Open House Picks: Six Months Later

BrooklynGreene - "it seems to me looking at the graphs comparing Brooklyn to other areas of the country, we simply did not have as much of an increase in prices so we should see less of a collapse, no?"

Are you serious? Prices in prime Brooklyn more than doubled in some cases in just 4 years! Is that less of any increase than other parts of the country? I think the price explosion in Brooklyn has been absolutely shocking, so I think we are quite vulnerable to a significant correction if not an outright collapse.

Posted by: Miss Muffett at November 14, 2008 10:18 PM

Traditionalmod - no doubt, the factors you quote are one of the reasons for rapid price appreciation in Brooklyn the last 10 years, but another, crucial reason, was easy credit and classic bubble behavior where everyone buys into the crowd mania that you don't want to "miss out" as things shoot up. That kind of crowd behavior can also happen on the way down. I can't stress enough that the rapid price appreciation of last few years - in some cases doubling in less then 4 years - was a major bubble fueled by lax credit and crowd mania. We ourselves were qualified to borrow way more than we thought prudent, and did not take advantage of this credit, knowing it was too risky - but many others did.

Your statement "you don't yet see financially qualified buyers saying they prefer to rent an apartment instead of buying a house because they see no future whatsoever in Brooklyn" makes no sense. For one thing, there are plenty of financially qualified buyers - I'm one of them, and I know others in same position - who definitely DO prefer to rent an apartment right now, even if technically we could stretch to afford a house right now. The reason we prefer to rent is NOT because we "see no future in Brooklyn". Rather, we don't want to overpay by several 100K when prices ARE starting to tumble - witness more and more houses that get price chops of as much as 400K, and more, within a matter of weeks.

I do see a future in Brooklyn, but I also want to be financially prudent, since I, like many qualified buyers, also see that even with cash in hand, our other financial assets are shrinking (retirement/college savings) and our income might be vulnerable. And when all signs point to continuing declines, why should buyers, even well qualified ones, buy when prices seem sure to go down further. I know 11217 and I disagree hate when I repeat this, but attitudes like yours are precisely why I must repeat: only 4 years ago, prices for many properties were less than HALF what they were now. So really, why is a 25-50% decrease so unlikely? Sure, some sellers who don't need to sell will take their places off the market, but other sellers - say someone who bought in 2004 and now is getting a divorce or losing their job - will realize that it's better to sell at a price that is close to or just above what they bought for, and at least they have that cash in hand. And many others, who bought before 2004 will still make a profit. The people who bought since 2004 and may have to take a loss will be the people who suffer the most, and those distressed sellers may be the ones who are least able to just "take their place off the market". All of this is classic downturn stuff. And your assertions sounds like classic denial.

Posted by: Miss Muffett at November 15, 2008 11:30 AM

Traditionalmod - maybe a more succinct way to put it is: it's the price, stupid. (not calling you stupid, just a version of "it's the economy, stupid). I'm not dissing Brooklyn - I love it, and it's here I've made my home. I'm an active member of my community (was as an owner, remain so as a renter, and will continue when I buy my next place). Refusing to pay an irrational price does not mean you "see no future in Brooklyn" - just that you are not financially suicidal. I'm certain prices will continue to decline and when they become more rational, then I will indeed buy in this great Borough which I love but which, due to a crazy bubble, became overpriced in the last few years and will now experience a correction - which, mind you, will still leave prices plenty high compared to most of the US.

Posted by: Miss Muffett at November 15, 2008 11:44 AM

One final point Traditionalmod - you, like other critics of the market bears - claim that we bears are somehow saying "old houses aren't that really all that great". Can you please show an example of this? I certainly have never said that. I love old houses, and I imagine most avid followers of a blog called "brownstoner" feel the same. So I repeat: it's the price, stupid. That's really the major thing the bears are disputing - yes, a lot of these homes may be beautiful, but the prices have become irrational and the bubble must pop. And it's not up to the bears on the blog to "convince everyone real estate in NYC is plummeting" - a few anonymous posters on a blog don't have that power. Rather, the evidence is all around us - the market is much bigger than any of we individual brownstoner posters!

Posted by: Miss Muffett at November 15, 2008 11:52 AM

Traditionalmod - last time there was a big housing downturn in NYC (late 80s-early 90s), plenty of people sold at a big loss. Not sure why you think so many sellers would not just be able to "ride it out" this time, when this financial crisis is much greater than any since the 30s. I have plenty of faith in Brooklyn's long-term viability and disagree that a 25-50% reduction means it has to become an unlivable place. Fact is, it has not changed **that** much in the last 5 years, certainly not enough to merit the huge price increases, and I don't think it will change that much on the way down either.

