Local Housing Market Headed for the Trash Can?
Real estate experts are convinced that the New York region’s housing market is about to undergo a serious correction, according to an article in yesterday’s Times. Analysts expect the coming bust to be significantly worse than it was in the early ‘90s, particularly in New York’s suburban markets. Nevertheless, Manhattan—and by proxy, pricey Brooklyn—has so…
Real estate experts are convinced that the New York region’s housing market is about to undergo a serious correction, according to an article in yesterday’s Times. Analysts expect the coming bust to be significantly worse than it was in the early ‘90s, particularly in New York’s suburban markets. Nevertheless, Manhattan—and by proxy, pricey Brooklyn—has so far mostly weathered the national housing meltdown, and the decline in values here isn’t expected to be as bad as in our outlying suburbs. During the year that ended in November, prices in the NY metro area fell 4.8 percent, according to Standard & Poor’s/Case-Shiller Home Price Indices—a drop that pales in comparison to Sun Belt cities, many of which saw double-digit declines. Still, economists predict that house prices in the region will drop by at least 15 percent in the current correction. Ouch.
Home Prices Start to Dip, Recalling ’90s Slump [NY Times]
The points that 4.17 and 4.26 PM are making are correct.
I have been an investor in real estate (small multi-family properties). The proposition that “you always win in real estate” is not true, and best left to the hucksters on informercials. One does need to look at the market environment to consider if you will actually come out ahead.
A couple of years ago I looked into buying condos in Brooklyn as an investment. My calculations showed that I would be suffering negative cash flow for a considerable number of years. The only justification for buying the property, therefore, was increasing appreciation (i.e. flipping). I decided not to proceed. Turns out (though I don’t claim any special insight) that it was a smart move.
They are not claiming that one must try to time the market via a rent/buy decision. As they acknowledge, there are many other non-financial factors to consider. What they are saying, and what is true, is that your return in real estate will depend upon when you enter, when you exit, whether you decide to buy or rent, and very few of us (if any at all) have the savvy to read the tea leaves and know the correct decision.
Benson
Actually the argument to OWN is based on Market timing – there is no timing involved in the cost of a rental. The financial advantage of owning is virtually entirely based on market timing –
sold that apartment in 1990 – you lose –
sold it in 2005 – you win.
Why is it so hard for you to accept that IT DEPENDS.
Look at the “rental of the day” 1t 126 4th Ave from a week ago – everyone said that it was overpriced for $2500(1br) yet compare that to a 1br in the Novo going for $570,000 (plus $400 a mo non-deductible maintainace). – these are very comparable apartments, on the same street, similar construction/quality, etc…
This is one example but a good one that illustrates absent appreciation, the cost of ownership is significantly higher for the purchase as compared to the rental
I agree the “rent now” supporters are basically speculators.
Extremely misinformed speculators in my opinion
Sneaky Pete
Right, sorry, meant to say 40cents. And I agree, if the market is in fact headed way down, it probably does make sense to rent. But given we don’t know, if you have the money to buy and decide not to, aren’t you really just trying to time the market (which I think most would agree is not the way to go)?
Also, as someone pointed out, a signicant portion of cap gains are tax free. But short of selling, you could also simply refinance your mortgage with a higher amount to pull out equity. Alternatively, take out HELOC, although there of course would be interest costs to this.
Let’s make this clear proponents of renting are basing that argument on “timing the market”
Any investment advisor will never counsel a client to time any market.
Your argument is that “renting is better now” is pure market timing – period.
Right now, renting is underrated and owning is overrated (not saying it shouldn’t be rated at all, it’s just OVERrated). I’m speaking purely from a financial perspective. There are tons of other benefits similar to what you would get with a fancy car.
The reverse was true after the 90’s crash. The reverse will be true after this crash. We aint there yet.
No you generally save (depending on tax braket) about 40cents on the dollar for deductible interest and taxes.
And yes you are putting a sum toward equity each month – but you have to sell to freely access that equity and there are costs to selling (including brokerage, taxes, legal etc…).
and if the value of your apartment declines (during your period of ownership) your equity is declining (potentially at a faster rate then you are accumulating)
Trust me I am not against owning – and I’ll admit for some people the only way they are going to “save” is through the equity portion of their mortgage payment. But when comparing the costs of renting vs. owning on a purely financial basis (ie. no psychic benefits) – in a period of declining values it is very hard to beat renting and in a period of appreciating values it is hard to beat owning. Which period will we be in over the next 5.10,15 years – if you KNOW the answer to that – you are smarter then just about everyone.
3:21 – I actually agree with a lot you are saying. Although, from what I’ve seen recently, monthly renting costs vs owning are very comparable. For example, in my building there is a unit available for rent at $4400 per month (which is 300 sq ft smaller than mine), which is almost identical to what I pay in mortgage/maintenance. And notwithstanding where we think the real estate market is headed, I think we all know that all rent does is go up year after year after year (my mortgage payment always stays the same, and in fact has the opportunity to go down depending on where rates go).
But, this is also a function of how much one is willing/able to put down and as you point out, there is an opportunity cost to that. I don’t think you should discount the portion of the monthly payment that goes to equity though. Yes, while a small portion of the total loan, it is real money on a monthly basis. I make a $3,900 mortgage payment each month with about $650 of it going straight to equity. That’s 17% (which obviously goes up each month). And you seem to discount the 60 cents on the dollar in the form of tax saves. That’s a huge savings that turns into several thousand $ each year.
So, while I agree with you that the right answer always depends on the circumstance, by and large, if one can afford the down payment I really feel like buying is the better economic option; not to mention the sense of pride and other intangibles that come with owning vs renting.
3:26 & 3:33 (I’m sure you’re the same person)- “Renting is never the best bet.” I really think you should re-evaluate that claim and not hand out that free piece of advice. There are plenty of articles, examples of how renting can be better in certain circumstances. In many cases, buying is better but that depends on how long you plan to stay, the tax bracket you’re in, the amount of maintenance and property tax you have to pay, any costs of up keep etc. There are numerous calculators that will tell you how to calculate this.