Buyers coming back

Gotta appreciate their effort to bring back the bulls.

the nytimes real estate shills strike again.

It is a sad commentary when THE old dead lady(nyt), needs to make an argument based on 3 families. Perfect, 9k listings and 3 buyers.

i love when the article states that despite all these buyers coming back into the market, volume is down precipitously and prices can be negotiated as much as 25% off ask. what's wrong with this picture?

I'd like to see if that family of four that's mentioned--ya know, the ones where the parents plan to "sleep in the living room" of the one-bedroom apartment they're hoping to buy--get their mortgage loan approved by the bank. lolz.

great article.

cue oldbuyers, tech_guy and juiceman.

3... 2... 1...

There is no doubt that there are people out there waiting on the sidelines to buy - I have a friend who just made a bid that was accepted (against my advice, but it's their money). I'm waiting on the sidelines to buy as well. Markets don't fall in a vacuum, and no doubt people will step in and get bargains relative to 07/early 08 levels. I'm guessing that by the summer of 09 NYT will be running stories that the market has stabilized after falling 20%. My thesis is that the supply will outstrip that demand and the sellers that will hit the bid quickly will be the lucky ones. The rest of the sellers will be squeezed and be in serious stress in 2010.

Obviously I don't have a crystal ball, but that's what I think and that's how I'm playing it.

"They’re making deals — sometimes far below asking price — on apartments marketed for under $1 million, and especially under $500,000."

So now even studio owners are going to be ripped off?

You'll get a 2-bedroom for that price in a year.

Is it possible the reluctance of the TImes to report on the glass being half empty with respect to the real estate industry is an effort to protect diminishing advertising revenues?

The NYT is notorious for being a brokerage mouthpiece.

Julia should love this story. The apartments that were around $400K are now under $300K. Maybe not in Manhattan but that's the next stop. And what the hell is a family of 4 doing in a 1-BR? And people complain about the projects?

a)"When she finally decided to buy, with the help of her parents, she said they found “the market was on their side.” With Ms. Leonetti’s help she was able to negotiate the price from $353,000 to about $270,000, a 24 percent discount. She closed on Wednesday."

b)"The final price was $270,000, or 28 percent, below its asking price as of March 2008. "

"the nytimes real estate shills strike again"

"The NYT is notorious for being a brokerage mouthpiece"

Just last week y'all were praising doom and gloom articles from the Times. How's it feel to be part of a herd?

... and there he is, folks.

Let's give him a big hand.

I don't know, JM, how did it feel last year?

$270K for a 1BR new construction in Brooklyn sounds to me like 2003 pricing from what I recall.

Juiceman, are you a broker?

"how did it feel last year?"

For me, last year is the same as this year, dispelling myths, fabricated numbers, and fictitious analysis. I'm called a bull because I'm willing to challenge people who make stuff up.

This article is not bullish, yet the reaction above is classic herd behavior. If there is any sliver of positive news posted on this board, there are instantly 20 posts discrediting it. Get your heads out of your ass people and think for yourself. This herd behavior is what got us into this mess to begin with.

"Let's give him a big hand."

Thanks.

Why would anybody want to move to Brooklyn, when they could move to Long Island City.

"For me, last year is the same as this year, dispelling myths, fabricated numbers, and fictitious analysis. I'm called a bull because I'm willing to challenge people who make stuff up."

No. You're called a "bull" because you're full of it. People post real numbers with real analyses based on academically accepted theories and empirically proven data, and you deny it, try to poke holes in it, yet never publish a single datum or reference to support your own position.

Case in point: "the reaction above is classic herd behavior. If there is any sliver of positive news posted on this board, there are instantly 20 posts discrediting it. [...] This herd behavior is what got us into this mess to begin with."

That's completely illogical. You're simultaneously saying that we're in a "mess" because of herd-like positive comments during the upturn, yet implying that we need more herd-like positive comments now.

But ... that's what got us in this mess in the first place!

Juiceman, I don't know you but I do know people in the RE industry who openly acknowledge that the NYT (in particular the real estate feature articles) is very heavily influenced by the brokerage community, that articles are often plants/ideas from local firms, etc.

