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Re: A Case Study in What's wrong with JC Real Estate:
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Home away from home
 
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i cannot believe you people are still debating this. We had the same discussion 1 year ago, then 6 months ago. And the same bunch of people are still covering their ears screaming buy buy buy every time as the market continues to drop.
Looks it's very simple, you buy real estate expecting the prices to go up. The same as you invest in anything (stock market, private ventures, etc..). And i dont think ANYONE will argue with me that in the next few years the real estate prices will NOT go up, given the current situation. At best, they will be flat. So why would you invest/buy something now when you know its value will not go up for the next few years? and risking further decline on top of all that baggage(maintenance/tax/resell etc..) that comes with owning real estate. I sold my condo at 07 right when bear stern's 2 funds blew up, rented a nice place 3 mins from where i work, put the cash from the sale + monthly saving from rent in the bank. As oppose to be burdened with a mortgage, tax, maintenance while watching my property value drop for the last 2 years. I am dipping my toes in the commodity/stock market now for some long term investment. ------------------------------------- 1) rent does not always go up, in fact this year you can actually negotiate with many of the large rental buildings in downtown to REDUCE your rent. When i told them i am moving out, they actually offered to lower my rent to get me to stay. And it's so easy to find a cheaper place now in downtown, if they refuse to lower your rent just move a few blocks over. 2) there is nothing amusing about investing in the stock market. i would much rather buy some commodity and stocks(of good companies) than buy real estate, everyone is so paniced, there are bargains everywhere if you know how to find them. 3) it never makes sense to buy a condo that has high maintenance+tax, unless the real estate is doubling like it did till 06/07. And you can bet that wont happen again anytime soon, people do have memories...
Posted on: 2009/1/26 20:24
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Quite a regular
 
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New Heights...I sent you a PM.
Posted on: 2009/1/26 19:09
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Home away from home
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Well said Ianmac... Not rocket science, just supply & demand. Goldman Sachs just did a study of condo prices in Manhattan and found that they would need to drop 25-35% to return to historical relationships between rent/owning, price vs. income, and standard metrics of affordability (i.e. can the median income earner afford the median house in a given area). Those are pretty staggering numbers, especially when a standard mortgage requires a 20% down payment. If anyone wants to read that, I can send it your way.
As for what you can invest in other than real estate, there's a ton of stuff out there, here's a sampling: -Gold, Silver, other Metals -Grains/Livestock/Pork Bellies (remember the movie Trading Places with Eddie Murphy?) -Oil & Energy related Commodities -Foreign Currencies -Foreign Stocks & Bonds -US Treasury Bonds, Municipal Bonds, Corp Bonds...hell, you could even buy Mortgage bonds -And of course, if you think Stocks are bad, you can always short them...(or short any of the things I listed above). Last year while the stock market was disintegrating long treasury bonds (30yr bonds issued by the US government) gained over 25%... But I digress...
Posted on: 2009/1/26 18:51
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Home away from home
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I think 1 and 2 bedroom units are going to be the hardest hit in rental price. Professional couples will probably downsize into something smaller, either going from a 1 bed to a studio or from a 2 bed to a 1 bed, to save money. At the same time I suspect a lot of renters with decreased incomes will give up living alone and take on roommates; units with 3 or more bedrooms will offer the most savings, splitting rent and utilities between 3 or more people being the cheapest option. (also, as an aside, if you are paying $1,800 for a 1 bedroom downtown brownstone you are over paying).
