Price Changes: 279 in Past 7 Days

Posted by urbandigs

Mon Apr 30th, 2007 01:37 PM

A: Lets make it a data day until I have to go on appointments. In the past 7 days there were 279 price changes. Unfortunately a price change does NOT necessarily mean a price reduction, although the number of price increases is minimal in comparison to the number of price cuts! I also charted the weekly price changes over the past 8 weeks so you can look for any trends. Other than a 17% increase in total number of price changes, its hard to see any clear trend other than the last 3 weeks have sustained the number of price changes.

Neighborhoods included: Beekman, Carnegie Hill, Central Park South, Chelsea, Clinton, E. Village, Fin District, Flatiron District, Gramercy, G Village, Little Italy/Chinatown, LES, Midtown, Murray Hill, SoHo, Sutton Area, Tribeca, UES, UWS, W. Village

Here is a chart showing the # of price changes per week for the past 2 months!

price-changes-manhattan-real-estate.jpg

Umm, Jonathan Miller where are you? I guess the best way to analyze this is to add up the total number per month. When I do that I get:

# Price Changes in March --> 777


# Price Changes in April --> 913


So, there was approximately a 17% increase in total price changes for the neighborhoods mentioned in Manhattan for the month of April compared to the month previous.

Of particular note are these high end price reductions that I see occurred in the past 7 days!

213 W 23rd St; Apt 7-8N

213-w-23rd-nyc.jpg

First Came on Market: 10/11/2005
Original Asking Price: $11,000,000
Asking Price NOW: $7,500,000
maintenance: $1,500
RE Taxes: $3,081
Size: 7,000 SFT
PPSF: $1,071 (again, not bad considering product)
Marketed By: Gross, Steinberg, Williams & Senequier of Douglas Elliman

111 East 85th Street; Apt 8DEF - 9E

111-e-85th-duplex.jpg

First Came on Market: 3/19/2007
Original Asking Price: $4,950,000
Asking Price NOW: $4,500,000
maintenance: $3,570
Size: 4,200 SFT
PPSF: $1,071 (not bad considering product)
Marketed By: G. Laurie Cooper



New & Notable: Inventory Increasing

Posted by urbandigs

Mon Apr 30th, 2007 11:01 AM

A: I apologize for not posting on the newest and best deals out in Manhattan real estate lately, but that continuing ed class took all my time! I'm trying to get back into the posting groove and I know that these new and notable posts are appreciated out there. Total new listings in the past 7 days are 279; sorry for the wrong report a few hours ago as I had a data field accidentally checked which yielded more results. Still, this is slightly above the past few weeks. Updated 12:26PM

As always, use only as a guide and be sure to contact the broker listed if you are interested. I will not show you any of these listings and I try to take into account location, floor, condition, size, monthlys when deciding which listings to show off!

Neighborhoods included: Carnegie Hill, Central Park South, Chelsea, Clinton, E. Village, Fin District, Flatiron District, Gramercy, G Village, Little Italy/Chinatown, LES, Midtown, Murray Hill, SoHo, Sutton Area, Tribeca, UES, UWS, W. Village

Conversions & New Devs Skewing Data: 100 W 18th, Chelsea Stratus - 101 W 24th, Atelier Condos - 627 W 42nd, Sheffield57 - 322 W 57th, Element - 555 W 59th, Merrion Condo - 215 W 88th, 995 Fifth Avenue, BE@William - 90 William St, & SoHo Mews - 311 W Broadway

70 East 10th Street; Apt: 15A

70-e-10-st-nyc.jpg

First Came on Market: 4/24/2007
Asking Price: $1,549,000
maintenance: $1,567 (close to $1/sft)
Size: 1,450 SFT
PPSF: $1.068
Marketed By: Call Broker Cathy O'Reagan at 212-475-3978

10 West 15th Street; Apt 1028

10-west-15th-street.jpg

First Came on Market: 4/24/2007
Asking Price: $1,299,000
maintenance: $1,534
Size: 1,250 SFT
PPSF: $1,039
Marketed By: Brett Gabriel of Corcoran

25 East 83rd Street; Apt: 7A

25-e-83rd.jpg

First Came on Market: 4/24/2007
Asking Price: $1,750,000
maintenance: $2,583
Size: Aprox 1,500
PPSF: Aprox $1,166
Marketed By: Kate McMahon of Corcoran


Economy Weakens / Home Equity Stalls

Posted by urbandigs

Fri Apr 27th, 2007 10:10 AM

A: We got a surprisingly weak GDP report today that was largely a result of the slowing housing market going on across the nation; except Manhattan. Analysts were forecasting a GDP of 1.8%, and the actual growth rate came in at 1.3%. On a side note, Calculated Risk discusses how Home Equity is starting to stall (via The Wall Street Journal) and how that will ultimately affect consumer spending.

weak-gdp-housing-slowing-nyc.jpg

First, the US economy stalled in the latest report on economic growth as the housing decline seemed to shave at least a percentage point off growth in the latest quarter.

According to CNN Money -

The reading showed the U.S. economy growing at an annual rate of 1.3 percent in the first three months of the year, according to the Commerce Department. The report was the initial reading on gross domestic product, the broadest measure of the nation's economic activity.

Among the biggest factors in the weak growth was a slumping U.S. housing market, which subtracted almost a percentage point from growth.

The report also showed growing inflation pressures in spite of the the slower growth, a factor that could limit the Federal Reserve's freedom to cut interest rates in an effort to stave off a slowdown or recession.
With this weak economic number, one thing is certain; the fed will be on hold with interest rates for a while! There seems to be uncertainty creeping its way into the economic world right now, something the tradable markets genuinely dislike. Questions that are popping up in my mind are:

Will the slowing housing market have a bigger impact on future economic growth?

Will inflation moderate as the economy slows?

How low will the US dollar now go with this weak GDP number?

Will stocks start to correct due to this uncertainty even though profits are still strong?

What will the fed do with monetary policy?


Alot of questions that are very hard to answer right now! A while back I discussed the possibility of entering a period of stagflation; that is cooling economic growth coupled with rising inflation pressures. In my post titled, "Jobless Claims Strong - Macro Update", back on April 19th I stated:
What you need to know is that right now we very well could be heading into a period of stagflation; that is high inflation and slowing economic growth via rising unemployment or a recession. The problem with this scenario is that if the fed tries to control one problem they can make the other problem much worse! The markets HATE uncertainty because there is little transparency in the short term for their investments. Whether or not the fed will become more transparent with fed policy and begin to publicly announce a target fed funds rate is still up in the air. For now, we are left to speculate based on the data that comes in.
And the data that came in today says ---> HOUSING IS WEAKENING THE BROADER ECONOMY!

Why did the housing slowdown have such a large affect on GDP? Because its not just housing prices declining that hits the US consumer. What about companies that make money off of housing transactions, what about the suppliers of raw products for housing (recall my post on falling lumber prices), what about the transports and logistics companies that deliver products to their destination, and finally what about the consumer who decides NOT to tap into equity because the value of their home is less than it used to be!

Home Equity Withdrawal (also known as MEW or Mortgage Equity Withdrawal) seems to be stalling as reported by the WSJ and discussed on Calculated Risk.

According to the Wall Street Journal -
After years of piling debt on their homes, Americans are becoming more cautious about using them as a piggy bank.

A cooling housing market and higher interest rates have made homeowners more reluctant to tap the equity they may have built up in their residences. The amount borrowers owe on their home-equity lines of credit has slipped in the past six months, to $561 billion at the end of March, the first such decline since 1999, according to new data from Equifax Inc. and Moody's Economy.com Inc.

Now, the slowdown in home-equity borrowing is leading to weaker sales in some markets for autos, building materials and electronics, says Mark Zandi, chief economist of Economy.com.
According to Bill over at Calculated Risk -
This is one of the keys going forward - the impact of less home equity extraction on consumer spending.
He is 100% right! What is yet to be seen and what could be another leg added to the housing cooldown is to what extent US consumer spending slows as a result of less money available to be taken out of their homes!


UrbanDigs in NY Post

Posted by urbandigs

Fri Apr 27th, 2007 09:28 AM

A: Its PR week for me! I was interviewed for this story about 3-4 weeks ago by Adam Bonislawski who wanted to write an educational post on new development tax abatements after reading on UrbanDigs and other sites that it might not prove to be the best investment as monthly expenses rise over time. Needless to say, he wrote a fantastic article yesterday in the NY Post. Here it is in case you missed it!

