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July 16, 2009

Elliman: Brooklyn Market Improved in 2nd Quarter But...

Sales volume in Brooklyn leapt 20.4 percent between the first quarter and second quarter of 2009 and the median price of co-ops and condos ticked up 2.9 percent, according to a report out this morning from Prudential Douglas Elliman. "It suggests there was pent-up demand from unusually low activity," said Jonathan Miller, CEO of real estate appraiser Miller Samuel, which compiled the report for Prudential Douglas Elliman. Before everyone breaks out the champagne and declares the real estate market in recovery, though, the report also notes that volume was off 29.7 percent versus a year earlier. Prices were also down dramatically from a year earlier; for example, the average price of a one- to three-family home in Brownstone Brooklyn fell 15.9 percent. "Unemployment is still rising, credit has not loosened and we still have a very weak economic environment," Miller said. Click on chart above for larger view.
Brooklyn Market Overview 2Q 2009 [Elliman]
Home sales in Brooklyn, Queens rise as prices tumble [NY Daily News]
Glimmer of Hope for Brooklyn Market [NY Post]

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Comments

The data from the Prudential Douglas Elliman reports show that 1-3 family price psf peaked in 3Q08 and that we are now -18% from the peak. Not bad at all, folks, not bad at all.

Posted by: daveinbedstuy at July 16, 2009 9:11 AM

okay folks, interesting analysis time.
The graph at the top of page 2 of the Elliman report shows the price/sq foot for Condos.
For the last year (but I suspect for much longer before that as well), new developments commanded a significant premium to re-sale. This makes perfect sense - (apart from antiques) you generally pay more for something new than something old and used.
However, in the last quarter, the price/sq foot was fractionally lower for new developments. This is perhaps an interesting indication of the relative desperation of the parties.

Unless you cannot make your payments, a non-developer owner can generally take a longer-term view than the developer (who will be incurring cost of holding capital while the condo remains unsold).

An alternative interpretation could be that new-developments with a low level of occupancy may not be able to secure mortgages, meaning that only cash buyers (which should ordinarily be the lowest bidders) are able to transact.

Thoughts?

Posted by: the chicken at July 16, 2009 9:31 AM

DIBS - If prices peaked in 3Q08, or less than a year ago, 18% decline from the peak seem pretty bad to me. The market took five years to seven years to bottom after the market crash in 87 - a one day wonder. Remember folks that bottom was hit after a huge 1 day to 1 week event, and it was all up from there. It was also an event that has been largely attributed to computer trading programs - with automatic sell stop loss programs running wild. Now, we are undergoing one of the largest deleveraging cycles in history, a real economic catastrophe, we've lost Bear, Merrill and Lehman, and the financial industry job losses dwarve those of 87. If the market bottoms at 18%, yes it's not bad at all. But at what level Dibs do you agree it's bad - 20%, 25%, just give me a number where you throw in the bull towel.

Posted by: Brooklynnative at July 16, 2009 9:34 AM

Historically, what shape does the graph of the bursting of a real estate bubble look like? I mean, what percent off peak were prices in 1990? And what percent in 1993? Wouldn't this give you at least a rough prediction of what the curve should look like this time? On the way to what kind of bottom? Keeping in mind that the crash of 2008 and subsequent recession is already and will ikely be much worse than that of 1989-92.

Posted by: southbrooklyn at July 16, 2009 9:38 AM

thanks brooklynnate -- exactly what i was wondering

Posted by: southbrooklyn at July 16, 2009 9:39 AM

Southbrooklyn - very good questions, someone good at math could probably figure it out using the Case-Schiller index.

Posted by: Brooklynnative at July 16, 2009 9:41 AM

Uhmmmm - what are these people comparing? The busiest months of spring to the dead months of winter? These numbers are the same every year due to the very seasonal nature of the real estate business in NY. They should compare numbers year over year - sales volume is down 29.7% and prices are down 27% from year ago on per square foot basis (the only meaningful metrics). Unemployment will also continue to rise in NY in foreseeable future and top 10% very shortly.

Still very bearish on real estate in NY.

Posted by: loty at July 16, 2009 9:42 AM

If you were to focus on the Brownstone market as opposed to the 1-3 Family, the data is slightly better. With the peak price psf for 1-3 family at "only" $295 psf it is not very representative of Brownstone Brooklyn. The Brownstone category psf is down 16% from a year ago...$488 to $408. Even in the ghetto of bed Stuy, things are selling for $270-300 psf NOW and so these categories, though helpful are not truly representative of what we all consider brownstone Brooklyn. The Brownstone category listed 43 sales down from 64 a year ago with the average sales price at $1.1 MM vs. $1.34 MM.

