Who was asking for a catalyst for the next leg down? How about this? 7.5-8.0% mortgage rates.

LICC says interest rates don't affect property prices.

So there.

I heard that if treasuries fall, then rents must be rising and property values will be rising. You know, an inflation hedge.

Rhino, why won't you answer my question?

http://streeteasy.com/nyc/talk/discussion/17300-question-for-rhino

Just shut up and buy gold. $10,000 an ounce by May. Mark my words.

Wow, I'm really on steve's brain at all times. Now he imagines things I say to argue with me in his head.

steve, take a break brother! Happy holidays to you and yours, let's pick this up again in 2010.

GLD had a decent hold at 105. Took out a lot of the fluff.

printer- wow, I just read your post. Rhino has been amazingly wrong about just about everything. For such an arrogant guy, you would think he would be right about something at some point.

Printer, stalk much? Wait, don't answer that. I have you on ignore. Some of what you wrote there is flat fabricated.

I don't understand. After Lehman failed, I thought it was obvious to be bearish on this market, as the banks were much less willing to lend and the stock markets were breaking down from a long uptrend. I started threads on various units calling for 30% down, for instance on at 50 W 96. The market did fall 30%. I still call for another 30% down. Am I wrong because the 30% down didn't happen this fall? You're just a fool. I put you on ignore for a reason. GO back in your hole.

Usual board personalities fighting on this board. However, this is real. The smart people put their homes up for sale during the normally dead period of winter. There is a ton of inventory banking on a recovery that will be priced initially too high come Feb - April. When mortgage rates rise, both sellers and buyers will lose, but ultimately, sellers will lose more

I still call for exodus of families. These are not six month predictions. Yes I thought we'd continue to fall this past fall and we didn't. Good luck in 2010.

How do buyers lose when interest rates rise, if prices go down?

Calling for prices to fall AFTER Lehman went belly up is about as genius a prediction on 9/12/2001 that the DOW would end the day down after the NYSE re-opened following 9/11. That's the best you can do?

Let's remember that after Bear effectively liquidated, IndyMac went bankrupt, and Fannie & Freddie were bailed out by the Fed Gov't you thought prices wouldn't fall (why else would you have gone into contract?).

Now you are boldly stating that prices will, at some undetermined point in time, go down because a) your wife's friends are thinking about moving out of the city and b) some guy at Morgan Stanley thinks that interest rates might go up.

You are a joke. No wonder you have so much time to post on SE - your fund manager must have your recommendations on ignore so you don't actually have to work all day.

the reality is that it doesnt matter what any of us say. the markets gonna what its gonna do. right now rental and sales prices continue trending lower. Bonus season seems to have come and gone without a stir...

Streeteasy: You really need to adjust the system to fully hide those who you would like to ignore. This "Ignoring comment by X" really does no good. It is far too tempting to look when you know you are being harassed. You would go a long way to improving the quality of the site by allowing ignore to function more purely so to speak.

One of LICC's best statements ever: "A correlation does not require equality of value, just consistency of movement."

"the reality is that it doesnt matter what any of us say. the markets gonna what its gonna do. right now rental and sales prices continue trending lower. Bonus season seems to have come and gone without a stir..."

This goes without saying. However, until rents stabilize, employment improves, or interest rates rise to a place where they can go both down and up...The bull case seems off. That is not to say its not possible that there are so many renters and Europeans who find 25%-30% off cheap regardless that the market can stabilize and rise.

Steve, what does that even mean?

If Morgan Stanley is right, then real estate market is really up the creek. At 5% mortgage, 30-yrs fixed for every $100k borrowed the pmt will be $536.89/mo; at 7% it becomes $665.33, or 24% more. In order to keep the monthly pmt the same with the 7% rate, purchase price would need to decline by about 19%. On a related note, higher rates will not equities either, and that is where I work... Although in 2003, when rate began rising, the stock mkt did very well.

Buy TBT, GLD and Manhattan RE

Yeah but in 2003 rates were rising because the economy was turning up...In this case it seems to be a glut of treasuries. Yes, but if part of the reason rates are turning is the economy is turning, then equities should be okay....particularly the commodity junk. Or at least that's how I remember 2003. Although this time around, it seems like the commodity stocks have been bought up in advance. In 2003 they were truly on their ass.

oops, missed the word 'help' in the second but last sentence: 'higher rates will not help equities..'