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NY Post - The Great Abate


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and there is more...here are some cut and paste's directly from the article:

But buyers do need to be aware of how the tax break's expiration would affect their investment, Rosenblatt stresses. "On the open market, a property's value is directly related to the total monthly expenses that are carried with the property," he says. "I don't think developers are factoring in to their pricing what the cost of maintenance is going to be 10 years down the line."

And if developers aren't, perhaps buyers should be. Rosenblatt tells the story of going with a client recently to look at a $3 million apartment with a 421a abatement.

"The real estate taxes for the property right now were about $150 a month," he recalls. "Upon expiration, they were going to be around $2,300 a month. So the total carrying costs of the apartment were around $2,000 right now.

Then I asked the marketing people what the mature taxes would be on the property. When they told us, my client jumped up and said, 'Are you kidding me?' In 10 years time, it's going to cost her over $4,000 a month to maintain. So just how much upside does this apartment have?"
For the complete article, click here.


TimeOut NY Publishes UrbanDigs

Posted by urbandigs

Thu Apr 26th, 2007 06:23 PM

A: Props to Christine Toes on the first of five stories on new developments to be published on TimeOut NY over the next 5 days! Christine writes for UrbanDigs and tries to cover new developments as well as experiences in the field that she feels worthy of passing on to you guys! She is a valued member of the team here and a great agent to boot! Here is an excerpt from todays article.

time-out-ny.jpg

Insider's Look: Platinum

Each day this week, the savvy writers at real estate blog Urbandigs analyze one of the city’s new condo developments

Quick tip: The building's design fundamentals are strong and apartments are going quickly (over 25 percent sold in under 3 weeks). Price per square foot increases with each new release of units - buy early to earn the best deal.

For the full story, please visit the article at TimeOut NY's website!


Five Week Warning: Get Your Home Sold!

Posted by urbandigs

Thu Apr 26th, 2007 08:25 AM

A: This is my 5 week warning for all you sellers out there! As we head into the first week of May, its up to you to get your apartments sold! The choice is yours. For all those sellers out there that have legitimate reasons for selling and/or are under some sort of time pressure to sell, strongly consider a price reduction if you have been on the market for 6+ week with no offers! In short, it will be harder to procure as strong of a bid as the NYC housing market transitions from a sellers market back to a buyers market. Here is why.

sell-apartment-manhattan-nyc-real-estate.jpg

Things are still sugary for sellers of Manhattan real estate even as the rest of the nation deals with a continuing slowing housing market. In case you forgot what its like outside of New York City real estate, take a look at the latest two datasets regarding foreclosures and existing home sales that were released in the past few days.

Foreclosures Surge on Mortgage Woes -

Foreclosure filings surged during the first quarter of 2007, as home price increases slowed or even reversed and borrowers fell behind on payments once their adjustable rates began resetting at much higher levels.

The number of filings climbed 27 percent in the first quarter compared with the fourth quarter of 2006 and 35 percent from a year earlier, according to a report released Wednesday by RealtyTrac, an online marketer of foreclosure properties.

There were more than 430,000 foreclosure filings nationwide, one for every 264 households.
Home Sales: Worst Drop in 18 Years -
Home sales posted their sharpest drop in 18 years in March, a real estate group said Tuesday, as problems in the subprime mortgage sector pushed sales well below what economists had forecast.

Sales of existing homes fell 8.4 percent to an annual rate of 6.12 million in March from February's 6.68 million rate, the National Association of Realtors said. It was the biggest one-month drop since January 1989. Economists surveyed by Briefing.com had forecast sales would fall to an annual rate of 6.45 million in March.

David Lereah, the Realtors' chief economist, said that bad weather earlier in the year may have cut down on sales that closed in March. "We may be seeing some losses as a result of the subprime fallout," he said in a statement. "It's too early to measure a significant impact from tighter lending standards, which should moderately dampen activity."

The weakness in sales came despite the continued slide in home prices, which had been helping to lift sales in some previous reports. The median home price slipped 0.3 percent to $217,000 from a year earlier, the group said. It was the eighth straight month that measure has fallen and the ninth decline in the last 10 months.
But this is Manhattan! We are the financial Capital of this country, enjoy a growing population, are 75% co-op whose stringent board standards keep speculative activity low, enjoy low rental vacancy rates with rising rents, and whose residents make plenty of dollars! So we are immune right? Wrong.

While New York City real estate is its own animal and cannot be compared with many local markets experiencing plenty of housing pain right now, we are not immune. Our market is seasonal and in terms of real estate cycles, tend to lag in slowdowns and lead in recoveries. That makes our market a much stronger and safer investment. But we are heading towards the slow season and its up to you to believe me or not.
As we head into summer months, expect traffic to slow significantly from levels seen between the months of JAN - APRIL. Slower traffic means less buyer demand which results in more control for the buyer.
Here is my advice to sellers leaving you with the job of placing yourself (if you happen to be selling right now) into the proper category.

Sellers w/ Time Pressure (Must Sell Now) - Don't mess around! If your apartment has been on the market for more than 6 weeks and you have had more than 30 buyers stop by with no offers, you need to lower your asking price! Its not rocket science. If your under a time pressure to sell and must sell now, don't dare risk delaying a price cut for another month or so. DO IT NOW and get your place into contract before June 1st!

Read my post, "My Apartment Won't Sell...Help!" for a more detailed discussion on freshening up a stale listing.

Sellers w/ No Time Pressure (Want To Sell, But In No Rush) - If you fit in this category you really need to ask yourself how much longer you can wait before you close. Keep in mind how long it takes to close under normal circumstances; about 1-2 months for a condo and 2-3 months for a co-op. Deduct the high end of that time line depending on what property type you have and come up with a month that you must be in contract by!

For example, if you own a condo and MUST close by September 1st, than plan on having a signed contract by July 1st the latest! That leaves 2 months (July & August) to close by your deadline and you better keep on your agent to make sure the buyer abides by this and completes the purchase application and loan process in a timely manner.

Since you have some time you can certainly hold off on a price cut, but keep in mind your chances of getting the highest bid will be over the next 5 weeks; before the summer months. Once June 1st hits, chances are that the drop off in demand will yield a less aggressive bidder.

Sellers Testing The Market (Have A Great Product & Waiting For Your Price) - Well if you are testing the market than you know you are priced high and waiting to see if someone will fall in love with something about your apartment and pay up! If its been over 8+ weeks with no bids near your desired price, it is probably too far out of whack.

If you got bids close to your desired price but just a little off, you may want to re-think how much you want to sell. Why are you even testing the market to begin with? Read my post titled, "To Sell or Not To Sell" and see if any of the reasons listed match your situation.

In short, if you haven't gotten your price yet, chances are you wont get it during the summer months! So, consider either a price cut to the desired price that you want to sell at or remove the listing altogether from the market and put it back on the market next wall street bonus season.

UrbanDigs Says - The NYC real estate market is still strong! With stocks soaring via strong corporate profits, the economy strong, jobs healthy, salary's high, rental vacancy low, rent prices trickling higher, and buyer demand holding you still have a chance to get a great price on your new home! Investigate your building for comparable sales and repeat the analysis with your broker to see if you are priced high, and if so, how high are you? In the end, the market dictates the purchase price of your home, not the agent, and its up to you to wake up from reality that your home may not be worth as much as you first thought. Question is, do you wake up to this reality today and do something about it while its still a sellers market? Or do you delay, and realize in 6 weeks when it most likely will transition back to a buyers market?

Remember, an agent being honest with you and passing on advice based on past experience selling in the Manhattan marketplace is an agent doing his best to get his/her client the highest price possible! Don't get mad at your agent if they recommend a price cut to you after weeks on the market; in the end, their job is to procure a qualified buyer at or slightly above market value if possible. Asking your agent to fetch you $100,000 more than the last comparable sale in your building is like asking your stock broker to buy a stock today significantly below what it currently trades at! If the stock broker says "sure, no problem", then they are lying to you!


Don't Be Fooled: 421A Tax Exemption

Posted by urbandigs

Wed Apr 25th, 2007 07:56 AM

A: Let me be absolutely clear! The 421A Tax Exemption which is granted to developers by the city as an incentive to build and develop neighborhoods, is great for the developer's sales team as they ask top dollar for new units with temporarily low monthly expenses and a DUPE TO THE BUYER WHO INTENDS ON SELLING AFTER THE ABATEMENT EXPIRES! Originally published June 28th, 2006. Edited/Enhanced on April 25th, 2007.

tax-relief.jpg

I'm sure I will get a lot of harsh words for this post from either some colleagues or sales managers, or developers, but I can't help it! This is how I feel and think its important to at least play devil's advocate to anyone considering paying over $1,300 a square foot for a new development whose asking price can be this high because the monthly expenses are temporarily low due to the 421 Tax Exemption.