Posted by: daveinbedstuy at July 16, 2009 9:43 AM

Brooklynnative...I am a long term bull on Brooklyn real estate. I think we'll see a correction of 20-25% from peak comps. That's what I've said all along. I think that over the next 3-5 years, we will be back close to peak comps if not above. Unless you're a flipper or a spec developer, the short term (1-3 years shouldn't matter to you; unless you are a homeowner and can no longer make your mortgage payment. Brownstone Brooklyn was not a speculative market in that people were buying these as second and third homes. Yes, prices ran up but that is not the definition of speculative market.

As prices decline, more of you should become bulls. Otherwise, over the long term, you are just contrary indicators.

Posted by: daveinbedstuy at July 16, 2009 9:47 AM

OK Dibs, but please just let me know, at what percentage decline do you throw in the bull towel? 20, 25, 30? Just name a figure, I'm curious?

Posted by: Brooklynnative at July 16, 2009 9:49 AM

Did you not see my 9:47 post before you asked this question again or do you not understand it???

Is there some reason that you wouldn't be bullish on Brooklyn brownstones over the next 3-5 years from where we are now or even slightly lower??? You cannot tell me that prices will be off 50-70% without providing a well defined set of parameters that would cause that to happen.

Most signs of the economy have stopped falling at an accelerating pace and that positive second derivative is all I need to say that we are closer to the bottom than many people here think.

Posted by: daveinbedstuy at July 16, 2009 9:53 AM

I still think the figures are open to misinterpretation...
and this is whether going up or down.
They state the 'average' price of houses that sold in that period.
To intertpret that as value of anyone's property increased or decreased by that % is false. It all has to do with the mix of the props that sold in the period. They are not equal every quarter or year. You need to know size, location, condition of the props.

Posted by: Petebklyn at July 16, 2009 9:58 AM

daveinbedstuy, I admire your optimism even if i don't exactly share it. Last time RE prices declined in brooklyn it took over 10 years in a good economic environment to get back to peak 1987 prices. We are still looking for at least a good year of declining prices across NYC

Posted by: loty at July 16, 2009 10:00 AM

Yo Dibs, chill, you're 9:47 answer had in fact not posted before I wrote 9:49 question - they were obviously posted at almost the same time.

Posted by: Brooklynnative at July 16, 2009 10:03 AM

dave we are at least 3 years away from any sort of bottom enter the pool at youre own risk. Too much toxic crap in there. I thought Bedstuy was 200 PSF?

Posted by: brickoven at July 16, 2009 10:03 AM

okay - turns out my analysis was not that interesting after all...

Posted by: the chicken at July 16, 2009 10:03 AM

Yes Pete...and the number of sales is too small to be statistically significant in many of the categories throughout the report.

However, I do know what i paid for my house, how much I've put into it and what I could realistically sell it for now and I'm comfortable with that.

Posted by: daveinbedstuy at July 16, 2009 10:04 AM

bricjoven, you are a typical example of someone who is precise but likely to be inaccurate. Why three years???

Bed Stuy, at least Stuy Heights is nowhere near $200 psf. East of Malcolm X, maybe. Please feel free to pull all sorts of precise numbers from any orifice that you choose without first having researched them

Posted by: daveinbedstuy at July 16, 2009 10:09 AM

chicken...I think there's some very interesting data that should be researched between older, established condos/co-ops and those being offered in new developments. I don't know how to get at that data but i bet it would show some marked differences between the two categories and, like you said, for a number of reasons not the least of which would be the inability for some places to be "mortgagable."

Posted by: daveinbedstuy at July 16, 2009 10:15 AM

> For the last year (but I suspect for much longer before that as well), new developments commanded a significant premium to re-sale. This makes perfect sense - (apart from antiques) you generally pay more for something new than something old and used.

Part of the higher price for the new condos is that they all have real estate tax rebates so the monthly cost (ex. mortgage) is MUCH less compared with older condos (not many) or coops.

Posted by: BH76 at July 16, 2009 10:17 AM

Dave I said at least 3 years and that is based on historical real estate cycles since recorded history. Have you ever bothered to read about peak to trough timelines or are you still in denial? We are years away from any sort of uptick in NYC RE

Posted by: brickoven at July 16, 2009 10:21 AM

BHt6...longer term, those rebates are very, very dangerous. Once a real estate tax abatement ends, the taxes will be significantly higher than comparable older properties. I think that is the least attractive of the selling points along with no history of building maintenance and a lack of a reserve fund.

That said, newer places typically have more closet space and a better, more modern layout than many older builfings. They also have amenities like a gym, etc.

We can discuss a lot of different aspects of this but essentially not many condo comparisons among buildings are apples to apples.

Posted by: daveinbedstuy at July 16, 2009 10:27 AM

brickoven, one of my main points of contention in relying on what historical cyvles look like is that they never look exactly the same each time. For example, NYC does not now have the crime and other problems it faced in the 70s and 80s. The trough back then was very, very low for reasons that do not exist nowadays.

Each time IS different.