But overall the real estate in New York, the five boroughs and Hudson County is going to quickly fall as we head towards summer for a number of reasons. Too much of the local economy is tied to the financial services industry, and this is a large sector of high paid employees. Its like an assembly line but with six figure salaries. These are the people buying $1,000 square foot condos. But inextricably linked the financial services are all the legal services, again with armies of employees earning $150k+. M&A is down, real estate transactions are down, asset management, finance, structured finance-- all these areas are collapsing, and as result many of the legal powerhouses are reducing bonuses and laying off lawyers. There is a reason so many law firms are in New York-- their clients are the financial firms that have been collapsing over the last year. The only area with positive growth is bankruptcy law, an area that is concentrated in Delaware, not Manhattan. So basically thousands of high paid workers in New York are facing layoffs, real wage reductions, and job insecurity. These are the sort of people who wouldn't think twice about signing a lease for $3 or $4 or $5,000 a month. Those days are over. They may not be moving home to Mommy's house, but they are probably reconsidering how much they are willing to pay for a lease. Add to that all the other luxury services that tier of wage earner was contributing and there is a serious problem. Fewer people are going to go out and have a meal at $100 a plate, especially if the company isn't picking up the tab (to say nothing of the liquor tab which could double or triple a restaurant bill). So there goes the restaurant industry. And there is the art industry and luxury retail industry-- they are all coming apart. Another major blow to real estate is going to come in June when the new college graduates are unable to find jobs and move back home rather than to the big city. This is probably going to effect the low end of the rental business most, especially in developing neighborhoods like Harlem, Hell's Kitchen, Jersey City, Williamsburg, Carrol Gardens, south Slope, ect.ect. Middle aged parents facing their own job insecurities are going to less willing to help fund junior's apartment lease while he/she looks for a job, and as increasing numbers of employers implement hiring freezes, its going to be harder for entry level college graduates.
Posted on: 2009/1/26 18:08
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Home away from home
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I got my money in pumpkin futures.
Posted on: 2009/1/26 18:02
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Just can't stay away
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Sorry not trying to be sarcastic. What other things are you describing?? What would you invest in?????
Posted on: 2009/1/26 17:41
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Home away from home
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I think there was also foreign real estate investment happening at the same time lasting into 2008 when the dollar was really weak. In JC, not Omaha. I would imagine that has also dried up a bit. Scary times.
Posted on: 2009/1/26 17:14
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Home away from home
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There is a whole world of things you can invest in other than Real Estate and the stock market. Not sure what's funny about that...
Posted on: 2009/1/26 17:10
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Just can't stay away
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What can you buy? Stocks? hahahahahaha
Posted on: 2009/1/26 17:06
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Home away from home
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SLyng, i dont know you so i cant pass judgment with respect to the possibility of you being ?dumb?, or a renter. I am not sure why you asked me that/assumed I thought that. What happened in Hoboken with taxes is scary, which is why places with long tax abatements can be attractive to those who worry about variable tax costs... Quote:
I don?t claim to be a RE expert so I will tell you what I *think*. I think there were areas in the US (FL, CA for example) which saw major increases in RE during the bubble. In these areas the increases were not realistic and potentially may not have been realistic even without the subprime loan debacle. These areas are seeing the largest corrections. So in 2006 the market was out of wack, but to a wildly varying degree depending on the location. There are a number of conditions where I would have bought in 06. A substantial pre-construction price, a distressed seller, insight into an upcoming area, visibility to a substantial change in an area...etc. Don?t overlook what drove a number of home purchases the: someone moving, selling a home somewhere and buying another one, in theory the inflated prices are a wash for them as they could have sold at a high point too. I dont see how it wouldnt make sense to remain in the RE market once you own and are simply switching properties...unless you can accurately predict the amount of the downturn, factor in how much equity you have...project future rent rates...etc and we are back to the beginning of my initial comment.
Posted on: 2009/1/26 17:06
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Home away from home
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The rental market is diverse. I think that there may be an oversupply of higher priced rentals in the downtown market ($2,500+ two bedrooms for example), especially because some owners are renting condos and waiting out the market instead of selling at a loss. However lower priced rentals in downtown ($1,500 - $1,800 two bedrooms for example) will continue to be in demand without much concession from landlords simply because there are so few lower priced units in the downtown area.