Don't get me wrong, new developments are a great product and perfect for those who can afford them. But for those seeking an investment play, its hard to rationalize the price per square foot + higher closing costs on some of these developments considering they will get more expensive to carry every two years for the next 10 or 15 years.

As I noted on a previous post, "What is a 421A Tax Exemptiont":

421 Tax Exemption - The Cooperative and Condominium Abatement Program provides partial tax relief for condo owners and co-op tenant-shareholders to reduce the disparity in property tax paid between residential Class 2 properties (i.e., condominiums and cooperatives) and Class 1 properties (i.e., one-, two-, and three-family homes), which are assessed at a lower percentage of market value.

The reason I think this temporary tax relief is a dupe for buyers who intend to sell their new home AFTER the abatement expires, is because in the world of real estate...

THE MONTHLY EXPENSES (MAINTENANCE + REAL ESTATE TAXES) OF A PARTICULAR PROPERTY ARE DIRECTLY CORRELATED WITH THE AFFORDABILITY OF THE APARTMENT AT RE-SALE. THEREFORE, A PROPERTY WITH HIGHER MONTHLY EXPENSES MUST LOWER THEIR ULTIMATE ASKING PRICE TO COMPENSATE FOR AFFORDABILITY OR ELSE IT WILL NEVER SELL. ON THE FLIP SIDE, A PROPERTY WITH VERY LOW MONTHLY EXPENSES CAN GET AWAY WITH A HIGHER ASKING PRICE ON THE OPEN MARKET.
This is such an important factor for any prospective home-buyer to understand! If you are paying $1,300 a square foot for a 1,000 square foot Junior 4 apartment in a new development, with monthly maintenance of $875 and real estate taxes of $115 (due to the 421A tax relief), what happens after the abatement expires and the actual assessed real estate taxes kick in? That $115 in monthly costs to you will now shoot up to about $600-$700 or so, perhaps even more, making the property less affordable? When you go to resell, your the one without a chair when the music stops!

Now lets apply this to real life and specifically look at a new development that was granted a 421A Tax Abatement, to get a better idea of what I am saying. On a recent visit to The Ariel West sales office, my client was considering purchasing a new apartment that was benefiting from a 421A tax abatement for 10 years. Here are the details of one of the property's we were looking into:

245 West 99th Street - Ariel West Apt. 21A

Size: 2,526 SFT
# Beds: 4
# Baths: 3.5
Maintenance: $2,291
RE Taxes w/ 421A: $201
Asking: $3,500,000
Price Per Sq. Ft.: $1,386
Marketed By: Corcoran Sales Center

Now, the number that is important for sake of this discussion is the monthly real estate tax of $201 for this apartment. The way abatements/exemptions adjust is that every 2 years the monthly real estate tax rises 20% until maturity. At least that is what I originally thought. When I decided to put the sales agent on the spot and asked him what the assessed tax value of this apartment would be AFTER maturity of the abatement, we were shocked to find out the formula isn't as simple as a 20% adjustment every 2 years until maturity!

In fact, once the 421A tax exemption expires in 10 years the annual tax costs of this apartment would be approximately $31,000, or $2,583 a month! You should have seen the sales agent's face when I told my client of my concerns right then and there.

I ask you:
HOW MUCH CAN MY CLIENT REALLY SELL THIS APARTMENT FOR IF THE MONTHLY'S JUMP FROM $2,492 A MONTH TO $4,875 A MONTH IN 10 YEARS?
From a seller's standpoint I would have to inform my client to lower their asking price to compensate for the now much higher, monthly expenses of this apartment. Sure you can try to ask $4.5M, but that doesn't mean you'll get it! In the end, my client decided to pass on this deal as they were hoping to keep their monthly expenses closer to the $3,500/Month mark. Smart move if you ask me; but then again the people buying these very expensive new developments usually have the luxury of not worrying about money.

Most people don't have this luxury!

Here is how the tax abatement gradually expires:

EVERY 2 YEARS, 20% OF THE ABATED TAX TOTAL IS ADDED TO YOUR MONTHLY REAL ESTATE TAX PAYMENTS UNTIL MATURITY.


For example, if you just moved into your new development property and your real estate taxes start at $100/month, and mature at $800/month, then there is $700 of abated taxes. In 2 years, 20% of $700 (or $140) will be added to your monthly expenses bringing it up to $240/month. In another 2 years, 20% of $560 ($700 - $140 = $560 left) will be added to your monthly payments, and so on until maturity.

UrbanDigs Says: The 20% every 2 years hype is usually misunderstood. Instead, ask the developer's sales team to tell you what the actual taxes will be upon expiration of the 421A tax abatement BEFORE you buy so that you are fully informed of what you are getting into! I know for a fact that every new development is different and some neighborhoods will not experience what I discussed here (such as 70 Washington in DUMBO, Brooklyn), so make sure to go out of your way to educate yourself on this very important factor before you sign that contract and put your deposit down!

Quick Tip: No rocket science here. Look to sell your new condo when there is still 5-6 years left of the tax abatement so that you are not left without a chair when the music stops. By unloading when the monthly expenses have not yet reached their peak, you will be able to get a higher asking price before the monthly expenses top out and restrict affordability.


Absorption Rate & Other Links

Posted by urbandigs

Tue Apr 24th, 2007 08:36 AM

A: Jonathan Miller brings out a very interesting chart on Manhattan Real Estate's Absorption Rate; showing a sharp 50% decline from the same period a year earlier. For those who don't know, the absorption rate is the number of months it would take to sell out the existing inventory at the current sales pace. Not suprisingly, with the months of JAN - APRIL being super strong here in New York City, the absorption rate fell proving that the wall street bonus season of 2007 didn't disappoint! I also included some other links to interesting reads across the real estate blogosphere.

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Don't confuse absorption rate with time on market! To clarify both, here are the definitions.

Absorption rate - The Absorption Rate is the ability of the real estate market to sell off all of the houses that are for sale. For example, if 100 homes are sold every month and there are 1200 homes for sale then it will take 12 months to sell all of those homes. If there are 2400 homes for sale then the absorption rate will be 24 months or 2 years.

To price a property correctly it would have to be in the lower 50% of the price range for similar properties in order for it to sell in the next 12 months. To sell in the next 6 months it would have to be priced in the lower 25% of the competition.

Time on Market - The time it takes for a property to sell on the open market.

While absorption rate is still an important metric to monitor for those interested in the state of the current market, it is time on market that might be more telling in picking a bottom to local markets. The two should be tied together and I would expect data in the near future on the average time-on-market in Manhattan real estate sales to show a declining number. Both of these trends are the result of the sellers' market we have seen in NYC real estate since the beginning of January! In short, we have had strong sales volume from very healthy buyer demand causing a temporary shrinkage in supply. I would expect sales volume to start to slow heading into the summer and inventory to bounce back up a bit; with the data proving this coming out in 4-5 months or so.

For a more detailed discussion on realizing when to re-enter the market with the hopes of timing close to the bottom, read my post "Realizing When To Re-Enter The Market".

Here are some more interesting reads from across the blogosphere:

Will NYC Co-ops Have To Disclose Why?
(True Gotham)

More on Mortgage Equity Withdrawal (MEW) & Consumer Spending (Big Picture)

When Will The Housing Market Bottom? (Calculated Risk)

The New Kids on the Board
(NY Times)


Back To Full Speed End of Week

Posted by urbandigs

Mon Apr 23rd, 2007 08:29 AM

I am finishing off continuing ed classes MON - WED, all day this week. Sorry for the lack of posting as this class forced me to use all my free time for my sales/buyer clients.

I should be back at full speed at the end of this week and starting next week. The live chat will be back and I will re-instate set hours, probably 10AM - 11AM daily, for those seeking real estate advice for their specific situation.

Thanks for bearing with me!


Using Your Home as an ATM

Posted by urbandigs

Mon Apr 23rd, 2007 08:13 AM

A: As the national housing market continues to correct and NYC continues to remain healthy, the question of equity withdrawal becomes a key one as the value of one's home (especially outside of NYC) may not be as high as it used to be. Cashing out equity in your home is something that I always wanted to discuss here on UrbanDigs, because a lot of the times it is done for all the wrong reasons, and worth a brief discussion.

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Cashing out equity in your home or re-financing in today's interest rate environment, is something that should be done only if absolutely necessary. It really doesn't make sense to re-finance today unless your short term ARM is expiring, but even that might not make sense as there is a cap to how much the expired ARM rate can rise at each adjustment. If you locked in a much lower rate 3 years ago, chances are today's rate will be higher than the adjusted rate of the expired ARM, at least for now.

