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February 5, 2007

These Aren't Your Parents' Buyers

couple
Guess what? Apparently this whole Internets thing is having a broad impact on how today's twenty- and thirty-somethings go about buying an apartment. Daniel and Luciana Hyman, above, did online research on more than a hundred buildings in Manhattan before settling on a $875,000 two-bedroom co-op in Midtown. That sounds like nothing in comparison to the page-and-a-half financial analsyis that one young Goldman Sachs banker submitted with her bid in an effort to convince the developer to accept her 11-percent-below-offer bid. (He didn't.) “We’re more comfortable with taking on debt and paying tomorrow,” Mr. Hyman said, displaying the kind of blind optimism that seems to characterize many buyers today. “If the cards topple, you can rent your place out and go somewhere cheaper.” Or, if you are among the 65 percent of first-time home buyers that finance more than 95 percent of the purchase, maybe you shouldn't be too worried. You can always walk away from your small deposit if the market crashes, right?
Young Buyers, Prepared and Fearless [NY Times]

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Am I the only 30-something out there who finds this attitude of "buy now, whether you can afford it or not, forget the risks and pay later (maybe)?" to be mildly insane? It's an awful big risk to me to bet your future at such a young age. And the attitude extends beyond real estate, I think, into material goods, etc.

Posted by: Anonymous at February 5, 2007 9:15 AM

The problem is they are awash in money and have never lived through a down market or economy. Those bonuses can dry up pretty quickly

Posted by: Anonymous at February 5, 2007 9:30 AM

i wonder if they wanna buy my 1 bed on CPW for 950k???

Posted by: Anonymous at February 5, 2007 9:50 AM

I am 30-something with 3 kids, so that attitude just does not apply..

But even before I had kids, I never liked having a lot of Debt.. The minute I could afford to pay off my students loans - I did..

I also don't get the attitude to finance 95%, all that means is that your monthly mortgage payments are higher along with having a PMI ..

I just do not think this article truly represents most young buyers, or least young buyers I know..

Posted by: AL at February 5, 2007 9:51 AM

maybe they can afford to be this cavalier because they have a safety net if they get sick, lose their job, the market crashes, whatever (i.e.; boomer parents with tons of $$).

if their parents lose their money, then they'll have soemthing to worry about.

Posted by: anon at February 5, 2007 9:58 AM

If you are rolling in Wall Street cash and have a bright future as these youths do, go for it. A bigger problem in my opinion is that I went through the real estate ads in the NY Post on Sunday and the ads promote outrageous debt structuring for homes in Rockland County and PA aimed and people with low income and bad credit. That is the problem.

Posted by: GrandPa at February 5, 2007 9:59 AM

agree with GrandPa. The problem isn't the 30 year-old childless couple with the 100k salaries. It's the 30 year-old couple with 2 kids and an 80k combined income taking out an IO loan to buy a 500k house 2 hours away from their jobs.

Posted by: Sassy at February 5, 2007 10:07 AM

I tend to agree with GrandPa and Sassy, but in all likelihood, many of the "dink" buyers will have kids, and to have mortgaged one's future based on a lifestyle that may not be around too long to me is a little risky. I have no kids yet but am very aware of the fact that I we will soon, and I plan around that. The fact is, as someone said, people our age have never had it rough in the true sense of the word, and in many cases mom and dad have always bailed them out. What happens when mom and dad need help and can no longer do that b/c of age, illness, etc.? I don't know, I just don't like the road we've been heading down. The retirement and aging of the boomers scares me a little.

Posted by: Anonymous at February 5, 2007 10:25 AM

The couple in the photo is like the the epitome of the Times Vows section - he's a banker, she's a teacher.

I think it is smart for 20-soemthigns to stretch and buy their homes. I am certainly one who did. But you need to be smart and not throwing money away. I stretched and got a conventional mortgage - no exotic interest deals. I scrounged and borrowed from family (Yes, I am lucky - but it also was no handout) to avoid PMI. And, most importantly, I bought something that I can grow in so I won't be forced to sell in a bad market.

I luckily bought several years ago, so built up enough equity (and didn't borrow against it) to withstand a downturn.

