http://ny.therealdeal.com/articles/manhattan-housing-prices-edge-up-but-sales-slow

Apartment Sales Remain Vigorous in Manhattan

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By JOSH BARBANEL
Published: July 2, 2008

Despite slowing sales and continuing economic worries, market studies released yesterday showed that the Manhattan co-op and condominium market remained strong in the peak spring selling season, with prices up 25 percent or more compared with a year ago, and overall prices roughly flat or just below record levels.

Average prices reached about $1.67 million for a Manhattan apartment in the second quarter, 1 percent to 3 percent below the record levels reported in the previous quarter, according to the series of competing market studies prepared by the major brokerage firms in New York City.

But these figures include a number of closings over the winter at two immensely expensive new condominium projects — the Plaza Hotel on Fifth Avenue and 15 Central Park West — that drove up average prices in the first quarter.

When these high-end sales were excluded for the second quarter, Gregory J. Heym, the chief economist of both Halstead Property and Brown Harris Stevens, said his figures still showed that average sales prices were actually up about 5 percent over the first quarter. “Prices are at incredibly high levels,” Mr. Heym said.

Yet Mr. Heym and other analysts said there was increasing concern that prices would remain flat or perhaps decline over the next year, especially if the economy continued to weaken. So far, he said, despite reports of recent and impending layoffs, the local economy has “yet to show any real weakness.”

While luxury sales remained very strong, the reports showed slowing sales and weakening prices for studios and one-bedroom apartments, where buyers are extremely sensitive to tighter lending requirements and larger down payments now being demanded by mortgage lenders.

The number of sales dropped sharply, by about 22 percent, compared with the second quarter of 2007, which was a record year for sales, according to an analysis released by Prudential Douglas Elliman. But at the same time, the number of sales was higher compared with the same period in 2006.

The inventory of unsold apartments rose to 9,968 in the second quarter, 21 percent higher than the year before, according to a tally by the Corcoran Group. But the total number of apartments listed for sale in June had fallen by 1.2 percent since April, and was reported to be below inventory levels of several years ago.

Strong luxury sales and faltering studio sales had the perverse effect of catapulting the median price — the price of the apartment exactly in the middle of all sale prices — to a record. It was close to or slightly above $1 million, depending on the report.

The report by Prudential Douglas Elliman found that average co-op prices fell by 8 percent compared with a year before, to $1.28 million, while the average condo price fell by 2.3 percent, to $1.94 million.

Pamela Liebman, the president and chief executive of the Corcoran Group, said there was “a lot of pressure on one-bedrooms and studios” but that “anyone who thinks price appreciation is over in this market is dreaming.”

The flat sales picture has led many brokers to look back on 2007 as the golden age of Manhattan real estate, when inventory was falling and prices were rising regularly to new records.

Ms. Liebman said that while “everything was perfect in 2007,” the party was far from over. “It is still a party,” she said. “We are just not serving Cristal.”

Jonathan J. Miller, the president of Miller Samuel Inc, an appraisal firm, who prepares the market report for Prudential Douglas Elliman, said that the decline in average prices was the first since the fall of 2006, and could augur a turning point in the market.

“We are looking at several years of lackluster performance at best,” Mr. Miller said.

Dorothy Herman, president and chief executive of Prudential Douglas Elliman, said that “obviously the frenzy mentality is gone,” and she predicted that the market would be flat or down slightly during the rest of the year.

She said buyers were cautious and price sensitive, and lenders were requiring a lot more cash down. Still, she said, “New York was different from the rest of the country,” and she said that bidding wars over well-priced apartments would continue. “I don’t think New York is going to collapse,” she said.

For the first time, the report by the Corcoran Group distinguished sales of new condo and co-op apartments from sales of existing apartments, which is similar to the way real estate sales data is collected across the country.

The report found that the average sales price of existing apartments rose 10 percent compared with a year ago, to $1.43 million, and fell 8 percent from the first quarter. But average sale prices at new developments rose to $2.2 million, a 61 percent increase from a year ago, and a 17 percent increase from the first quarter.

In Brooklyn, the report found that co-op and condo prices rose 5 percent in the first half of 2008 compared with a year earlier, to an average of $621,000. In Williamsburg, where the prices were highest, the average price fell by 26 percent. The average price of a single-family town house fell by 17 percent in Brooklyn, to $1.2 million.

Hall F. Willkie, the president of Brown Harris Stevens, said that the market reports reflected closed sales, based on contracts that were signed in the last 3 to 12 months. But based on contracts signed recently, he said that sales were off 16 percent this year, but the total value of sales was roughly equal to the total value of sales a year ago.

“If properties are priced within their value range, they sell and they sell well,” he said.

Thanks, Spunky. The pipeline of 2007 contracts is still clouding the picture to some extent. The trend should be clearer by Q4.

I doubt it West81 due to so many conflicting statistics. One day they'll get it right but the debate certainly will continue for the remainder of this very confusing year.

Pamela Liebman, the president and chief executive of the Corcoran Group, said there was “a lot of pressure on one-bedrooms and studios” but that “anyone who thinks price appreciation is over in this market is dreaming.”

I guess we have a lot of dreamers here. Not saying that's bad for it's good to dream. Dream what a funny word.

"When these high-end sales were excluded for the second quarter, Gregory J. Heym, the chief economist of both Halstead Property and Brown Harris Stevens, said his figures still showed that average sales prices were actually up about 5 percent over the first quarter. “Prices are at incredibly high levels,” Mr. Heym said."

interesting,fascinating and intriguing

Isn't this being driven by the fact that there are so many less closings on studios and 1 bedrooms. So, the average price increases as the average size increases. It would be interesting to compare same size coops from qtr to qtr and year to year.

EAO trust me the doomers will read this report and come up with all kind of suggestions and hypothesis as to why this can't be so. I like your less closing hypothesis for why prices are higher but then again it's only the first I've seen so far.

If you multiply this data by a factor that Steve makes up it means that all sales prices are actually down 35% and not one landlord in the city is making money on his rental units.

If that really looks good, then read this...

