Gettin' outta Dodge!

Hi folks. It has been a looong time since my last post. I have been busy moving and quite frankly the angst has just plain worn away. I have left Brooklyn and other than my Moms in Carroll Gardens, there is little else tying me to the boro.

I have moved to Suffolk County with my inlaws, Mrs. Squeeze, Baby Squeeze, and #2 in utero. We are in a four BR split level ranch with a nice backyard in a (relatively) quiet cul-de-sac. We renovated two rooms (new paint and other touches) to make baby squeeze and us feel more at home. Most of our stuff we dumped into a local storage space ($125/mth!). So now we are soaking up the sun under the willow tree in the yard and socking away $2500 a month.

And you know the funny thing is that I don't miss Brooklyn at all. Change is sometimes a good thing! The only thing that is a drag is the commute. Hour and a half. I bring lots a reading material but sometimes run out. The conductor's chants I've got memorized (5:21 train to Babylon, change at Jamaica for the train to Hempstead, change at Babylon for the train to Speonk, stopping at Bay Shore, Islip,...)

All in all, I am happy and no longer driven to blog. Anyone else want to take over being the resident Brooklyn Real Estate contrarian, feel free to let me know and I will pass this onto them.

718 Brooklyn - Photo Blog extraordinaire

I met this photographer at the Court Street fair two weekends ago. She had a great pic of Russo Realty on Smith Street that made me laugh. The guy has like a million different battered signs on the building letting passersby that he is a notary.

This is a good site for those of us moving out of the BK for cheaper lands. If you want to preserve the BK in your memory before it steadily creeps into one big Ratner-Walentas-Boymlegreen-Corcoran-Manhattanized-Upper West Side-GAP Starbucks playground for the rich, check this site out.

718 Brooklyn - Your Neighborhood Photo Blog

Real Estate Blues

Smartmom, from the blog "Only the Blog Knows Brooklyn" also knows what it is like to feel marginalized among her newer, richer, property-owining neighbors.

THIRD STREET: Real Estate Blues

Safety Net Issues part and parcel with the American Dream

A recent Business Week article pokes holes in the President's "Ownership Society." The article mentions several issues that form the backdrop against which people choose or not choose to buy a house -- tepid stock market performance, rising healthcare costs shifted to employees, and the lack of job security that a wide array of people feel. And the interesting point that this article highlights is that it cuts across state borders, income levels, and political affiliations.

Real estate, where many folks have looked more to drive their asset gains, has significant concerns as well. "Even houses -- most Americans' entrée to the Ownership Society -- are increasingly in hock: In the past 15 years, mortgage and home-equity borrowing has risen from 35.1% of home values to 43.9%." Any more debt like that and we'd have the "Sharecropper's Society."

"I Want My Safety Net"

Imitation is the sincerest form of flattery

A reader from the Left Coast of Canada was inspired to start his own "Local Real Estate is Insane" blog for Vancouver. Good for you! Apparently Brooklyn isn't the only place with pre-gentrification speculative fever, bubbliscious asking prices, priced out locals, and pockets of interlopers with cash to blow and no reasonable way to spend it. Phew, that was a long sentence (and it is only Monday).

Vancouver Housing Market Blog

Lessons from the U.K. housing market -- What can the US learn from across the Atlantic

Lessons from the U.K. housing market - May. 4, 2005

Escape from New York (or Crepes, Matrons, and Monica Lewinsky)

OK. It's been a while since my last post, so I thought I would make this a good one. Mrs. Squeeze and I washed our real estate worries away for a weekend by going out of town to, of all places, Greenwich, CT. Between the cheap rate at a four-star hotel and the quick drive, we booked a room right away. We were a little guilty to shed poor baby squeeze on grandma, but that feeling subsided once we realized we could do anything that childless adults could do for the next 24 hours.

As a result, we opted for some more tamer pursuits: window shopping down the main drag, the requisite arts fair with tchokes galore, a stop at a great crepe place (Meli Melo) and a movie. We were having an officially (and unofficially) great time.

Settling into my suburban surroundings by that time, I felt pretty at ease and not like the city native in the burbs that I was. That was, until I stood on line for popcorn and counted the number of men who were wearing the same shoes as me -- boat decks, mocassins, topsiders, etc. I stopped counting at 8 pairs out of 10, knowing full well that the number would just rise and get worse. I wear boat decks for comfort, but part of me likes that I don't see them quite often in the city (for my last pair, I went to five different shoe stores and finally got a pair at Paragon Sports). Now, it was as if I had stumbled upon some topsider family reunion. Creepy.

