Raise your hand if you are a foreigner or a cash rich sideline sitter waiting for the right moment to buy

I am also a sideliner. Not flush with cash, but have enough to buy. Was looking for the last 6 months and seriously considered buying.

Decided not to, and the plan now is to wait 1-2 years, partly for personal/family reasons, but also partly for market reasons - I think the market is likelier to go down than up, and it's certainly very unlikely to go up quicker than our incomes and savings, so we have more to gain than to lose by waiting.

NewYorkNewYork - I think lots of people are in the same position you are.

I'm not wealthy by any means, but do have enough cash to buy something for a first-timer. We've been looking for a few months. At first felt very urgent, but after watching asking prices decline we're not feeling quite so rushed. Definitely feel like, even with the current mortgage climate, we have time to wait until we find something we really want.

Only fear is that other people in the same boat or with a slightly higher budget (but unable to get a mortgage these days for what they originally were approved for in Dec '07) will start looking in our price range. Then, I'll be feeling a little bit more rushed...

sideliner
will buy if there is something well priced
have made offers

thanks new buyer99 / tandare / joedavis.

newbuyer99 - yes, the guaranteed 3.75%+ on the cash combined with lower rent makes me feel much less rushed esp when the probability is int. rates will rise and real estate will fall.

tandare - you hit on it. this market seems to be becoming a bunch of "micro-markets" which is what happens in a transitional phase - credit-eligible demand / supply will vary by geography and apt type and therefore price changes will differ along those two variables.

actually that leads to another interesting question - what are us "hope of the market" people ("foreigners/sideliners") looking for ? personally, i am looking for an extra-large one bedroom or various options leading to something like that i.e. combine studio / average 1 br etc. anybody else want to share ?

joedavis - just curious, if you feel you can answer these, will be interesting to know - what is your definition of "well-priced" ? did you make offers recently and why did they not succeed ? were you outbid at the time or did you lowball and the seller did not want to listen ?

My thought... there are probably a good amount of folks on the sidelines who "knew" this was coming and are waiting.... how long they'll wait, who knows for sure. But, that being said, as soon as the decline is official - and maybe it is already, I don't know what the right measure to go off is - I think a bigger number will leave the market.

I figure once the media says nothing but "NYC in decline", I think that a huge chunk of the would have bought a year ago crowd will turn into "waiters" as well.

So, I don't doubt that there are sidelines folks. but, I think they will be outnumbered by the folks heading for the exits.

nyc10022, I agree. I suspect that there are far more very nervous folks out there than willing buyers sittingn on the sidelines.

I'm on the sidelines as well having sold my apt. in mid 2006. However, I am in absolutely no rush to invest in Manhattan RE. The macro fundamentals for the City's & State's economy are too problematic in my view and current valuations remain at historically absurd levels. Once all the economic ills are fully discounted into the RE market (it may take a few years), one has to wonder what the heck will be the catalyst for appreciation on the other side.

> one has to wonder what the heck will be the catalyst for appreciation on the other side.

totally, you hit it in a nutshell right there for me.

NYC has been the "hot" city for years now. That can't improve, and only stay the same or go down. Wall Street went through its peak years ever, and now its clearly on its way down. Foreigners are having their own money problems.

Nothing is left to prop the market. Thats not saying it has to crash or anything, but the long term upside just isn't there...

We were at one time this year very aggressive in our search-- making several offers for apts in Manhattan. We are now officially sideliners. We are very liquid, however,I was part of a reduction in workforce-- this is the main reason really. My other half still brings a good income home-- but we are waiting. Not worried-- two apartments we were seriously looking at are still on the market. One seller's broker is still emailing us asking us when we will resume our search. Pretty desperate.

serge07 / nyc10022 - agree people will flee nyc re as investment but the game changes if one thinks about it as capitalised rent -- that is where a bottom is most likely to form (barring foreigners and apparently doctors). how does one assess when and at what level will the bottom form ? there is no magic formula but there are ways to get a broad no. thinking of it this way right now:

the bottom will form because of people with willingness to buy - these are foreigners / people with some degree of cash.

people's willingness to buy = x dollars they are already spending on rent (0 opportunity cost) + tax savings if they take a mortgage + subjective emotional reasons of ownership

my qs now becomes:

a) the article says only 11% residents can afford nyc real estate -- at what point (20%, 30% ?) does the bottom form ?

b) how much decline does that mean vs today's price levels - in nominal / real terms ?

one can probably arrive at some concrete no.s making some reasonable assumptions based on historicals. i'll have a go when i'm closer to buying..

Non-residents -- foreigners or whoever wants to live in nyc and doesnt care about the return -- are the unknown quantity. and of course the time frame of the credit crisis.

"the bottom will form because of people with willingness to buy - these are foreigners / people with some degree of cash."

I get that these people exist, but when things are officially down 5%, folks will start worrying that it will be 10%. When its 10%, they'll fear 20%. Thats how crashes always seem to work.

If foreigners were so hot on our assets, why not buy into the market when the S&P was down 5%? 10%? 15%? I agree that there will be a bottom, but there is a big difference between bottom being a 5% decline, and a 25% decline.

And, notice that rents are decreasing. So, if it was 35% more expensive to buy (whatever the ratio says) and prices come down 10%, but so do rents... isn't it still 35% more expensive to buy?

I guess, in the end, we really don't disagree.... but I still think that we're going to see folks leaving the market more than they are entering it, and this thing will take some time to progress. I figure we have maybe years to a bottom, and even then its slow growth for a while.

Great thread NewYorkNewYork, glad you posted this.
That some people who are sideliners may just opt out of the market entirely, hadn't (perhaps silly) really occurred to me. It does make sense though. I think that people who want or need to live in NYC whether by choice or career will likely stay in the market if what they need isn't easily met by renting, as well as meeting psychological or intangible real estate needs.

In my own situation we need a bigger apt - going from a 1br to a large 2br, or preferably a 3br. One of us will be working from home and we need to accommodate lots of equipment for that to happen (not a desk and a computer only type of situation). We also want something large enough that we hopefully aren't going to need to move shortly if we add to the family. As for psychologically, we're tired of not being able to renovate to our liking and so forth. Bike storage, laundry in building -- all appealing. I am so ready to not have crappy kitchen cabinets incorrectly installed!

As for neighborhoods we've been pretty open -- in Qns: Sunnyside, Woodside, Jackson Heights; in Bkyn: Kensington, Prospect Lefferts, some Crown Heights, Prospect Park South, and so forth; in Manhattan: Washington Heights up through Inwood.

My feeling is that if the benefits of buying beyond the economic ones are important enough, then those buyers will continue to stay in the market and find something. Some people will try to time the market perfectly. I don't think it is worth it to attempt that - I think most will wait until what they want comes down enough and they feel negotiations on price are good. We're bargain hunting, and as Texan said, plenty of stuff we've seen is still on the market, has come down in price, or is now FSBO (at a lower price). I also think that those of us with a more modest budget are likely to buy. Right now renting at my range and neighborhood is not a strong gain over buying.

I do worry that the economic situation for NYC / NY will deteriorate to the point of the '70s fiscal crisis, but no one has a crystal ball. We are either going to have to rent something bigger or buy something bigger and we can't wait years to do so. Perhaps I should be more worried, but I'm not.

nyc10022 - think you misunderstood me. i'm not saying the bottom is forming. in fact, i'm seeing more "sideliner sitters" becoming "back-benchers"....i'm one of them too.

i was putting forward a way of thinking about estimating when the bottom will form (and i would say after it forms, appreciation is not likely to happen for a while). the crash hypothesis - agree on panic effect but at a minimum the bottom must form when supply and eligible and active demand (can get credit and want to buy) curves intersect. so the no.s to calculate to get this:

Demand:

a) when is cost of owning = cost of renting, because then anyone will buy to capitalise as invt instead of wasting as expense. in fact people will buy at a delta above cost to rent, the delta = emotional comfort of ownership. delta is unknown but i know i would be okay with 5%.

b) how many people as % of market constitute eligivble/active demand in market for it to bottom - relates my earlier point on the 11% affordability no. in the article -- what is the no. needed for the bottom - 20%, 30% ?

