Corcoran ’07 Market Report: Brooklyn’s Still Up

wow.. this report kind of surprises me... we have looked for a place in carroll gardens or cobble hill over park slope... and the prices in cobble hill or carroll gardens always have been in a bidding war the past year or there is very limited stock as opposed to the larger yet still diminished stock of houses in park slope. i also wonder how much the overall 2 bedroom limited stock all around brooklyn in my opinion is affecting this numbers ... and i have seen very few 2 bedrooms listed for the prices corcoran is saying they go for.. meaning i think on this report they are cheaper.. anyways.. not what i would have thought!

Posted by: guest at January 3, 2008 9:09 AM

I'm just gonna post this before The What has the chance to: http://www.nysun.com/article/68830
It seems that the value of NYC real estate is up in terms of dollars, but since the value of the dollar has plummeted over the last year and 1/2 the overall value of the land is down. Now, this is better than most of the country, where real estate is down as measured by the (very weak) dollar, but the absolute value (or the value versus the Euro or even the Canadian dollar) is not rising.

Tree

Posted by: guest at January 3, 2008 9:18 AM

And if you calculate how many barrels of oil or troy ounces of gold you get per square foot, then there has been a real drop.

Fortunately (?) I neither get paid in nor shop using troy ounces of gold.

Posted by: guest at January 3, 2008 9:30 AM

I hate these stats done by neighborhood because they become so meaningless because of small # of sales. I mean, really, how many sales in each category are there per year in Carroll Gardens or Cobble Hill (and of course who is defining what constitutes these neighborhoods).
The most signficant stat to me would be median (not average) selling price per sq ft -perhaps divided by existing and new construction.
Even the article states that Manhattan figures are being skewed because of sale of some new ultra luxury condo buildings.
Nevertheless, people will read article superficially and then somehow think that their apt has appreciated in value 'n%' or state as fact that prices are becoming cheaper in Cobble Hill.

Posted by: guest at January 3, 2008 9:31 AM

Thanks Tree, and here is Don Pardo to tell you what you won!

Corcoran ’07 Market Report: Brooklyn’s Still Up. I laughed so hard I think I did about 200 crunches. Corcoran has a "Market Report"??????????!!!!!!!

You know what, I'm going to touch that. I will let you do that.

The What *Corcoran Market Report???!!!!! LMMFAO*

Someday this war is gonna end...

Posted by: guest at January 3, 2008 9:31 AM

I know people who are wringing their hands waiting for the big real estate crash in New York so they can afford to buy. Some of them are getting a little disheartened by the length of the wait. Weren't prices supposed to start plummeting in the fall, in direct response to the national crisis?

I guess they'll be waiting for a bit longer. As long as there are buyers bidding (and as long as the stock keeps diminishing, at least in the prime landmarked areas), the crash will be delayed.

Posted by: guest at January 3, 2008 9:33 AM

Here is you FORTEX dollar chart folks!

http://quotes.ino.com/chart/?s=NYBOT_DX

The What

Someday this war is gonna end....

Posted by: guest at January 3, 2008 9:34 AM

"I know people who are wringing their hands waiting for the big real estate crash in New York so they can afford to buy. Some of them are getting a little disheartened by the length of the wait. Weren't prices supposed to start plummeting in the fall, in direct response to the national crisis?

I guess they'll be waiting for a bit longer. As long as there are buyers bidding (and as long as the stock keeps diminishing, at least in the prime landmarked areas), the crash will be delayed."

No homeboy!!! The crash is here!! Chuckie can't service his debt!! 100 dollar Oil is going to nail his ass. People CAN"T afford the high prices!!! Every Brownstone is going for 2 millon, huh?? Last night the gas station was empty and McD's at Atlantic and Vanderbilt. Flatbush was a fucking ghost town too. Please don't say "it's after New Years". The American consumer is out of money and out of time. 2008 will be that year.

The What

Someday this war is going end...

Posted by: guest at January 3, 2008 9:41 AM

With Builder in Bankruptcy, Buyers Are Left Out
http://www.nytimes.com/2008/01/03/business/03abandon.html

The house, on which the couple made a down payment of $88,820, is empty. Their belongings are in storage. They live, unhappily, in a hotel.

See folks 2008 will be a fucking nightmare!!!!

The What

Someday this war is going end..........

Posted by: guest at January 3, 2008 9:46 AM

Homeboy: LAST NIGHT WAS ZERO DEGREES WINDCHILLL.

freak

Posted by: guest at January 3, 2008 9:49 AM

I love that people are acting as though Corcoran has some credibility. They couldn't even get simple Excel formulas/formatting right (assuming Bstoner just cut and pasted from the report), and I'm supposed to make an investment decision based on their desperate effort to sell the NY housing market as a "safe bet." Right now NO housing market in the US is a safe bet over the medium term.

Posted by: guest at January 3, 2008 9:56 AM

I wish these comment sections had some Administrators. Usually there are some thoughtful comments mixed in with THE WHAT's psychotic ramblings.

People have been forecasting a market drop in Manhattan and Brooklyn since 1999. These people will never understand the market factors in NYC. Population is rising and we are going to need 250,000 units over the next 5-7 years.
The market may soften and correct but if you are buying a primary residence, long term, you should be fine.

Posted by: guest at January 3, 2008 10:00 AM

Hey What - Dont you think your message would be better sread with a carboard sign and overgrown beard, trodding up and down Flatbush avenue while banging a pot with a metal spoon?

Think of the exposure you would get - Maybe tens of thousands more people would be turned on to your end of the world prophecy.

Posted by: guest at January 3, 2008 10:10 AM

Corcorans business is selling real estate not Excel Spreadsheets. What a boob of a comment. If your going to buy u better do it soon, the spring will bloom higher prices, so if your waiting for the big drop, well it already happened.

Posted by: guest at January 3, 2008 10:11 AM

Once the new downtown bklyn starts building Ratner City the price's will skyrocket

Posted by: guest at January 3, 2008 10:12 AM

So sadd you idiots really think the market in NYC is going to collapse. Human nature - greed and hope ensure constant fodder for landlords out there.

Hoping prices will halve so you can finally afford the home you deserve is foolish and will make sure you live in your crappy rental for the rest of your pathetic existence. Suck it up, stop spending hundreds of dollars every weekend going to clubs and bars, save up diligently and buy something. Your dreams of living your current lifestyle in the hopes that prices will come down to meet you will not work in the greatest city on Earth.

The sooner you realize this the sooner you can do what it takes and stop being so selfish and foolish.

Posted by: guest at January 3, 2008 10:20 AM

Notice in the chart how many categories have average sale price = median (BH, CH/CG, Boerum Hill '07 studios and Boerum Hill '07 3+BR, FG/Clinton Hill '06 3+BR). Barring very unlikely coincidences in the sales data, that tells me they only had data on ONE sale for each of those apartment types (and Zero sales for all the N/A cells). Not much to give an accurate indication of trends.

Posted by: guest at January 3, 2008 10:23 AM

Did anybody take a close look at that excel spreadsheet?

A couple observations:
1. Incredible inconsistency in price changes within same neighborhoods based on size of apartment.

2. Plenty of categories with negative numbers there. Probably the first year in many we're starting to see negative numbers (i.e., price declines) at all.

Point is, it's hard to reach any real consistent conclusions based on this data.

Posted by: guest at January 3, 2008 10:26 AM

I'm not sure why ppl think that house prices are going to drop because of rising Oil prices.

When Oil prices rise, causing a rise in Gas prices, people will continue to migrate into areas where there is better quality of public transportation so they can reduce their usage of gas if they don't get rid of their cars.

Logic dictates that Cities like NYC which has very good public transportation will increase in housing prices over the long term.

On the short term, it may drop, but I'm afraid everyone that is waiting for a crash might as wait until pigs start flying.

- Investor Lou

Posted by: guest at January 3, 2008 10:30 AM

Well I've saved and could cut a check for a down payment tomorrow. I live in a great, and cheap, rental in Brooklyn Heights. I need a third bedroom but basically the opportunity cost of sinking my cash into an apartment right now is pretty huge, and the upside uncertain. New York is a safer real estate market than Dayton Ohio, but if even BROKERS are predicting flat prices over the next year or so, then I'm certainly not losing anything by sitting on the sidelines and waiting to see what happens.