Franch you seem ok generally...I just don't get your Manhattan purchase. GLD looks decent off its test of 105 and yes, TBT looks like it broke out of a huge accumulation.

nice Rhino - yet again when the facts show how incompetent you are, you resort to name calling like a 10yr old. I notice that you haven't refuted any of the salient points I made in my original post.

and what does what I do for a living have to do with anything? Whether I am a doctor, trader, shoeshine boy or something else doesn't make a difference to the posts I make. Its not like I'm soliciting funds to invest based on my predictions.

"Bonus season seems to have come and gone without a stir..."

That may or may not be true, ConcernedBuyer. Changing to bank holding companies may have simply pushed back bonus season to February. It changed the reporting calendar. Most, including GS, I believe, haven't given up their bank holding company status yet. Remember about a year ago when there was that horrible December that was just conveniently left out of quarterly reports and made the banks look much better? That was also a calendaring quirk.

How did I not refute your points? Yes I made an obvious prediction after Lehman collapsed, that many debated, and it turned out to be true. Yes, I have made predictions for this fall that did not play out. Right, I do think NYC is going to turn down as finance had made a major secular turn. Right, I almost bought, highlighting my appreciation of bad math when you just want to do something. Rents hadn't fallen yet, so to me it made more sense then vs. now.

Bonuses have never been paid at 12/31 at banks. Usually Feb.

not to mention that bonuses were only announced very recently at some places, and haven't been announced yet at many others - both the amounts and the splits between cash/restricted equity/options, etc. And the cash hasn't hit the bank accounts yet. The 'bonus season' for RE purposes typically doesn't begin until the winter/spring.

and by all anecdotal accounts I've read, the activity for the late fall/holiday season has been stronger than in a typical year.

Rhino - these things never happen in perfect correlation. I don't see it as a 1 to 1 drop, the buyer will take some of the loss, but I do believe that the seller will incur most of the increase in interest rates. And obviously, you can always refinance when rates come back down, but you can never change what you originally paid. I repeat, the smart one have had their house on the market in the past 2 months, good inventory has been flying off of the shelves because there is not much out there right now, but I expect a HUGE increase in inventory in Q1 into the spring, coupled with rising interest rates, persistent unemployment, rising taxes, decreased services, bonuses in restricted equity and smaller than some were banking on, and a stagnant to down stock market (wait until the new year, funds need to keep a certain percentage in equity at Dec 31, but expect a drop in Jan in the market), and housing prices will drop. These things take time, obviously this is a very illiquid asset, but prices will drop

I agree with you. Yes economics suggest that buyer and seller will share the 'cost' of higher rates. I just think in this market, at these valuations, the seller is much more vulnerable. Yes, you can never change what you paid. That is real money. The common misconceptions is that buyer benefits from rates, rather than the fact which is that price adjusts to rate. If we want to go all the way back to college economics, it depends on bargaining power and the shapes of the supply and demand curves.

printer, do you really think that wall st. is going to plow $$ into real estate? I would think many of the people getting paid this year are the smae people who have gotten paid in years past and are already in RE. maybe some people trade up, but that would require someone buying the smaller apartment. Given that banks and law firms dont have the recruiting classes that they traditionally have, I just dont see how RE is going to be in demand.

Usually January, rhino, at least formerly as far as I was aware. But this year I believe everything's been pushed back a month - numbers announced January, payout February.

When I was at Deutsche, it was 1/30. I am bearish of course, but I think its a little early to call bonus season a flop. That said, its also early 14 months into a downturn to call it over after an upturn that lasted from 1992 to Q2 2008.

Wishful thinking.

During the best of time from 1999 to 2007 the 10 year never got above 7%.
With the job market still weak, how in the world is this going to get above 5.5% let alone 7%.

What a bunch of morons.

Also..

Double dip my a$$.

The talk of green shoot 3-4 months back have turned into a FULL BLOWN RECOVERY. Most of you here are still scratching your ass wondering if you'll ever get another chance like last Spring when prices hit rock bottom.