I'm actually a bit surprised you don't know this. If you're a broker, you're either new or naive, and if you're not a broker, well, I guess it's good to learn, right?

Of course the NYT has to report some negative factual news on the local market just to appear credible, but it also has to throw bones to the local firms with bullish talk. Much more likely to get negative news from the WSJ, NY Post, Observer, etc., since they are not quite as beholden to advertisers (but still somewhat). This is why during this real estate decline there has been a paucity of negative articles from the NYT, while the WSJ and other papers haven't held back on the facts.

JM, early last year any shred of negativity and there were 20 posts deriding it, and you were part of that herd. The psychology of markets IS herdlike, which is one of the many reasons why this downturn in real estate prices will likely overcorrect on the downside. Right now being part of the herd is probably being on the "right" side (although for how long, who can tell?), just as to have been part of the herd from 2002-07 was "right" at the time, although clearly not if you bought in 2007 and are now unemployed and need to sell.

In a piece last year the editor of the NY Times real estate section even said that it's not a news section - it's designed to attract advertising. What real estate agency is going to advertise in a section that talks down the market?

steve, you are only angry because you post the most fabricated garbage. There are more threads showing the "falsehoods of stevejhx" than there are about any other topic. Get over yourself, your story is tired. Even bears think you are completely full of it.

"People post real numbers with real analyses based on academically accepted theories and empirically proven data"

hahahahahahahahahaahahahhaahhaha LMAO! hahahahahahahahaahahahhahah LMAO!

"You're simultaneously saying that we're in a "mess" because of herd-like positive comments during the upturn, yet implying that we need more herd-like positive comments now."

How did I imply that? That is a classic stevejhx spin (which you say you never do).

Setting aside Steve's tendency to be painfully pedantic and boorish, he's been absolutely right for the most part.

His general theme, that prices are out of whack with both rent and incomes, is correct (if overwrought). Of course, he's far from alone in his analysis of the NYC real estate market, and the current situation is proving him and others right.

I consider myself a relatively objective viewer of the markets, but it is hard to argue with the observations that the market remains out of whack, even despite recent price declines.

I found this article depressing. I really wish those buyers would have have waited until mortgage rates went down further and the the market deteriorated further. I don't mind the bonus babies overpaying for a new development in Chelsea, but these are hard working people who earned what they have.

JuiceMan, I'm not angry at all, but you seem to be irate. The "falsehoods of stevejhx" never do anything but attack me personally. Let's see what I've done:

1) Made the BRASH statement - supported by commonly accepted economic theory - that owner-occupied residential real estate is capitalized rent, not an "investment."

2) Made the BOLD claim - supported by Case-Shiller - that over long periods of time, stocks are a much better "investment" than owner-occupied residential real estate, which does not pay a dividend or increase in value faster than incomes.

3) Made the BOLDER claim - supported by the math - that the return on investment real estate is not based on the increase in the price of the property, but rather on the fact that someone is paying off the principal.

4) Made the BRASH statement - again supported by Case-Shiller - that limited land does not affect property prices in the long-term. Only incomes and leverage do.

5) Made the BOLD claim that if Wall Street bonuses are what caused property prices to skyrocket in Manhattan - supported by Jonathan Miller - then there demise will have the opposite effect.

6) Made the BRASH statement - supported by accepted economic theory - that since the output value of owner-occupied residential real estate is the same as the output value of a rental property, the two should cost the same.

7) Made the BRASH statement - again supported by Jonathan Miller - that stock-market prices are not correlated to home prices.

8) Refused to believe that a market where it costs twice as much to buy as to rent was sustainable, as it seems not to be.

9) Refused to believe - supported by common sense among other things - in "median price per square foot" of itself is a meaningful measure of market prices, since it does not correct for changes in the sample.

10) Made the BRASH statement - supported by economic theory - that if you can't buy a property to rent it out profitably to a third party, then you shouldn't buy it to rent it out to yourself.

To prove this, I've:

11) Demonstrated that 40x monthly rent = 30% PITI, and therefore rents should equal owners' carrying costs as the figures are identical.

12) Showed empirical proof that (adjusting somewhat for interest rates) the historic ratio between rents and purchase prices is 12x annual rent = purchase price.