And it's not just buyers who are sitting on the sidelines - there really isn't much available right now in prime Brooklyn and I suspect that that is largely because of the market uncertainty. People who can afford not to sell now aren't. My guess is that things will stabilize in the economy and the overall housing market in late 2008 and then significant numbers of both buyers (including myself) and sellers will return to the market at flat prices over 2007. However, there is still a chance that prices in NY will will decline significantly in 2008-2009 as more sellers accept that they will not be able to get a big increase over 2007. Real estate prices are historically very slow to respond to downward pressure, especially in a market like NY where there are significant mitigating factors (foreign buyers, co-op boards, etc). Just because NY has so far dodged the bullet doesn't mean it will continue to do so. So no, thank you, I'm happy staying out for now.

Posted by: guest at January 3, 2008 10:44 AM

Right on 10:20 the pathetic losers need to move to Camden NJ, they can get something thier they don't have to work for. NY is for winners work and get ahead if u can't hack it stop complaining and move into a housing project where u belong, your probably on ssi or welfare anyway becuase your a lazy loser. Anyone with half a brain and willing to work thier asses off can make it here in nyc.

Posted by: guest at January 3, 2008 10:46 AM

"Last night the gas station was empty and McD's at Atlantic and Vanderbilt. Flatbush was a fucking ghost town too."

The What stalks the streets at night, hungry for victims.

Posted by: guest at January 3, 2008 10:49 AM

Does anyone really believe anything Corcoran says?

Posted by: guest at January 3, 2008 10:55 AM

10:53 where did u get that line of sh-t

Posted by: guest at January 3, 2008 10:55 AM

10:44 - By the time you, the average buyer on the sidelines, hear of a recovering market and price appreciation it is already too late - You are priced out of the market once again.

Trying to time the market is foolish and unwise, which is why, although trollish, 10:20's comments are fairly accurate. People with your mentality will never, ever buy - cant stand the thought that maybe in the short term their investment might go down a little.

Real estate is dynmaic and unpredictible - relying on the media to soothe you into thinking incredible deals are just around the corner is as stupid as all of the subprime hacks that thought they could get a amazing home they couldnt afford through the magic of negative amortization.

"To good to be true" is not just a saying - It is a constant reality.

Posted by: guest at January 3, 2008 10:58 AM

Yes, NYC is doomed. Please get out so I can finally buy my dream home - Even though I'll be the only one living here, I'll still enjoy my cavernous mansion on the upper west side - feeding on the corpses of those usurers who never got re-payed.

Posted by: guest at January 3, 2008 11:01 AM

"Hey What - Dont you think your message would be better sread with a carboard sign and overgrown beard, trodding up and down Flatbush avenue while banging a pot with a metal spoon?

Think of the exposure you would get - Maybe tens of thousands more people would be turned on to your end of the world prophecy."

Well.. I like to bang on your head with one. Every thing is very expensive (Gas, Food and Living Expenses) but, wages remain FLAT. You mean to tell me people got raises to cover inflation??? Gas rose 57% in 2007 57% fucking percent!!!! How can people afford that shit!!

I make some great money but, Inflation is eating at my purchasing power. That's why I so fucking mad not because I want to buy a house, I already own one!!!! So fuck you and the other "Keyboard Warriors". Stay behind you computer and jack off to porn you fucking loser while our future goes down the drain.

The What

Someday this war is gonna end...

Posted by: guest at January 3, 2008 11:04 AM

i agree, 10:55. i first looked though to see that polemicist wrote it, then stopped reading immediately.

i always think what he/she writes is complete drivel.

Posted by: guest at January 3, 2008 11:05 AM

i love the guy who said he's no worse off waiting another year because he thinks prices will go down further.

well you're worse off because now you've sunk another 20K into your landlord's pocket over that year wait.

20K that you could have spent on some equity in a home.

so your logic is slightly flawed.

unless you truly think that apartment you are going to be looking for in 2009 or 10 will be 20K cheaper than it is today.

i don't believe that will be the case.

Posted by: guest at January 3, 2008 11:08 AM

Hey, 10am

The population is not rising. You're grasp of current events is outdated.

http://www.nypost.com/seven/12282007/news/regionalnews/nys_no_growth_population_72208.htm

Posted by: guest at January 3, 2008 11:11 AM

11:11...

that article was referencing new york state.

not new york city.

which is indeed expected to surpass 9 million in the next 20 years.

doh.

Posted by: guest at January 3, 2008 11:20 AM

10:58/11:08 - look, we're not just talking about my rent over the next year (admittedly a sunk cost). You have to add to that 1) lost return on the $300k+ down payment I'd have to make to get a nicer apartment than the one I'm renting (even at the 4.5% return I get on my money market account this cancels out half of my rent cost) PLUS 2) the extra sunk interest costs I'd have to pay on my mortgage (at least $1500 per month) PLUS 3) maintenance costs (approximately $1200 per month). Now, if I saw an apartment I loved that all might be worth it, but again, it isn't just buyers who are sitting on the sidelines right now and everything I've seen has been pretty crappy and very overpriced (see, e.g. the PS apartment from yesterday's posts).

I'm not trying to time the market, but I'm also not foolish enough to sink my hard earned savings into an asset that will potentially depreciate signficantly over the short term, especially since I don't think (and here we are in the realm of my opinion vs. yours) that I have anything significant to lose by waiting a year to buy.

Posted by: guest at January 3, 2008 11:21 AM

Supply and Demand only has long term effects on markets - in the short term the biggest driver of prices is psychology (see oil prices).

The prices of homes in NY will continue to appreciate as long as people believe the prices will appreciate....and once that changes the prices will fall.

Just like there is NOTHING in the supply/demand equilibrium that caused oil to go from $10 a barrel to $100 a barrel in 10 years there is NOTHING in the supply/demand equilibrium that justifies 300% increases (or more) in Brooklyn Real Estate over that same period.

Once high oil prices, wall street layoffs, etc, etc, begin to effect the psychology of the New York Real Estate buyers and sellers the prices will fall and dramatically in some cases. In fact if history is any guide, the prices will then fall to unjustifiably (based on supply and demand) low levels and then we will start all over again.

Posted by: guest at January 3, 2008 11:21 AM

"Last night the gas station was empty and McD's at Atlantic and Vanderbilt. Flatbush was a fucking ghost town too."

"The What stalks the streets at night, hungry for victims."

I think the what cleaned my windshield with spit and crumpled up newspapers last night. I gave him a dollar because I felt bad.

Posted by: guest at January 3, 2008 11:23 AM

11:08 - and what of the money you give to the bank as interest, to the building as maintenance, to the insurance company for liability and the contractor for repairs????

The amount of money that goes into "equity" is relatively small and even smaller (or negative)if your home value is falling.

Posted by: guest at January 3, 2008 11:24 AM

11:21...

you mean to tell me you've been sitting on 300K in the bank with 4.5 % interest....for how long exactly????

my god. if you haven't jumped into the market by now, i'd say you will probably be a renter for life.

i'm guessing it's taken years and years to save that money. you just sat back and watched the largest real estate boom in u.s. history and now want to tell everyone how smart you are for not buying???

i made 300K on my home purchase between about may of 2003 and june of 2004.

Posted by: guest at January 3, 2008 11:26 AM

11:21 - Have you thought about the incredible tax dedutions you are missing out on to offset your interest expense?

Posted by: guest at January 3, 2008 11:27 AM

Once again, this discussion seems to be devolving into a battle of potential buyers (seeking a market correction/crash) and buyers/sellers, denying that things can really go down. I am in the middle, as both an owner and a seeker of another property. Only 15 years ago, people, there was a major real estate correction, and yes, people who waited were better off waiting, even if they sunk another 20K into their rental in the meantime. It is simply not true that prices can only go up, and that they never go down. Check out some of the HOTD on this list that have their prices slashed hugely since the properties just sat at their initially over-inflated asking prices. That said, will the market have a huge crash? Probably not, but will it have a significant correction? Seems likely. Will prices eventually go back up? Yes, almost certainly (barring some catastrophe in which case we'll all have bigger fish to fry). But adjusted for inflation, it is not necessarily the case that RE is an incredibly great investment. Most of the people on this list just need a home to live in, and if that's the case, keep looking and take your time. Over the long term, it's true that you will be OK even if you buy a bit high, but I for one would rather be a smart shopper and buy a property at a 15% discount as long as I'm fine where I am now...

Posted by: guest at January 3, 2008 11:28 AM

11:21 here - in case it wasn't clear, my back of the envelope number for mortgage interest sunk costs was for the additional monthly interest cost OVER AND ABOVE my current rent ($2600) and was, if anything, way too low if we're talking about three bedroom apartments in the $1.2-1.5m range (what I'm looking for).