Think about this.
Aboutready sold her place back in 2004.
She's been renting for 5-6 years since. Prices in most area haven't EVEN REACHED 2004 prices yet.
Poor girl.

concerned - no, i don't think wall street is going to plow $$ into real estate like it was 2007 all over again. but i do believe that that it will have a positive impact on the market, and all things being equal will result in a healthy spring season. this 'all the people who made money in 2009 already own' argument is one i disagree with. the strongest areas during the credit bubble were structured finance, and those areas are a shadow of what they were. what did well were straight credit, and equity trading, so you will have created some new wealth. and people are always looking to move up, so that will help out the $2-5mm mkt which I believe is the weakest part of the market. And given the relative strength in the $1mm mkt, if you currently own a 2 bed, had a great year, and want to buy a 3/4 bed, now is a pretty good time to do it.

Question, was LIC an area at all in 2004? Also, do you doubt its possible to buy today at the same prices prevailing in last Spring? And re-read the article, it calls for 7.5-8% mortgage rates, not treasury rates.

its the same people that were trading credit end equity 5 years ago as it is today. the trade up is tough to do becuase you need a lower end buyer to come in as well. I thnk this is going to be the year of saving and not spending.

steve - thanks for the random compliment about my statement on correlations.

I hope someone is tracking all of Rhino's current predictions. Maybe this time he will get one or two things correct and not be completely wrong about everything like last time. Regardless, I'm sure his inflated opinion of himself will not change.

Yes kind of like the banks not lending back out the TARP money.

concerned - i think the $1mm +/- mkt is pretty healthy - assuming of course that it was a $1.2mm +/- property at the peak. it is definitely easier to sell a $1mm property right now than it is a $2mm property, so trading up is easy.

and if anything, wouldn't 2009 have been the year of saving and not spending? yet activity levels, after a very slow start, ended up being pretty typical for Manhattan, so I don't see why this year should be worse.

I really do need to understand how the market not falling in fall makes me 'wrong about everything', and how predicting prices would fall 25-30% after Lehman collapsed was so obvious - yet so many on this site wanted to debate it.

Yes, LICC, I was almost sitting on a $1mm two bed in Carnegie Hill. I over-estimated the rental markets strength. It would still have been a much better position to be in than sitting in a fringe fabrication of a neighborhood where condos are in dire dire straights.

I don't think calls that finance has turned down on a secular basis, weighing on NYCs relative position (and price) in the world can really be declared incorrect just yet.

no one got paid in 2009. after learning a hard lesson in 2009, people will want to hold onto thier hard earned cash.

2008 you mean, and yes. I agree that attitudes about taking on $2mm mortgages to buy $2.5-3.0mm places, and committing to private schools, may be undergoing a major shift. Only time will tell...and to my detractors I am by no means guaranteeing this. It just seems right to me, having been on both sides of it. And the numbers are still whacked out relative to rents, something certain others seem to continue to want to deny.

agreed that for a 2-3yr horizon, when you can lock in current rents the value is in renting v. buying. But for those with a longer horizon (which any rational buyer should have), the question is what rents should you be basing your calculations on. Sort of like with equities in the spring. Even with the S&P at 670, given where earnings were at the time, P/E's were not historically cheap, so many like David Tice were calling for more significant declines. However for those who normalised earnings, stocks were cheap, and their optimism proved correct as earnings bounced back (much faster than I think anyone anticipated they would).

That said, I don't think that even if you take some type of average rent over the past 5yrs that buying is 'cheap'. I just don't think that most people who are looking at a long term purchase do it purely on financials - it is in large part a lifestyle choice. As long as it is fair (net after tax similar to rent), they have the down payment, and they find a place they love, they will feel good about buying the place they hope to live in for the next 7+ years.

early 2009 we got paid for 2008..early 2010 we get paid for 2009. people didnt have extra money throughout 2009 and will be inclined to save in 2010

Even if you use average rents, the market does not seem to me to have fully adjusted to the new realities of borrowing and the new realities of earning money at investment banks.

Yes, but the question is are there enough people out there who can afford, and are inclined to buy 7-year family homes...and will there be enough entry level people to buy their homes if they are owners not renters.

It wasn't that the stock market was cheap at 11x normalized earnings...it was cheap relative to treasury yields. That was the missing link.