To make matters worse, after the movie, we were forced to listen to a conversation that a woman was having with her children. The woman was very matronly, late 40's, stout, and conservative looking, like Stephen Root with a bob cut, pearl earrings, and a manicure (you know Stephen Root, that guy who was the station owner on the sitcom News Radio?). Anyway, the movie was The Interpreter, and the woman was pointing out flaws in the movie, one of which was "they never locked their doors in the movie and I just know that people in New York City lock their doors as soon as they get in the house."

At first, I ignored the comment, but then I got bothered by it. C'mon, maybe at night or when I am out of the house I lock the door, but when I am in and awake it is unlocked. Most NY'ers I know do that. In this woman's mind, NYC was a crime ridden hellhole where you must lock your door or your great big boogeyman was gonna come in and get you. Too tempted to let ignorance remain and too proud as a city dweller, I went up and interrupted the woman's conversation, pointing out the inaccuracies and that, as a New Yorker, I don't lock my door. She got mostly flustered and beet red, stating "Oh no, don't get wrong, I love New York. Brooklyn too!" The damage was done, so we walked on with a good laugh and sense that I still love being a New Yorker and especially a Brooklynite. (Of course, this enthusiasm subsided promptly on our return when it took 20 minutes to go from Greenwich to Williamsburg and an hour more to get to Carroll Gardens because that damn bike ride closed the BQE)

Upon leaving the Delamar Hotel, feeling pleasantly refreshed and ready to face reality again, we stopped for some java in the hotel's "library" which offered "coffee, espresso, and cappucino 24 hours a day" should we need it. While filling up, we waited in line with Monica Lewinksy, who was also checking out. I felt like asking if she locks the door in her West Village pad, but she and some older guy had sped off from the parking lot.

Geisha's coming to Grand Army Plaza?

During the glorious 80's of my teen years, my younger sister heard that the Japanese were going to buy Rockefeller Center. She was worried that they would replace the Angels that lined the walkways during Christmas with Geishas. (She also thought that Chariots of Fire was a German film, but I digress).

Enterprising Ishi Press highlights Park Slope for Japanese investors with a yen for American real estate. Among the highlights:
- Avoid Brooklyn Heights, which is "strictly for those who have fat wallets"

- "There are various young lawyers who own their homes in the Slope"

JAPANESE DISCOVER BROOKLYN

Apparently, some brokers can do math -- and profit!

Brownstoner posts a story of Corcoran broker Nick Arnold, who is apparently trying to flip a South Slope three-family for $999k, netting a 150% return off of a purchase he made with $172k in equity and a total price of $749k. As B'stoner says, nice work if you can get it. Still, even if this $999k price is at perceived market value and I could shell out the cash, I'd rather put my money in another comparable property than give it to this flipper. Just my opinion, though.

brownstoner: Insiders' Game on 10th Street

desperatehousehunter's working it in Bed Stuy

Gotta love my fellow BK bloggers. J from DesparateHouseHunt gave me the skinny on her purchase: $549k with 10% down. I ran some numbers and they could make sense if she and her husband have an income in the mid $100k's and don't have any other heavy debt (student loans, credit cards). I assumed the following:

- prop taxes around $2500/yr
- utilities around $200/mth (lowball)
- no rental income (they want the whole bldg to themselves)
- no maintenance and capital improvement dollars (very lowball -- they'll need that sweat equity thing going on)
- 6.5% loan
- Homeowner's insurance of $600/yr (lowball)

With these assumptions, their pre-tax rental equivalent would be $3600 (i.e., this is like paying $3600 rent in terms of cash flow). The thing that really hurts is that they aren't getting rental income, but this is not necessarily an impossible purchase without it. If they could squeeze about $12,000 a year in additional tax benefits between owning the property and using it for business purposes as well, it could give them a net rental equivalent of $3,000 a month, or 25% of pre-tax income of around $12,500/mth. Thoughts? Tax experts or current BK homeowners?

Update: a reader points out that the $1000 a month that J spends on storage space for her business should factor into the affordability question. Realistically it is almost like rent. Factoring that in, the actual rental equivalent looks more like $2600 a month pre-tax, enough for any family with income of $100k to sustain housing costs comfortably. Good catch!

desperatehousehunt: A reader writes

Links to Fillmore Listing Still Not Working

My apologies. The Fillmore folks are looking to find a solution to link directly to listing pages. In the meantime, I took out the Fillmore listings to avoid further reader annoyance.