Admittedly, unlike me most buyers in this range are also sellers, but I've been in a 2 bedroom Brooklyn Heights rental for 5 years because until recently I wasn't sure if my wife and I wanted to raise kids in NYC.

Posted by: guest at January 3, 2008 11:32 AM

11:28...

15 year ago, new york city was a complete and total shitshow.

people were leaving the city in droves, there were 2200 murders a year and the city was falling apart.

now it is cleaned up and one of the most prosperous cities in the world.

not taking that into account into your little comparison about 15 years ago is beyond foolish.

Posted by: guest at January 3, 2008 11:32 AM

11:21 here - I didn't cross $300k until this year's bonus. It took me three years to save that much. The first two years were spent paying off student loans. And no, not all of it (or even half of it) is in a money market. I may be slow to act, but I'm not stupid.

Posted by: guest at January 3, 2008 11:34 AM

Depending on your tax bracket you are still "throwing away" (same as rent) 65-75% of the $ you pay in interest expenses, after the "incredible deduction"

Posted by: guest at January 3, 2008 11:34 AM

11:21 here again - in my tax bracket, the mortgage deduction isn't going to help me.

Posted by: guest at January 3, 2008 11:36 AM

I'm 11:28 again. Re: the question of NY 15 years ago vs. now - actually, I was living in NY then and I would not say it was a total shithole - especially compared to the 70s (THAT was when it was a real shithole). I was here in the late 80s when there was the same giddiness about Wall Street, and then we entered a recession and things cooled off significantly. My point though is not to focus specifically on the last market correction - I simply was pointing out that corrections DO happen - look at the rest of the United States, for crying out loud. History is full of market frothiness that can quickly turn around and suddenly, the market is very different. What I find so amazing is how brokers on this list simply do not want to believe this could ever happen, against all reason. I would reassure those brokers that at least when the corrections do occur, they do not seem to last too long (5-10 years seemed to be the last one, depending on whose counting), but the fact is, markets ARE cyclical, and there are many, many signs pointing to a downturn in NYC and buyers I think are wise to take a wait-and-see attitude. Granted, I'm already an owner, so I'm not paying a lot of rent, but even if I were, I would not buy right now - there's just too much evidence that prices will at best remain flat - so what's the rush??

Posted by: guest at January 3, 2008 11:42 AM

Because ppl waited on the sidelines, they missed out on cheaper interest rates just before August 2007.

After August, the Jumbo rates spike up, pricing in risk.

So the argument that waiting to buy as the price of housing stays flat is still folly.

You have effectively lost money in 2 ways. 1) Renting and 2) at least a 1% rate increase on your Jumbo mortgages.

You may have also lost the opportunity to buy because the underwriting standards have been raised.

Sometimes, it's best to buy than to wait, even in a stagnant market.

What is rising, however, is rents. I believe 2006 had a rise in average rental by 20%. 2007 also had a rise. It will continue and very rarely will it dip.

I'm not against waiting. If I were in Detroit, I would wait. But in NYC? I would not play that strategy.

Investor Lou

Posted by: guest at January 3, 2008 11:43 AM

11:32 - and 20 yrs ago murders were over 1600, the city was a shit-show with manufacturers leaving in droves, wholesale abandonment in many boros and unemployment rates in excess of 10% - and NYC Real Estate was booming to record levels - so what!

Year to Year - economics is irrelevant and psychology controls

Posted by: guest at January 3, 2008 11:45 AM

i personally think buying when prices are flat sounds like a good thing, 11:42.

you seem to think it better to wait till they've already started going back up.

which of course no one will notice, because prices here are already so high.

Posted by: guest at January 3, 2008 11:45 AM

Prices are rarely "flat" - especially after a boom (see stock market); once the psychology of "Real Estate only goes up" is broken, prices generally fall.

Posted by: guest at January 3, 2008 11:49 AM

For people looking to just wait. I bet soon prices will come down. Detoxing off Kool-Aid is hard. The greedy fucks have to complete their 12 step program.

BTW People are LEAVING NYC in droves. I had friends (yes I have some) buying houses with all the equity some asshole overpaid them. They are siting pretty plus lower expenses. New York has become a expensive Hell Hole.

The What

Someday this war is gonna end.....

Posted by: guest at January 3, 2008 11:51 AM

"Investor Lou" Huh? How about Scam Lou or Fucktard Lou. How many people you fucked over "Lou"???? Maybe you are Brownstoner's half bother??? I want to see you on this board when the market fucking tanks Lou.

The What

Someday this war is gonna end...

Posted by: guest at January 3, 2008 11:56 AM

What??!! Using your personal Experience and making a financial decision? That reeks of emotion. Never make a business decision based on emotion, mr. What.

So WHAT if your friends sold and moved. Too bad for them. They will miss out on fantastic appreciation in the next 10 years.

They will also get hurt by high gas prices or high transportation costs.

Just because a few friends moved doesn't mean you have the statistics right. AND DON'T make a business decision based on what friends do! That's how most ppl (especially those who played the housing speculation game) got hurt.

Posted by: guest at January 3, 2008 11:56 AM

thank you, 11:56.

that was a slap right across the what's face, if i've ever seen one.

Posted by: guest at January 3, 2008 12:02 PM

11:56 and what non-emotional basis do you have to justify "fantastic appreciation" over the next 10 yrs?

Posted by: guest at January 3, 2008 12:06 PM

Gosh Mr. What... you are such an emotional mess. I see you are a fan of 4 letter words.

Calm down buddy. Maybe you need a hug from Mommy.

It's my opinion that you will cause people pain by your emotional advice, which is incorrect.

I would keep your mouth shut and allow people to do their research so that they can make an intelligent decision.

haha! A decision based on what friends are doing. What a laugh, as though your friends are really indicative of the entire NYC population. Judging from your posts, I would do the exact opposite of your friends and yourself.

Investor Lou

Posted by: guest at January 3, 2008 12:07 PM

Huh 11:56 Read my post again. They SOLD their houses and took the equity and bought NEW house in the south. Put away a plenty on money and living is good. Some have found a new way of live with lower living cost. Emotion doses not drive me, it's the reality of a Mutant Bubble caused by assholes (like ourself and 12:02). Now fuck off stupid.

The What

Someday this war is gonna end...

Posted by: guest at January 3, 2008 12:10 PM

the what....

there are a lot of people (myself included) who wouldn't move to the south even with 10 million dollars in the bank.

Posted by: guest at January 3, 2008 12:16 PM

NYC was gaining in poputaion in those years you revisionists call NY all those names and said people were fleeing in droves.
Yet there is some truth - people were moving otu and still are - but it has been growth of foreign-born population all those years that have increased population.
Yet still - many people on this blog keep claiming the population increase is because all the americans(implying white affluent educated) are moving here in droves because of how wonderful it is ...which is not the truth (except the part that NYC is wonderful).

Posted by: guest at January 3, 2008 12:17 PM

Gosh Mr. What... you are such an emotional mess. I see you are a fan of 4 letter words.

Yep Fuck you. See how it works

Calm down buddy. Maybe you need a hug from Mommy.

How about your wife. Maybe she can hug my dick.

It's my opinion that you will cause people pain by your emotional advice, which is incorrect.

Nope stupid, just the bullshit I see.

I would keep your mouth shut and allow people to do their research so that they can make an intelligent decision.

What research Lou??? Being a fucking Debt Slave for banking interest. Guess what Lou ( you mind I call you "Loser")? The Fed will bail out the people that fucked you over. Joe 6 Pack and Chuckie will get fucked over.

haha! A decision based on what friends are doing. What a laugh, as though your friends are really indicative of the entire NYC population. Judging from your posts, I would do the exact opposite of your friends and yourself.

That's way you will get burned. Please be here on the meltdown
Investor Loser.

The What *Swinging that bat*

Someday this war is gonna end.....

Posted by: guest at January 3, 2008 12:18 PM

11:21/11:36, what are you talking about? The phase-outs on the mortgage deduction (total deductible amount of interest and limit on total itemized deductions) should be minimal for someone in the market for a $1.2M-$1.5M apartment.

Posted by: guest at January 3, 2008 12:19 PM

12:06 - There are many indicators that NYC is going to do well over a 10 year period.

In the last 2 years, we had over 44 Million Visitors. Our tourism is doing fantastic.