Posted on: 2009/1/26 17:06
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Home away from home
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My rent hasn't changed significantly in 3yrs and it won't change this year either. I think many landlords would rather get the same rate from a good tenant versus gamble on trying to fill an apartment for a month... Demand for housing is stagnant & supply of available housing is large & rising. Supply & demand tells you rents & property values aren't rising... Ianmac hit the nail on the head - there is a lag between when people roll of their leases vs. when they've lost their jobs. Here's the conversation I'm imagining: Landlord: You need to pay more rent, the city just hiked my taxes Tenant: I just lost my job, so I can't afford to live here anyway Landlord: Ok, well how about I keep you on the same lease for another year? Tenant: Well, i was going to move back in with my mother, but If you want to knock $50 bucks off, maybe we can talk and i'll dip into my savings Landlord: Done As for the smug comment about renters renting and buyers buying, there are alot of things you can buy on margin (borrowed money) that have a better chance of going up than real estate...
Posted on: 2009/1/26 16:58
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Home away from home
Joined:
2007/6/27 22:27 Last Login : 2012/4/20 14:33 From Hamilton Park
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They might not, but it doesn't mean they won't try. Maybe they'll start up asking for a 5% increase and settle for less, or maybe they'll play hardball. In any event, as a renter, you have to be ready to leave if you don't like the landlord's rent increase.
Posted on: 2009/1/26 16:55
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Home away from home
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This too shall pass.......
Posted on: 2009/1/26 16:48
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Just can't stay away
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Can you define of quantify collapse. Are you saying 1MM brownstones will be worth 100K?
Posted on: 2009/1/26 16:45
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Home away from home
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Anecdotal evidence might suggest rents in New York are still going up, but on average, have already started falling.
More importantly, rental agreements are most often for incremental terms of 1 or 2 or more full years. The mass layoffs really only began in earnest in the autumn, so many people probably still have several more months left on existing leases before they begin to downsize. Also as far as sales in New York, Wall Street gave themselves plenty of bonses in 2007, which sort of kept metro area real estate going longer than the rest of the country through the early part of 2008. Bonuses this year were slim to non-existent. A lot of leases come up in the summer months. The collapse of the New York metro real estate market is only going to accelerate through this year, whether its rental prices or sales prices.
Posted on: 2009/1/26 16:36
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Home away from home
Joined:
2007/10/9 19:48 Last Login : 2013/2/18 15:54 From Van Vorst Park
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renters rent
buyers buy Renters will contiue to rent as they get older and owners will pay off their loans. I got a 20k 1098 tax deduction this year and I'm locked into a 4.5% 30yr fixed rate. I'm looking at the downturn as an opportunity to pick up a brownstone in VVP at a historic low interest rate. To each his own.
Posted on: 2009/1/26 16:27
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Home away from home
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True for most of Manhattan, but don't forget that rents shot up unbelievably in the past few years... As my friends all tell me - rents in Manhattan and much of over priced Brooklyn are still at all time HIGHs! 
Posted on: 2009/1/26 16:10
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Just can't stay away
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Do you really think your rent is fixed. If taxes go up owners are just going to pass the increase on to tenants as well as utility increases ans property mtce. Also, there are some temendous deals out there in JC Heights, Journal Square and Bayonne. If you are a 1st time buyer you can start small. Not many of us can start out buying waterfront property but you can get a great house cheap in these areas. It's like early 1990's pricing. Just put some sweat equity into a property and when the market comes back up you will have real value. Think about how long it takes to save just 10K from your paycheck. Equity is a sweet thing.
Posted on: 2009/1/26 15:58
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Home away from home
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This year they won't. Also, buying a house or condo is going to cost more month to month than renting. Purchasing a property may not immediately turn a profit. The profit comes from the appreciating value of the asset. More importantly, assuming you obtain a fixed rate mortgage, steady inflation will help mitigate the costs of the mortgage interest.
Posted on: 2009/1/26 15:48
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Home away from home
Joined:
2007/6/27 22:27 Last Login : 2012/4/20 14:33 From Hamilton Park
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You can count on rents going up, not staying fixed. Most landlords raise their rents 3 - 5% per year.
