Still Speculating on Housing? Be Careful...

Posted by urbandigs

Mon May 8th, 2006 11:36 AM

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A: Speculators across the nation should be very careful these days and consider transitioning to a different business model; or at least hedge their bets with the new tradable housing futures.

Speculative Real Estate Investing
: Speculation, practice of engaging in business in order to make quick profits from fluctuations in prices, as opposed to the practice of investing in a productive enterprise in order to share in its earnings. While the investor seeks to protect his principal as it yields a moderate return, the speculator sacrifices the safety of his principal in hopes of receiving a large, rapid return. Definition from answers.com.

If I were to describe to you where the NYC housing market is RIGHT NOW, it would be filled with points such as:

1. Inventory Still Tight w/ Last Years Pricing: If you have been a buyer looking at this market for the past month or so, you probably know that you still don't have many choices in your price range; maybe a bit more than a year ago. I am noticing that inventory is still tight and that many units are still being priced at last year's levels. That's fine and doesn't bother me none. It just means that buyers are going to continue sitting on the sidelines or make low-ball offers to sellers; and sellers should know this! If you are a seller and want to sell now and not lose opportunity costs of putting your money to work then PRICE AGGRESSIVELY!

2. New Construction/Conversions Inventory High & Pricey: All those new constructions that have been built over the past 1-2 years are now starting to hit the market at prices well above $1,000/SFT. While most buyers can't afford these price points, the inventory is sure to rise with a bunch of more new developments set to hit the market soon. Some buildings, such as 170 East End Ave, are asking $1,462/sft for their lower tier apartments. All I can say is "Good Luck w/ That"! It's not that it's so overpriced (as this is a sick building with incredible amenities), it's just that the target customer is someone who enjoys the luxury of having so much money that they want the quality of life that they are used to. The question that comes to my mind is 'how many people are there like this right now looking for NYC apartments'?

3. Sellers Get Frustrated After 3 Months: If you try to test out the market by overpricing your apartment that you love so much and truly feel its worth that much because its yours, and no one else's, than add on 3 months to your expected marketing time! I'm telling you right now! Buyers are simply NOT chasing right now and you should get used to having 1-3 people, if that, at your open houses on Sunday's. After a few months you'll probably lower your asking price to more realistic market levels at which time buyers will know that you are vulnerable. Be smart & price your apartment correctly. If your broker tells you "No, I won;t be able to sell this apartment at that price and I would refuse to work with you if you force me to start at that level", they probably are right! Respect the honesty and work with that broker!

4. Incentives Being Offered: Seen this lately, "Being offered fully furnished", or "Flat Screen Included", or "Closing Costs Included in Asking Price"? One tactic used by owners/developers in a slowing housing market is to offer incentives to buyers to set their place apart from the rest of the market. It's just starting to hit NYC only recently and I would expect more of this; especially by new constructions that are having trouble selling.

5. Buyers Much More Savvy & Patient: I got to hand it to the buyers out there in today's market. They understand the value of buying over renting, building wealth, and making a good investment. In fact, my clients are going out of their way to make sure they see at least 10-15 properties or so before making a move, so that they fully understand the market they are looking to buy into. I think most buyers across NYC are this way these days and sellers need to respect and understand this. There are deals out there, you just need to be patient and willing to find them!

Add up all these items and that spells N-I-G-H-T-M-A-R-E for speculators who bought within the past 6-10 months and now are looking to flip for a quick profit. My best advice to them is to stop waiting for the market to reach their current asking prices and to reduce their prices aggressively to limit losses. Flipping is always tough in slowing housing markets because of closing costs and tax/broker costs associated with buying and selling real estate. You just won't be able to make enough to warrant the investment; unless you intend to rent out short term and sell down the road when NYC real estate picks up again.

UrbanDigs Says
: NYC housing is a cyclical market and a slowdown should be looked at as VERY NORMAL & HEALTHY for longer term sustainable growth. Take the contrarian strategy, read my post, and look for the deal that pops up when housing begins to go out of favor for whatever reason. Sooner or later, and usually sooner with NYC real estate, the market will come back and you should see a healthy appreciation on your investment when you go to sell.


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