Inventory of available housing is actually down: see UrbanDigs.com for NYC Inventory levels as well as recent articles in the NY Times and Miller/Samuel reports.

Vacancy levels are still at historic lows around 2%. It is still very difficult to get an apt for either renting or buying.

NYC has many other industries besides Wall Street. How many can we all name? Fashion, Textiles, Entertainment, Movie Production (Steiner Studios/Silver Cup), Financial, etc. etc.

Crime, especially the murder rate, is way down.

While the level of foreclosures have increased dramatically, overall, the number of foreclosures per household is very insignificant.

Take Manhattan Foreclosures for instance. According to PropertyShark data, Mahattan had 18 total foreclosures in the month of Dec. 2007.

Do you think that 18 foreclosures is significant for the entire household population of Manhattan??

YES.. I do believe that people should be pessimistic about the overall housing crisis... Nationally. But there are many reasons to be at least mildly optimistic about NYC housing.

Investor Lou

Posted by: guest at January 3, 2008 12:20 PM

Someday this was is gonna end.

And the WHAT is gonna reign supreme, cause he has spoken, brace yourselves.

Posted by: guest at January 3, 2008 12:25 PM

12 years ago I bought my 3 family brick in Carrol Gardens for 315K. It was appraised at 500K a year later at refinancing. Several years later the reals estate market tanked remember, then it came back my house was appraised at 700K. A year ago it was apprased at 950K. Now Im converting it to condo's. Cost of all cosntruction 250K. Im keeping my duplex and selling the other two for 650-700 2 Bedrooms, Chefs High End Kitchens designer bathrooms,roof decks and big balconies off bedroom. So when I sell one Im gettin my money back and paying construction bills off. No bad for a up and down market. Based on this my past expperience it always comes back stronger and Im living proof of that.

Posted by: guest at January 3, 2008 12:25 PM

One big question is who will be our next mayor - don't mayoral politics/capabilities determine a lot about quality of life in NYC? Personally, I wish Bloomberg could stay - despite the fact that I voted for Mark Green 4 times in 2001 (on 9/11, the democratic primary & run-off, and the general election) and was initially worried when Bloomberg won, I think he's done a great job. But who will succeed him and how will this affect the fortunes of the city? As a resident and property owner, I certainly want NYC to do well, but I am also realistic that there are ominous signs about the US economy as a whole that cannot help but affect NYC. There seems to be a sentiment that somehow NYC is impervious to national trends, but various economic indicators point otherwise, and thus it seems highly likely that we are heading for tougher times in NYC, including a softening, if not falling real estate market.

Posted by: guest at January 3, 2008 12:28 PM

12:25 - So am I. I own several Brooklyn Multi-Family buildings.

I don't care about the year to year fluctuations but I do care about the long term appreciation in BOTH rent and value.

Most people forget that there are at least 2 ways to make money... by the value AND income going up.

What they also don't realize is that when Value stagnates in rental properties in NYC, the income goes up because there is a higher rental demand for the lack of supply.

When the Value goes up, I get the appreciation, but the rental income stagnates.

Either way, I win.

The one thing that will cause a long term loss, however, is a catastrophy or a long term recession.

I've already prepared for the recession. If there is a castastrophy, I doubt anyone could have already prepared for it.

Investor Lou

Posted by: guest at January 3, 2008 12:32 PM

if christine quinn becomes the next mayor of nyc, all will be fine.

she seems to be on top of things.

Posted by: guest at January 3, 2008 12:33 PM

Exactly 12:32 I will sell one almost immediatley even if I sell it at 500K I make my money back, pay off the mortgage and rent the other one for 3000 a mos until the market comes back and I get stupid money for it.

A year ot 2 from now the 2nd one could go for 900K or a Mill who knows, and when I sell my duplex my 315K investment 12 years ago made me close to 2 Mill. Long term is the way to go. This market now means nothing to me

Posted by: guest at January 3, 2008 12:38 PM

The tax return that I get due to mortgage interest is enough to pay my mortgage for 3 months!

Posted by: guest at January 3, 2008 12:47 PM

i would say anyone that bought more than two years ago do not care what the market does.

they've already made more than enough equity to cover any sortof of downturn in the market.

i only bought a studio (in 2006) and feel more than confident that even with a pretty sizeable correction, i'd still be able to sell my place for 50K more than i bought it for last year. (comps in my area are running around 100K more than my purchase price).

that's a nice little nest egg for someone on my relatively modest salary. plus i've got another 50K in the bank and then 50K on my downpayment. with tax deductions, i pay around 1100 a month for mortgage and maint. for a prime, north slope studio. can't find anything for that price around here to rent, that's for sure.

i feel like i've got a nice base to work from going into the future...even on my "artist" salary. and even with a correction...which will only help me upgrade to a 1 bedroom in a few years, if i feel like it.

Posted by: guest at January 3, 2008 12:47 PM

Funny, CNBC is now talking about the Manhattan Market.... Inventory down 13.5% year over year, 3 Bedroom up about 36% year over year.

I know there is a lot of suspecion about ppl trying to hype up the NYC Market... but really.... give me some real statistics that point to a long term decline of housing in NYC.

I don't see it.

Investor Lou

Posted by: guest at January 3, 2008 12:48 PM

12:28 - I worry too, but am also hoping that the next mayor will be less allied with big developers who are doing their best to destroy the character of brownstone brooklyn. - also future administration may take a stand against AY, so some good may come of it.

Posted by: guest at January 3, 2008 12:49 PM

Now the llast 2 posts are perosns who walk the walk and talk the talk. Listen and Learn, boobs

Posted by: guest at January 3, 2008 12:52 PM

12:28 - Don't forget about Scarano and the developers that have used him and all the other ridiculous developments.

I really don't understand why the NYC Buildings Dept works to support these unscrupulous developers.

Why haven't more law suits been filed against them? But then again, that is for another thread.

Investor Lou

Posted by: guest at January 3, 2008 12:52 PM

AY !!! ure canadian

Posted by: guest at January 3, 2008 12:53 PM

Lou all those factors for predicting another 10 yrs of appreciation in NYC real estate ignore one huge factor - the relationship between incomes and housing prices. This has traditionally been the most important metric - and while low interest rates and creative financing can account for a widening of the gap - there is no basis to beleive that rates or financing can sustain ever widening gaps - so that leave income appreciation - which is not forcasted.

Income is to housing prices as Earnings are to Stock prices.

Posted by: guest at January 3, 2008 12:54 PM

"Put away a plenty on money and living is good. Some have found a new way of live with lower living cost. Emotion doses not drive me."

Pure gibberish.

Posted by: guest at January 3, 2008 12:55 PM

I believe everything the nice, disinterested people at Corcoran say.

Posted by: guest at January 3, 2008 12:55 PM

Manwhile, the NYT article says:

"Median prices on two-bedroom Park Slope apartments dropped by 4 percent, to $637,000. Median prices for two-bedroom apartments in Fort Greene and Clinton Hill dropped by as much as 14 percent, to $462,000."

Posted by: guest at January 3, 2008 12:58 PM

1/3 at 10:46 said:

"NY is for winners work and get ahead if u can't hack it stop complaining and move into a housing project where u belong, your probably on ssi or welfare anyway becuase your a lazy loser. Anyone with half a brain and willing to work thier asses off can make it here in nyc."

It's true. Talk to some of the blue collar guys you meet or the car service drivers working 2 or 3 jobs. THEY own property in NYC. Becuase they don't sit around on the sidelines. I talked to one latino car service driver who bought 2 houses in South Slope about 7 years ago. During a time the hand-wringers would have thought South Slope was a terrible investment. Now who laughs last?

Posted by: guest at January 3, 2008 1:15 PM

12:54 - Let's define a couple of metrics so that we can discuss it.

1) Yield
Normally, a Yield is the return on an investment over 1 year. So, a 5% bond Yield returns $5 on a $100 Face Value Bond.

In the case of Real Estate, the Yield would be the Net Income (or Owner's Equivelent Rent) divided by the Price.

2) P/E

Price to Earnings (P/E) is the inverse of the Yield and is used to determine a trading range of stock in certain Sectors/Industries. It is very useful in predicting future prices.

In the case of Real Estate, we would take the Purchase Price and divide it by the Net Income (really, it should be called NOI - Net Operating Income).

Both 1) and 2) are related but one is inverse of the other. Same for stocks.

The question really should be how to use it.

