Credit Crunch: Tighter Loan Standards?

Posted by urbandigs

Tue Jan 30th, 2007 08:47 AM

A: Resetting into higher interest rate loans could create a credit crunch down the road that could extend the leg of the housing correction; especially for much of the country outside of New York City. NYC real estate is 75% co-op and as such, is comprised mostly of buildings who have financial guidelines and policies for prospective purchasers to pass before allowing the deal to go through. This somewhat protects NYC when discussing topics like this as most buyers of co-ops are financially able to afford their home; even if their loan does reset. Not so for the rest of the country. So, we may have a domino effect on our local real estate market should this type of scenario play out in the future; with Manhattan real estate being affected more psychologically and at a lag.


Sub-Prime Lending -Sub-prime lending can be defined as lending to borrowers who have less than ideal credit. Such borrowers will pay a higher interest rate due to their increased risk of not repaying loans, based on credit history, low income, or other criteria used by lenders. During economic booms, sub-prime borrowers often can borrow more easily than they can at other times, as lenders chase higher yields in search of higher profit margins. When the boom is over, these loans tend to default at much higher rates than prime loans, and lenders again become wary of lending to sub-prime borrowers.

It's hard to argue that Sub-prime lenders have been reporting a surge in the # of foreclosures recently, and that federal regulation is a very real possibility. I wrote about this a few days ago in my post titled, "Existing Home Sales & Foreclosures", where the number of homes foreclosed by lenders rose by 42% in 2006 from a year earlier. Anyone not keeping an eye on this stuff is either blind or in denial. It's a serious data point and something to watch. If this continues, how healthy could the future fundamentals of investing in the housing market really be? Contrarian buyers shoud be getting very interested in jumping in if things do get a bit uglier.

This data is what will lead to a credit crunch. Here's how it will work:


The NY Times published an article on Friday titled, "Tremors at the Door", discussing just this type of scenario:

The once booming market for home loans to people with weak credit — known as subprime mortgages and made largely to minorities, the poor and first-time buyers stretching to afford a home — is coming under greater pressure. The evidence can be seen in rising default rates, increasingly strained finances at mortgage lenders and growing doubts among investors.
Wait it gets better...
Several mortgage lenders have recently collapsed. While the failures so far are small in number, some industry officials are concerned that they could be the first in a wave. The subprime sector, which produced loans worth more than $500 billion in the first nine months of last year, could shrink significantly.
And finally, what that could all result in...
A sharp contraction in subprime mortgages would have ripple effects, reducing consumers’ access to credit and affecting investors like foreign central banks, pensions and mutual funds that have been big buyers of mortgage-backed securities.
Ahhh, there it is: REDUCTION IN PURCHASING POWER (a.k.a. 'reducing consumers access to credit')

Bill over at Calculated Risk goes into detail often at the trouble many sub-prime lenders are experiencing. Here are some articles about local subprime lenders facing difficulty that he discusses:

OC Register discusses Orange County - Many of Orange County's boldest lenders are struggling to stay in the black - and in some cases to stay in business - as their customers miss mortgage payments in record numbers. These lenders, experts say, exercised poor judgment in a bid to maintain loan volume last year. They lent money to borrowers with spotty credit, known as the subprime market, without proper regard to their ability to repay, experts say.

Bradenton Herald discusses troubled developer's affect on Coast Bank - The management of Coast Financial Holdings Inc., parent company of Bradenton-based Coast Bank, announced Friday that it was anticipating problems with loans to 482 borrowers after a local development company said it may not have sufficient funds to complete construction on the homes.

Arizona Republic discusses cash-back scams putting local lenders at risk - The fraud involves obtaining a mortgage for more than a home is worth and pocketing the extra money in cash. Neighbors may then discover home values in the area are exaggerated. Homeowners stuck with overpriced mortgages may never recover the difference. And lenders end up with bad loans that, in the long run, could hurt the Arizona real estate market, the largest segment of the state economy.

UrbanDigs Says: This is something that for the most part is happening outside of New York City right now, but could lead to regulation or tighter lending standards down the road which could eventually affect us. It's an end result of the booming housing market and something to keep an eye on going forward to see if purchasing power is restricted due to rising loan standards. While many banks may have already started to tighten their grip, money is still relatively easy to borrow if you have decent credit and a job. So for now, we are ok; the future, well that's a story yet to be written.

Note to Developers: BUILD SMALLER!

Posted by Toes

Mon Jan 29th, 2007 01:46 PM

Developers - I beg you, BUILD IT (SMALLER) AND THEY WILL COME!

I have several clients who are 20-something year old Wall Streeters getting their first sizeable bonuses. They all want to buy new construction condos or condo conversions under $700K south of 34th Street. THERE IS ALMOST NOTHING FOR THEM. With the exception of the Financial District, developers are not building smaller units. When they do build smaller units, they sell out right away, and usually they are at a higher price per square foot than larger units. So it just doesn't make sense - why aren't developers building smaller units?

Young people like luxury. They like new. They have heard enough horror stories about co-op boards and do not want to deal with all of the strings. They don't have 20 - 25% down with money in reserve at age 25, BUT they can afford 10% down and with their high incomes and bonuses, they can afford the higher payments. Most young people in finance want the option to sublet. They read Rich Dad, Poor Dad. They hate throwing money away on rent. They know the real estate market in NYC appreciates. They want to buy but there is almost nothing for them to choose from.

Case in point. Jade Condominium sold out of their studios almost immediately and the building was mostly studios. The Charleston sold out of their $500K - $650K apartments in a heartbeat and they are releasing a new line of studios - the least expensive is $650K. One Avenue B opened in early November and they have one studio left. The A Building just opened their sales office and they have one studio for $650K, everything else starts at $715K. Basically, the ONLY place young Wall Streeters can spend their first bonus is 184 Thompson. Their studios are selling briskly, and although prices started in the low $400Ks, their least expensive studio is now $480K.

Basically, if you want to live below 34th Street, the Financial District is your only solace. The developers of 88 Greenwich, the Cocoa Exchange, and 20 West Street actually built smaller units. Unfortunately, many young people still associate the Financial District as being "dead" after 7pm. Although this might be the case, the neighborhood is changing! Wait about two years and I think the studio buyers will wish they had gotten in early. With all the luxury studio rentals and studio condos going up, the redesign of the Fulton Street subway terminal, the Freedom Tower, Tiffany's and Hermes, and much much more, it will not be long before the bars and clubs start start staying open later at night!

So developers... Please think about the studio buyer when designing your next building! And call me first. I've got buyers for you.

Also check out this article about smaller units from the Real Deal.

To Sell or No To Sell

Posted by urbandigs

Mon Jan 29th, 2007 10:09 AM

A: I wrote this post for the Yankee Blog swap that I had with Kris Berg over at the San Diego Home blog, but decided it was time to publish it here after having a conversation with a client about whether they should sell or not. When making the ultimate decision to sell or not, you MUST understand your own personal situation both financial and other before making a decision. Believe it or not, there are wrong reasons to list your apartment for sale, especially if you will owe a hefty tax bill because you don't meet the primary residence tax benefits or 1031 exchange requirements.


I want to briefly go over the two most popular types of tax benefits that real estate investors can cash on when they report a gain, as failure to achieve either benefit could be reason NOT to sell your home:


  • Owned the home for at least 2 years (the ownership test), and

  • Lived in the home as your main home for at least 2 years (the use test)

  • 2. 1031 Exchange ('Starker' Exchange)

    Allows a tax payer to defer the paying of taxes on a gain when an investment property is SOLD & a new property of like or greater value is PURCHASED. In other words, if you first purchased a property for $400K, and then 1 year later sold it for $500K, you can then defer the payment of taxes on the $100K Capital gain in this transaction, as long as you purchase another property worth $500K or more.

    Now, lets get right into selling for the right reasons.


    Relocation - If you are being relocated for work, or plan on moving permanently, than making the decision to sell is no decision at all. Price your apartment aggressively based on the last comparable sale in your building or neighborhood, and list your property now. Don't wait to see where you might be headed or to see if the housing market might turn around in the near future, because chances are it will take longer than you expect to get a bid that is acceptable to you.

    Need To Upgrade - If you have outgrown your property and need more space, buying an upgrade is a very good reason to sell. If you dont qualify for the USE & OWNERSHIP tests that are required for the main primary residence tax benefits of your gain, you can use a 1031 exchange to buy a property of LIKE or GREATER VALUE than your sale and DEFER tax payments on the gain until the next sale. Buying an upgrade is a necessity, not a luxury, especially if your family is growing and space is tight in your current home!

    QUICK TIP: It's always better to SELL first before signing any contract on your new home. While I am a firm believer of knowing product knowledge and being comfortable with the available inventory that you might be buying into, I worry that your home may not sell as quickly as you think; especially if you test the market and price high. Keep in mind the possibility of paying 2 mortgages if you decide to buy first, and whether or not you can weather that kind of financial storm.

    Financial Hardships - If you bought more than you can chew, or experience a pay cut or layoff, than you should seriously consider selling your home. The worst thing you can do is to pull money out of your home just so you can continue to get by! Wasting equity in your home is like wasting money on unnecessary luxury's. It's just not a smart financial decision.

    If you find yourself increasing your bad debts (i.e. credit card debt or taking out a HELOC to afford your current lifestyle), than sit down and seriously consider cashing out your home and paying off these debts to regain your financial independence. Chances are you still have some great equity left in your home and cashing out a hefty gain to avoid bad debts will never be the wrong move. Suck it up and rent for the short term until your luck improves and your income gets back on track! If your not making it, then stop spending it!

    Plans To Sell In Near Future - Assuming you qualify for tax benefits, if you were planning on selling your home within the next 12-24 months, you might be best listing your apartment for sale now, rather than later. The housing market is a market like any other and as such does have its ups and downs. Because of its illiquid nature, that is that doing a real estate transaction takes time (unlike a stock trade), once the housing market turns from its peak it may be years before a bottom is realized. Right now we are still searching for a bottom that could be many years away!


    No Tax Benefits - One reason why investing in real estate proves time and again to be a savvy long term investment is because of the tax benefits afforded to the buyer both in monthly tax deductions and exemptions in gains at resale. If you don't meet the primary residence tax benefits requirement and you do not intend to buy a new property of like or greater value, than you MUST talk to your accountant to see if selling is the right choice.