And I don't think my approach was crazy or new - my parents married young (and had me shortly thereafter), and I remember them investing in their home in their 20s with a small child. I also remember us living far from extravagant, with futons, hand me downs and foam furniture. But, over the long run, it worked out. They upgraded their home in their 30s and did well for themselves.

Sentimentality and research are important for young buyers, but so is stretching and knowing your safe limit.

Posted by: chickenmadness at February 5, 2007 10:33 AM

This is my favorite part of the article, the last paragraph:

“I really think that real estate will not go down,” she said. “At the very least, it will stay the same. In the meantime, I need a place to live. So the worst-case scenario still isn’t that bad.”

This woman paid $340,000 for a condo on the "outer edges" of Williamsberg. She plans to live in it for five years, and has a seven-year interest only ARM.

Posted by: Anonymous at February 5, 2007 10:41 AM

I'll be doing it the same way chickenmadness, as did my parents, but one thing you had on your side that we buyers now don't - timing. What you bought for say 500K is now 700-800K. That's a big difference, even with help from family. I'm not saying it was easy for you (and has never been for first timers), but imagine doing the same thing now, with a salary that's not much higher, since incomes have not really increased all that much? And a chance of little to no appreciation in your property? Makes moving up hard and makes the risk a little less palatable to some of us. I'll buy something but I'm just saying that the risk seems a whole lot greater in '07 than it did in 2000.

Posted by: Anonymous at February 5, 2007 10:42 AM

this must be a new thread. where are all the comments about how if you're reluctant to buy cause you would have to take on crushing levels of debt to do so, you're a pathetic, sorry-ass loser/hater/renter who has no life and has totally missed the boat and everyone else is going to get rich rich rich while you sit on the sidelines whining and wringing your hands about the real estate armaggedon which is never going to happen in nyc cause real etsate prices only go up and people only get paid more and more and fatter and fatter bonuses with every passing year?

Posted by: sylvia at February 5, 2007 10:43 AM

I don't worry too much about the Wall St folks. But the williamsburgh IO woman is a tougher issue and one reason why some of us don't like condos. If the market dips and they can't sell in five years, it will be rental tenants at best in there to cover owners' mortgages -- or foreclosures at worst.

Co-ops maybe a pain at times, but they are a safer bet.

Posted by: Anonymous at February 5, 2007 10:53 AM

one difference: our parents couldn't afford $875K apartments in their 20s. my (successful suburban) parents would have difficulty doing it now.

Posted by: anon at February 5, 2007 11:35 AM

I'm one of those people who aren't afraid to take on a lot of debt in the NYC r/e market. I'm not at all worried about NYC or Brooklyn prices in the 5-10 year term. As long as you can comfortably afford the mortgage payments and can aggressively pay down the non-80% portion of the mortgage, buying is almost always a smart move. You just need to know what you are getting into. For example, I know that in order to "break even" (including brokers fees, the money I'm losing by not investing my down payment etc.) the apartment I bought needs to rise in value on average about 3%/year over the next five years if I want to move in five years. I'm confident the market will do that, and if not, we just won't move in five years.

I agree with what others have said here--if you can't afford the mortgage payments on a conventional loan, using some exotic loan to bet on the real estate market if foolish.

Posted by: JD at February 5, 2007 11:43 AM

anon 10:42:

I am not gonna argue with you - timing was a very lucky factor, and I certainly could not afford my apartment today - a mere 2 and a half years after I bought it. (Though I was very nervous about a market peek when I was hunting in 2004).

Admittedly, If I was in the same position today and not owning, I would seriously consider aggressive investing in stocks and moving to a more 'edge' rental in order to rapidly build capital. Alternately, I would have to look at 2nd tier neighborhoods (in my own book).

Timing is precisely the kind of thing that the buyers in the article haven't hedged against. In 04 I was able to get a place i could stay in for 30 years if i had to, and was able to do it at the limit (and it really was the limit) of what conventional financing could do. If it had peaked then in 04, I could continue to live in the place and not be forced to sell or rent - though my long-term desire to upgrade would take a hit. If I did it with exotic financing, i would really be in trouble.

