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September 17, 2008
SELL vs RENT?
Why aren't more of the homeowners trying to sell midsize places in Park Slope and Carroll Gardens start settling for renters for the time being and wait out the current softness in the market? Seems like a smarter move to me. There's clearly a shortage of 3/4 bedrm places for rent and no shortage of listings for sale.
Comments
As long as you are prepared to "wait out" the softness for the next 10 years, that's a good plan. We will not see 2007 prices again for at least 10 years. And that's in nominal terms (not inflation adjusted).
Posted by: lechacal at September 17, 2008 1:24 PM
lechacal...I'm going to start running a clock on that prediction...September 17, 2018 1:24 PM just like the What's Oct 16 clock!!!!!
Posted by: daveinbedstuy at September 17, 2008 1:33 PM
Hey man, go for it.
Speaking of The What, I have to say it's a little eerie how accurate his doomsday clock has turned out to be. The destruction of wealth and income in NYC over the past week has been staggering. And from where I sit (on the inside of a lot of what's going on) I can tell you it's not over. Even without assuming a complete meltdown of the finance industry I used to feel pretty confident about my predictions. Now I just feel genuinely sorry for all of the people who are going to watch their home equity disappear. The process is going to be slow and painful and characterized by a long initial period of denial.
Posted by: lechacal at September 17, 2008 1:44 PM
This is far from a complete meltdown. We haven't even seen capitulation in the stock market...down 800 points or so but, more importantly, NYSE volume of about 4B shares.
Yesterday's DOW volume was 2.170B shares, of which AIG was 1B of them!!!!!
Posted by: daveinbedstuy at September 17, 2008 2:10 PM
I'm not very focused on the stock market, which I think has much less relevance than it used to. The credit markets, which in my view are much, much more important, are in complete meltdown.
Everything will be fine. Eventually. But right now I am surrounded by a lot of senior veterans of a lot of Wall Street crashes and they are shell shocked by what is happening. And I tend to deal with people at a pretty high level. The general consensus is that this storm will have a few more big hits before it passes. I really can't underestimate the effect all of this is going to have in NYC. I am throwing away all of my predictions about the direction of NYC real estate (which is my pet topic for various reasons) and replacing them with much gloomier ones.
Posted by: lechacal at September 17, 2008 2:22 PM
Lechacal--I have certainly come to respect the general thrust of your economic posts so I don't presume to doubt you here. I wonder though what you think will be the day in day out effect of the economic calamity unfolding now in terms of people's lives in Brownstone Brooklyn. I know this may be a bit outside your general frame of reference, potentially being more about sociology than economics, but certainly if the credit markets are in such trouble it will trickle down to effect the lives of everyone in Brooklyn eventually. What are your thoughts on this?
for my part I am assuming that I will settle into my new house and ride out whatever insanity comes down the pike. but I worry that there are plenty of people who are not as lucky as i am to have an affordable property. Their misfortune will certainly be reflected in living conditions in Brooklyn eventually.
Posted by: wasder at September 17, 2008 3:05 PM
wasder...you're points are good. Yes, Brooklyn property prices experienced a bubble-like inflation. But I don't think they could really be called excessive. That's certainly was the case in the Hamptons and, to a greater extent, in Greenwich, CT. Especially the latter is really beginning to feel some pain. There will be more there as mid-level guys from the investment banks who were living beyond their already-extroardinary means lose not only their jobs but their wealth as it was tied up in stock.
I don't think there was a lot of that going on in Brooklyn.
Posted by: daveinbedstuy at September 17, 2008 3:21 PM
Thanks Dave. I guess the question I am asking is what form do you think the pain would take if prices do tank to the level that say Lechacal expects them to...
Posted by: wasder at September 17, 2008 3:44 PM
Wasder, I would respond that (1) it really depends on what kind of property you are talking about and (2) the more local my view, the less scientific. I feel very confident about my predictions when I can address Manhattan as a whole, or even NYC as a whole, but when it comes to guessing what might happen to, say, Boerum Hill, or Fort Greene within a block of Dekalb, I'm basically guessing as to how these neighborhoods will track the broader trend (the broader trend being what I am comfortable predicting). Having said all of that, I think I can say the following with respect to brownstone Brooklyn:
1. People who have purchased new condos (whether new developments or conversions) in the past year or two stand to lose the most.
2. People who have bought single family residences of whatever kind (brownstones or houses) will do just fine if they didn't buy a "triple mint recent reno" job and put some of their own sweat equity into it.
3. People who did buy someone else's "triple mint" reno job and paid for it will have a lot of difficulty getting that value back out over the coming years, but won't do as badly as poeple who have bought new or converted condos.