Supply:

a) What is the inventory sitting on the market -- hidden and active

re the unknown "foreigners" fwiw -- my friends in europe want to buy because the euro/pound are declining against the dollar so they want to get out of euro/pound and invest in us -- the "halo effect" of "us housing bubble has burst" has come over nyc -- "foreigners" don't realise that housing has crashed everywhere in the us except in nyc, so they feel this is a good "down cycle" to buy in.

so im trying to estimate trajectory of market but to your point, yes, i fail to see how 4 sideline sitters (counting above), 3 europeans and a bunch of harlem doctors (earlier article) can sustain manhattan housing prices

waiting and watching and listening...anyone else with a viewpoint / story to share -- jump in --

Having sold 2 apts (mine and partner's) a year ago, we were sideliners of sorts. Flush with cash from sales of apartments purchased over 10 years ago, we were content to rent and kept on eye on the narrow central GV market we were interested in. But, even in this market, there are good buys, or so we think. Just when we were settling in to the idea of renting for a while, we found exactly what we were looking for in an estate sale. We had decided we absolutely would not pay a premium for someone else's cheap renovation work and that we'd prefer an apartment we could easily afford and have money left to renovate to our standards and taste. That is exactly what we found. We walked away from dozens of Home Depot kitchen and bath cheap fixes and endless black granite countertops in grossly overpriced prime GV buildings. The one we finally found needed work but had elements you can't change: location, view, layout, good building.

We were able to get a 30-yr fixed mortgage for under 6% (try that today or in the coming months or years) and are now in process of creating a home we plan to live in for 10+years.

I think we were in a small group for whom buying under these circumstances made total sense. We aren't going to outgrow the place (no desire to own children), we have weekend space outside of NYC to spread out so jones-ing for an extra bedroom isn't something we're likely to do), and we were already in the RE market for so long that the capital returns on the apartments we sold made it like we were playing with the house's money in purchasing. In the end, we got a place we can easily live together, we still have money left over to renovate and invest for retirement, and what the RE market does in the coming years is basically irrelevant to us.

If any of these factors weren't present, we might have chosen to keep renting. But the down side of renting--not really being able to make the place our own or feel like we had an actual home or say in the building--is happily not going to be a compromise we have to live with much longer.

My guess is there are three major categories of 'sideline sitters'

1: people who can't afford to buy and are hoping for a crash to bring prices down to levels they can afford
2: people who can afford to buy but felt that there was a boom mentality which would eventually turn into a bust
3: people who made money in real estate and are looking to buy on a dip

I don't think the first group is going to be of much use. Someone with $100K cash and $125K year in salary, stable job (not Wall Street) ain't getting approved for a $900,000 mortgage on a $1,000,000 apartment, which is the median Manhattan apartment price in '07. These people either need to rent and save money for 4-5 years to hold enough to put down 20% and come down with the conforming loan limits (assuming 727K, if they go down, they need to wait 10 years) or the apartment price has to drop to, maybe $650K in the next 2 years before they can qualify? Mortgage folks would know better than me.

The second group is small. I know a lot of homeowners in the city but I know very few people with real, hard cash who haven't bought something already. Those who haven't are unsure if they'll stay in the city long term or they thought the market was insane. Anybody who has to sell a home to buy another home is in the first group. Anyone who needs a mortgage > $400K (the old jumbo limit) is in the first group. You also get an 'ant and grasshopper' mentality. The people who were crowing on the way up may have to eat some crow on the way down.

The 3rd category are the people who will buy. Like a casino, as soon as you win big you can't wait to go back and play again.

NewYorkNewYork, IMO the health of a RE markets hinges on three important factors mainly employment, availability of credit and fiscal health of city/state government. In order to to have a feel of where the market will ultimately settle, the aforementioned must at a minimum display signs of stabilization and better yet, early signs of a turn. Based on all I can gather, all three of these indicators among others continue to show decay.

As for capitalized rents, that's a fair point as long as the underlying asset values remain stable and can be deemed to remain so for the foreseeable future. The unquantifiable variable today is market risk (I believe it to be significant at this juncture) which can be completely eliminated by converting from an owner to a renter. Paying rent is not always an inferior proposition.

It may be of benefit to keep in mind that the economies (and RE markets) of the UK, EU & Japan are facing serious economic issues and are bordering on recession if not already there. This is the major reason behind the continued strength of the US dollar. The macro economic fundamentals and forecasts for these economies point to a period of continued economic contraction and tight to tighter lending policies.

I'm sure some folks will continue to buy here and there as they always have. I suspect this is more on the fringes and will probably have minimal impact given the size of this market. The important thing is to get the NY economy back on its feet and not have to rely on outside investors for the health of the RE market. Foreign investors can come and go like the wind, a lesson we learned in the late 1980s-early 90s.

nyc10022 - very well said and I agree. I discussed the herd-like mentality of home buyers a few times on UrbanDigs.

When 4Q of 2008/1Q2009 results are out, it will likely show the anomaly that was 15 CPW and The Plaza, bringing median prices way down and yoy percentages down. This will likely be interpreted by mass media to the extreme, saying that manhattan just fell off a cliff.

That will probably make those who are unsure whether to sell, more likely to sell, and those unsure whether to buy, to wait.

80sMan - If I may, I think you may be overlooking the numbers of people who may be stable (but not Wall Street) with cash who don't wish to buy Manhattan property in excess of 900K. I agree that people in your group #3 will likely use their profits and buy again. Then again, all I really know is that we're not trying to time the market for the 'perfect' time to buy, are in a modest position, but solid and with cash, and we'll very likely be buying within the next 6-10 months. Just trying to do it as intelligently as we can to maximize our $ as well as meet our intangible needs.

80sMan >>>"I don't think the first group is going to be of much use. Someone with $100K cash and $125K year in salary, stable job (not Wall Street) ain't getting approved for a $900,000 mortgage on a $1,000,000 apartment, which is the median Manhattan apartment price in '07. These people either need to rent and save money for 4-5 years to hold enough to put down 20% and come down with the conforming loan limits (assuming 727K, if they go down, they need to wait 10 years) or the apartment price has to drop to, maybe $650K in the next 2 years before they can qualify? Mortgage folks would know better than me.

This is my point. You just described, about 50% of the buyer, that were getting these loans in the last 5 years. It created an artificial RE market. Now that those people are cut off, true demand will surface. Now add in new construction, with thousands of units poised to hit the market, and half the demand. The market will adjust accordingly. Lets see in the next 12 months how many signed contracts actually close. There are thousands of buyers awaiting delivery of new units. When they go to get a mortgage, many will be very disappointed. If you don't have 20-30% down and the salary to support the mortgage and CC's, you will have two choices. One come up with more money or lose your deposit. On a $1M unit with 20% down, you will need to have a household income between $250-300,000. And if that's not enough, you better have secure job, because banks are even diving into, the reliability of your employment. Now perhaps people will begin to see the problems ahead.

How about the fringe areas like LIC, Williamsburg, Cobble Hill, Downtown BRK, Prospect Heights, Dumbo, Harlem, Parts of NJ.... Do you think, that all those units listed for $1M+ are going to absorbed by qualified buyers. Not a chance. With the new standards, which ironically were the old, it will eliminate thousands of potential buyers. When supply out paces demand, prices act just like gravity.

"nyc10022 - very well said and I agree. I discussed the herd-like mentality of home buyers a few times on UrbanDigs."

Thanks UD. I think herd is the word. I'm sure there are sidelines buyers. But I'm also sure that the herd will turn the other way, and running screaming from RE for a bit. And herd numbers will *easily* outnumber the numbers of folks sitting on cash waiting.

MEDIAN IS NOT AFFECTED BY A FEW PROPERTIES -- SORRY TO REITERATE THIS point but I keep seeing posts here that say that when xxx super high priced properties are not on the market the median price will come down.
The AVERAGE will certainly change because of these few outliers.
The MEDIAN is pretty much unaffected by these properties
here is an example
11 properties whose prices are listed as below in M$
1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 10 11
There are 2 high priced ones and the rest are between 1 and 1.8 million
The average price is 3.05 M$
The median price is 1.5 M$

Now let us say the 2 expensive properties are sold, and we have them replaced by 2 properties each costing 1.8 M$
The new average price is $1.47 million
The new median price is $1.5 million

THE MEDIAN HAS 50% ABOVE AND 50% BELOW -- THE ACTUAL PRICES OF THE TOP 10% OR TOP 20% OR TOP 30% OR TOP 40% DO NOT MATTER. IT IS JUST THE ORDER

On the other hand the average changes a lot based on these numbers
So, when all these services are telling you that the median price has gone up it reflects 50% of the market not some upper percent
Depressingly that tells you that the affordability level is potentially much worse than indicated by the average price-- which is indeed hooked to the high priced (and the extremely low priced) apartments

> MEDIAN IS NOT AFFECTED BY A FEW PROPERTIES -- SORRY TO REITERATE

I think you are missing the point.... it isn't "a few properties" that are being affected, its the whole lower end. Sales are down overall something like 30-35% in Manhattan per the last marketing report I saw and the majority of that seems to be coming out of the lower end. The co-op to condo sales ratio is usually 3 to 1 or something like that, and now its just about 1 to 1. The higher end stuff, even a 15 CPW studio, will sway the numbers if there aren't cheaper sales to balance it out.

