2008 Dec 12th

What are First-Time Homebuyers Thinking?

Will The Housing Market Recover Quickly? First-Time Homebuyers Certainly Think So.

by Howard Turoff

One of the things Lori and I are proud of is that all of the posts on this blog represent our original thoughts. We don’t buy canned, generic blog articles and we post only items of specific interest to Hoboken. (We wouldn’t deserve the name HobokenRealEstateNews if we didn’t.)

Something caught my eye today on Trulia, and I thought it was worth sharing. Trulia had a poll about buying real estate asking first-time homebuyers when they plan to jump into the market. I found the results surprising:
Less than six months:   48.1%
Six to 12 months:   26.9%
12 to 14 months:  10.2%
Renters for life:   14.8%

Considering that this is a national poll, and that the Hoboken market is healthier than many (most) other parts of the country, I found this to be pretty encouraging. What do you think? Will the Hoboken real estate market rebound quickly?

  1. Michael G

    If you think the market will recover quickly in the NY area, I have some ocean front property in Nebraska I would like to sell you. Just think of this logically.

    1. Our economy is 20-30% dependent on financials. These companies are slashing jobs, salaries and bonuses. They most likely will not start hiring again for 3-5 years, possibly longer.
    2. Hoboken is typically a place where young people and families that are looking to make it big in the city come to start. I think this in the past has kept a floor on properties in the area. That market is gone. Now you can make the argument that families may move here from Manhattan as they grow, but if prices decline in Manhattan more of them will be able to afford a 2 BR across the pond and stay in the area. Even if this only affects a small % of buyers, these typically would be the higher end Hoboken buyers and will have a major impact on the area driving down the higher end markets.
    3. Credit – Over the past few years, I know quite a few people who bought in Hoboken since most Manhattan Co-ops and quite a few condos require 20% down. Some higher. Now that all mortgages require 20% down, this again will have more people either stay in Manhattan, or continue to rent. Hoboken is no longer the place where you can come with 0-10% and get a mortgage.
    4. Job market – the entire North East is is going to have a rough few years and no job is safe IMO. This will also have people reconsider upgrading or buying a new home.

    I personally feel that prices in Hoboken will depreciate 40% from the high and possibly more in some areas. If you think that now is the time to buy, I think in 12-18 months you are going to be see that you could have saved another 20-30% from your purchase price. I also wouldn’t expect a recovery for 10-15 years if history is correct. If you look at our last bubble, you can see that only a few internet stocks ever recovered. That’s the nature of bubbles, the prices never come back…

  2. Lori Turoff

    Never is a strong word!

  3. First TIme Hoboken Home Buyer

    I am a current renter in Hoboken, and am looking to buy now. I have a 10% down payment, perfect credit, and a non-finance related career. I am the perfect candidate and never thought I would be able to afford to buy something on my own here. While there are a lot of people that are going through some tough times, there are people like myself whose good fortune will be from someone else’s misfortune. I can finally get in the game… so I am. And if I find the right home for me then it won’t matter if the value of the property goes down further because I don’t plan on leaving anytime soon.

  4. DKzzzz

    I do basic math RENT/VS MORTGAGE from that I draw conclusion that renting property instead of buying it is a no brainer. Renting cost less right now. Why would anyone purchase depreciating asset which depretiation is just recently become accelerated instead of renting/leasing such asset for less money? Honestly folks, who needs to own your own place if it does not make you money and in a process actually requires more capital investment from you than comparable lease?
    North East (NYC/Hoboken) included, was the last market to fall in US. We are just starting to get into a long price slide-down. Inventories go up in both sectors Rentals and Sales. Prices are going down in both sectors as well . Think about it.
    As one of my frnds said: “The time when you can afford Manhattan (Hoboken)is roughly 2 months away from the time you don’t want it anymore”…:)

  5. JT

    The rent vs. buy calculation is definitely a valid approach, but often one that isn’t done with enough rigor. When I purchased the two properties I have owned over time, I knew that net of tax shields related to my mortgage I was better off buying than renting in terms of my monthly out of pocket costs. This was true in 2002 and in 2008 for both my transactions (I passed on many properties that didn’t pass this test). So, renting is not always less expensive than buying. It depends on the property’s price, interest rates, your tax bracket, etc. The financial rationale is situation dependent.

    The current asset value of a property is also a real consideration since you put the down payment at risk in a purchase regardless of the rent vs. monthly payment calculation. But it’s also hard to time the bottom of the market. If you have a long horizion of ownership, fear of near-term decline is mitigated by longer-term price rebounding, saving of opportunity cost vs. renting (if you did your homework as above), and general upward inflationary price increases that push real estate (like all prices) up in nominal (but not real) terms. Also, you need to look at things in the context of the market. What are those renters doing with all the cash they’ve socked away? If they had it in the stock market, then there’s a good chance they are now worse off than those who invested in real estate in terms of current asset value. So part of the renting is better than buying argument that’s predicated on the risk to the down payment is predicated on a belief that a renter will put that money to work in a better yielding investment, which as we’ve seen this year is often a poor assumption.

