declining inventory on urbandigs

this is exactly what I have been describing in past few months...yes its picking up, yes contracts are being signed, yes its still most sluggish first 2 quarters in past 10 years, yes listings will be removed as we enter summer that have not sold

There's lots of volume moving in San Francisco. Does it matter that prices are down 41% YoY? I would think so.

Nothing to worry about. It's Just a little blip of irrational buyer exuberance. The thousands of careful, intelligent analysts waiting on the sidelines will have plenty of time to submit their competing bids down the road.

Noah, quick question..

Your graphic showing historical "active/transition/slow" periods suggests we should be in a period of transition right now -or at least slowing down. But contracts are continuing to pick up, suggesting the typical cycle is very different this year. In fact, the volume of contracts being signed has been steadily increasing since December, while the volume of new listings has been in decline since March. These two lines are about to converge, if they haven't already. The momentum suggests this will continue right into the typical slow period.

How do you reconcile this with the historical patterns you have been speaking about? And how meaningful is it look at year over year data today when we seem to have entered a new world?

Also I just noticed price reductions seemed to peak in Jan/Feb and now appear to be at nominal levels. Does this go hand in had with the number of contracts being signed, suggesting (gasp) support at current prices?

It'll be interesting to see second quarter Miller Samuel condo/coop prices. Part of the pick-up in contracts may reflect a further decline in prices.

"The thousands of careful, intelligent analysts waiting on the sidelines will have plenty of time to submit their competing bids down the road."

They most certainly will... long after the market has bottomed and prices increase. People who time markets lose 99% of the time.

Alpine,
Are you really saying buy now or be priced out forever? You are such a tool.

"In fact, the volume of contracts being signed has been steadily increasing since December, while the volume of new listings has been in decline since March"

This is normal...in regards to inventory/new listings, you must see where we came from. Up 100% since late 2007, up 40% in a year? If you dont do that you dont see the big picture. Even the year over year comparison will prove sluggish compared to boom years and trend (YES, there will be a tickup from Q1)...everybody keeps looking at the past 3 months, especially past 2 months, as 'yea, but this time is different, look.'

Yes its different, to the negative. But with real estate, its extremely localized and individualized in this city. Nothing goes in straight line, and volume will have patches where it picks up as it reaches a new comfort zone - equilibrium force at work. try to look at the bigger trend. Ask yourself, what if the market gets as slow as 4th quarter after Lehman again? Then what? What if you have to sell? What if buyers go away? Everyone looks in rear view mirror and tick up in past few months, and fail to understand that it is a result of reaching the first comfort zone and strongly tied to rise in general confidence with a 40% equity rally and media talk of green shoots and reflation trade. Thats how markets work. Media is helping our market and causing a tick up in demamd. Imagine that. Last year everybody blamed media for causing downturn. Funny how that works.

dont look short term for markets. fundamentals are still deteriorating, rents are falling, system of credit that we saw on way to peak is gone for a very long time, lending is much tighter, and there will be far more pressure on sellers, especially distressed ones, then buyers as this cycle plays out.

during the whole process there will be deals at every price and both tick UPS and tick DOWNs on a month to month basis. I promise you when this market ticks down again, brokers will go back to ignoring it and blame media for causing it again.

The bottom will be found when investors can buy homes and rent them out for positive cash flow. Until then, we head lower - slowly, but surely.

It would be nice to see whether inventory falls mainly due to listings being removed from the market, or whether we have actual contracts signed that are closing in higher rate than the listing coming into the market.

I think there is a qualitative difference between a listing that goes off the market (potentially coming back in a few weeks/months) versus a listing that closes and is comparatively less likely to be back in market in the immediate future.

"The bottom will be found when investors can buy homes and rent them out for positive cash flow. Until then, we head lower - slowly, but surely."

And why on earth would that be a sign of the bottom? Considerig that co-op boards shun investors, I doubt too many people are going to be buying individual apartments to rent out.

I did not say buy now or be priced out forever. What I meant is that most peopel who time markets fail. And the few who successfully time the bottom will do so based on LUCK, not because they are some sort of genius. I know of several people who thought they were so smart and decided to time the market. One such person is a Chicago MBA. He timed the market and sold his Hoboken condo in 2002. That's right, 2002.