Posted on: 2009/1/26 15:40
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Quite a regular
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JCSHEP Wrote: If you factor in taxes, mortgage, HO fees, tax refunds, rent, rent increases, your $$, ect. and the calc says renting makes sense?AND you dont think the property will appreciate, then rent. This doesn?t mean the market is out of wack, this means the market is not optimized for you. But isn't there some economic theory that the equilibrium price for housing is for it to be in line with the cost of renting? The market can be seriously out of wack. Would you not agree that in the Sring of 2006, the market was out of wack? Or was it just not opimtized for certain people? Under what set of conditions does it make sense to buy at the beginning of the collapse of the real estate bubble? The housing bubble is bursting all around you and it would seem that, only under extremely rare sets of circumstances, would buying make sense over renting. Quote: SamS wrote: Your parents now have a home they probably will not lose, Can I just point out the "myth of real estate ownership"? You do not own real estate, you simply rent it from the government. Particularly in a State like NJ where real estate taxes for a 600K house could easily be in the tens of thousands of dollars per year! The security of ownership is not real.
Posted on: 2009/1/26 15:35
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Home away from home
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JCShep, I'm not bitter, just making observations about the economics of what's going on in my neighborhood...
Punchy - Point well taken. Certainly a 3br/2ba place doesn't qualify for most "first time home buyers" however I think a 2br/2ba place does, so you compare that to a rental place with similar features. My example for $2100 was 25% smaller than the 2br place and only had 1 1/2 baths, so that wasn't a great comparison. More comparable would be Windsor at Liberty House which rents 2br/2ba places for $2600-2800/mo (which includes parking as far as i know). So maybe with the discount you get for mortgage interest on your taxes, it's not that bad compared to what you can get in the neighborhood... But to me, I'd rather have the piece of mind to know that a) my money is in a bank rather than a real estate investment, b) my monthly payment is fixed and not at the whim of the City (taxes) or a Condo Board (maintenance). That's got to be worth something, right? But, what do I know, I'm just a dumb renter -- Right JCSHEP?
Posted on: 2009/1/26 15:32
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Re: A Case Study in What's wrong with JC Real Estate:
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Home away from home
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If you factor in taxes, mortgage, HO fees, tax refunds, rent, rent increases, your $$, ect. and the calc says renting makes sense?AND you dont think the property will appreciate, then rent. This doesn?t mean the market is out of wack, this means the market is not optimized for you. You may or may not be representative of the market, please don?t be bitter with economics. Other people may have a different financial profile where buying makes sense. I hear housing prices have come down in some parts of JC, not all. If it has decreased it was MUCH less than if you had invested in the markets. I am bullish on JC for a long term investment, it is a no brainer. I wish I had $$ to buy up places and rent like the RE Agent above.
Posted on: 2009/1/26 14:44
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Newbie
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I'm pretty sure I know which condos you're talking about here, having seen several listing recently in a building in Paulus Hook that have "seems too good to be true" prices but excessively high taxes and maintenance. Having watched the "entry level" JC real estate market for the past 8 months, I think that these units aren't really representative of most entry level units on the market. Your basis for saying these condos target first time home buyers is that the price is in the "4-500k" range. However, factored into the price are the higher than average taxes and maintenance - were these more in the range of the average for the area - the asking price/price per square foot would be more in line with the average, thus putting them out of the range of first time buyers. I totally agree that buying is more expensive than renting. Just don't make the mistake of looking only at asking price in determining comparables. Its more complicated than that.