Manhattan Second-Quarter Apartment Sales Drop Most Since 1998
2008-07-02 00:01 (New York)

By Sharon L. Lynch
July 2 (Bloomberg) -- Manhattan apartment sales dropped the
most for a second quarter since 1998 and unsold inventory
approached an eight-year record, two signs prices may be poised to
drop in the nation's most expensive urban housing market.
Sales fell 22 percent from a year earlier and inventory rose
31 percent to 6,869 units, New York-based real estate appraiser
Miller Samuel Inc. and broker Prudential Douglas Elliman Real
Estate said in a report today. The median price of a co-operative
or condominium apartment increased almost 15 percent to a record
$1.03 million, lifted by new developments.
Transactions are declining as financial firms have announced
plans to cut almost 90,000 jobs after taking more than $400
billion in mortgage-related losses and writedowns. Those companies
may lose as many as 175,000 employees by next June, according to
executive recruiters such as New York's Gerson Group, casting a
pall on a property market driven by Wall Street compensation.
``People are asking: `Am I going to have a job?''' said
Pamela Liebman, chief executive officer of the Corcoran Group, a
Manhattan-based real estate brokerage that also issued a price
report today. ``There is a lot of uncertainty and uncertainty puts
people on the sidelines.''
The U.S. housing slump started in mid-2005 when sales of new
and existing homes began to drop, bringing a five-year boom to a
close. Prices for existing homes started falling last July and
finished the year below 2006 levels, the first annual decline
since the Great Depression, according to the National Association
of Realtors in Chicago.

Longer Selling Time

While prices in New York City are holding up for now, buyers
remain wary and apartments are taking longer to sell. The average
time spent on the market rose 15 percent to 135 days, according to
Miller Samuel. At the end of May, there were 7,320 housing units
for sale in Manhattan, the second-highest number for the month
since Miller began keeping records in 2001.
``There is sort of the anticipation, the expectation that the
other shoe is going to drop,'' Miller Samuel President Jonathan
Miller said. ``I think for this quarter, it hasn't.''
All four reports issued today show price increases. Corcoran,
owned by Apollo Management LP, and the New York-based brokers
Brown Harris Stevens and Halstead Property LLC, owned by Terra
Holdings LLC, produced reports in addition to Miller's. The
figures vary in part because the brokers include some of their own
sales that have yet to show up in the city's public records
database.
Manhattan apartment prices rose 3.6 percent in 2007,
according to Miller Samuel.

Luxury Sales

About a third of second-quarter closings were new
condominiums, some of which went into contract before turmoil hit
the credit markets last August and September, said Gregory Heym,
chief economist for Terra Holdings.
Many of the units closing now are multimillion dollar
condominiums at the recently converted Plaza and at architect
Robert A.M. Stern's 15 Central Park West.
Those properties helped drive the median condominium price up
almost 22 percent to $1.3 million in the three months ended in
June and contributed more than three percentage points to the
city's overall increase in median price, according to Miller.
Without them, the median rose 11.2 percent, Miller said.
Goldman Sachs Group Inc. Chairman Lloyd Blankfein, former
Citigroup Inc. Chairman Sanford Weill and rock star Sting have
bought units at 15 Central Park West, where the apartments have
heated bathroom floors, Vermont marble countertops and six-burner
Thermador ranges.

Future Bonuses

Other buyers there include Nascar Inc. Chairman Brian France,
who paid $10.7 million, and Mitchell Julis, co-founder of the
asset management firm Canyon Partners LLC, who paid $10.2 million,
according to city records.
Once the remaining units in Stern's building and the Plaza
close, average prices may drop as much as $200,000, Heym said.
``I don't expect to see any dramatic price change before the
end of the year,'' Heym said. ``The real telling thing will be
Wall Street bonuses and how the city looks going into 2009.''
Prices of two-bedroom apartments rose 18 percent to $1.65
million, the biggest increase for any size category. Studios rose
almost 12 percent to $480,000, one bedrooms increased 11 percent
to $778,961, three bedrooms by 3 percent to $3.7 million and
apartments with four or more bedrooms climbed 11 percent to a
median of $7.35 million, Miller's data show.

`Kiss the Ground'

The top end of the residential market remained the strongest
as wealthy buyers bought condominiums with amenities such as gym
and spa services, hotel-style room service and swimming pools.
The median price of a luxury apartment rose almost 38 percent
to $4.95 million in the Miller Samuel survey and 35 percent to
$4.88 million, according to Corcoran. Both companies consider
apartments of more than $3.1 million as luxury.
``Real estate markets go up and down, and when it comes to
New York City, it's an island. There's not a lot of land, and
it'll survive,'' said Dottie Herman, chief executive officer of
Prudential Douglas Elliman. ``I think we need to kiss the ground
because we live in New York.''

jccliton the following sums it up in that report as well

"While prices in New York City are holding up for now, buyers
remain wary and apartments are taking longer to sell"

jclifton - your article also says "Record sales prices" while the number of units is down from an all time record. I think that this is pretty good news. So far we are a year and a half into the worst credit crisis we will ever see in our lifetimes and Manhattan prices are up.

I think that all those sideline sitters may not be sitting too much longer. There could be a nice pop in Manhattan real estate going in 2009 with number of units sold up and prices up 15%.

i'm a little suprised prices have fallen--even without the luxury sales, it looks like prices are still up slightly (per the article). If history is any guide, it seems the real estate market in the city lags the rest of the country as well as the other parts of the economy in the city. The conditions are right for prices to fall, so it'll be interesting to see how everything pans out.

Nothing new, move on. Malraux has a Case-Shiller theory to share with us.

As we have seen in the past, the first sign of an inflection point towards a deflation in value in real estate (or relatively illiquid asset classes) is a *substantial* drop in transaction volume.

The drop *must* be substantial and not an incremental degradation. During this transitional period, the "value" or "price" of the asset typically flattens out. Such is the expected behavior of inflection point towards deflation of an illiquid asset class.

As reference, this is exactly what transpired in the rest of the country already- there was first a large drop in volume from record sales transactions, yet prices held steady and in some places, even went up as the higher end of the real estate market help up longer than the lower end, skewing the median price average upwards. If I recall correctly, this lasted for 3-4 quarters before the prices started coming down rapidly.

We see the large drop in volume of transactions here in Manhattan. Interestingly, we also see median prices increasing as the high-end hangs on while the lower-end drops off (i.e. sales of studios and 1-beds dropping), skewing the median price upwards.

What we are seeing is a repeat of what happened to the rest of the country. From that, we have learned that inflection points take time as real estate is illiquid, and if what happened in the rest of the country happens in Manhattan, which the argument can be made due to the large drop is sales transaction volumes from a peak record, then we can expect another 3-4 quarters before "the other shoe drops" to quote the article above.

