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New York City Real Estate
     

Charles
Summers

Buying? You?

The New York Times - 12/13/2009
Author: Vivian S. Toy

 

ARTHUR FREEDMAN has lived in a rent-stabilized studio in the East Village for 29 years.

But as he watched housing prices fall over the last year and as a leak in his bathroom went unrepaired month after month, he decided a few months ago that it was time to become a homeowner.

“Some people might think I’m the luckiest man in the world, paying $725 a month to live in this neighborhood,” he said. “But my friends say: ‘You can live nicer than this.’ And you know what? I should live nicer.”

In a city where nearly 70 percent of the population rents — about double the rate for the rest of the country — the decision to buy an apartment in New York is not taken lightly.

But now that housing prices have dropped by as much as 30 percent since the height of the real estate boom, even people who, like Mr. Freedman, are paying well under market rates for their rentals, are venturing into the housing market.

A rent-stabilized apartment, of course, provides a certain sense of security, with affordable payments and fairly predictable increases. The people who decide to leave this all behind know that they will probably wind up paying more. But they have some very compelling reasons for flying from their protected nests.

It could be a desire to upgrade to a nicer building or a larger space. Some trade down in size for the experience of owning. Others take the plunge because they recognize that their rents will soon head into market-rate territory anyway. Major incentives that unite them all, though, are sales prices that have been heftily discounted and mortgage rates that are hovering enticingly low at around 5 percent.

Mr. Freedman, 61, lives in a no-frills walk-up in the East Village, and after a five-month search, is now in contract to buy a studio for $305,000. The place is about the same size as his rental, but it is in an elevator building with a doorman on the Upper West Side. Similar apartments in the building sold for as much as $360,000 at the height of the market.

Leaving the East Village will not be easy for Mr. Freedman, a retired teacher. “I’m nostalgic. I have my bagel place and I’m there every morning, 365 days a year,” he said. “They were incredulous when I told them. But I’m sure I’ll feel comfortable when I move, too.”

Over the years, many of Mr. Freedman’s rent-stabilized neighbors have left, and their apartments have been renovated from top to bottom and then deregulated. Market-rate studios in the building now rent for about $1,800, and he suspects that complaints emanating from those premises receive much quicker attention than his do.

“I know I’m at fault, too, for not asking and pushing for more work to be done,” he said, gesturing at yellowed walls that probably have not seen a paintbrush in two decades and a stove covered in a thick layer of dust. (He doesn’t cook — at all.) “But I don’t want the hassle to fix it.”

His broker, Suzanne Zinsel, an agent at Halstead Property, said her colleagues warned her against taking on a rent-stabilized buyer, because these clients are notoriously indecisive and afraid of commitment.

Mr. Freedman, in fact, did put her through a few extra paces, backing away from two deals before settling on this last one.

“I think he just got scared, and he literally backed out the night before on those deals,” Ms. Zinsel said. “But he was very apologetic.”

Mr. Freedman, who works as a substitute teacher when he can, said that throughout his apartment hunt, he relied on the advice of friends who already own homes, “because I had no idea what I was doing.”

Three decades of low rent, however, did enable him to save enough for a 30 percent down payment.

“I’m not Alex Rodriguez here,” said Mr. Freedman, a consummate Yankee fan. “I’m not even C. C. Sabathia. It’s just me, Artie Freedman.”

By his calculations, after tax deductions, his monthly housing costs will be about $1,500, which is double what he pays now, but less than what he would pay for a market-rate rental. “But it’ll be better, because it’ll be mine,” he said.

Celia Chen, a senior director of the research staff at Moody’s Economy.com, and a specialist in housing economics, says that the housing cycle nationally is near its nadir, with prices very likely to fall a little more into the middle of next year.

“But even if you’re not getting a rock-bottom price,” Ms. Chen said, “prices have come down substantially since the peak of the market, and you will get a good, reasonable deal at very low mortgage rates. Now is probably as good a time as ever to buy.”

Because prices will take awhile to start appreciating again, and because closing costs must be factored in, home buyers should plan on staying put for three to four years to at least break even, she said.

Ms. Chen also said that while people in rent-stabilized apartments would be hard pressed to find a better bargain, there may also be “a cost of renting, if you’re not renting what you really want to rent.”

The residents of rent-stabilized apartments often put up with lesser spaces and fewer services just to hang onto their coveted leases, said Steve Dobkin, a Manhattan lawyer who often represents tenants. “Tenants in general are nervous to ask for even necessary repairs, because they don’t want to be on the landlord’s list of undesirable tenants,” he said.

But some renters ultimately decide that they are willing to pay more for a better quality of life.

Thomas Coates, another agent with Halstead Property, said that people in rent-stabilized apartments naturally approach buying with great reluctance. “It’s a bit of a golden noose kind of thing,” he said. “They may be in a dump, and the landlord is trying to get them to move, but some just don’t want to give up the security blanket.”