Posted on: 2009/1/26 14:34
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Home away from home
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I think that is the old way of thinking. Back in the day, i think you paid a big premium over renting because you had (for lack of a better term) a call option on the home price appreciation. I.e. if the house went up in value, you could pocket the money by selling/build up equity/etc. If it didn't go up, it was not much different than renting. No one ever contemplated prices going down... If you take away that home price appreciate you're left with paying down a massive debt-load that has huge transaction costs should you decide to move. What are real estate commissions -- like 5%? Not only that, it's a big leveraged investment - you're taking out $4 in debt for every $1 you put in, or in some cases like people only putting 5% down... they're taking on $19 in debt for every $1 in equity. It doesn't take much of a decline in prices to wipe out your entire investment... But your point is well taken - owning will always cost a bit more because our tax code gives massive incentives via writing-off mortgage interest at tax-time (i mentioned that in my OP). Quote:
The prices are right and my guess is that the people selling would sell for even less. Like I said the places need some work (non-renovated kitchens, old tiling, etc). I can PM you the place if you really care, but I'm not going to call them out in a public forum. It's one thing to joke about the $4mm place on newark - but these places in the $4-500k range are right in the wheelhouse of first time home buyers and my only point was - they are still not affordable. The larger point though is that there are plenty of places out there with low taxes & maintenance that can command a much higher price/sqft because the total cost of ownership is much less. Would you rather pay $200/mo to a small condo association with no amenities or $600-900/mo to a big condo association and get a pool & health club? In this economy, I think more people will choose the former...
Posted on: 2009/1/26 13:54
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Home away from home
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Your parents now have a home they probably will not lose, in addition to an option to scaling down into something smaller requiring less work and expense.
During the 30 years they lived in the house, they may have taken some joy in the chores you list, knowing they provided a home for their family where they celebrated birthdays graduations, anniversaries, family barbeques, long discussions about the direction of their children's lives, a warm room to sit by their kids when they were sick with chicken pox, the flu etc. Of course someone who rents can still enjoy much of these things, but may be subject to eviction or disruptions by a landlord or any other insecurity that comes with renting. Also, they may have some solace in the thought that they have a substantial asset to leave to their children and perhaps grand children. You are correct in pointing out that the $200,000 gains may be diminished to some degree by interest paid, expenses associated with repairs and maintenance. But please do not forget the years of tax benefits they enjoyed by paying the mortgage interest and real estate taxes. If they had rented over the years they wouldn't have the capital to move into a smaller house at no expense to them; nor an estate to leave behind. They have created a greater sense of security for themselves and their families that renting just would not have provided. I understand that perhaps at this point in your life, particularly with this dubious economy, purchasing a home may seem overwhelming. Just don't totally discount it as something to strive for.
Posted on: 2009/1/26 13:38
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Home away from home
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coming back to this if i may.....
i know that real estate can be very profitable, there are any number of success stories regarding making money off of the sale of a house/condo whatever, but it is still a bit cloudy to me in the end. when i think about a real estate investment, i generally refer to my parents..... my parents bought their home in 1977. they paid $72,000. now, 32 years later, it's appraised value is around $650,000. it's a big house that they no longer need, so if they were to sell the house and move into something smaller, in NJ, they would still have to spend at least $400,000 for a nice small house, fairly new, in a nice area that didn't need work that two people in their 60's wouldn't want to do. let's say they pocketed $200,000. is that a good investment? 30+ years of wasted weekends cutting grass, shoveling snow, running out to Home Depot for this and that, new roof, septic, etc. etc..........? they paid more than $200,000 in interest alone on their mortgage, more than that on 30+ years of property taxes.......so did they make any money at all? my parents/family have always been the kind that will tell everybody, "buy something as soon as you can, renting is like throwing your money in the toilet," but if I'm left with nothing after renting, what exactly are my parents left with?
Posted on: 2009/1/26 9:40
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Now, for Paulus Hook, you think to yourself, "$450k, that's not so bad, I could put $90k down (20%) take out a mortgage for $360k at 5% and my payments would only be $1932/mo!" Wow, housing really *is* becoming affordable... Not so fast! Taxes a little under $9k/yr so add on another $750/mo and monthly maintenance is another $650/mo. The good news is that for all that you do get a parking space (Awesome!), bad news is, you have to pay maintenance for the parking space (not so awesome). numbers like these are simply staggering. especially when considering these numbers are based on somebody having $90,000, in cash, to put down on the place. for the avg. person without that kind of money to throw around, your monthly payment approaches $4,000 a month. i simply don't understand buying sometimes.
Posted on: 2009/1/26 5:48
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Home away from home
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Don't forget that if you have kids, you probably have to add in the cost of private school.
Posted on: 2009/1/26 5:41
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