Run the same analysis, and remove the 4 lowest-priced apartments.... then see if the median changes or not.

the median will; not change if i change the 4 lowest priced -- it would take 1/2 of them -- a pretty dramatic statement

in any case my response was to people who say that once 15cpw is all sold out the median will change

tandare - thanks for sharing. it was a revelation to me too. including my own reaction to a broker's email recently asking me to bid on a property i had liked. my first thought was - i'll talk to you but i'd rather wait for something i love to show up than buy something i can live with. last year no one had time to think, the apts were flying off the shelf so fast.

kylewest - congratulations on the find. you were a lucky sideline sitter! enjoy!

serge07 - agree on long term health of market. i'm trying to assess that through this thread - is there any significant portion of people who have jobs and actually want to build a life in this area and are they planning to buy ? not sure i understand your point about depr and capitalised rent. If i'm paying $1000 to a landlord and I can make it possible that I can own a home with the same $1000 or a little more, why won't i buy ?

noah - thought you were gone fishin' - the first step is admitting you have a problem..just kidding.

thanks for everybody's inputs - it shows the market sentiment - at least the vocal market sentiment - which tends to become the market sentiment..

...SO.... ANYONE ELSE OUT THERE WHO WANTS TO BUY ?? LOVE TO HEAR YOUR STORY.

> the median will; not change if i change the 4 lowest priced -- it would take 1/2 of them -- a pretty
> dramatic statement

But the median will absolutely change if just one of the lower end apartments is removed... or if one slightly higher than average apartments are added. With low end sales falling off dramatically, its a lot more than 1. And 15 CPW has hundreds of apartments, any of which would take the median upward (from what I understand, even the cheap stuff is over $2 mil).

> in any case my response was to people who say that once 15cpw is all sold out the median will change

I get what you are trying to say, but still think that is true. Yes, a $40 mil apartment won't affect the median any more than a $2mil apartment. But 15 CPW and the plaza and a few other high end projects are adding a TON of above median apartments to the median right now, not just the $40mil but the single digit ones as well. And this is happening when "normal" apartments aren't selling at anywhere the pace they used to. So, when that ends, that absolutely brings the median down.

NYNY, to answer your question... if things come down enough (of course, what is enough), I will likely buy. I have the ability to buy the 2 bedroom I'd be looking for right now, but I'm more than content to save money each month renting. I figure the ratio would need to go from the 20x+ it is now to at least the rent/buy breakeven of more like 12-13... and possibly beyond, depending on what the overall outlook looks like. But I'm not going to jump at the first 10% decline... I've seen crashes before, and the first big falls usually just get the herd started...

I just looked it up... CPW, 215 apartments. Doesn't look like anything was sold under $1.5 mil. Meaning all 215 sales, each bringing up the median. Add that to subtracting 30% of sales off the low end...and, you have a significant median movement in the making.

nyc10022...obviously you speak from experience. care to share details and similarities /differences with current nyc situation ? i haven't seen big falls in the market yet but neither any rises -- that's why i'm waiting for the last quarter sales to show up in acris and will wait for post-labor day / wall street bonus season before i make any decision

I thought I would the comments on a LA real estate blog. It is really eye opening how the "herds" thought process can change on dime.

I feel that we are 7 months to a year behind the folks in LA

any other thoughts?

http://latimesblogs.latimes.com/laland/2008/08/only-in-la-sing.html

Well, this time is certainly different than some of the past scares I remember because we don't have the "no one will ever live in NYC" panic. I remember NYTimes editorials in the 80s trying to claim that NYC wouldn't become Detroit, because it had certain things that would always keep *some* activity in the center. Times have definitely changed.... but human nature hasn't.

Human nature is human nature and humans move in herds, react slowly, and then overreact. I've seen that in Manhattan RE markets and stock markets.

And, my personal hypothesis is, this RE one is going to be a relatively big one because the herd is not prepared. I think a lot of folks are lured into a false sense of security because they think we "made it through" the 2001-2 recession with no major RE impact, and then the bubble of all bubbles started. I think too many folks think *that* is what a RE correction is, but I don't think thats right at all.

And I think the second big mistake is assuming that because something is good, it will rise in value. They seem to miss econ 101 where you learn that some times good news is already priced into the market. I'm not worried about NYC falling off a cliff, but I think what's been priced in is perfection... and nothing is perfect. Even NYC going from "amazing" to just "great" could represent a loss in value if everyone was expecting and pricing in "amazing".

I remember the RE pullbacks in the 90s and 80s. The assumption was not that you were going to make a big return. The biggest difference was people being "defensive" in buying, trying to not lose capital, as opposed to being something you assumed would appreciate. Trying to find things where you could break even on cash flow. Making money in RE seemed to come now from flipping, but from rental income, or trading up. I remember the condo glut after black monday, and folks thinking that RE would never return to its former heights.

Things are clearly better now, but I fully expect us to go through a period at some point where folks say "wow, we'll never hit those heights again".

Just for clarification: it isn't really correct to call something and "average" when distinguishing it from the "median". A median IS an average. Generally there are two types of averages people refer to: the more typical MEAN average and then the MEDIAN average referred to above. While different, both mean and median are types of averages. Together they provide a rounder picture of a situation.

For example, a mean average of the life expectancy in a country is meaningful in comparing to year over year figures to look at the health of the population overall. If the number goes up, all it means is that the population as a whole is living longer. What is not revealed by the mean average, however, is whether the higher number means every single person on average is living longer, whether just the old people are living longer or if some vulnerable population is living longer. If there is a high infant mortality rate in this country, because of some disease for which a vaccination is suddenly developed, and the 30% infant mortality rate is dropped to 1%, the mean average will shoot up making it appear that people who don't understand averages that adults are living further into old age. Yet here, not a thing has changed for older people. The median average, however, would reveal this because year over year the mean average in such a country would likely hardly shift. To look at just the mean average would make you think nothing had changed. It is taken together that the averages reveal something going on.

"I thought I would the comments on a LA real estate blog. It is really eye opening how the "herds" thought process can change on dime."

Wow, people in LA must be dumber than I thought they were. What do they mean that you can't buy anything decent in LA for $750k a year with a $250k a year salary? Where are these people looking? Beverly Hills? Malibu? These people need to manage their money better! What do they do on the weekends? Drive their Porsche to Rodeo Drive to buy $8,000 dollars worth of designer clothing?

Responding to the earlier comment
1) where apts were well priced, the selling price went above the asking and I lost -- as recent as 2 months back
2) another case -- went 75k lower than the ask. Seller declined and then property was sold on auction 112k below my offer

It seems like everytime something is well priced a horde of sideliners descends on it

Back to the median -- nyc10022 seems to be saying that there are a lot of CPW (i.e. high end apts) and that there is a significant number of these such that if you apply the bulk of the reduction in price to the low end, then the median goes up. This makes sense, but
1) in this case the average sale price will show a much bigger jump in % terms -- is that true?
2) is it reasonable to assume that once the current high end sells out there will be no more high end apts, i.e. the median will drop because of a change in the mix? If I was a developer and high end sells and low end does not, I would shift to developing high end. In effect, this is the depressing aspect of the story -- the property mix has been redefined to be high end, and we are hoping that they will go away -- but the engine on this has to then be the no end in a way -- if those apts in Harlem, Bklyn etc do not sell and their prices come down, the gap widens, which should lead to either transformation of the low end to high end or a decline in the prices of the high end - of course this assumes that the clientele and the market for the two types are the same. This does not seem to be the case.
At the low end (which is very high end price wise in the rest of the country) the supply is very low relative to demand. Affordability is also very low given the current mortgage situation, so we have a temporary equilibrium. At the higher end with no price resistance there continue to be sales.

In this setting -- with 2 markets operating, neither the median nor the mean makes any sense. However, my point was that the average has high sensitivity to changes in the market at the low and at the high end, the median is quite resistant to this movement. So, most of the comments I read would be quite right if the average rather than the median was being used as the statistic. A technical point.

alpine292: That is exactly what I was trying to point out by posting the LA real estate blog. Someone making $250,000 per year clearly can afford $750,000...they have chosen not to spend the money b/c they 1) think the market will drop further and 2) they think the homes are still overpriced.