Re-financing is a wise financing decision in a rate easing environment where homeowners have a chance to lock in a lower rate than what they originally got for their loan. Not so in today's market as rates have been rising for 3 years now.

If you are thinking about cashing out equity from your home, via a HELOC (which is a variable rate loan and sensitive to future rate increases, so be very careful!), ask yourself 'why are you doing it' first. Every re-finance or equity cash out comes with a transaction fee that must be analyzed to see if it is worthwhile.

For re-financing, the general rule of thumb is:

IF OVER THE COURSE OF 12 MONTHS THE SAVINGS DUE TO THE LOWER RATE IS MORE THAN THE TRANSACTION FEES, THAN IT IS WORTHWHILE. IF NOT, THEN IT DOESN'T MAKE MUCH SENSE.
For example, if it costs you $2,250 to re-finance your loan to a lower rate (which is obviously hypothetical unless you locked in your rate 6-7 years ago) but you are now saving $200 a month due to the lower rate, than that adds up to $2,400 a year in savings, making this transaction worthwhile. If you were ONLY saving $100 a month due to the lower rate, than you will only be saving $1,200 a year and the transaction costs would be too high to make this deal worthwhile.

Now on to cashing out equity! Why do you need the money? This country has an obsession with debt, as most people's spending habits far outweigh their discipline for financially viable decisions. Here is a breakdown of what I consider good vs bad reasons to cash out equity in your home, which will lead to a 2nd mortgage payment usually with a variable rate product (the worst lending product to take out in a rising interest rate environment).

BAD REASONS TO CASH OUT EQUITY

1. To Be Able To Afford Your Monthly Payments - If you are in a position whereby you have to cash out $30K, or $40K, or more to be able to comfortably afford the expenses of living in your home, than you bought too much home to begin with and should strongly consider selling it! Cashing out equity to simply have a larger amount of liquid assets is a horrible decision for anyone seeking to live a independent financial lifestyle. Trust me, what will happen is that you will go through that money faster than you think and in the end you will be left with higher monthly expenses than you started with and be in a position where now you might be forced to sell; the worst type of seller whose only weapon is to lower their asking drastically to move the property fast.

2. To pay off credit card debt - This is a tough call. In general its never a good idea to pay off short term debt with long term debt. I consider credit debt short term debt (actually one of the worst kinds of debt that is out there) and cashing out equity to pay off high interest credit debt is only a SHORT TERM FIX. If you have credit debt problems than you have a more serious underlying problem with shopping/spending. That is something that doesn't go away easily and is more tied to your own behavior and coping systems. By doing this, you will almost certainly start spending again now that you have clear credit cards with nothing but max credit available to you, and over time, you will max out again only this time you have went through equity in your home and increased your monthly living expenses at the same time. A recipe for disaster.

3. To pay for a big event/vacation - Another hard one for me to discuss but if you are considering cashing out $25K in equity to pay for a wedding, or a luxury 2 week vacation for twice a year, or a huge party that you want to throw for your family, DON'T! Stop thinking about making your wife or your parents or your friends happy and start thinking about your financial well-being. If you can't afford a big event or vacation now, than WAIT, and save up for it. You'll feel better about it in the end, you'll enjoy it more with the satisfaction that you saved up for it, and you'll own more equity in your home when you go to resell!

GOOD REASONS TO CASH OUT EQUITY

1. Renovations - Out of most reasons people use money that they cashed out of their home, renovations seems to me to be one of the most viable financial decisions. Generally speaking, renovations in NYC property's, especially in kitchens, baths and floors, get back most if not more of the overall expense at resale. So, why not do it earlier giving you time to enjoy the new work. Just be sure that your job is secure and that your salary can afford the higher monthly living expenses that will come from the cash out. But overall, using some equity to increase the value of your property's home is not such a bad idea.

2. If you plan to sell, but need some cash to satisfy the tax code - Interesting thought on this one. This ONLY applies to those homeowners who intend to sell, but are a little light on liquid assets and need some cushion to afford them time on the market and to satisfy the primary residence tax benefits code. As I discussed before, you need to satisfy the 2YRS ownership and use test to be able to NOT pay Capital gains taxes on up to $250K in profit for singles and up to $500K in profit for married couples. Since you are saving the money by not paying taxes on the gain, you can make an argument that cashing out $20K or so of equity to possibly save up to $40-50K in taxes on capital gains, makes sense. This only applies to those with this specific plan and who have committed to selling their property once they meet the tax requirements.

If you want to get more serious about how MEW (mortgage equity withdrawal) is changing as the housing market cools across the nation, than be sure to read Calculated Risk's entry on the topic:

MEW's Impact on 2007


Originally Published July 10th, 2006


Mortgage Product Incentive: A New Trend?

Posted by urbandigs

Sat Apr 21st, 2007 08:09 AM

A: Thanks to Mike for tipping me off to this one! In what could be a new trend to help stimulate business, Washington Mutual (NYSE: WM) is offering a few New Yorkers an incentive of $2,500 to the first 50 customers of a new mortgage product who visit the WaMu store at 235 West 56th Street in New York on Friday, April 27th!

manhattan-real-estate-mortgage-loan-incentive.jpg

Using "faux fire" theatrics, the bank will "set fire" to the recipients' first month mortgage statement and provide them with their first monthly payment (valued at $2,500). The event is free and open to the public.

WHEN: Friday, April 27th 11:00 a.m. - arrival 11:30 a.m - 2pm - mortgage "burning"/mortgage payment giveaway

WHERE: Washington Mutual 235 West 56th Street (corner of 56th St. and 8th Ave)

WHY: WaMu is "lighting a fire" under the mortgage industry by bringing an exciting new, flexible mortgage product to market. Details of what and how this new product works will be available on Thursday, April 26.

Well I'm curious to know what this new mortgage product is so that I can investigate who it might be best suited for. While NO ONE should ever consider altering their decision to buy sooner because of a deal like this, it might be worthwhile for those buyers who are already IN CONTRACT as of the last week or so and were seeking to lock in a rate with a mortgage lender in the very near future. Perhaps the new loan product will be suited for your investment needs and the $2,500 giveaway will help keep closing costs a bit lower!


Jobless Claims Strong - Macro Update

Posted by urbandigs

Thu Apr 19th, 2007 11:30 AM

A: You'll see mortgage rates finally trickle a bit lower as the latest reads on inflation showed some signs of stabilization via the CPI and PPI data. Don't be fooled though as inflation pressures are not going anywhere and the fed will certainly maintain their focus on controlling prices. As for today, jobless claims came in a bit stronger than expected signaling a still strong labor market! As you know, a strong labor market means a still strong economy and cuts the chances that the fed will lower interest rates anytime soon!

stagflation-nyc-real-estate.jpg

Lets go in order here to get you caught up with some macro economic data that tells us some more information on what is going on in the US Economy; the short answer is inflation pressures are moderating but still there and the job market continues to strong.

Consumer Price Index (CPI)
-

The U.S. CPI report revealed the expected hot gain in the headline index, with a 0.6% increase...Yet the restrained 0.1% increase in the core figure—which excludes volatile food and energy prices—also paralleled the PPI report, where the core figure was flat, to leave a positive spin on the report.

Energy prices remained on the boil in March, climbing 5.9%. Food prices rose 0.3%, a third consecutive monthly increase. Housing costs were up 0.2%, with the owners' equivalent rent component up 0.3%, while fuels and utilities climbed another 1.2%. Medical care costs were up 0.1%. Apparel prices surprised, and fell 1.0%.

Until core inflation posts a meaningful moderation, or until the economy slows more significantly, the Federal Open Market Committee (FOMC) will focus more on inflation pressures than economic risks.
Producer Price Index (PPI) -
The unchanged core reading in the U.S. March PPI report was a relief, but the 1.0% headline surge still left a pop in the year-over-year pace to 3.2% that leaves a pattern of big aggregate price gains for this measure of underlying producer costs.

The monthly inflation measures have been a thorn in the side of the Fed ever since the January FOMC meeting.
Jobless Claims Drop Less Than Expected -
The number of U.S. workers filing new claims for jobless benefits fell a smaller-than-expected 4,000 last week, but remained near levels last seen in February, government data showed Thursday.