    I almost had a sales client that was thinking of downsizing and selling her 4BR home and buying a 2BR home to cashout and keep the difference. Only one problem. She only would get a 250K exemption from capital gains on what would have been a $1.7M profit or so since she bought the home 35 years ago. Thats $1.4M or so of taxable gains and her accountant advised her that a tax bill of $300,000-$350,000 would be due the following tax year. If she sells for $1.7M, then buys a $900K-$1M property, after taxes she would have very little left. The numbers just didnt make sense. So, do yourself a favor and crunch the numbers and ask your accountant what tax benefits you will get or not get by selling your home.

    Can Afford Rental Investment Strategy - If you are able to afford to hold onto the property and rent out for investment income, than do it. Even if you are only getting 85% or so of the total cost of the property back in rental income, I still think it is worthwhile to keep this income producing asset in your portfolio. However, if you are highly leveraged with a number of rental properties and too much exposure to real estate in your total portfolio, it might be best to sell 1 or 2 of the lowest performing properties and lower your exposure to the real estate sector for a short while. Talk to your financial advisor about this in more detail if you are in this situation.

    To Increase Quality of Life - If your only reason for selling is to be able to afford more vacations, or a wedding, or a car, or some other type of temporary luxury, than you are selling for the wrong reason. We Americans are a spoiled bunch. We like to spend when we should be saving. The equity in your home is no different. Too many people have used their homes as ATM's over the past years and lowered the equity they now own in their home. Do yourself a favr and make the right decision. Don't sell and hold onto your home equity for a real rainy day or bigger payoff down the road when the housing market turns around again!

    You Found A Incredible New Home
    - I'll keep this short and quick. If you are super rich and could afford it, fine, go for it. But assuming you work hard for your money and like most people, have to work even harder managing it, than keep EMOTION OUT OF YOUR HOUSING DECISIONS! I'm not saying don't buy the home you fall in love with. I'm saying don't sell your home now because you found an inredible new home, that is much bigger and much more expensive that you normally would buy!

    Too often I see buyers reaching way beyond their budgets to buy a home that is $100K, $200K or sometimes $300K more than their actual budget. In this day and age, even the worst credit history's can get a huge loan. So, you must exercise discipline and learn to not fall in love with any new home, especially if you can't afford it!

    Selling your current home to get the cash to buy the home of your dreams is a big no-no! Trust me, you don't want to sacrifice quality of life to live in a incredible home that could very well be the spark to a financial fire!

    Owner/Occupancy Rate: Does it Matter?

    Posted by urbandigs

    Mon Jan 29th, 2007 08:49 AM

    A: YES! If the Owner/Occupancy rate of the building you are about to buy into is less than 60% than it will raise a red flag in the eyes of most lending institutions which could lead to big trouble in getting a loan commitment letter!

    Owner/Occupancy Rate:The percentage of units that are currently occupied by the owner or co-owner in the building, even if it is mortgaged or fully paid. The higher this percentage is the easier it will be to receive financing from your lending bank.

    The thinking is this: If a building has most of its units leased out or occupied by someone other than the owner than the risk of a maintenance payment default is higher. Also, it tells a story about the building itself. Why don't owners want to live in this building? In the eyes of a lending institution, a building with a low owner occupancy rate is a higher risk investment that they may not be willing to lend on.

    As a buyer, you should ask this question to the seller broker who is supposed to know what this percentage is. If they do not know, then ask them politely to find out. Some logic applies here as well; if the co-op doesn't allow subleasing than chances are the owner occupancy rate is very close to 100%.

    UrbanDigs Says: If your intentions are to buy a investor friendly property (either co-op, condop, or condo) find out what the Owner/Occupancy rate is. If it is between 50% - 60% you should be OK although some banks may not lend on that building (be sure to give your mortgage broker the building address so they can check if the can lend on it). If it is lower than 50%, than buyer beware. Not only will you have trouble getting a committment from a lending bank, but you will have the same trouble finding a buyer when you go to re-sell. If a buyer's bank won't lend on your building, well then you are fresh out of luck and will have to lower your asking price to compensate.

    UWS Studio For $199,000: Is it True..?

    Posted by urbandigs

    Fri Jan 26th, 2007 05:13 PM

    A: Yes, its true. It's been a while since I saw a studio priced so low in this area. If a buyer comes to me asking for a studio under $200,000 in the West 70's near Central Park, that allows pied-a-terre's and has monthlys around $400, I would say good luck. But thats just me. Question is what is wrong with this one that is only 3 days on the market? Or is it just a good deal considering the alternatives?

    120 West 78th Street; Apt: 1A


    First Came on Market: 1/23/2007
    Asking Price: $199,000
    maintenance: $402
    Size: Small
    PPSF: N/A
    Marketed By: Jill Sloan of Halstead

    2nd Ave Subway: Only Weeks Away..!

    Posted by urbandigs

    Fri Jan 26th, 2007 10:57 AM

    A: The subway is coming! The subway is coming! Thanks to Doug over at True Gotham, a great read by the way from a veteran top producer who talks alot about his experiences in the trenches of New York City real estate, for bringing this to my attention via his post titled, "2nd Avenue Subway...Finally!". Construction up at 96th street is expected to break ground in the next 4-5 weeks; but I would add a few weeks of insurance to that timeframe.


    According to the NY1 Story that came out yesterday:

    MTA officials say that in a few weeks, they will award a $333 million contract to build what they call Phase One. "This is real now, and it is happening," said Mysore Nagaraja of the MTA Capital Construction Corporation. "And we are excited about it."

    Then construction work will begin between 96th and 92nd Streets, where a tunnel boring machine will begin drilling the new tunnels. "We are going to be taking two to three lanes for construction," said Nagaraja. "And we have to relocate all the utilities there first. And once the utilities are relocated, then we have to make this hole, which is about 60 - 70 feet deep. That is when the machine can be dropped in there and [we can] start assembling the machine."
    This is very exciting news in my opinion as an investment in infratsucture of this magnitude in this area of Manhattan is sure to change the landscape of real estate investments upon completion. All of a sudden, those areas too far east of the Lexington Avenue subway line that have been discounted and undesireable because it was too far from mass transit, will not have this complaint anymore. Early last year I predicted the York Avenue / East End Avenue areas of the Upper East Side to be my sleeper picks for price appreciation when this 1st phase of the new subway line is completed in 2013.

    The NY1 article went on to predict the beginning of construction:
    Residents of the Upper East Side can expect to see construction activity not much more than a month from now. "They've got to put up trailers, and they've got to start work," added Nagaraja. "And I'm assuming sometime in early March we'll see some construction."
    According to the MTA website:
    Phase One subway service, which is projected to carry over 200,000 weekday riders, will be an extension of the existing Q train service in Manhattan. Q train service will operate along Second Avenue from 96th Street to 63rd Street, where it will divert west along the existing 63rd Street line, stopping at the Lexington Avenue/63rd Street Station, where riders will be able to transfer to the F train line. It will then continue west under Central Park on tracks that are currently not being used for passenger service and then head south to the existing 57th Street/7th Avenue Station, which is where the northbound Q train service now terminates.

    UrbanDigs Says: Expect 2nd avenue to be a mess in the range of streets that are experiencing construction for the tunnel. It will be loud, noisy, hectic, and dusty for some time. Businesses will have a rough time during this period and some might go out of business. Those who must sell their homes might have to discount their property's to procure a buyer who must now deal with this mess for a while; presenting what could be some good buying opportunity's for those with a longer term timeline to own.

    Why Rates Are Going Higher

    Posted by urbandigs

    Thu Jan 25th, 2007 02:54 PM

    A: One of the more reliable indicators as to where 30YR fixed mortgage rates are headed in the very short term, is the bond market and more specifically the 10YR Treasury Note. Based on the most recent trend and current economic evironment, it's making me believe that mortgage rates are heading higher. Here's why and how to be prepared!

    Most buyers look to the 30YR fixed mortgage rate for identifying trends, especially if you are gearing up to buy a new home. But most people don't understand what drives these rates higher and lower; which brings us to the purpose of this blog!

    As HSH Associates points out:

    As a 30-year fixed rate mortgage rarely lasts longer than about 10 years before being paid off or refinanced, the closest instrument which has similar (though lesser) risks is the ten-year Treasury Constant Maturity. Because of this, the ten-year Treasury makes an excellent tool to track mortgage rates.
    It's true. While I won't go into detail here on what makes the 10YR Treasury note move higher and lower (a topic for another day), lets see what has been happening:

    10YR Treasury Chart (Last 2 1/2 Months)

    Take a look at what the yield on the 10YR note did in the past 75 days! But don't take my word for it. Dan Green over at The Mortgage Reports is thinking the same thing, and he's in the business. Dan states:
    I am predicting that rates will increase over the next 30 days, but that doesn't mean you should necessarily follow my advice when choosing whether to lock a rate, or float it. My advice may not be appropriate for your individual situation.
    Make sure you note the end of his statement as the ultimate decision to lock in now or wait is entirely up to your unique situation. The post titled, " Mortgage Trend Index", goes on to discuss a recent Mortgage Rate Trend Survey which finds:

  • 45% of participants predict rates will increase

  • 22% of participants predict rates will decrease

  • 33% of participants predict rates will remain unchanged

  • Now I know some of you hate this stuff and want me to keep posting new apartments and price cuts, but if thats the case than you are missing the whole purpose of this blog. Understanding how these fundamentals work and how they relate to one another will help you make the most educated investment decision possible.

    UrbanDigs Says: Lending rates are directly related to purchasing power and affordability! With the 10YR moving significantly higher over the past few months, it tells me that the bond market is a bit more worried about inflation and future monetary policy than the stock markets. Whatever the reason, it should cause lending rates and your credit card rates to RISE over the next month or so. Sorry to be the bearer of this news. If lending rates do trickle higher as I expect them to, purchasing power will be restricted as affordability goes down due to the fact that money is more expensive to borrow.

    Buyers Should - Keep a close eye on interest rates; money may be more expensive in the near future restricting your budget. If you recently signed a contract and haven't locked in your rate yet, consider doing so as long as the time on the rate lock coincides with when you expect the deal to close. If your not sure, as your mortgage broker if they would give you a 5-10 day extension on the house should the deal close after the lock period expires.

