Who would buy into this Market?

Nobody knows where interest rates will be in 6 months. A 1% increase in mortgage rates is the equivalent to prices rising 10%.

If you find an apartment you love at a price you can live with, you buy. Certainly there is no pressure on the buyer and all on the seller these days. The flip side now should be; who, besides those in serious financial straits, would sell now? If you are selling, you must be ready to accept twenty to forty percent lower than asking price. . .if your asking price is circa 2008.

That is completely untrue bronxboy. There are plenty of people selling for non-financial reason, whether it is to upgrade, move to the suburbs, etc.

"Nobody knows where interest rates will be in 6 months. A 1% increase in mortgage rates is the equivalent to prices rising 10%."

But a 1% increase in mortgage rates will have a devastating effect on already non-existent demand, pushing prices even lower.

alpine, you are dead wrong.
If you like to purchase an overvalued asset because you can 80% finance it with a 1% lower mortgage at 30 years, you either think that Math is a synthetic drug or you are full of guano

my post from another thread...My wife and i are sideline buyers. We both still have jobs tho uncertainty levels are high, since we both work for recognizable financial firms. We'd been saving cash for last few yrs to buy home and were thinking 2009/2010 to buy.

Now, we're sidelined for the forseeable future for several reasons.

First, the depreciating asset problem. There's NO WAY we're buying property now when all prices are falling and falling rapidly. We're in a deflationary period. We have NO IDEA when prices bottom or at least stabilize, particularly as unemployment rises, which is single biggest determinant of housing prices. Low mortgage interest rates are NO DEAL/irrelevant when the price of the property you just bought falls another 30%. We will wait until the rate of decline in real estate prices stabilizes for several months/qtrs at approximately ZERO. There's no way to judge value until you know prices have at least stabilized. Prices are unlikely to rise for years, perhaps a decade, if history is any guide. Waiting as long as possible to buy is the smartest thing one can do, in our opinion.

Second, renting is such an easy and readily available alternative, both in the city and outside. There's no lifestyle compromise, even though we have young children.

Third, we are convinced the stock market will appreciate much earlier and more significantly than NYC real estate over the next 5 yrs, so would prefer to push a portion of the real estate downpayment cash into the market, at the appropriate time, and for a few years, rather than real estate.

Fourth, though less significantly in our minds, our job uncertainty prompts caution.

Importantly, there's one reason we're NOT sidelined. We have the cash available for a substantial down payment and enough other assets, such that we could even buy a reasonable property outright. We have no barriers with down payments or obtaining a mortgage, even though we'd prefer to get a reasonable mortgage rather than pay for the property outright.

We know two other couples that are sidelined for exactly the same reasons as us.

None of us even bother looking at real estate, other than to discuss, amongst ourselves, how happy we are that we never bought and took on those ridiculous mortgages. We're sad, however, that so many are suffering and that the numbers will only grow over the next few years.

post from another thread:

I've seen people here and in other discussions refer to "deals" or"good deals" in nyc or any real estate. I'd like to propose a very specific definition of a "deal" that should serve to eliminate many of the most unpersuasive and ineffective arguments I think folks make about real estate.

A "good deal" means paying a price for a home/condo/coop, such that the gain the owner experiences from the time between when he/she buys the unit to when he/she sells it, is greater than the return available from renting and investing the downpayment in some alternative. All taxes, tax deductions, fees, renovations etc. etc. must also be included in evaluating both scenarios. Said simply, did you sell the place for more than you paid and earn a rate of return higher than other alternative investments over that time frame.

Sorry to be so complex, but the point Im trying to make is that what the unit is selling for now vs what it sold for 1 month ago, 1 yr ago, 5 yrs ago or 10 yrs ago is IRRELEVANT. All that matters is what the price does from the time you buy it til when you sell it. The past is IRRELEVANT. All buyers know this implicitly.

If you want to argue that something is a deal, you must explain why it will gain, in the FUTURE time period you intend to own it, more than the alternative of renting and investing your money elsewhere, such as the broad market. Conversely, if you want to argue something is not a good deal, you must explain why the gain in the FUTURE time period you intend to own it, will be lower than the alternative of renting and investing your money elsewhere, such as the broad market.