    People also often forget to consider the inflation factor in the rent / buy calculation. Rents generally increase over time (as do all prices due to inflationary forces), but a 30 year fixed mortgage remains a constant monthly payment in nominal terms (declining in real terms). So a slightly more expensive monthly mortgage payment in the short-term may be worth it as rents increase over time with inflation and surpass the mortgage (again if your time horizon is long enough and the short-term disparity is not dramatic).

    Finally, rent vs. buy is inherently hard because it’s apples to oranges in most situations because of housing stock. In Hoboken, you can maybe compare the Shipyard rentals to Maxwell Place and make a fairly decent comparison. But can you compare an impecible floor-through condo in a brownstone to a white box tenement apartment that’s had 3 different frat guys living in it every year for the last 15 years? Maybe a little, but lifestyle and environment can’t be perfectly priced into a spreadsheet. And there’s a lot of housing stock in Hoboken where there’s a large general quality disparity between rented and owned.

    Anyway, just some thoughts on the rent vs. own calculation. It’s useful, but always remember to actually do the due diligence and math on each sitution rather than relying on blanket statements like “renting instead of buying is a no brainer” or “over the long term real estate is always a good investment.”

  6. JCjc

    In regards to those on the sidelines trying to time the bottom…the bottom will come and go so quickly anybody waiting on the sideline will miss it. We just found out in December 2008 that starting in December 2007 the recession started! All housing data is lagging and therefore folks will read about the housing bottom 6-9 months after it happened. You are NOT as smart as you think, but you do have a chance to buy property IMO now or over the next 12 months for a great value.

    So yes, I agree with the survey more as a function of governement regulation as it related to assisting homebuyers. The government is helping to create value for those willing to buy.

    That value has many factors some if which may expire by December 31st (unless Obama expands). The $7500 tax credit for homebuyers (interest free loan for 15 years), the increase of what defines a conforming loan, historically low interest rates, and the desperation of many sellers due to (unfortunately) a distressed financial situation.

    I am a believer that all prices (houses, stocks, gold, etc) will revert back to its long term historical averages adjusted for inflation. That being said we still have more double digit losses ahead of us in Hoboken (nationally we are close to the last to turn down). BUT, it doesnt have to play out like this either. House prices could stay at their current levels, trending sideways with minor moves up or down for another 5-7 years, forcing time to catch up with house prices. In other words instead of going down another 8% in 2009 and 6% in 2010 and then turning up in 2011 moving up 3% per year until 2015….the housing market could just play dead and by 2015 our historical levels would have been met. Dont forget we are going to go through increased periods of inflation starting in a few years.

    Lastly, IMHO I dont believe folks should view their primary residence as an investment. Its not, its your home. Carefull analytics should be used so the homeowner knows direct finances regarding the purchase but a home should be lived in and enjoyed…not speculated to bring a return on investment.

  7. stan

    Rent historically increase, as do all things, this is true.

    What about property tax increases? They must be factored in as well. The only wildcard is property taxes.
    I Lived in same place for three years. No rent increase. You pay the rent on time, landlords would rather keep good tenant then risk going a month with out rent and the stability of a good tenant.

    Lastly a housing bottom is not like a stock market bottom. There is no rapid, violent upswing. After the last bust the bottom lasted for five years………

  8. Tiger

    Everyone here have some good valid points. I totally agree with the fact that buy vs rent calculations should be done careful because you are comparing apples to oranges.

    One thing I want to mention is the rent option; a lot of condo owners here are in good financial shape (i.e. not in a ‘rush’ to sell or foreclosure) so they can simply rent their condos for years to come. 800 Madison rents for 2.5K+ for a one bedroom!

    So really, the best advice I can give you is do what your guts tell you, whether be rent or buy, and good luck!

  9. Ran

    Everyone are fond of talking history will repeat itself. That’s true. But, which part will repeat? Are we heading for Great depression? Or the lost generation in 90’s Japan? Or will we see a brief recession then high inflation fused by Fed policy and government deficit? No one knows. Everyone is betting and is biased by the position he is taking. But one thing we should observe is that Benerke is an expert on Great Depression, which does not necessarily make his actions right, but makes him very agressive on this issue. We may better not underestimate the risk of accompanying high inflation and the resulting rush for real estate.

  10. Tiger

    These are some valid points, however I think even during the roughest times, Hoboken did maintain its desirability (is that a word?) as being a nice place to live in. If you do not **have to** sell, you can always rent the condo.

    For me, what made me sign the dotted line was the fact that just a month before I closed, a condo on my same floor rented for my monthly mortgage, minus the tax benefit. SO yes, I have some capital (not 20%, btw) tied down but then again it’s not like that money was making a lot in a ‘high yield’ savings account of 3% – which I still have, btw, but towards the end of the day I’m owning. And when I move out, if things go as planned I will rent it, and three or four years down the line, you bet I will be charging more. So my renter will not only be paying my mortgage, but also putting money in my pocket, and I’ll be a bad landlord, too 😀

    BTW, if I didn’t buy last spring I was planning to put a significant chunk of my money in stocks last summer 🙂 and more to a more expensive rental.

    So really, everything has to be taken in prospective.

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