The Case for Buying Condos in NYC

On a stroll down Third Avenue on Manhattan's Upper East Side just four years ago, it was hard to fathom that so many cranes could be crammed into just a few square miles.

Everywhere, small building owners were being bought out at unheard-of prices so their buildings could be razed to make room for new condo towers. Fast forward to today; all of those shiny new highrises are built, and yet there are more sellers than there are buyers of these gorgeous condos - buyers who were tempted by pre-construction incentive pricing that was a steal when the market was accelerating upwards almost as quickly as the new constructions.

Layoffs all around New York and tanking real estate prices deflated prices on the average 2 bedroom NYC condo somewhere between 20-30%, depending on the neighborhood. And while the case for buying four years ago was strong, the case for buying today really is stronger than ever.

First, while prices have fallen 20-30%, rents have fallen only 10-15%; this disparity translates into higher rent yields for investors looking to earn income on an asset that has potential for serious appreciation as well.

Second, existing inventory will be quickly consumed. Bank profits show signs of returning to record levels. And recent grads are flocking to urban markets - markets like New York where there are still signs of economic life.

Third, existing inventory levels are only so high because developers have to make their panicky investors as close to whole as possible ASAP so those investors can redeploy their capital elsewhere. That flood of inventory has artificially depressed prices, providing an attractive opportunity for those with the means to get in "on the ground floor" of a rebound in NYC real estate.

Fourth, the prevalence of New York real estate auctions means that there is good pricing data for investment analysis and good liquidity (i.e., speculators welcome). Auctions also offer the opportunity for patient and savvy investors to pick up premium property and discount prices.

Buying a property to live in or as an investment can be anxiety-producing. But intuitively, would-be buyers should ask themselves whether they would rather buy mediocre property that is accelerating in value at historically unheard-of rates (2002-2007, which led to the bust) or whether they would rather buy premium property that has depreciated at historically unheard-of rates and is showing signs of bottoming (now).

Those with the courage to do what other aren't should find their way to the New York real estate auctions and seize this opportunity while the getting is good.