Posted by: daveinbedstuy at July 16, 2009 10:29 AM

dave name one cycle where peak to trough was less then 5 years? Its not an exact science and it does vary but there is a def range to play.

Posted by: brickoven at July 16, 2009 10:37 AM

Name one cycle where mortgage rates were anywhere near this low. Even in the early 90s they were 7%+

Posted by: daveinbedstuy at July 16, 2009 10:41 AM

Posted by: daveinbedstuy at July 16, 2009 10:27 AM

Dave, agreed. The problem is that brokers were able to make this sound appealing to essentially speculative buyers without the need to look 10-15 years into the future. I think the tax abatements are going to be a big problem for sellers of these new condos in the near future.

Posted by: Kensingtonian at July 16, 2009 10:42 AM

Brickoven, I am with Dave on each time IS different statement. Eventhough history does teach us something, there are always different factors involved.

Just like playing roulette...just because you have 20 red in the row, doesn't mean that the next one is likely to be red. There is still 50/50 chance no matter what the history of the payout was.

Posted by: Kensingtonian at July 16, 2009 10:45 AM

Dave,
These artificially low interest rates will be gone as soon as economy shows any kind of anemic growth to mop up huge amounts of freshly printed moneys our friends in Washington helicopter in. Combine that with still rising unemployment and the fact that many wall street and media/advertising jobs in NYC are gone for good and it doesn't look bright for property values in NYC.

How about another little phenomenon of enormous amount of new condo construction that will be regurgitated at much lower cost basis and therefore prices after original builders default on their loans and properties repossessed and resold by banks at pennies on a dollar. It's just beginning to happen in Williamsburg and parts of Queens but will be very widespread soon.

Posted by: loty at July 16, 2009 10:51 AM

According to Bloomberg online NY now has the largest overhang of subprime mortgages in the country.
I don't see how it is remotely possible that NYC real estate will come back faster that it has in other down cycles, as DIBS is desperately hoping. In any case, there will be plenty of time to get in at the bottom because real estate changes trend very slowly.
By the way, the stock market has experiened a very nice...

Dead Cat Bounce
(take some profits off the table NOW)

Posted by: DeadCatBounce at July 16, 2009 10:51 AM

yeah you guys are right there is no reason to believe that after the greatest real estate bubble of the century the down cycle will only last a year or two. Sold to you!

Posted by: brickoven at July 16, 2009 10:52 AM

Someone asked about the 1990s decline... If memory serves, YOY prices in Manhattan fell every year from 1990 all the way to 1997. (In 1997, arguably the trough, I tried to buy a place in Chelsea. I could not get a loan with 20% down and didn't have more $. The purchase price was $119k!. Lending was tight, like right now, which was a big contributor to the decline in prices.)

Of course, just because that's what happened then doesn't mean history will repeat itself exactly. The NYC murder rate also peaked in 1990, and in 2009 NYC is the safest big city in the USA. The population has also been growing.

Personally, I think the market still has a way to go down.... Since I own now, though, I am keeping my fingers crossed for stagnant lateral movement for several years as opposed to a huge drop.

Posted by: Kris at July 16, 2009 10:54 AM

Well, according to the report the price of *two-families* in NW Brooklyn is actually up. So I'm sitting pretty! Ka-CHING!

I'm kidding, but that's one reason I'm skeptical about reading too much into the limited data in these reports, one way or another.

Posted by: basementalist at July 16, 2009 10:56 AM

"Is there some reason that you wouldn't be bullish on Brooklyn brownstones over the next 3-5 years from where we are now or even slightly lower??? You cannot tell me that prices will be off 50-70% without providing a well defined set of parameters that would cause that to happen"

Ok, I'd like to hazard an opinion...I think we're heading for an L shaped recovery, and that over a several years. I would be "bullish" on brownstones if I thought inflation would push prices, but I don't think that's going to happen, not for a few years anyway.

Posted by: bridges at July 16, 2009 11:02 AM

"the average price of a one- to three-family home in Brownstone Brooklyn fell 15.9 percent"

Now that is UTTERLY IMPOSSIBLE!!! Brownstone Brooklyn TM is completely decoupled from the NY Case-Shiller Index (old 1 fams only, no co-ops and condos). Right Team Bull?

All year-over-year data, the only data that matters, is in the red. Even sales. The real pain will come when year-over-year volume bounces back up. That'll mean capitulation - sellers, banks and investors saying "fuck it!".

***Bid half off peak comps***

Posted by: Brownstones Half Off at July 16, 2009 11:07 AM

Price/income. Idiots like Dibs actually think we'll go back to the peak in 3 yrs. This guy is the best! LOL

Posted by: cornerbodega at July 16, 2009 11:08 AM

"The data from the Prudential Douglas Elliman reports show that 1-3 family price psf peaked in 3Q08 and that we are now -18% from the peak. Not bad at all, folks, not bad at all."