Look at the comments. They say things like "it makes no sense to buy when I can rent for 25%-50% cheaper" They are making fun of owners. Unlike some here in NY who still say silly things like "don't forget to send your rent check, sucker"

The psychology has changed completely and it will happen here in nyc as well...we're a year or so behind in my opinion

by the way, I am a sideline sitter with enough salary and downpayment to pay the median. it is cheaper to rent.

--nyc10022 comment: "The assumption was not that you were going to make a big return. The biggest difference was people being "defensive" in buying, trying to not lose capital, as opposed to being something you assumed would appreciate. Trying to find things where you could break even on cash flow."

With your comments in mind, I'm curious what you think of people who are able to buy an apt where their monthly payments (mort+maint) are within tight range of their current rent. Do you feel then it makes sense to buy? Are they in the position of people who bought in the early 90s and didn't stretch themselves financially very far?

I'm curious how many sideliner type folks here are looking in Manhattan or trendy neighborhoods only. Anyone?

I don't think its a case of "running out" of high end, I think its a case a record number of high-end closings based on a temporary circulstance. We're talking about a couple of once in a lifetime properties - The Plaza and CPW - plus a good amount of other high end opportunities, like the old Stanhope and some CPS buildings, all getting hot as the market peaked, and finally closing... *years* after they were put up for sale.

There are tons of developers trying to follow the top end (I think of the Madison Sq. Park building), but nothing will be of the magnitude we've seen, and, if anything, we'll probably see a "wanna be" glut.

Unless CPW and the Plaza flip every 6 months, I don't think its possible to get anywhere near the high end numbers we got.

> At the low end (which is very high end price wise in the rest of the country) the supply is very low
> relative to demand.

Not really... there has been an over 40% decline in co-ops... and, per the last stats I saw, the lower end is selling even less than the high end (which still continues to sell)

"Not really... there has been an over 40% decline in co-ops... and, per the last stats I saw, the lower end is selling even less than the high end (which still continues to sell)"

And let's not forget about the glut of 1 bedroom apartments that the NY Times wrote about the other week. And 1 bedroom apartments are the cheapest units around.

All relative I suppose
I see no inventory at my price point in the upper west side or even stretching into Harlem
A choice of 3 to 5 wrecks does not constitute a choice
-- and based on the numbers I see here I am at the low end
A reward to anyone who finds me a decent 3br/2ba in the 800k to $1.25m range in the UWS
May be this is ultra low end for you guys.........
This is the population of people with stable jobs, lots of savings relative to income, and inability to purchase in Manhattan

joedavis - if 800 to 1.25 is ultra low end.... I don't even register...

Great thread, trying to catch up on a day's worth. A few comments (not replying to anyone/anything specifically, that would take too long).

On the one hand, I think the "bearish" analysis of the groups of buyers on this thread is a bit off for a simple reason. These groups aren't static, especially in NYC. For example, a 28-year old just out of business school probably can't afford to buy anything (unless he has parents' money). Further, he may be dating a classmate and not want to buy until that relationship becomes more definitive or ends. However, say he and his girlfriend get married, both do well in their jobs. They can probably afford to buy a pretty decent apartment in 2-3 years. I think there are tons of examples of this story, with variations, of course. If that couple happened to graduate business school in 2006 or 2007, they are the demand that will likely prop up the market in 2009-2010.

On the other hand, I agree with everyone who's mentioned that the exiting demand on the way down is likely to more than offset the influx of sideliners. The couple above won't care much, because they are buying a home, not an investment (i.e. for the same reason kylewest doesn't care). investors, on the other hand, hate buying on the way down. So anyone who is buying largely or even partly for investment reasons, is unlikely to be a meaningful part of demand as long as it looks like the outlook is negative. And as others have pointed out, the herd mentality as as strong on the way down as on the way up - i.e. crashes/corrections generally overshoot, just like booms/bubbles overshoot.

As for my own situation - we want/need a family apartment in a decent neighborhood, with reasonable commutes to midtown jobs, and relatively easy access to Central Park. Either a 4-bedroom or a 3-bedroom that can be easily made into a 4-bedroom. Outdoor space of some sort is a big plus. Time horizon for that apartment is at least 7-10 years. We are sometimes tempted to buy something smaller, but would outgrow it in 2-3 years, and that time horizon just doesn't work, especially in a market with more downside than upside in the short term.

Unless something very dramatic changes in our situation, we will probably buy sometime in the next 2 years more or less regardless of what the market does. If prices come down quickly and meaningfully enough, will probably buy sooner. In fact, if we found such a good deal today that if felt like we were getting a 20% discount to "market" (and we liked the apartment, obviously), we would probably buy it.

"This is the population of people with stable jobs, lots of savings relative to income, and inability to purchase in Manhattan"

joedavis - I agree with you, there are tons of people who fit that definition. I don't think that has ever been the case to anywhere near this extent. That, to me, is the single biggest bearish indicator (and the biggest sign of a bubble), more than rent-buy ratios, fundamentals, or anything else. I don't see how it's sustainable. Call it reversion to common sense.

In summary, I am a sideliner.

In 2006, my wife and I decided to save up to buy in 2007. I shared information with 3 other couples who wanted to buy in 2007. Since I am sure they read these threads, I will be as generic about what they decided.

Couple A was looking primarily in LIC, and most of Manhattan I believe. They had no kids, and did not own. They ended up renewing their lease in Manhattan.

Couple B was looking in Brooklyn (ie Brooklyn Heights). They were expecting a child, and owned an apartment in Manhattan. They ended up buying in Park Slope.

Couple C was looking in Brooklyn (ie Brooklyn Heights). They had no kids, and did not own. They ended up renewing their lease in Brooklyn.

I was looking in Jersey City, LIC, UES, UWS, Park Slope, Downtown Brooklyn, and Brooklyn Heights. We have no kids, and do not own. We decided to renew our lease in LIC.

We were all looking for sub $800k 2br/2bath apartments. We all were successful on finding decent apartments at about $800k or less, but we all had various reasons for buying or not buying. Obviously, couple B felt they had no choice but to buy since they were expecting. I guess already owning had an effect as well. The rest of us just thought the RE market sucked, and why not wait. Also, we all ran into unreasonable sellers, or just decided not to go forward (even with a low ball offer getting accepted.)

To continue, these are the reasons why I am waiting:
- I believe the RE market will continue to decline. If Meredith Whitney says it%u2019s gonna get worse. I believe her (http://www.cnbc.com/id/15840232?video=812131553&play=1)
- Why not just save more to make a down payment on a bigger apartment? (Wife would like BIGGER.)
- I was looking at LIC because I could not afford Manhattan. I am thinking, maybe I can afford Manhattan next year.

So in general, my own fear and my own greed is why I am on the fence. If we are expecting a child, or it's already the fall of 2009, and the RE market hasn't really depreciated that much (let alone appreciating), I would be inclined to buy a place since we need a place to call home for the next 6 years.

I think people are really discounting how their thought process around condo/coop buying will chanhge in the next few months, assuming of course that housing costs in NY go down.

A year ago, the mentality was to buy anything no matter how small or lousy the view...it didn't matter how crappy it was since you could always sell for a profit. I had dopey 23 year old financial analysts saying things like "its stupid to throw away money on rent when you can buy something and make money

(by the way the financial analysts in my business are my contrarian indicators...they never fail to say something silly that I can use as a sign that the downturn in something is about to begin....they realy are precious to me)

Make no mistake that the people buying in NYC currently and the past few years are viewing their purchases as "Investmens". The smart ones sold at or near the top and used their proceeds to purchase something larger that they can live in for the next 10 years or so.

Once it is established that nyc is no longer a slam dunk investment...the psychology will change dramatically. It already has. People who can only afford a piece of crap in a neighborhood they don't want are not buying. They perceive it will be a bad "investment". They will wait. As they wait their psychology will change further as the news gets worse.

The reason I included the following link from the LA Times is to give you a glimpse of where we are headed:

prices have come down considerably and homes are definitely affordable in LA and still the fence sitters remove to budge. They are actually gleeful at the fact that they are still renters...read some of the comments:

http://latimesblogs.latimes.com/laland/2008/08/only-in-la-sing.html

in this next entry they actualy discuss the benefits of being a long term renter rather than buying

http://latimesblogs.latimes.com/laland/2008/08/home-sweet-rent.html

I believe that if the market continues its downtrend this is the same psychology we will see in nyc...meaning those sitting on the fence will not buy in one year or two...they will instead continue to rent .

