Former REIT CEO Says to Sit on Sidelines

You should buy, renting is a waste of money. Lock in an interest rate DO NOT GET ARM OR INTEREST ONLY. If the rates go up, your still locked, if they go down, you can refinance. Renting suck. Period.

Seriously: NYC is a co-op heavy market. People generally do not overextend to buy a co-op, as the boards require higher down payments and a few years of expenses liquid after making the down payment. People aren't bailing out their co-ops because the fixed rate term of their mortagage expired.

Further, a condo/co-op is not only an investment. It is a home. It has value beyond the ROI.

this post makes no sense

the psot is not addressing the emotional value of a home but the monetary one. i think the ex CEO has a point and perhpas its worth a discussion

You'll get my coop keys for cheap, when you pry my cold dead fingers from them!

wth are you talking about

The CEO may have a point. If 5 year I/O loans run out and interest rates have risen by 100 or 200 bps, some people will not be able to service their debt under their existing loan or refinance at an acceptable rate. People might be forced to sell. Not everyone, but if it happened to 5 or 10% of the market the effect on prices would be drastic.

probably won't happen to 5-10%, but no matter. even if it happened to 2%, prices at the lower end of the market (<$1 million) would drop significantly. the effect would be biased toward this market because these are the people most likely to have financed with I/O loans. People buying $4 million apartments likely don't need the creative financing vehicles.

I had friends tell me I was crazy to buy Hawaiian beachfront 10 years ago, good thing I
didn't listen to them.

I am a law student studying RE at the same school as you. As interest rates go up, prices go down, and vice versa. What might seem like a cheaper home on Day 1 because of downward pressure on prices will cost you the same at the end of Year 10 because of the higher interest payments. And even if it were cheaper, you would then have to factor in the cost of rent, which for a year will put you back $30k. So, even if the CEO is right, I don't see a clear advantage to waiting if you are sure you'll be in NYC for at least 2 years.

Oh, one more thing: Since you're a student presumably with a high paying job, you should definately go condo or condop. No contest. That might force you to look outside the UWS.

What seems to be missing from this conversation is the cost of waiting. A condo that is $1MM today may possibly be $900K in a year or 18 months. Regardless of current market conditions, there is always the chance that prices will drop.

But you NEED housing in the interim. So while waiting for the prices to drop 10% (or whatever), you will be spending thousands each month in rent. You have to factor this into your calculations.

You are not only investing in real estate when you buy. You are also paying for shelter. Your decision to buy a primary residence, therefore, is slightly different from the analysis to buy an investment property.

Finally, real estate is a long term investment. I can't imagine anyone chosing to hold off on opening a retirement account until the stock market cooled off. You start investing early, regardless of the market conditions and continue investing through good and bad markets. Over time, there will be many peaks and valleys. But long term investments generally pay off IN THE LONG RUN.

#5: I doubt 3 was talking about the emotional value of a home.

I think they were talking about the fact that housing is a need, and unlike most investments is a monthly expense regardless of whether you buy/invest or not.

#11 is right, as prices go down, payments go up. However, if you wait and buy when prices have dropped 15% or 20% on a $1mm apartment, you may have a higher monthly payment, but at lease you didn't lose 200k in equity. At normal appreciation rates, it would take many many years to recoup a dramatic loss like that. Also, you need to figure in the 20K of transaction costs you are paying as a buyer and the 60 k you will be paying as a seller into the equation. All of a sudden you have a 280k bill on your hands if you need to sell in 3 or 5 years. Renting would cost you 100k over the same period, maybe 150 K.

I think the CEO is right. There is going to be a major decline. Manhattan is a one industry island at this point, if interest rates rise, or the finance industry sputters, we will have major price drops.

I understand a house is shelter and all of that. However, if you do a rent vs. buy calculation on this island it just doesn't work out in you favor.

The CEO is wrong. What the heck does he know about manhattan anyway. Nobody knows what the market will do...nobody.

to #17,how can you say the CEO is wrong on one hand, then say that "nobody knows what the market will do...noboby" on the other? doesn't make sense. either the CEO is wrong because YOU know that the market will go up, or the CEO might be right, might be wrong, but its unclear because NOBODY knows what the market will do. Please clarify.

