Attendence Falls at Brooklyn Open Houses

Regarding those who are "under water" - I don't quite get why this is a huge problem if those recent buyers intend to stay in their places for many years to come. If that's the case, it's just a paper loss, and eventually the market will recover and hopefully at worst (depending on when they sell, and how long market takes to recover), they'll have saved rent money and it will be a wash. Also, many many current owners are still way above water, even if prices go down a lot - since prices shot up so high, so fast. For example, I have friends who bought a 4-story, 20' wide townhouse in Prime park slope for just under $1mil in early 2001. Of late, those kinds of houses were asking $2.5, if not more! So, let's say there's a drastic correction and the market plummets by half (which I doubt but in this climate anything is possible). So that house let's say sells for $1.25million. Well, those people who bought just 8 years ago, still clear 250K from their initial investment, not to mention all the years they saved in rent/tax breaks. Yes, flippers/speculators will suffer now, as will those who used their home like an ATM, but I would hope the vast majority of owners do not fit these categories.

As for the open houses, I think many buyers, like myself, are just waiting til the sobering new reality sinks in to NYC sellers and they adjust their asking prices to reflect this new reality. The continuing greed of certain brokers/sellers still astounds me, especially since they can still come out of this with a net profit, but just vastly reduced expectations. Until that starts to happen I may go by open houses, but I'd rather save my time until prices readjust to more realistic levels.

Posted by: Miss Muffett at October 8, 2008 10:35 AM

Wasder - we too are looking for a 2-family house, and while we are lucky to have cash reserves from previous sales, one thing has changed is that we probably want to shoot for a more conservative budget given the current economic climate. We were willing to "stretch" before, but this does not seem a wise time to do so. But had we bought earlier, like you, and loved our house, we would just realize that as long as were in it for the long term, we'd just have to tighten our belts and make do during the lean years as well as possible. But for buyers entering market now, the overwhelming signs of further price reductions to come create a very different climate that when you probably bought. It's one thing to have a "paper" loss - it's another to see, as I have, in one week, a house hitting the market at 2 mil, and weeks later, it being reduced by several hundred thousand dollars. Now, why would I want to be out all that extra money when I know more price cuts are coming? We're fine in our current rental and can wait, but ultimately, I think a decline in prices will be good for everyone since most sellers will still do fine whereas many previously priced-out buyers can now enter the market.

Posted by: Miss Muffett at October 8, 2008 11:08 AM

When I talk about greed of brokers, I speak from experience. When we sold, we had some brokers advising us we should have asked even more. In the end, we went with the broker we trusted most, who actually priced slightly under market (since market was already looking as if it might soften) and we unexpectedly had a bidding war, but mind you this was well before Bear Sterns tanking and all the rest. Now, mind you, we are not dumb, and in order to buy another property, we too were hoping for the best price we could get, so we got lots of opinions from brokers and the ultimate price we both asked at and closed at was within relevant comps - but my point is that we were willing to accept something a bit lower given that the market was indeed looking soft - in fact, I was expecting to get up to 10% or so below the ask. I think our broker was just very smart to price conservatively and drive up interest in the property. But we were not "holding out" for an unrealistic price since we knew that the price had already shot up so much more than what we paid, in just a few years, that even if we'd gotten less than the final closing price, we would have still done very well. In any event, I thank my lucky stars that we sold when we did, and that we did not follow the advice of those brokers who thought we should ask for more. Friends of mine who followed that strategy got stuck with their places lingering on the market and as conditions worsened, they had to start making price cuts.

As for hoping to a buy a place for the lowest price now, I've also stated repeatedly, we are emphatically not waiting for the market to bottom per se. So, if we "overpay" a bit for a property we love, and it subsequently goes down in value further, that's OK with us if it's really the right place. I just have seen total crap with astounding price tags that I think are just ridiculous, and moreover, often these places don't move but the buyers/brokers dig in their heels and refuse to budge on the price. I don't know, maybe it's not greed, maybe it's just ignorance. And by the way, as I've also stated here, I actually don't want the "lowest price possible" since I think if prices *really* tank (say, more than 50%) than it could be bad for all of us who choose to live here since the city could really suffer. I just want a return to sanity, which hopefully will be the final upshot of this crisis when the dust settles.