13) Showed the arithmetic that if you do that, you will get 40x month rent and 30% PITI.

14) Showed that using the Case-Shiller methodology, prices in Manhattan have increased sevenfold in 10 years.

15) Showed that it is not possible in Manhattan to buy a property to rent it out to a third party and break even or make money on it.

16) Showed that in order to buy a property and rent it out to a third party and break even on it, the purchase price (adjusting for interest rates) must be about 12x annual rent.

All of the things I've said are internally consistent, JuiceMan.

No one has ever discredited my "fabricated garbage," because it's neither fabricated, nor garbage. It all comes down to point 15: that you can't buy a property and rent it out to a third party and break even. Not even close. Until you can, property prices will continue to fall.

The Brash and the Bold would be a totally fresh soap opera.

Fully agreed, Jerkstore.

I still miss Ryan's Hope. I think we can come up with a new one, though: JuiceMan's Hope.

"JuiceMan's Hope"

hilarious

juiceman, come on. you read the nytimes real estate section and you don't think it's a shill for the real estate industry? at least acknowledge that.

jhx: curious your thought

15) Showed that it is not possible in Manhattan to buy a property to rent it out to a third party and break even or make money on it.

I have ALWAYS experienced the following; the concept of RE as a break/even analysis over long periods of time is skewed by exclusivity or limited supply. I have owned in all that I speak of. Ocean front property, ski in/ski out, major city and third tier declining cities. My experience is there is ALWAYS a premium associated with the more desirable. Kind of backs into the concept that the most money to be made in RE over time is by being a true slumlord

Re: New York Times

At least they still have a business section whose content is darn near impossible to sugar coat, even for the NYT.

Front page stories today:

"For Bank America, Pressure mounts over Merrill deal"

"Circuit City going out of business"

"Preparing for your budget disaster"

Others that don't exactly stimulate folks to part with their savings.

I don't bother with their RE section for market data. Too many market indicators available which at least one can call independent.

"I have ALWAYS experienced the following; the concept of RE as a break/even analysis over long periods of time is skewed by exclusivity or limited supply."

The price is, but there should still be no difference, when you buy the place, between buying it and renting it.

"juiceman, come on. you read the nytimes real estate section and you don't think it's a shill for the real estate industry? at least acknowledge that."

ok, I acknowledgeit but I still don't think that article was anywhere close to bullish. Sad and a tad depressing, but not bullish.

steve, nice long post. Maybe I'll get around to reading it someday.

"JuiceMan's Hope."

I like it. I'll play a doctor. Doctors have it made on soap operas.

"Maybe I'll get around to reading it someday."

I didn't think you'd like to refute any of it - as it's all true and proved.

"as it's all true and proved"

I'm sure steve, I'm sure.

Urbandig's available units just hit an all time high. I don't see buyers coming back in droves. (That said from my daily Streeteasy email updates - I am starting to see some real price drops on the UWS for 2 bed rooms.) The people getting in right now have to be willing to take the risk that they are going to be jumping into a meat grinder.

JuiceMan: "For me, last year is the same as this year, dispelling myths, fabricated numbers, and fictitious analysis."

stevejhx: "as it's all true and proved"

JuiceMan: "I'm sure steve, I'm sure."

That's powerfully dispelling myths, fabricated numbers, and fictitious analysis all right, JuiceMan!

I even gave you numbers so you can go 1), 2), 3), etc. and tell me what's wrong.

Soon approaching the magic 10,000 number!

1) I agree
2) wrong. stocks cannot be compared to owner occupied real estate, you have said so yourself
3) First I'm hearing of this one
4) Wrong. Supply has an impact as do incomes and leverage and many other things
5) Bold? Get over yourself
6) I agree, but the "same" is where we differ and always will
7) Brash? Get over yourself
8) Market? Wrong. Not everything cost twice as much to buy.
9) Wrong again. I've found another 18 places where they use this measure (streeteasy, radar logic, etc)
10) I agree for the most part, depends on the opportunity cost on capital invested
11) Yawn
12) This is great for Albany....not so good here. You already agreed with the faults that I pointed out.
13) Double yawn
14) WOW! You read a chart! HOOOORAY!
15) Tough these days but not impossible

You forgot a few:

16) Charlotte is the new NY
17) The tax deduction on a mortgage doesn't matter
18) 12% rate of return for opportunity cost of a down payment
19) Opportunity cost is the entire mortgage amount
20) Miami is the same as NY
21) marginal vs. effective tax rates

Happy? I've read it and still not impressed. Your "empirical evidence" and “proof” suffers from horrific interpretation.

