practicing cash/dollar average investing (a little bit every month rather than a lump sum) we could invest in little at a time as we can afford it.

Of course, we would always keep/have enough money for a rainy day fund but having one year's worth of liquidity set aside would be a big stretch! Do people really have that typically?

I feel good about the advice of waiting to have the kid to see how things look but I also feel like moving then would be more difficult? A quick google says that children cost around $13k per year on average but this is NYC so bump that up to $18.5k to be safe and based on our spending/saving patterns I think we would still be ok to move right away.

We could comfortably live in our current junior 4 with a child at least for the first few years.

Looking at our potential housing payments/combined pre-tax salary we would have a 21% debt to income ratio if we bought the bigger place, or 6% if we paid off the current mortgage.

Since the market is primed for buyers I thought it might be a good time to look for something that is a good fit. We have done that and found a couple options that would last for decades even.

We are very confident of our jobs stability and our earnings are likely to grow slowly but steadily. We have lived together for a few years already and share a credit card so this is really just a next step in what have been a merging journey.

How kid friendly is your current neighborhood? If you wanted to sell and check out life in a different neighborhood (or two) this might be the ideal time.

We would move to a kid friendlier area for sure but there is no urgency to move from here for that reason.

Financially it seems like you're well equipped to make the move if you wish to. This really comes down to you and your partner making a decision that's right for you and feeling good about it.

I'd be patient and make sure that you find a home that you love and suits your current situation and future family. There's certainly no rush as the market continues to soften and mortgage rates should remain favorable into the near future.

Best of luck!

Keith Burkhardt
TBG

My wife and I are in a somewhat similar situation. We've been renting the same 1 bed apartment for a long time and are now looking to buy a bigger place. No kids in the near term, but we did just get a dog. We'd like to buy an apartment with more space that would give us room to grow. It would double our monthly costs, but would be within our budget. For us, since we're renters, the alternative would be just to rent a larger apartment for a few years instead of buying.

All I will say is that I would love to be a buyer right now. I say go for it because if you are in for the long haul and love whatever you buy, you will be fine. Trying to time the market will drive you mad. If your timing is now, it may or may not be the bottom, but who cares if you are buying a place to live in for a number of years? As long as you love what you buy and are comfortable that you will be able to afford it long term, prices right now are better than I have seen them since I have been paying attention (approx 10 years). That could cut either way, but if you love New York and want to commit, I say go for it. And don't be afaid to submit offensive low ball offers.

P.S. - My bias: I view housing as consumption rather than investment and am willing to pay a premium for ability to decorate and manage my own home.

OP: Kids are expensive, much more so than $18,500/year, unless you have family that will watch them for free while you're at work. A good nanny can cost multiples of that number.

And if you have one kid, you may want two. Or more.

I wouldn't let the prospect of moving with a child force you to do anything now. You have no idea what the future holds. In the meantime, start looking now so you know what is important to you, what is available, and what that costs.

Personally, I would keep your partner's savings liquid. You can invest it in any number of fixed income vehicles if you aren't comfortable taking equity risk and make a return that probably comes close to what you're paying on the mortgage.

Ultimately, you should do what is going to make you feel most comfortable and make you happy. It is a great time to be a buyer, as many other posters have noted, but that doesn't mean you should be a buyer now if it's not the right time for you. It sounds like you are a big planner, which is great! Unfortunately, it's impossible to time the market perfectly, and if you want more space, can afford it, and it will make you happy, it's a good time to go for it. Your home will be where you live and also an investment, so even if you may be paying more monthly, you will be getting a tax break and building equity in your home. You have time - my suggestion would be to casually look and, if you see something you love, go for it. I can also tell you from personal experience, it's very stressful to live in a one bedroom apartment with a baby (I did it for 18 months while we were renovating our new place) - if you can avoid that, you should.

Dan Gotlieb
Digs Realty Group
www.digsrealtynyc.com

I get sooo sick of brokers constantly saying "it's a great time to buy real estate." When have you ever said, "wait a few years, things aren't right."? I often wonder why used home salesmen are perceived any better than used car salesmen.