And by the way, those who say this is a good time to buy, I say it actually is not - most sellers/brokers have their heads in the sand and have NOT adjusted their still sky-high prices. But I'm sure, eventually, they will. And sometime in the near future - perhaps 1 month, perhaps 6, perhaps 12 (no one really knows), it will be a great time to buy, especially if you don't need a huge mortgage. We continue to look actively, and will pounce if we see the right thing, cash in hand. But I simply refuse to waste my time going to an open house for properties that have absurd prices.

Posted by: Miss Muffett at October 8, 2008 1:48 PM

Woops, I meant above that the *sellers*/brokers sometimes dig in heels and refuse to budge on price..

Posted by: Miss Muffett at October 8, 2008 1:53 PM

I agree with jingle mail. Subsidizing the excesses of NY real estate would be flat out morally wrong. When we bought before, we were very careful to stay within our means. When we sold, we priced conservatively to sell fast, and were prepared to accept significantly less. And now that we are renting, we are living frugally and not pissing away money beyond our means, so that we can keep our savings protected to buy a new home that is also within our budget, which has become more conservative given the economic crisis. I think the excesses of this country in the last few years, which in some ways are epitomized by NYC, were gross, and I think one of the silver linings of the current crisis is to reinstate values of thrift and living within one's means.

Posted by: Miss Muffett at October 8, 2008 2:14 PM

Aussie - please don't lecture me about gloating about morality. For years, owners/sellers have gloated about their rising prices as I was actually not able to afford a larger place for my growing family. And you seem to automatically assume that I personally will not be hurt by what's going on and that's not true. I don't want to reveal personal details but suffice to say that people close to me are feeling real pain due to the stock market declines and that does indeed affect me. And, I, like many in this climate, feel some anxiety about job security. My relating my experiences is not to gloat, but rather point out that much of what I'm saying is based on experience and I've also said that we were just plain lucky more than "smart". I have also gone out of my way to point out that I precisely do not want what some might think is "best for me" (total market crash) since I strongly believe that each individual, myself included, is part of a broader community and that community needs to be healthy for an individual to be so. So no, I don't actually want a total crash since while it may allow me personally to buy something all cash for a song, it would hurt the community in which I live. But a significant correction would be good for almost everyone except the few owners who intended to flip, or stretched beyond their means since they drank the kool-aid. I'd like to see a return to a city that is more affordable and a culture that is not consumed by excessive spending beyond one's means.

Posted by: Miss Muffett at October 8, 2008 4:07 PM

And P.S. I hardly think a brownstone owner is "suffering" all that much if they bought their house for 1 mil 8 years ago and now sells for 2 mil or even 1.5, instead of 2.5mil per the current asking prices. Or if any other seller makes, say 10-15% over their original purchase price instead of 100-150% They are still clearing plenty! And I also totally disagree that Wall Streeters made bonuses all these years because they were "smart" - it's clear that our system was just not working properly and a lot of people made money by taking advantage of that, but not necessarily because they were "smart" (maybe some were, some were not but I would not correlate Wall St bonuses of the last few years with intelligence)!

Posted by: Miss Muffett at October 8, 2008 4:12 PM

Well, maybe no one's reading this thread anymore today (my kids are finally in bed) in which case, I'll pull an Obama and tack on this question to the next topic (I say this in admiration of his performance at the debate last night).

But if you are reading, Aussie and z, please explain to me, since I don't quite understand, how many owners in NY, other than the flippers/speculators, *will* actually be hurt by a price decline. My understanding is that most buyers who buy to have a home (rather than a speculative investment) plan to stay for quite a few years, at least 5 and often longer. Since the market shot up so high, so fast, even if we went down to 2003 levels, which would be pretty dramatic, most current buyers would not be at a loss except on paper. Now, if they've outgrown their apartment and need to trade up, they might actually be in a better position in a down market (provided they are not relying on increased salary in this environment). That is, let's say they come into some cash through inheritance, or decide to plumb their savings, which is what allows them to trade up - even if their current property has lost value compared to say 2006, if they bought in 2003 and they sell for same price as 2003, then their pot of extra cash has more purchasing power than it did in 2007. Of course, if they don't have this extra cash, trading up will be hard, but that's always been the case unless you are counting on getting big salary increases and/or you decide you are just going to really stretch financially.