To me a major issue in NYC re right now is the number of developments that are not pricing to clear the inventory at a, let's say, a normal rate of sell-down.

The numbers are apparently huge. Now, people keep saying banks can just hold out, keep extending loans, etc. (which seems strange to me , having in olden days worked in banking where extending a loan repeatedly meant moving to a riskier asset classification which triggered various actions internally, scrutiny from regulatory auditors, etc...but i'll drop that comment because i keep being told that somehow no longer matters) but...won't rising interest rates put the squeeze on the finance providers and developers sooner, won't it make it harder to hold out and hold out for prices that aren't clearing enough inventory.

Maybe part of the issue is that developers know they are underwater in this market. Therefore, what they have is a free option on a market recovery. The banks are also complicit. They have no desire to highlight a bad loan by pressing sales. Maybe the issue is when the banks start selling developments to private equity out from under the developers. I know of one such case. I am as impatient as anyone, but this really has only been a year.

"thanks for the random compliment about my statement on correlations."

Wasn't random, LICC.

Rhino, I see that developers have no incentive to shut down; maybe things really will sell out at a price that makes money for them, so it is a free option for them. And fine if the banks want to play along -- I call a conspiracy of rose-colored glasses-- but if the banks are not at some point recognizing that this asset is fundamentally riskier than properly performing (non-extended) loans in projects or whatever without underlying risk issues ...then the banks financial condition is not being properly stated.

well. that's a given.

as i have noted elsewhere, you've got to look at this through the lens of the banks, the developers and the gov't. door #1 is certain ruin, door #2 is i get to live another day and hope that something changes. as long as those entities remain committed to their shared vision, there is no impetus to open door #1.

We already know banks have an incentive to misstate their financial condition. Does experience in other cities inform how this plays out? Is there a typical amount of time after which reality sets in and the bank forces sales? I guess thats the time frame we should be watching.

Jim, that's the name of the game. Everyone's pretending there isn't a problem until panic passes (check) and the economy stabilizes enough to unwind the rest of this mess in an orderly fashion. We're halfway there on the economy, but the question remains whether or not it will be a strong enough recovery to escape another panic or if the consequences of the intervention will force a delayed day of reckoning. Neither prospect looks very nice, as option 1 I think takes us the Japanese lost decade route.

and bank shareholders are playing an interesting game of chicken with the government. what will happen if and when banks need more tarp money or some or all of the tarp money they already repaid. pretty good argument for getting it back since they repaid previously, no?

What is aside from this game of chicken is whether or not there will be a robust market for luxury $1.2mm one bedroom and $1.8mm two bedroom condos. Then based upon the clearing price of those two abundant goods, can coops hope to hold fast. If the Lucida, Brompton and Georgia were to cut their prices severely, you can be sure it would draw eyes from local coops in my neighborhood. At a price and assuming higher occupancy levels.

Columbia, sooner or later there just isn't going to be any money left to give them. Apparently it's going to be later, though.

Sooner or later the world is going to demand a higher interest rate from US...maybe a lot higher!

Pretend and extend.

I think the banks will begin to clean up their balance sheets next year. Shadow inventory is likely to become rental properties for the foreseeable future. More downward pressure on rents (and prices).

I'm repeating myself but..again...this discussion seems premised on the idea that banks have full discretion to choose to pretend and extend. That may be true, de facto, but it ain't right. Extended assets should move to higher risk classifications, assets where the underlying security is higher risk than originally expected (slower re market) should move to higher risk classification...which, and this is the part I am not sure about, ultimately leads to more reserves...which ultimately is supposed to lead to the bankers feeling there is no need to pretend because the asset is already marked at a loss so to speak......Of course, a rational business plan may be to pretend all is well, but I don't think banks can just arbitrarily treat troubled assets as perfectly normal performing assets....Really, someone in the real estate finance division somewhere would have to explain how this is being done...

lets go at this another way. last year, there was much talk of toxic assets...depending on who was talking, the figure thrown around was in the trillions. to my knowledge, there hasn't been close to that number in aggregate write-offs, so what happened to the toxic assets?

a. they weren't toxic
b. somehow they are being covered up

absent the missing write-off, is there any other possible scenario?