(As an aside, I believe the real estate finance literature shows that on average (emphasis here; on average), the rental and owner markets are in equilibrium in active real estate markets (most), meaning there is NO economic difference between renting and owning. ie. Buying real estate is purely a consumption decision, but that's a whole other conversation and will prompt howls from the Real Estate industry who want us to believe that a house is a 'good investment,' when its entirely unsubstantiated by the data/evidence. Again, i emphasize, on average. Some people clearly make real relative returns on a purchase and some lose, but they offset each other for the most part. My motto: If you like the house and can afford it, buy it, but dont delude yourself into thinking you're making some brilliant investment decision.)

Back to predicting the future...

Measures of housing affordability such as OER or Price to Income Ratios etc. etc. are interesting, but only in so far as they suggest what the price will do in the future. They seem helpful at times, from what Ive seen.

Its quite possible NYC remains vibrant and central to the world of business, culture, entertainment etc. etc., but that housing prices fall precipitously and remain depressed for years. Its also possible that NYC retains its status and prices fall, but ultimately rise again in a short period. "Believing" in NYC or understanding what happened in the 70's is almost entirely irrelevant to what happens to future prices.

Neither inflation nor deflation are "inevitable" but economic consequences of monetary and fiscal policies. Arguing for either one must be done on that basis alone. There are myriad indicators of inflation/deflation available now. The fact is we're currently experiencing deflation, particularly in housing. There is a raging debate among economists and policymakers about whether we will have long run inflation or even hyperinflation, because of the massive monetary expansion underway. However, most recognize deflation as at least a short to medium term consequence of the credit bubble bursting, as happened in Great Depression and described by Minsky. (As in, we're in A Minsky Moment.)

I would suggest focusing arguments about real estate prices around unemployment, wages, credit availablity and deflation/inflation, since those seem to me to be the most important factors influencing the trajectory of prices.

I'm of the opinion, per Goldman Sachs Jan 2009 study and Ivy Zelman's work, that NYC has between 30-50% further to fall. NYC has just started to experience its challenges relative to Las Vegas, Phoenix, Florida, California etc. Of course I recognize I could be wrong if my expectations of unemployment and the timeliness and effectiveness of govt monetary and fiscal policy are too pessimistic.

However, its easy to figure out if real estate prices are bottoming. Simply watch the rate of change in prices. (Tons of data available re. NYC) Prices are falling now, but will fall less rapidly and ultimately stop falling altogether before turning higher. All you have to do is wait til prices stop falling for a significant enough period with normal transaction volumes and you'll know that you're pretty likely close to the bottom. Of course addtl economic forces could change things after that, but thats the general idea.

Of course, its true that if you intend to own an apt for 30 yrs, buying now and riding out the declines may not seem so bad, but I'd sure rather get it 30-50% lower.

PS. A friend went to a new condo building on 64th and 2nd (dont know the name) today. They told him they couldnt sell nearly enough units, so its gone all rental. They told him to make an offer, because they just wanted him to move in. I havent verified this myself and would welcome anyone to confirm or refute it. Just trying to get to the truth, rather than talk in vagaries.

300 East 64th. Well, the advertisements outside have gone from condo sales to rentals.

Well written, winston. I am in agreement. Over the last few months, every possible snippet was instantaneously reported trying to talk the market up - increased traffic in January, increased traffic in March, lower rates, money-printing means inflation means rising NYC RE prices - the general direction has still been down because the overwhelmingly most important variable - employment and incomes is still falling, and inventories are still rising.

"A 1% increase in mortgage rates is the equivalent to prices rising 10%."

Basically true in the short-term, though property taxes and common charges remain unchanged.

In the long-term, interest rates don't matter because property prices rise and fall as a function of interest rates, until carrying costs = rent.

Alpine,

I never said why people are selling or denying that many are for varied reasons. I was stating that they are foolish to sell now unless they must. It's a brutal market to sell. Sellers have no leverage right now and either have to be prepared to wait a few years or accept low ball offers. Simple as that.

thx Crescent22 and thx for info on 64th...my friends brought the rent offered by E 64th to their building in 80's yesterday as they renegotiated their lease; the agent instantly dropped their rent by $500/mo to lower than the rent they got from the E 64th people...interesting...3 friends who've been in our midsize bldg for 3-8yrs are moving from their 2 br's in next few months, so vacancies climbing here...but i guess this thread is about owning, so let me say:

i understand buying into this market if your personal circumstances are such that you have ample resources, need and want to live in nyc for a substantial period (school for kids, stable job and/or substantial preexisting wealth etc.)...i.e its primarily a consumption decision because you like the condo/coop....but it seems to me to be a minority of people

Yesterday I talked to the super in my building & today I went to a market-rental building and in both cases there are many availabilities, more than are listed on nybits, THE source for market-rate rentals. Right now landlords are trying to hold rents high in anticipation of the "peak" season - April through August.