Posted by: chickenmadness at February 5, 2007 11:47 AM

I'm in my mid-thirties. When my parents bought there first house in Southern California, about 27 years ago, I think it cost about 110k, about 2.5 times my dad's salary (engineer) at the time. They've moved since, but that first small house is probably worth about 1.4 million today.

Most young couples these days do not make enough to afford the same house my parents first bought as a young married couple.

Real estate values are insanely high and you folks who say there's nothing wrong with taking on debt because it worked for you have absolutely no logic at all.

I've been very lucky with real estate too, but I'm not arrogant enough to tell other people that just because I took a risk that paid off, they should do the same thing even though they're taking on even more risk in the form of debt than I did.

Please stop the bragging. It's sickening.

Posted by: Brockmeister at February 5, 2007 11:52 AM

Brockmeister, I think what gets lost is that no matter the salary or time, whether making 18K in 1975 or 120K in 2007, the home should be 2.5-3x your salary, just like your parents' house. Nowadays, people are throwing that (admittedly) conservative estimate out the window for 4-5x their salary. When that becomes necessary to buy something, we have an affordability issue, even for those making more than the median.

PS - I couldn't afford my parents' normal suburban house either - which they paid 60K for and is now "worth" 1.6 million.

Posted by: Anonymous at February 5, 2007 12:13 PM

I might be old fashioned, but I would actually like a mortgage that I could pay off over 15-20 years. I don't know how you could ever plan to retire if you still have a big monthly mortgage nut and no equity built up.

Posted by: Anonymous at February 5, 2007 12:42 PM

I was able to buy my house at age 29 in 1974 for about 2.5 times my salary. 4 or 5 times my salary wouldn't have been an option then because banks were VERY reluctant to give loans in Brownstone Bklyn and required a 40 percent downpayment.However, if a higher multiple of my salary had been the ONLY option and been permitted by the banks, I certainly would have done it. Sometimes you can't just play it safe.

Posted by: Bob Marvin at February 5, 2007 12:59 PM

"However, if a higher multiple of my salary had been the ONLY option and been permitted by the banks, I certainly would have done it. Sometimes you can't just play it safe."

No, it's never the ONLY option. 5x your salary? Crazy talk, for crazy people. That's where the messed up thinking comes in. You can rent a little longer, or buy something cheaper or in a "less desireable" area.

I know you'll probably mention the tax breaks of owning, but I just can't see how spending 5x my salary on something, requiring a huge outpouring of cash a month, is somehow balanced by minimal tax savings. After all, aren't I putting way more cash out than I would be saving in taxes? I'd rather see that cash in CDs, 401K, stocks, etc.

Posted by: Anonymous at February 5, 2007 1:05 PM

The X times your salary has one weakness when comparing across generations. When my parents bought, their interest rate was 3 times higher than mine is today. That means a big jump in monthly costs, meaning that people will be able to afford houses at a higher multiple of income since the interest rates are so much lower.

However, there is a catch - the resulting high prices make the down payment harder to acquire, and there isnt the same likelihood of refinancing at a lower rate in the future.

As far as paying off a mortgage in 20 years compared to 30, the interest rate again comes in. If my mortgage is at 6%, and I can reasonably expect the stock market to do better than that over time (which is certainly not a risky bet, since we are talking long-term), then it makes sense to invest money elsewhere while keeping that mortgage. I mean, when you have CDs that approach mortgage rates, we have other benefits int his market not accessible to my parents' generation.

Different, yes. But not crazy.

Posted by: chickenmadness at February 5, 2007 1:26 PM

The couples in the article seemed to be more an example of how foreign capital continues to flow into the Manhattan real estate market - one way in which that market seems to be disconnected from the American economy.

Posted by: Anonymous at February 5, 2007 1:29 PM

Chickenmadness, things are different in this generation, but a lot is built on the idea that we can never lose money or have a bad economy. That's where I get nervous. When everyone starts thinking like that, yikes.

I would rather buy a house for less money at a higher rate, say 8-9%, and refinance later, then get stuck with a house I bought for more than it's worth.