Yea! We're #11!! (Depressed City that is...)

Whoever did this survey never hung out at the bar of the Brooklyn Inn on Hoyt Street with all the dark artsy film twentysomethings. What city is #1 you ask? Philly. Maybe the Super Bowl loss did everyone there in. Especially those folks who took out a home equity loan to go to the game.

The happiest city in the NY metro area? Jersey City, which is the third happiest city in the country behind Laredo and El Paso Texas. Go figure.

MSN Health & Fitness - Is Your Town Down?

Site feed is up!

Actually, from what I can gather, the site feed has always been up, I just didn't post it (http://bksqueeze.blogspot.com/atom.xml ). It is now permanently on the sidebar in case anyone wants it. I never said this site was pretty! Any other issues regarding site feeds, let me know asap. Thanks!

Whole Foods come to Brooklyn

Third Street and Third Ave is the site. They no doubt located there in anticipation of all the new buildings going up on Fourth Avenue.

Crain's New York Business news, lists, rankings, directory and more

Kensington 3 BR

1400 sq ft, I could do alot with that and for $410k, it is in reach. I don't know the maintenance or exact location, but it looks inviting at first glance.

Livingchoices.com: Real Estate - New Homes, Homes for Sale, Apartment Rentals

Windsor Terrace 1 Family

What's the deal with this place? It has been on the market for several months without a bite. The price is nice at $509k. The nabe is nice. So what gives? Sure, the exterior leaves something to be desired, but still.

Livingchoices.com: Real Estate - New Homes, Homes for Sale, Apartment Rentals

2 BR's in the 212 for $50 a sq ft: head north to Ft George

New York Post Online Edition:

Potential Deal in Kensington?

A two-family in Kensington for $585k? It is worth a look to check out the condition. Taxes listed are low ($1524). It also comes with a garage and driveway (though they say it is attached on both sides, which is confusing). At Minna St and Chester Ave., it is around the corner from the "Chester the Molester" house, now listed at $655k by Open Options (Chester is also listed by Aguayo & Huebener). Has anyone seen this house?

http://www.openoptionsre.com/index.cfm?page=details&id=201

Queens: Is the next frontier played out?

Perusing the blog "Open House Reviews" looks like a good start if you want to check out living in the birthplace of Mister Squeeze. Lots of interesting detail on specific places for sale. It takes a pretty pro-buyer slant, which is okay in my book.

Open House Reviews - Rating Real Estate Open Houses in Queens, New York: Queens Real Estate

Disgusting Fish Cooker

This has nothing to do with real estate. It just reminds me of the adventures in aprtment living.

Latin Dances � Disgusting Fish Cooker

You knew I was going to post the latest Economist article, didn't you?

Economist.com | House prices

What? You mean I am not the only bitter guy when it comes to rising real estate prices

USA Today (known to me mostly for its sports section and free status at hotels than for its in-depth journalism) looks at both sides of the fence regarding the pros and cons of gentrification. Talk amongst yourselves.

USATODAY.com - Studies: Gentrification a boost for everyone

How Gentrification is Effecting One Block in Bedford-Stuyvesant

Bed-stuy. Last of the Brownstone Mohicans? That's what this NY Mag article posits as all of the rest of Brownstone Bklyn's nabe are stone cold gentrified. Some other good points highlighted in the article:

- Who's moving in? For all the hubub about whitey moving in, the examples they seem to highlight are far from the yuppy white bread stereotype -- lots of professionals of color, mixed race couples and artsy types moving in. What's holding Mr Suit and Tie back?

- Safety: somewhere between best hopes and worst fears. Defitely not a black and white issue (no pun intended). Like I have heard from folks before, it becomes a block-by-block issue. This isn't all that different from other nabes in NYC. Sure you take some risk if you find out you have the wrong block, but that hasn't stopped others from diving in. Some folks, Mrs Squeeze for one, look at the safety issue as a matter of convenience "Why should I spend so much time figuring out the right blocks to live on in Bed Stuy when I can go into other nabes in and out of Brooklyn where crime is not even a remotely significant issue?" Well, good housing stock and commute time to Manhattan are good reasons why, if that is your priority.