And then there are people like Wasder, who seems like a saavy, financially prudent person. He (or is it she?) may have paid a bit more for his house than it will be valued in the next few years, but it also sounds like the mortgage payments are very manageable, the place is great, and he intends to stay there a very long time. So I really don't see how this paper loss is painful in any way other than the psychological impact which I don't discount entirely but also don't think is truly "painful" in a dramatic way. I am optimistic enough to think that in the longer term - 10, 15 yrs+ - the NYC market will recover and eventually go back up, but I also strongly believe we are in for a long period of price declines and stagnation, since the bubble we just lived through was so huge. And who knows, maybe the recovery will be much speedier - surely, it will eventually happen. And then the Wasders of Brooklyn, who I'm sure were all doing their best to make a great home in this great borough during the bubble years, will indeed be just fine.

So that leaves the people who purposely bought properties more as investments than as homes, with an eye towards selling rather short-term, presumably in the hopes of making a profit. I'm not calling the flippers/developers/speculators miscreants, but it does seem to me that they gambled on what looked to many like an unsustainable market and now they unfortunately will pay a price. And I'm not necessarily saying they "deserve" to get punished - I'm not a sadist - but I simply think that they are principal ones in NYC who will suffer from price declines, NOT buyers who have owned for longer than a few years and/or who are not intending to sell anyway. And that's why I don't get the fear that many sellers seem to have now, if they have owned more than a few years.

As for the brokers, I respect some of them very much since many are hard-working, honest, good people - but others are greedy and much slimier. I don't want them to suffer per se either, but I must confess I feel little sympathy for a broker whose commission for selling one house shrinks from $120,000 to, say $75,000. They did very well in the boom years and if they were wise, they socked a lot of that away for a rainy day.

So Aussie, when you say "To bring brownstone prices down to a level that will permit you to buy what you want, Miss M will mean additional pain has to be applied elsewhere also to people who are really feeling it already." - what exactly do you mean? I'm not being flip or disrespectful, I just truly don't understand and it would be helpful to hear your explanation.

As for the person who suggested I am crying "poor me" because I could not afford a brownstone in prime Bklyn, keep in mind that brownstone can mean lots of things. Sure, there are grand ones, but there are also very modest, narrow ones where living on a duplex with a garden rental is essentially like having a 2-3 bedroom apartment for the owner, and thus is not that much more living space than many family size apartments. We are not ruling out apartments but it seems like, given the advantage we have to have capital for down payment, it would be a better investment to buy a 2-family house that is subsidized by rental income. That said, I fully realize my good fortune for all kinds of reasons. But to think I'm gloating and hoping for the suffering of others is just not fair. This is an anonymous blog, so while some may speak of good luck, everyone's life is a mixed bag of good and bad luck. It's not as if I've never been unlucky or made a bad decision. And I can't stress enough that I don't want a total meltdown since the broader consequences of that are scary for me as well as pretty much everyone else!

At the end of the day, my posts are not about what I "wish" the market would do, but rather commentary about this topic

Posted by: Miss Muffett at October 8, 2008 9:42 PM

that clearly we are all interested in. Nothing any one of us writes is really going to affect the market - it has a life of its own.

(this part of my last sentence got cut off)

Posted by: Miss Muffett at October 8, 2008 9:47 PM

Wasder, Aussie, z - thanks for your responses. And Wasder is right that I did not mean we were looking for a 2-family house as an "investment" to sell off soon. If anything, we want to stay there for the rest of our lives! I just meant that it seems wiser to us to exploit our advantage of a big down payment to buy a bigger place with rental income to subsidize our mortgage. A 2-family home also allows the possibility that we could eventually take over the whole house (if we are lucky enough to have our financial circumstances improve) when our kids get older. Since we are hoping to live in a duplex of a 3 story house for the near horizon, our living space would likely not be that much bigger (and maybe even smaller) than some of the 2-3 family size apartments on the market. But we'd be providing a hedge regarding affordability, and not getting into a situation where we have to sell again soon if we feel we need more space.

Posted by: Miss Muffett at October 9, 2008 1:34 PM

Ugh, I meant to say 2-3 **bedroom** family size apts. Doing these posts while multi-tasking leads to lots of typos!

Posted by: Miss Muffett at October 9, 2008 1:36 PM