Posted by: Anonymous at February 5, 2007 1:41 PM

anon 1:41 PM

Who wouldn't. I would also like to buy a brownstone, own a sportscar and take fancy trips. I can't change the market, I can only work with it. I am very jealous of my parents' generation, that they could refinance and reap benefits of this boom in a way I can't. But I also am not going to play the market. I like my home, am happy I bought it, and pay a monthly cost that I can afford (though not live lavishly with). Plus, my monthly cost is higher than an equivalent rental before the tax savings. Since the house doubles as an investment - because it is a place where my money is tied up - and also as a home, I am confident I enough that the combined value is better than continuing to rent.

Though it is important to look at home purchasing as an investment, you also can't forget that it is also a home. It is also a way of establishing yourself, and being part of your community, and knowing that where you live is home and not just your apartment.That loing-term stability is also a factor.

Am I going to do as well as my parent's generation in real estate? probably not. Do I think the market will dip? Sure. But I am in the NYC market for the long term, willing and able to withstand a market downturn. No one can predict job loss, future interest rates or the direction of the market over 15 years. But I am confident that, over time, I won't take a bath - and will at least do better than renting

Posted by: chickenmadness at February 5, 2007 2:32 PM

By the way chickenmadness, I am not saying buying a home is a bad idea. I am just saying that's it's not always so easy as you make it sound.

And none of us will ever do as well as our parents all around. We're the first generation who won't, and it's not limited to real estate.

Posted by: Anonymous at February 5, 2007 2:42 PM

These postings point out an interesting sea change in thinking about affordability - viewing it in terms of the monthly payment instead of the overall cost when you determine what you can "afford."

Partly it's driven by the banks, since that's how they determine whether you're eligible for a loan. But it's also due to many people viewing their apartments as 5-7 year investments; if you're never going to be responsible for the whole purchase price, why even get scared by that number?

Of course, at the end of the day you as a buyer ARE responsible for paying back that whole amount, and it can often turn out to be surprisingly inconvenient to sell or rent when you really have to. And if the affordable payment you signed up for is guaranteed to become unaffordable in the near future (when ARM increases or principal payments kick in) the risk starts to get scary.

While the 2.5-3X multiple strikes me as low given the interest issue brought up by other posters, I do think the question of "even if I can buy, should I buy?" is a valid one. That being said, I felt comfortable buying a home priced nearly 8X higher than my salary, partially because I rolled a huge amount of equity from my last home into it. Taking out those gains it's still close to 6X, but at least I have a fixed mortgage!

Posted by: eeeck at February 5, 2007 2:45 PM

Equity from a prior purchase could make anyone comfortable, eeek. Do you own a brownstone? I'm still not saying I think it's particularly a great risk to take on, but if you have someone helping pay the mortgage that's 6x your salary, well, that's not QUITE as much of a risk, is it?

I am nervous about the whole "5-7 year" thing. Renting and/or selling is never guaranteed. And if everyone goes for that option, we're looking at a glut either way, no?

Posted by: Anonymous at February 5, 2007 3:49 PM

"And none of us will ever do as well as our parents all around. We're the first generation who won't, and it's not limited to real estate."

Yes! That seems to be the real issue here. But everyone's acting as if we SHOULD be able to do better than our parents overall, and if we can't, we'll borrow money to make it seem like we are. The household savings rate in this country is now in negative territory. But people still keep thinking that as long as they can make the monthly payments on their student loans and mortgages, they can keep borrowing more and more money. Aaack!

Posted by: sylvia at February 5, 2007 4:06 PM

"As long as you can comfortably afford the mortgage payments and can aggressively pay down the non-80% portion of the mortgage, buying is almost always a smart move. You just need to know what you are getting into."

And what if you are middle class and can't? I'm screwed.

Posted by: Anonymous at February 5, 2007 4:12 PM

Tighten up your belt, double check your wallet and dive in.

Skerd money dont make no money!

Posted by: Anonymous at February 5, 2007 4:21 PM

Stock brokers? Money from parents? How can I compete against people with so much cash?

Posted by: Anonymous at February 5, 2007 4:36 PM

And what if you are middle class and can't? I'm screwed.

Well, you definitely should avoid using exotic financing to buy something you otherwise can't afford. If you do decide to use some sort of no down payment ARM or something, do the math and understand exactly what you are getting into.