    Sellers Should - Understand that if borrowing rates do rise, that this means buyers will be able to afford less. Purchasing power will decrease. If you have a time pressure to sell, consider a price reduction sooner rather than later to stimulate activity in buyer demand. Ideally, you want to get a deal now rather than to wait a month or so when lending rates could very well be higher. We still have the fed meeting coming up so one thing I assure you, this rate environment will be volatile.

    Existing Home Sales & Foreclosures

    Posted by urbandigs

    Thu Jan 25th, 2007 10:43 AM

    A: The NAR released Decembers existing home sales this morning allowing us to see how 2006 did overall. While home prices hung onto gains for the year, albeit a very small one, existing home sales dropped by 8.4% marking the biggest fall in sales volume for this metric in 24 years. Oh yea, and foreclosures surged 42% in 2006.


    For those of you that read UrbanDigs, you know that I try be as unbiased as possible in my reports so that you can make educated investment decisions. I also try to keep it realistic as I discuss Manhattan real estate, which is so different than any other local market across the country. So, when national data reports get released you must understand that there may be a disconnect between the report and what you are seeing in todays New York City real estate market!

    In short, NYC has shorter bust cycles and longer boom cycles than most markets in the US.
    On to the news.

    Existing Home Sales

    For 2006: The National Association of Realtors reported that there was an 8.4 percent drop in the existing home sales in 2006, falling to 6.48 million from the record 7.08 million level in 2005. Even with the sharp drop in sales last year, the median price of an existing home sold in 2006 managed to rise a slight 1.1 percent. But that was far below the double-digit gains during the boom years. The median home price had risen by 12.4 percent in 2005.

    For December: The National Association of Realtors reported that sales of existing homes were down 0.8 percent last month, a bigger decline than had been expected. The 0.8 percent drop in sales in December came after two straight months of improving sales, the first back-to-back sales gains since the spring of 2005.

    Foreclosures Surge in 2006

    For 2006
    : The number of homes in the United States foreclosed by lenders rose 42 percent in 2006 from a year earlier in a sign that many homeowners have became overextended in mortgage debt, a real estate information service reported Thursday.

    More than 1.2 million foreclosure filings were reported nationwide during 2006, which is a rate of one foreclosure filing for every 92 households, according to RealtyTrac, Inc. As much as $1.5 trillion in adjustable-rate mortgages are due to have their rates reset this year, according to the Mortgage Bankers Association. Many recent homeowners are already struggling to make those higher payments and are drifting toward loan default and foreclosure, said James Saccacio, chief executive officer of RealtyTrac.

    UrbanDigs Says: Both of these reports really shouldn't be much of a surprise. Existing home sales are slowing as prices continue to correct to stimulate buyer demand. Sellers who must sell are agreeing to these lower prices while other sellers stay put or agree to remove their listing from the open market; therefore leading to lower sales volume. On the foreclosure report, you are starting to see the effects of the fed's interest rate hike campaign that started a few years ago. As homeowners struggled to afford sky-high asking prices, they resorted to exotic loan products to make the numbers work in the short term, leaving them out to dry when rates ultimately reset. This is what is happening now and the weak players will get hurt from their past decision to rationalize a purchase of a home they cant afford by taking out a creative loan product. A big no-no! As foreclosures rise, expect banks to tighten lending standards and the fed to regulate these exotic loans to protect consumers. The end result ---> a possible credit crunch or tightening of borrowing standards that could (and I stress could because it hasn't happened yet) restrict affordability down the road. One of my stated threats to the severity of the housing correction we are currently in.

    The $300K & Under Crowd is Growing

    Posted by urbandigs

    Wed Jan 24th, 2007 04:02 PM

    A: On a tight budget, no problem! I found 43 properties that fit into this criteria below 96th Street in New York City, that were also updated since January 1st, 2007. Below are some of the best value apartments available for sale at this price point in Manhattan real estate right now.

    317 East 73rd Street; Apt: 4RW


    First Came on Market: 9/7/2006 reduced $51,000 on 11/17/2006
    Asking Price: $299,000
    maintenance: $634
    Size:400 SFT
    PPSF: $748
    Marketed By: Frances Katzen & Andrew Dwyer of Elliman

    45 Tudor City Place; Apt 1306


    First Came on Market: 1/22/2007 (2 days old)
    Asking Price: $275,000
    maintenance: $551
    Size: 300 SFT
    PPSF: $917
    Marketed By: Pamela Wolfe of Corcoran

    304 West 10th Street; Apt 3C


    First Came on Market: 1/17/2007
    Asking Price: $299,000
    maintenance: $407 (nice and low)
    Size: N/A
    PPSF: N/A
    Marketed By: Cary Loring & Susan Lamia of Citi-Habitats

    218 East 82nd Street; Apt 3RW


    First Came on Market: 11/10/2006
    Asking Price: $298,750
    maintenance: $592
    Size: 425 SFT
    PPSF: $703
    Marketed By: Sonya Dunham & Lawrence Tregli of Elliman

    Fear of First-Time Homeownership

    Posted by urbandigs

    Wed Jan 24th, 2007 11:32 AM

    A: I have a client to thank for this post; you know who you are! Being a first time buyer could be a very scary thing. You start to think about housing bubbles, giving away tons of money in down payment and closing costs, feeling broke again, and getting involved in a huge investment without knowing everything you really need to know. Trust me I understand. Also trust me when I say that these feelings are normal. As long as you understand whether buying is the right decision for you, what you can really afford, and then focus on a best of breed housing product after seeing 10-15 property's, you'll do just fine!


    It's all about building wealth! Owning your home for the most part will cost you more money than renting on a monthly basis, so you should understand WHY it is that buying makes more sense than renting! In short, you should seriously consider buying instead of renting if, and only if:

    1. TIMELINE - Timeline to own is greater than 4 years OR Rental Investment Strategy
    2. JOB / SALARY - Your job is secure and your salary affords a debt/income ratio under 30%
    3. LISQUID ASSETS - You have enough liquid assets AFTER closing to cover at least 6 months MORTGAGE + MAINT + TAXES payments (family gifts are fine as long as they stay with you after closing and are truly a gift given to you to assist in buying your first home)

    These 3 criteria are MUST's in one's decision to buy or rent in a particular marketplace. After that, it boils down to how happy you are in a particular neighborhood, planning ahead for lifestyle changes (such as a having a baby), and knowing how much you can afford!

    You need a timeline to own over greater than 4 years to be able to ride out any short term bumps that the housing market may experience. Timing the market is very difficult and by having at least a 4-5 year timeline to owning, you would most likely be able to sell your home when you want to and NOT when you have to. Sellers who MUST sell within a certain timeframe rarely get top dollar at resale.

    Quick Tip
    : If you have the 'live-in then rent-out' strategy in mind, try to live in the apartment as your primary residence for the first 2 years. That way, you can rent it out for another 2 years and if you decide to sell it after the 4th year, you will qualify for the primary residence tax benefit for any gains reported at resale on the transaction. You must live in the property for 2 out of the last 5 years as your primary residence to qualify for this tax break.

    Your job MUST be secure! No rocket science here. As long as your job is stable and your income is growing, than putting your money into a home you own rather than a home you rent, is always a better long term play. Your monthly total living expenses + other debt expenses should not exceed 30% of your take home pre tax monthly income. Closer to 25% is more ideal. If you are buying a condo, there will be little review of your finances so its up to you to determine whether you are buying within your means.

    Quick Tip: If you are self-employed, be sure you have twice as much liquid assets in reserves AFTER closing than normal just in case you have some temporary down time of income.

    Finally, having enough liquid assets to be able to cover the down payment PLUS closing costs is a MUST. But having enough liquid assets AFTER these costs, is a bigger MUST! Be sure to have enough reserves in liquid assets to cover at least 6 months of living costs of the new home. If it cost you $3,000 a month to live in your new home, than you should have at the very minimum $18,000 in liquid assets after closing. You'll need more to pass a co-op board!

    Here are some must-reads that I wrote in the past if you are considering buying vs. renting.

    Are You Ready To Buy?

    To Buy or Not To Buy: Here's What To Do

    High Monthly's: Find The Discount

    How To Retain The Most Resale Value

    UrbanDigs Says: Your first year as a homeowner should be a rebuilding year. Sacrifice your vacations, night-outs, gifts to friends/family, and any unnecessary spending so that you can SAVE MORE MONEY to rebuild your liquid accounts a bit after plunking down most of your money into your new home. Buying a home is forced savings as you pay down a bit of principal each month in your mortgage payment; assuming you don't have a interest-only type of loan product. By building wealth little by little and getting tax benefits in your monthly payments and at resale on profits, owning your home proves time and again to be a savvy long term investment. Its those homeowners who buy for the wrong reasons and above their means that get into trouble!

    Part 4: Contract Signed After 3 Weeks

    Posted by urbandigs

    Tue Jan 23rd, 2007 10:09 AM

    A: Remember this series of posts I did last month? I wanted to show you how I advised my client to prepare their property for resale, and prove to them that pricing right in this market will generate enough activity for a quick sale. In fact, after 2 weeks on the market the apartment got into a soft bidding war between 2 buyers and went into contract just under ask a week later.


    Here is a recap:

    Part 1: Prepping For Sale - What To Do

    Part 2: Prepping For Sale - The Work

    Part 3: Ready For Marketing - Before & After

    And finally, today's 'Part 4: A Done Deal' and a very happy seller! This apartment was in a non-doorman building, had good size, reasonable monthly's, and a back of the building view. So it was quiet, but didnt get that much natural sunlight.

    The sellers told me that they preffered to sell FAST and didnt mind if they had to put money into the apartment to get a better price. However, I advised them not to do so as the cost and time of renovating in this type of market might not get the premium that most people expect to get from these kinds of upgrades. So, I advised them to refinish the floors, paint, remove the security cage on the windows, and get a cleaning company in which cost a eye-whopping total of $1,500!

    In the end, the apartment showed great and got a signed contract within 2 weeks! We could have tried to price a bit higher or spend an additional few thousand dollars and build a wall to make it a JR1, but that would have made the apartment much more dreary than it already was and pricing it significantly higher could have had a negative affect on their timeline to sell fast. So, I think the way we did it was right and in the end, they were very happy with the result.

    The last 'A' line was on the 4th floor and sold for just under $300,000 in December of 2004. The last sale in the building was a 'C' line full 1BR apartment that was fully renovated and in mint condition; which sold for $489,000 in December 2006. So, I think we did just fine!