Once co-ops have enough of their owners defaulting on maintenance payments, you might be surprised who'll they accept.
If you paid $1.5M for a co-op in 2008 and it's worth $900K six months from now, are you still going to pay your maintenance?
Many will walk and become renters.

"And why on earth would that be a sign of the bottom? Considerig that co-op boards shun investors, I doubt too many people are going to be buying individual apartments to rent out."

"Investors" typically invest in condos rather than coops for the obvious reasons.

Market-timing is, indeed, generally unwise.

However, at market "extremes" it makes sense to use a bit of common sense. Manhattan price/rent ratios are probably in about the 95th percentile of all observations - pushing a two-standard deviation event. In 1993, by contrast, price/rent ratios were in about the 5th percentile of all observations - also pushing a two-standard deviation event.

Some will, however, choose to buy. As a former boss observed, "That's what makes a market."

Urbandigs... Yes, inventory is through the roof relative to recent years but maybe we are getting a glimpse of the new norm. Is 11000 units unrealistic for a population the size of Manhattan? I don't quite buy that historical inventory levels represent the ideal level in todays world - the game and the rules have drastically changed. I think the glut of inventory resulting from last years Wall St. turmoil has already hit the market. Its being processed, tweaked and adjusted for a new savvy consumer who are now out there buying.

In the end I don't have a freaking clue what I'm talking about. Not a RE dude, not a financial dude. Just an observer who's been around the block once or twice... We have a lot of $hit and broken glass to walk through yet but I doubt we'll see a replay of last year and I'm encouraged by what I am seeing through my little window.

Pirot... i think there are a lot of properties on the market that don't need to sell. Its often reflected in stubborn unrealistic pricing. Those who really need to sell, price accordingly and sell to the current market value and move on. Those who aren't that serious are perfectly fine delisting and trying again in a few years. They could have a long wait though.

spinnaker1 - you make many valid points.
I just want to point out that 11,000 units, while not a lot compared to the population, is a ton of units for NYC. People forget the difference between the have's and the have nots in NYC. The median income in NYC is just $53K - yet my guess is the median price for these units that are for sale is $1,000,000. It just doesn't make any sense. There are only so many people who want to pay $1,200 ft, who could even get the loan and (most importantly perhaps) who don't already own something here that they like.

Alpine,

You're talking about timing a market that is going to take years to hit bottom. Many, many people are going to time it correctly. This isn't a stock that takes a tumble because of bad earnings and then has a blowout quarter the next. You will have more time than you think to get it right. All you have to do is look at the amount of ARMs that are going to reset in the next few years to understand where this economy is going.

OK positivecarry, what happens to the people with resetting ARMs? Do they walk because their rate resets? Are you comparing these folks to the subprime crowd? Do you have some supporting data that says % default? Just asking.

How much of this is just gamed numbers from brokers not using addresses in their listings (it keeps them out of Digs' inventory)? I just did a Times search and there were many Corcoran listings w/ just the street name, no number. They're starting to look like freekin' Ardor.

Also, when the gaming started it looked to me like Digs' widget lost about 1300 units, and when the problem was "fixed" it was still a few hundred shy.

I just checked recorded sales here and there were very few in my range.

with all the homeowner bailuts for homeowners and the fact that 70% of option ARMs are in CA and FL, concentrating on ARM resets is a waste of time.

Investors destroy markets. It would be to everyones' benefit if they do not buy.

Nonsense. Investors provide rental units for those who want to rent.

Good.

In the end, I don't see why the stock market rally changes the most basic facts: 1) 10% down payment, etc. is no longer available; 2) bonus prospects continue to be very unclear; 3) securitization mkts, generating lots of financial and legal employment, don't look like they're going to return to the pre-crisis levels.

So: 1) financing landscape has reduced the leveraging power of buyers, shrinking their buying power; 2) documentable income is way down, shrinking buyers' purchasing power; 3) employment is way down, shrinking the pool of buyers.

Doesn't this create a new equilibrium at least 30% lower than peak 2007-2008 prices?

At the peak, there is going to be around $8 Billion a month resetting. You can sit here and polish the brass on the titanic debating whether it's going to matter, and I'll bet against it.

Alpine,
I don't know what a bailut is, but I'm pretty sure there are plenty of ARMs here in nyc. To say otherwise is to have zero research. This is a job for some of us, and some have made a killing. Then there is you, RE bull and all day and night poster on a message board.

so positivecarry.. where's your research data?