This is consistent with what Heym and Miller stated:

"``I don't expect to see any dramatic price change before the end of the year,'' Heym said. ``The real telling thing will be Wall Street bonuses and how the city looks going into 2009.''

"``There is sort of the anticipation, the expectation that the other shoe is going to drop,'' Miller Samuel President Jonathan Miller said. ``I think for this quarter, it hasn't.''"

Only time will tell, but if history proves correct, a substantial drop in volume for an illiquid asset will result in the eventual deflation of the asset's value. The time it takes depends on how illiquid the asset itself is.

From the Bloomberg article:

"http://www.bloomberg.com/apps/news?pid=20601087&sid=a05lmF8fkldM&refer=home"

"The U.S. housing slump started in mid-2005 when sales of new and existing homes began to drop, bringing a five-year boom to a close. Prices for existing homes started falling last July and finished the year below 2006 levels, the first annual decline since the Great Depression, according to the National Association of Realtors in Chicago."

So, as I mentioned, there is a 3-4 quarter delay from when sales transaction volume dropped to when prices started falling. Looks like closer to 4 quarters.

MMAfia, you don't know anything. Just because today's data - except inventories - are 6 to 9 months backward-looking means nothing. Real estate never falls in value in Manhattan, and I'm moving in next door to Lloyd Blankfein at 15 CPW.

How many 2007 sales were from buyers with a Manhattan address? I wonder how many sales were Manhattanittes flipping or trading up? If this number was substantial, logic would say that most people who plan to stay in Manhattan will delay buying or selling owner occupied real estate in a slower market. Available inventory would then be limited to news devs and people moving out of Manhattan. Unless there is a mass exodus from the city, I don't see inventory reaching the 13000-15000 levels some folks on this board have predicted. Stagnation is more likely.

Let's take a look at some telling facts acc to Miller Samuels and Douglas Elliman:

Manhattan Inventory - Up 31% (Ok so perhaps new developments added to this bloat)
Manhattan Sales - Down 22% (how do you explain this?)
Average time spent on the market for a unit to sell in Manhattan - Up 15%

I think these might not say the whole story - but compelling by itself about the state and direction of the market in general.

Love the quote by Dottie Herman though - it was priceless.

cheers,

JuiceMan, good points. I imagine it's impossible to gauge how many people are leaving Manhattan. I don't see inventory reaching 13-15k; that just seems like a bit of a stretch. That said, I don't know how anyone can look at these trends and expect price to be up in 2009. I'm guessing they'll stay pretty flat or come down a bit.

petrfitz, how can prices go up 15%? What about all those crazy healthcare costs? :)

MMAfia I have been reading Gold owners, buyers etc blog sites. Interesting to note most of those who are bullish on Gold consistently use the words depression and worldwide economic destruction. I guess they beleive if we have a depression or something horrible occurs that their Gold bullions will go up in value big time. Interesting reading stuff nonetheless.

Since Manhattan just experience the largest drop in sales transactions for Q2 (the busiest quarter) since 1998, which is a decade ago, I'd like to know if someone here can pull up some statistics on previous retrenchments in sales transactions and what ensued in the following 3-4 quarters.

What I'd like to see if is anyone can show a situation where a substantial drop in sales transactions did NOT result in a substantial drop in prices.

To my knowledge, I can't think of one, but I'd like to see if people here know of any.

Hey spunky, yes- that is the nature of Gold Bugs since it's a hedge against uncertainty, whether political or inflation/currency devaluation-wise.

This is an excellent source:

http://www.financialsense.com/index.html

Read Frank Barbera's commentary. I've been reading his postings for the past few years and he has had the highest percentage of making the right calls, whether it's Gold, Gold Stocks/ETFs, or the stock market in general. He also made a lot of money during the DotBust days by shorting the stock market at the time.

for those who believe the market is strong, can we assume you're better buyers at these levels?? spunky?? furthermore, some might say the inventories are much higher given the large number of condos going directly to the rental market. bottom line.....prices are coming down.

stevejhx, you are right- i don't know much. just have a lot of opinions. =p

I gotta tell ya folks, all these stats remind me of that commercial about cable companies. What looks like some high level executives are sitting around a conference table trying to figure out how they can 'beat' Direct TV. They come up with some crazy idea that goes like "50% of statistics and say 90% of anything 100% of the time". And congratulate themselves. Classic.

"Real estate markets go up and down, and when it comes to New York City, it's an island. There's not a lot of land, and it'll survive," said Dottie Herman, chief executive officer of Prudential Douglas Elliman. "I think we need to kiss the ground because we live in New York."

I don't even want my shoes touching the sidewalk half the time, never mind my lips.

BTW the size of Manhattan and the amount of available land do not affect prices. Shiller proved this by researching the price of a single property over 350 years in Amsterdam, where land is also limited. It had no effect on how much the price changed. What moves prices is income and leverage. That's it.

So supply doesn't affect price steve? Another one of your hare-brained comments . . .

"Strong" market? Wow, lots of broker shills on this board.

Shall we look at the actual facts here?

Lets see... the biggest driver of apartment money (33% of 2007 NYC income) is laying off almost 100,000 people (and reports of up to another 75k to come)... bonuses will be halved or quartered for the remaining folks... commercial real estate vacancies jumped 35% in a year... commercial bankruptcies in the city *tripled* ... crime is up, particular in the "hot" gentrification areas... manhattan co-op sales nearly HALVED (46% decline)... Manhattan inventory at an 8 year peak... Time on market up 15%.... 50% of new condos in Brooklyn built since 2005 are unsold... rental buildings in Manhattan are offering TWO free months PLUS broker fees PLUS no security deposit... and oh yeah, and we're in the worst economic crisis in decades.

Only a moron or a broker could call that a strong market.

I like the NY Times article better. Shame on Bloomberg for giving in to the bitter renter agenda with that hit piece on the Manhattan market!

"What I'd like to see if is anyone can show a situation where a substantial drop in sales transactions did NOT result in a substantial drop in prices."

MMAfia, fair point assuming inventory increases as well. If sales and new listings slow, you will not see a substantial drop in prices.

"What I'd like to see if is anyone can show a situation where a substantial drop in sales transactions did NOT result in a substantial drop in prices."

I can. I am in NJ, so we are far ahead of you in the correction. Sales are down 40%, yet prices are only down about 5%.