    UrbanDigs Says: It's still a buyers market in the sense that buyers can negotiate a seller's price down; especially if the unit is way overpriced. So, high end renovations don't pay off as well in these types of markets leading me to advise clients to do the low-end work that prepares the property for sale on the open market. These include a floor refinishing, paint job, full cleaning, and anti-clutter measures to make sure the apartment shows well. Having a property with dull floors, old paint, dirty bathrooms & kitchens, and tons of furniture and pictures on the walls just won't bode well during showings. You need that first impression to be a positive one and doing the work I suggested will achieve this goal; especially the floors and de-cluttering of your home to show off the true size of the property.

    New & Notable: Prices Staying High

    Posted by urbandigs

    Mon Jan 22nd, 2007 10:36 AM

    A: Here is this week's new and notable listings based on the past 7 days of fresh inventory hitting the New York City open market. I have to sift through about 300 listings when doing these reports so I try my best to pickout the value property's to pass on to you. As always, the data is only as good as the agent that enters it and I don't always check floorplans to verify total size so please do your own calculations and I apologize in advance if the PPSF is off because of an agent's false reporting of property size.

    NOTE: I'm noticing that pricing for new units are towards the very high end, just like last week. It's still too early to call it a trend, but certainly something to keep an eye out as time goes on.

    333 East 14th Street; Apt: 3D


    First Came on Market: 1/16/2007
    Asking Price: $735,000
    maintenance: $732 (under $1/sft is rare)
    Size:950 SFT
    PPSF: $774
    Marketed By: Daniela Sassoun of Corcoran

    200 West 20th Street; Apt 702


    First Came on Market: 1/18/2007
    Asking Price: $385,000
    maintenance: $760 (A bit high keeps price down)
    Size: 500 SFT
    PPSF: $770
    Marketed By: David Drake of City Connections

    370 Central Park West; Apt: 410


    First Came on Market: 1/17/2007
    Asking Price: $875,000
    maintenance: $1,138 (good for size)
    Size: 1,000 SFT
    PPSF: $875
    Marketed By: Susan Fishman & Elle Komura of Elliman

    New Inventory Neighborhood Chart

    Posted by urbandigs

    Mon Jan 22nd, 2007 09:50 AM

    A: Im sure most will not find this that useful but I was just curious as to how many new units hit the market in the past 7 days per neighborhood. Obviously it would be best if I can find the time to do this weekly so we can monitor any trends, but for now I was just wondering where the most/least supply is coming in.



    Again, not the most useful of posts to apply to real estate investing but I just wanted to see how much supply actually hit neighborhoods like the UES & UWS compared to other neighborhoods in the past 7 days. Okay, I feel better now.

    Agency Disclosure Revealed

    Posted by urbandigs

    Thu Jan 18th, 2007 10:44 AM

    A: After getting a nice little comment thread going on the "Buyer Beware" article I posted a few days ago, I wanted to bring to light what Jan brought up; that is, "..why don't NYC brokers use a buyer disclosure form"? The answer: Agency disclosure is NOT required if the property in question is a building with more than 4 units.


    According to June Liu of the DOS Licensing Services:

    "If the buyer is looking into buying an apartment in a building with more than 4 units, than you DO NOT need to provide the client with an agency disclosure. But if it is a single house (1-4 family) than you need to provide the client, no matter if it is a buyer or seller, with an agency disclosure form and have them sign it before showing them the property."
    New Agency Disclosure Requirements For NYS:

    Prior to the revisions to Section 443 of the Real Property Law, only one agency relationship disclosure form was required for buyer/seller and landlord/tenant transactions. The combined form used the terms "seller/landlord" and"buyer/tenant" interchangeably. On and after January 1, 2007, the combined form will no longer be permitted and, rather, two separate disclosure forms will be required; one for seller/buyer transactions and another for landlord/tenant transactions. The two forms provide expanded, clearer definitions of the different agency relationships and explain the fiduciary duties owed by brokers and salespeople under each type of agency relationship.

    NOTE: We are 2 weeks into this new poilcy. I'm sure REBNY and other organziations have been in talks with ALL the major NYC brokerage firms about this. As any word of change hits, I will post on UrbanDigs. For now, I will continue to verbally disclose my role as buyer broker before working with any new client.

    More importantly, here is in black and white how the Division of Licensing Services in NYS defines a buyer broker and a seller broker. I've had this debate many times, and sometimes it gets heated, as some argue that the buyer broker is working on behalf of the seller. This is technically correct as the buyer broker's paycheck at closing will come from the seller's commission that is ultimately SPLIT between both brokers involved in the transaction. However, I will stand my ground and get confirmed by what I will list below from the DOS, that as a buyer broker my fiduciary responsibility is to the buyer and keep their interest in mind during the buying process, especially when it comes to bidding and negotiating where I will do my best to get the property at the lowest price possible for my buyer client.

    Disclosure Regarding Real Estate Agency Relationships

    Sellers Agent: A seller’s agent is an agent who is engaged by a seller to represent the seller’s interest. The seller’s agent does this by securing a buyer for the seller’s home at a price and on terms acceptable to the seller. A seller’s agent has, without limitation, the following fiduciary duties to the seller: reasonable care, undivided loyalty, confidentiality, full disclosure, obedience and duty to account. A seller’s agent does not represent the interests of the buyer. The obligations of a seller’s agent are also subject to any specific provisions set forth in an agreement between the agent and the seller. In dealings with the buyer, a seller’s agent should (a) exercise reasonable skill and care in performance of the agent’s duties; (b) deal honestly, fairly and in good faith; and (c) disclose all facts known to the agent materially affecting the value or desirability of property, except as otherwise provided by law.

    Buyer's Agent: A buyer’s agent is an agent who is engaged by a buyer to represent the buyer’s interest. The buyer’s agent does this by negotiating the purchase of a home at a price and on terms acceptable to the buyer. A buyer’s agent has, without limitation, the following fiduciary duties to the buyer: reasonable care, undivided loyalty, confidentiality, full disclosure, obedience and duty to account. A buyer’s agent does not represent the interest of the seller. The obligations of a buyer’s agent are also subject to any specific provisions set forth in an agreement between the agent and the buyer. In dealings with the seller, a buyer’s agent should (a) exercise reasonable skill and care in performance of the agent’s duties; (b) deal honestly, fairly and in good faith; and (c) disclose all facts known to the agent materially affecting the buyer’s ability and/or willingness to perform a contract to acquire seller’s property that are not inconsistent with the agent’s fiduciary duties to the buyer.

    My posts on Buyer Brokers -

    NY State: A Buyer Beware State

    Using A Buyer Broker

    NOTE: In the buyer's agent relationship disclosure as shown above that:
    A buyer’s agent does not represent the interest of the seller
    It's what I have said a number of a times here on UrbanDigs. Now, its up to you to determine whether or not the buyer broker you have been working with has been servicing your needs with YOU in mind, and NOT their commission! If I had to list the criteria of what a buyer broker should bring to the table in order to service your needs, it would include:

  • Buy-Side Consulting - The Buying Process

  • Product Knowledge - Sending Value Properties / Showings

  • Property Evaluation - Buying Best of Breed Property's That Will Pay Off at Resale

  • Pricing Analysis

  • Bidding Strategy / Negotiating

  • Board Package / Organizing A Smooth Transaction

  • Move-in Tips / Contractor Tips / Tax Tips / General Q & A

  • Comments? Thoughts? Arguments? Lets get it on!

    Flood of Data: Here's What It Means

    Posted by urbandigs

    Thu Jan 18th, 2007 09:42 AM

    A: Just a follow up to yesterday's post. The overall message that came from todays economic data is that the economy is doing very well, jobs are healthy, inflation improving slightly but still of concern, and housing is showing signs of stabilization. However, the housing data must take into account the very warm weather that we have had over the past months as that allowed builders to finish their products at a faster pace; so look at this particular report as evidence the housing market is hanging in there rather than rebounding. Bond yields rise as a result of this data which may cause lending rates to trickle higher in the coming week.


    Lets get right into it.

    US Economy is Strong & Housing Stuns Doomsdayers

    Jobless Claims Fall to 11-Month Low
    - The Labor Department reported Thursday that applications for jobless benefits totaled a seasonally adjusted 290,000, down 8,000 from the previous week when claims had fallen below 300,000 for the first time in six months. The back-to-back improvements pushed claims to the lowest level since the week of Feb. 18, 2006.

    The latest decline came as a surpise. Claims had been expected to start rising again, given weakness in such key sectors as housing and auto productions

    Housing Construction Rises For 2nd Month - Construction of new homes rose for a second consecutive month in December, raising hopes that the severe slump in housing may be leveling off. Analysts cautioned that the December figure could be overstating the extent of the rebound since it was probably influenced by warmer-than-normal weather last month.

    NOTE: Tons of incentives offered to new buyers are stimulating demand. Something to keep in mind as the homebuilders work to selloff inventory across the country. Doesn't really apply to NYC real estate, although some developers here are offering incentives as well in closing costs and upgrades.

    Inflation Has Best Showing in 3 Years - The Labor Department reported Thursday that consumer prices rose by 2.5 percent in 2006, the best showing since prices had increased by just 1.9 percent in 2003. The improvement came in spite of the fact that consumer prices jumped 0.5 percent in December, as gasoline prices staged a momentary rebound.

    UrbanDigs Says: Lending rates are directly tied to short term bond yields and as a result of today's strong economic & housing data, yields jumped. This should lead to a trickling higher of mortgage rates in the coming week or so. The US economy is strong and the surprisingly positive housing data (whether the result of weather or not) throws out ANY chance of a rate cut in the near future. In fact, the fed funds futures markets switched gears and went from a slight chance of a rate cut to a slight chance of a rate hike over the next few quarters. All in all, Mr Bernanke is looking more and more like a miracle man in his quest to balance economic growth and control inflation. Kudos for a job very well done thus far with monetary policy.

    Property Tax Cut Coming..?

    Posted by urbandigs

    Wed Jan 17th, 2007 09:58 AM

    A: Mayor Bloomberg is proposing to cut property taxes by as much as 5% as '...New York enjoys the bounty from its booming economy and real estate market...". The proposed tax cut would apply for at least the next fiscal year, and would combine with a sales tax cut for clothing to total $1 billion of the city's $55 billion budget.


