Thursday, March 30, 2006

Doubts on the fringes of Brooklyn?

This is the kind of article I dread:

On the fringes of Brooklyn, some doubts creep in... Lenders ask questions as signs of softening show in areas of borough late to the real estate boom

When the market goes down, do the up and coming neighborhoods crash first? If you think of neighborhoods as having a universal good-better-best kind of hierarchy, then yes-- if prices go down across the board, why wouldn't people stay in the "better" neighborhoods instead of going further out into the less established areas? In NYC, this presumes that affordability and closeness to Manhattan are the main concerns, and that people will stay as close to Manhattan as they can afford. Affordability decreases, people fan out into the boroughs. Affordability increases, people move closer in. This assumes affordability increases as prices decrease-- but if interest rates go up and incomes don't, that may not be the case.

The flip side of the argument is that the up and coming neighborhoods are where there is a better chance of property values holding steady or going up. If a neighborhood already has lots of restaurants and services, you can't add value there by adding more restaurants and services. But if a neighorhood is light on those amenities, it will be more attractive to homebuyers when more upscale businesses move in-- though whether they will continue to do so in a downturn is subject to debate. If a real estate crash is accompanied by an overall economic downturn, there probably won't be a lot of new expensive restaurants opening up.
Also, that good-better-best neighborhood hierarchy doesn't take into account personal preference for different qualities in residential areas. A lot of people like to feel like they are getting a bargain and being a pioneer in a "new" neighborhood. They want to say they were there "first"-- though of course there were always other, usually poorer people who were really there first. (My definition of gentrification: something you complain about as soon as you are no longer the wealthiest person on the block.)

I still think I made a good choice with the place I'm buying-- I hope I'll be able to re-read this blog in 5 years and still feel the same!

5 comments:

James L said...

I think up-and-coming nabes will be ok as long as improvements continue to happen and more amenities become available. Most people who buy into these areas are in for the long haul so they know the risks involved.

Unless there's a huge economic downturn, not only will you and i be screwed, but the rest of the city as well. At least you wouldn't lose as much as someone who paid twice as much for an apt.

People who should worry are those with ARMs or are overextended.

imho.
good luck.

Anonymous said...

i think all this hype about arms and non-amortizing loans is overhyped. many people who went with arms or non-am loans knew what they were doing and did it based upon a sound financial decision. sure, many did not, but many probably went into 30 yr fixed mortgages w/o being able to afford them either. they've been beating the drum on this housin gmarket crash since 2002 and it still aint happened. the latest nos. are for new home sales and in ny, aint many new homes being built.

Scott said...

I agree that the thing to consider is not will prices go up or down, but how well the neighborhood will do versus other locations. As for me, I bought at the market nadir in early 1998 (just dumb luck on my part), and have done well. Another dumb luck is the nearby military base (2 miles) is scheduled by the BRAC to double the workers there in 6 years. So no matter what happens my neighborhood should do well relative other locations.

Bitty said...

You've been buying that new place for a long time, as long as I've been reading your blog. Just curious...why is it taking so long?

Madame X said...

The building is new construction, so I went into the deal knowing it would be some time before it was finished. It originally sounded like it might be ready at the beginning of the summer, now it's looking more like late summer. I'm not really in any rush-- my only concern is interest rates rising during that time.