Posted by: Miss Muffett at November 15, 2008 3:23 PM

Woops, I meant to say to traditionalmod, I'm not sure why you think so many sellers *would* be able to just ride it out this time. You and others assert sellers will "hold out" as if this will keep inventory low, and thus prices high, but the (sometimes sad) fact is, people always need to sell, and especially in times of financial distress which is going to hit from many sides right now.

Posted by: Miss Muffett at November 15, 2008 4:57 PM

Well dylanfan, that may have been true of your building, but I know tons of people who bought between 91 and 98, so plenty of sellers did sell. Pretending that no one will sell in this market is sticking your head in the sand. Besides, you yourself bought in 91, during the downtimes, so the person you bought from obviously could not "sit tight", despite the fact that the studio was worth half what it was worth only a few years previously, by your own account.

Posted by: Miss Muffett at November 15, 2008 6:27 PM

dylanfan - Why do you think I'm overestimating number of people who need to sell? Some people always need to sell period, and those people will have to lower prices - period. Significantly.

Posted by: Miss Muffett at November 15, 2008 9:23 PM

Aussie - your sarcasm, like others', is misleading and unfair. Of course I don't think it's unfair that most people cannot buy a brownstone. No one is "entitled" to anything. But you're right that I think it's unfair that, up until recently, many first time buyers were unable to afford even a modest apartment in many cases when they had worked just as hard and saved just as much as first time buyers in earlier eras but the prices had gone through the roof and homeownership thus seemed unattainable. It's equally unfair that some people should lose their savings now. In other words, there is *always* unfairness. Contrary to your comments, I do feel compassion on *both* sides. What I find ironic is that I am accused here of being so callous since some people are now being hurt by falling prices, but what about all the people who were hurt by skyrocketing prices during the run-up? As for the buyers of my apt, I would not call them "some poor chump" - I stay in touch with them and know they are very happy since they intend to stay there a long time, and at the time of our transaction, the property was actually very well-priced so it was a good deal for both parties. Please, spare the moralizing. I am commenting on facts and historical precedent, and yes, my predictions (which, however, are backed up by many others out there), not passing moral judgments, as you seem to enjoy. I've been following real estate very closely for years, including this blog, and I certainly did not hear many owners expressing sympathy for buyers priced out during the boom and I'm not just talking about buyers of brownstones, for heaven's sake.

Posted by: Miss Muffett at November 15, 2008 9:42 PM

Dylanfan - fair enough, and I agree that it makes sense that, if you find a property you love, there's no reason not to bid on it if it's within your budget. I don't think we disagree on the big picture. As for the word "correction" I use that as opposed to "crash" since, precisely for the reasons you and Aussie outline, I think it's likely there may not be a total crash of the overall NY market, as some areas will hold up more than others. That said, when one looks at everything else that is happening economically right now, so much of it was unfathomable just a few months ago, and so it's anybody's guess what will really happen. A crash is thus not out of the question, but I am trying to be optimistic - again, for reasons cited by my ostensible detractors (like traditionalmod). That is, even prime Brooklyn would suffer from an all-out crash, but I honestly think a pretty significant correction (25-50%) would not hurt that many people since indeed there would be many people - those who bought within last 5 years for example - who would do everything they could not to sell at a loss (they would be among the only ones to really have to), and those who'd bought more than 5 years ago would probably break even at worst, even if prices drop as much as 50%.

I'm not expecting to buy a property for a song, and I realize that of course I - like just about everyone - cannot have everything I want at the price I want. That is indeed life. But all economic indicators do point to continuing declines, even in prime Brooklyn, so I'm simply patient, though I too will bid if a I see a property I love, in my budget range, at an offer that is both reasonable and affordable to me. I'm seeing houses get price cuts to bring them more in line with my expectations and expect this trend to continue.

I am interested, however, in what the more bullish folks on this blog are predicting - Aussie, 11217, traditionalmod. Of course, by now everyone has conceded that some price drops are inevitable since to say otherwise really does seem delusional. And yet I'm surprised by the adamant insistence that they could not drop as much as 25-50%. So what do the more bullish people think - 10% max? 15%? I'm truly curious.