    This is both good news & bad news for homeowners:

    Good News - A property tax cut is good news because it will lower the monthly costs to the homeowner at the end of the day. Although the tax cut won't be as fruitful as it sounds because the homeowner is already writing off their real estate taxes come tax-time, as one of the benefits of owning. However, lower monthly expenses associated with any property should increase affordability on the open market; as long as buyer demand remains healthy enough to support price appreciation.

    Bad News - Generally speaking, property taxes are directly associated with the city's assessed value of your home on the open market. Therefore, as property taxes rise it is because the value of your home has increased. In this case, a property tax cut could be the city's first official acknowledgment that home prices have hit a standtsill and may even had started to dip a bit. The theory continues, as property taxes fall it is because the value of your home has also dropped a bit.

    According to Wikipedia
    : The taxing authority requires and/or performs an appraisal of the monetary value of the property, and tax is assessed in proportion to that value

    NOTE: Mayor Bloomberg boosted property taxes a total of about 21% or so between 2002-2004 when the housing market realized incredible gains. I recall my own property taxes being raised from $650/month or so up to about $800/month during this time; causing what is known as a shortage spread in my monthly mortgage payments and a temporary surge in my monthly living costs to correct the issue.

    The question that comes to my mind, is what Bloomberg really knows about the city's budget and generated revenues both now and in the future. For example, all those new developments that have been sold and now occupied will eventually lead to growing tax revenues as the city's granted tax abatement expires on each building and homeowner. So, there will be much more property tax revenue going to come into the city reserves from these guys. This makes me wonder whether or not the proposed property tax cut is a result of flattening/falling property values or good fiscal planning and management.

    In today's NY Times article:

    The tax cuts represent a departure for Mr. Bloomberg, who last year used the bulk of a $5 billion surplus for a reserve fund to pay future health care costs and to offset projected deficits. This time, Mr. Bloomberg concluded that given the city’s overall fiscal health, revenues that had come in so much higher than expected should be shared with taxpayers and plowed back into the economy, aides said.

    The proposals are likely to further burnish the mayor’s reputation among New Yorkers, which took a heavy beating during his first term, when he pushed through an 18.5 percent tax increase. Mr. Bloomberg is in his second and final term, and has drawn increasing interest as a potential candidate for national office, and his decision to cut taxes fuels speculation about his future.

    But, they said, the city was flush enough to set aside $750 million for the property tax cut, at least for the fiscal year beginning in July, which would translate into an average overall reduction of 5 percent. The average yearly tax bill for a condominium owner is $6,449, so a 5 percent cut would translate to $322 annually. The average tax bill on a house is $3,098, and a 5 percent cut would save $160.
    Interesting Stuff! Stay tuned on what happens here.

    Fed Update: Oil & Housing Data

    Posted by urbandigs

    Wed Jan 17th, 2007 08:36 AM

    A: With a spectacular correction in oil prices (recall my 2007 predictions I published Jan. 2nd when oil was trading at $61/Barrel) and lack of doomsday data from housing over the past few weeks, there really hasn't been much to talk about on the monetary policy front. The fed will easily hold rates steady for the first half of the year, giving all the rate-cut arguments less chances of success. This week has some important data coming out so short term expectations on interest rates may drastically change.

    Oil Plunges Below $51/Barrel

    Warm weather, growing inventory, and a cancellation of an emergency OPEC meeting all contributed to the plunge of more than 16% of light sweet crude prices since the start of the year. As noted in the CNN article:

    Oil prices plunged more than 3 percent back near $51 a barrel Tuesday after Saudi Arabia said OPEC production cuts were working well and that there was no need for an emergency meeting of the producer group. The Organization of the Petroleum Exporting Countries (OPEC) agreed to cut 1.2 million barrels per day (bpd) of output from Nov. 1 and then to cut another 500,000 bpd from Feb. 1.
    This is good news for inflation fears as the correction should lead to lower operating costs for almost every corporation that is affected by higher energy prices, and put to rest worrys that product prices will be increased as a result (inflation).

    In relationship to interest rates, lower energy prices will help keep the fed on the sidelines. With the hard and fast correction in oil over the past few weeks, I would expect contrarian traders to start buying with the very short term expectation of oil being oversold, and a small rally back to $55 or so where a new trading range will be formed.

    Economic & Housing Data

    This week brings us a few very important pieces of economic data that will ultimately affect short term expectations on future monetary policy. If the economy is heating up or housing reports show strength, expect NO rate cuts and possibly a hike before the year ends. On the flip side, if the economy is showing weakness, especially in housing, the fed might jump in quicker than previously thought to cut rates to prevent the economy from slipping into a recession.

    For all those who dont understand why I talk about this stuff, its because it affects monetary policy; and its hard to argue that monetary policy is directly linked to real estate cycles. As affordability goes down due to rising borrowing costs, buyer demand softens and inventory rises ---> leading to a slowing real estate cycle and a correction in price appreciation. Simplicity applied to the real world. I like to look to the sources of such change, that is, what makes monetary policy become restrictive or stimulative.

    On tap for this week includes:

    TODAY - Core PPI Report
    TODAY - PPI Report
    TODAY - Crude Inventories
    TODAY - Fed's Beige Book

    JAN 18 - Building Permits
    JAN 18 - Core CPI Report
    JAN 18 - CPI Report
    JAN 18 - Housing Starts
    JAN 18 - Initial Jobless Claims

    Lots of data to digest! I'll certainly be keeping an eye on the most recent evidence that the economy is staying strong or starting to show signs of weakness. We will also get good data on the inflation front, but its too early to see the results from the plunge in oil prices over the past 2 weeks. That should start to show up in economic data in 2-4 months or so.

    NEXT FED MEETING JAN 30-31 - Expect NO CHANGE in rates. Inflation will still be a concern for fed members as changing their stance as tough against inflation will have negative affects. We need a hawkish fed, at least one that portrays that image, and thats exactly what they will do.

    On a side note, Calculated Risk reports on Dr. Edward Leamer's (Director UCLA Anderson Forecast) prediction on whether or not the housing recession will infect the overall economy:
    The models that rely on history suggest that the extreme problems in housing currently being corrected will almost surely infect the rest of the economy, but that history does not take into account two important facts:

    • Manufacturing is not poised to contribute much to job loss.

    • Real interest rates are very low and there is no evident credit crunch, now or on the horizon.

    These facts make the problem in housing less severe than it would be otherwise, and help to confine the pathology to the directly affected real estate sectors: builders, real estate brokers and real estate bankers.

    The models say "recession;" the mind says "no way." I’m going with the mind. This time the problems in housing will stay in housing. If you are a builder or a broker, it will feel like a deep depression. The rest of us will hardly notice.
    So far, the economic data seems to back this up as stocks are clearly betting on a resilient US economy, declining inflation pressures, and strong corporate profits. As I noted in earlier posts, in my mind the biggest threat to housing's level of correction is weaker jobs reports that I think will come in later this year and tightening lending standards restricting purchasing power.

    New & Notable This Week

    Posted by urbandigs

    Tue Jan 16th, 2007 11:09 AM

    A: I just finished an analysis of new listings that hit the market in the last 7 days, and came up with these apartments that seem like the best value to me. As always, I considered location, raw space, monthly expenses related to asking price, and natural sunlight in trying to find the best deals of the bunch. The rest is up to you.

    Just a note. For some reason, as I was browsing this weeks new listings inventory I noticed a lot of very expensive apartments hitting the market; that is, properties asking well over $1000/sft or so. I seriously hope this isn't a new trend!

    215 East 24th Street; Apt: 614


    First Came on Market: 1/9/2007
    Asking Price: $475,000
    maintenance: $793 (slightly about average for size)
    Size: 575 SFT
    PPSF: $826
    Marketed By: Adam Roberts of Corcoran (this guy is becoming a regular here)

    139 W 82nd Street; Apt 3A


    First Came on Market: 1/12/2007
    Asking Price: $599,000
    maintenance: $691 (Below $1/sft..!)
    Size: 720 SFT
    PPSF: $832
    Marketed By: Julie Smith of Halstead

    311 West 83rd Street; Apt: B


    First Came on Market: 1/12/2007
    Asking Price: $899,000
    maintenance: $1,178
    Size: Duplex Size Not Listed
    PPSF: N/A
    Marketed By: Jeffrey Sholeen of Corcoran

    NY State: A 'Buyer Beware' State

    Posted by urbandigs

    Mon Jan 15th, 2007 09:21 AM

    A: I decided to write this post after reading an article in January's Real Deal magazine. The article was titled, "Designated buyers' agents remain rare" (scroll down), and discussed the disconnect between buyers and agents at their first substantial meeting as to the relationship/role that the agent will ultimately play as buyer broker. While much debate has arisen as to who the buyer broker really works for, in my eyes its clear, THE BUYER!


    I wrote about how I view the role of the buyer broker a while ago in the post titled, "Using A Buyer Broker". I discussed why I think every buyer of New York City real estate, especially first time buyers, should use a buyer broker as their guide. Mainly, the broker should act as a devils advocate at showings and ensure that the buyer puts their money towards the permament property features, evaluate the property compared to the target market, devise a bidding strategy, and work to get the property for the lowest price possible. Here is a clip from that post:

    My Definition of a NYC Buyer Broker: A broker who represents the buyer and has a fiduciary responsibility to the buyer in finding a property that meets their needs on all levels (price, location, size, condition, style, and living quality). A buyer broker should look to find the best value for their client and negotiate on their behalf during the bidding process to get the lowest possible purchase price from the seller.
    In the world of New York City real estate, there is NO buyer agency agreement; Ardell of Rain City Guide has an excellent and emotional filled post about just this, "Empowering the Buyer Consumer - Redfin". That means that there is no such thing as buyer loyalty and that the buyer is generally never asked to sign any agreement to work with a specific agent; and rightfully so. Buyers should be able to choose & fire their agent based solely on the quality of service that is provided. After all, this is a service industry and those agents who assist their clients needs above and beyond just sending listings, will be in more demand by savvy buyers.

    The article in The Real Deal discusses this and brings up a very good point about New York State and buying real estate here. That is:
    All the more reason you should be working with a buyer broker who has both the experience and knowledge to guide you throughout every aspect of the buy-side transaction in Manhattan real estate. Here is the article:


    Of particular note is how the agent representing the seller under-reported the real estate taxes on a property by 50%, leading the buyer to legal action!
    "He sued the real estate company and the agent and lost, under the rationale that this is a buyer beware state,"...
    All I can say is wow, and that a post on was about to be written to bring this fact out to you guys.