Analysts on Wall Street had expected claims, which provide a rough guide to the pace of layoffs, to fall to 323,000 in the latest week from the 342,000 initially reported for the April 7 week.
So what does this all mean for you real estate enthusiasts out there who are trying to grasp how macro economic conditions affect things like mortgage rates and affordability? In a nutshell:
The moderate inflation data will give a break to rising lending rates but the stronger than expected jobs # will put a floor to how low rates can go. I expect the 10YR note to make higher lows until more data comes out on inflation and the economy.
According to CNN's article titled, "Mortage Rates Ease as Inflation Fears Cool" -
Mortgage rates fell for the first time in six weeks, Freddie Mac said Thursday, on signs that inflation pressures are moderating. The average rate on 30-year fixed-rate loans fell to 6.17 percent for the week ending April 18, from 6.22 percent the previous week, the mortgage finance firm said. Last year at this time, 30-year mortgage rates averaged 6.53 percent.
A brief break for some recent home buyers who got caught with their hand in the cookie jar for a few weeks when rates had a quick jump higher. I wouldn't bet on rates falling too low though as I just don't see inflation fears moderating all that much. Plus with this latest report it is very possible that expectations will come down a bit for future readings setting up a possible 'worse than expected' situation when the next dataset is released; never a good thing.

I described how the 10YR Treasury note is the most reliable guide to where mortgage rates are heading in the short term in my post, "Why Rates Are Going Higher". So, on your own time you can check out the trends of the 10YR for what to expect in the mortgage world. As for right now, I expect higher lows and higher highs, especially if inflation data comes out worse than expected in the near future.

UrbanDigs Says: Folks, a fed funds rate of 5.25% is NOT RESTRICTIVE! While I understand that the fed only recently ended a 2+ year rate hiking campaign, where they ended up is not restricting the economy. The reason the fed stopped raising rates was because the housing market already started to cool and the fed knows of the past history in overshooting with hiking rates and plunging the economy into a recession. This time, they wanted to pause and see what affect their rate hikes had on the economy before making more moves.

Historically speaking, rates are still low! You hear this all the time from brokers and the like whom have a vested interest in you buying a home. As you know, I try to be unbiased and what I see is rising costs in a lot of areas; food, gas, rent, commodities, etc.. This is inflation in full gear and until these pressures retreat to the comfort zone of the federal reserve, the bias has to be towards higher rates. Of course I could be wrong and a slowing US economy could help ease inflation pressures w/out a hike in interest rates, but that is yet to occur.

What you need to know is that right now we very well could be heading into a period of stagflation; that is high inflation and slowing economic growth via rising unemployment or a recession. The problem with this scenario is that if the fed tries to control one problem they can make the other problem much worse! The markets HATE uncertainty because there is little transparency in the short term for their investments. Whether or not the fed will become more transparent with fed policy and begin to publicly announce a target fed funds rate is still up in the air. For now, we are left to speculate based on the data that comes in.


Gift Tax Explained

Posted by urbandigs

Thu Apr 19th, 2007 09:58 AM

A: Well I might as well pass on something that was discussed in this continuing education class that is taking all my free time. While I knew about this, some of you probably didnt. Often I find with buyer customers that the intended purchaser doesn't have sufficient liquid assets to make the home purchase and/or pass the board. The easy way out? Get a gift from a parent! Here is what you need to know.

gift-money-tax.jpg

What is a Gift Tax: The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether the donor intends the transfer to be a gift or not.

The gift tax applies to the transfer by gift of any property. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift.

Who Pays the Gift Tax
? The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead. Please visit with your tax professional if you are considering this type of arrangement.

Here are the exemptions to the Federal Gift Tax:

  • the annual exclusion of $12,000 (recently upped from $11,000)

  • tuition or medical expenses for another

  • gifts to a spouse

  • gifts to a political organization

  • gifts to a charity


  • To relate to what I see in the real estate world, married couples can each separately give up to $12,000 to the same person each year without making a taxable gift. So, a couple can pass down $24,000 to one child per year and be exempt from any gift taxes.

    You can continue to gift up to $1,000,000 during a lifetime and get the exemptions from gift tax.

    You can NOT deduct the value of the gift donated unless it was made to a charitable organization.

    UrbanDigs Says: A gift is usually considered if the intended purchaser (that is the buyer who expects to be on the title or the stock) does not have the required assets to make the downpayment and closing costs, and still have some monies leftover to pass a board. In the case of a co-op transaction, the gift SHOULD be completed a good 2-3 months before preparation of the board package. Quite simply, you do NOT want that deposit to show up on the hard copies of the financial statements used to backup the listed assets of the buyer. If the deposit is shown, it could raise a red flag in the eyes of the board members. In my experience, I have always advised my client to provide a gift letter only if the deposit is shown on the financial statement provided used to backup a listed asset. So far I have not had any problems. For my clients that got the gift into their accounts early, I have not had any problems.

    Knock on wood!


    Mortgage Report: Week of April 16th - 22nd

    Posted by steve

    Tue Apr 17th, 2007 11:53 AM

    Last weeks market was active as the Fed's minutes from the past meeting were released. The minutes give all the commentary between voting and non-voting members before the official statement is released to the public as their "Policy Statement". The Fed delays the release intentionally so the market has time to digest the policy statement before it trys to interpret the banter among members.

    The decision to leave Fed Funds Rate unchanged in the latest policy statement was a result of the members being concerned with inflation. Bonds didn't like the inflationary comments and reacted negatively with home loans increasing by .125%.

    This week the Consumer Price Index is being released and its numbers will tell the Fed if there is inflation on the consumer level. If the CPI number comes out under 2.7% this will show inflation is under control and home loan rates may improve. If the number is above that 2.7% watermark home loan rates will most likely move higher.

    Call or email for updated daily rates.

    Best,
    Steven


    Falling Dollar To Boost Foreign Investment?

    Posted by urbandigs

    Mon Apr 16th, 2007 07:47 AM

    A: With the US economy still strong but showing signs of cooling, and a mysterious fed, the US dollar continues to lose ground against many foreign currencies. Specifically, the US dollar has trended towards 2YR lows against the Euro & only $0.01 from the all time low, presenting a good buying opportunity for European investors looking to invest into NYC real estate. When it comes to foreign real estate investing, here is why currency trends are so important and Europeans have an upper hand!

    falling-us-dollar.jpg

    When the US dollar goes to the crap house like its doing now, new opportunities arise for foreign investment to take advantage of the currency trends and buy while their money is hot, and ours is not!

    First off, lets see the damage! Here is a chart showing how the US dollar has performed in the past year against the Euro; showing the recent fall to a new 2 year low!

    usdollar-vs-euro.jpg

    So how does this all translate into a foreign investment buying opportunity for NYC real estate?

    First Step: Put into perspective! To put this into perspective, all you need to do is show how much more house the Euro can now buy over here compared to only a year ago by doing some reverse math. How many US dollars could 1 Euro buy today compared to a year ago? Here it is.

    April 14th, 2006 - 1 EURO buys $1.2087 US dollars

    April 13th, 2007 - 1 EURO buys $1.3538 US dollars

    Next Step: Take an example and convert the currency! Here is how the math works out for a buyer with say E650,000 (Euros) to convert to US dollars and buy real estate in Manhattan.

    April 14th, 2006 (1 year ago) - E650,000 BUYS $785,655 worth of US real estate

    April 13th, 2007 (today) - E650,000 BUYS $880,000 worth of US real estate

    Based on currency trends over the past year, look at how much more house an investor with Euros can buy right now! In this case, the foreign investor can now buy $95,000 MORE HOUSE! All this because of the sinking value of the US dollar!

    According to Larry Kudlow's blog Money Politic$:

    It’s hard to deny that inflation expectations are creeping higher.

    And finally, many in the market have come to expect a softer dollar to ameliorate the U.S. trade deficit. Nothing definitive has come from Treasury Man Paulson or Fed Chief Bernanke. At this stage of the cycle, more dollar softness will translate into higher inflation.

    The solution to all this? A stronger U.S. greenback. But will we get it?
    What he is talking about is whether the fed will step in and help support a stronger US dollar by raising the fed funds rate that affects how much interest we pay on our debts! With the US dollar softening, inflation pressures are rising and that presents a pretty convincing argument for higher fed funds rates! But as Kudlow asks, will we get it?

    According to Marketwatch.com:
    "A combination of adverse factors keeps gnawing at the US currency and may leave the Fed in the unwelcome predicament of having to boost rates to throw out a life-preserver to the greenback," Nadler said.
    In any event, contrarian investors (that is, those who seek value by buying when an investment is down and unpopular and selling when it is very hot) are those that can profit off the weak dollar and put that money to work! What better way to do that than to sell a foreign currency while its hot and buy US real estate as prices fall with the extra dollars! It's just hard to argue against this strategy for those that can take advantage of it.


