Time frame to buy

I closed in early august on a place that could accommodate another kid for at least 5 years. Never thought about renting because we were so happy owning and making the place our own. I could end up erasing some equity after all is said and done, but that's life.

The more prudent and measured people on here are going to universally tell you that buying with less than AT LEAST a 5 year time horizon is not wise right now for most people. If you are staying for 15 years, don't spend too much time market timing your life. If you foresee moving once you start a family in the coming years, now is not a good time to purchase. I'd wait at least until the chaos in the markets settles and the job losses and sour economy are factored into the RE market prices. How long is that? Don't know. 4, 6, 12, 24 months? But there is absolutely no rush for anyone to buy now.

I've posted versions of this on other threads, but here's out story/plan:

Wife and I have never owned, for both financial reasons (both went to grad school and didn't have enough saved up for downpayment till recently) and personal reasons (we met less than 3 years ago, and neither of us had wanted to buy while single). If I had stretched, I probably could have bought in 2002-2003, and would've made good money selling at/near the peak. As jtreadwell said, that's life.

We started looking to buy summer 2007, with a child on the way. We started looking for 3-bedrooms (or large easily convertible 2s), but then started thinking about our family plans and realized we'd outgrow it fairly quickly. Had no interest in buying with a 3-4 year time horizon, so started looking for 4-bedrooms (or, more realistically, 3s over 1600SF that can easily be converted to a 4). Budget of $2MMM or under.

We started looking when the first credit crunch hit summer 2007, and figured over the next 1-1.5 years, prices would drop soon after, and there would be more in our price range. Although the inevitable softening of the market does appear to be starting, it happened much later and slower than we had hoped. We could buy something that fits our criteria right now, but we'd either have to settle for a place we don't love (too far east, or no outdoor space, or on the small side, or much work to do, etc.), or stretch, of a bit of both. That didn't seem to make sense in a market that still feels like it's at/near the top.

So we said screw it, we can rent another 1-2 years. The lease for our junior 4 is up in December and we're in the market for a 3-bedroom rental which will be great for us for 1-2 years. It's also much cheaper on a monthly basis than buying that 4-bedroom. I know it's not a fair comparison, but those were our options, so they're the ones we compared.

Unless something dramatically changes, we are pretty committed to buying in the next 2 years or so (in early 2011 after the 2010 bonus hits at the absolute latest). We do want to buy for the same reasons jtreadwell mentioned - we want a place to make our own, live there a long time, etc. I don't have a crystal ball, but certainly believe the Manhattan RE market is a whole lot likelier to decline in the next 2 years than go up, so I think we have more to gain than lose by waiting.

Interestingly, we are emotionally ready to buy, and are at the right stage in our lives to do so. If the market hadn't had the insane run-up through 2007, we'd probably have bought by now. As is we wait, but hopefully not too long.

Like OP, interested to hear other people's stories.

Ok, much too long a post, my wife is pissed that I waste too much time on this site when I should be putting our laundry in the dryer...

Families that have 4BR apartments in Manhattan tend to have a "country house." While the flashy set might have a nice setup in the Hamptons, there are a tremendous number of fairly modest weekend/summer homes owned by M-F New Yorker's in the tri-state region. We bought a place in the woods in CT, and subsequently the center of gravity of our lives has shifted dramatically to our CT place. So much so, that, given the current economic climate, we were able to sell our midtown apartment because it wasn't really what we had come to view as our "home."

While I concede it is not the path for everyone, retrospectively we can easily imagine buying outside of the city to create a sense of home in a permanent way prior to buying in the city.

Kylewest, I agree with you about less than 5 years. I think the issue is trickier for a longer time horizon.

With the exception of the very, very wealthy, there is still some value in waiting 1-2 years if either (1) you expect prices to drop, (2) you will grow income/savings in that time, or (3) some combination of both.

Of course, that value may be more than offset by the value of getting exactly the place you want, and enjoying it immediately, if you buy now.