I just jumped off a 12 story building but at this instant I'm only down to the 10th floor. Not bad at all. I should be fine. No worries.

***Bid half off peak comps***

Posted by: Brownstones Half Off at July 16, 2009 11:10 AM

BHO always likes to dispute the facts. Look up the definition of "fact." If you want to dispute the methodology then please elaborate.

Maybe get off your lazy ass and actually pull up the report and read it.

Posted by: daveinbedstuy at July 16, 2009 11:11 AM

Here's another thought: we all need a place to live and it's not gonna be free regardless of whether we rent or buy our living spaces.

There are myriad factors at play, but when all is said and done: if you can buy for less than it would cost to rent a comparable pad, there's no reason not go for it. If you have a long timeline, the math will most likely work out nicely in your favor. Your place will most likely also be nicer and better maintained than if you were beholden to a landlord.

Posted by: Kris at July 16, 2009 11:14 AM

Total anecdotal observation: We were looking to buy in early 1997 in Fort Greene/Clinton Hill. By summer of 1997, local brokers as well as our RE atty, who lived in FG, said prices were finally back to 1987 levels. We bought in Aug 97 in CH and prices began increasing at warp speed; in 18 months, our house, with some improvements, had doubled in value per a refi appraisal.

Granted, FG/CH were considered alot more fringe-y than say, Park Slope or Carroll Gardens at the time, and I don't think suffered such steep declines in that 10-year period.

Not sure how this all translates (if at all) to the present, as the buyer profile and Brooklyn itself has totally changed since then.

Posted by: tinarina at July 16, 2009 11:16 AM

Kris, you are correct. But be prepared for a lot of disbelievers!!!

Posted by: daveinbedstuy at July 16, 2009 11:22 AM

"Maybe get off your lazy ass and actually pull up the report and read it."

I skimmed through it, my dude. What did I miss? Even you said that pure brownstones are still -15% down, only SLIGHTLY better than the general 1-3 fam. Please tell me, DIBS, where is there optimism in the YOY numbers? WHERE?

The rolling YOY Case-Shiller has been falling for several consecutive months now!

***Bid half off peak comps***

Posted by: Brownstones Half Off at July 16, 2009 11:25 AM

"if you can buy for less than it would cost to rent a comparable pad..."

Well, ya can't (don't forget to amortize the inevitable loss with the monthly nut - loss is cost). Not by prevailing figures.

"If you have a long timeline, the math will most likely work out nicely in your favor."

But ya don't. You'll never see 2008 prices in 2008 dollars again in your lifetime. It's a once-in-a-lifetime boom/bust. Something like this happens once every century. In inflation adjusted terms, the market will only recover to a fractional amount of the recent peak in any foreseeable future worth anaylyzing. None of our timelines are long enough unless you're looking out for your great great great grandchildren.

***Bid half off peak comps***

Posted by: Brownstones Half Off at July 16, 2009 11:34 AM

Dave,
Nobody disputing what Kris is saying and we are all believers in owning your own property or we wouldn't be on this site.

I just disagree with completely irrational expectations of a quick rebound back to insane bubble prices. Did tech stocks ever rebound back to the 2000 prices? Will they ever on an inflation adjusted basis?

Posted by: loty at July 16, 2009 11:34 AM

The consumer credit economy is dying. The service economy is starting to die off as well. What is the replacement? What will amp the economy back up to the 2007 level? Tech? Finance? Selling each other french fries?

Posted by: bridges at July 16, 2009 11:36 AM

Hey Tinarina
If you domnt mind me asking how much did you pay in 1997 and how much is it worth today?

Posted by: brickoven at July 16, 2009 11:39 AM

Don't argue with the "Money Manager"! Back to the peak in 3 yrs!

Posted by: cornerbodega at July 16, 2009 11:41 AM

You'll never see 2008 prices in 2008 dollars again in your lifetime.

***Bid half off peak comps***

Posted by: Brownstones Half Off at July 16, 2009 11:34 AM

This is the type of certainty that dominates the Team Bear thinking. People with half a brain see it for its ridiculousness and it lessens your credibility to argue logically making you seem like, well, just an asshole that likes to argue.

Posted by: daveinbedstuy at July 16, 2009 11:41 AM

"Nobody disputing what Kris is saying"

I just did. She implied that you can just wait it out and we'll be back up to the recent peak. Given your anology of tech stocks, you don't agree with that either.

I only agree that ownership affords you more control of quality. But that's not a vote of confidence that the best price can be had now.

***Bid half of peak comps***

Posted by: Brownstones Half Off at July 16, 2009 11:43 AM

"asshole"

I win!

***Bid half off peak comps***

Posted by: Brownstones Half Off at July 16, 2009 11:46 AM

This blog sucks without WHAT.