"On the one hand, I think the "bearish" analysis of the groups of buyers on this thread is a bit off for a simple reason. These groups aren't static, especially in NYC.... I think there are tons of examples of this story, with variations, of course. If that couple happened to graduate business school in 2006 or 2007, they are the demand that will likely prop up the market in 2009-2010."

But doesn't that also means the 2005 grads propped up 2008, and the 2005 grads 2007, and so on, and so on. Yes, groups are not static, but the patterns can be relatively consistent. And if the late b school grads stop don't think the market will rise as much as the early grads, then there will downward movement. Psychology only has to shift some of those patterns a little. And, remember, there were b school grads before *every* down cycle in RE. The main ingredient that changes is psychology...

I think flmd said it well...

Make no mistake that the people buying in NYC currently and the past few years are viewing their purchases as "Investmens"....Once it is established that nyc is no longer a slam dunk investment...the psychology will change dramatically. It already has. People who can only afford a piece of crap in a neighborhood they don't want are not buying. They perceive it will be a bad "investment". They will wait. As they wait their psychology will change further as the news gets worse."

nyc10022 - thanks for sharing. what was the catalyst of the last crisis you describe ? also what is the 40% decline you mentioned - which report are you referring to ?

joedavis / tandare - you might find it a bit tougher since you are looking for a 3 br/2ba which are in lesser supply relatively to studio / 1 br, so they won't be the first to drop in price.

Jac - Great information! You mentioned a good point - the space. It is the space:cost ratio that prevents me from buying, not that I don't have the money to buy. I'd rather skimp on the rent and save and earn interest on it and wait to buy till something shows up.

SO FAR:

- that's 8 sideline sitters in Manhattan - newbuyer99, tandare, texaninnewyork99, joedavis, serge07, jac and couple a and me. Interesting that at least 3 - joedavis, tandare and jac - are looking for large family apts ie >=2BR. I would think that's a much higher % of demand than % of those kinds of apts in total apts out there. (Who's buying the studios then is a qs that comes to mind)
- sideline sitters have been buying e.g. kylewest if they found something they love
- sideline sitters who have not yet bought are becoming back-benchers...i.e. renewing leases and preparing to wait for another 6-12 months to see
- possibility of herd effect by early-mid 2009 described by various people is a good point

ANYONE ELSE WANT TO TELL THEIR STORY ? besides helping us understand who's out there, think of it as group therapy ;)

NewYorkNewYork - about those 2/3brs - this is partly why we're taking our time, in theory should be less for us to look at. We have seen a number come down in price or get taken off the market (presumably to relist in the fall). If we had a tighter timeline to work on I'd feel more pressured.

> nyc10022 - thanks for sharing. what was the catalyst of the last crisis you describe ? also what is
> the 40% decline you mentioned - which report are you referring to ?

It was like 36% Manhattan, 43 or 44% Brooklyn, YoY decline in apartment sales.... from the curbed "state of the market" posts that I believe are just the REBNY numbers. This was Q2 2008 over Q2 2007.

As for crises, don't remember the chronolgy exactly, but early 80s was defintely the post 70s financial crisis doldroms, this city is going bankrupt and people are leaving in droves. Late 80s was the post black monday, but, more than that, I think it was the "we have technology so why the hell would people actually need to come to Wall Street" and "suburbs are so much better than cities" thing that just made everyone want to leave. I actually remember a book I read called "The Death of Wall St." or something how wall street (the actual street) was getting more and more deserted. This was also the era that Morgan Stanley was talking about going up to CT, and every other bank was threatening the same.

It was just a different time, the expectations were that neighborhoods generally got worse, not better. We've had a shift in the opposite direction, where now everyone seems to think they can move into any lousy neighborhood and wait a year and they'll get cute cafes. When *that* starts to turn, and a few yuppies get mugged, I think thats also going to hurt the "gentrification" waves.

"But doesn't that also means the 2005 grads propped up 2008, and the 2005 grads 2007, and so on, and so on. Yes, groups are not static, but the patterns can be relatively consistent. And if the late b school grads stop don't think the market will rise as much as the early grads, then there will downward movement. Psychology only has to shift some of those patterns a little. And, remember, there were b school grads before *every* down cycle in RE. The main ingredient that changes is psychology..."

Two part-answer to that. 1) Of course, there were always people for whom it was "time to buy" regardless of market. My main point is that there will always be "some" demand, not that demand would increase. 2) That said, the 2005 grad in your analogy well may have been priced out in 2007-2008. He/she won't be in 2009-2010, and neither will his/her equivalents, the 2006-2007 grads, if prices indeed fall. So, in that simple example, between the 2005, 2006 and 2007 grad, there were zero real buyers in 2007-2008, but there will be 3 real buyers in 2009-2010. Obviously all hypothetical, just for illustration purposes. In any case, I don't think people like that will prevent or turn around the declines, but they may cushion the blow a bit.

Maybe the 2005 grad did buy in 2007-8, and now they're scrambling to sell... this group might be contributing to any panic as well...

NY, NY. I am a new side liner -- Here is my personal thought process -- I view my apartment as an asset class. I realize that people disagree about the "value" of a home. Several million dollars is too much money for a non investment category as it pertains to me personally. I just cashed out in november after doing very well on a couple of apartments over the last ten years(a triple and a double). Having significant liquid capital in this market feels good to me. Shorted the stock market with some of the fresh powder and have been growing the capital base in lieu of real estate as an asset class for now. I feel that the market has not even begun to offer the apartments at the prices I expect in the future - at least off by 25%. I have been watching some apartments sit for two years empty and holding the price. Perhaps I am wrong. So, what if? I am growing my capital, in the interim, in overseas investements that offer both yield and buffer what I also expect to be a declining dollar/US economy. Please note - Personal choice - I am not asking for a critique. Just offering up what I am thinking.

On the rich foreign buyer theme, the pound is down 12% since July, euro is down 10%. No one is going to buy in NYC merely because the dollar is getting stronger - if you want to speculate on the dollar, you would do it in the currency market. The exchange rate affects the cost of NYC real estate in foreign currrencies, i.e. to a foreign buyer. When the euro was strong, the cost of NYC real estate was lower to a foreign buyer. It is now inflated by 10-12% in 6 weeks. Far fewer sales to foreign buyers will take place. Imagine having a contract in place, not hedging, and seeing your cost go up by 10% before closing - ouch. The pound was at 1.65-1.70 dollars in the mid-1990s, it is now 1.78, down from 2.00

thanks for the input, nyc10022. i'm hoping the prices decline because of economics (removal of the bubble effect and reversion to mean = affordability by lay population) not because of socio-economics (few yuppies getting mugged) :)

manhattanfox - congrats on the double and triple - yes, it certainly is a good time to be liquid with higher interest rates than we've seen in an year and much opportunity for long term investment in stocks - though personally I'd invest in mid-2009 or later - the market ain't going anywhere till then (at least) and you can get 3-4 times the current bank int rates in foreign market guaranteed income instruments. Since you obviously have experience in investing (not only in real estate but as a general field), I will be interested in hearing your thoughts as you continue to track the market - something I'm doing closely too. I am also seeing apartments sit or being taken off the market. What I am curious about, from a forward looking point of view, is the recent sales of apartments that were sitting for a long time -- did they have to take a price hit and if so, how deep or did someone eventually come along...as the brokers say always happens at the end.

On the exchange rate theme, it is interesting - half the people are convinced the dollar will decline and half are convinced the dollar will strengthen. You can take both viewpoints:
- Declining dollar: Foreigners will invest in a declining dollar market because they get more for their money.
- Strengthening dollar: Foreigners won't invest because they get less for their money. Foreigners will invest because they want a place to park their money.

Overall - I think we have a much better idea of "sideline sitters" - definitely more of them becoming back-benchers - but I'm still not sure about the "foreigner" element! I need to place a few more overseas calls...

ANYONE ELSE WANT TO JUMP IN WITH THEIR STORY - ARE YOU IN THE MARKET, WERE YOU PLANNING TO BUY, WHAT, WHERE, HOW, WHEN ? KNOW ANY "FOREIGNERS" ? :)

My lease renewal should be coming in the next day or so and it's unrealistic to think that we (wife I) will close on a place by the end of November, particularly as there are no specific apartments on which we want to bid, so I guess I'm officially on the sidelines.

