Bubble Sitting
Just this week, builder Toll Brothers announced they expected sales to decline substantially for the year.
"With many potential buyers on the sidelines right now, we believe there is growing pent-up demand that will come into the market once buyer sentiment improves," said CEO Robert Toll.
He does not, however, think bubble sitting works. "It's very hard to pick a bottom," he said.
Bubble sitters might argue, though, that it has worked for new home buyers this year. They are, after all, receiving discounts and incentives that were nearly non-existent last year.
Dean Baker, an economist and co-director of the Center for Economic and Policy Research, is a bubble sitter himself, having sold his home a couple of years ago. "It is a very bad time to buy. Prices are heading down," he said.
Baker also predicts that the markets that have run up the most will suffer the worst turndowns. He compares it to the tech bubble when Nasdaq stocks rang up the biggest gains before the pop and fell the farthest from their highs after it.
Even though he did it himself, Baker says most people should not sell in anticipation of getting back into the market at a lower price.
"I don't think people want to speculate on their homes," he says.
In 1998, many of us in real estate heard chatter about a housing market collapse. Prices just "couldn't go any higher." Many people sold their homes, or put off buying one as they rented, waiting for the inevitable dip in the market. (For the record, at the time that was not my recommendation at all).
A few wisely got tired of waiting and bought something, but many of those same people continue to throw money out the window today, in the form of rent. Not only have they continued to watch the market climb, but they now have little hope of attaining property at those "insane" 1998 numbers.
That said, there is no denying that there has been a significant cooling period in the market. Bernanke recently held up on interest rate increases, and a buying blip has seemed to appear in the past two weeks. After many months of quiet, properties that have been sitting on the market are finally yielding offers that are now acceptable to the sellers. A meeting of the minds is indeed beginning to happen.
Those who are waiting for a further dip may be seen as they wise ones this time next year--but timing that is not a task that I would like to attempt. But those who have an ownership horizon beyond five years seem to be once again ready to take the plunge.
I've always enjoyed your site, but I am now disappointed in you and the cliches spouted in this posting. What we have to walk away is that it makes sense to buy in a hot market so as to not get locked out, but it also makes sense to buy in a cooling/cold market because.... In other words, you've descended into that worse of broker babble that it's "always the right time to buy real estate".
Disappointing and you've lost lot's of credibility.
It's a long walk from "bubble sitting is tough and can leave you on the sidelines" (that's the lesson I got from Doug's story) to "it's always the right time to buy." You have been reading this blog regularly. You know Doug is simply not an automaton.
Doug,
I'm a so called "bubble sitter". I'm not trying to time the market. I'm already priced out of this market. And will only consider buying once carrying costs to buy reaches some parity to my cost to rent. For the record I rent in manhattan and have a market rate lease. The price and carrying costs to own a similar apt are still almost 2x my cost of renting. I refuse to spend more than 50% of my income to own a apt. I'm not trying to time this market, I'm only trying to reasonably afford this market
Someone seems frustrated? I seem to have been misunderstood but first I would like to say that if one post takes away my credibility of 5 months of brutal honesty then perhaps I'm just saying something that you don't want to hear? That said, I'm not AT ALL suggesting it is always "time to buy." I am suggesting that real estate has been a smart long play historically. Not at all suggesting that you can't get burned either, but current market conditions seem to have cooled enough to bring buyers back to the market to get both low interest rates and prices that are off the highs of Spring 2005 in many cases.
Bobby, would love to hear more specifically what your "market" rent is that is 1/2 of cost to own? I would suggest that it is likely better than market rent. My wife and I own a 3BR on the Upper West Side and the cost of renting would still exceed what it would cost to carry my apartment if I bought it today, not to mention the HUGE tax deductions that we realize through ownership.
Doug,
If you can find me a 5 room apt move in condtion, 1300 sq ft good light views of the river great closets on the UWS up to 125th st west of Broadway that costs me after tax deductions $3,900 per month you will have a new client.
Doug:
I'm curious that you think renting an apt like yours costs more than buying. I think I know where you live, and a 3-bed would be 2.5m+, with 3k/month CC + taxes. Without figuring in tax deductions, monthly payments are 15k+ on a 2m mtge at 6.5% (don't forget the deduction limits based on both income and 1.1m mtge max) and the lost interest (currently 5.5% interest CD at Citi/Chase). Could you not rent a similar unit for 14k+?