EddieWilson you forgot to mention that no one will be living in Manhattan next year except for har core criminals. You forgot to include that fact as well.---lol

In contrast, sales AND prices in some western states like Arizona and California are both down over 25%. So sometmes large drops in sales translate into large drops in prices, and sometimes they don't.

alpine292, what does inventory look like in your area of NJ?

"I like the NY Times article better. Shame on Bloomberg for giving in to the bitter renter agenda with that hit piece on the Manhattan market!"

We kidding with that? The NYTimes RE section is there to sell ads for brokers and buildings. Its own editor even admitted that. The day the front page of the times officially announced the crash, the RE section did a piece on how rosy everything was. Sorry, man, but your source is broker shill magazine.

Not to mention, right now it clearly aint the renters who are bitter... they're the ones who got it right and are profiting from the bust.

"EddieWilson you forgot to mention that no one will be living in Manhattan next year except for har core criminals. You forgot to include that fact as well.---lol"

No, because I was including only actual facts.

If you think what I said was scare tactic, then MAN close your windows and hide in the basement, because the realities of the market are gonna hit you awful hard.

All I did was give the data...

okay thanks Eddie and I will take your advice and head for the hills.

so the net of this report is that since Steve and MMAfia called for a crash in NY RE sales prices are up 23% and sales volume is down from a record.

No, the net of this report is that the NY Times article has a decisively more "positive spin" on the released data than Bloomberg, which had the headline "Manhattan Apartment Sales Record Biggest Second-Quarter Decline Since 1998".

So, the data is the data is the data which has been published.

How you choose the data is a different story. NY Times does have a lot of revenue generated from real estate as well as real estate ads. Bloomberg.com does not have as much. Clearly, depending on your current position, you can take the data and "morph" into your own "reality".

And that is the net of this report petrfitz.

I'd love to see just co-op data. So far, I know sales are down 46%. But what's up with medians, and maybe even PSFs. Because even brokers are admitting the going is tough (check Urban Digs)

"So supply doesn't affect price steve? Another one of your hare-brained comments . . ."

I didn't say that, LICC. What I said was the fact that land is in limited supply does not affect price over time. That's not a hare-brained comment; it's a proven fact.

It's a proven fact, LICC, because demand is elastic, and it depends on price. If every apartment in Manhattan were priced at $100 million, it wouldn't matter if there were 1 million of those units. There is not enough demand at that price to fill all of those apartments.

That is why limited land does not affect price. Prices must be in line with incomes. If they are not, the supply can be unlimited, yet no one will buy.

You need to take Econ 101.

"We kidding with that? The NYTimes RE section is there to sell ads for brokers and buildings. Its own editor even admitted that."

Actually, the editor did admit that.

Yes, I was kidding with that comment I amde about the NY Times.

"The inventory of unsold apartments rose to 9,968 in the second quarter, 21 percent higher than the year before, according to a tally by the Corcoran Group."

How can this be? The steet easy box on UrbanDigs is at roughly 7,500! Where are these extra 2,500 apartments? Uh-oh, I think someone has to update their numbers!

alpine292, noticed that as well. That's a LOT to account for. Where do they get their data from?

Prices are not up 25% perfitz. 15 CPW and the Plaza are hiding price declines.

"alpine292, what does inventory look like in your area of NJ?"

I am noticing inventory declining. We never got out of control with inventory since there is very little available land to build new houses on in most parts of the county. The main segment of the market getting hit with tons of inventory are those over $3 million, as many of these houses are built in more rural towns with lots of avialbale land. Right now, the builders are waiting for rap singers, Wall Street executives, and foreigners to buy their spec houses.

Dottie Herman says that prices will be down? It looks like Hell has frozen over!

"There's not a lot of land, and
it'll survive,'' said Dottie Herman, chief executive officer of
Prudential Douglas Elliman. ``I think we need to kiss the ground
because we live in New York.''

Screw you Dottie Herman! I am not kisisng the ground that some homeless guy just took a piss on!

Just to clarify some misinformation, demand does not depend on price. it is exactly the opposite, price depends on demand. this is the most basic concept of supply/demand analysis.

Let us be clear, alpine: there is a limited supply of EVERYTHING on the face of this earth and, in fact, the universe. Land in Manhattan, ice cream sundaes, newspaper ink, and (thankfully) real-estate agents.

Therefore, it must be obvious that a limited supply does not in and of itself determine price. It is what demand there is at that price. LICC does not know this. LICC does not know that there is limited land in Long Island City, as well, but somehow only the limited land in Manhattan affects price.

There's limited land on Long Island, and prices are plummeting.

Right now in Manhattan we are seeing prices far higher than most people can pay. That's why there are so many price drops in current listings. (25% in the last 60 days.) There is neither the income nor the leverage needed to buy at these levels. Hence, supplies will increase until prices fall.

The same would happen if you take a product with a far higher supply: potatoes. If Gristedes tried to charge $5 for a potato, their customers would migrate to rice, and they'd sell very few of those overpriced potatoes. Because no one HAS to have a potato, just as no one HAS to live in Manhattan, either. How many people live here depends on how much they have to pay to do so with respect to how much they earn and how much leverage they can use.

If suddenly tomorrow a million people descended upon Manhattan demanding the right to live here, I think you'd see zoning laws change really fast, and lots of tenements would be torn down and high-rises built.

All these arguments by LICC and spunky demonstrate their ignorance of basic economic theory.

"demand does not depend on price. it is exactly the opposite, price depends on demand."

No, actually, mshlee, sorry.

"The Price Elasticity of Demand (commonly known as just price elasticity) measures the rate of response of quantity demanded due to a price change."

http://economics.about.com/cs/micfrohelp/a/priceelasticity.htm

You have been proved wrong so many times, I honestly don't know why you continue to post.

"price depends on demand" is truly absurd. Everyone demands housing. If the price of housing were to be dependent on that, then housing would be infinitely expensive.

Contrast price elasticity of demand with price elasticity of supply:

"The Price Elasticity of Supply measures the rate of response of quantity demand due to a price change."

http://economics.about.com/cs/micfrohelp/a/supply_elast.htm

That measures how many goods will be supplied at what price. The more more people are willing to pay for a good, the more of that good will be supplied.

Market equilibrium is at exactly the price where the amount demanded is equal to the amount supplied.

OMG.