Posted by: JD at February 5, 2007 4:43 PM

Wake up people. The US economy crashed big time in 2001. Thanks to 9/11 and the Iraq War, the financial house of cards your fearless leaders foisted upon the people (Thank you Democratic Party! The Federal Reserve has worked great!), is still left standing just a wee little bit.

The inflationary floodgates were opened to an insane level to allow people to use fake money to buy houses.

The money you borrowed to buy your house wasn't deposited by a prudent worker, it was total BS, created out of thin air. The lax lending standards exist because the US doesn't make anything of value, we just create financial instruments and make-believe currency.

Your house WILL become worthless because the economy is going down bigtime. Wall Street exists today for a select few to rape what is left of this country so they can forify their private islands and south american ranches against the masses of soon to be desperate people.

Can ANYONE on this board farm? make ANYTHING useful that is not make believe? Can you build a doghouse?

The answer to these questions of course, is no. You don't make the things people need. You just a part of the scam that gets other people to send us stuff from far away factories.

It is going to end someday. And that someday will be in the next decade.

Enjoy your rosey picture of the future because Depression II is coming to you soon!

Posted by: Eryximachus at February 5, 2007 5:17 PM

was that a message from the red states?

Posted by: Anonymous at February 5, 2007 5:30 PM

eryximachus, can you make me a dog house and can you throw in some corn too? How's porkbellies doing this year? I'm thinking about investing.

Posted by: Anonymous at February 5, 2007 5:35 PM

Eryximachus,

Get an education, son.

The economy didn't crash after 9-11. We were worried about deflation not inflation. Go work in a work in a hair net factory in India if you want to do something real. Better yet, make a dog house and live in it and save yourself some rent and us some aggravation.

why don't you make a dog house and get into it and stay there for a while.

Posted by: anon at February 5, 2007 5:57 PM

Agreed on the tone of the comments....

Why don't desperate homedebtors realize that they don't own anything - that instead they're renters too - just renting money from a bank?

And when will it get through to them that bitter renters and bubble sitters have total life freedom during these glorious stress-free days, with the ability to move on a whim, and not have to spend all weekend at Home Depot or slaving on the home?

Finally, what will it take for desperate homedebtors to understand that bitter renters are out there having a great time with all their disposable income, and actually doing this bizarre thing called SAVING, while desperate homedebtors are lucky to have enough left at the end of the month after their massive mortgage payment is paid for a dinner at the Olive Garden?

It's not the bubble sitters and bitter renters who are owned today. Nope, it's the desperate homedebtors. Even if they can't see it yet.

Posted by: Anonymous at February 5, 2007 6:04 PM

Agreed on the tone of the comments....

Why don't desperate homedebtors realize that they don't own anything - that instead they're renters too - just renting money from a bank?

It's not the bubble sitters and bitter renters who are owned today. Nope, it's the desperate homedebtors. Even if they can't see it yet.

Posted by: anon at February 5, 2007 6:04 PM

How can a nation of financial illiterates be expected to navigate the pros and cons of the negative-am, no-down, interest-only toxic loan deals sold by con men and pushed by evil commission-hungry real estate clerks?

Posted by: Anonymous at February 5, 2007 6:10 PM

6:04--great, stay out of the home buying market--your financial advice is ridiculous. Buying an apartment in NY is a great investment as long as you don't stretch yourself too much to buy and are looking at the 5+ year horizon.

Posted by: HeyHey at February 5, 2007 6:18 PM

If I were renting now and could afford it at all with a conventional mortgage, I would buy in one of the reasonably priced neighborhoods in Queens, further out in Brooklyn, wherever. I don't think it's ever a good idea to rent unless you are just passing through or are a student. Having said that, taking an ARM is crazy, unless you are flipping properties for a living.

Posted by: jvf at February 5, 2007 7:51 PM

One thing that I think has gone unnoticed is that spending 4 to 5 times one's salary on a house isn't a big deal when one's salary is large. That's what we're talking about here - the banker and the teacher (or the lawyer and the social worker, you know the drill) make, say, $400K a year - they'll still have a ton of savings left over every month on an absolute basis after their house cost. It's simply a different analysis for different salary brackets. This doesn't help the woman in Billyburg in the article, though.