- Cost: A year ago when I saw places in the $500-600's range, I could see a couple like the film guy and the events planner buying this place. But how are they swinging this for $829k. I didn't realize that the NY film biz and events planning paid that well. The numbes have got to add up somehow between down payment, % of income devoted to housing, rents, etc. Inquisitive minds want to know. How Gentrification is Effecting One Block in Bedford-Stuyvesant

Here comes the professional

There are times when you just need to bring in a ringer. I usually reserve that for company softball teams, but this time it applies to my real estate situation. Mr and Mrs Squeeze saw a financial planner today to review everything. We went over income (mine and hers, which is going bye bye soon), financial goals (house, retirement, kid's college, savings cushion), household budgets (how low?), student loans (pay off or keep?), shacking up with the in-laws, life insurance, stock options, and of course real estate. The meeting reminded me how complicated and inter-related all of these things are.

It was a good meeting. I spilled my guts out (much like on this blog) and my wife had some anxious energy going in but she was "relieved" that we started this process, which takes several sessions and lots of 401k statements to review.

desperatehousehunt: fellow BK househunter extraordinaire

A reader tipped me off to this great blog detailing how a family with limited scratch bought a place in Bed Stuy. The only bad part is that she stopped in March. We want more. Have you moved in. If you are reading this, email me back.

desperatehousehunt

Van Brunt revised

OK. Mea Cupla. Mea Cupla. To those anons who read my post yesterday and stated that my ROI was wrong, you are correct (boy this crowd is not sleeping, eh). In my rush to judge (and go to bed last night), I mistakenly mixed my terms, putting in ROI into a cash flow argument.

OK. Let's talk cash flow. If we take her numbers at face value and she pays all cash, she has $9095 in expenses and $70,200 in rent roll. Monthly, that is $758 in expenses and $5850 in rent roll. With a 35% Federal tax bracket, on a monthly basis, she can net around $5180 (for the property taxas you get $88/mth of tax benefit, or $1056 for the year). That's a pretty good deal by my book.

The problem is when you start putting 25% down and finance the rest at 6%, as she says she often does, your cash flow takes a hit. On top of that $758 in expenses each month, you are paying a $4,838 mortgage. If you factor in $1205 in tax savings (from an assumed 35% Federal bracket), you get $1459 net each month. Not bad, but not as good as I thought.

Now let's add in some different cost assumptions. One of the anon posters said that annual expenses (outside of mortgage I assume) come closer to $15k. So with the $4838 you are paying on a mortgage each month, you are also paying $1250 in other costs each month for a total of $6088. You can get about $1342 in tax benefits. All told you can net about $1104 each month -- $5850 in rent, plus $1342 in tax benefits, minus $6088 in expenses.

That's with a 35% Federal tax bracket. If we lower it somewhere around mine (about 18%, I got that from my accountant I swear), you only get $690 in monthy tax benefits, giving you a net of $452 -- $5850 in rent, plus $690 in tax benefits, minus $6088 in expenses. (Forgive me if I am misusing the term "net" for any finance folks out there, but you understand what I mean by it). This net is looking worse and worse.

OK, last adjustment-- Down payment. Tweny-five percent of $1.075 million is $268,750. There are probably some readers who might have that for a down payment so you know what you might get above. But for many of those NY Times readers in my tax bracket, we don't have that. Let's say that you do have $100k for a down payment. That means you are now floating a $5850 monthly mortgage payment, plus $1250 in other expenses for a total of $7100 in monthly expenses. Your rent now just covers your mortgage. Monthly tax benefits are around $811. Your net now becomes negative $439 -- $5850 in rent, plus $811 in tax benefits, minus $7100 in expenses.

What's my point with this long rambling post. There are some people reading this NYT article who may become convinced that they could do what Barbara Corcoran did. For those of you who could put 25% down on this deal and get significant tax savings like Corcoran did, yes you can do this abd it still looks like a reasonable deal. But for a lot of other readers like myself, doing a deal like this is more risky. You get into negative cash flow territory, so you NEED to have the price go up to justify continued investment. I am sure there are people out there with a high risk tolerance who would still do it with the same financials as me. For the rest of us, I thought this workout would help.

Corcoran's Funny Numbers: only a 1% annual return on Red Hook investment

Apparently Barbara Corcoran has been smoking dope again or she had Star Jones run the numbers on her latest "investment" in 293 Van Brunt Street. A 2-family plus store on a growing commercial strip, you would expect to pay a premium and boy did she -- $1.075 million.