In stocks, you would first determine it's Earnings growth over several years. Analysts do that for about 3 years in the future. Then, they would calculate the FORWARD P/E to see how it will adjust. The P/E ratio would decline in the future estimate UNLESS the PRICE increases so that the P/E falls into historic P/E range of the stock being analyzed. Therefore, if the Earnings (E) is increasing, then the Price must increase to remain in the historic P/E ratio values.

The same for Real Estate. If the Net Operating Income (NOI) is increasing as rents increase (or owner's equivilent rent) in the FUTURE YEARS, then the P/E will also decrease. BUT, if you knew the P/E range of this particular Real Estate, then you know that the Price must increase inorder to keep it's historic P/E.

When it comes to Real Estate, however, we don't usually use P/E. We use Cap Rates which is really like the E/P (or EPS in terms of stock).

As long as people analyze their payments in term of the future, it makes a lot of sense to buy before the income goes up. Because when the income goes up, the Price MUST follow to maintain it's current P/E (or Cap Rate in Real Estate).

When it comes to affordability, it isn't really YOUR income to the Price of the investment that matters. It your monthly payment (including tax benefits) that matter. If you are locking in your payments via a fixed rate mortgage, then you have effectively locked in your future profits, expecting the price to go up as the rental move up.

I know it's very confusing. Lots of people have not been versed in Future Value type calculations which is really what I have been trying to explain in terms of Real Estate.

I don't really post on this blog much, so forgive me of posting a very convoluted post. If there are many interested in this theory, then I will point out where to get a much better explanation.

Investor Lou

Posted by: guest at January 3, 2008 1:19 PM

12:58, the median value in Park Slope "dropping" to $637,000 is still a rise over 2006. We sold our 2BR Park Slope coop for $570,000 in 2006. It needed some work (that we didn't have time to do before selling) but it was on a great block on a prime street, had nice light and layout. Meaning it was at median value as a property, not lower value.

Posted by: guest at January 3, 2008 1:23 PM

The more the U.S. dollar loses value against the Euro, the more tourism we'll see. We're going to be invaded by American tourists in 2008. Europe is too expensive to justify going right now for the majority of people, even those who make decent income. And Europeans will keep coming here in droves, dear God, they're filling the streets of Soho shopping. Soho needs a special pedestrian bridge just for New York residents to get through the crowds.

Posted by: guest at January 3, 2008 1:31 PM

I fantasize about starting a Brooklyn Buyers Strike wherein all potential real estate buyers come together and refuse to buy until prices come down. I know this is just a fantasy.

Posted by: guest at January 3, 2008 1:34 PM

It's not just Soho.

TWO European families have bought apartments on my Park Slope block this past year, that I know of.

One is a couple from Berlin and another is a couple and child from London.

The lowering of the dollar is only helping make New York an even more diverse and cosmopolitan city, in my opinion.

Posted by: guest at January 3, 2008 1:35 PM

Lou you are talking about Apples in an Orange grove - the Corcoran Article and the discussion here isn't about rental properties - its about owner occupied housing which has been traditionally tied to personal income.

Further regarding rental properties you are ignoring the fact that cap rates are at historic lows. (similar to how P/E ratio was at record highs in 2000) Should cap rates actually return to historic norms most properties might see increasing income with declining values.

Posted by: guest at January 3, 2008 1:41 PM

"if christine quinn becomes the next mayor of nyc, all will be fine.

she seems to be on top of things."

She's a moron, actually.

Posted by: guest at January 3, 2008 1:44 PM

Given the fact that I see Marty Markowitz's name an face all over the place, I think it is not out of the question we might see him make a run for mayor.

Posted by: guest at January 3, 2008 1:47 PM

i don't happen to think she's a moron.

i've worked with her in the past, and she is quite intelligent and loves this city more than just about anyone i know.

Posted by: guest at January 3, 2008 1:47 PM

1:41 - I know it seems as though I'm talking about Apples in an Orange grove....

But the problem is that almost everyone in the last 5 or 6 year have been buying with the expectation of future value increase.

To me, that is Speculation and it stops being about buying a place to live which is what a home should be. It is now an investment.

If the mentality of home buyers have changed from owning a "HOME" to owning an "INVESTMENT" that happens to dub as a home at the same time, then the thinking is now skewed in terms of an Investing mentality.

And that is what happened. People started expecting their homes to go up in value. That mere thought makes them think of their homes as an investment.

The problem is that they are not Investors, and therefore, were incredibly naive in their new way of thinking. They do not understand how to do their due dilligence and put themselves in jepordy to the point where so many ordinary non-investors did the samething that it has destablized the economy.

In otherwords, they were thinking of Future Value without understanding how to calculate it.

Investor Lou

Posted by: guest at January 3, 2008 1:52 PM

The What

You did say friends you "had". Maybe those friends you had sold their houses, took the money and ran down South to get away from you.

Posted by: guest at January 3, 2008 1:55 PM

Yeah 1:34 but then you still won't buy. You'll all say to each other, "maybe the prices will go even lower if we wait until after the strike ends because surely prices will go down even more".

Posted by: guest at January 3, 2008 1:55 PM

Agreed, 1:35 about European buyers. When we sold our Park Slope coop 2 out of 5 of the most serious potential buyers were European. One German one Brit.

Posted by: guest at January 3, 2008 1:56 PM

Lou how can you say:

"But the problem is that almost everyone in the last 5 or 6 year have been buying with the expectation of future value increase."

which is virtually the definition of 'bubble' and then believe

NYC is going to do well over a 10 year period. - when referring to individual (i.e. non-investment) property?

Posted by: guest at January 3, 2008 2:03 PM

The influx of Europeans is not only holding up some of the real estate purchases in NYC, but it's also increasing the quality of life at the same time.

There are a lot of people who have come to NYC to escape the rest of the conservative U.S. and live amongst a more liberal-minded crowd. My parents who live in the burbs have no desire to go to Europe to vacation and approaching their 60's, have never left the country. That is the norm.

I, however go to Europe at least once a year, if not more and think there are a lot of things that the U.S. could learn from Germany, Britain, etc.

So for me it's just making New York all the more appealing, while at the same time basically making it so that with each passing year, New York City becomes less and less like the rest of the U.S.

Just my own personal opinion, of course. I know there will be those that say...who cares about Europe...who cares about what they do, go move there, blah blah blah.

But we are humans first, and Americans second. I believe connecting with people from other countries is what this country really needs to work on if it has any chance of competing with places like China and India, where nearly every person there can name our top elected officials and then some, whereas I think something like 10% of Americans can't even tell you who our own president is.

True story.

Posted by: guest at January 3, 2008 2:03 PM

Let's change "The What's" name.
You shall now be called "THE TWAT"

Posted by: guest at January 3, 2008 2:13 PM

1:34 - Why does it need to be a fantasy.

I'm on strike right now.
Maybe we can organize a picketts in from of overpriced houses that are on the market.

My sign would read "Now is not the time to buy, wait for the market to become dry"

Alot of people are doing the wait and see. It's those damn Europeans that are going to keep the prices from dropping.

Posted by: guest at January 3, 2008 2:14 PM

you're being ridiculous, 2:14.

so when flat screen tv's cost 5 grand a few years ago, we should have picketed best buy and circuit city also because they cost too much?

or how about we all stand in front of union market protesting the 16 dollar chickens.

good lord you people are nuts.

just because you can't afford something or don't want to pay for something, does not make it overpriced. it's overpriced for YOU.

the 23% diminished inventory in apartments in nyc over the last year indicates that quite clearly.

Posted by: guest at January 3, 2008 2:18 PM

"The Europeans will save our Real Estate" -

substitute Japanese for Europeans and it is 1989 all over again.

Posted by: guest at January 3, 2008 2:18 PM

The difference, 2:18 is that people were TERRIFIED about the Japanese buying up property in the U.S back in 1989.

Now people are embracing the Europeans.

It's easier to digest since a huge majority of us are from European decent.

Posted by: guest at January 3, 2008 2:21 PM

2:03 - Sorry, I should have clarified.

I was refering to most of the bubble (or frothy) areas, not NYC.

The dynamics here are quite different than in many of the cities which kind of forces ppl to think less like a spectulator and more like homeowners.

For instance, in Miami, many of the completed condo towers are owned and yet no one lives there. Really, you may find one or two condo owners that actually wanted to live in the condo versus buying to flip.

You don't see that here. The vacancy is incredibly low. There are real reasons why. One of which is that the Stock of Manhattan apts are 75% Co-ops. The Co-op boards do a much better job at figuring out who is a spectulator and prevent them from buying and keeping it unoccupied while trying to flip.