According to mshlee, price elasticity of demand should actually be known as demand elasticity of price.

LMAO.

"Prices are at incredibly high levels," Mr. Heym said.

Why would you want to buy now at such high levels? Remember? Buy low, sell high? Buying now only puts you in vulnerable position if prices took a downturn. It seems as though we're in the "Buy high, sell higher" territory, which usually means that someone eventually ends up with "Buy highest, sell for much, much lower."

Buying low and selling high rarely works. Instead, it is much more realisit to buy high and sell higher. If you wanted to buy low, you should have bought in 2002. Too late now!

Sales are down considerably in my area. Yet, there is one house I am tracking and they have it listed for exactly $1,000 less than they paid in 2005. (bought for $1,350,000, currently listed for $1,349,000). So anyone looking for steep discounts will be very disappointed.

steve, you need to repeat the 8th grade, high school, some basic college courses, and then try to take an economics class. Maybe then you'll somehow grasp it.

You said: "What moves prices is income and leverage. That's it."

I ask again - so supply doesn't affect price? Your example was also ridiculous. If Manhattan had 1 million apartments available, they wouldn't be priced at $100 million. The supply would bring the price down until it met demand (with the price ultimately determined by this along with other factors, such as interest rates, the availability of capital, etc.) When people discuss the lack of land availability in Manhattan, that basically leads to the idea of limited supply given the demand. Many more people want to own a place in Manhattan than there are existing places to purchase. As much as new construction and conversions add to supply, it can only add so much because developers can't just keep expanding in every direction due to geography. I think a 10-year old can understand this, so you should be able to catch on at some point.

I graduated cum laude with an economics degree, was a member of Omicron Delta Epsilon, and work for one of the most prestigious investment firms in the world. What are your economics credentials, other than looking on the internet for some concepts.

I have no vested interest - I don't own but also have no plans to buy as i value the flexibility of renting. However, i have to say i think it's beginning to look as though the big surprise will not be that the bears are correct, but that even the bears have been too optimistic.

We are going through a de-levering of epic proportion. So far the modest inventory build is a result of a normal level of units up for sale being met by few buyers. That means we haven't even scratched the surface of selling pressure. In the next few years i expect the following: 1) foreign buyers turn to sellers as their local economies weaken and nyc real estate is no longer attractive as people realize it can go down, 2) everyone without a job realizes (after 6 months of looking for a new job) that it isn't prudent to have a big % of their net worth in an illiquid apartement (the value of which is correlated to the finance industry), 3) massive tax increaes on the "wealthy" (i.e., everyone in manhattan) from a democratic administration, 4) a rush to lock in gains (if any are left) before the capital gains tax rate goes up in 2010; 5) selling and falling values leading to more selling.

Has anyone contemplated a 50% fall in prices? How can that be ruled out?

Alpine

If the house is listed for exactly the same price as what it was in 2005, I think it is priced more realistically than most RE in NY. That means its off at least 30% off supposedly 2008 prices. Prices were up 30%+ in the last two years. Given that is a pretty steep discount.

alpine292: If that house in your nabe is selling for $1,000 less that it sold for in 2005, that means that all the gains for the last 3-years have been wiped out. This was a time when the market was climbing by double digits every year, so the fall has been dramatic. Adjusting for inflation between 2005 and 2008, that actually means that the house is worth even less in real-terms. Given that the market hit it's peak in 2007, I would argue that being able to buy at sub-2005 levels could be considered a steep discount. There's also the possibility that prices continue falling from their highs, so that instead of sub-2005 prices, you may be looking at sub-2004 prices in the future.

My point is that the argument of "You better buy today because prices will only be higher tomorrow" aka the "The Bigger Fool Theory" is an awful reason to be making one of the biggest purchases of your life.

LICComment: I've won "World's Greatest Mom" 4 years in a row. And I have a good feeling about year-5.

Steve your ignorance and arrogance never cease to amaze me. This post is for everyone but steve since I already know it is a waste of time trying to correct him since he is always right.

Basic (and I mean undergraduate 101 course) in econ will tell you that demand is not influenced by price. Demand is driven by factors such as income, number of purchasers, etc. price will impact the quantity demanded – not demand and not the elasticity of demand. Quantity demanded is a point on the demand curve. If prices go up, the quantity demanded goes up. Demand is not changed. This is a fundamental principal that is key to understanding supply and demand. Some of the drivers of real estate demand are:

- Employment, wage rates,
- Quality of life (decreasing crime, etc)
- Expected appreciation
- Cost and availability of capital
Etc.

If you do not understand this point, your supply/demand analysis will be incorrect.

LIC since your credentials indicate that you actually understand economic concepts (rather than regurgitate irrelevant clippings that have nothing to do with the topic) would you agree?

LICC: steve, you need to repeat the 8th grade, high school, some basic college courses, and then try to take an economics class. Maybe then you'll somehow grasp it.

You said: "What moves prices is income and leverage. That's it."

"I ask again - so supply doesn't affect price?"

Not the way you first implied it did.

"The supply would bring the price down until it met demand (with the price ultimately determined by this along with other factors, such as interest rates, the availability of capital, etc.)"

Partially correct. You forget price elasticity of supply. It may well be that at the price that people are willing to pay, no one is willing to supply, in which case nothing will be sold

Which, of course, leads to INCREASING INVENTORIES, which is - I think - what we are seeing. There is diminished demand at the current price level of the supply. If demand does not increase at this price level, inventories will continue to rise. What determines the demand for housing at any particular time is incomes and leverage: that is the maximum anyone can afford to pay.

"When people discuss the lack of land availability in Manhattan, that basically leads to the idea of limited supply given the demand."

That's simply not true. Lack of land has nothing to do with it. There is endless land in Las Vegas, yet prices shot up. There is limited land in Manhattan, yet prices shot up.

"Many more people want to own a place in Manhattan than there are existing places to purchase."

Apparently not, because inventories are rising.

Moreover, that (ridiculous) comment implies that there is demand in Manhattan at any price, when there plainly is not.

"I graduated cum laude with an economics degree, was a member of Omicron Delta Epsilon, and work for one of the most prestigious investment firms in the world."

You must have forgotten what they taught you. Dust off your Samuelson and reread price elasticity of supply and demand, and get back to me. And while you're at it, reread that paper I sent you on calculating the tax benefit of the mortgage interest deduction, and tell me whether it says that the effective or marginal rate is used.