In our case, we have a long-term time horizon. In a market that we thought was reasonably priced and/or likely to go up, we'd be probably consider stretching, or settling a bit, or both. In this market, we wait, and hope to be able to get more for our money in 1-2 years than now. Even if not, we should still be able to afford a place more comfortable with higher incomes and more savings.

Obviously every case is individual, and it may make a ton of sense to buy now (with a long time horizon), especially if you love the place, feel like you got a good deal, and can afford it comfortably. I am just saying that the bar is a lot higher.

I have wanted to buy for a long time, but never had the savings for it. When I started looking casually about a year ago, I found this site, and honestly, these discussions made me rethink. Before, I'd always assumed that buying would be better in the long term. I realized it made no sense to buy a place my family would grow out of in 5 years (luck willing). It makes more sense to wait and see and rent.

At the time I was looking for a small two bedroom for less than 1000 psf.

You'll never have more negotiating power than you do right now.

I think the decision to buy for the first time is far different than the decision to upgrade. From my perspective, there have been several false starts to the bear market in Manhattan real estate. One was after 9/11. Another occurred in late 2006. Summer 2008 felt like this...until Fannie/Freddie, Lehman and AIG hit. Then this became the atart of a real bear market. As such, there is no urgency to buying. Never mind 5 years. Unless you can afford your life place, 10 years+, there's just no reason. History has proven once it truly begins (not a false start) it takes two or three years to bottom. So unless someone wants to say this is a false start, that come Q1 2009 all will be ok, why consider it? Inventory is through the roof and there is always something else to look at down the line. I mean rents are also falling (again, really just in the last couple of months), how can you properly assess a rent buy decision? You can't.

Scoop things can easily get worse for sellers. Whoever is waiting till bonus season to put things on the market, or is holding off pricing their apartment aggressively is going to be sorely disappointed.

Rhino, I'm not sure I'd call an inventory of 8700 with a population of 1.8 million through the roof, but it is rising. Yeah, and things can always get worse.

I think we are in for a rough 3-4 quarters. There's a real herd instinct in this country, for better or worse. It created the tech bubble and housing bubble. Now it's causing the burst. I am aware of some fairly solid companies that plan layoffs in anticipation of a broader slowdown. I imagine that this is prudent in many instances, but the negativity feeds on itself and contributes to the downward spiral. The media doesn't help, but it is what it is, and I would never want to mess with the First Amendment.

Interestingly, I think the the Great Financial Panic of 2008 is going to lead to the Great Recession of 2009 and the Great Inflation of 2010. Why?

Many reasons. Mainly, because, and I think for the better, we're going to get a proactive, pro-domestic spending government. The investment in public goods (infrastructure, energy, health care) will spur job growth. Where things get negative is that companies are going to draw down inventories -- overcompensating to the point where we get into a traditional inflation scenario of too many dollars chasing too few goods. There are worse places to be, and I would hope that the natural economic growth would lead to more balance in the longer term.

Anyway, I think we'll see price declines but not at the rates the bears are predicting. And I think in two years things will be on their way up again. But as Scoop and others have pointed out, there are probably great buying opportunities out there. You're right about "false starts to the bear market" and you're right things really are in bearish territory right now, but I think the declines are going to be short term and shallower than many expect. One other point I'd make is that these "false starts" had a negative pull on prices at different points that impacted Manhattan more than other parts of the country (mainly September 11 and late 2005), so could be that prices already are not as out of line as some might think.

I think better times are ahead but we're going to be doing some zigging and zagging for a while. Call it the W economy.