4. The Slope will lose value, but not as much as Prospect Heights or Fort Greene. I have no idea what will happen to other neighborhoods.
Posted by: lechacal at September 17, 2008 3:50 PM
Thanks Lechacal. Interesting for sure. I can see why you think new condos will have the most downside. And I see why overpaying for a triple mint reno won't pay off any time soon. I am glad that the property I just bought was priced fairly and will not tax me overmuch in a month to month sense (renovated well enough to live in but not enough to drive the price up--we plan to renovate it ourselves slowly over time).
Why do you think Fort Greene is in for bigger price declines than the Slope?
Posted by: wasder at September 17, 2008 4:10 PM
Brownstone Brooklyn is in very high demand right now. I don't think they will be greatly affected by this market. There's such a big demand for Brownstones that buyers are expanding their search into usually tough Brooklyn neighborhoods suchs Bedford Stuyvesant and Crown heights. All you really have to look at is how bad things are around the nation and yet there isn't a single fairly priced house on the market in Brownstone Brooklyn. I can only imagine the madness in Brooklyn once the market comes back. Investors are just putting on their war faces and waiting for this bombing to pass by and take these Repubicans with them.
OBAMA 08- he can't paint the white house black fast enough.
Posted by: Brooklyns_da_Boro at September 17, 2008 4:25 PM
B d B...it isn't about black or white OK. What a racist comment.
Posted by: daveinbedstuy at September 17, 2008 4:32 PM
My view on Fort Greene is based on how much property there has appreciated as compared to other neighborhoods. A "harder they fall" sort of argument. Maybe the prices there will be stickier than I think. I would also point out that I lived in Fort Greene in 2001-2002 (before a lot of the run-up, although not all of it) and think the proximity the the projects (at least for part of Fort Greene) is an issue.
I feel more certain about my predictions as to condos vs. brownstones and houses than I do about my neighborhood-by-neighborhood predictions.
I feel most certain about my prediction that Manhattan real estate is in for a serious beating. I think this will have a real effect on Brooklyn (the two are very much linked despite what some claim), although I wouldn't be surprised if Brooklyn prices fare better than Manhattan prices.
I just invested $13,000 in an S&P 500 index fund, priced as of the close of market today.
Posted by: lechacal at September 17, 2008 4:33 PM
Fort Greene will probably be an interesting test case. As someone who has lived on the FG/CH border for the past 7 years I am a booster for the neighborhood for sure but I am trying to look at this with as objective a perspective as possible. I get what you are saying about the "harder they come the harder they fall" factor but I also think that few neighborhoods have been as thoroughly transformed in this boom as Fort Greene has been and this might be a reason for it to hold up comparatively well. Also, its proximity to the city is advantageous. Also, I think that the projects factor as it relates to property values is greatly over rated, especially as it relates to Fort Greene. There are public housing projects near many trend neighborhoods but for some reason people tend to fixate on the ones near Fort Greene.
All this being said, i think it would be foolish to obsess over much over neighborhood vs neighborhood price declines. Better to enjoy what I have and wait out whatever crises are coming.
Posted by: wasder at September 17, 2008 4:44 PM
Dave.
Put your skirt down. It wasn't met to be a racist comment. Just a mataphor of the hard times we are facing.
Posted by: Brooklyns_da_Boro at September 17, 2008 4:46 PM
Frankly, wasder, you sound like you are going to be just fine.
Posted by: lechacal at September 17, 2008 4:53 PM
As a brand new owner of a two bedroom co-op in the slope - good location, good building, good school - I wonder how the smaller investments (first or second purchases) will weather the market. I debated a long time about renting/buying because my timeline is shorter than 10 years. Ultimately I decided to take the plunge when prices dipped, I had the resources and came to the conclusion that there will be other young professionals in the future interested in this type of property. Maybe it was a foolish investment. I guess we will see and I'll try not to pay too much attention.
Posted by: guest7008 at September 17, 2008 5:09 PM
Thanks L. It has been a rollercoaster emotionally for me but I am feeling more secure in my decision now. I have the advantage of being able to work out of my home which makes the whole thing a lot more financially feasible.
Posted by: wasder at September 17, 2008 5:10 PM
There is some good insight on this thread. I'd like to drop my 2 cents: I agree with Lechacal's overall argument. Furthermore, I see a two forces working in opposite direction:
1. Manhattan prices stand to fall because of coming layoffs, the disappearance of financial bonuses, and trouble getting credit. Brooklyn real estate market is in many ways an extension of Manhattan market, and will suffer as a result.
2. Brooklyn has been experienced a cultural rennaisance, and this trend is not dictated by property values. The desirability of many neighborhoods only stands to increase.
So I think an investment in brownstone Brooklyn is a better, or in light of recent news, a less tragic one than an investment of a similar value in Manhattan.