By the way, Aussie's arguments about desirability, rarity, etc. is one of the arguments that has commonly been made (and repeated over and over, 11217) to justify high prices. But cities go through cycles and while NYC is a great city and has been for a long time, it has had its boom and bust cycles. Currently, there is a lot of talk about tax policy and its impact on higher income residents - precisely the folks who could buy in prime Brooklyn. It's not a given that everyone will just stay in NYC out of loyalty to this great city, if their tax burden becomes too great. This is just one of many complex factors that may impact NY real estate. But the bigger issue is that, for all the people who swear up and down that Brownstone Brooklyn real estate can never fall that much, how many of you thought you'd see the stock market where it is now? Or the government bail-out going on now? We are living in unprecedented times, and I'm amazed that in spite of that, the more bullish people on this list insist that the bears like me are crazy to predict declines of 25-50% -- which, given the run-up, is not even that large a decline! Maybe it won't happen, in which case, yes I'll probably cave in and buy a bit higher (say 15-20% off), but I'm certain that we will indeed get a much bigger discount in the future than if we buy right now.

Posted by: Miss Muffett at November 15, 2008 11:01 PM

Aussie - re: "There was no equivalent of this type of post when property prices were going up. Certainly nothing that I saw and nothing repeated so often." Are you kidding? If I had a dollar for each time bulls disdainfully spewed vitriol at "bitter renters" and *very* gleefully noted how much prices were rising, it would probably be enough for a brownstone downpayment! There certainly were plenty of stories of the riches to be made in NY real estate, plenty of gloating and glee, etc. The difference is that the misfortune was left to those who were priced out, who were simply considered losers for not buying in earlier. Do I feel lucky to have sold when I did, and now be in a position to get a discount? Of course. Do I feel glee at other's misfortunes? No, I'm not a sadist. I sincerely hope the person we buy from is not a distressed seller - I felt good about the transaction when I sold, and I'd like to feel equally good when I buy again. As for "delving into circumstances" of sellers, the only thing I'm really delving into is the price they paid to buy in the first place - all info which is readily available on Property shark and other public sources, as well as more specific info I have from owners I know.

Posted by: Miss Muffett at November 15, 2008 11:43 PM

But Aussie, how do you account for 50% drops in prime areas of NYC last time there was a downturn (late 80/early 90s)? Also, what is considered "prime" is obviously open to debate. Sure, there are the grand streets of Brooklyn Heights and the Park block Park Slope mansions. But about South Slope? Where does that fit in? Just looking at Park Slope as an example, there is a core to it that would probably be considered indisputably "prime" - say the name streets within PS321 that are close enough to park and the express trains that they are highly desirable. But just about every other part of it has its detractors whether the architecture is less lofty (southern part, western part), schools are not as good (north of Union), etc. etc. For buyers like us, who are not looking for a very grand property (just one in a decent school zone), I do think the discounts could be significant since we don't need one of those very fancy mansions. Anyway, I've been reading predictions on this blog for years about how NYC real estate is too rare, desirable etc to suffer a downturn, and now that it's indisputably heading for a downturn, I think the bulls are reluctantly becoming bearish, albeit "less bearish" than those who've been thinking for a long time now that a correction was inevitable given the unsustainable, unprecendeted run-up.

Posted by: Miss Muffett at November 16, 2008 10:27 PM

But Dylanfan above points out that he bought a place in 1991 for 40K on the upper west side when similar apts in his building sold for 80K in late 80s. Are you saying upper west side was not prime? So, a 50% drop. Maybe statistically averaged, there was not a 50% drop but again, anecdotally, there were certainly plenty of steep drops (again, I know quite a few people who benefited from them at that time) in the last downturn.

Posted by: Miss Muffett at November 17, 2008 10:08 AM

I hear you. And, I realize that NONE of us can know what's going to happen. There is no historical parallel to the current situation for all kinds of reasons - some of these reasons may buffer the downturn (NYC having less crime, Brooklyn having gentrified more, etc.) and others may exacerbate it (greatest financial crisis since the Depression). Anyway, as I've said repeatedly, I'm not expecting to buy a grand mansion in prime Park Slope for under a million dollars anytime soon, but I do think a return to 2004 prices, for example, is not inconceivable (and hence, smaller houses in the south slope, for example, could go back to selling for under a million). The one thing that everyone agrees on is that there will be further declines, but the degree and length of those declines are anyone's guess . We simply are continuing to look actively, all the time, and bidding when we are serious, but are also very patient as we are fine for the moment in our economical rental and for sure, there's no rush to buy.

Posted by: Miss Muffett at November 17, 2008 12:43 PM