Thanks.

This is mshlee's idea that demand drives prices. It does not. Price drives demand.

Guys, what is going on here?

1.
Price is dependent on both supply AND demand, which is why the intersection of BOTH curves is the equilibrium price point. Let's get that out of the way.

2.
Elasticity determines the shape of the supply and demand curves.

In Manhattan, we have the argument that supply is inelastic, since it is on an island. Let's assume that it is perfectly inelastic (there's no more land to build housing on!!!)- that would result in a VERTICAL supply curve.

In this scenario, since supply is perfectly inelastic and vertical, changes in the equilibrium market price will be completely driven by shifts in the demand curve.

3.
Now, what will drive shifts in the demand curve you ask? Well, that is what we are all firing back and forth about here, no? Job loss, recession, speculation, psychology... the list goes on and on.

Additionally, the market is not necessarily always in equilibrium due to inefficiencies in the real world. Prices can be at a different point than the intersection of the supply and demand curve, at which point the price will shift to where the intersection point is. The key, at least in theory is, that in a free market, forces always shifts the curves so that they go back into equilibrium.

What we have going on right now is that the price is higher that the equilibrium point. There is a gap where the demand curve quantity is less than the supply. This gap is consistent with the "declining sales volume" we have just confirmed with today's news releases. What has happened is that the demand curve shifted downwards, yet the market price has not gone down in tandem, hence the inefficient market condition we have today which is evident in the drop in sales transactions.

This is exactly my point earlier- illiquid assets don't adjust instantaneously to shifting market forces. It takes time. We have just seen a shift in demand to the downside, and prices have not adjusted accordingly due to the illiquid nature of real estate. Eventually, the market will re-adjust back to equilibrium, at which point prices will be at the intersection of the reduced demand curve and inelastic supply curve. This is what I was referring to will take probably 3-4 quarters based on historical market evidence.

Yes, economics is one of my undergrad degrees and I also have a cumlaude in my diploma, and I work for a well-known firm, and blah blah blah but that doesn't matter now does it?

All that matters is the analysis.

"Basic (and I mean undergraduate 101 course) in econ will tell you that demand is not influenced by price."

What?!

It costs you $10 to buy a potato. How many will you buy?

It costs you 50 cents to buy a potato. How many will you buy?

The very definition of price elasticity of demand is HOW MANY UNITS OF X WILL BE SOLD AT PRICE Y? HOW MANY UNITS OF X WILL BE SOLD AT PRICE Y+1?

This is fantastic: "Basic (and I mean undergraduate 101 course) in econ will tell you that demand is not influenced by price. [...] If prices go up, the quantity demanded goes up. Demand is not changed."

How can the quantity demanded go up yet the demand does not change?

What is the demand if not the quantity demanded?

There is a price axis and a units demand axis, and it measures THE DEMAND IN NUMBER OF UNITS AT A SPECIFIC PRICE. There is no difference between "demand" and "quantity demanded." The quantity demanded is the demand. What else could it be?

Show me where it says that "Demand is driven by factors such as income, number of purchasers, etc."

This is amazing.

"regurgitate irrelevant clippings that have nothing to do with the topic."

Do you mean that the very definition of price elasticity of demand is an "irrelevant clipping"?

"Some of the drivers of real estate demand are:

- Employment, wage rates

I think I said this.

- Quality of life (decreasing crime, etc)

That is subjective and cannot be measured. Denver has one of the highest crime rates in the country, yet there is still demand.

- Expected appreciation

I think you forgot depreciation.

- Cost and availability of capital

I think I said this.

Etc."

Somehow I think your point is that price does not affect the demand curve. You are correct. The demand curve is determined by other factors. But actual demand is a function of price.

Um, wow. Gotta admit that steve-o is on the money with this one.

Exactly right Msclee. Just like the effective and marginal tax rate issue, steve is in over his head and can't admit.

iMom - you have my vote!

steve, you need a basic lesson on demand and supply curves. You are mixing concepts and you don't know what you are talking about. Although I ultimately may disagree with MMafia on certain facts, his analysis is intelligent and valid and he knows of which he speaks, unlike steve.

MMAfia is (yet again) absolutely correct in his discussion of supply and demand. It is what I have said, albeit in a different way.

My point - which seems to be lost on some - is that the quantity demanded depends on the price. The demand curve - as I said - does not.

And all the factors that MMFfia mentions that shape the demand curve are correct. "What we have going on right now is that the price is higher that the equilibrium point."

I've been saying that for months, just as I've been saying that the market price for goods and services in a free market is the output value, not the input value. That's why it makes no sense to pay more for an apartment than it would cost you to rent it: the free-market rental price is the output value.

Economics is my undergraduate degree, and I graduated in the top of my class at George Washington University. Not that it matters.

evillager - he is mixing up demand and quantity demanded. demand is made up of the the quantity demanded at all relevant price points which forms a curve. demand is a very specific term. it is not just semantics, it is very important distinction because it is the differnce between shifting the entire demand curve vs sliding up or down the existing demand curve.

to say that price determines demand is wrong.

Thanks, evillager, I owe you one.

LICC, you can't agree with MMAfia and disagree with me. We are saying the same thing in different ways. Note what I posted:

"Somehow I think your point is that price does not affect the demand curve. You are correct. The demand curve is determined by other factors. But actual demand is a function of price."

I posted that at the exact same time that MMAfia was posting "Elasticity determines the shape of the supply and demand curves" and so I had not read that comment.

"You are mixing concepts and you don't know what you are talking about."

No in fact I'm not. As I and MMAfia said, the shape of the demand curve is dependent on factors other than price as it must be, but actual demand along that curve is solely a function of price since that's what the curve measures.

We are in a classic out-of-equilibrium situation right now, which is why inventory levels are rising and prices are starting to fall.

agreed mmafia. as you say, the demand curve has shifted downward. however that has nothing to do with the price of real estate. it has to do with the drivers of demand which you named a few. so sounds like you too agree that price does not impact demand but instead the quantity demanded (thats why inventory builds)

I graduated summa cum laude in pub crawling from getting laid as much as I can university.

"he is mixing up demand and quantity demanded"

No I'm not, msschlee. I made it very clear that demand exists along a curve: "Somehow I think your point is that price does not affect the demand curve."

Enough of this.