Doug,
I've enjoyed your brutal honesty, which has mostly centered around examples of bad integrity in the industry. I've read your site as most of the other sites out there are biased in the other, big bubble, direction. That being said, you are a broker and your views are biased (understandably and perhaps unintentially). Your view that, at this moment, the cash flows from buying today are better than owning is just wrong. Your point has been refuted in various publications including the NYT and WSJ. I rent 1800 sq ft on the UES which would have an implied cash flow, at 6.5% and $1psf maint. of between 14K and 16K before tax and perhaps 11K after and my rent is $6400. Even at a rent multiplier at 5x, much of the UES and UWS is not economical to own. As the long term trend is to revolve around the mean, it will get smarter to own in the future. We understand that this mentality does not allow you to earn commissions and that you have a right to a view and to earn a living. But I luckily sold last year and am waiting for a market adjustment which, as you've pointed out, is starting.
It would be helpful if you had, at some point in the market, had said that it was a good time to wait. Alternatively, you could use the other cliche that a lot of my broker friends use "Real estate is not an investment, it's a home and you should go with what makes you happy".
Backinthemarket-
Doug can speak for himself, and I'm sure he will. But you're barking up the wrong tree here. One example: Last September, Doug sent out tens of thousands of postcards with the headline "Are You Ready for a Falling Market?" http://tinyurl.com/lpzt6
Hardly the actions of an "always a good time to buy" guy.
This is fun! I do not feel the need at all to defend my statements as I always speak the truth. That said, I believe my statements were somewhat misconstrued. the essence of the post is that timing a "bubble" is difficult and I was trying to give my insight as I see the market picking up some steam over the past few weeks after a considerable "quiet" period of several months.
As far as my apartment goes...if you (anon) are in the industry and can get me $2.5M for my place assuming you do know where it is, I'm selling TODAY! My apartment is worth considerably less than you state and monthly after tax costs are less than what I would spend in rent. Additionally, I own and although fully comprehend the risk of depreciation, my wife and 2 kids and I aren't planning on leaving for at least 10 years and maybe never. If my home is worth less in 20 years when I sell, I will not only be surprised, but likely working in a different profession.
Bobby, you got me my friend. That is a tall order, but not impossible and I will keep my eyes open for you. If you are paying $3900/mth for that, you have a deal. I am not an expert on the rental market but that seems below market? You should shoot me an email so I have your info to reach you should your dream become available.
BackInTheMarket,
Interesting screen name? Does it tell a story? I absolutely appreciate your perspective here but I think you have me all wrong. I tell people every day NOT to buy and sellers NOT to sell. Never is my response "canned" or automated. I always speak the truth and my mind. If you think that timing a market is an easy thing, then you are a much more sophisticated man than I. If it frightens you that I am telling you that I have seen the market pick up some steam since Bernanke halted rate increases, then I'm sorry for making you uncomfortable. I'm not making this up. Just as I have honestly reported the cooling of the market (long before most in my industry would admit to it), and the frequent absence of integrity in the industry, if you stay tuned long enough, you're going to hear some positive things about the market too. My promise to you...I will never blow smoke and you won't EVER hear me put a "spin" on anything. Just facts and fact is that 6 apartments that I have had little or no activity on in past 3 months are now going to contract with no change in price. I sincerely hope that you will continue to read True Gotham as I promise to continue to deliver honesty...may not always be what you want to hear and of course you don't have to agree with anything I say, but I speak the truth...ALWAYS.
Doug:
Anon again who thinks your apt is worth 2.5m. I don't know, but I haven't many condos on the UWS for less than that for a large 3-bedroom. I myself am quite lucky and renting a 3-bedroom on a prime block on UWS for $7k which I think is a very good deal these days (modern, doorman, etc.) while my place is being fixed up. I think the market is still quite strong for quality listings (location, size, building pedigree) and weakening for everything else although the practice of pricing ahead (i.e. pricing above comps) is now dead. Every single quality listing I've seen on the UWS (location, size, layout, condition, building, light, view), if priced even slightly below last spring's ask (Spring '05) has gone into contract quickly even in the summer. People are loathe to do lots of work unless price reflects condition, 3 bed + apts in sought-after building with okay light and okay views have gone very, very quickly in the UWS. And if it's a condo, gone yesterday.
Anon, I didn't realize that you could rent a quality 3BR for $7K on the UWS? Sounds like you have yourself a deal. Even so, with a relatively large mortgage, a 10year IO mortgage, and my taxes and cc's, I'm still netting less than that but that is quite attractive. Listen, even I have toyed with the idea of cashing out and waiting on the sidelines for a market correction, but that guesswork makes me terribly nervous. Especially when I continue to watch money pour into the city and I witness a plethora of ready, willing and able buyers at current (adjusted) prices (off those highs of Spring 05).