As for our story, we've got enough liquid assets to purchase a 1 bed (preferably a junior 4) apartment outright but would probably put a down payment large enough so that after-tax maintenance mortgage is equivalent to what we currently pay in rent (not to get into the rent vs. buy argument, but I've come to the conclusion that our down payment will need to be about 40% to get the equilibrium and I'm not too concerned with the opportunity cost as I would consider the down payment as a proxy for an allocation to lower appreciating assets, albeit less liquid than if the allocation were to, say, bonds). My wife's father is a home renovation jack-of-all-trades so we are really looking for a fixer upper where we can add value. We almost put a low ball bid in on one apartment that was an estate sale, but our buyer's agent wasn't accommodating on an effective negotiating strategy. At this point, we are sideliners partially because of price concerns, but mostly because we've already seen most of the inventory in our desired area - at least as available on Streeteasy and FSBOs from the NYT and Craigslist - and haven't found anything else worthwhile. Like I mentioned, the timing of our lease is such that we will now wait until early next year to see how things shape up before being serious about buying again.

Actually, I wonder if anyone has an opinion on the ability of some one not in the real estate biz being able to find a decent fixer-upper, or all of those apartments gobbled up by professional rehabbers way before I could ever find one?

I don't think it's so tough to find your wreck jaspernonbeliever, it's just that they haven't been significantly discounted over the last couple of years to justify the work and hassle. Finding a wreck that is priced right is tough. But that is what lowball offers are for.

"-Declining dollar: Foreigners will invest in a declining dollar market because they get more for their money.
- Strengthening dollar: Foreigners won't invest because they get less for their money. Foreigners will invest because they want a place to park their money."
You missed one argument - Declining dollar - Foreigners won't invest in a declining dollar market because they don't want a "place to park their money" and watch it go down in value in terms of their home currency.
A declining dollar improves the trade deficit - makes US goods cheaper. A strong dollar inhibits foreign investment in the US whether it is goods or property. I reiterate, no one buys real estate, with a 6% broker fee and 2% transfer tax and 1% luxury tax, to speculate on currency. The currency simply affects whether the US property looks cheap or expensive compared to the comparable property in the UK for example. If the dollar gets cut in half, NYC 2br costs half what it did before to a euro-zone investor. They buy. The dollar doubles, the euro/UK investor doesn't have the money to buy. How many times have we heard the weak dollar as the reason for strength in NYC, particularly condos. That trade has now reversed.

An investment overseas has two major considerations. Currency AND expectations re: growth vs. the US. Ex. overseas, but not necessarily in Europe or Japan.

We're in a high rise UWS 2bd/2ba for $3600/mo, nice place, good rent these days. Great location for a toddler, but bad zoning for public school. We have liquidity but as we're in finance job security is an issue throughout 2009 IMO. All said, we'll probably stay on the sideline until we either find a good deal or get close to kindergarden age (2 more years).

I'm a sideliner, have been for 10 long years. Started with $0 cash, and savings/salary never caught up with Brooklyn prices.

I'd like to introduce one other ingredient to the discussion; one that is especially relevant to new development in the likes of Downtown Brooklyn, 4th ave. Park Slope, Wburg. That is: taxes.
The MASSIVE scale of re-zoning that is producing many a new sky scraper in these areas has been encouraged with tax-abatements lasting from 10 to 25 years. So the clock started ticking with the likes of the Williamsburg Savings bank condos at Hanson Place (had to point that one out for fun) and others in 2006 and on. So selling one of these condos in 2016 and on (post Ratner development, Gowanus, 4th ave build out, 19 skyscrapers downtown etc.) will be in the context of appending $500 to $1500 to the monthly carrying cost in the form of taxes. That may be conservative given tax inflation. Combined with lower appreciation over the next 10 years than the last 10, it seems to set up another bearish situation. Combined with the New York greed rule whereby you are paying the condos' closing costs today in cash seems to make these giant projects enormously expensive. Not to mention the inflationary nature of common charges. What would cost CC $1000 + Tax(abated($15) or $1015 monthly today BEFORE your mortgage, could be CC $2000 + Tax $1200 or $3200 monthly BEFORE mortgage in the not too distant future. Even if you are a $125K household, that inflationary pressure on your monthly cash flow is hardly an incentive to own without a significant price reduction now.

Point for me is: After the long and disappointing wait of a decade; the idea of ending the story by buying a swelling burden just doesn't sit well.

Of course i suspect this all looks cheap to the "I'm gonna die if I leave Manhattan and my household income is only $250k". But to those of us in the industries beyond law and finance - who tend to open and patronize the cute cafes that brand neighborhoods as chic; it is a huge impediment to planting ourselves here for the long haul.

Do others see this tax issue as having a impact in the future?

Ripley202, Good point. For seven years i owned an apartment without maint. increases. In the last four years, increases occured every year for taxes/building costs -- taxes twice in a single year.

New tax hikes are on the horizon as announced recently. If not new buildings, older buildings are crumbling inside and will require new pipes, electricity, bricks, elevators. All very spendy as coop/condo owners. The maint. prices are certainly not going down. The maint. on my apt. increased $500/mo. in the last 3 years. Much higher if you include assessments.

ripley202 - I completely agree that in the last few years it's been close to impossible for anyone with "normal" incomes to buy anything in a remotely decent neighborhood in NYC. However, it hasn't always been like that, so I suspect it won't always be like that either. I know plenty of people with non-finance/law jobs that bought in the 90s and even into 2000-2002 (obviously further along in their career cycles than you were at that time since you mention you started with zero cash). Prices coming back to the point that "normal" people can afford to buy something to live in should be a huge part of the bubble coming back to equilibrium.

ripley202- it's very refreshing to see somebody with a normal income and normal concerns posting here. Most people on this board (particularly but not only the bulls) like to present themselves as RE investors who flip buildings, and not just apartments, with the same ease as you and I floss our teeth. 125K or 150K should qualify as solidly middle class family incomes that should allow us to live decently, although in cramped quarters, in the city. Personally, I started looking for RE in 2005 in NJ because I couldn't afford the city, and I can tell you that it's been like a concentric retreat of prices. At the beginning I couldn't afford a decent place 2 hours away, and now I could afford one more than OK 30 mins. away. I still don't want to settle for the suburbs, but I fully expect NYC to come down 25% or more, same as Northern NJ has. BTW, when things started looking bad in NJ, circa late 2006, there were also bulls there who said that other places were coming down, but never "prime" northern NJ towns, because they were different. Guess who's laughing now.

ok, SO FAR:

Total 13 Sideliners - newbuyer99, tandare, texaninnewyork99, joedavis, serge07, jac, couple a, manhattan fox, jaspernonbeliever, LP1, ripley202, trompiloco and yours truly (i.e. me, the OP).

Interestingly while many were more ready to buy earlier in the year, all are preparing to wait it out for another 6-12 months. People are waiting to see if the market will fall, as it is showing signs of doing, although for different reasons:

- "Living" reasons: Waiting to be able to afford more space / better neighbourhood e.g. trompiloco
- "Investment" reasons: Opportunity cost of NYC RE investment has increased while NYC RE itself is beginning to look inflated as an asset class e.g. manhattanfox
- "Security" reasons - LP 1 brings up a good point about job security - even people with cash are going to want to keep a larger buffer than usual in this environment

Ripley202 - excellent point about the increasing costs of ownership.
- You're right - condo taxes are going to rework the entire economic supply / demand / price equation once they kick in above a threshold level. One of the many reasons I am looking at only co-ops - when it comes to costs, predictability is better than some short-run gains.
- Another point is maintenance - especially with commodity / utility inflation, this is already increasing at an accelerated pace and will probably continue to do so for a time.

Basically, what all this means is that NYC RE is showing signs of reverting from an "asset class" to "housing". On that here is an interesting data point -- Manhattan prices were actually declining in 2005 before record bonus seasons on Wall Street in 2006 and 2007 threw them off-track again. A quote from Jonathan Niller from the article: "Wall Street accounts for only about 6 percent of the jobs in New York but 25 percent of the economic activity," said Miller. "Every time there's an up-tick in bonuses, there's an up-tick in the real estate market."

http://money.cnn.com/2006/01/04/real_estate/manhattan_prices_hit_wall/index.htm

Q1 2009 will be interesting...

oh lastly - ANOTHER CALL FOR ALL THE SIDELINERS HIDING IN THE WOODWORK - IT'S OK, YOU CAN COME OUT NOW :) What's your take ???

I was a sideliner until recently. I'm not in finance or law - just got incredibly lucky with my job, which put me in a great financial position (relatively speaking). I'd be a 150k-er otherwise, starting at -70k or so (student loans). Why did I jump in?

- Found a great deal. Of the dozen or so properties that I saw in my price range (and another few dozen I glanced at online) this was one of the nicest, and still cheaper than the others. This is especially true if you only count permanent aspects (view/location).