    Light Posting Week

    Posted by urbandigs

    Sun Apr 15th, 2007 06:05 PM

    Just a heads up that I wont have much time at all to post fresh content on UrbanDigs. I'll be in continuing education classes required to maintain my license MON-WED this week and next week all day.

    Most likely I'll republish some old posts that still have merit in today's New York City real estate marketplace.

    I'll be back to normal after WED of next week.


    Data Shows NYC Real Estate is Seasonal

    Posted by urbandigs

    Thu Apr 12th, 2007 11:49 AM

    A: I don't link out to superstar appraiser Jonathan Miller's blog, Matrix, enough. Maybe its because he gets so much press as is, that whats a little more going to offer him? Nah, thats not it. Fact is, Jonathan puts so much time into forwarding to readers what he sees in his business (trends, data, charts) based on so many different datasets that he deserves every bit of press he gets! I certainly appreciate the effort! His latest chart shows how average price per square foot in Manhattan real estate sales differs based on time of the year (quarterly) and adjusted for inflation. It shows what I have been saying here on UrbanDigs since the beginning, that NYC real estate is seasonal!

    Manhattan Co-op/Condo Average Price Per Square Foot By Quarter
    (1989-2007) via Curbed.

    nyc-real-estate-seasonal.jpg

    What we see here is simple:

    Blue & Pink Lines
    (represent months JAN - JUNE) --> generally higher percentage change from previous quarter

    Green & Orange Lines (represent months JULY - DECEMBER) --> generally lower percentage change from previous quarter

    In other words: NYC REAL ESTATE IS SEASONAL!

    For the most part, the months of JAN - JUN show a higher average price per square foot for both co-ops and condos in Manhattan than the months of JULY - DEC do! This is not surprising! I talk often how buyer demand in the months of JAN - MARCH are normally much more active than any other 3-month consecutive range of the remaining calendar year. The months of MARCH - MAY are transition months where activity from buyer demand tends to move from very active --> to active --> to good ---> to slow. Once we get into the months of JUN - AUG, the market is typically significantly slower with only a few serious buyers coming to open houses and much fewer appointments during the week!

    My advice would remain the same as I said in the past:

    For Sellers: Try to get a contract signed BEFORE June! Its not rocket science when declaring that sellers get the most money at resale when there is the most activity on the property! As activity slows, so does the chance of getting top dollar! For those sellers that MUST sell and are not simply testing the market, try to get that deal done before the summer months because if you don't you will have a much harder time matching an offer that may have been presented only a few months earlier!

    For Buyers: If you are not forced by a time pressure, try to wait out the market a bit. If you find a place that blows you away and the price is right then by all means go for it! But if you are not in a rush, time is on your side, are looking to build your cash reserves, or just haven't found your dream home yet, there is one thing I can assure you: you should gain more control over negotiating during the summer months at the expense of less inventory to choose from!


    4th Times A Charm: 2nd Ave Subway

    Posted by urbandigs

    Wed Apr 11th, 2007 05:55 PM

    A: Did you know this? Tomorrow is going to mark the 4th groundbreaking ceremony dedicated to the build of the 2nd Avenue Subway. How many did the Big Dig in Boston have I wonder; or was that just one of the most expensive blunders in recent engineering history? Ehh, its Boston, who cares! Anyway, 3/4 of the total project expense is already accounted for so I have a feeling this phase 1 groundbreaking ceremony will produce the desired end result for all those east siders!

    2nd-ave-subway-mta-manhattan.jpg

    NY Times 3-MIN Video

    According to ABCLocal.com:

    There have been at least three such ceremonies since the idea of building another north-south subway line began rattling through the tunnels of municipal bureaucracy more than 80 years ago.

    In 1972, 1973 and 1974, mayors, governors and others joined in groundbreaking ceremonies. But each time, no sooner did the project get moving than it came to a screeching halt.

    But it won't happen again, if the MT Authority can help it.

    "The prospects are exceptional," MTA COO Elliot Sander said. "We have three-fourths of the funding and enormous political will to complete the first phase of the project. And a strong consensus in the business and civic communities and among senior policy officials in transportation, all of whom believe this is a critical step to position New York City for the future."


    I'll try to make it to the ceremony and take some pics for you guys.

    Go YANKS!


    Rental Market Update: Landlords Happy

    Posted by urbandigs

    Wed Apr 11th, 2007 09:21 AM

    A: By popular demand, here is a snapshot of the New York City rental market data as of March 2007 compared to the previous month. As you will see, rental vacancy dropped significantly since February in every neighborhood with the exception of SoHo/Tribeca & UES. Heading into the summer months, expect this trend to continue as we approach the most active move-in date of September 1st, for rentals. Those considering renting out their units might want to take advantage of the tighter rental market. Those unsure whether they should rent or buy will have to monitor these trends closely to see how it might affect their decision; especially if your lease expires in the near future!

    OVERALL VACANCY RATE MARCH 2007 --> 1.09% (-19% month-to-month)

    OVERALL VACANCY RATE FEBRUARY 2007 --> 1.34%

    Here are the charts showing rental data (Vacancy Rates / Average Rents By Neighborhood) collected by Citi-Habitats
    .

    vacancy-rate-Manhattan-nyc.jpg

    Manhattan-average-rent.jpg

    Conclusions: Landlords should be happy reading these reports. Vacancy rates for the most part dropped in most areas of Manhattan while average rental prices trickled higher by apartment size. Both datasets show strength in the New York City rental market and there is no reason I can think of to make this trend reverse course as we get closer to September 1st, the most popular move in date in Manhattan. Expect vacancy rates to remain where they are or trickle lower and rents to trickle higher until supply trends reverse course. Those renewing leases during the summer should expect slight to moderate rate hikes to reflect market changes; especially if the previous lease term was 2+ years.

    For those considering buying, this data combined with a general summer slowdown in the sales market might make for an easier buy decision in the near future; if its economically feasible to buy and timeline to own/hold exceeds 3-4 years at the minimum.


    Should You Buy? Try This Formula...

    Posted by urbandigs

    Tue Apr 10th, 2007 11:56 AM

    A: For all those out there who are trying to figure out whether they are financially capable of buying, try this simple excel spreadsheet that I designed. It was specifically created for those who currently own a home, thinking of selling, and putting the profits into buying a bigger house. So, naturally, it includes formulas to quickly and easily calculate transaction costs on both sides and add it to your financial profile in making the final decision. However, it can work for those who currently rent, are considering buying, and wondering if they are financially capable.

    **DOWNLOAD 'SHOULD I BUY' SPREADSHEET HERE**
    *you just need to fill in the green boxes; formulas will come up automatically!

    should-I-buy-nyc.jpg

    It's not the most complex of spreadsheets, but I still think many will find it useful. Off the bat, there are a few assumptions that you should be made aware of:

    ASSUMES - 6% Interest Rate (or $600 per $100,000 of loan)
    ASSUMES - No points on loan
    ASSUMES - 1.5% of Purchase Price closing costs for Co-op Purchase
    ASSUMES - 4.325% of Purchase Price closing costs for Existing Condo Purchase
    ASSUMES - 5.75% of Purchase Price closing costs for New Dev Condo Purchase
    ASSUMES - Doesn't Include Homeowners/PMI Insurance
    ASSUMES - A new dev purchase - Simply change the CELL INFO for B27 if you are buying an existing condo (B18) or co-op (B19)!

    These are fair assumptions and are necessary to make this excel spreadsheet feasible for me to develop given the time I have to put into it right now. The biggest variable is your lending rate which obviously will vary, so please keep that into account. I also didnt enter PMI or Homeowners insurance which will add bit to the overall cost of the monthly payments; so please take into account. I didn't do either of these items because I don't know how yet to do the math for them!

    THIS IS A VERY CONSERVATIVE SPREADSHEET AND SHOULD ONLY BE USED AS A GUIDE TO GIVE YOU A QUICK GLANCE AT YOUR SITUATION


    For the SHOULD I BUY formula, I used an IF, AND statement to tell the program to analyze the data entered and look for a debt/income ratio of at least under 33% and 12 months liquid assets in reserves AFTER closing when advising you to BUY THE HOME!

    In the real world, this is not set in stone! Obviously, if you have a debt to income ratio of 25% and only 6-8 months of liquid assets after closing, you might still be fine to pass a liberal co-op board; a condo will be fine! So, again, please use this spreadsheet accordingly!

    In the future I will work on making this more complex so that you can enter in whether you are buying a condo or co-op (with their restrictions), and allow you to enter in a loan rate & homeowners insurance so that it is more accurate to your unique situation. For now, use as a general guide and email me if you have a specific question on the result that comes up!