According to PropertyShark records, Babs purchased the property from an organization called Red Hook Rennaissance, LLC. Apparently, investing in Red Hook real estate is a smart move, at least for Red Hook Renaissance, which only bought the building only nine months ago for $400k from a individual owner and pocketed almost $700k from the sale to Cororan.

What is just as ridiculous are the numbers Corcoran used to justify the purchase. By her own numbers, the self-described "timid investor" gets a 0.4% annual ROI if she paid with cash and a 1.6% ROI if she put only 25% down (which she says she does often). However, the expenses she provides are a little off -- between taxes, fuel, mortgage, and utilities for common areas, she'll end up paying $1,466 more each year than what she estimates. My revised estimate was culled by a few building owners around the neighborhood with several buildings and multiple years in real estate investment. With $68,569 in estimated annual expenses and a rent roll of $70,200, she is only clearing $2,806 off of a $269k down payment, or only 1% annual ROI. Even my crappy checking account does better than that.

Let the hordes of investors sashay down Van Brunt Street!

The New York Times > Real Estate > Seeking Nest Eggs, Investors Buy Nests

Sunday Times Roundup

% of profiled houses that sold below asking: 68%

The New York Times > Real Estate > Image

Some more cheaper places - 218 Putnam Avenue

Any thoughts?

corcoran.com | 218 Putnam Avenue

OK, So here's a potential deal from Corcoran -- 563A Quincy Street

corcoran.com | 563A Quincy Street

Deals remain in Bed Stuy for renters paying $2,200 in rent now

Here's a 2-family in Bed Stuy for only $560k. Not sure of the address. It is a fixer upper, so you'll need to invest cash in that.

With a down payment of $100k, capital improvements of $150k, rental of at least $800 a month, taxes of $2k/yr (assumed), 6% 30-yr fixed loan, and incremental maintenance, insurance, and utility costs that renter's don't have, the owner's monthly net could be realistically be in reach for anyone paying $2200 in rent. (Net includes interest deductions for taxes). Using a guideline of 1/3 of gross going to housing, households making at least $90,000 could potentially swing this.

Here's the question: is it in a decent, safe block? What about the rest of the area?

Aguayo & Huebener - Lovely & Affordable 2-Family

John T Reed: Real estate for realists

Has anyone seen this site? Check out some of the free articles. He gives some pretty good advice against caving in the get-rich quick experts. This article, entitled "The real estate B.S. artist detection checklist" has a few warning signs in dissecting a real estate experts polyanna approach:

3. No pitfalls or corrections. There are dangers in everything. But you rarely read about danger in a book by a real estate B.S. artist... or hear about it in one of his cassettes or TV infomercials. Everybody makes mistakes. But you rarely read about a guru’s mistake or see a correction in a B.S. artist’s newsletter. The B.S. artists are self-proclaimedly big on being “positive.” And one of the things they’re positive about is that the dream world they depict will not be marred by unpleasant reality.

On the other hand, worthwhile gurus like John Beck (Distress Sales Report), are as likely to write about mistakes made (often by the guru himself/herself) and dangers overlooked as about spectacular profits achieved. And all ethical periodicals writers run corrections when they make a mistake.

4. No bad news. In addition to teaching techniques, real-estate investment gurus have to respond to news like court decisions, legislation, economic trends, and so forth. Of course, some of the news is bad. But the B.S. artists invariably respond to bad news in Pollyanna fashion. They always see “opportunity.” The closest they come to acknowledging the unhappy truth is to describe a situation as a “challenge.”


The real estate B.S. artist detection checklist article by John T. Reed

For $1.9 million, you even get welding tools

Local agent Barbara Piazza pulls a Corcoran -- a carriage house on Degraw St between Court and Smith St was originally listed for around $1.2 million last summer and didn't sell. So she has now raised the price to $1.9 million???

First let it be known that I love Carroll Gardens, my home of 10+ years and soon to be my ex-home. That said -- $1.9 million for a carriage house?? Even the 3-families two blocks down go for $1.7 million in pristine shape.

Good points - very charming looking and in good condition (from the outside); great location
Bad points - only a one-family. Granted, it is a four-bedroom and there is a small photo studio on the first floor that could be rented, but the price seems a little ridiculous for the neighborhood, especially when it hasn't sold at $1.2 million for the past six months.

Livingchoices.com: Real Estate - New Homes, Homes for Sale, Apartment Rentals

A bubblehead with a purchase plan

It has been a while since I made a personal post. I promise I will not rant. I just got through crunching numbers on how waiting to buy a house for two years might work in my favor.