I don't think steve has ever shown himself to be accurate or intelligent with any of this analysis. When you take most of what he says an analyze it intelligently, like I and others have done regarding marginal v. effective tax rates, the rent ratio, opportunity costs of buying, etc., steve is pretty much shown to be a clown. He misapplies basic concepts and takes things entirely out of context. When it is pointed out, he gets petulant and obnoxious and refuses to admit he is wrong.
He wasn't correct about prices being out of whack with incomes and rents. Prices are down because of declining incomes, layoffs and reduced credit.
steve babbles on and on and for people who don't know better, they think he sounds good, but when you really look into what he is trying to say, it is obvious that he is clueless.

Well at least you read it!

1) I agree.

Good.

2) wrong. stocks cannot be compared to owner occupied real estate, you have said so yourself

Then I'm right, because that's what I said. Owner-occupied residential real estate is not an "investment."

3) First I'm hearing of this one

Wrote that dozens of times.

4) Wrong. Supply has an impact as do incomes and leverage and many other things

Sorry. Supply is a function of price. Econ 101.

http://classnotes.aaec.vt.edu/aaec1005/coursematerials/SupplyExamples/deriving1.htm

Moreover, proved by Dr. Shiller in Amsterdam - limited land mass - over 350 years.

5) Bold? Get over yourself

That seems to be what you can't get yourself to admit, JuiceMan: no more Wall Street bonuses means property prices MUST fall.

It's the affordability issue.

6) I agree, but the "same" is where we differ and always will

The output value must be the same since you get the same thing from it: a place to live.

7) Brash? Get over yourself

Sorry you can't admit that one, either.

8) Market? Wrong. Not everything cost twice as much to buy.

Not every single apartment. But on the whole, that is true.

9) Wrong again. I've found another 18 places where they use this measure (streeteasy, radar logic, etc)

That doesn't make it a useful measure.

10) I agree for the most part, depends on the opportunity cost on capital invested

No it doesn't depend on the opportunity cost on capital invested. It's a cash-flow argument.

And since you agree with it, you must agree with everything else I said, because it's all the same thing.

11) Yawn

You yawn at market constraints?

12) This is great for Albany....not so good here. You already agreed with the faults that I pointed out.

Never agreed to the faults that you pointed out - that they were unique to Manhattan, anyway. The figure is for the New York Metropolitan area.

13) Double yawn

Again - yawning at market constraints!

14) WOW! You read a chart! HOOOORAY!

No, I did the math. Yet one more sign of an unsustainable bubble.

15) Tough these days but not impossible

No, not impossible: nearly impossible.

Which means, as the above, that the rent to price ratio must be 12x, as that's the point where you break even on renting out to a third party.

Which is my #16, which you omitted.

Now yours:

16) Charlotte is the new NY

Never said such a thing. I said that a lot of NYC jobs were going to move to Charlotte.

17) The tax deduction on a mortgage doesn't matter

Never said such a thing. Said just the opposite - it does matter. Just not in the 12x annual rent to price ratio, the PITI ratio, or any number of other things that it doesn't matter in.

I did say it's offset by higher prices for housing.

18) 12% rate of return for opportunity cost of a down payment

Never said that. The rate of return is the average for the S&P 500 since the end of WWII on a moving average basis. And it's not on the down payment.

19) Opportunity cost is the entire mortgage amount

Of course it is. You pay $1,000 a month in mortgage payments, how can the opportunity cost not be $1,000? Even if you spent $1,000 on rent, that would still be the opportunity cost, and that is the full cost of the mortgage.

20) Miami is the same as NY

Never said such a thing. I said that property prices were unsustainable in both places, for different reasons.

21) marginal vs. effective tax rates

Absolutely true. You can't pick and choose what rate you apply what deduction at. They're all taken simultaneously.