I say it's a horrible time to buy. Yes, prices are falling, but there is a huge inventory overhang, and sellers haven't adjusted prices to the new reality. And there is zero reason to believe that prices will improve any time soon. Why buy something today when you can buy something better for the same price by waiting till tomorrow? Only fools are buying now (excepting a few who find realistic sellers), and as the Olshan Report shows, fools are in really short supply right now.

George,
"You can't time the market" = "When I tell you it's a great time to buy don't blame me when the market drops 30% after you take my advice."

As I said in Larry Silverstein's NYU breakfast seminar over 25 years ago, no one is willing to pay for information saying the market is going down.

BTW for the first time in a long time today I had to do 2 post foreclosure property inspections in the same day for a lender.

Curious to know what will people say if the topic was "Do you buy smaller because you cannot buy big?"

30 when you find somebody that can accurately, and with some regularity predict when markets are going up and down, within a reasonable time frame ,tell me. I will gladly pay for it.

Although I do subscribe to Dan Sullivan's newsletter (The Chartist), he's been pretty good at timing equity markets since the early 1960s....

https://therealdeal.com/2019/11/06/vector-slashes-dividends-as-ellimans-net-income-drops-over-80

Elliman's earnings dropped (81)% YoY in Q3.

“Look, I think we’ve somewhat survived,” he said, pointing to the loss of the SALT deduction in 2018, the mansion and transfer taxes introduced by New York State this year and sweeping changes in June to the state’s rent law. “And if nothing else happens, with some cost cutting and so forth, we’re going to be more profitable going forward.”

I guess this explains the incessant "great time to be a buyer!!" quotes from the brokers trying to save their hides. Yeesh

@george to play devil's advocate a bit here, people were saying the same thing in 2009; prices would continue to fall, inventory overhang, Shadow inventory etcetera. Just look up the street easy threads. Some of the biggest bears, predicting $500 a square foot were people I new and met, successful educated and affluent. The New York City market then went on a 6-year run up.

Personally I think it would have been better to be advising caution in 2014/2015 with some of the irrational buying that was going on. Those were not great years for us, which was fine. We actually attract clients a bit more like you George, and we were certainly advising caution and restraint while bidding in that market.

Call me lucky, but the first two years of the Burkhardt Group which was started in 2007 we didn't do sales. I created a model to address the 15% of the first year's rent commission model. I began representing buyers in early 2009, as people came to me wanting an alternative to the traditional brokerage model, like I had developed for rentals. These were well educated and informed folks, who did not take the advice of many of the posters here on streeteasy and felt it was a good time to buy in New York City. They were correct.

As a buyer myself, I'd rather buy as the market was deflating, as it has been for a number of years now. Doubtful I'll time it perfectly, but I know I'm getting a discount from peak in a more favorable environment.

Everybody keeps throwing around this it's a great time to buy. I don't know about that, but I think it's a reasonably good time to buy if you're someone who prefers ownership over renting.

Keith

Ha. I remember those threads in 2009/10 with $500 per sq ft predictions. I also remember till a year or two back predictions of people like Hatzius of GS that 10y treasury is going to 4 percent and fed will keep on increasing. Hatzius still gets paid a lot despite crappy rate predictions in the last few years. We are sitting sub 2 percent 10y. Very few people can predict big declines in asset classes combined with a time frame. Relative value is a little easier.

I have to say that it was a big adjustment for me to change from very bearish (like 30 bearish; huge spreadsheet like George) before 2008 to bullish in 2010. That said, who knows what the future is looking forward from now. I currently think most resales are fair value and you can get your pick. New Development depends and you have to negotiate hard.

@to Reno -- I'm not at Elliman, simply coming from the outside, but to me, a financial report of a slight drop in revenue and a corresponding huge drop in net income probably means that costs are increasing. If revenue isn't tanking, then deals are still being done, and commissions are still flowing in. If costs are increasing while that's happening, that could mean that it takes more marketing dollars to move a property--a sign of a poor market but not necessarily an apocalyptic one.