Unfortunately, there isn't going to be one, and rents will fall even more rapidly over the summer than they have since Lehman. As rents fall, so must property prices, but the latter fall more slowly, and even at today's prices they need to fall on average 50% to equal market-rate rentals. This is not a situation that is going to be resolved in the short- to medium-term.

Personally, when my lease is up in December I'm going to find the best 2-bedroom 2-bath luxury rental I can at about $3,500 a month, and not budge for years. In equivalent new development, (unabated) property tax and common charges come out to about that per month, never mind the mortgage.

Why buy, indeed?

Wonder the same thing, who would buy? So I look at the closings of properties that went into contract after Oct 08 (the big equity slide). Some of the ones I looked at were trusts (trust fund babies). That made sense. I guess the answer to the question to who is buying?

People who have plenty of money that did not work for it.

sirwinston - thanks for the comments. i appreciated your definition of "deal." i think it's spot on. this line as well:

"I would suggest focusing arguments about real estate prices around unemployment, wages, credit availablity and deflation/inflation, since those seem to me to be the most important factors influencing the trajectory of prices."

will all the layoffs in manhattan - and those still to come - it would seem impossible for prices to stop dropping yet. people have been tight for the last twelve months and that is when several thousands of them still had jobs and/or bonuses coming. now, those are jobs/bonuses are gone - that hasn't been fully factored into the local economy and RE market yet.

thx sniper...agree with you about time lag...it takes a while for real estate prices to adjust after people have lower incomes and/or no job...leaving one's home/apt is among the last things most people do...seems to me it might take yrs...

wow! Does anyone have anything positive to say? I've been saving money for a down payment for 7 years and waiting for the opportunity to buy. This may be naive but I'd rather buy now when prices are low and actually be paying myself instead of the same amount per month to a landlord. FYI- no one can ever predict when the housing market will bottom out and start rising until it does rise. I'd rather not gamble and take some action now. Realestate goes in cycles. Prices will go up, it will just take time.

You don't think you'd be taking a huge "gamble" if you bought now? Maybe you're right that prices will go eventually go up, but what if that starts to happen only after they've fallen another 30-40% below current levels? You will have lost the money you've been "paying yourself" in the form of disciplined saving for 7 years.

meechelles, how do you know prices are "low"...define "low" ,in relation to what? ...no need to gamble at all..see my posts above...very easy to judge when housing market bottoms: just watch the data..the rate of decline must slow and then go to zero before prices rise...you'll see it...the only gamble is buying while prices are falling, which is the one youre recommending...

meechelles - real estate isn't like the stock market. when it bottoms it won't shoot up 10, 15, 20% of the course of the next week or month. it will take time, just like the decline has. you won't blink and miss it. no need to jump in now unless you have a 10-20 year buy and hold horizon.

If you are not in the home you want for the next 3-4 yrs, then you should sell today because the odds of you getting a higher price than the one you can get this month is slim over that timeframe. Conversely, if your next purchase is for 10-15 yrs then your entry point isnt meaningful and your exit price is where you compare the value to. The masterstroke is to be in the position to buy your 15 yr hold property now and sell your existing shorter useful life home today because the trade up will work out. Prices are down 35% from the peak so I'd live the last the 10%-15% decline for all the smart people who deserve it if they can call the exact price bottom. Bulls make money, bears make money, and pigs eat...

Meechelles, "paying yourself" is very hard to justify when renting costs half of mortgage interest + maintenance + tax...

A bargain about to become a bigger bargain is no bargain at all.

Or think of it this way... what are the odds of prices going UP in the next 6 months. Virtually nill.
Likelihood of going down further - substantial.

Unless you have some specific persona situation where you need to be in now, I see pretty much 0 reason to buy now.