From steve - " . . . but actual demand along that curve is solely a function of price . . ." You really need to stop commenting if you don't want everyone to see how foolish you are. ok steve, so explain again how the supply curve has NO effect on price?

steve - MMafia effectively corrected some of your mistakes. You throw so many contradictory, muddled concepts out there and just hope something sticks. Just stick to what you know, you'll be better off. I'm not sure what that is exactly, but you'll find at some point.

juiceman wins the evillager "comment of the day" award

All this data says is that sales are WAY down and the only money coming in is from the super high end (multi multi million dollar homes) and the stupid money (probably foreigners and flippers)....there are a HUGE number of condos waiting to come onto the market as well as a HUGE number of rentals and people are losing their jobs left and right. This market is about to see the kind of crash it has never seen before. Buyers THINK - run the numbers and for God's sake do not buy right now unless you want to loose everything!!!!

i think we may see a monumental event here. from steve's "enough of this" comment i think he actually realizes he is wrong? could that be? it could be the first step toward admitting that he is wrong. part of a healing process.

come on steve you can do it. we are all pulling for you

KABOOM!!! CRASH!!! Sorry guys - it is so over - Manhattan RE down 75% - 80% in real terms in 2 years. This party has ended!!!

"You throw so many contradictory, muddled concepts out there and just hope something sticks."

Just get back to me on that effective / marginal tax rate business we were discussing.

MMAfia didn't correct anything of what I was saying. He said it better, but there was no correction. Need I repeat myself: demand is measured along a curve as a function of price. If you want to be absolutely, positively 100% semantically correct about it, the correct economic term is "quantity demanded." Nonetheless, I believe it was very clear to people what I was discussing.

The demand curve may indeed have shifted, but it's not necessary for the market to be out of equilibrium. The supply curve may have shifted. We've discussed that, as well: price expectations, that sellers believe that they are entitled to 20% YOY price increases. AKA flippers.

I in fact believe that both have happened, and have said so within the context of the "perfect storm": falling incomes, decreased leverage, and sellers who think they can get prices much higher than people can afford.

"actual demand along that curve is solely a function of price." That is true, because that's what the curve measures.

Unless you want me to say "actual quantity demanded."

Oh, much clearer!

mschlee, do I need to go back and find all the ridiculous things you've said in the past, and all the apologies that you owe me?

I think not. I think I was clear in what I said, and that it was understandable to all.

Steve - let them lose all their money - and so will the fools who listen to them - anyone buying now clearly is not intelligent enough to even run a simple numbers program to see how much more it will cost them to own than to rent. OH BUT JUST HOLD IT FOR 5 YEARS AND THEN YOU'LL BE FINE - yea right - know how much more your mortgage payment will be than it would cost you to rent? Know now much more your maintenance alone is going to increase - already at 1.50/sq foot on TOP of your mortgage - just keeps going up (oh, like rent??)....brilliant move to buy now guys... just let them - they should know better now and unless the govt comes to bail everyone out they will pay for it.....

anon3 although your points are valid many owners had to pass strict financial requirements before they can buy there co-op which represents most of apts in Manhattan. in other words that can afford ownership with assets to spare. Now if your rooting for most of the owners to lose their assets through poor investments well that's another issue.

Spunky - yes you are correct that many co ops require you to have particular financial reqs but at the same time last time I thought about buying banks were willing to give me a loan based on my bonuses - and in finance those bonuses last year and the years before are so much bigger than what they are today I am sure there are many that have completely overextended themselves...on top of this maintenance continues to increase at the same or higher rates than rent (throwing money away maybe?) - I never want anyone to lose money - I'm currently losing a ton myself in the stock market - I just advocate that people think about what they are doing and make smart financial decisions - and for those of you who actually are lucky enough to own Manhattan RE I would tell you to sell it while you can....take your gains, get out and count your blessings for having the insight to buy it when you did - just don't buy it now and don't hold it now.....

i correctly pointed out that you inaccuratly said demand depends on price. it does not as i pointed out, LICC explained, and mmafia gave a good example. not only was your statement inaccurate you then went on to ridicule me when i was in fact correct.

so, i'll say again what i said originally - price does not determine demand. it determines the quantity demanded. plot all the points for the quantity demanded at various price levels and you have the demand curve. demand refers to the demand curve, not a point on the curve.

you were wrong

Here are my facts to add to the fire:
1. Condo 702 sq feet, 1 bedroom, white glove condo, pool, health club, track around building, very high end building listed at 720,000. On market for 3 months. I put offer in at 672,000 1 month ago and I got the call today the broker will convince the seller to take it. Never in my wildest dreams did I think I would get that unit. I just went into contract on a unit that is basically the same kind of building 675 sq ft, 1 bedroom full river view, I got the unit for 645,000. 2005 pricing. My point is we could be at close to a bottom, time will tell, I was compelled to buy at these levels.Granted some will say just wait 1 year you will get that apartment for 575,000, but that river view might not be there and thats the chance I take. I believe it is hard to catch the bottom. So I guess I will have to report back in 1 year. I would also like to say that this tread is informative, no bickering, no I told you so's I congratulate all of you, I have said some things in the past that I was wrong to say and if I offended anyone I am sorry.

anon3, the most important thing for people here to know is that there is a difference between demand and quantity demanded. It doesn't matter that your average non-economist has no clue that there's a difference between the two of them, and nobody actually talks like that.

you see way back in the day, mschlee cited this article

www.ny.frb.org/research/staff_reports/sr218.pdf

trying to prove to me that housing prices are out of balance. What she failed to notice is that the report was published in 2005, not 2008, and included data only through 2004, wherein the conclusion stated:

"We find that from the trough of 1995 to 2004, the cost of owning rose somewhat relative to the cost of renting, but not, in most cities, to levels that made houses look overvalued."

Which is exactly what I have always said: the cost of owning should be no more than the cost of renting, and through about 2003 it wasn't. Then, things started to shift in 2004.

She also made all sorts of statements on how reasonable housing prices were based on Case-Shiller even though Manhattan is excluded because it only includes single-family homes (remember that, malraux!), and on data from the Office of Federal Housing Enterprise Oversight, even though those data only include conforming loans, and so are irrelevant here. She also made dozens of other bizarre statements none of which do I recall offhand, but since then she's been on a mission to prove me wrong.

So instead of going to the nexus of an argument, she tries to prove me an idiot because I said "demand" rather than "quantity demanded," even though what I was talking about was quite clear.