The inventory is not judged as large relative to population; it is large relative to the piddly number of transactions taking place. There is a real herd instinct everywhere. It may be on steroids in the US. Herd mentality is human nature. It's the reflexivity coined by Soros. Any fall or rise is reinforcing of itself. It just plays out faster in the stock market because you transact by pressing a button. The rate of decline is debatable. My pet theory is the internet will make it faster. If we could not look at a site like this, would prices already be down 15% as they are? I dunno; I don't think so. Two years on the way up?? Maybe. That would be the 1980-1982 model. As such, you rather miss the beginning of the upturn than be early. I have to disagree with your assessment of the impact of the false starts on Manhattan. There is a fundamental disconnect between stocks and Manhattan real estate that will correct. We have 2002 stock prices and 2006 real estate prices right now... That is a great pair trade. We have not even gotten a negative year on year comp yet in real estate. I mean that is guaranteed in Q4, but nonetheless, it leaves a shadow of doubt for the bull and it will lead to another rash of reductions when seen in print.

I was looking to buy last June/July but not seriously, just fishing around. Saw a couple of apartments. Made a very very detailed spreadsheet (including mortgage calculators, future rent growths, increased tax rates, and the optionality to refinance etc) and came back with the following... "for renting to break-even with owning, the capital appreciation I needed over 5 years was about 35%" for the type of places I was looking it... And this is for renting a place in line with future needs. At current needs gradually upsizing my rental to future needs, the breakeven was 40% plus. So I held off.

Feb'08 - an acquaintance offered to offload his apartment directly - so no broker fee and it is someone I trust. He works on wall street and could see it coming, so he priced it at least 10% below comp (save broker fee plus a discount). I did very seriously consider it, but then bear stearns blew up and I saw the writing on the wall. So I held off again and dumped all risky assets or thoughts of owning it. Sold my stocks,etc.

Fast forward to October 08. The breakeven 5 year capital appreciation for my type of apartments is now around 25-30%. Once it is about 10-15%, I'll give it a thought. Rents will also fall a bit, mind you. So the apartment price needs to go down another 20% from here. Sellers will eventually see light and lower expectations. Alternatively, prices will stagnate long enough for the inflation adjusted price to fall 15-20% effectively even if nominal falls only a bit. One way or another, it'll be back in line in say a couple of years.

Now, with recession looming and despite having a job, I'm playing it safe. Just found a new 1 year lease with a building that allows one month rolling after that at an extra cost, assuming I am not buying for a year or two. Will do a status check every few months.

(I know some ppl will give me the usual emotional satisfaction of owning vs renting, which by now should be clear is less important than our society painted it to be... anyways its personal - to me its not worth more than 5% of the value)

So I will likely buy in late 2009/ early 2010 or later depending on how things go with my job and with apartment prices.

Myself, I have no time frame. I'll buy when I can afford a space I'm interested in and I don't feel like it might lose 20% in the next year or two.
Right now, nothing fits that bill.

"You will never have more negotiating power than right now"??!! LOL. Guess what -- in two years when the prices are half or less than they are right now -- you will be happy to pay full list which is still 50% of right now...

Our position is similar to newbuyer99, except we already own one place. We'll probably look to buy again in 2009-2010, assuming prices drop and we stay in New York and we see something we like. Right now, we're just glad that we didn't go through with two properties that we now realize were overpriced. Also, none of the properties that we see on the market are very appealing, so we aren't really tempted to buy anything anyway. We mostly hope that if prices drop and we stay in New York, better-quality inventory will come on the market.

We are American expats returning to the US after 5 years overseas assignments. We have been looking since last December, but only sporadically, when we are in the US. We have bid on 3 places ranging from 8% to 30% below asking and have been turned down each time. We can pay cash! But nothing yet. I still think that there is a disconnect over what sellers/developers think their apartments are worth and what buyers are willing to pay. I am planning to keep this home indefinitely. I should be every seller's dream. What gives?

NRYENewbie, you had me at disconnect. You are right and that's why you should sign a one year lease today and wait for the finance industry to get zero bonus for 2008 and reality to reset all the asks.