To add to post #13: Another factor is the tax deduction advantage. When I was young and single and still needed a place to live, I chose to buy. It was easy to compare the benefit of my purchase as opposed to my friends making equal dollars who chose to rent.
In the long run, too, when I chose to move up, I had equity/appreciation that helped me buy better when I wanted to.

But I knew I didn't want to move around the country for career moves. I saw what happened in the 80's when buyers who needed to relocate couldn't sell very easily.

I work in finance and have an mba from a prominent school. You can be CEO of the largest real estate investment firm, nobel-lauterate professor or the guy on the street, doesn't matter nobody can predict 100% what's going to happen.

A home is a home, not just an investment like a share of stock. The CEO is a businessman looking to get a return on his investment....what he's saying might be true but consider the motives of the source and your own needs.

Gotta love that "crazy to buy Hawaiian beachfront 10 years ago" broker classic. *BARF*

Why do people insist on stating they go/went to a prominent business or law school? I know lots of people who can't tie their shoes without help that went to "prominent" schools and lots who makes millions and millions of dollars after only going to a not-so-prominent undergrad and no graduate school at all. Let's just assume that everyone has a baseline intelligence on this site - it will come out in your posts anyway.

Wow, this post is FULL of broker babble.

no kidding...

But what about the fundamentals? How much longer can New Yorkers be able to afford to pay 1.4M for an average 2b apartment? The prices make no sense in relationship to average income. The correction should take place sooner or later simply because of laws of physics.

This is exactly how we felt buying ridiculously overvalued stocks in 1999 thinking they can never go down…

1.No one can predict the future even former CEOs. If this retired CEO is right that interest rates will go up then condo prices will surely decline. Yet, interest rates have been trending lower nad the latest inflation news is bullish (i.e., inflation is reporetd to be low). Business Week had a cover page story that low interest rates are here for several more years. So, your call, if you think rates are going up sit on the sidelines and go short teh stock market too.
2. NYers can afford $1.4mm for 2 bedroom condos for as long as the eye can see. My roght math indicates that using a thumbrule of 25% of income it woudl take about $300K a year in salary to afford such an apartment. This is NYC, there are plenty of people walking around making that sort of money or who just come to the city with that sort of money in their pocket. Maybe the "average" NYer can't afford that condo and they, instead, live in teh outer boroughs or one of the burbs.

Haven't we been having this "NYers can't afford these prices" discussion for decades now? When my father bought his apartment for $5,000, people told him he was crazy to buy at the peak of the market. He was going to lose his shirt because when he wanted to sell he would never find a buyer who could afford to pay that kind of money for a family sized apartment.

Poster #1, nobody cares what your former CEO said, it's his OPINION, he cannot predict the future! Just because he's a former CEO doesn't mean his opinion is more correct than others. Since you go to such a prominent business school, you should know that you can't believe everything you hear, dumbass.

poster #28

Seriously, does it pump up your ego to swear on a real estate message board and make fun of people? Unless you have something substinative to say, maybe you should just not post. If you want to rant and rave, get yourself a myspace page.

I would submit to poster #28 that "just because he is a former CEO" DOES mean his opinion is more correct than others. The man actually worked in the real estate industry long enough to become a CEO, which definately means he is an expert.

Streeteasy should employ someone to delete posts like #28. It doesn't add anything and eventually ruins all good boards.

Agree with #30. If you have the flu, you go to a doctor because that is what they do for a living. If you have a question about real estate, a former REIT CEO is a pretty good place to go. Of course, doctors can misdiagnose, and CEO's can be wrong, but all things being equal I would rather talk to a REIT CEO than the average joe about the direction of the real estate market.

#26, I think a HH income of 300K a year is hard pressed to meet the obligations of 1.4MM apartment. They have to first have 280K in downpayment to put 20% down and then will be paying at least 6000 a month in mortgage, not including taxes and maintenance fees. 300K a year is 150K a year after federal, state, and the 4.5% NYC income tax. That math looks like a pretty painful burden to own a home.

#32 No offense but you need a new accountant if you're paying a 50% tax rate. Try more like 40%. Take home of 180k per year, and say 100k a year in mortgage/main/taxes. It can defintely be done. I wouldn't recommend it if you have kids but a single or a childless couple could live on that.