    UrbanDigs Says: The seller broker was hired by the seller to market the property and get the highest and best price possible! You should understand this and act accordingly. There is nothing illegal about the seller broker representing both clients in the transaction, and in fact, is something that is hoped for by the seller agent as their commission is larger. As a buyer, I just feel you should have unbiased representation by an expert in the field of NYC real estate who knows the product, the process, and how to evaluate a property. There are no fees to use a buyer broker and therefore, no reason not to use one unless you have that independant urge to do everything yourself and learn from your own mistakes! I admire that philosophy greatly, as I would describe myself in that way, but when it comes to plunking down hundreds of thousands of dollars in a housing market that is much different than years ago, you should work with a broker you feel comfortable with to make sure your money is going to a solid, best of breed product! A good buyer broker will make sure that happens!

    Video From Inman Conference

    Posted by urbandigs

    Fri Jan 12th, 2007 09:26 AM

    A: Well, its not one of my new video reports that I just started working on but I wanted to at least give you guys the opportunity to see how the panel went on Tuesday at the Inman Real Estate Connect '07 Conference in New York City. A BIG THANK YOU to Rudy over at Sellsius Blog for shooting this video and to Phil & Christian over at Wellcomemat for providing this video service.

    About - Wellcomemat is an online video service that helps connect people & spaces. It is one of the easiest and most powerful ways to market properties and businesses online.

    PANEL DISCUSSION VIDEO: 'Blogs: Utilizing Personality For Profit'

    Panelists Were:

    Richard Nacht
    , CEO & Founder, Blogging Systems, Inc.
    Noah Rosenblatt, Founder,
    Douglas Heddings, Founder,
    Joseph G. Ferrara, Co-Founder, Sellsius Real Estate blog

    Vision Quest: Financial District

    Posted by urbandigs

    Thu Jan 11th, 2007 11:30 AM

    A: To be a savvy real estate investor you MUST have vision. You MUST be able to see past a wreck, or past what is currently going on in a specific neighborhood and look at what is TO COME in the medium term future. By that I mean, 3-5 years or so from now. If you want to go a bit longer term, have a 7-10 year vision for change. As a contrarian investor I think along these lines so that I can buy low and sell higher; so you have to look into buying into a property or neighborhood that might not be so desireable right now, but could very well be because of development plans later on. Todays topic is the financial district and the motivation behind it was Larry Silverstein's statements at the Inman Conference on Tuesday.


    Who is Larry Silverstein
    : Larry A. Silverstein serves as President and CEO of Silverstein Properties, Inc., a Manhattan-based real estate development and investment firm that has owned, managed and developed over twenty million square feet of office, residential and retail space.

    In July 2001, Mr. Silverstein completed the largest real estate transaction in New York history when he signed a 99-year lease on the 10.6 million sq. ft. World Trade Center for $3.25 billion, only to see it destroyed in terrorist attacks six weeks later on September 11, 2001. He is currently rebuilding the office component of the World Trade Center site, an $8-billion project that will consume the balance of his working life.

    Mr. Silverstein is a member of the New York Bar and a Governor of the Real Estate Board of New York, having served as its Chairman. He is Vice Chairman of the New York University Board of Trustees and is the Founder and Chairman emeritus of the New York University Real Estate Institute. As a Professor of Real Estate, his “Silverstein Workshop” became one of the most attended and informative educational sources for learning real estate development and investment analysis.

    What He Said At Inman Conference - Mr. Silverstein was on a panel along with the President's & CEO's of Elliman, Corcoran Group, and Halstead as well as Steven Spinola of REBNY. The discussion was about 'Predicting Real Estate's Future Trends'.

    During the discussion he started talking about real estate vision and how one can not discount the incredible amount of money being poured into the Financial District by developers, the city, the MTA, and private equity investors. The numbers are truly astounding! On a 16 acre area of land, $16,000,000,000 worth of re-development is taking place over the next 5 years or so to rebuild ground zero, infrastructure, new commercial office space, a memorial, parks, retail and more. That means $1,000,000,000 per acre worth of development which is just an insane amount of investment for such a concentrated peice of Manhattan Real Estate! This became a repeated quote as the panel carried on as the Moderator, Michael Rogers, just couldn't get past the scale of development and monies involved that was taking place.

    The Skinny - The Financial District and around ground zero in the 16 acre section (that Mr. Silverstein was talking about - not sure of exact grid range) that is being invested in will be drastically different in 5 years or so when most work is going to be coming close to completion! Buildings have already started converting to condo to spark residential interest, as Mr. Silverstein pointed out, and many more conversions are expected. In short, it is expected that the quality of life in this area will be drastically improved from what you see now drawing a new interest in living closer to where you work.

    This is something that most people will find hard to believe, as the reputation of this neighborhood now is one of a workforce and not residential, but I have a feeling those 'in-the-know' of what is to eventually come in this neighborhood in 5 years time will think much differently.

    There are a number of condo conversions currently being marketed right now which include:

    The South Star Condos - 80 John Street

    Cipriani Club & Residences - 55 Wall Street

    The Croft Building
    - 71 Nassau Street

    Cocoa Exchange NY - 1 Wall Street Court

    The Downtown Club - 20 West Street

    130 Fulton Street
    - 130 Fulton Street

    50 Pine Street
    - 50 Pine Street

    William Beaver House
    - 15 William Street

    Downtown By Philippe Starck - 15 Broad Street

    Market Report: Buyers Out In Full Force

    Posted by urbandigs

    Wed Jan 10th, 2007 09:17 AM

    A: OK, so you know I'm a real estate broker and most of you think fairly negatively on people like me. But if you read my blog you should know that I try as hard as I can to give you unbiased, market reports along with my thoughts on how YOU can best profit from this crazy New York City housing marketplace. What I'm about to tell you is purely from my own observation and from talks that I have on a consistent basis with colleagues to try to get a grasp on current market conditions. Todays conclusion: Buyer Activity Is Picking Up Big-Time!

    Before I begin my anaylsis here, you might be interested in today's report that stated, "Mortgage Applications Soar in First Week of '07". A quick tidbit from the article:

    U.S. mortgage applications skyrocketed during the first week of 2007 as interest rates fell for the first time in five weeks, lending support to the view that the housing market is stabilizing, an industry trade group said Wednesday.

    The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and purchasing loans, jumped 16.6 percent to 671.1 for the week ended Jan. 5. However, the monthly average shows a decline in the volume of applications for home loans, with the four-week moving average down 2 percent.
    Be sure to note that last sentence there: However, the monthly average shows a decline in the volume of applications for home loans, with the four-week moving average down 2 percent....showing that a majority of the activity is in refinancing.

    About 3 weeks ago I started a report on, 'Prepping For Sale' and discussed how the apartment looked BEFORE I was brought in, and how it looked AFTER I advised my client on what work to do and more importantly not to do.

    Well, after 2 weeks on the open market we had a bidding war between 2 buyers with the top bid being accepted slightly below full asking price. Since, I have received about 20 phone calls/emails about the property from prospective buyers; not brokers, direct buyers. I now have a contract out waiting to be signed and a very happy seller and buyer; a rare combination. It was priced right and in a good location so one can attribute this activity to that.

    However, I have another client looking for a JR1 or Alcove studio in the under $450,000 range in neighborhoods like Union Square, Gramercy, UWS, and UES. After spending a few of the past 3 Sunday's with her going to Open Houses, I can tell you firsthand that most of them had very good traffic; by that I mean at least 4-5 different buyers were there at the same time we were. And that was ONLY 15 minutes or so of a 2 hour open house!

    I've also had talks with a few other agents holding OH's and they report to me a noticeable, 3x or so, pickup in activity and this is across a range of price points across the city! This is the kind of reporting that you can take advantage of if your in the hunt to buy in the very near future! I'm not making this stuff up. If I had to estimate, I would say my own business has picked up about 4-fold in the past 3 weeks alone; most of it in the past 7-10 days!


    If you don't believe me, fine; I really don't care. I don't have to do this. But if I was a buyer or a seller, this is the kind of reporting that I would be MOST interested in; that is, what is happening RIGHT NOW! My advice to you is this:

    AS A BUYER - Don't try to low-ball or wait out a housing downturn if you plan on signing a contract in the next 1-3 months! If you do, you will NOT get the response you hope for as the seller's broker most definitely is reporting the rise in activity to their client. If you choose to wait until March or so you may not find the inventory as attractive as it is today. If all this buyer activity results in what I expect it to, you will later on see sales volume come in very strong during the months of January & February, removing alot of unsold inventory that has built up over the past few months.

    AS A SELLER - No one can tell you when to sell your home. That is your call. But, if you have been planning on selling your home in the next 3-6 months, it might be worthwhile to get it ACTIVE NOW and get in on some of this action! You may even be able to price slightly higher than you were original thinking to test out the market, as it is times like these (that is, a surge in buyer demand) where sellers get their price or more a good percentage of the time. Don't overprice tremendously unless you have a huge terrace, incredible views, or an unbelievable renovation (although the first two are the best reasons for pricing higher as Im not convinced buyers will pay top dollar for a very high end renovation job).

    New & Notable: Not too much

    Posted by urbandigs

    Mon Jan 8th, 2007 01:58 PM

    A: Lets get right into some of the newest listings deals of 2007! As always, I sifted through ONLY the last 7 days of new listings in Manhattan to try to capture the best deals taking into account location, size, light/views, monthly expenses and asking price. Here is what I found; don't get too excited as pickings were slim!

    64 West 15th Street; Apt: 1E


    First Came on Market: 1/2/2007
    Asking Price: $1,250,000
    maintenance: $1,553 (low considering size)
    Size: 1,650 SFT
    PPSF: $758
    Marketed By: Adam Roberts & Stephen Perlo of Corcoran

    245 East 24th Street; Apt 15E


    First Came on Market: 1/2/2007
    Asking Price: $449,000
    maintenance: $726 (normal)
    Size: 600 SFT
    PPSF: $748
    Marketed By: Jessica Huff of Elliman

    28 East 4th Street; Apt: 6W


    First Came on Market: 1/4/2007
    Asking Price: $1,795,000
    maintenance: $1,700 (below $1/sft is hard to find allowing seller to price high)
    Size: 1,900 SFT
    PPSF: $945
    Marketed By: Abigail Agranat of Elliman

    Thats really all I see of the bunch (263 new listings) based on the search I performed that seem to be the best valued. The others are similar in pricing or more expensive and in worse neighborhoods, on lower floors, or have much higher monthly expenses. Hopefully more options will come onto the market this week.