Good question. I think a lot of those toxic assets were supposed to be the various asset backed securities...about which i know nothing.

neither do i. just wondering where they went.

Jim, isn't the government really desperate to help banks? Do you think the wall street lapdogs are really going to force them to take losses? The whole sham of stress tests, the suspension of mark to market accounting rules, all of that was intended to hide the fact that bank balance sheets are riddled with stinking piles of manure. The government is running around handing out scented handkerchiefs to cover up the smell, but the reek is still there for a reason. Hence the pretend part.

riddled = covered in. I got carried away with my imagery. Sorry.

No signs of higher yields yet.

http://finance.yahoo.com/echarts?s=SHIAX#chart1:symbol=shiax;range=6m;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

Small business continues to ROCK.

Back to the subject of the thread - yes, it would be all the RE market needs to convulse very painfully. Bloomberg article seems reliable in its prediction, but you never know.

you mean the same small business that has been cut off from credit and has only been laying off people?

cc, i think a lot of them (toxic assets) are now owned by you and me. the gov't (and the fed) decided that rmbs would make great stocking stuffers for the taxpayers. cheers!

I know it's hard for some of you to comprehend. Stop hanging with these losers (CC, aboutready, W47st, NYCxx, etc.) here and you might actually see the goods.

http://finance.yahoo.com/echarts?s=^RUT#chart2:symbol=^rut;range=1y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

Russell has continued to OUTPERFORM every index out there since the march lows.

What toxic waste?

Only toxic waste i saw was the 'great depression news' injected to you bears back in March.

So your relying on predictions made by Wall St.? HA HA. Tell me how right Goldman was with their $200 barrel oil prediction:

http://www.marketwatch.com/story/goldman-sachs-raises-possibility-of-200-a-barrel-oil

Maybe the next catalyst down will be decreased business activity due to more protectionism and more taxes. All this talk about protecting American Jobs and not promoting free trade reminds me of Smoot Hawley. What's worse it seems to be official policy to lower the dollar under the mistaken belief that a lower dollar will turn us into a Taiwan or South Korea.

These convos always get so macro. We have back to back bad hiring classes at banks and law firms...hedge funds as a whole havent gotten a performance fee in two years and there are a lot of condos. The only macro that would seem to matter to the local market would be mortgage rates.

It's not that simple. When the banks don't lend the government pushes them to lower standards.

i agree w/ Rhino. its the significantly lower hiring at banks and law firms which is crushing the the RE market. owners keep thinking that people are gonna show up, but they're not. the next tiny wave of incoming people will be in summer. still not enough to keep up with supply and people leaving.

Its a rates and flows thing. Its not going to play out overnight. When the one bed market falls from $500-600k to $300-400k for lack of young, foolish singles buying one beds for fear or missing the next leg up....that is when the 2 bed market falls to $600-700k from $900-1.1mm. Mortgage rates could make it worse. The only reason to buy, and I almost fell prey to it, is wanting something and convincing yourself you don't care when it falls in value. Its a fallacy. That is real money you could have saved by taking a pass.

Ericho why do you point at the Russell chart as a sign of where business is? That chart does not buy apartments. People do. This has been a great rally, but so what? The market rallied out of the 1987 crash too but apartment prices fell through 1992.

It is pretty clear that folks don't get the basic relationship between cost of capital and prices for residential real estate. For added perspective, take multifamily as an example in Manhattan. Values will continue to slide until there is a demonstrated uptick in rental rates because banks simply won't lend anymore than the absolute minimum that will ensure their ability to recover their capital plus cost in the event of default. If the debt cost rises, banks will pull back on their LTVs, assuming resi prices don't fall, and the buyer will be faced with having to put up more equity - which they either have or don't have. The only true hedge against inflation is with land, not construction. That of course is one of the central issues in Manhattan - that land prices have not reset - after more than tripling in five years.

"Ericho why do you point at the Russell chart as a sign of where business is? That chart does not buy apartments. People do. This has been a great rally, but so what? The market rallied out of the 1987 crash too but apartment prices fell through 1992."

noooo..stocks dictate everything!

the fact that Georgica, Isis and Lucida are empty is testatment to the reality that the high end is being crushed while the low end has no buyers either

Haha. Those developments would sell....at 2002-2003 prices. I'd look at $600-700/ft.