First, there is the matter of savings. I will be living rent free at my inlaws (of course I will contribute to other household expenses). If I follow Suze Orman's advice and "play house" (i.e., pretend to spend a set amount of money on a mortgage and other house payments above and beyond my current rent), I can put away $2200 a month in one of those super-sized 3% APR bank accounts or CD's. Nice and safe, just like me! With steady payments and my existing cashola squirreled there, my down payment goes from $100k to $180k in two years. This will help improve my purchasing ability.

Second, there is the issue of how much monthly nut I can afford. Currently, we are comfy with at most $2200 (see playing house issue above). Conservatively, barring my bold schemes of worldwide capitalistic dominance, I can safely assume a 4% raise in my current position, based on history. This brings my monthly bearable nut to $2400. With a larger down payment and more cash per month to burn, the picture looks better already.

Now comes the first negative -- interest rates. The current 6% average 30 year rate will likely creep up to 7% and hang around, based on all those wonderful pundits that myself and others post to our blogs. In the $400-$600k house range where I am looking, that alone would buy me 5.5% less house dollar for dollar, as I would have to lower my price range to make the same monthly payment.

Now the kicker for all you bubbleheads -- price drops. That 5.5% might just drop on the seller's side. Hey, if the housing bulls out there can claim that low interest rates have fueled the boom, it can work in reverse too. Depending on what other pundits are predicting, we could see 20% drops in the NYC metro area. Keep in mind, I am focused on the suburbs. I am done for now with a Brooklyn search and will let everyone else argue whether Brooklyn is an anomaly. Certainly established neighborhoods are less risky for downside -- the Slope, Carroll Gardens, Cobble Hilll, Brooklyn Heights, Fort Greene. But Kensington, Ditmas Park, Midwood, W'burg, Greenpoint, Red Hook, Greenwood Heights, Bed-Stuy, Clinton Hill, and Sunset Park are more at risk.

Anyway, by my math, my revised target price would go from $400k to $460k based on my increased down payment and monthly allocation. If a $460k price on a house was the result of a 20% price drop, the current value of that house would be $575k. For a 5.5% drop, the current price would be $490k.

Last, I am making a lifestyle change from the City to the burbs. What I suffer in commute and "culture", I hope to gain in price and a few other things (quiet, backyard, no alternative side of the street parking, etc.). Married and with kids, I don't really take advantage of the city enough anyway. I also have lived here most of my life and need to breath a little more. Plus, the way I see it, there are so many retail and restaurant chains in NYC, that it is beginning to blur the difference between city and suburb for me. Heck, at least outside of the city, parking at Target is easier.

Let's visualize what I could get now vs. what I could get in two years under this total scenario:

For $400k under our past search here in Brooklyn, our good friends at Crockoran can offer this for my wife, two kids and I : a two bedroom, 1.5 bath, 900 sq foot condo in a sketchy but "developing " area. Thanks but no thanks. That's not going to cut it for me.

For $460k in two years, I could potentially get this great place in Westchester: 3 BR, 2 Bath, 1600 Sq Ft, 2 car garage, fireplace, 1/3 acre lot, good schools, and only 15 minutes more on my commute.

So what do you think? Feedback welcome.

- Mr Squeeze

NPR : Real Estate and 'Irrational Exuberance'

Yale Economist Robert Shiller, author of Irrational Exuberance, has come out with a revised edition that includes the housing bubble and what underpinning it. Both revered and disliked by many, he presents some really interesting arguments that warrant continued discussion about this issue. Some interesting statements on why speculation has impacted risk in capital and asset markets so much (from a recent NPR interview):

"People will increasingly fear that their livelihoods really depend on their wealth, wealth that is highly unstable because of market changes. So, over the longer run, people will increasingly pay attention to market movements. There is an increasing perception that the price of assets matters very much to our lives. People increasingly believe that they must defend their private property and doubt that they can depend on social institutions to save them if things turn out badly. They see merciless capitalism as the wave of the future.

There is a name for this economic system -- "the ownership society" -- and President George W. Bush, among others, likes to use this term. People must take ownership of their own future, and plan for their future as property owners in many senses of the word. There is indeed much to be said for the ownership society in terms of its ability to promote economic growth. But by its very nature it also invites speculation, and, filtered through the vagaries of human psychology, it creates a horde of risks that we must somehow try to manage.