I don't know why anyone purchasing in the past few years would get an ARM - the spread has been tiny. Anyone who's had a mortgage for longer has probably re-fi'ed. Also, with rates being what they are, most people are probably excited about a reset. I don't have much research either but I know that super-exotic loans like reverse-amortization loans, etc. are not allowed by co-ops and not particularly popular here. There are fundamental issues that will continue to plague NYC and its real estate but re-setting loans is probably not one of them.

I don't publish prop. data, but if you want to see for yourself ask any NYC broker how many people took out 30 year fixed. The numbers are staggering.....

And how could you say that what happens in the rest of the country (FL and CA) won't push this market down? Isn't that exactly what happened here? NYC firms held these loans, and now we're all paying for it.

"Investors provide rental units for those who want to rent."

Your right, they do. I've seen some of those very same units on Fox 5... you know, the segment where the camera guy follows the slumlord and the slumlord puts their hand over the camera lens. Yes, that's it. They have these segments at least once a month. This is why I would much rather rent from a management compay than a private individual. If something breaks, I do not want to get someone's voice mail!

Across other parts of the country (which seems to be telling the future for NYC), as inventory droped prices continued to drop, is NYC still behind the overall real estate curve or is it a market that does not apply to standard convention? I think it is colser to being the same than it is different.

the rest of the country has a huge increase in sales and most of those sales are from foreclosures or short sales. this is the reason why sales are up while the prices are still dropping or stabilizing. i've been looking for a good short sale or foreclosure for past 6 mos and there are none in good locations. Bushwich, Bed Sty, East New York, Jamaica, Cypress Hill and the like were overpriced like Vegas and will crash and fall. any good neighborhood will not see high foreclosure rates that will drag the market down like in other parts of the country.

nyc has had its cash cows eviscerated. jobs and income, jobs and income. and a tremendous amount of new development WAS bought by the foreigner and the real estate brokers and the speculators. if you think that the collapse of the new developments won't affect the real estate market here generally, you are much mistaken.

the middle to top end isn't moving in the slightest, and according to many here, in the coop world at least, those buildings should be the healthiest financially.

since new listings still outnumbered contracts signed over the past 7 and 30 day periods (when the drop in inventory occurred), i would venture to guess that thid drop is at least partially due to listings being pulled from the market...

im not too worried about resets..most ARMs will reset lower. Im more concerned about recast schedule upcoming. That will be the payment shock

although if rates go up, resets will be affected going forward, clearly not nearly as great an impact as recasts but a possible impact in cases of stretching or people falling behind due to income reduction. i would love to see what option ARMS were written in Manhattan in 2006-early 2008 by BofA, WaMu and Wachovia (and others, of course, but those really spring to mind).

very true, but there was a refi wave in Q1 that helped to negate a bunch of adjustable mortgages that were going to reset, especially all those option ARMS, pick a pays, that Wachovia handed out. Your right though, another wave of pressure in banks and interbank rate will rise up again, but I wonder if the fed has the grips on that so it doesnt get as bas as after lehman...483 bps or so. I dont see that again unless a big unforseeen event occurs.

Wachovia has biggest hand in option ARMs and other neg am products, and those will see recasts starting in year 5 or when principal balance hits its balance cap..Remember, wachovia bought world capital which had a 122Bln portfolio of option arms..but to be positive for today, the fed seemed to avoid a nasty wave or two with its facilities and getting LIBOR way way down.

fyi - when I had my loan, and I moved to FL for a year, I think this was 2003, I wanted to refi into a COSI loan that I saw an ad for. I called the representative, and specifically asked if this is a neg am loan. He said NO. I asked for that in writing, he said he cant do that, only that he can assure me it wasnt a neg am loan, just an amazing loan product that few knew about and was a hidden treasur in the loan world. So, I called back and made a tape of the conversation to protect myself just in case I did it. I dont know where that tape is now, I move 3 times since then, but I never took the loan. But I had the guy on tape assuring me the COSI loan was not a neg am loan. IT WAS! Many people out there fell for this trick, and will have payment shock when they see a recast. Or those with pick-a-pays and chose to only pay the 1% min payment option that tacks on interest to principal. Once that limit is reached, bam, the loan recasts to new fully amortized schedule with higher prinicpal balance. This is the unsuspecting problem out there

Urbandigs - enjoy reading your comments but let's be real here. You have been saying for the last few months that signed contracts aren't happening and purportedly advising your clients to hold off on buying for at least several months. Last few weeks have seen tremendous volume and ergo you started changing your tune.