- Temporarily increased conforming loan limits. Next year properties in my range become more expensive to buy, even if prices remain flat.

- I wanted to move anyway (studio now, going to a 1 bedroom). I didn't want to move twice in a ~2 year period.

- housemath.us tells me my new place is 10% cheaper than my *current* place, and 25% cheaper than comparable rentals to the place I'm buying. Of course that assumes 0.5% appreciation over inflation, and that rents increase at 4% with inflation, over the next 5 years (I'm being conservative, so lower than I hope to live there).

Sure, I'm taking a risk, but I view it as a risk either way. I don't know if we'll pull out of this recession / stock slump today or in 5 years. If I could predict that, I'd have such an amazing and lucrative job on Wall Street that none of this would matter to me anymore ;) No offense, but the same is true for each and every one of you out there reading this.

Glad to see other 'regular' type folks are looking for real estate (trompiloco, joedavis, ripley, jasper) -- I get the sense we're not looking to 'time the market' so much as maximize our needs / value for dollar.

As for TAXES? Ripley, yeah I agree - mostly steering clear of condos here for those very reasons, as well as coops with what I consider to be high maintenance. In fact we're looking for quite low maintenances with the thought in mind that fuel and upkeep costs are just going up.

@Jasper - like you, we'd love a handyman too, but have found most have very *ambitious* pricing still, with no real discount to the level of work needed. I loved hearing how 5K would fix floors, water damage, plaster damage, broken radiators, a new bathroom (literally falling apart).... What a joke, do they think we're morons?

We own a 1-br outright in midtown Manhattan, no mortgage. Now it feels too small (no kids, but can't entertain or put up visitors either), and we want a nice large 3br w/massive outdoor space. We were in contract waiting to close last year when we backed out b/c the sellers didn't have the proper paperwork to close. We had accepted offer on another apt this year, but got cold feet before signing the contract. Now we're still looking, but haven't found anything at all that we like - and anything that is even remotely in the ballpark is ridiculously overpriced. We are not planning to sell our current apt, so that doesn't factor in our decision. We are not really optimistic that we will find something we like at an affordable price. Unless we see something truly spectacular at 2004-2005 prices (and it's easy to run comps w/ACRIS), I can't really see ourselves bidding on anything again before next summer or so - and it could be after that, too. In fact, we are wondering if we should just move out of the city and keep our current apt as a pied-a-terre? So, I guess I would put us in the category of people who were actively looking, then became sideliners, and now are definitely back benchers.

On a sideline since early this year. We started looking in Downtown Brooklyn, now we're specifically looking around Brooklyn Heights, Park Slope, Boerum Hill and Cobble Hill. We're approaching 30 and thinking of getting married...soon. :)

We still think the units are overpriced and they have not particularly come down yet because we have not seen a unit that's actually reasonably priced with the whole package. They all still look overpriced esp. that they're always either missing one important criteria or another. If it's not in the wrong neighborhood, it's far from public transportation, or it's not spacious enough, or it has exorbitant maintenance fees. It's really hard to settle for a unit at this time and ignore that it may be next to a project, or far from the public transportation when you still feel uncomfortable about the price. I think the sellers still haven't gotten it. We might as well start thinking of renting at this point.

Anyway, the more we wait, the more we can save up because the more we can put down the less monthly payment we have to worry about. The main goal is to be able to enjoy life and not be tied to our mortgage.

I am a sideliner looking to buy my first apt - a 1 bdrm in the 500-550 K range, below 23rd or 1st stop Brooklyn. I'm waiting another year because I have the cheapest rent imaginable, and frankly, I'll never spend half a million dollars to sleep on the kitchen floor, even if the studio's on the cutest street in the West Village. So considering the massive overdevelopment in Brooklyn, and the macro conditions, looks like I'll have plenty of choices, with more bang for my starter buck, next year.

BTW, great thread, its been such a great resource for a RE newbie!

tech_guy - where did you end up finding this great deal? Does the unit need work?

Some work, but its not a wreck. I added 20k to housemath's default closing costs to account for the portion of the work that I won't be able to recover at sale time (including opportunity cost - carrying 2 apts for 3 months).

Though realistically, all this accounting for small amounts seems silly since a 10% appreciation or 10% depreciation swamps every other number. I admit I'm taking a risk, but I'm in a situation where I'm able to do so. I believe the average case will be a small win financially, and the psychological benefit is tremendous already.

I'm keeping a spreadsheet of all costs, where it records what the equivalent would be had I invested that money in the Vanguard S&P 500 index. After the fact, I'll be able to see what my true cost was and see if it was a win or a loss.

The issue is that rents have risen by 30% in two years and purchase prices are down 10% or so from Q4 07 (not sure it shows in the data but seems obvious looking at comparable apartment SALES not ASKS vs that time). Unless rents come in like they did in 2001-2002, and/or interest rates come down a lot, the rent vs. buy economics provide some support here. Those are two very very big ifs. Rents are bound to go down. Rates are bound to creep up. What was the decline from the top in late 80%? 30%? If we're already down 10%, there's a decent case we may have only 10% to go.

Ok those on the sideline, wondering how the recent thread begun by nyc10022 on old RE articles/headlines from the late 80's through 90's compares with your current thinking. Does it change it? Confirm what you've been thinking?

Here it is: @nyc10022 -- http://www.streeteasy.com/nyc/talk/discussion/4894-funny-nytimes-re-article-from-1988

I grew up in downtown Manhattan in the 80s-90s. I saw the neighborhoods go from just ok to damn right bad to super hot. So hot, that my family had to move out of the neighborhood in 2000.

Does the article confirm or change my views? Well, yes in the sense that I see alot of similarities in terms of RE dynamics in terms of condo developments, but then again, Manhattan was a totally different from how I see it. There were tons of ghetto nabes just next door. Racial killings were becoming a daily event. Local street gangs were just everywhere. Crack was a big problem. There were many social issues just waiting to bring down the neighborhood. These days, I just don't see it? I don%u2019t really see a single social issue that is driving people away.

So will prices go down? Sure. Will it drive people out and lower demand? Not really. It%u2019s just gonna suck for people who sell at the wrong time. Nothing more.

For me, I am just looking for a good deal. If it means waiting it out a bit to find out. So be it.

I'm a sideliner as well. Wife and I looked quite actively starting in April (general area: northern UES, Yorkville, close to our two kids'schools etc ; looked for a 2 bedroom with separate tiny third room (office/den/hole in the wall/whatever); our price range was @1.5mil) and we got convinced after a while that we would be far better off to wait. Mostly because (a) we don't *need* to move especially as our rent structure (being employed by a university) is quite comfy and (b) we felt that buying now is a risk investment-wise, UNLESS prices fall some. And I have to add that most of the apts we looked at since April (over 30 at this point) are still on the market, most without significant price reductions. Thus we wait.

Jac, not sure how old you are, but the "bad old times" were really in the '70s and early '80s and started getting better under Koch and with the financial return of the city. Gentrification existed then too and the story of how neighborhoods changed were the same except that the neighborhoods changed over time. They got bad again in the '90s with the RE collapse (and it was a collapse, 20-40% depending on the location/property) and the mayorship of Dinkins.

During this time rents also retreated. The more aggressive a landlord was in trying to get the best market rate the more likely they were to have to reduce it. This is especially the case with Studios and 1BR's, but also with other apartments. When a friend was living on the UWS in the '90s he told me he didn't buy because there were no deals that "wow'd" him and it was so cheap to rent (he had a family and was living in/looking for 2/3 BRs). He admits he regrets he didn't move then, but later bought a house in Riverdale.

If there are layoffs in this city, and also as more rental supply is added (failed condos or condos sold as investments) rents can suffer. It is possible they won't, but it is most certainly not "they don't" or "they can't".

> started getting better under Koch and with the financial return of the city

I don't remember anything "getting better" under Koch. We had deferred maintenance on subways and everything else, crime continuing to increase, and folks leaving the city. Things continued to go down through the dinkins era.

Wow - I'm really new to this and I find this a great thread.

I'm one of those "foreigners" you refer to but I do live in New York for work at the moment. The real estate game here is so much different to other countries, there are many, many more renters in New York. The line of thinking at home is that rent is wasted money and anyone who can afford it should be buying. I don't get that mentality so strongly in New York, although I've heard it preached on this site!