Posted by: Return of Randolph at July 16, 2009 11:47 AM

As Pete points out in the Sales Under A Million thread, the Bed Stuy house sold at around $400 psf, not your figure of $200, brickoven. That's MORE than what i paid for my place in "Stuyvesant heights"

Please, dazzle us with more bull$hit numbers that you pull out of your ass.

Posted by: daveinbedstuy at July 16, 2009 11:49 AM

So why is it that you can't tickle yourself?

Posted by: dittoburg at July 16, 2009 11:52 AM

dibs, do you expect inflation to propel prices past the peak? If so, when do you think this will happen?

Posted by: bridges at July 16, 2009 11:55 AM

BHO: (( She implied that you can just wait it out and we'll be back up to the recent peak. ))

Actually, I wasn't implying that at all. I was saying that the only financial metric that matters, to me anyway, is the total cost to own vs. the total cost to rent.

Posted by: Kris at July 16, 2009 11:57 AM

Nothing but reruns on this channel.

zzzzzzzz.

Posted by: DitmasSnark at July 16, 2009 12:00 PM

Inflation will only start after the economy is a bit stronger...2H 2010 maybe.

But, the movement in the yield curve over different maturities will be more significant. We expect the 5-10 year treasuries to fall in price (yields rise) maybe even sooner. the 30 Year is probably correctly predicting long term inflation still at these levels. That rate got to 5.4% in 2006 and we loaded up on 30 year treasuries. i doubt that rate will be seen again soon.

Inflation this time around will not be "wage-led" which is the most detrimental type of inflation.

As long as there is excess liquidity in the system, and there will be for quite awhile, it will eventually find its way into real estate just like it already has in the stock market. this is classic risk seeking behaviour with the downside being the sale of riskless assets, treasuries.

We are already seeing rising property prices in Hong Kong and China as they come out of their recession first globally. China GDP was just reported at 7.9% last night.

Posted by: daveinbedstuy at July 16, 2009 12:02 PM

I'd be quite happy if we got back to peak prices in 4-6 years. I think it will happen with brownstones...condos might take longer.

Posted by: daveinbedstuy at July 16, 2009 12:03 PM

> I'd be quite happy if we got back to peak prices in 4-6 years.

And I want a pet flying unicorn, DIBS, but that's not likely either.

Posted by: DitmasSnark at July 16, 2009 12:06 PM

Kris, you said "If you have a long timeline, the math will most likely work out nicely in your favor". What exactly did you mean by that?

***Bid half off peak comps***

Posted by: Brownstones Half Off at July 16, 2009 12:08 PM

DitmasSnark...you need to provide some specifics as to why it's not likely and not just lurk and act as the thread monitor. :)

Posted by: daveinbedstuy at July 16, 2009 12:08 PM

Ok, thanks dibs. So, if inflation does not affect wages, if wages stagnate even, where will consumers find the oomph to buy inflated assets? Am I understanding this correctly?

Posted by: bridges at July 16, 2009 12:09 PM

Dave is toast and he is just starting to realize it how are those asian markets buddy? Funny that you work in asian markets and did not realize that Japan is still 70 percent off its peak. Hilarious!

Posted by: brickoven at July 16, 2009 12:10 PM

> DitmasSnark...you need to provide some specifics as to why it's not likely

Nah, I think not, I prefer to speak in metaphors. For example, your bullish stance on the real estate market reminds of the Black Knight in Monty Python and the Holy Grail:

- http://www.youtube.com/watch?v=D3oW12hWu5w

Posted by: DitmasSnark at July 16, 2009 12:19 PM

Brickoven--
Let's just say appreciation is around 250% once substantial improvements are factored in--and was even higher a few years back.

Posted by: tinarina at July 16, 2009 12:20 PM

"And I want a pet flying unicorn, DIBS, but that's not likely either."

It's not likely because Unicorns don't fly. You need to look for a reputable Pegasus breeder. They fly.

Do I have to teach you people everything?

Posted by: TownhouseLady at July 16, 2009 12:22 PM

Tinarina when would you say the prices peaked for Clinton hill?

Posted by: brickoven at July 16, 2009 12:25 PM

> It's not likely because Unicorns don't fly.

Precisely my point.

Posted by: DitmasSnark at July 16, 2009 12:27 PM

Brickoven--summer/fall of 2007. I was paying close attention as we were thinking of selling.

Posted by: tinarina at July 16, 2009 12:39 PM

Snark - is that the one where he keeps chipper and upbeat even as things are progessively chopped off?

Posted by: dittoburg at July 16, 2009 12:43 PM

thanks Tinarina good info to know, and congrats on the aprreciation.

Posted by: brickoven at July 16, 2009 12:48 PM

BHO: (Kris, you said "If you have a long timeline, the math will most likely work out nicely in your favor". What exactly did you mean by that?)