You may have predicted this price decrease several months before it happened but it really wasn't a huge revelation. Quite a few real estate industry people were anticipating a price decline which was evident when the decline in investor purchases occured in 2006 and 2007. Investors were often the first one buying in new construction building (often buying several at at time) but as 2007 was approaching, less and less of them were buying these properties. Many of the signed contracts on these new buildings were end users and foreigners. Many real estate professionals (not all) saw that this market could not sustain itself.

But what has happened in the last few weeks with the increased volume has surprised many of us. This market is proving to be more resilient than many have thought. Yes, prices have come down but the downward momentum has definitely stopped. Stabilization might occur sooner than many have been hoping but all that depends on which side you are on (buyer vs seller) and which price point you are looking to enter.

Keep dreaming that this is a sign of stability. At every new price level and in every 'active' spring season there will be some transactions. Like another poster above, I can't wait to see the latest marks. -25% was an argument a few weeks ago and now Corcoran brokers admit apartments don't move for more that -30%. We're in a fast slide and condos are the next stubborn shoe with their $1500 asks.

PS: Alpine, your every interpretation of every news story or piece of information you come across is dead wrong. How do investors who buy Manhattan condos to rent them ruin markets? Its like everyone has one conversation, and you have your own. Give it a rest, you are in Jersey. For the umpteenth time why do you care?

Also, you'd always rather buy a market 10-15% off the bottom moving up than try to catch the bottom. There was no urgency in the 1990s to pick the bottom, nor was their much missed by buying 1996 rather than 1992.

get your facts straight twocities:

JAN: http://www.urbandigs.com/2009/01/the_disconnect_continues_its_a.html

"For what it is worth, I am hearing talk of some activity on the buy side from colleagues, but in my opinion I think it is all relative. So I can pass on that market update here to you guys with a degree of confidence. Now, I'm hearing some talk of an uptick in demand (buy side calls, open house traffic, and overall general interest) and I too started to see some action again. However, there is a big BUT here! Its all relative!"

FEB 5th: http://www.urbandigs.com/2009/02/inventory_closes_in_on_10000.html

"Time will tell whether this pickup is simply a counter-trend activity surge, embedded in a longer term correction. For now, as prices reach a certain level, there will be renewed signs of interest; and this market is seeing that right now."

FEB 12th: http://www.urbandigs.com/2009/02/manhattan_inventory_crosses_10.html

"The only real time report I can add for what I see in Manhattan is that there IS an uptick in activity, I am submitting bids for my buyers, and I am getting new listings to market. I tend to shy away from reports on foot traffic and buyer calls because that doesn't really mean anything. What is meaningful is whether or not deals are happening, contracts are being signed, where those contracts are being signed, and are those deals closing! Thats the important stuff."

So spare me the..."Last few weeks have seen tremendous volume and ergo you started changing your tune" bullshit. Ive been discussing the pickup in activity since late JAN, except there is one difference between me and every other broker out there. I dont buy into the sustainability of it and I call it a countertrend pickup in activity after a sharp downmove, that is embdedded in a longer term correction process. Proving to be more resilient? Your a momo! We just dropped like a stone since SEPT 2008 about 25%! High end is getting murdered down closer to 30-40% from peak. And your now talking about how resilient this market is. Holy cow. Downward momentum stopped because that is how markets work. Nothing goes in straight line and there will be deals at every price.

Tell me a list of fundamentals that you see out there, that will converge to stabilize this market and prove the bottom is now in?

1. is jobs market getting stronger?
2. is there a positive wealth effect?
3. is the system of credit loose again, with appraisals showing time premiums for deals?
4. is RMBS securitization market all better again, allowing for e/z lending and loosening standards?
5. is all the distress out there finally liquidated, so if you dont have to sell, you can simply wait it out?
6. are monthly carrying charges for properties going lower, allowing for more affordability in open market transaction price?
7. are rents rising making property valuations more in line with historic norms?
8. are building financial conditions improving?
9. is this the only boom bust cycle that will not overshoot and instead see a 25% correction from peak to trough, because of a pickup in activity that is still the most sluggish for this time of year in the past 10 years? So, a 5-7 year boom cycle, and a 10 month correction cycle?
10. are taxes going down, encouraging business and investment and keeping costs to carry a property lower?
11. did all the excess from 2005-2007, especially new dev investors, purge already and get out of the system?
12. is wall street back again, ready to power the next housing boom?