NYRENewbie,

Are you presenting your lower offers as "all cash" deals? This might be the only way to get the seller to accept the discount. Just refi the next day

I've been looking to buy for the past year and half. My husband and I currently live in a studio that I bought in 1999. Though the studio seems like it's getting smaller by the day. We've put bids on 2 places in 2007 and were blown away by the counter-offers. We just weren't comfortable making the stretch to "afford" a decent apartment. Now that the financial markets are in turmoil, my interest in buying has decreased dramatically. I feel like there is still a big disconnet between sellers and buyers. It should be an interesting spring 2009 season.

Yes, bugelrex, all cash deals, close at owner's convenience. I see the real estate market going down and anticipate this drop by lower offers. As time goes by and the economy has become worse and worse, I have been asking for higher percent off so I am not holding the bag completely. Hasn't worked yet. Today I will probably be making another offer. I'll let you know how it goes.

Why guess where the market is? Why not wait to see where transactions are actually struck in the 4th and 1st quarter?

ibwest is a good example of what I was talking about before.... for all the "sideline" buyers everyone is counting on, there are more folks who will LEAVE the market when they see the declines begin. Thats why one calls these things "panics".

Ah yes. They call it momentum. They call it a vicious circle. They call it lemmings, a herd... They call it human nature. They call it overshooting to the downside.

JohnDoe..."NO ONE" can time the market....again....NO ONE. The only thing on your side is youth. The younger you buy the better off you'll be to weather and/or profit off of any scenario. I would buy when you are ready. Forget all these Joe Six Pack Market Timers..they are dellusional. But remember over the long run there is high probability your apt will have bettered inflation by a few % points. Good Luck.

Steve you are just wrong. Buying things cheap is a true and tested approach both for stocks and real estate. To boil it down simply, you have a much better chance at a good return on stocks when you buy the market at a low P/E ratio. You have a much better chance at a good return on real estate if you buy at a low value to rent ratio. To not try to buy cheap, that's just being an ignorant ass. You can't always bottom tick, but you can be sensible. Sorry buying stocks or real estate in 2007 was just not sensible. This real estate correction will take out anyone who bought after 2004 at minimum by the time its over. Stop believing false truisms sold to you by the likes of Charles Schwab and Barbara Corcoran.

Rhino..you are simply saying you have a crystal ball.

Steve its not having a crystal ball to say buying stocks when the Dow is trading at 10x EPS is more likely to generate good returns then when it is trading at 20x... The same goes for real estate. I sincerely hope you have the mental acuity to understand this. Read The Intelligent Investor by Ben Graham. Seriously. Read. It not a crystal ball to say that with a 10 year horizon a cheaper purchase price leads to better returns. Its just math... Its just opportunistic.

> JohnDoe..."NO ONE" can time the market....again....NO ONE.

Actually, tons of people did and called it absolutely correct. Just read the board. This is RE we're talking about, not the stock market. It isn't that hard to time. Not saying you'll time it perfectly, but you can certainly avoid buying at the top of a bubble if you put in some effort.

Rhino is right, ESPECIALLY when talking about RE you live in. When renting is much cheaper, anybody with a brain can do the analysis. And the analysis has said "DON'T BUY" for quite some time.

A lot of this rent-buy analysis is tedious and serves little purpose beyond academic discussion, which is fine, but if you are ever seriously planning to buy, you should consistently be shopping around, attending open houses, informing yourself about neighborhoods and buildings, and generally be in "Buy" mode. That's part of the reason I see all these "Don't buy!" posts as a bit hokey. I do agree with nyc10022 about general market timing - you will almost never pick a perfect entry and exit point, but there are enough indicators out there to help you gauge when it might be a generally good or bad idea to move forward. That said, you can't correlate everything to the "market." You have to look at your individual situation (financial and personal), as well as the individual apartments themselves. So many variables there, so each situation is quite unique - that's why there will never be an easy answer here, as much as some people here want to scream in your face that theirs is the right one.

Absolutely. Obviously everyone has specific needs, and there might be some AMAZING deal in any market.