    ENJOY!


    Mortgage Woes Spread

    Posted by urbandigs

    Mon Apr 9th, 2007 04:16 PM

    A: Just a quick report on this one. American Home Mortgage, covering about 2.5% of US mortgages and specializing in prime and alt-a loans (in between prime and sub prime), announced on Friday that profits won't meet expectations as they are experiencing high delinquencies in their alt-a borrowers. This is significant because many experts have been arguing that the subprime woes have been largely contained and that trouble in the higher quality world are yet to be seen. Well, here it is!

    subprime-Manhattan-real-estate-nyc.jpg

    According to BusinessWeek's article, "Mortgage Mess: Now It's Prime Time":

    So far investors have worried for weeks mainly about mortgage companies that have exposure to the riskiest borrowers, but the pain could be spreading.

    "We see this news as evidence that troubles in the residential mortgage market are spreading beyond subprime," Standard & Poor's equity analyst Jason Willey said in a research note.

    American Home is the latest lender to take a hit as more people fail to repay their mortgages amid shaky housing prices during recent months -- but most of the recent worry has focused on lenders who have exposure to the highest risk debt.
    Not surprising folks! And then I notice this article from the The Washington Post (via Calculated Risk) titled, "Condos Feel The Mortgage Crunch", discussing how the domino effect of troubled homeowners are starting to hit condo fees:
    In a sign that the turmoil in the subprime mortgage industry is affecting entire communities and not just individual homeowners, condominium association officers, property managers and real estate lawyers throughout the region say they are noticing more delinquencies in monthly fees.

    "If someone is not paying their mortgage, they're not paying their condo fee, and the condos need money to pay bills," said Jeffrey van Grack, a community association lawyer with Lerch, Early & Brewer in Bethesda.

    About one in six Americans live in a community run by a condo or homeowners association. Fees pay for such services as water, garbage removal, cleaning and repairs.
    Interesting. While NYC is 75% co-op, I certainly would be interested on any data that shows signs of rising maintenance defaults in our neck of the woods! While it seems a logical symptom of the times we are in, I still think the New York City real estate market is an entirely different animal than any other market in the country. I would expect Manhattan to be hit at a lag, if at all, with unit maintenance defaults and don't see this as having any significant impact on investment opportunities here.


    Labor Market Strong: Yields Rise

    Posted by urbandigs

    Fri Apr 6th, 2007 11:40 AM

    A: Three weeks ago I wrote a post titled, "Interest Rate Talk Likely To Begin Again", based on rising inflation fears that I saw not going away. In the monetary world, interest rates adjust based on the state of the economy, price stability, and most importantly inflation pressures. In the real estate world, interest rates are directly tied to the affordability of property; the higher the rate, the more expensive money is to borrow, and the less a potential homeowner could afford. This is why I talk about this stuff here on UrbanDigs with the hopes of getting more exposure to the fundamentals that may ultimately affect real estate cycles. Understanding these concepts could help you make savvier investment decisions that leads to more money in your pocket!

    In my post three weeks ago, I publicly stated that I thought the yield on the 10YR would start a run up towards 4.75%, from 4.54% at the time, based on inflation fears that are continuing to persist. The fed's primary job is to control inflation and price stability regardless of what the stock market and housing market are currently doing. Their secondary job is to NOT rattle the markets and to provide economic stimulus or constraint as they see fit; then they have some regulatory functions as well.

    Here is what I said three weeks ago:

    If I'm right, then in 4 weeks the 10YR Treasury yield will be at least 25 basis points (0.25%) higher.


    Here are some reasons why I thought the yield on the 10YR Treasury would rise in the near term:

    1. Fuel, Food Prices Push Higher
    2. Wholesale Prices Shoot Higher

    Unfortunately, I don't trade anymore because this would have been one nice little play. Here is what the 10YR Treasury Note has done since I wrote that post three weeks ago without taking into account todays reaction to the jobs report which made the yield surge to 4.74%:

    10-yr-bond-yield.jpg

    The reason is because the economy, while showing signs of weakness, is still relatively strong. In particular, todays labor report presented very bullish data on the jobs market. A strong jobs market means a healthy US Economy, which means bye-bye to rate cut hopes and hello to more inflation pressures and possible rate hikes. Which is why yields on the 10 YR Treasure note are rising! Get it?

    According to Yahoo Finance's article titled "Bonds Slide, Dollar Up After Jobs Report":
    The yield on the benchmark 10-year Treasury note surged to 4.75 percent from 4.68 percent late Thursday. U.S. Treasury bond prices tumbled and yields rose in a holiday-shortened session Friday after the unemployment rate fell to a five-month low, signaling the economy could be stronger than expected.

    The Labor Department report that employers increased their payrolls by 180,000 in March, the largest increase since December. Wall Street had been expecting an addition of about 135,000 jobs. In another positive sign for consumers, workers' pay also increased.
    Now, you really have to look at these discussions from the big picture. Things change daily and while I am addicted to economic reports and whats going on in the bond market, equities markets, inflation world, etc..its very hard to make long term predictions/investments from what I am telling you. However, if you have recently signed a contract of sale and were waiting to lock in your rate, then this kind of reporting should motivate you to do so sooner rather than later! In addition, for those that don't understand what makes rates go up and down, these reports should shed some light on the subject.

    UrbanDigs Says: Inflation is capable of doing way more damage than a recession. The best known medicine to control rising inflation is to RAISE interest rates and try to SLOW the economy. The hardest part of applying this medicine is getting it just right so as NOT to slow the economy too much forcing us into a recession. Right now, there are many inflation pressures (high commodity prices, strong labor market, rising wages, higher food prices, and a Core PCE # at 2.4% and ABOVE the fed's comfort zone of between 1-2%) that may not ease if the economy proves stronger than expected; and todays jobs report hints at that! The thing is, the fed is clearly counting on a soft landing where a slowing US economy will help ease inflation pressures without the need for more interest rate hikes. Well, if the economy doesn't slow as much as expected and inflation pressures continue to hover or rise in the near future, then rates MUST go higher to contain longer term damage! I'm very curious to see how high the yield on the 10YR will go to on this run and will continue to report on the macro factors that ultimately lead to policy change.

    I am still on record for saying that one of the two fears I see towards keeping housing down for a while longer is weaker jobs later this year. I'm still standing behind this statement and worry that jobs reports in the months of Oct-Dec could come in weaker than expected showing a slowdown in the US economy.


    Troubled Borrower? Meet the "Mod Squad"

    Posted by urbandigs

    Wed Apr 4th, 2007 02:40 PM

    A: In a sign of the changing times, this news out of EMC Mortgage Corp. is quite relieving. EMC Mortgage Corp. carries a $78 Billion portfolio of subprime loans and has launched a 50 person team it calls 'the Mod Squad' to spend an unlimited amount of time with troubled homeowners having difficulties making payments. Will it work? Possibly, but it doesn't solve the existing threat of tightening lending standards that I see as a potential threat in postponing any housing recovery across the nation and eventually in NYC; that is if we ever correct.

    financial-advisor-subprime-lenders.jpg

    As subprime woes continue it is refreshing to see EMC Mortgage Corp. step up to the plate and publicly launch their effort to help ease the symptons; however, I don't think it is a solution/cure.

    According to Yahoo Finance:

    EMC Mortgage Corp., specialist with a $78 billion portfolio of subprime loans -- for homeowners with weak credit -- this week launched a 50-person team it calls "the Mod Squad." Members will spend an unlimited time on the phone with troubled borrowers, sifting through their bills to compute a workable monthly payment.

    "You can't just run this like a call center; it needs to be run like a counseling center," said John Vella, president and CEO of EMC. Right now, $2.14 billion in mortgages, 2.74 percent of EMC's portfolio, is in default, up from 1.93 percent a year ago.

    Lenders have long modified loans for homeowners facing job loss, illness, divorce or a death in the family.
    It will be more interesting to see the result of this maneuver and whether or not other lenders will copy it. From the article, I see that "...Regulators will be watching to see how many are successful...".

    A lender in Houston is already on board. Larry B Litton Jr., the President & Chief Executive of Litton Loan Servicing of Houston, TX states:
    "The larger the loss of value and the greater the likely loss will be, the more flexible we are,"..."We may waive past-due amounts. In extreme situations, we may even waive principal, if need be."
    For the 'Mod Squad' at EMC Mortgage, the team will embark on a 6-city tour with offers of $100 Gift Certificates to Home Depot to attract troubled borrowers to counseling. A great example of an industry adapting to the changing times!