What fundamentals do you see to back up your claims? And dont start with the prediction thing, everyone knows what I wrote about starting in mid 2007 and why I felt this crisis was going to be so severe, and many blasted the thinking. Now, everyone saw it coming. Of course, how convenient.

Nice drop the hammer Noah. I can't wait for the first sad summer and winter season in the post-Lehman real estate world. Of course there were going to be few people who got paid in 2009 who might think 25% off is a bargain.

there are many that are perfectly fine with the market where it is now, happy to dive in, and ready to pull the trigger for a property they can afford comfortably. Exactly what you state in your latter sentence. I cant stand those that dont read my stuff and then come out saying I just changed my tone in the last 2 weeks. Gimme a break

Its like saying a stock fell from 100 to 75, and now its at 76 - oh look how resilient it is!

Rhino86, it is evident you have not a clue what is going on right now with the market. The activity we are seeing now is considerably beyond what's normal for the spring season but for a specific price range.

And who is saying that $1500 a foot for a condo is getting sold? Quite a few of these condos are secretly going into contract for much much less. Sponsors are now being very negotiable. It is just not being advertised for obvious reasons.

Well if everyone could agree instantly, the market wouldn't take time to adjust. The way I see it, every sale is one less financially secure, optimistic buyer gone...And even still at these prices, a buyer who thinks the after-tax comparison to rent is the appropriate one.

What clue don't I have? You are telling me a specific price range is showing higher-than-usual volume for a spring season? Is that so? Is that true, Noah? The bigger question is, why do I care? For all the reasons Noah states, and one he didn't - MOMENTUM, this market is far from bottomed. Your assertion that downward momentum has stopped is completely baseless. In the last month, I have head a Corcoran broker admit -30% when -25% was the leading edge bear stance previously. You are full of shit TwoCities.

twocities - you are just so off in your facts. Take your statement:

"Quite a few real estate industry people were anticipating a price decline which was evident when the decline in investor purchases occured in 2006 and 2007"

oh really? A decline in purchases in 2006 and 2007. I suggest you analyze some data, lucky for you, I did it already for you:

http://www.urbandigs.com/2009/05/manhattan_sales_picture_its_al.html

The middle of 2006 up until the 4th quarter of 2007, pretty much the entire range that you declared a DECLINE of purchases, saw the exact opposite! A BOOM in purchases that marked the peak of the cycle.

Check out # of sales in Manhattan for 2007 and tell me whether or not deals were declining or going parabolic?

2007 13,430
2006 8,493
2005 7,780

So my question to you is, how do you make a statement like that, that it was so clear and evident of a coming decline due to the drop in sales volume, when in fact sales volume went parabolic? Something is very very off in your theory.

Not only that, but 2006 & 2007 saw a huge INCREASE in foreign buyers and that was the exact argument made by brokers and executives as to the STRENGTH of this Manhattan market - remember, the WEAK DOLLAR EFFECT?

In fact the media and broker babble was SO STRONG about foreigners contributing to this market's strength at the time, that I did a whole piece dissing that logic in NOV 2007:

http://www.urbandigs.com/2007/11/confidence_trumps_weakening_do.html

"As the US dollar continues to fall against other major currencies, people mis-interpret the trend to mean that X number of additional buyers are pouring into Manhattan real estate! In my opinion this is an incorrect assumption! It is not that cut and dry and to dismiss macro economic events, confidence, and near term expectations as part of this currency trade equation is a mistake. There is no anecdotal evidence to support a re-acceleration in foreign demand; its mostly theory and we are left to ask the brokers what they are currently seeing for a clearer picture. In my opinion, confidence trumps the weakening dollar in the mindset of foreigners."

I think there was a tick UP in deals for every price point starting in late JAN, and much more so in April & May. This will come out in Q2 data soon, but brokers & media once again will do a quarter to quarter analysis instead of a year over year analysis. In seasonal markets, either you seasonally adjust or you compare trends to the same period the year before. But mark my words, they wont, because the picture would prove to be much less optimistic. So they will focus on the positives, as they always do in a sales based industry.

