Forum Archive: Posts by: MoneyForNothing

Since there’s such a strong discussion on the direction of the real estate market in Brooklyn, I thought I’d post up this for discussion. Everyone (myself in particular) offers opinions, anecdotes and theory, but what always seems to be missing is a simple Pros and Cons analysis.

When people make many other life decisions, they often make lists of pros and cons. So what say we collectively build one here and put this debate to a more objective test: potential headwinds and tailwinds for the NY RE market. Specifically the upper-end of the condo and brownstone market requiring jumbo loans.

Curious what people can add to this list, and their opinions.

For the record, I’m unabashedly bearish, and my list demonstrates this. But for the life of me, I can’t see where the tailwinds to propel us forward are coming from even in the medium term.

HEADWINDS
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- Increasing NY unemployment

- Consumer deleveraging (saving vs spending)

- Credit Tightening; Unavailability of Jumbo Loans

- Long-term prospect of Raising Interest Rates

- Change in psychology of buyers (home no longer a great investment, buying more home than needed seen as wasteful)

- Significant loss of personal wealth by buyers and families who help them

- 25% – 30% down payment requirements

- Reversal of currency trade as RE vehicle (global recession, weaker euro)

- Loss of NY municpal income (property, sales, income taxes) leading to less services/quality

- Raising taxes to cover reduced local intake

- Potential (but unlikely) deflation

- Disconnect between Ask (Seller) & Bid (buyer) leading to stale market that drags down prices as economy slows

- Prolonged recession/double dip

- Increasing Unsold Invetory

TAILWINDS
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- Eventual economic recovery (when, how strong?)

- Inflation (kills mortgage rates, but hard assets are worth more. A curse in disguise).

This is literally all I can think of for tailwinds. Curious what others see.

I think this all paints a bleak picture where the only solution to bring buyers into the real estate market is to have prices continue to drop until prices make fiscal sense.

Based on my personal experience as a financially strong buyer tracking about 100 properties in Park Slope and BoCoCa, and seeing none that make financial sense,my conclusion is we’re a far way off from bridging the disconnect between buyers and sellers.

Since buyers are unlikely to gain cash infusions anytime soon to meet elevated prices, there’s only one thing that will open up the market —– a significant, prolonged price drop, which will take a long time.