Of the Condos that have been developed in Manhattan, many of those went to foreign owners. In particular, those foreign owners buy condos because there isn't a application and generally have a large cash down payment or buy without a mortgage.

There are a lot of reasons why NYC is not a speculator's market but more of a homeowner's market.

In fact, I would think that if you want to live in NYC for the foreseable future, especially if you believe this should be your home for the rest of your life, it is much better to buy because the value of homes in the future will surely outpace your income growth. That's not speculation. That's more of a hedge against being priced out.

Unfortunately, that cliche was used to dup naive people in many other cities. Fortunately for NYC current homeowners, it is exactly true. You will be priced out.

I actually tell people that you should buy a property here even if you think you are going to live elsewhere for a little while. As long as you think you will come back eventually. You can rent out your property and live elsewhere. Then, when you are ready to come back, at least you know you have a property and can never be priced out of the market.

Now, you may argue that the negative cashflow is crippling. But that will only be for a few short years as the rental increases over time. The question is, how badly do you wish to live here permenantly will determine if you should buy.

For many millions, the answer is that they do want to eventually live here. And for those many millions.... they really need to be homeowners in this wonderful city.

Investor Lou

Posted by: guest at January 3, 2008 2:24 PM

Bill Thompson will be the next mayor.

Posted by: guest at January 3, 2008 2:25 PM

Are the European investors betting on real estate prices or currency fluctuations?

Posted by: guest at January 3, 2008 2:42 PM

I think the Europeans just love New York City.

Just like a lot of us love their respective countries.

If I had the dough, I'd buy a place in Berlin or Paris or London or Barcelona.

Most New Yorkers would rather go 6 hours by plane there than go to Florida or Arizona or Vegas.

Posted by: guest at January 3, 2008 2:51 PM

Plemicist - I don't have a day job and when I did, I worked for the major investment banks including Credit Suiss First Boston, Bear Sterns, JP Morgan, etc. But that doesn't matter.

First of all, the CAP RATE and the Yield on a Bond are very similiar.

This is not the forum to discuss it. You are very naive as an investor if you think that the Yield does not change over time. Are you forgetting that while a Bond's initial Yield stays the same because the FACE VALUE of the bond stays the same, the Yield changes when the Bond is sold in the Bond Auction?

For instance, a $100 Face Value Bond has an inital Yield of 5%. That means it pays out $5 per year. Once the Bond is sold at a different price, say $110, it's new Yield is calculated as $5/$110 = 4.5% Current Yield.

The same for Real Estate. The Cap Rate is fixed in the beginning. So if the NOI is $50,000 per year and the price was $500,000.. the CAP RATE is 10%. BUT... if the NOI changes to $100k, the Cap Rate can be calculated again at $100k/$500k = 20%. BUT it is better to instead arrive at a price based on Current Cap Rate. So, if the CAP RATE for the neighborhood remained the same, which is 10%, then you have to solve for the equation, 10% CAP = $100k/Price

The Price must now be $1 Million. Same as the bond but done in a different way.

The other problem with your comments is that investors care about the Future Cashflows.... not the return on their equity. That's a very naive way of thinking. I'm not here to teach you, but please try to understand that when you buy a business, and thinking of Real Estate's future value is thinking of Real Estate as a Business, you are buying all of it's future Cashflows. That includes the last cashflow which is made by the sales proceeds once you sell it.

Sorry Polemicist. If you can't follow the argument, don't be condescending to me ("Stick to whatever your day job is.")

Keep your condescending attitude to yourself please.

If you want to talk about Theories of Real Estate Investing, then don't be condescending to me or anyone else on this board. You are starting to sound like "The What" carbon copy.

Investor Lou

Posted by: guest at January 3, 2008 3:02 PM

True, all but the French maybe. But if the currency values was reveresed, I would not think we would see this level of invenstment.

Posted by: guest at January 3, 2008 3:09 PM

Lou - not withstanding the relative lack of pure speculators (i.e. speculation without occupancy) the same speculative attitude (i.e. it doesn't matter what I pay since it can only go up) is present here in NYC; In fact you are the embodiment of that.

Yet you ignore the relationship between income and value that you so clearly acknowledge in earlier posts.

At some point if personal income doesn't grow to support prices then the speculative attitude will be destroyed (i.e. people will figure out RE can decline in value) and then the whole dynamic changes.

In NYC we can only count on foreign investment for so long (usually a sign of a market peak BTW) - eventually incomes and housing prices must return to a sustainable equilibrium - and the current layoffs and bonus pools on Wall Street seem to portend income actually going the wrong way - putting even more pressure on prices.

Posted by: guest at January 3, 2008 3:10 PM

Yeah but Lou you are being VERY VERY naive if you think current Cap Rates are the historical norm. Besides Cap Rates have no bearing on individual housing unit prices.

Posted by: guest at January 3, 2008 3:21 PM

Lou since you seem to be focused on investment properties - please explain why I would want to invest in RE (as a class) with a cap rate of 6% (equal to or less then the cost of borrowed money-so no leverage) when with ZERO effort and ZERO risk I can earn greater than 5% in a Money Market account?

Sure there are certain undermarket properties in certain areas that one could expect income to increase enough to justify a purchase (got to love rent controls) but overall what could possibly justify buying into such a speculative market.

Posted by: guest at January 3, 2008 3:26 PM

sorry, 3:27. you are way off...

From the FED....not FOX NEWS:

Of the households that did carry a balance, the median amount owed was $1,900. That means half of the households with a balance owed more, and half owed less. (Medians are less subject to the skewing phenomenon that plagues averages; thats why economists tend to favor them.)

Bill Whitt at the VIP Forum, a Washington D.C. research firm, helped me dig even deeper. By analyzing the credit card debts of all the households the Fed surveyed, Whitt discovered:

Only 29% of households owe $1,000 or more on their cards.

21% owe $2,000 or more.

6% owe $8,000 or more.

4% owe $10,500 or more.

1% owe $21,400 or more.

The Fed statistics pretty much gibe with what Fair Isaac, the creator of the FICO credit score, discovered when it reviewed millions of credit reports.

Posted by: guest at January 3, 2008 3:32 PM

3:10 - I DO ignore the relationship between income and value. What I DON'T ignore is the relationship between FUTURE INCOME AND FUTURE VALUE.

Who cares what the current income and current value is today? All I care about is the future income and value or the combination of the both so that the totality of both will cause my investment to increase.

Regarding foreign investors, I don't count on them all the time. But the conditions that the Government (high deficit) and the Feds (lower Fed Funds Rate) has create a very weak dollar which causes Foreign Investors to buy NYC (as opposed to a different city that is not considered international) real estate.

If the Dollar became suddenly stronger over time, then I will discount the Foreign Investor.

The current layoff and bonus pools are for 2008. That I have to pay attention to. But it was certainly obvious from the 1st half of 2007 that bonuses were going to still be good. But so many ppl did not take that into consideration.

ANYWAY.... I don't instruct on this blog.

You were not condescending unlike some on this board and that I appreciate.

We'll talk more, I'm sure.

Investor Lou

Posted by: guest at January 3, 2008 3:39 PM

3:26 - I'm not here to teach Investing Strategy.

But basically, with leverage, all you need to do is allow the market to bring the value of the asset higher, providing that you did your due dilligence correctly and are investing in the long term good economic environment (which I attribute to many neighborhoods in NYC).

So, for instance, if you invested $100k for a $1 Million condo where it will AVERAGE (note I said average so it may stagnate in the next 2 or 3 years and then go back to a normal 5% to 10% apprecation rate over the duration of 10 years) rate of appreciation is 5% will cause the value of the asset to increase to $1.55 Million.

If you used a $900k (90% financed) 10 year Interest Only mortgage, you rented it out for only $3,000 per month (which means you suffered a negative cashflow of minus $3,000 per month), your sales proceeds looks like the following:

1) Sale Price: $1.55 Million
2) Balance on Mortgage: $900k
3) 10 year Interest Payment on Mortgage: $720k
4) 10 Year collected rent: $360k
Sales Proceeds:
$1.55 Million minus $900k minus $720k plus $360k = $291k.

So, in 10 years you turned $100k into $291k.

That's a ROI of 291% over 10 years for an Average of 29.1% yearly ROI Average.

That also translates into a 13% compounded Internal Rate of Return (IRR).

So in reality, you cannot compare a 5% Apprecation rate of Real Estate to a 6% Money Market Fund without using the normal way of buying Real Estate as an investment using leverage.

