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Tuesday, June 28, 2005

Real Estate Bubble?

I want to talk about the real estate market in NYC since I live here. The prices here for a house is ridiculous. My family has been looking for a house for the past several years and every time we wait for a better entry point the real estate market only gets more expensive. We looked at the houses in Brooklyn recently. A one-family house costs around 500K, a two-family house runs north of 700K, and a three-family house easily goes over 900K. We also looked at other boroughs. In Queens, the prices are even more ridiculous, 500K+ for a single-family home. Staten Island has the most affordable houses, but it is also the most inconvenient location for us to get to the center of the city. Some say there is a real estate bubble and soon it is going to burst. Take a close look at Manhattan. A studio costs 400K, a one-bedroom costs 500K, and a two-bedroom goes for 700K or more. Of course, there are also luxury apartments in uptown that runs in the million’s range. New York City has the most expensive condominiums in the country. Do you think the bubble will burst? Well, let's take a look at the laws of supply and demand. If the demand remains to be strong and supply is short, then the price is likely to be pushed up. There are just too many people in NYC; the population has grown significantly over the recent years. And I believe more people are coming to the city -- people from other states and immigrants from around the world. Many students graduating from college are looking for jobs in NYC. In my company alone, we hire new graduates every year from outside the city. With increase in population, there will increase demand for housing. I know interest rates are going up, but it is still relatively low. And people in general have learned to save up for a house. As the interest rates go up, people will use more cash to buy. Is there a real estate bubble? Well, there is real demand in this market. And from what I’ve seen and heard from real estate agents, people are buying a house to own and live. I would be concerned if everyone is buying a house to flip. That would be a sign when houses are becoming highly speculative. But most people are looking to move to a place they called home and when housing is still a necessity, even if there’s a bubble, the bubble is solid.


Here is a second opinion, There Is No Housing Bubble from Wall Street Free Thinker.

6 Comments:

At 7/04/2005 04:44:00 PM, Blogger Todd D. said...

If those people are buying with ARMs or other funky flavor of mortgage, yes, it's a bubble.

How can people afford these mega-houses, or the property taxes on them? I don't get it.

 
At 7/05/2005 01:26:00 PM, Anonymous Anonymous said...

How? Try fraud. I believe that when the NYC bubble finally pops those left to pick up the pieces will be unravelling some of the shadiest transactions ever.

 
At 7/11/2005 02:35:00 PM, Blogger Ashish Hanwadikar said...

So why aren't rents going up at the same rate as housing prices? You say that people come to NYC looking for a job! Shouldn't this people, especially those who are recent gradudates, be driving up rents rather than housing prices?

Ashish

 
At 7/28/2005 05:09:00 PM, Blogger 1 said...

I live in NYC as well and I own my apt. I have heard both arguments and I think they are both true. In NYC, coops make up 80% of the apts, if you buy a coop you go through a vigious screen process to make sure you can definitely afford it. So the argument that people are going to default on their mortgages or can't afford the housing, just isn't true. However, I have also heard that baby boomers are leaving NYC in droves, and with them all the purchasing power. So who knows...

 
At 7/28/2005 05:41:00 PM, Blogger Smarty said...

It's hard to predict what's going to the real estate market at this point. There's good arguments on both sides. If you can afford to take the risk and can hold the property for long term, then you should buy. If not, look elsewhere. It's a good time to look at outside the city areas and consider investing there.

 
At 5/26/2006 09:55:00 PM, Blogger Empty Spaces Inc. said...

house prices are essentially a function of rent. if the mortgage is a lot higher than the rents, the house is overpriced. if the mortgage is a lot higher than the rents even though you've got a 3/1 ARM at 5%, the house is MAJORLY overpriced.

remember how the feds raised the interest rates late in Carter's term and brought about recession? they essentially brought all buying to a halt. if the same thing happens, home prices will tank in overpriced areas, simply because people won't be to make the payments.

 

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