Posted by: Anonymous at February 5, 2007 10:24 PM

The NY Times Real Estate section articles just serve big real estate interests. This article helps to drum up more young buyers for a soon to be glutted market.

Posted by: Anonymous at February 5, 2007 10:25 PM

I heart Eryximachus. He's so much fun. Bless his little contrarian heart.

Posted by: sylvia at February 6, 2007 10:21 AM

"One thing that I think has gone unnoticed is that spending 4 to 5 times one's salary on a house isn't a big deal when one's salary is large. That's what we're talking about here - the banker and the teacher (or the lawyer and the social worker, you know the drill) make, say, $400K a year - they'll still have a ton of savings left over every month on an absolute basis after their house cost. It's simply a different analysis for different salary brackets. This doesn't help the woman in Billyburg in the article, though."

Not so much. Spouse and I bring in 350K. If we bought for 1.4 million, 4x our salary, we would die, because we couldn't eat. Even with the "tax breaks" folks trumpet (after all, you're putting more money out than you are saving with the tax break). Think about it - even with 20% down (as if), we're talking a 1.12 million mortgage. On a 30 year, 6900 a month. We won't buy in the city, so assume, on a house that size, 20K a year in taxes (we'll be using public schools). So, 8500 a month in payments, excluding maintenance. We bring home, after 401Ks,etc. 15K. 6500 left after the mortgage. Then we would have to get a car (what, $500 a month?), and when we have kids, a babysitter (2 kids, 2K a month). Leaves us 4K a month to live on, excluding commuting (about $200 each a month) and eating (for a family of 4?). So there is little left in savings. We will have thrown our towel into the house bucket in the hopes that it appreciates and that we make more money. It's a fine thing to do, but not at 4X our income.

The only way I see to comfortably do this is to buy a multi-family, and there are certainly no deals on those in Brooklyn.

Posted by: Anonymous at February 6, 2007 10:30 AM

If earning $350K you should have far more that 20% down payment for that purchase of house.
If not - you have been spending /living lifestyle to match your expectations instead of preparing for important purchase. Ever hear of deferred gratification rather than immediate?
And even after all your fixed expenses your just calculated....you have more than most families even earn before housing expenses.

Posted by: Anonymous at February 6, 2007 10:59 AM

the gentrified brooklyn version of the bloods vs. crips - the renters vs. the owners. as a member of the latter category i've tried actively to exacerbate the discord. i randomly approached some dude in clinton hill the other day outside of a cutting edge cafe. i hit him up with the query: "You own or rent?" he didn't respond quickly enough for my liking so i bitch-slapped the latte out of his hand. i repeated the question. he stammered out the word "rent" so i cracked him in the jaw, curled my fingers to make an "O" shape, bellowed out "owners, bitch!" and walked away, looking for another punk-ass renter to step to.

Posted by: franz fanonymous at February 6, 2007 11:09 AM

"If earning $350K you should have far more that 20% down payment for that purchase of house.
If not - you have been spending /living lifestyle to match your expectations instead of preparing for important purchase. Ever hear of deferred gratification rather than immediate?"

Um, no. Coming up with $180K or so is difficult, even if you make $350K a year.

Posted by: Anonymous at February 6, 2007 11:35 AM

Uh, yeah, you know nothing. We been saving over 5K a month (and have over 100K with our stocks), but with student debt (just paid off a bunch) we were paying about 1600 a month (now down to 600). Have a free, inherited car. No credit card debt. 2400 a month in rent and parking (could probably do cheaper apt. but have huge dog and so need the space - he does cost some money - a "practice" child, so to speak). Take few vacations (not by choice). Spend reasonably on clothes, etc. (haven't been to Barney's in years). Don't eat out all that often. Biggest extravagance is the gym (but I haven't been sick in ages, so it's worth it).

I understand it's way more than most make. But living around here it's not enough to make it easy to save 20% on a 1.4 million dollar place.

Posted by: Anonymous at February 6, 2007 12:04 PM

hello

Posted by: Anonymous at February 6, 2007 5:18 PM

One can debate the wisdom of acquiring a home in this fashion, but on one poit there is no debate: Luciana is a babe.

Posted by: Anonymous at February 7, 2007 8:02 AM

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February 5, 2007

These Aren't Your Parents' Buyers

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