^^ the other strong possibility (I don't have a copy of the financials) is that agent splits have gone higher at the same deal volume. That would probably be due to industry pressure -- other firms might be recruiting and therefore driving up compensation. 30_yrs might be able to tell us about that.

I was going to point the same out Ali, I assumed 'to Reno' read the entire article. However without the actual report in front of me, I kept quiet, maybe I was missing something? I thought it was interesting that revenue was about the same year-over-year, but losses widened.

I think that's a good guess this is more related to cost of doing business. Andrew Heiberger wrote quite a bit about this after the collapse of Town, the difficulty of running a profitable large brokerage.

I think in the future you may see more and more of these large and very successful teams moving over to companies like Side and EXP where you pay them a relatively small flat fee. Is a big brokerage brand really worth 30 or 40% of your commission? And with the splits getting squeezed, how will these large brokerages remain profitable? In my personal experience it's not required. I've been able to build a successful business over the last 11 years, no advertising budget, and run everything on a Chromebook and in the Google cloud.

When I started in this business at j I sopher in 1990, we had a listing room with all the listings pinned to cork walls! Now I rarely open my laptop and do 90% of my work on my Google phone, including invoicing, banking etcetera. It's pretty amazing!!

Keith

Predicting $500 per sq ft back then was not a shame. No one would have believed the crooks went on 3 rounds of QEs. Excessive money printing always happens in sh**hole countries in history, but innocent people just couldn't imagine it finally came to the US.

What is crooked about QE? Fed QE saved the global economy. Many smart people have been crying for inflation coming due to QE for the last 7 years but no where to be found. They look like idiots now.

Yes, in a jungle world, crooks are smarter.

Anton, Will you elaborate what in your opinion is the harm from US QE? Any one can express their conclusion but what is the rationale? I can see issues with negative 10y rates in Europe driven by inability to fund pensions but Fed never went negative.

I, too, am looking for more information on the harm from infinite QE. Of course I have independently found quite a bit of scholarly material on this topic that I am trying to wade through, but I would be curious to hear as to whether there is one scholar/economist/article/source Anton subscribes to.

All instincts tell me the next generation will pay the price IF growth does not come through, but historically growth has always come through, and in innovative ways nobody saw coming.

I tend to be pessimistic in this area, but that is likely because I am that person who never would have left the cave or discovered fire. I probably would have lived a few years in the cave, been perfectly happy and then died of disease or been killed off by a wild animal. My husband, on the other hand, is that person who would have left the cave and forged a much larger existence. He is optimistic and believes man is never to be underestimated Watching him over the past 30 years has made a bit of a believer out of me, but pessimism is a hard disposition to shake.

Actual, pessimistic is probably not the right word for my disposition; more like "limited" or "Malthusian." Having seen the world change just in my short time in it in ways that are so far beyond my imagination has made one thing clear to me: I am just along for the ride, whatever that entails, and I have little control over when or how that ride ends.

One final note: I read one article that suggests that Kevin Warsh is in Anton's camp on infinite QE, which really surprised me, because if Anton is correct, few people on the planet would personally benefit more than Kevin Warsh. I need to find out more about what the thinks on this topic because if he is making statements against interest on this subject, I will have to re-evaluate my previous assessment of his character.

Okay, this really is my final note (for the moment): While my previous assessment of Kevin Warsh was that he was "Out for Number 1; Who cares about anyone else?" I did find him to be quite smart, so his is a perspective I am inclined to pay attention to IF, in fact, he is taking a position against his own personal financial interest.

Fiscal stimulus of similar magnitude could have kept the economy humming apace, while bringing its benefits to a much broader cohort and leaving us with shiny infrastructure to show for it. Alas, elections have consequences, and Americans suck at them. Given that political reality, QE is better than no QE. Europe has shown us what happens when you react to crisis with austerity, and it's not pretty.