Small caps/companies are the most sensitive to economic upturns and downturns.

You have no evidence that the stock market is the leading indicator of the Long Island City condo market...or the Manhattan coop market. But if you repeat it enough, maybe you can make it true...for Christmas.

The possibility of rising mortgage rates is a huge dilemna for the Fed.

They control short term rates but have only limited control over long term rates. Hard to imagine that they would extend the recent huge $1.25 T purchases of MBS next year. And current plans call for extending the average maturity of U.S. debts - not further reducing the average maturity.

So, yes, higher fixed mortgage rates could severely hurt Manhattan real estate prices.

However, perhaps individuals will shift to (dangerous) floating rate mortgages and (temporarily) reap the benefit of the Fed's very low short term interest rates.

Would that be a shift, or are individuals mostly already using floaters in Manhattan?

I have thought that most people have been favoring fixed mortgages over the past years with the rates as low as they have been.

Happy to have one of our mortgage specialists or brokers weigh in on this subject!

i would bet you that most of the mortgages prior to the last 12-18 months were ARMs particularly the bigger ones. and with relatively little down, very difficult to refinance into a fixed rate when rates fell without putting up a ton more equity. assuming 3,5, & 7 yr resets--the threes are probably resetting but doing so at the same or lower rate! another reason why this all takes a long time to play out.

For those who like to equate the stock market to the Manhattan residential market...lets talk about how gross the Goldman Sachs chart looks. Also Bank of America, Morgan Stanley and Citigroup while we are at it. Did I miss any? Oh wait, the rest were either bought or went bankrupt. Oh ok.... good stuff.

Rhino86
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You have no evidence that the stock market is the leading indicator of the Long Island City condo market...or the Manhattan coop market. But if you repeat it enough, maybe you can make it true...for Christmas.

And you, Rhino, have no evidence that increasing interest rates will result in falling real estate prices. As a matter of fact, inonada shot down this line of reasoning (sic) quite thoroughly in this thread (which is a Rhino classic by the way):

http://streeteasy.com/nyc/talk/discussion/15461-what-if-im-wrong?page=2

Why do you stalk me like a schoolgirl crush? I mean making threads about me? You won't let up. No one with half a brain denies that higher rates lower the prices of assets for which financing is standard.

Why do you have to curse like a gang banger who lives in the projects?

then why, during past periods of rising rates, did prices INCREASE, not DECREASE? Don't bother answering - we can all read the previous thread where it is clear that you have no answer, and as always resort to petty name calling when you are proven wrong. which is pretty much every single time you post. again, besides your genius prediction that prices would fall AFTER lehman went belly up, name a single thing you haven't been proven wrong about. the disconnect between your intellect and bravado is striking.

Oh, come on. The "f" word is colorful and legitimate. Much used by Richard Nixon, Rahm Emanuel, LBJ, etc. etc.
The_President: don't be so prudish and 1950's.

All the best entry points in real estate have come during periods of high interest rates, not low interest rates.

Listen fuckface, I was wrong that prices would fall further this past fall. I was right, after Lehman, that prices would fall 25-30%. I am correct that price to rents and cap rates are historically low right now. Other than us not falling further this past fall, what haven't I been right about? What predictions have I made publicly other than these two examples? What predictions have you made?

Please remind me when I made you feels like such a shameful little twit that you have been hounding me since with senseless bullshit, with such baboons in tow as LICC, AlpoDog, and HFS? You are among the dregs, do you get that?

Printer, if you want to get into bed with LICC and deny this are low cap rates and high price to rent ratios versus history..versus all of history prior to the advent of securitization...then by all means, enjoy that. You can call it the underwater club.

but prices did drop this fall...they havent stopped dropping for the last year and a half

I can't confirm or deny that prices fell this fall. They appear to be around where they were in Spring. Either way the same imbeciles who denied we could fall even after Lehman are calling me out for an easy prediction. Further I am wrong in everything else I have said because it hasn't played out between the Spring and the present. And to boot, they exist on this board to attack specific people...and their primary critique is that I repeat my point of view.

Ill repeat my point of view..manhattan RE is so overvalued thats its comical. only to be outdone by brooklyn