I meant exactly what I said: that you have to take into consideration the total cost of renting vs. the total cost of owning. For the record, I am not by any means saying that buying is always cheaper in the long run. I think new construction condos, for example, will most likely wind up being more expensive than renting. But if you do the math for a specific property and base your purchase on the math, you will likely come out ahead.

The cost of renting is easy to figure out in hindsight. Projecting into the future, you have to figure that rents typically rise. Not every year (as right now), but most of the time.

Calculating the cost of owning is trickier, even in hindsight. It is also really very specific to each property. But some factors:

*You start with a down payment, and when all is done, you have to figure what you would have earned in interest on it. Some years, interest rates suck (like right now) so you have to figure real rates not hindsight / fantasy rates.

*Maintenance (if a co-op). High maintenance is a deal breaker for me personally. Maintenance will likely rise, but if there's an underlying mortgage that is set to be paid off soon, it will offset the rise in other costs.

*a fixed mortgage payment will never rise.

*interest on mortgage saves you money on taxes, so factor that in.

*you also build equity as you pay the mortgage. Which means you get to keep more of the selling price (whatever that may be) in the end.

*once mortgage is paid off, the main monthly expense is only maintenance which will be only a small fraction of going-rate rents

*inflation

* of course -- and I am sure this is what you're getting at -- the selling price when you're ready to leave is a big factor in how much owning actually cost you. But even if you don't sell at an inflation-adjusted profit, you can still come out ahead. I'm sure you don't believe me. But there are co-ops for sale right now in Harlem that are cheaper to own than to renting similar apartments.

If your monthly nut to own is less than the monthly rent on a similar place, you will come out on top the vast majority of the time. (Unless you have to leave in a hurry or bought a place with a tax abatement.)

Posted by: Kris at July 16, 2009 12:52 PM

"Snark - is that the one where he keeps chipper and upbeat even as things are progessively chopped off?"

Oh yeah, I remember that. Blood all squirting out. Nice one, 'Snark.

***Bid half off peak comps***

Posted by: Brownstones Half Off at July 16, 2009 12:52 PM

I love the "holy hand grenade of Antioch" scene.

Posted by: dittoburg at July 16, 2009 12:57 PM

> chipper and upbeat even as things are progessively chopped off?

Yup, that's the one. "I'll bite your legs off!"

Posted by: DitmasSnark at July 16, 2009 1:02 PM

"I am not by any means saying that buying is always cheaper in the long run."

I stand corrected. My apologies.

***Bid half off peak comps***

Posted by: Brownstones Half Off at July 16, 2009 1:04 PM

No news here. Just confirmation of what we know: Prices in the fancy parts of Brooklyn have finally started to decline. And Hannible, if you want a foreclosure, come out to my neighborhood.

So, let's all agree: In all future arguments, average prices throughout Brooklyn are down approximately 20 percent YOY.

'kay?

I don't know how long prices will fall for. I do know that they can't fall too much further than the cost of renting. Some neighborhoods are already there, despite what may SEEM like high-sounding prices to some. Clinton Hill for example.

Posted by: mopar at July 16, 2009 1:25 PM

Thats fine mopar, except that the cost of renting is also coming down in a bunch of places...
(not Greenpoint of course)

Posted by: dittoburg at July 16, 2009 1:36 PM

" I do know that they can't fall too much further than the cost of renting."

Mopar, true, but then again rents cannot exceed actual average income, no? It is now obvious that even at the peak many people weren't living on their income, but income + credit cards. It is equally apparent those days are over. SO over. As What might say: Reality has shoved an I-beam up everybody's ass. Or something.

Posted by: bridges at July 16, 2009 1:41 PM

Mopar how much do you think it costs to rent a townhouse in Clinton hill?

Posted by: brickoven at July 16, 2009 1:41 PM

no, absolutely, I do not agree that prices are down 20% year over year.
The average price of props that sold may be...but the value of any particular condo or house, NO.
Could it go down 20% or more? sure. But I do not see evidence that has happened.
Will it? I don't know. If I could predict such things I'd have so much money I wouldn't care.

I keep looking for and asking for this evidence. Show me the condos that sold (new) couple of years ago that now have resold.
I don't see prices have significantly changed on that evidence. Certainly have not gone up.

Posted by: Petebklyn at July 16, 2009 1:50 PM

""if you can buy for less than it would cost to rent a comparable pad..."

Well, ya can't (don't forget to amortize the inevitable loss with the monthly nut - loss is cost). Not by prevailing figures.

***Bid half off peak comps***

Posted by: Brownstones Half Off at July 16, 2009 11:34 AM"

While I may agree with you on your ultimate conclusion BHO, I disagree with your calculation. If you include the paper loss then you are not comparing apples to apples, as well as ascribing a hypothetical future value to the property.

No, the way to do it is to compare cash to cash. Renting = rent payment + utilities. Owning = interest payment (or opportunity cost of tied-up capital) + maintenance/utilities + insurance. The dynamics at play that determine the preference for renting or owning (at least from a financial perspective) are pretty easy to see.