What you needed to compare is the 13% IRR on the piece of real estate investment to your 6% Money Market.

In fact, I make much more than that in reality in the past 10 years I have been investing. But again, I'm not here to instruct.

Note also I didn't take into account increasing rent rolls or tax write offs but I didn't take into account that you had to put in work in order to make this transaction work.

ANYWAY.. enough... I'll leave it up to the Business Math ppl here to confirm my calculations.

Investor Lou

Posted by: guest at January 3, 2008 4:08 PM

Investor Lou
While you may have worked at multiple banks, its clear that you did not trade bonds or buy commercial real estate. For an investor in a fixed rate bond, neither your income nor yield can ever change (assuming bond does not default and you hold to maturity). The yield is used to compute the price of the bond. You buy the bond at a yield which remains constant. You will have mark to market gains or losses, but depending on the type of investor, that may or may not matter. You are correct in noting that on a sale the new investor may have a different yield on the same bond, but all that means is that the new investor is discounting the exact same cash flows at a different discount rate. A cap rate is not used to compute the price you should pay for a property. The cap rate is calculated, as you point out, by dividing the NOI by the price. The fundamental difference is that the cap rate is an output of the calculation, not the factor that determines price. In other words, the cap rate depends on what the price paid is and projected NOI. The price of a bond is determined by the yield. Yield is used to price an asset. Cap rate is used to compare relative value.

Posted by: guest at January 3, 2008 4:16 PM

4:13 I don't understand your last bulleted statistic. So you are saying that the home my parents bought in 1965 for $10,000 should have roughly only grown to $17,900 over this period of time and it was only the last few years that caused this phenomena to turn that 10K into 1.5M. I recall it being worth much more than $17,900 long before the last couple of years. Granted it was only 400K in the 80's, maybe 700K in the 90's, and the last couple of years have doubled that, but in 1965 a 3 story brick in park slope cost 10K. Those lovely brownstones weren't much more. Please explain your math? It doesn't seem to add up.

Okay, it is NYC. In 1974 they bought a house in Podunk, Nowhere for vacations. Cost 12K. Plus 3 acres. Sold in the 90's, 75K. At your rate return, it should have sold for less than 20K.

Posted by: guest at January 3, 2008 4:33 PM

most of the statistics provided by 4:13 are WAY OFF.

Posted by: guest at January 3, 2008 4:44 PM

Lou - even if you assume that the tenant pays all utilities and that you can get $3000 a mo for a 1M apartment, you ignore many, many costs

Closing costs (2x)
Brokerage costs on sale
Real Estate Taxes on Property
Taxes on Capital Gains
Common Charges
repair costs on property - over 10yrs there will be some.
No lost rent considered (10yrs w/o a single month of vacancy or non-payment???)
Insurance

Posted by: guest at January 3, 2008 4:46 PM

4:16 - Yes, I know that the yield on the bond is used to compute the price of the bond.

I was relating that concept to an investment in a property because the same calculation can be used.

In the bond's example, the desired yield changes depending on current yields. So, if a bond has a coupon rate of 10% but today's rates are at 5%, then the bond's price is at twice value not taking into account maturity.

In the CAP Rate example with Real Estate, if the neighborhood gentrifies (such as in Clinton Hill, Prospect Heights, etc.) and the average CAP Rate of the neighborhood changes from 10% to 5% on average, then you can mark to Market the Price of the Investment Property at twice the original value as bought.

Does that make better sense?

Investor Lou

Posted by: guest at January 3, 2008 4:51 PM

I'm so bored with all these statistics, theories, numbers, etc.

Yes, we know, invest in real estate for the long term.

But All I know is....middle class New Yorkers, can't afford to live in these middle class brooklyn neighborhoods, cause the prices are too high, and keep getting higher.

Posted by: guest at January 3, 2008 4:53 PM

4:46 - I also ignored the constant increasing rental every year. Even rent control/stabilization increases about 4 to 5% per year.

What I should have said was that the Net Operating Income (NOI) is at $3,000 per month but I don't want the readers to lose me with too much technical jargon.

Investor Lou

Posted by: guest at January 3, 2008 4:54 PM

for the love of god.

buy a house. or don't.

no one cares anymore!!!!!

Posted by: guest at January 3, 2008 4:54 PM

Then you are not a middle class New Yorker 4:53. Simple as that. If you cant afford a middle class neighborhood, well then, __________...

Middle class in NYC is upper class in most of the country. If you aint making 150K+ You are not middle class. Sorry.

Posted by: guest at January 3, 2008 4:57 PM

4:53 - Yes.. I know it's boring. That's actually why I don't really post. But for some reason today I did.

I guess I didn't have much to do. Just relaxing over the holidays.

The reality is that the surest way of making money is long and boring.

The excitement happens when you have the money to spend it after the boring stuff has been done.

Investor Lou

Posted by: guest at January 3, 2008 4:58 PM

Sorry Lou but Rents on MARKET RATE apartments (even RS ones) dont historically increase straight line 5% a year ( your assumption requires that your 1M apartment will be renting for $4900 in 10yrs) (and btw you think your going to raise the rent 5% a yr and not have a single month of a vacancy?????)

and even if it did no way are rent increases going to cover your mortgage and transfer taxes (2% on the buy side and almost 3% on the sell side) much less your repair and property tax costs.

But I can see why using your figures you believe you can't lose in Real Estate - unfortunately real life doesn't add up so well.

Posted by: guest at January 3, 2008 5:11 PM

Investor Lou
Erh, no you still don't make any sense. If you buy a bond with a 10% coupon at a 5% yield, the bond has a premium dollar price. If its a 30 year non-callable bond, dollar price is about 177% or 138% for a 10 year bond. If I continue to price the bond at 5%, the bond value drops every single day and you pull to par (100%) at maturity. That concept does not apply to real estate or cap rates. Real estate does not mature which is why you don't use cap rates to price property but as a useful metric for comparison.

Posted by: guest at January 3, 2008 5:12 PM

I disagree I find Lou's creative accounting quite fascinating

Posted by: guest at January 3, 2008 5:13 PM

Guest I am having my fun beating up Lou too - but I think you are wrong regarding cap rates. You most certainly can use cap rates to price property - it is a useful metric to price property TODAY and I fail to see why you can't acknowledge that - it is in fact the way commercial brokers often come up with the price (prevailing Cap rate applied to current NOI)
BUT
where I think Lou is way off is the assumption that you can reliably rely on current cap rates to predict future prices. In fact, it is exactly this kind of thinking that leads to bubbles. The reason for the unusually low cap rates is the ever increasing prices (who cares about income when the capital gains will be huge) but once appreciation slows or stops (which is inevitable w/o massive inflation or income increases) then the cap rates are going back up (b/c then income will be critical)

Personally the only metric that has any value to me for multi-family apartment buildings is Gross Rent Multiplier

Posted by: guest at January 3, 2008 5:21 PM

5:12 - I agree. I use a better example than the bond example and it does not compare to real estate's cap rate. I'll have to either modify the example a bit better or use a different instrument like the Forward Dividend Yield on a Stock which might better correlate.

5:13 - Not creative Accounting... Creative Investment Strategy. I'm happy to entertain you through such Strategy!

5:21 - Not really relying on current Cap Rates but FUTURE Cap Rates. I anticipate a lowering of Cap Rate for a neighborhood as it becomes safer, more gentrified and private and Government Investment.

I think you have my logic a little backwards. I'm anticipating the increase desirability of the neighborhood so I buy in at a Cap Rate that I know will trend downwards as the neighborhood becomes more desireable, safer, trendier.

Pratt Institute is helping Myrtle Ave area near Hall St by announcing their development. I anticipate that the Cap Rates will move down.

The Cap Rates move down because of 1 of 2 reasons. 1) Increasing Price of the Building or 2) Increasing Rental Income of the building.

It's because I am anticipating a combination of the both that I don't use just Increasing Price. By using CAP RATE, 1) and 2) are implied.

Does that make much sense?

Gross Rent Multiplier does not take into account Deferred Maintanence or increasing expenses. Cap Rate does, however, in it's anticipation of Net Operating Income.

Many times I will meet with a Seller who will want to quote me the GRM and I have to ask about the expenses to get a NOI.... which leads to Cap Rate! See?!

Investor Lou

Posted by: guest at January 3, 2008 5:37 PM

For the graduate students who are (inevitably) writing dissertations about the way we (contemporary NYers/Americans) deal with emotional and moral crises via real estate, this thread will be great material.