But at the same time I completely disagree with the prediction that on September 17th 2017 brooklyn prices will resemble today's. Financial industry is extraordinarily innovative, and in a few years it should rebound and re-emerge with new strength. Besides, in 10 years we will have been through and emerged from several more crises!
Posted by: Sputnik13 at September 17, 2008 5:43 PM
I'd go even further out on a limb and say this meltdown, ultimately, is a good thing for those of us who live in and love Brooklyn. There's a lot to celebrate. It will put a dead stop to the Fedders condos that have been sucking up all the airspace (not to mention aesthetic charm) in so many neighborhoods. It will kill Atlantic Yards. It will lower property prices in Manhattan, so those throngs of wannabees who came across the bridge to live in Brooklyn as a "second choice" will no longer come.
In short, the stuff that's been killing our nabes will slack off. And in the meantime, we're all still here, in a lovely place, with unbeatable amenities.
Yeah, the sale prices won't be so crazy-high, mortgages will be more conservatively doled out, and it will be harder to trade up, or flip.
But we're not planning to go anywhere anyway. Are we?
Posted by: WonTon at September 18, 2008 1:01 AM
Speaking of prescient posters, what happened to the What?
Posted by: WonTon at September 18, 2008 1:03 AM
the fact is, though, that neighborhoods that have only recently gentrified are going to retrench. spending habits are already changing as people adjust to the new mindset - so I'm talking cute little restaurants, trendy designer stores, fancy home product stores, etc. those will be closing quickly. and small businesses won't be getting any credit to open up new places. nyc is just not going to be the same. remember the early 90s, when there were crackheads on atlantic avenue?
I have been a "bitter renter" for years & am now so happy I didn't buy b/c now I would not move to some of the nabes I was considering. and I won't be alone.
Posted by: xanadu at September 18, 2008 12:26 PM
What neighborhoods do you see as ones likely to "retrench?"
Posted by: wasder at September 18, 2008 12:56 PM
I hope the positive thinkers are right, for all our sakes, that this will pass quickly, and home prices will stay flat to down for a while, then rise, along with the stock markets.
Sputnik, I sure hope you're wrong about . I've had enuf goddamn innovation from the financial industry to last me the rest of my life.
Here's an opposing point of view to the small dip theory.
http://tinyurl.com/4q39ta
Sure it's nuts. When GS and MS stock plunge even tho they did nothing wrong and are profitable I take notice. When gold spikes in a day more than it ever did that means there are a lot of people with investment money that believe paper money will be worthless, as will real estate, and that there will be a total collapse worse than anything ever seen. We also find supposedly safe money market funds that are no longer safe, and in fact $70 billion was pulled from them today. To who will money market managers sell those $70B in securities to to raise cash?
I've been dabbling in markets for a long time in a small but generally successful way. My brother is very high up in a very large firm that is still in business, altho out of respect for his position and the legalities of it, we rarely talk shop. But one thing I've learned is that the markets represent the wisdom of a lot of people, and that one doesn't listen to them at one's peril. Which is not to say that they don't over-react at the top and at the bottom.
This is way worse than 73/74 and whole neighborhoods and office buildings were empty back then. I think a mere 20% decline in NYC RE would be a wonderful and positive development.
Posted by: denton at September 18, 2008 2:02 PM
Dang, that edit/copy thing isn't working again!
I wanted to say: Sputnik said "Financial industry is extraordinarily innovative" to which I replied "I've had enuf goddamn innovation from the financial industry to last me the rest of my life. "
Posted by: denton at September 18, 2008 3:03 PM
Wow Denton. I certainly hope you are not right, but I don't doubt the fundamentals of what you are saying. The weird thing is that there is so little the average person can do about any of this (nothing in fact). I hope everyone can keep their heads and if they are in a house or apt that they like, continue to enjoy NYC until this passes.
Posted by: wasder at September 18, 2008 3:24 PM
"I wanted to say: Sputnik said "Financial industry is extraordinarily innovative" to which I replied "I've had enuf goddamn innovation from the financial industry to last me the rest of my life. ""
Well, like it or not, the people employed by the financial companies are really good at making money. That's what they are good at. I am certain that in the coming months and years, the talent pool on Wall St. will re-group and become successful again, earning good money for themselves and supporting the local economy. Hopefully, they will not usher in another bubble, but as history shows, economic bubbles are to be expected, as greed is as old as Rome. Probably older.
Posted by: Sputnik13 at September 19, 2008 2:26 PM
thank god if this puts an end to the incredibly ugly and cheesy condos on fourth avenue like the novo and crest...who in their right mind was buying this stuff?
Posted by: eman at September 19, 2008 11:27 PM
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