    See Me At NYC Real Estate Connect 2007

    Posted by urbandigs

    Fri Jan 5th, 2007 01:42 PM

    A: I am greatly looking forward to this! The conference will be at The Marriott Marquis in Times Square January 8th-10th. I will be speaking on a panel with other bloggers to discuss, "BLOGS: Utilizing Personality For Profit" on Tuesday, January 9th which will have 2 sessions (2:00 - 3:00PM & 4:00 - 5:00PM). This is just one of many great sessions that will be going on at the conference so I hope you can make it; guest rate info for UrbanDigs readers below.


    Real Estate Connect NYC is the residential industry’s premier event where leaders of real estate, technology, mortgage and finance, convene to set the agenda for the coming year, make deals and network. Some 1200 executives, decision makers, opinion leaders, leading brokers, mega-agents, trendsetters, press, analysts and investors from the Eastern U.S., nationwide and across the globe will gather at the Marriott Marquis Hotel in Times Square January 8-10, 2007. Join the brightest minds in the business and have a great time in one of the world’s greatest cities—the Big Apple.

    Panelists Are:

    Richard Nacht
    , CEO & Founder, Blogging Systems, Inc.
    Noah Rosenblatt, Founder,
    Douglas Heddings, Founder,
    Joseph G. Ferrara, Co-Founder, Sellsius Real Estate blog

    Moderator: Ben Leventhal, Editorial Director,

    Panel will be in Q & A format with Ben presenting each of us a question to discuss individually, hopefully sparking up a debate and conversation with other panelists. But I have never done this before so I really don't know what to expect!

    I asked Ben if I can talk about:

    1. Content is KING; be original and be current
    2. Search Engine Optimization Tips
    3. Self-Promoting Content Doesn't Work
    4. Educating Your Audience = Better Business
    5. Set Yourself Apart - Angle your writing

    To get an UrbanDigs 'Guest Rate' of $399 for a conference pass please contact:

    Elaine Baker
    Inman News
    1480 64th St., #100
    Emeryville, CA 94608
    (510) 658-9252 x 128
    (800) 775-4662 x 128

    Hopefully I'll see you there!!

    How Lower Rents Can Affect Sales Prices

    Posted by urbandigs

    Fri Jan 5th, 2007 09:51 AM

    A: Its a very interesting topic for debate, something I really want to get into UrbanDigs much more during 2007. That is, debating the changing fundamentals of NYC real estate with hopefully some guest speakers with different views than mine. So much goes into the changing dynamic of housing markets including monetary policy, economic strength, inflation pressure, rental costs, lending standards, etc., that I now think its time to look at the rental equation. For this post, I want to discuss the possibility of 'lower rental costs' in NYC during the course of 2007 and what that might or mght not mean for housing prices heading into this kind of trend.


    2006 was clearly a landlords market! Vacancy rate dropped to record lows and renters got squeezed into much higher living costs as many would be homebuyers got priced out of the market and added to the rental demand. Add in the conversions of many rental buildings to condos to take advantage of market trends and all of a sudden supply slips; some of these conversions include Century Tower & Wellington Towers.

    Now that we head into 2007, I believe we are starting to hit a peak in rental increases as some new developments decide to hold of selling all units and go rental, or partly rental, such as One Carnegie Hill over on 96th street between 2nd & 3rd avenue. Also, think about how many frustrated sellers there must be out there in NYC that decide to take their unit off the market and try to rent it out to take advantage of rental trends that currently favor landlords. Calculated Risk, a absolutely-must daily read (written by a senior executive, retired from a public company, with a background in investing, finance and economics) has a peice today about this very topic and was motivation for my post here today. From todays article in The Washington Post:

    As home sellers grew more frustrated with the slow local real estate market in recent months, they abandoned their for-sale signs and put their homes up for rent. That has increased choices and cooled prices for tenants in one of the tightest and most expensive parts of the country. "This is the first sign that the cooling housing market is having an impact on the rental market," said Gregory H. Leisch, chief executive of Delta Associates, an Alexandria research firm that is scheduled to release a report today showing more vacancies in the region's apartment complexes.

    Some developers who planned condos are switching their buildings to rentals. In the fourth quarter, developers announced they have or will switch 5,915 such units, according to Delta.

    Condos aren't the only part of the market where there are more rentals. According to Delta, the number of condos, townhouses and houses listed for rent rose 23 percent in November from a year earlier on the region's multiple listing service, commonly used for for-sale properties but also for rentals handled by real estate agents.
    It's an interesting fundamental to watch as we head through the year. If true, NYC should start to see similar trends as some new developments turn rental and frustrated sellers/flippers decide to rent out their units for a few years waiting for better times to sell. And if this happens, the data on the rental side is almost certain to change dramatically from what we have seen in the past 1-2 years. That is, one would expect rental inventory to correct to the upside, more choices for tennants, and lower rents in the years to come.

    This is all speculation at the moment as it hasn't happened yet and right now NYC vacancy rate is still very low, rents higher yet showings signs of peaking, and still a lack of quality inventory for renters to choose from. But if the trend I discuss proves true here in NYC, what would you expect to happen to the housing market and specifically prices; a few things come to mind:

    1. Rents Will Decrease Maintaining or Slightly Increasing Demand - Economics 101. Right now, its fair to say that many renters facing lease renewals and rent hikes (remember, this post is speculating about future rents decreasing which hasn't been proven by any data yet) who are ABLE TO PURCHASE, are seriously considering buying into NYC real estate in anticipation of their lease expiration. The combination of our strong economy, strong salary's, buyers' market where negotiations are taking place, and rental hikes coming on lease renewals are causing some renters to enter the marketplace for starter apartments. This is a fair anaylsis of what is happening now and a fair decision for those renters soon-to-be- homeowners as long as they meet the proper guidelines of buying (timeline to own, liquid assets, and salary).

    But what if rental inventory rises and rental costs start coming down as a result of the inventory shift? Well, rental costs will decrease causing a shift in psychology amongst renters considering buying their first apartment on lease expiration! If rental costs for existing homeowners stay the same, and rental costs overall for new leases decrease as inventory and competition rises, more renters will stay put and remain RENTERS. And the # of those doing buy vs. rent anaylsis will probably lean towards renting for the short term.

    2. Housing Demand May Dampen & Prices Correct As Rental Costs Correct - This is where I expect many of you to have either strong agreement or disagreement with my thoughts. If rental trends in NYC change to show increasing supply and decreasing prices, than house prices will likely follow the same path!

    The theory is that renting all of a sudden makes more financial sense. Now, that doesn't mean buying is bad! Its very important you don't misinterpret what I'm saying here; as if your timeline to own is 4 to 5 years or higher and your financially able, then buying is the wiser choice. But for those that are considering converting from renters to buyers, albeit not a huge target audience, will likely continue to rent. House prices will have to follow rental prices as the gap in living costs is a metric most people use when crunching the numbers to make their financial decisions. If buying costs WAY more than renting, well what would you do? If we look at recent history over the past 5 years, it is clear that as housing prices rose so did rental prices. Well, what if rental prices come down first moving forward; will that drag down housing prices too?

    On the Calculated Risk comment thread, Robert Cambell (San Diego developer and author of 'Timing The Real Estate Market') wrote a comment that made alot of sense to me. He stated:
    If you study classic real estate cycle history, peaks in the building cycle tend to precede economic recessions and depressions. Driven primarly by rising land values during the boom - as the economic model goes - rents and housing prices rise to levels that are economically unsustainable for long periods into the future.

    Then when the real estate cycle reverses, rents and prices follow suit. This theory was first proposed by Henry George in 1879, and has been well studied and expanded upon to this very day.
    Well I don't know about Henry George so I'm only assuming he is correct on this statement, but the rest of the comment makes great sense to me and was more motivation for this post.

    Conclusions: 2003-2006 proved to show marketing trends of rental conversions to condos and plenty of new development to take advantage of the incredible housing boom that was taking place. The result was a restriction of rental supply and increase in rental demand as buyers got priced out of the market; bringing rental costs back to where they were in the dot com boom of 1999 & 2000. Now we are seeing more conversions to rentals to take advantage of rental trends which could ultimately cause an increase in inventory, an increase in demand, and a subsequent decrease in prices. The question is, will housing prices follow suit? I put my thoughts out there, what are yours?

    Lay Off The ARM's

    Posted by urbandigs

    Wed Jan 3rd, 2007 10:05 AM

    A: I don't link to David's site BubbleMeter too much as I think his bias towards the housing bubble clouds the content a bit on the site; although I do think it is a very good read! Today, he has a post concerning ARM's, or Adjustable Rate Mortgages, as the federal reserve just issued a 37-page brochure in an attempt to educate homebuyers of the pitfalls of using an ARM loan product; especially if you choose an ARM to rationalize buying a house that is OVER YOUR BUDGET!


    What is an ARM (Adjustable Rate Mortgage): An adjustable-rate mortgage differs from a fixed-rate mortgage in many ways. With a fixed-rate mortgage, the interest rate stays the same during the life of the loan. With an ARM, the interest rate changes periodically, usually in relation to an index, and payments may go up or down accordingly.

    Lenders generally charge lower initial interest rates for ARMs than for fixed-rate mortgages. At first, this makes the ARM easier on your pocketbook than a fixed-rate mortgage for the same loan amount. Moreover, your ARM could be less expensive over a long period than a fixed-rate mortgage--for example, if interest rates remain steady or move lower.

    Against these advantages, you have to weigh the risk that an increase in interest rates would lead to higher monthly payments in the future. It's a trade-off--you get a lower initial rate with an ARM in exchange for assuming more risk over the long run.