I would guess that the majority of the action is occurring in the sub $2M market. But again, every price point likely saw a tick up from Q1 levels because of the price adjustments and deals to be had. The lower end is benefiting most though in terms of action because of the nature of this recession.

So the uptick in activity that TwoCities is referencing is a normal sequential season increase? That's awesome. So the activity is still lower than last year? Wow, TwoCities, you are really full of shit aren't? Calling a major cyclical bottom on the basis of a normal seasonal uptick. Great logic.

Noah, I've obviously hit a cord with you. So let me get this straight, you are saying prices will continue to decline?

Just a few posts ago, you were saying you've become less bearish because of the increased activity.

Which is it?

In my experience, people who think they know everything, usually are wrong more than right.

And if I had a broker, I would want them to just give me the facts, not their predictions because I trust my judgment more than anyone else.

To be a broker and to dish out advice on what you think will or will not happen in the future to prices (up or down) bears with it a huge responsibility.

Think about all the 2007 buyers now whose brokers encouraged them to buy because prices will continue to increase.

The contrary hasn't happened in awhile but it can easily also occur...a buyer who after reading your post is encouraged not to buy and wait it out. While they wait it out, prices actually increase and they are priced out.

It's a risky path you are taking.

Twocities - here you are my friend:

NOV 2007 (you know, that time when you state that foreign purchases had been declining for about 18 months or so already): http://www.nytimes.com/2007/11/04/realestate/04cov.html?_r=1&scp=6&sq=weak%20dollar%20and%20Manhattan&st=cse

"Jonathan Miller, an executive vice president and the director of research at Radar Logic, estimates that foreign buyers have bought about 1,000 newly constructed or converted condos in Manhattan in the last 18 months, which is about a third of the condo sales in Manhattan in that period."

And this comment from a lucky foreigner that probably was advised to buy because of the weak dollar: "He predicts that a Wall Street address will always be in demand. “If you can’t rent on Wall Street, then where can you rent?” Mr. Timmons said. “It’s one of the biggest business areas in the world.”

And this one...

"Still, he wanted to take advantage of the weak dollar and buy an apartment. His agent, Andrusha Bohackova of Bellmarc, helped him find a $668,000 one-bedroom condo at 230 Riverside Drive. He moved into the apartment in April and says he’s happy with his investment — for now. He hopes to sell the apartment eventually, move to France or the Amazon and live off the profits. “My money increased 100 percent by just coming over here,” he said."

--

ahh, the peak of the market. Looking back now, it makes you wonder how these thoughts were blinded by what was really going on. Quite amazing.

its pointless to explain if you dont get it

your judgment thought 2006 & 2007 saw a decline in foreign buyers here! your judgment is clearly flawed

UrbanDigs, please re-read what I wrote. I said investors were not buying in new construction building during the peak, it was mainly from end users and foreigners. Here it is again:

"Investors were often the first one buying in new construction building (often buying several at at time) but as 2007 was approaching, less and less of them were buying these properties. Many of the signed contracts on these new buildings were end users and foreigners."

You are just proving my point.

sorry UD, couldn't slog through the last entries, so you may have already discussed this. i wonder if the recent refis mainly aided those who didn't need the aid as much. it seems to me as though the vulnerable buyers would have been the ones least likely to be able to refi (although the gov't did try to make it as easy as possible for the conforming loans at least).

i agree with you on rates in the near to medium term. i could foresee one catastrophe after another, however, as time rolls along.

http://www.calculatedriskblog.com/2009/05/fed-vice-chairman-kohn-on-economy.html

yea I wonder too, you make a good point although I also wonder whether the banks were under pressure to put those troubed refi's through or not as a targeted measure to stem the credit crisis at the time.

that would make a great deal of sense, particularly for the conforming loans, and would even be in the long-term self-interest of the banks. although sense has been lacking a bit the last few years.

can somebody help me here with twocities?

He needs to understand that 2007 saw a drop in the dollar 12 months in the making, continuing to early 2008, causing foreign interest to rise on the so called currency trade. Putting yourself back into time and place of early 2007, Manhattan was on the rise and we were approaching peak. Quick profits were bet on during this latter stage (EUPHORIA) of the cycle.