"Your "empirical evidence" and “proof” suffers from horrific interpretation."

I didn't interpret it. I just applied it.

"He wasn't correct about prices being out of whack with incomes and rents. Prices are down because of declining incomes, layoffs and reduced credit. "

I said that prices are out of whack with incomes and with rents, partially because of layoffs, partially because of reduced credit. Property prices are correlated to rents are correlated to incomes.

The two fundamental metrics used for measuring housing prices are prices to rents, prices to incomes. Median price per square foot isn't one of them.

The funniest part of Josh Barbanel's article in the NYTimes is when he says that buyers are coming back compared to nov-dec, when the market was stalled and open houses were totally empty. Of course is BS. The clearest evidence of that (if you actually need any) is the fact that back in nov-dec the NYT RE section never mentioned that open houses were anything other than crowded and awash in bidding wars. So they're now reporting that the calamity is not as bad as advertised but they had never actually mentioned there was a problem before.

trompolico:

BINGO. this is what makes the times article so hilarious. they are now writing about the supposedly incredible real estate recovery without having covered the slowdown. it's just an embarrassment. no wonder that company is heading down the toilet faster than a penthouse on fifth avenue.

Supply doesn't affect price? Welcome to another class of steve's clown school of economics.

three of my friends who've been on the fence about buying for years are finally jumping in and actively looking as they feel they can finally afford to buy now. so i think its more than the three families profiled in the times article. real estate's down but not totally out.

that's odd everyone and i mean everyone i know keeps telling us to wait 6 months or until the summer. it happens so often that it is actually getting to be comical

Price affects supply.

The axes on a supply curve are price and quantity. What quantity will be supplied depends on the price it can be sold for.

Econ 101.

steve, you have no authority to say Econ 101. You can't understand the most basic economic fundamentals. The axes on a price curve are supply and demand. When the supply curve shifts, price is affected.

jhx:
"What quantity will be supplied depends on the price it can be sold for"

Where the fuck did you learn that, just shoot em!
If there was a grain of truth in that, Manhattan RE inventory would be about 4 units. Instead of almost 10k. Concepts like price discovery must be foreign language eh! Tell it to Circuit City. You just joined RUFUS...ignore this person.

I think arguments about the Times's bias, or about the accuracy of the article, may miss an important point. Assume that the article is completely accurate and balanced. Assume that ordinary working people are in fact returning to the apartment market, and are able to afford homes that meet their needs.

Fantastic!

But here's the rub: "Ordinary working people" as a class have made virtually no economic progress, in terms of income or wealth, during the last decade. Their earnings have famously stagnated, their savings rate has been negligible, their investments have retreated to 1998 levels, and their borrowing power has shiveled. So, if the market is returning to levels where they can afford to buy, and if they are in fact the dominant force on the buy side, what does that tell us about prices, in constant dollars? 2002 levels? 1999 levels? I really don't know... just trying to follow the logical implications of the "ordinary working stiffs will save the market" thesis. I think they probably WILL save the market (except at the top, of course, where the remaining rich people will have to do the trick), but after how big a decline?

patient, it's just basic economics. Real estate is illiquid so it reacts more slowly, but it's true.

Don't think about it as resales - think of it as new development. As prices started to soar, new developments moved in and started to take advantage of those higher prices. Had prices not soared, there would have been less new development.

What has now happened is prices are starting to collapse. Demand has been choked off. The supply is now at a price level where there is no demand to move them. Inventories are, therefore, rising, and will continue to do so until prices fall. When they do fall, there will be much less (or no) new development.

It's the same as happens with any product. The higher the price for the output, the more people will produce. As long as there is demand at that price, inventory will move. When the demand curve shifts, fewer people will be willing to supply. However, the existing inventory will have to be marked down and moved out.

Bottom line is this. If there are so many buyers out there, why does inventory keep skyrocketing?

"If there are so many buyers out there, why does inventory keep skyrocketing?"

Because prices are too high and there is no credit.

everyone is a buyer for the right price.. obviously- there are so many buyers out there bc they think they can finally get a deal... just like everoyne is a seller for the right price...

jlnyc50...i agree with you we're all buyer at the right price. Now, when are the sellers going to face reality, that could take a while.

interesting thread