    Federal Reserve Consumer Handbook on ARM's

    Some important points of this handbook include:

  • Your Monthly Payments Could Change

  • Your Payments May Not Go Down Much, If At All

  • You Could End Up Owing More Than You Borrowed

  • You Might Have A Penalty If You Want To Pay Off Your Loan Early

  • UrbanDigs Says: NEVER, EVER, EVER consider taking out a ARM product because you need the lower monthly payment to afford the home you are thinking about buying. If you do, that means you are buying a house you can NOT afford and rationalizing the purchase by taking out a riskier loan product. Not a good way to go about a generally wise investment.

    Rather, if you are 100% certain you will be selling your home within a short period of time than a ARM product makes sense. And even in this case, you should take out an extra 2 years on the ARM product just to cover yourself in case plans change over time. For example, if you know you will be selling in 3 years or less, take out a 5 YEAR ARM; if its 5 years or less take out a 7 YEAR ARM! Otherwise, the small difference in monthly payments makes a 30 YR fixed product a wiser choice. If you are considering an interest only loan, reconsider your entire budget and reason for buying in the first place! One of the best aspects of owning your own home is that you are forced to save by paying down a little bit of principal each month, giving you more equity in your home.

    Cool Pads For 2007

    Posted by urbandigs

    Wed Jan 3rd, 2007 09:04 AM

    A: Are you looking for something a bit different than the same old design? Are you looking for hard to find outdoor space, or industrial style, or a new duplex home? Then check out a few of these apartments that are a bit different than the norm here in NYC! If only I had a few mil to go on a spending spree with right now!

    Outdoor Space Seekers in East Village


    First Came on Market: 09/08/2006 at $1,295,000
    Asking Price: $1,250,000
    maintenance: $1,324
    Size: 1,100 SFT + 450 SFT TERRACE
    PPSF: $1,136
    Marketed By: Mark Kennedy of Elliman

    Industrial Living in Chelsea


    First Came on Market: 3/31/2006 at $1.725M
    Asking Price Now: $1,650,000
    maintenance: $1,347 (low for size)
    Size: 1,686 SFT
    PPSF: $979
    Marketed By: Wayne Burkey of Sothebys Realty

    Lofty Dreams in Greenwich Village


    First Came on Market: 08/25/2006 at $2,150,000
    Asking Price: $1,895,000
    maintenance: $2,902
    Size: 2,000 SFT
    PPSF: $948
    Marketed By: Shelly Russell of Corcoran

    Developers Beware: 421-A Overhaul Coming

    Posted by urbandigs

    Tue Jan 2nd, 2007 11:24 AM

    A: Mayor Bloomberg signed legislation a few days before the new year that reforms the 421-A property tax exemption program offered to developers as an incentive to stimulate building. The changes basically expand the area for the program, extend tax benefits to 25 years for developers who promote affordable housing, set limits on benefits any market rate unit can receive, and the creation of an affordable housing trust fund.


    Details on this new legislation could be found at website.

    Here are the details of the changes to the 421-A benefits program that will affect developers:

  • Expand the Geographic Exclusionary Area to include all of Manhattan, south of 136th Street in West Harlem, south of 126th Street in Central Harlem, south of 117th Street in East Harlem; all of Downtown Brooklyn, Carroll Gardens, Cobble Hill, Boerum Hill, Park Slope, most of Fort Greene, Prospect Heights, Williamsburg and Greenpoint, and into Sunset Park and Bushwick; and along the waterfront from Red Hook north to Astoria in Queens.

  • Grant 25 years of benefits only to developments that provide affordable housing, ensuring for the first time that 421-a provides an incentive for low-income housing throughout the city.

  • Set a limit on the total amount of 421-a tax benefits that any market rate unit may receive. Only the first $65,000 of an apartment's assessed value would receive the 421-a tax exemption.

  • Abolish the existing negotiable certificates program and create an Affordable Housing Trust Fund. This $400 million fund, targeted primarily to the 15 poorest neighborhoods in the City, would be used to finance the development and rehabilitation of affordable housing in areas outside of the Geographic Exclusionary Areas.

  • Basically the program changes focused on benefits to stimulate more affordable housing, something that developers probably didn't want to hear. It's almost as if the government recognized the changing housing market in NYC and wanted to limit development a bit to control the number of new development luxury units that eventually will hit the open market. These changes seem to do that; unless I'm interpreting this wrong in which case I hope someone will mention why.

    One aspect of the program also seems restricting, which is:
    Only the first $65,000 of an apartment's assessed value would receive the 421-a tax exemption
    Does this mean that future tax abatements for new developments under these changes will NOT give buyers of new developments the fuill tax incentives that they got used to in past years? If a property is assessed at $750,000, than that means $685,000 of the full property value will be normally taxed, and $65,000 will be abated? Again, am I wrong in this interpretation?

    According to METRO article:
    "This bill doesn’t go far enough," Avella said. "We're pushing it back and forth, making some tweaks but not addressing the two major problems: Building affordable housing and eliminating this huge windfall for developers. Why should we give tax breaks to developers of luxury and market-rate housing anywhere in the city?"
    Thoughts please!! I have a feeling I am interpreting this wrong in terms of ultimate benefits for developing

    2007 - Predictions & Discussions

    Posted by urbandigs

    Tue Jan 2nd, 2007 10:26 AM

    A: I thought it might be fun to lay a few predictions down, being the first business day of 2007, so that at the end of the year we can all look back and see how wrong I really was! Well, hopefully not too wrong but who is ever right on the money all the time right! So, here are some of my thoughts on everything economic, including NYC housing predictions. Would love to hear your thoughts!

    NOTE - This is really just for the sake of discussions and nothing I mention here should be used to place investments on unless you discuss first with your financial advisor. Please take what I say here as my opinion based on data that I currently see. The real point is to provoke discussions to hear others' thoughts on what 2007 might bring.


    Will The Economy Have A Soft-Landing in 2007 - Lets start out with the toughest call; the US economy. With the stock market predicting a soft landing and the bond market predicting a coming recession, who is right? For now, I'm going with the stock market.

    My Prediction - The US economy will prove its resilience once again as corporate profits continue to be strong, but NOT as strong as previously predicted by the equity markets. I expect wages and jobs to come under a bit of pressure; especially in housing related industry's where job losses will skew the overall national jobs numbers downward. Wages will stabilize but for the most part remain strong as 2007 proves to be another good year for stocks; just not as good as 2006. I would think 8-10% gains in major indexes for the full year as long as nothing crazy happens with energy prices or unexpected unnatural disasters. The end of the year might prove worst for the US economy as housing related consumer spending cutbacks may prove real.

    The Wild Card - Housing & Energy. If housing is worse than expected or energy prices shoot higher expect stocks to come under pressure.

    Will Energy Prices Soar & Hurt Economic Growth in 2007 - No, I dont think so. I actually think the price of energy will fall a bit over the course of the year as a warmer than expected winter ends and a less than expected hurricane season occurs. This is all just a guess of course, but why not make a stab at it.

    My Prediction - Oil will be trading closer to $50/barrel by the end of 2007 and possibly lower. Geopolitical tensions prove to be better than expected and Iraq continues to get more pipeline on-line throughout the year, adding to the global supply. OPEC's planned oil production cuts prove very hard to enforce. If this proves true, its one less inflationary pressure to worry about giving stocks and the economy a bit more upside.

    The Wild Card - Geo-political tensions & Weather. Should Iran, Nigeria, or Iraq have more issues the price of oil will likely shoot higher. Also, if weather gets much colder or we have a very active hurricane season, oil prices will stay at higher levels.

    NYC Housing Market in 2007 - Which is why you are all here right.

    My Prediction - I expect a slight increase in activity in the months of JAN - MARCH which is proven mid year by lagging housing data reports on deals during this timeframe. Remember that housing data is lagging. I wouldn't be surprised if housing shows some price gains during these months as well as an uptick in sales volume.

    During the course of the summer I worry that economic jobs data might come in lower than expected, putting some pressure on housing as this industry still searches for a bottom. Activity will again slow during the summer months and desperate sellers will once again have to negotiate more than expected to move a property. Overall, by the end of 2007, I expect NYC housing to experience a decline of about 3-5% or so as fundamentals continue to correct for longer term sustainable growth. If the first few months prove to show gains of 1-2% in prices, then the summer months and remaining months of 2007 will show a wipe-out of these gains plus a few more percentage points.

    Should economic data come in weaker than expected in jobs and wages, I would expect housing to suffer for a bit longer than expected with sharper movements.

    Keep close eyes on lenders during this time to see if banks tighten the noose of easy credit! Should this occur, as a result of a slowing economy (job losses and downward wage pressure), housing could be in for a bigger slump than previously expected and might last for a few years longer until an outside force (such as monetary policy) stimulates buyer demand again.

    All in all, I expect a slightly down year for NYC housing prices with activity staying stable as lower prices and deals attract more buyers. Put simply, the fundamental of 'negotiability' as experienced in buyers' markets, will show itself in data during the course of 2007. You can't have a market where there is widespread negotiating and still show solid gains in pricing at the same time! That would be a paradox.

    The Wild Card - JOBS & LENDERS. In my mind the two biggest threats to housing's continued mission to find a bottom! If job losses are higher than expected or banks tighten lending requirements (making borrowing harder to lock in), housing will suffer more than expected and could see a very volatile year in price declines and inventory levels.

    What The Fed Will Do in 2007 - For the most part, stay where they are! I keep swinging my thoughts on whether the fed will hike or cut rates during the course of the year because it really is data dependent. Fact is, I dont know what the inflation data will be nor do I know what the stock market will do or what might affect oil prices during the course of the year. All of these things play a role in whether or not the fed will hike or ease.

    My Prediction - Im going to play it conservatively and say that at the end of 2007 the fed funds futures will be either the same or at 5%; down 1/4 point from where we are today. I'm going to bet that inflation pressures continue to ease with the correction of energy prices allowing the fed to focus on economic expansion issues that may arise. If jobs and wages show weaker than expected numbers, partly as a result of weaker housing, than the fed might ease a bit to psycholgically stimulate the economy. But this can very quickly change if inflation data comes in higher than expected. I'll certainly continue my anaylsis of this here on

    The Wild Card - Inflation & US Dollar. If core PCE or PPI shows more inflation pressure than expected, and the US dollar continues its downard slide, the fed could RAISE rates putting more pressure on holders of debt and making it more expensive to borrow! As we all know, the more expensive it is to borrow, the less affordable housing becomes and the result is lower buyer demand both in the size of the buyer pool, speculative investors, and what buyers can ultimately afford. Very important to keep your eyes on these things!