I do not know the future, and I cannot accurately predict the ups and downs of the markets. But I do know that, despite a significant slip in confidence since 2000, people still place too much confidence in the markets and have too strong a belief that paying attention to the gyrations in their investments will someday make them rich, and so they do not make conservative preparations for possible bad outcomes."


NPR : Real Estate and 'Irrational Exuberance'

Bubble vs housing-head smackdown - the re-run

A few years back, Dean Baker of the Center for Economic and Policy Research sponsored an essay contest on why there isn't a bubble. Hilary Croke, an economist with the Fed, won that contest and was given the pleasure of having her argument refuted by Baker point by point. This is an interesting exchange in that I hear the same arguments (from both sides) on Craigslist all the time. Below is an excerpt from Baker.

"Economists who claim that that there is no housing bubble - that the run-up is explained by fundamentals - cite several factors:

1) increasing population due to immigration,
2) limited supplies of urban land
3) environmental restrictions on building
4) growing incomes of homebuyers

The problem with these explanations is that none of them are new to the bubble period - if these factors explain the current run-up in home prices, then they should have also led to rising real home prices in prior decades, when many of the factors (e.g. rising incomes) would have played a larger role in pushing up home prices. Furthermore, rental prices have not kept pace with home prices. The rate of inflation in rental prices is now slowing, and in some bubble areas (e.g. San Francisco and Seattle) rental prices are actually falling. No one has yet produced a remotely plausible explanation of how fundamental factors can lead to a run-up in home sale prices, but not in rental prices."

The Run-Up in Housing Prices is Not a Bubble by Hilary Croke

Financial Calculators at Dinkytown.net

I found these rent vs buy calculators via a story on WSJ.com. It is a pretty good tool, but it is amazing how sensitive it is to the slight change in costs or assumptions. Based on changes to expected home price appreciations, propert taxes, and alternative investment returns, the advantage of buying over renting could happen in two years or never! What is a little clearer is how much of a monthly nut you'll spend with renting or buying -- buying is consistently more expensive each month (it takes money to make money). I entered in home prices of $450k vs. $2k a month rent. Both are reflective of housing that my wife and I would live in.

Financial Calculators at Dinkytown.net

Philly Prices New York Style

Aligning with what I've heard from friends migrating to Philly or already there, prices are rising on the coattails of the New York market, as middle-class buyers priced out of New York make the change to the City of Brotherly Love. WSJ.com details:

More New York and New Jersey workers are making their home in Philadelphia and its suburbs. With the median existing-home price on par with the national average of $187,500 in the fourth quarter, and generally a more affordable cost of living than other large Eastern metro areas, out-of-towner interest is driving sales. "Employment is pivoting them to the area, and dollar for dollar, it's a no-brainer compared with what you can get in Manhattan and Long Island," says Raymond Rysak, a Philadelphia realtor specializing in corporate relocations. Housing supply is being depleted at a rapid clip, with most homes selling in less than 30 days, according to the Greater Philadelphia Association of Realtors. Even luxury homes are being snapped up in the downtown Center City and Art Museum areas, given their proximity to commuting options.
Mr. Rysak expects Philadelphia to do some spilling over of its own, even as interest rates rise. "The market here is voracious, and that likely will continue," he says. "Regardless of the condition of the properties, people are willing to pay well above the list price."

Ugly Math: Paying more for real estate gets in the way of retirement savigs

This Wall Street Journal article highlights the importance of keeping debt low enough to free up enough of your cash flow to fund those 401K's and IRA's. Under a typical scenario

"Let's say you are 40 and your family income is $100,000. The table says you should have $125,000 in debt and $180,000 of retirement savings. But instead, enamored by today's highflying real-estate market, you have plunked for the big house, leaving you with a whopping $300,000 of mortgage debt and just $50,000 in retirement savings."

Unless of course you are depending on your house to fund your retirement, like all the boomers now. I'd be curious to see the ugly math on that one
WSJ.com - Getting Going (subscription required)

Registering for a down payment: a smart, if tacky wedding idea

Heck, I could have gotten $15-20 grand alone from that idea.

New York Post Online Edition:

Barbara Crockoran on NY Press's Most Loathsome New Yorker list

Not a surprise, though I thought she could have easily bumped up higher from her current #4 ranking to at least #2.

