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February 20, 2007
New York real estate continues up
NEW YORK - The bonuses at places like Goldman Sachs - which averaged $600,000 for every single employee - have put one heck of a zing in the Manhattan real estate market, and this is before the traditional summer buying season. (No, my bonus won't be anywhere near Goldman levels.) When I bought at the top of the last mini-cycle in real estate (July 2006), I admit I did feel a bit foolish for a while. And I'm still annoyed that the building hasn't been completed despite months of delays.
Still, with Manhattan awash in money, prices are up double-digits since last year:
Across the board, the prices of Manhattan apartments are rising. Jonathan Miller, the president of Miller Samuel, an appraisal firm, said the number of contracts signed this January was 19.4 percent higher than in January 2006. Prices were up 14.4 percent in the same time period. Inventory, which was mounting last summer, is shrinking fast.Now, according to Mr. Miller, statistics showed that sales of studio and one-bedroom units, stagnant over the past year, were up 13.7 percent in January. “It’s not like a lot of huge sales at the high end skewed the average up.”
According to a report released last week by the National Association of Realtors, prices are falling in many other metropolitan areas around the country. The report covered only the last quarter of 2006, and showed a modest increase of 3.1 percent for the New York area, which includes parts of northern New Jersey.
Anecdotally, there isn’t much talk of falling prices in Manhattan and in the most sought-after neighborhoods in Brooklyn, where young people looking for a break, empty nesters looking for a guest room and foreigners looking for a pied-à-terre say they want to live.
Katalin Shavely, a 30-year-old bedding designer in Manhattan, devotes her weekends to scanning the classifieds and attending open houses, searching for just the right one-bedroom apartment. She can’t find it. “I made a mistake,” she said last week. “I should have started looking before Thanksgiving.”
She should come look in Harlem, though even in my building, two units have gone into contract in the past weekend and the project is nearly 85% sold out. Every unit cheaper than mine is sold, which is a good sign, since demand for entry-level condos tends to be stronger than penthouses.
Posted by adrianjo at 10:52 PM
February 03, 2007
Young and fearless New York real estate buyers
As I wait for my condo to finally get done, Sunday's NY Times has an article on how "prepared and fearless" young buyers in Manhattan are changing how the real estate game is played. For one thing, younger buyers are far better prepared, which makes sense when we have to pay $1000 per foot for property that may have cost our parents just $50/foot back in thier day. I remember getting strange looks from the agent at 2002 Fifth Avenue when I calculated in my head the tax impact of the building's strange ground-lease co-op structure. Eventually I had to explain that I have a degree in real estate, but the Times article convinces me that I'm not alone in building IRR models in Excel to model different returns scenarios on purchasing a condo.
The Times mentions how financing alternatives are getting more creative, which isn't really news. Indeed, the mortgage broker seemed a bit excited when I said I'd rather do 100% financing in a 5-year Interest only ARM, financing even the closing costs (which in Manhattan can be $25,000 or more for an entry-level condo), and keeping spare cash in the stock market. This makes me a "most extreme case" according to the Times:
In the most extreme cases, Joseph Gallagher, a Corcoran Group broker in Brooklyn, has had clients with high credit scores finance everything, even their closing costs. He finds that some developers are willing to take down payments as low as 5 percent to fill their apartments.... brokers say that buyers who have made enough money to put down 20 percent are choosing to keep their money in their pockets.
“Younger buyers want to retain their cash,” Mr. Gallagher said. “They don’t want to empty their bank accounts for a deposit. They want to finance 100 percent if possible.”
It was common for Baby Boomers to buy their $100,000 house with a fixed rate mortgage that was to be paid-off in 30 years. The American Dream has changed.
But even with all this thoughtful research, she rattled her family when she told them about the kind of mortgage she had chosen for what she considers a five-year investment.“My parents freaked out when I said I was doing a seven-year, interest-only ARM,” she said. “They’ve always bought properties that they’ve owned for life.”
I decided some time ago that I own too much stuff and need fewer possessions. "When you buy real estate nowadays, you're buying a payment and the potential for upside," my mortgage broker explained. I can pay a rent or I can pay a mortgage, but I have no delusions that I might actually one day own or pay-off my condo, nor would I want to. And I don't really even consider it ownership, just control of an asset and its cash flows. The best thing about "owning" will be the ability to reduce my income tax bill by a third by writing-off the interest. If I can borrow the last dollar on a 100% mortgage for 9% pre-tax or 6% post-tax and invest spare money in the stock market at 7% through a tax-deferred vehicle, why not take the 1%? Why pay-off a mortgage when it just increases one's tax bill? I may "own" the property, but really I own a monthly payment and a tax shield. I don't think many of our parent's generation would think that way, or be happy with it.
Posted by adrianjo at 09:59 PM