As 2007 saw parabolic sales volume, and as credit markets peaked, we climbed to our peak. The US dollar declined for most of 2007, a decline that was already 12 months in the works from early 2006 - really RAMPING UP foreign purchases as 2007 approached. Especially speculative foreign purchases.

you are saying that as 2007 approached, meaning OCT, NOV, and DEC of 2006, "less and less of them were buying these properties"...I disagree completely. The euphoria lasted until very late 2007, and I would even go as far to say very early 2008 as the dollar approached its lows

the NY Times article perfectly described the EUPHORIA stage, when sales volume was peaking

is twocities suggesting that prices will rise?

I have 110 properties saved in the last 6 months for properties up to 1.5m. Only 10% of those are in contract or sold, and 35% are off the market. Which uptick are we talking about????

i always refer to UPTICK or DOWNTICK in a very short term sense. Its the trader in me. So, the uptick I desribed softly in late JAN and a bit more strongly in MAY, was the month to month or quarter to quarter variety.

That is why I add the tagline about seasonality and for reality check picture, compare year over year. As I said, when you do that you will see Q1 & Q2 to likely be the most sluggish in the past 10 years.

two cities, price corrections happen in waves. prices fall and some people feel comfortable entering the market. then the sales figures come out and reveal that prices have fallen whatever they've fallen, and the people who haven't entered the market feel that there is no harm testing those prices a bit (or alot, depending on the distress levels in the market) lower than that level. i can guarantee you that 11,000 sellers are not testing the market. if one doesn't have to sell, one wouldn't put a unit on the market right now unless one was afraid of further declines and wanted out fairly badly. there are always a few who will sell proactively, anticipating further declines (those nearing retirement, for example) but that's not the common seller. most owners still think they haven't lost much, if anything. after the next quarterly report is when we will see more clearly a change in seller/buyer mentality. it will be the first report not hugely skewed by new development closings for units signed that went into contract quite awhile ago, often two years or so.

The dollar, depending on the currency, remained in the shitter until fall of 2008. At some point the low dollar probably did not encourage more buyers to enter into contracts, but it probably discouraged them from walking away from ones that were no longer so advantageous. And that lasted quite awhile.

And, if i read Noah correctly, he's far less bearish about financial collapse.

And the next quarterly report will be hugely skewed in the opposite direction, due to the lack of readily-obtainable financing for all but the less expensive of apartments.

People need to once and for all separate financial collapse with the severe developing correction in Manhattan real estate. Manhattan real estate was a bubble no less ridiculous than tech stocks and it can languish in isolation of a broad economic recovery.

TwoCities is another Alpine...no point, just comments. What kind of douche tells Noah to keep his opinions to himself. Idiot.

Noah should expect some jealousy for the status he rightfully obtained in the last years: always quoted in the media, respected by a lot of people (here and abroad,) for his in-depth analysis and his vision, and loved by the ones like me, unaware buyers about to jump in the market at the totally wrong time that got to read him before pulling the trigger.

ty so much for kind words mimi

"i've been looking for a good short sale or foreclosure for past 6 mos and there are none in good locations."

Most foreclosures in good areas are going to be sold to RE insiders and investors who buy in bulk without ever being listed. Those outside the industry have absolutely no shot at buying any of these properties.

Alpine, so for the elevenieth time, what is your point? I guess we all should just give up because timing the market is impossible and deals are only for insiders. And if that doesn't discourage us enough, the more prices fall, the more dangerous the city will definitionally be...Manhattan public schools suck....so maybe we should all just join you in Jersey.

Rhino86, I see your point that a bubble (euphoric prices unmoored to DCF) could be completely isolated from economic events. Say, cabbage patch dolls. But in this case, the accessibility of credit adds a financial crisis dimension to the horrific state of NYC RE. At least the brutalness of the fall since Oct 2008 was influenced by these economic factors. My point: changes to these factors could cause surprising behavior to the general depressive nature of NY RE (odd "upticks"). I think that's UD general point.

Isn't it clear that the stock market rally has put a jump in the stride of sellers? Won't the probable stock market correction be all the more psychologically painful for those same delusional sellers?