That being said, unless you fall into one of those categories, I can't think of too many reasons to not just watch how things shake out over the next 6-12 months. "Waiting" is still cheap.

Rent-buy is tedious? Yeah, definitely don't do any analysis when it comes to the biggest investment of your life. Eww gross. The only truth is momentum, and it's down.

If ppl didn't find rent buy calculations tedious, we wouldn't have a housing bubble and this site wouldn't exist. Furthermore, many didn't even calculate whether they could afford their payments....

And oh! don't even mention opportunity cost.

Can anyone suggest a good way to find a condo in Florida. We would like to buy a property which is in an area that will hopefully appreciate. Can you also suggest some locations in Florida near the beach that would be considered a good investment. I sincerely appreciate your advice.

You should probably start a new thread 1818 if you want answers. advertise.

anyone who successfully timed the market in the short term(1-5yrs) was just plain old LUCKY. it had nothing to do with your insights or savvy. Face it your not that smart. I bet all you guys were convinced after 911 and the 2002-2003 recession that manhattan would tank and yet we flourished. BUY WHEN YOUR YOUNG AND CAN AFFORD IT. You will do well....there is only one area you might want to consider in your analysis which figures into your longterm strategy...the amount of inventory available...if inventory is skyrocketing to enourmous levels(such as we saw in 1987-1991)then maybe you might want to pause and reevaluate.

but again if you have a longterm horizon than even this scenario becomes meaningless.

Steve what makes you the arbiter of intelligence? Also, it never seems to fail that when someone tells someone else they are not that smart, they managed to use the wrong "you're". The reality is the only reason to buy after 2004 was to flip, because the math was plain ridiculous. I apologize if this has been covered, but Steve you must be a broker, correct?

Rhino..I'm probably avg intelligence(aren't we all) but I listen to others, simplify things and I understand f-cked up human behavior. Ask your bear friends. i am not a broker I own manhattan condos that i rent out. Math??...the rent i get, plus principle writedown and tax benefits cover my monthly costs. So i get to control a 600k condo for free while banking the appreciation, with minimal effort. You would get the same benefits. So the costs to owning versus buying are equal right now which is usually the case. The only opportunity cost is your downpayment. yes you could take that 10-20% and invest in stocks but dude I like to sleep at night and although I'd like to be, I'm no Warren Buffet.

Steve.... borrowing your tax writeoff forward.... that's not a real return! Banking the appreciation is fine, presuming your entry point was sensible. In other words, not between 2004-2007 or 1986-1988.
A main difference with stocks is that you don't have reality shoved in your face daily so you can deny it. Let's say I am much happier to have 30% of my money in stocks at a cost basis around this level then I would be if I bought an apartment in 2006 or 2007 with said money. If you bought your investment property in 2006 or 2007, your statements would not be true. You would not be able to cover your nut with the rent (unless you put all cash in).

Reports of successfully timing the market are exactly like gamblers reporting winnings. If you listen to what they say, it seems like every gambler is a winner. Yet if you look at the big picture, clearly the average gambler is a loser.

People call uptrends and downtrends all the time. Its not that hard to do - flip a coin and you'll be right with 50% probability. Then later say "I told you so" as if what they said was so incredibly novel, insightful, and unique. This goes both for petrfitz calling for 15% increases in 2006 and 2007, and the bears now calling for 40% declines.

"Steve its not having a crystal ball to say buying stocks when the Dow is trading at 10x EPS is more likely to generate good returns then when it is trading at 20x..."

But knowing that it will hit 10x EPS, as opposed to 11x EPS followed by a bear market, does require a crystal ball. And if you wait until 10x EPS to pull the trigger, you may miss an entire bull market. Had you not tried to time the market and instead had broad index funds that you rebalanced annually, you'd do much better, and never miss a bull market.

"Rent-buy is tedious? Yeah, definitely don't do any analysis when it comes to the biggest investment of your life. Eww gross. The only truth is momentum, and it's down."