LICC tries to do the same thing because LICC thinks that mortgage interest is a better deduction than all other tax deductions and its benefit should be calculated at the marginal tax rate rather than the effective tax rate, though if you look at the Fed's paper at the link above, you will see that our magna-cum-something boy has no clue what he's talking about.

erratum: "are out of balance" = "are NOT out of balance."

steve, you were proven completely wrong on the marginal/effective tax rate argument and you are wrong here. We would respect you if you would just admit it. I'm done arguing with you about it because there is no more to say - you are wrong and you won't admit it.

anon I am not sure that the increase in maintenance is all that significant. I am really refreing to Manhattan not the Bronx or Staten Island. I am quite confident that those you lost their bonuses or Jobs have either the following
1: Enough assets as required by many co-ops to hold them at bay for at least a year or so.
2. A spouse that is generating income
3. Will have the skill sets to find another job
4. Have low monthlies because they have paid down their mortgage
5. Have decided to rent if they don't want to sell
6. Have the resources that they could never ever go back to work
7 Have no mortgages because they didn't need to take one out.

Stop the presses, I think I see Steve admitting that he was wrong (almost - well as close as we could ever hope)

Steve I never even addressed you in my post. I simply said price changes do not impact demand. You are the one who chose to try and prove you are intellectually superior by jump all over me and in the process ended up looking the fool.

My post was 100% correct. So why would you attack me for something that is true? You should be more open to other people’s views. You may actually learn something

Steve, you are so right - any rent v. buy calculator shows quite clearly that it is a far superior "investment" to rent than to buy anywhere in Manhattan- bulls here have no real arguments based in fact and quite frankly remind me of most religious crazies clinging to some fictional view of how the world works - so they call you an "idiot" or "stupid" or just resort to how you "can't understand" - however, in the end we will be the ones who are able to buy the RE and I feel bad for them - I see no actual arguments from the bulls that make sense - it is all MANHATTAN IS DIFFERENT, EVERYONE WANTS TO LIVE HERE, FOREIGNERS WILL SAVE US blah blah blah - same thing we saw in Miami and Las Vegas.....its over for them and they can't quite get it yet - but let's revisit this thread in a year......

"I never want anyone to lose money - I'm currently losing a ton myself in the stock market - I just advocate that people think about what they are doing and make smart financial decisions "

anon3, if you were such a brilliant finance guy, you wouldn't be losing a ton of money in the stock market right now. You have posted on this board many, many, many times about the advantages of renters investing their “would be down payment money” into the stock market. How's that working out for you? You may want to consider using a negative return on “would be down payment money” when doing that simple rent vs. buy analysis you mentioned. You’ll probably lose more capital investing in stocks then you would have if you just bought a place. Isn’t that the ultimate irony anon3?

LICC, wow! You're relentless. Go here:

www.ny.frb.org/research/staff_reports/sr218.pdf

read the bottom of page 6 and the top of page 7:

"The third component is actually an offsetting benefit to owning, namely, the tax deductibility of
mortgage interest and property taxes for filers who itemize on their federal income taxes. This can be estimated as the effective tax rate on income times the estimated mortgage and property tax payments."

Then see who published it: "Federal Reserve Bank of New York - Staff Reports."

That, magna-cum-something, ends that.

Yes, mschlee, "price does not determine demand. it determines the quantity demanded."

I believe it was clear what I was saying, but if it makes you happy to have me corrected semantically, then so be it! I'll make your day!

Now that that's over with, let's go back a few months:

http://www.streeteasy.com/nyc/talk/discussion/3171-caveat-emptor-manhattan-still-way-overpriced

mschlee: "i agree the market is slightly overpriced, but not by much. my guess is rental prices will come up and make the purchase to rental ratio even better."

I know it's emotionally satisfying for you to correct me semantically, but let us look at why.

Or let's go to this one in the same thread: "it's not a good idea to use price to rent ratio as a measure of value - it ignores factors that are very important, primarily interest rates and tax impacts."

Then let's look at what the Fed says: ""We find that from the trough of 1995 to 2004, the cost of owning rose somewhat relative to the cost of renting, but not, in most cities, to levels that made houses look overvalued."

Or this one of her comments: "if your argument is appreciation, the appreciation rates you use are skewed because you are using a very low base year. look at the appreciation in 2 bdr (the market you talk about in the 1-2mm range) from 1989 to 2006, 316k to 1,075k about a 7.5% compounded annual growth rate. a bit higher than the historic national average of around 6.5%, but not by much."

I could go on and on and on and on. Yes, mschlee, you are technically correct: quantity demanded, not demand.

Now, would you care to address these issues?

STOP THE PRESSES!

Let's see if mschlee can admit she was wrong:

mschlee: "i agree the market is slightly overpriced, but not by much. my guess is rental prices will come up and make the purchase to rental ratio even better."

mschlee: "it's not a good idea to use price to rent ratio as a measure of value - it ignores factors that are very important, primarily interest rates and tax impacts."

mschlee: "a bit higher than the historic national average of around 6.5%."

Your move.

you will make my day when you admit that you were wrong - not semantically but exactly. they are 2 different terms that mean 2 different things. you wanted to pick a fight, now admit that you were wrong in picking a fight. i simply posted a correct statement and you went on a rampage and later realized i was correct. but instead of just saying sorry you misunderstood and i am acually correct, you try to drag up old posts to again to prove how everyone is dumber than you. i wasted an entire thread trying to discuss the above post with you, i do not care to revive it.

mschlee: "i do not care to revive it."

mschlee: "i agree the market is slightly overpriced, but not by much. my guess is rental prices will come up and make the purchase to rental ratio even better."

I don't blame you. Neither would I.

lets not change the subject steve - the point here is my post about demand

darn i thought we were so close to a breakthrough for old steve. but again he changes the subject.

oh well i tried

"That means its off at least 30% off supposedly 2008 prices. Prices were up 30%+ in the last two years. Given that is a pretty steep discount."

That is not true. In NJ, we saw no appreciation in 2006 and 2007 so the price did not go down.

I now take back the no bickering, and the mindless remarks made by Annon3 are as meaningless and vicious as ever, we all agree the market is declining as all markets do because they are cyclical and experience downturns. What we don't agree on is the severity of the downturn or the duration and only the man upstairs knows that. Lets try to make comments that don't offend anyone, Manhattan is different and the foreigners will save are idiotic statements.