Posted by: the chicken at July 16, 2009 1:53 PM

"Renting = rent payment + utilities. Owning = interest payment (or opportunity cost of tied-up capital) + maintenance/utilities + insurance..."

But MINUS accumulated equity (unless you expect that the property will eventually be worthless). If you're going to account for opportunity cost of tied up capital, you've got to include that too.

Posted by: basementalist at July 16, 2009 2:08 PM

I disagree, BHO. There ARE places where you can buy for less than renting. Harlem, for one, as I already mentioned. On some places up there, mortgage + maintenance = less than rent.

Why is the loss "inevitable"? I presume you are saying that the buyer will definitely sell the place for less than they paid. Do you think prices are going to keep falling forever? I am inclined to agree that prices will continue to fall for a while, but not forever.

Also, Chicken: maintenance on a co-op includes insurance.

Posted by: Kris at July 16, 2009 2:14 PM

"If you include the paper loss then you are not comparing apples to apples, as well as ascribing a hypothetical future value to the property."

Huh, chicken? It'd be a real loss. What you walk away with after closing near bottom (nothing or even worse, a debt) minus down payment near peak (cash in) would be a real loss that you would divide by months of ownership and add to the average montly nut you paid. Big, fat, juicy and shiney apple compared to the rental apple.

What's all this talk about opportunity cost? You're better off in cash and/or commodities than RE. Massive inflation coming but not for RE (food, energy, etc.).

"I disagree, BHO. There ARE places where you can buy for less than renting. Harlem, for one, as I already mentioned. On some places up there, mortgage + maintenance = less than rent."

You're not including loss of downpayment divided my months between buy/sell as described above. If you are, please cite a listing and a comparable rental. The inevitable loss is my prediction of course. Prices will rebound but nowhere near the recent peak in the dollars of that year (i.e. inflation-adjusted terms) until next century, another prediction.

***Bid half off peak comps***

Posted by: Brownstones Half Off at July 16, 2009 3:56 PM

Petebklyn - look at anything that closed in the last 3 months on streeteasy and compare to the original listing prices. 20% down at least in good neighborhoods like park slope, cobble hill, etc. Iffy places fell more. Even seller brokers tell you upfront that prices are very negotiable.

Posted by: loty at July 16, 2009 4:10 PM

...until next century.

BHO, you're hilarious!

Posted by: Kris at July 16, 2009 4:12 PM

BrickOven, I'm figuring $800,000 for a townhouse with four floors and rent of $2,000 per floor or $1.3 million for a townhouse with four floors and $3,000 per floor (for a large townhouse of 4,000 sf or more).

Posted by: mopar at July 16, 2009 4:19 PM

Rent is a cash business, it shows clearly what people are earning, not borrowing. The NYT shows NY with 8% unemployment and rising. Some neighborhoods will fare better than others, but the days of assuming you can offset an inflated purchase price by renting the space out are numbered.

Posted by: bridges at July 16, 2009 4:38 PM

The days of renting out an apartment are numbered? Really? Are there suddenly going to be a ton of empty apartments in NYC?

Posted by: Kris at July 16, 2009 4:48 PM

Vacancy rate for 2008 was less than 3%. A vacancy rate of less than 5% qualifies as a "housing emergency" and it has been under 5% for as long as they have kept track of these things - since 1965.

http://www.nyc.gov/html/hpd/html/pr/vacancy.shtml

Posted by: Kris at July 16, 2009 4:57 PM

"The days of renting out an apartment are numbered?"

That's not what he said, Kris. He said "offset an inflated purchase". There are already a ton of empty apatments in NYC. Count the lights on at night in ORO and Forte. Your vacancy rates are not convincing. NYC RE will take a massive bath.

***Bid half off peak comps***

Posted by: Brownstones Half Off at July 16, 2009 5:18 PM

"But MINUS accumulated equity (unless you expect that the property will eventually be worthless). If you're going to account for opportunity cost of tied up capital, you've got to include that too.

Posted by: basementalist at July 16, 2009 2:08 PM"

NO! That is precisely my point. When comparing the rent v own calculation, you have to strip out the speculative element of the equation. Now you might argue that owning requires speculation as a perquisite but that doesn't make the apples to apples comparison any less valid.

Sorry - rather than "opportunity cost", I probably should have said "risk-free return on tied up capital" (eg 10-yr treasury rates) - it was more acknowledging that if you rented and had that cash sat in the bank/t-bills it would be making a return for you.

"Also, Chicken: maintenance on a co-op includes insurance.

Posted by: Kris at July 16, 2009 2:14 PM"

Good point but you get the picture - total up what the renter pays and total up what the owner pays.