Rhino86, read what I wrote carefully. I did NOT say "don't do any analysis." My point was that most buyers shouldn't get too hung-up on relative minutiae, such as whether you can factor in the mortgage tax deduction in the analysis, when they're serious about eventually finding a home. Some people here seem content to advise others to just "sit back and watch." I don't know what that entails exactly, but I think you should always be out there shopping if you eventually want to buy.

Correcting my typo: "But knowing that it will hit 10x EPS, as opposed to 11x EPS followed by a BULL market..."

Around 2012 for us. We are in a cheap rent 2 BR/ 2 Bth that is already small with a baby. Ideally we would like to be in a 3 BR or brownstone though. Both families own RE and land so psychologically we are OK renting if it's the best deal financially. We don't want to own unless is a great deal we cannot say NO to. Those deals are YEARS from now, if they even show up.

"People call uptrends and downtrends all the time. Its not that hard to do - flip a coin and you'll be right with 50% probability."

I think we just learned the source of all your investing problems. ;-)

For folks who spend the time looking at the data, real estate was NOT a even likelihood of raise/decline last year.

Yes, people make calls all the time. But many of them are baseless.... and many are not.

> Then later say "I told you so" as if what they said was so incredibly novel, insightful, and unique.

When some of the folks said so last year, it actually was. Take a look at how much heat dco got for it. The majority of folks were calling UP at the time. Consensus was that things would only increase... even though the numbers said otherwise. But thats why they call it a bubble. It was irrational.

> This goes both for petrfitz calling for 15% increases in 2006 and 2007, and the bears now calling
> for 40% declines."

Not really. The decline calls were based on analysis of market factors. Perfitz's was based on guessing. Folks who do correct analysis will do better than those who pray (or worse, expect past performance to be an indicator of future returns).

If you did your same analysis in 2000, you would have been telling us that the dow was going to hit 20,000 in a few years...

tech_guy and steveF, there's a difference between timing the market perfectly (which is exceedingly difficult to do) and looking at fundamental data to make overall trend assessments (which is much more straightforward).

For instance, there were many value investors who stayed away from tech stocks in the late 1990s, because they were too expensive (fundamental analysis). They missed the chance to flip at a huge profit, like Cuban did (which required precise timing, or a lot of luck), but they were right in the long run. Today, 8 years later Nasdaq is off 70% from its 2000 peak. That value made no sense whatsoever, so investing in the Nasdaq in 2000 made no sense whatsoever.

You are right that it's very difficult to determine whether to buy when P/E ratios are 10 or 11. However, it's damn easy to determine not to buy when they're 20. Similarly, it's pretty easy to determine not to sell when they're 7.

In other words, timing is very difficult on the margins, and thus should be avoided/minimized in my opinion. But savvy investors can and should avoid buying at the peak or selling at the trough. I think this applies to all/most asset classes, including stocks and RE.

Newbuyer99, if you don't accept what you have said here, they are beyond hope. I will add to your comments, with the "long term horizon" that so many real estate bulls like to talk about, you can buy stocks at 10x, just save some to buy at 9x, 8x, and 7x as well. Real estate is not as easy to average into!

"tech_guy and steveF, there's a difference between timing the market perfectly (which is exceedingly difficult to do) and looking at fundamental data to make overall trend assessments (which is much more straightforward)."

Well said...

I'd also add that because the RE market displays an intense intertia that the stock market does not (because of liquidity and transparency of data), it makes trends easier to recognize.

Well said my good man...funny stuff..like one intellect speaking with another intellect...Yes indeed Well Said! Bravo!....see below

Short term gains = LUCK.....Long term gains = discipline, balls and youth....Avg intelligence will do.

The joke here is on people who think that 2001 was a false bear market and therefore over the long run a bad time to buy. Anyone who bought in late 2001, early 2002 was a genius.

the ride ain't over yet...... 01' will be par