"Corcoran's success has opened the doors of the city to scores of locust-like imitators swarming the next 'hot, hip hood' to drive out blacks, Puerto Ricans, pensioners, old people, struggling families, squatters and anyone else who can't step up in the market-rate plate. 'The Corcoran Group is the Wal-Mart of real estate,' says one local Brooklyn broker. 'Corcoran goes into a cheap neighborhood and brings in a developer to rip apart the organic fabric.' The Corcoran website states that Barbara founded the company at a 'key moment in New York City real estate history'the 1970s'just as the city went from being a market predominantly composed of rentals to one of individual ownership.' Sound familiar?"

Which individuals are owning now? Certainly not anyone I know. That "anyone else who can't step up in the market-rate plate" includes virtually all first-time home-buying families in the city, regardless of color or creed. Incomes that many people consider middle or upper middle class are frequently south of the affordability line, even in Brooklyn. The dividing line is somewhere along $150,000 and rising. Sure singles and couples without children could find a 2 BR in an okay Brooklyn nabe, but for anyone with thoughts of raising a family, especially one where there is a stay at home parent, Brooklyn is just not the place to do it if you or your spouse don't make this kind of scratch. You could buy with the idea of leaving as things change, but who wants to make that kind of investment when change could just around the corner -- from a baby to a new job or loss of one?

Congratulations Barbara, you've just re-invigorated the cycle of urban flight that I am suspecting (if pricing trends continue over-valuing NYC real estate) should crest within the next ten years. This trend isn't new, it started post WWII, when all the suburbs and exurbs of NYC were populated by regular folk with families who were looking for a better deal than what they had in the city, as well as an opportunity to own-. Through the millenium, the NYC exodus has continued to envelop not just outside NYC proper, but the metro region, pushing NY'ers to cheaper locales in Florida, the Carolinas, and the rest of the Eastern Seaboard.

Families started moving back into many of overlooked Brooklyn nabes in the 70's, 80's and 90's, reversing the urban flight trend. Now those same kinds of families could not settle in those neighborhoods even if they tried. The lucky ones who bought then and have stayed could do so either due to steady jobs, independent work, or compromise to their careers.

But what about their next generation? Where are their kids going to live and raise a family? They are going to move out of the city because they have no choice. It reminds me of when my uncles in Jersey or Rockland used to visit my grandmother in Woodhaven, Queens. There was a sense that she and the rest of the older generation was left behind in the City, while the rest of us went on with our distant, largely separated lives. That kind of physical disconnection between family is always there in modern life, but when you see what things could be like when family are nearby, you get a sense of what we have truly lost as a society. I've had family closeby for the past ten years and, although an occasional bane, has been truly wonderful. That is something I will miss the most.

I will also miss getting to know a neighborhood -- its places, its people, and idiosyncracies. Not much I can do about it. And if you think I am just a complainer, stop reading and go get your own blog. I feel like there is so much change in life that happens -- from work and personal life -- that you need a few things in your life to have some permanence. And why not a home? Why not get a place that you and your family can grow into?

The 50 Most Loathsome New Yorkers 2005

More inventory so all those Manhattanites can go back from where they came

The New York Times > New York Region > $1 Billion Deal Turns MetLife Into Condos

Panic on the Streets of Bed-Stuy, Panic on the Streets of Kensington

I wonder to myself (sorry for The Smiths reference). NYT, taking the omniscent role again, ponders how fringe nabes with little current amenities will survive a downturn.

The New York Times > Real Estate > What Happens if It Bursts?

New York Times: There is a speculative bubble

BK Squeeze to the New York Times: What took you so long to figure that out?

Still, with all the people who take the word of the Times as Gospel, bubble panic will certainly start to boil. It is actually a good article that makes parallels to the 90's stock bubble: "The average house in San Jose, Calif., costs 35 times what it would cost to rent for a year, according to Economy.com, a research company. In New York and West Palm Beach, this ratio - a rough equivalent of the price-earnings ratio for stocks - is almost 25." Remember these grandiose P/E ratios? I wonder what Warren Buffett thinks of all this. There are other interesting parallels in similar conversations in the cocktail party circuit and Greenspan giving some subtle hints as to what he really thinks about speculative bubbles.

Curbed had a good retort: "To summarize our philosophy: of course there's a bubble; you can't do anything about it; go ahead, keep buying; see you in hell!"

The New York Times > Business > Trading Places: Real Estate Instead of Dot-Coms:

This is ridiculous

This is a pretty hokey, none-too-subtle, real estate investment website that screams "top of market!" See you in hell boys!