Market-rate renters, on the other hand, have even more incentive, especially since the cost of owning in the current market is often on a par with the cost of renting, he said.

Nick and Kevin Burkett-Caudell are clients of Mr. Coates who have lived in a rent-stabilized fifth-floor walk-up in Chelsea for 18 years. They decided to buy because they feel they have outgrown the neighborhood and because they want a proper bathroom. The couple legally combined their last names five years ago, when they were married in Quebec.

Their one-bedroom railroad apartment is in a 1900 tenement. Some apartments in the building have bathrooms out in the hall, but the Burkett-Caudells have a water closet in the apartment and a shower stall in the kitchen. “When I first saw this apartment, I thought it would be great for a year or two, until we found something bigger,” said Nick Burkett-Caudell, a communications manager at Ernst & Young. “But then, once you’re in, you never move because it’s stabilized.”

In their 20s, they were not bothered by the four flights of stairs and the awkward design of their apartment: You have to walk through the bedroom to get to the living room. But, he said, “now we’re in our 40s and we think we need rooms with doors on them, a proper bathroom, and a place that’s more guest friendly.”

They also feel that they have moved beyond the club and party scene in Chelsea, and are ready for what he called “a more established” neighborhood, which is why they are hoping to buy a one-bedroom in Park Slope.

Their rent started at about $800 and now is close to $1,400. The average rent for a one-bedroom in Chelsea is $2,916, according to Citi Habitats, but Mr. Burkett-Caudell said that he thought market-rate apartments in his building were now renting for about $1,600. “We’re just a few hundred dollars away from that,” he said, “and I don’t want to be on the wrong side of that equation.”

When they crunched some numbers, they determined that buying a one-bedroom in Park Slope for about $400,000 would give them monthly housing costs close to what they are paying now.

“We wouldn’t have been able to do this two years ago, because apartments were too expensive,” he said. “But now we’re looking at proper one-bedrooms with 600 to 700 square feet in elevator buildings that seem like the Taj Mahal to us.”

They made an offer on an apartment last month, but the deal fell through. They now hope to find something early next year.

Clearly, not all rent-regulated tenants can expect to trade up or even get something comparable to what they have now. (The city has some 1 million rent-stabilized units and another 350,000 apartments under other types of regulation.)

Charlie C. Summers, a vice president of Bellmarc Realty, is working with a client who rents a one-bedroom walk-up in Chelsea for $1,300 and hopes to buy a two-bedroom in the neighborhood for $600,000 to $800,000 — a tall order even in today’s market. In that price range, he and his client have found mostly junior-fours, or one-bedrooms with an extra space that can be converted to a small second bedroom.

The client hopes to move into a place where her 6-month-old baby can grow up. “She wants more space, and she wants an apartment that can be a home and an investment,” Mr. Summer said. But she ultimately may have to move beyond Chelsea to get the apartment she wants.

Rochelle Meyer knows that she will not be able to replicate what she has now. She has lived at Waterside Plaza on the East River for more than 20 years, in a large one-bedroom that has what she describes as “a million-dollar view.” From her 24th-floor windows she can see as far south as the Verrazano-Narrows Bridge and as far west as New Jersey, with the open sky expanding the apartment well beyond its walls.

Waterside Plaza was built as affordable housing under the Mitchell-Lama program, and when it left the program about 10 years ago, Ms. Meyer became a “settlement tenant,” which allows her to stay as long as she wants with 7.5 percent annual rent increases.

That was fine at first, she said, but the increases have added up and “now a year goes by very quickly for me. It seems like I just got used to one rent and then, oh, my God, it’s time for another one.”

Her rent started under $1,000 and is now $1,902, but utilities often push her costs well beyond $2,000 a month. It was her financial adviser who urged her to consider buying, and he suggested she look outside Manhattan for something under $400,000.

“But I can’t do that,” said Ms. Meyer, an executive at Citibank. “I’ve lived and worked in Manhattan my entire adult life. I can’t live anywhere else.”

She started her search about two months ago with Carol Halt, a senior vice president of Barak Realty, and is trying to find a one-bedroom for under $500,000.

“She has an enormous apartment right now,” Ms. Halt said, “and when she looks, she thinks, ‘How does this compare with my apartment?’ But you can’t compare, because the difference is she will be building equity in something she owns, instead of throwing her money out the window in rent.”

Nothing Ms. Meyer has seen so far, with the possible exception of an apartment in Riverdale, measures up to her current home. “I know it’s going to be hard to duplicate what I have in my price range,” she said. “So I’m prepared to say that there is something I have to give up. But hopefully the balance sheet will have more positives than negatives.”

And maybe, just maybe, she added, “I could find a diamond in the rough.”