"Huh, chicken? It'd be a real loss. What you walk away with after closing near bottom (nothing or even worse, a debt) minus down payment near peak (cash in) would be a real loss that you would divide by months of ownership and add to the average montly nut you paid. Big, fat, juicy and shiney apple compared to the rental apple.

Posted by: Brownstones Half Off at July 16, 2009 3:56 PM"

See point above about the speculation element of owning. You know that I am of the view that property is still over-valued but that's just where the market is right now. Prices won't go down forever - at some point they bottom, at which point your equation gets turned on its head. So the problem becomes much more complicated (and subjective) because it's then dependent on your start and end points.
My method looks at the comparison as it stands today, taking out as much subjectivity as possible - apples to apples!

"What's all this talk about opportunity cost? You're better off in cash and/or commodities than RE. Massive inflation coming but not for RE (food, energy, etc.).

Posted by: Brownstones Half Off at July 16, 2009 3:56 PM"

See my clarification above and I apologise again. However, you are still talking about subjective things in the future. You may be right (in fact I hold similar investment views so I hope that you are right) but you can't use that within a factual debate.

Posted by: the chicken at July 16, 2009 5:26 PM

If it turns out that vacancy rates for 2009 are above 5%, does that mean the basis of rent stabilization (housing emergency) can be legally challenged by landlords?

Posted by: dittoburg at July 16, 2009 5:31 PM

you can bet that they are already thinking about it ditto

Posted by: the chicken at July 16, 2009 5:47 PM

I seriously doubt that vacancy rates will be above 5% any time soon. It did not happen in the 1970s and 1980s when the city was hemorrhaging population, so I don't see why it would happen now. According to the nyc.gov report linked to above, all the new units built btw. 2005 and 2008 still only amount to 2% of total units, and the population has been continuing to grow.

Posted by: Kris at July 16, 2009 6:30 PM

Why bother now after a long day of busy commenting...

But I have to point out that the real shock to real estate was not in October 1987. Real estate really took the plunge in 1989 as I remember...and I was there.

I remember things toddled along through 1988 and then something similar to, but on a smaller scale of what has recently happened, hit and the mortgage/real estate world plunged in '89.

So, maybe the timeline has to be rethought.

I would say the real estate market in NYC started noticeably looking up in 1997, that's when a sense of change was in the air. That was 8 years after the 1989 collapse. The reasons real estate was taking off were many, some completely unsustainable as we all know.

Now, being an armchair relative know-nothing (but formerly at a large financial firm and a telecommunications giant), I wonder if we should count the real estate decline from 2006 when the decline started in certain regions of the country. If we cound it from 2006...even though the problem appears bigger this time...maybe offset by all the young people who'll start families or at least move out of Mom'n'Dad's at some point...should we count on an upswing to happen in 2014?

I don't know...but Dave seems to think it's supposed to happen in a just a handful of years.

Oh, one thing...I happened to spend a minute looking at the rentals offered on one of the top real estate sites. I chose Park Slope, Fort Greene, Boerum and Cobble Hill, Brooklyn and Prospect Heights and Carroll Gardens. Of the 130 or so listings, the cheapest was a tiny studio for $1300 per month. There were a lot of duplex, triplex and full house rentals asking for a monthly payment that out-of-towners would gape at.

Posted by: BrooklynGreene at July 16, 2009 7:01 PM

anyone who bought a new condo in the last few years has at least 12 years if not longer for the tax abatements to end. re-financing right now is very important. we are re-financing, and are going to save $400 per month and have a 30 yr fixed to boot after ditching an ARM. there is no property even today for rent that i could spend less monthly for an equal place. any owners with tax abatements that are in for the long haul are probably not concerned with them ending as it's possible to get an historically low mortgage payment right now.

dave' purchase of a house with a rental offsets declining value in his case which is great also.

and, as pointed out, individual properties command different prices in any market. everything is specific. access to amenities and subway are huge as are family sized apartments which always get more psf bang for the buck.

i think that in any 10 year outlook, we are back to a huge problem of lack of housing in NYC which will keep sales prices high. anyone with money in the bank would do well do buy up apts to rent out even with short term losses, so that they will be set to charge either tons of rent to renters or sell later.

Posted by: wine lover at July 16, 2009 7:54 PM

I agree with BrooklynGreene on when the market last started its march upward: I bought my Brownstone in October 1996, and only a few months later, in early 1997, prices were already noticeably higher.

Posted by: CarrollGardened at July 16, 2009 8:19 PM

Brooklyngreen and tinarina, nice posts. I agree, start counting the crash from 2006 (also applies here in subprime NYC), and things should start to look up around 2014 or so. Oh, one other point: in the crash of 89, prices plummeted for a few years. But then they just stayed flat for four years or so.

Posted by: mopar at July 17, 2009 8:38 AM

Well, I consider the beginning of the collapse to be the bankruptcy of New Century Financial, in April 2007.

Posted by: bridges at July 17, 2009 10:06 AM

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