Our situation - we've been here 4 years now and don't want to throw away anymore rent money as we have very high rent being newcomers to Manhattan. We have deposit money (but really not a lot in New York terms) but very stable jobs and have had no issues with getting a mortgage (through a work based credit union). We were all ready to get serious about 6 months ago and over that time we've really noticed a decrease in the attendance at open houses, brokers have been more persistent about contacting us and following us up whereas they used to seem to seel easily and didn't follow so many leads, not to mention I can now see on sites like this that people are dropping their prices. In the end we've just resigned our lease (I was a bit grumpy about this) but our feeling was that prices will continue to fall so we should wait.

Maybe we are influenced by what we want - a one bedroom minimum with our biggest desires being outside space and a second toilet. From all I've read one bedrooms should be the first to really fall since there are so many but we're pretty picky about those one bedrooms so lets see.

Also I just wanted to agree with the other posters who said it was nice to see people commenting who don't seem to be in the market for property worth millions. That's me as well. We are looking up to $800k, not fussy on location but Mid Manhattan (1st-80th sts either side).

Hope to be able to ask my basic questions soon. Please be kind to us out of towners who find New York real estate a shock!!

I'm bumping this -- wondering if anyone's perspective has greatly changed in light of the recent developing financial crisis....?

For us, we are slowing down our search more than we were a few weeks ago - but still hoping to buy something in the next 9 months. Our original goal was 6 months.

Anyone else?

Crains this week said that fence-sitters are actually less likely to buy now. Whatever declines in prices there are already, the expectation seems to be that there will be additional declines.

This is what usually happens in crashes. The first declines don't bring buyers in, they actually scare them off. Same thing happens in stocks (folks pull out money after big declines, which usually makes no sense).

Not a rich foreigner but am sitting on the sideline in order to buy a new place and keep my current place to rent out - upstairs nighbor just got $7K/month in rent which more then covers my nut with some contribution for the upgrade assuming I see something I like.

I find that the little quality stuff in my price range is not at all negotiable as of yet...we shall see what happens in Q4 and Q109

nyc - can you post a link to that article, if available?

Its in my print newspaper... sorry... it was just a quick line in an article about the RE market.
Not all print stuff goes online with them.

We made an offer two weeks ago and then last week everything caved in and we agreed on price. We are negotiating the contract now and trying to decide whether to pursue this or not. If we drop this or it falls through, we are likely to slow our search until Sprin '09. We definitely expect a correction but think that what we've found may be an exception. The problem is that it's getting tougher and tougher to figure out what the right benchmark is to to see if it will still be a deal after all is said and done.

I'm not cash rich, but have been on the sidelines for the last two years, renegging on two closings in '06 (thankgod) on new developments. They were good opportunities to buy but the downside risk was just too great. I can see the listings which i passed on now in streeteasy and laugh at the prices at which the current owners are trying to flip at for holding on the last two years (30% increases??? really???). I'm not sure when I want to go in since both my wife and I are in finance. I'm thinking summer of '09 will be a better start time and by then we'd have figured out our job situation a little more. While not a bear, I'd like to see approachable prices. To me, there is no middle class here in NYC. You're either wealthy (or high income) or lower class getting subsidized. Everybody in the middle is getting squeezed on the rent side and the buy side of the equation. I mean, how much money do you really have to make to be able to afford to buy/OR rent in this city? Frustration only builds.

I also think it's very individual. In general, I am more convinced now that our decision to wait is/was the rigtht one.

On the other hand, in some isolated cases, sellers that need to sell are getting much more realistic with prices and sending fairly clear messages that even those lowered prices are very negotiable. In our case, one such case is tempting us to reconsider. Probably not tempting enough, though...

I don't disagree. I've often heard of great deals well before bottoms that ended up still being great deals. Clearly, some folks are panicking, and if you get what you want at a great discount, then great for you.

Personally, I'd consider that at least 25% off peak, as we seem to be down 10% at least already in the averages, but if its something you love, I wouldn't even need it to be that much.

We are sitting on the sidelines, watching the market head south. We pulled close to 2 million out of investments when the market started being a rollercoaster about 13 mos ago. It has been just barely earning enough interest to keep up with inflation, b/c we wanted to have it ready at a moment's notice.

We would have loved to have bought last year, but the prices were just offensive and sellers didn't want to negotiate. And now, we have the distinct pleasure of getting kiss-ass emails from brokers who would barely give us the time of day last year. "We've cut the price on unit ##. Are you interested?"

Believe me, I take my sweet time getting back to them.

We are going to wait until January - bonus season will be terrible - I personally expect a lot more layoffs before the end of the quarter and year end. I think prices will drop a little more. Meanwhile, we are living well under our means in a one bedroom. Can't predict the bottom, but when we see a place we actually want to live, that is at a reasonable price, we are ready to jump on it.

Augustus - you might be the only person/people I know with close to $2MM in liquid assets living in a 1-bedroom.

Any updated thoughts here?

sideliners no longer have the assets they did 1 month ago including myself. Budgets will be slashed or people will sit and wait it out until some recovery is ralized. This blows!!

I agree. I was waiting for Obama to win to make a lowball offer, but I've been losing so much in the stock market that I am afraid of needing liquidity in the future and having none. I decided to wait more. Thanks, Alanhart, for your thoughts.

Before, we're trying to look for a one-bedroom since two-bedrooms are quite expensive and then plan to sell after three years or so and upgrade. Now it does not make any sense, because we'd probably lose money if we do that. So now if we buy we really need a two-bedroom so we can keep it much longer, but they're still quite expensive. It probably makes more sense for us to rent until we can afford the two-bedroom.

We're still looking... just slower. Waiting & hoping things settle out a bit. Oh, and hoping the job situation remains good for us.

@cleanslate - we're in that boat too. It was recommended to us to buy a modest-sized apt and then sell in a few years if we needed to, I was dubious of buying anything we couldn't reasonably live in for at least 4 years before, and now I'm feeling that it is better to wait and buy something big enough for us to stay in for 5+ years.

Two sideline sitter friends just signed new leases.

Its just like stocks... everyone wants to wait to see things "getting better" before they buy in. So, I think we have a long time to wait.

i have about 150k cash waiting for the right place-- hoping for a large-ish 2br/1.5bath in wburg area under 500k. my lease is up in manhattan and i'm considering shacking up with the folks in nj (gasp!) for the winter to save more cash and watch the market.. commute to work is suckier, but i'll have easy access to my car for weekend ski trips!

maybe do some short term sublets in the city in the meantime, too, and try out living in some different neighborhoods.. i'm hoping we'll have a clearer picture of where things stand by feb/march..

cleanslate, we had a very similar thought process that we went through a few months ago, except with 3-bedrooms which we want now (and will be renting instead of buying) vs. 4-bedroom (which would last us a long time, but is/was more expensive than we were willing to pay).

I think there were a ton of people on the way up who bought apartments they knew they'd grow out of because they figured they could sell them at a profit and upgrade. The ones who did that in 2001-2002 or even 2004 did ok. The ones who did that in 2007 or earlier this year could be in a lot of trouble. But the bigger point, is that I think very few if any are interested in doing that now, further reducing demand.

thread -- taking a temperature check. What's the status of your search?

considered buying in 2005 (how naive i was!). right now i'm not even sure that i would ever want to buy in nyc. i might not be living here 10 years from now and renting might end up being the smartest thing for gen Xs like me. i have enough cash to put down maybe 50% of what i would buy but i'm not a multi millionaire either, so i really need to get it right. i don't want to sink all my hard earn $ on housing. ideally i would like to keep most of it for retirement and college, which is very feasible if we relocate to a cheaper housing area of the country.

imagine if i buy now and in 10 years i try to sell cause of relocating. the generational changes with so many old people possibly downsizing will put further pressure on prices. now i think the best for us (as we are in our 30s) is to rent on the cheap and eventually buy our final home once prices don't have much further to fall. in this way we save on all the transaction costs of going up the real estate ladder and also monthly by renting for less than carrying costs of a home of our own. the only thing we lose is opportunity cost of home value appreciation which is 0 in my view for years to come.

the other cost is the psychological one. being the only one in our family (on both sides) that rents is not free of questioning and explaining. but we are the only ones living in such an expensive housing market. the fact that for a studio you needed half a million dollars is tough to believe for somebody from oklahoma or texas. so the disbelieve is tough to conquer

me: "we're doing great..."
they: "so you finally bought your house?"
me: "no, it's not a good idea financially wise..."
they: "yeah, right" :-(

Sideliner here, highly liquid (we cashed out of our UES condo last year, cashed outta equities before the "crash.") Still not seeing what we want (2 bedroom, 2 bath with private outdoor space, views, on UWS). So we'll just wait, happily renting in a luxury building that meets all our criteria (except it's a rental).