    It really is questionable how this ends up helping the nation's subprime problems. While it is definitely a step in the right direction, there has to be much more participation in order for a real effect to take place! Like Litton Jr. said, "That may give the borrower breathing room"...!

    UrbanDigs Says: As good as this may sound, it is an industry adaptation to a very significant problem! It is not a solution and it does not ease the threat of tighter lending standards being put in place in the subprime and alt-a world. The threat of tighter lending standards in the prime lending world is still out there and how it all plays out is up in the air. We must keep an eye on this threat and hope that it doesn't result in any significant restriction in purchasing power to prime borrowers. If it does, well, then we will all learn something about real estate cycles!


    NYC Rocks On! Sales/Prices Up!

    Posted by urbandigs

    Tue Apr 3rd, 2007 09:26 AM

    A: No surprise here folks. If you read this site then you know that I have been reporting that the Manhattan real estate market has been red hot since early January! Open houses are packed, bidding wars are common, finance contingencies are being removed, and now the data comes out at a lag proving all of this!

    In my post titled, "What To Expect Heading Into Summer", published about 5 weeks ago I stated:

    Since real estate reports are lagging and come out AFTER the deals are done, expect to see very bullish reports on the Manhattan real estate market in the coming months.

    More specifically, JAN - present has been VERY active to say the least with many property's going into bidding wars. As a result, this will lead to strong data reports on NYC housing as we head closer to summertime which no doubt will intrigue the mass media into a number of articles about a market turnaround. The psychological effect of this positive media might lead to some strength in the beginning of the normally slow summer.
    According to CNN Money:
    The price of a slice of the Big Apple was on the rise in the first quarter, reversing a slight decline in the fourth quarter of 2006, according to several reports released Tuesday.

    Transactions were way up. Prudential Douglas Elliman reported that sales increased 42 percent compared with the prior quarter. The time homes sat on the market declined 12 percent.
    Some notable remarks in the article include:

  • New York's Mayor, Michael Bloomberg, is projecting a population rise of nearly 1 million people over the next 23 years


  • Crime is no longer an issue in most of Manhattan; New York is one of the safest big cities in the United States


  • Today, many empty nesters are returning, which, together with the city's strong attraction for young college grads, artists, media workers and other members of the sought after "knowledge economy," have revitalized life in town.





  • Inside The Mind of an Active Buyer

    Posted by urbandigs

    Tue Apr 3rd, 2007 08:04 AM

    A: Since I only provide you with my own perspective on so many topics, I thought it was time to go into the mind of an active buyer to discuss what was learned after months of property hunting and missed deals. Here is a Q & A from one of my 2BR buyers with a healthy budget who has seen a ton of property's and learned quite a bit since first starting.

    brain.jpg

    Q: How long have you been actively looking for a new home?

    A: We have been looking intensely since January

    Q: How many property's have you seen?

    A: I think we have seen AT LEAST 60. If a Condo or Condop is on the market between 800k and 1.5 million from 50th-96th & East End to Park, we have seen it

    Q: What are the two most important property features to you?


    A: Amenities: Doorman & Good Elevators

    Unit Attributes: Layout and Condition (Of most importance Floor, Kitchen and Master Bath)

    Q: Out of everything you have seen, how many property's are now gone?


    A: If we have seen 60, at least 55 are now sold

    Q: How many went into bidding wars that you know of?


    A: Hard to say, but the of the four we have bid on, three went within a percentage point or over the ask

    Q: How is Open House Traffic NOW as opposed to when you first started looking?


    A: It’s starting to slow, but the change is VERY minor. I was also at a Open House recently that offered fresh baked cookies. My wife had to stop me from Bidding through the offer

    Q: Do you feel its a BUYERS or SELLERS market?


    A: It’s still a sellers market but my gut says we are starting to see a shift. And if you saw the size of my gut, you would trust it

    Q: Do you feel like you have control during the negotiating process?

    A: Absolutely. If you have no control over the bidding process than you lack the discipline needed to be a responsible consumer. Only YOU can make a bid

    Q: What advice would you give new buyers that are just starting out?

    A: Wait. Patience. Value the apartment and stick to your number. If it’s not this one, it’ll be another one. DON’T REACH.

    Q: What aspect of the NYC real estate industry can change to benefit buyers?


    A: First off, more cookies at open houses would be a tremendous help. We are in the market for a two bedroom Condo and see the following as items that will help buyers

    - Credit Crunch (Hard to get a loan)
    - Supply of New Construction coming on the market
    - Weak Economy

    Solid and with a hint of sense of humor. This couple truly is educated about their price point in the NYC marketplace and has placed bids on two properties that were unsuccessful. Does that mean they are bad clients? Maybe if I was a car salesman! But I respect their position. I respect their eagerness and motivation to see every new property on the market. I respect their discipline in the bidding process so as to maintain their search for value and not stretch above and beyond their means to buy a new home.

    THIS IS WHAT IT TAKES TO BE A SAVVY REAL ESTATE INVESTOR IN NEW YORK CITY!

    Of particular note is the quote, "If we have seen 60, at least 55 are now sold". Tells you something about the Manhattan market right now. Also, when asked about the bidding process and whether or not they felt in control, the response was "Absolutely. If you have no control over the bidding process than you lack the discipline needed to be a responsible consumer. Only YOU can make a bid". Good advice from a real buyer that I completely agree with!

    Learn from what this buyer has gone through so far and was willing to share with us on UrbanDigs! A big thank you to the cowbell!

    So, for all you buyers out there how does this compare with YOUR experience? Is it accurate? Is it way off? Please, do tell!


    Mortgage Report: Week of April 2nd - 6th

    Posted by steve

    Mon Apr 2nd, 2007 05:33 PM

    The Fed closely watches the rate of inflation and uses different indeces to gauge what is happening. The Core Personal Consumption Expenditure(PCE) is one of their favorites. Last week it increased more than expected through February. The Fed usually doesn't want inflation more than 2%, and the report form the PCE was at 2.4%.

    Mortgage bonds worsened during the week and home loan rates increased modestly(.125%). Next week we expect the Employment Report due on Friday and hope the number is higher than the 90,000 reported in February. A weak report(less than 90,000 jobs) could help bonds rally and inprove home loan rates. A good report may cause home loan rates to worsen even more then they have this week. Stay tuned.

    Best,
    Steven


    New Inventory Neighborhood Chart

    Posted by urbandigs

    Mon Apr 2nd, 2007 10:04 AM

    A: You didn't think I would go out like that did you? Cmon, now. Sorry to disappoint you Barney but I'll wait a bit longer before "...getting out and doing something with my life". This is way more fun. Due to popular demand, well at least for one UD reader who requested this, here is the New Inventory Data in the past 7 days broken down by neighborhood. As before, it is not surprising that UES & UWS show the most new listings hitting the market as the geographic range for these neighborhoods are significantly larger than most other neighborhoods in Manhattan.

    For comparison, here is the LAST NEIGHBORHOOD NEW INVENTORY CHART that I did back on January 22nd, 2007.

    Here is the data from 03/26/2007 - 04/02/2007 showing new listings coming to market in each of the mentioned neighborhoods.

    manhattan-real-estate-new-inventory-neighborhood.jpg

    Not the most useful of posts but one that obviously seemed to be of interest as the last chart got mentioned on Curbed, the mother of all real estate blogs, and resulted in a few readers emailing me to do another new inventory chart based on neighborhood.

    Of note is the pickup in Greenwich Village where the past week saw 27 new listings hit the market as opposed to only 10 the last time I did this data check. A nice 270% increase. Both UES & UWS not surprisingly lead the pack again with the most new property's coming to market since late March.



    UrbanDigs To Shut Down

    Posted by urbandigs

    Sun Apr 1st, 2007 05:13 PM

    A: After much thought, it pains me to break the news that I will be shutting down urbandigs.com. It just got way too time consuming and the interference financially wasn't worth the rewards of continuing to build a blog to the quality that I would like to see it. I hope you all enjoyed the posts I wrote and maybe learned something along the way about Manhattan real estate.

    I guess you will have to find somewhere else to go for street level real estate tips, inside stories of this shady industry, and my feelings on the economy and how I think it will affect your near term decision making for NYC real estate.

    Its been fun! But its time to say GOOD BYE! Effective immediately, this will be my last post on the site. I'm sure most will say 'good riddance' as now there is one less shady broker out there talking crap out his salesman mouth about what he thinks is happening out there. Who the hell would listen to a self-employed broker anyway!

    NA NA NA NA....NA NA NA NA...HEY HEY HEY...GOOD BYE!