Posted by: guest at January 3, 2008 5:44 PM

For what it's worth:

Rising average prices, and even rising median prices, do not necessarily reflect rising prices.

Which is to say, many units selling are new luxury condos, which command a price premium. This drags up both mean and median prices, AND drags up mean and median price per sqaure foot. BUT the increased prices for those units reflects the increased quality of those units versus the older stock. SO, if you have a coop apartment to sell, none of the rising price data means that the price of your particular apartment has increased... the apartment itself, after all, hasn't changed. (This of course excludes any renovation, and the chance of luckily having bought into a particularly hot neighborhood.)

As an example, I have a coop in Fort Greene. Over the last few years I've checking comps in my building and around the neighborhood, while considering selling and taking my profits. What I've seen is this: even in one of the hottest neighborhoods in NYC, even as Corcoran and Brownstoner commenters shout into the wind that prices are rising, the value of my apartment doesn't seem to have changed since mid-2005.

Many property-owning Bstoner commenters seem really enthusiastic about data showing rising prices... but they would do well to remember that it doesn't mean that the value of their property has risen.

Of course, Corcoran is going use the data to tell someone who bought in 2005 that they can sell for double their money... and buyers might even swallow it. But it seems to me (admittedly not an economist) that this represents an artificial kind of price inflation. I think those owners who have themselves convinced that their property has greatly increased in the last couple years while putting no work into it and with no real neighborhood change, will be the most vulnerable to depreciation if/when the market cools.

Posted by: guest at January 3, 2008 6:19 PM

6:19 - Very good post, and right on the money.

If anything, the spiel provided by the brokerage firms may generate enthusiasm and exaggerated expectations among potential sellers. The result: more listings. Educated buyers (not foreigners), on the other hand, are becoming much more cautious with a purchase of this magnitude and will look very carefully at the comps and the real condition of the market. From what I've read, pretty much every potential buyer on the blogs understands the degree to which these #s are being spun by the brokerages.

I think medium-term this is just going to generate an increase in inventory and exacerbate the market. We'll know in a few months.

Posted by: guest at January 3, 2008 6:31 PM

5:36 Polemicist - I think we are at a misunderstanding. My definition of Cashflow is NOI minus Debt Service.

How did you think I was was talking otherwise?

The other thing is a Neighborhood does have a CAP Rate and it changes over time.

For instance, Bed-Stuy was a dangerous and undesirable Neighborhood. There is a risk to investing in Bed-Stuy a while ago. An investment property will be harder to manage because you will generally have lower FICO score individuals and higher vacancies.

The Higher the Risk, the higher the Cap Rate.

In fact, I normally use a DCF model or more likely, an IRR model.

I just didn't want to the readers of this blog to become Bored... which have already been achieved and I certainly didn't want ppl degrading themselves to condescending laugage, which I believe you have already done.

As far as the GM Building, I would probably perform the DCF or IRR calculations to around 10 years.

There must be something about my posting that is mixing up people, and for that I appologize.

But have you found me to be condescending or Arrogant?

Whether or not I have heard of Inwood or Hoskold premise doesn't mean I can't arrive at my own analysis or theory.

After reading your reply to my posting, I'm not sure you are reading my posting very thoroughly.

Is it worth arguing here? Probably not.

Investor Lou

Posted by: guest at January 3, 2008 6:50 PM

How will there be more listings? Please explain that logic. More newly completed condo listings are coming if condos are your thing, but the listings of houses are going to dwindle more and more. How many houses do you think there are in Park Slope, Cobble Hill, Carroll Gardens? There's already plenty talk of how low the brownstone inventory is in those areas. There was a huge wave of new homeowners coming in and buying up those houses over the last several years. On our block, all the older homeowners have sold except about 4 brownstones, and a couple of those will pass their houses to their kids. Like we ourselves plan to do 40 years from now. The new homeowners aren't flippers. Most new brownstone owners are entirely based in NYC in their careers, so they are there to stay. They might sell to buy a different place, but the more the market dips the less likely they will sell to trade for something else. You can hope people get a divorce I guess, but don't think you will see as many houses on the market again as you did in recent years. Nobody is going to sell for less than they paid for the house plus renovations, if the market drops. Don't even know where that idea comes from. The irony of those who waited to buy and now think there will be bargains, is that the inventory will be down to scraps.

Posted by: guest at January 3, 2008 6:52 PM

Yo! Investor Lou, up yours!

"For instance, Bed-Stuy was a dangerous and undesirable Neighborhood. There is a risk to investing in Bed-Stuy a while ago. An investment property will be harder to manage because you will generally have lower FICO score individuals and higher vacancies."

How would you know that? It was called Redlining (Racism)

"The Higher the Risk, the higher the Cap Rate"

Nope stupid. The questions to ask (income-expense=profit). I wont go into detail about this.

"But have you found me to be condescending or Arrogant?"

No I think you are a mother fucking asshole. I wish you kill yourself. Fuck you!

The What (Yes the What Bitch!)

Someday this war is gonna end....

Posted by: guest at January 3, 2008 7:35 PM

There really is NO need to use language like this or get so angry.

Well, all I have to say is I'd love to have Lou over for dinner to discuss...even Polemicist could come to debate. Mr. Polemicist, you work on tall buildings, am I correct?

Oh, well. This has been interesting though tiring reading. My eyes are not what they used to be.

I just wish the F-word could be avoided by Somebody...and Polemicist was a bit obnoxious when it really wasn't called for. He usually is. Though, I do agree with him on his main long entry at the top regarding the economy in general.

Thanks everyone for some food for thought on this cold January evening!

TheGrammarLady

Posted by: guest at January 3, 2008 8:05 PM

I've read all the post and did the calcualtions and I think I finally get it.

Save Money!!

Posted by: guest at January 3, 2008 8:32 PM

haha! I'm glad Mr. What is around. We need a few laughs.

So when a LandLord requires a FICO Score as part of his criteria, he is "redlining?" You need a history lesson on the topic, obviously.

HAHA!

HELLO (knocking on the hollow head of Mr. What and hearing only echos)...

Are you saying that only Whites have high FICO scores so therefore I am being "Racist?" The shoe is on YOUR foot... Mr. What.

I have a good mixture of races (including myself since I am a minority) in all my buildings.

Investor Lou

Someday "The What" is gonna to end....

Posted by: guest at January 3, 2008 8:50 PM

Can we invite Babs Corcoran to dinner too?

Posted by: guest at January 3, 2008 8:58 PM

"including myself since I am a minority"
No Assholes are not a minority.

"So when a LandLord requires a FICO Score as part of his criteria, he is "redlining?" You need a history lesson on the topic, obviously."

No dumbfuck! Here is your quote "For instance, Bed-Stuy was a dangerous and undesirable Neighborhood. There is a risk to investing in Bed-Stuy a while ago. An investment property will be harder to manage because you will generally have lower FICO score individuals and higher vacancies."

To get a mortgage you had to suck eggs because Banks engage in Redlining. Rates were higher in minority neighborhoods stupid.

In my career I had to deal with fucks like you, all snobby and shit. I will be happy for the "Baseball Bat" that awaits your future. Now go play with your turd in the sandbox.

BTW Asia (remember them) Markets are in Red Alert Mode. Nikkei is down 676 point plus it's a half a day trading in Tokyo.
Pray that shit don't spread to here. Have a good night.

The What

Someday this war is gonna end....

Posted by: guest at January 3, 2008 9:58 PM

The What is a moron! Long live The What.

btw: The What is a crack whore.

Posted by: guest at January 4, 2008 12:03 AM

Sorry Mr. What, you don't make sense.

haha.. so because I choose to invest in neighborhoods that are:

1) Safer
2) Desireable
3) Higher Qualified Tenants
4) Higher Occupancy Rates

I am practicing redlining? hahahaha!!!! Ohhhh.. man.. that is really making me laugh hysterical! You really made my evening! Keep up the good work! They say laughter adds 15 minutes to your life expectancy! LOL!

BTW, if you get into the sandbox, I'll play with you (since you want me to play with my turd)!

Investor Lou

Posted by: guest at January 4, 2008 12:20 AM

Most. Tedious. Thread. Ever.

Posted by: guest at January 4, 2008 2:34 AM

Is "Investor Lou" just "The What" arguing with himself?

Posted by: guest at January 4, 2008 1:21 PM

Polemicist almost had the last word...

Posted by: guest at January 4, 2008 9:29 PM