Listen, I think the stock market should make a lower low, as do many more qualified than me. I see your point, that banking hurts twice...in the incomes of buyers and also in the borrowing available of buyers. I am not a doomsdayer for Manhattan though. I think affordability ratios go back to mid 1990s levels. Finance is becoming more like it was back then...Less insanely paid, more balkanized through boutiques, etc. Just a lot less balance sheet being thrown around. And safety will probably be just like the 1990s too. Not like now, but not like the 1970s either. Some change is secular, some is cyclical. We are wiping away the cyclical, not the secular.

Take normal 12x price to rent ratios. They shouldn't make people's ears smoke when Steve throws the number out there. The reason they do is because people think bubble = normal. No no...the Nasdaq wasn't cheap 25% off the top. The new economy didn't change everything. Neither did Greenspan.

so...manhattan real estate at mid to late 90's value would make perfect sense all around. right?

Quoting a realtor I considered an offer on:

"As far as general procing is concerned, I also feel that we are going to see a substantial drop in pricing. The current data is showing that prices in Manhattan are still averaging $1,000/SF. I think that you'll see that average down at $750 or so when all is said and done, and that's back at 1996-97 levels, which seems about right. Obviously, there will be variations within that average given location, building, amenities, etc. My strategy at xxxx was to take the price down to where it will probably bewhen the dust settles, and it has worked insofar as interest has been generated.that is in the neighborhood of where we want to sell.
I would say, that as a general approach these days, the majority of sellers are not especially realistic in their pricing, I think that in Central Harlem, prices should be in the $550 - 600/SF range, (We're at $572, which I think is appropriate given the ammenities of the unit) but you'll find most sellers still asking $650 - 800/SF, depending on area. "

You can take this to be a sales pitch, but it is interesting nevertheless. I offered about 22% below his asking price and was told that there were two offers that were substantially better.
I would agree that his pricing in smuch better than Soha or Graceline or Kalahari or any of Julia Boland or Jill Sloane or Vie Wilson or Norman Horowitz or Jeff Berger's listings, and the apartment is nice but in a small boutique building, which may be good depending on one's perspective.

Your never going to see 1990s prices, so quit dreaming. There was no bubble in the 90s so there is no logical reason why prices would fall that much.

"so maybe we should all just join you in Jersey."

I'm all in favor of that. And it just so happens I have a lovely 4,000 square foot house in Bergen that you can buy for the price of a 1 bedroom condo in Manhattan.

i said mid to late 90's---very, very different than early 90's.

Alpine -- I might take you up -- If your 4000 sq ft house in Bergen is in a decent location and in good condition, I'll consider buying it for the median price of a 1br condo in Manhattan as per sales in the last month on Streeteasy. Even better, we can peg the price to the median 1 br sale price in Manhattan on SE the month of closing

great joedavis. Here is the 1 bedroom condo that I will be basing my price on:

http://www.streeteasy.com/nyc/sale/231780-condo-99-john-street-financial-district-new-york

ha ha -- this is the median 1 bedroom in Manhattan.....
I realized on checking that there does not seem to be an obvious way to limit searches to 1Br on streeteasy -- 1br+ -- so using SE to compute the median may not work

On the other hand you are saying that your 4000 sf house is worth 200 psf in Alpine + comes with a few acres of land and a pool. Nice
May still take you up on it -- but perhaps it is easier just to swap my 1br Harlem condo with your Carbon footprint enhancing abode.

Bullshit aside, I think the difference between whether we bottom at -50% (2002) or -70% (late 1990s) is going to be interest rates. Not even I pretend to be able to predict those.

"$750 or so when all is said and done, and that's back at 1996-97 levels, which seems about right."
That $750/ft for 1996-7 can not be right. Not even close. $750 is like 2004-2005 levels!!!

The logical reasons for 1990s prices, oh thick Alpine, would be a pre-bubble banking industry and 1990s-style interest rates. It would be the market saying that the only thing that spread NY so far from other cities has gone away - a runaway banking industry that is.

You've got to be crazy to pay $800K ($1,100/ft) for a 5th floor 1 bedroom apartment anywhere on John St. Someone can rent a similar apartment for $2,200 right now. Let's hope that this buyer put it in contract long ago and can still walk away and just lose his deposit.

Here we go. Price to square foot was $300 in 1996. $1000/ft in 2005, which is where it "asks" now and doesn't get.

http://www.urbandigs.com/2006/03/price_per_squar.html

Jazzman, you are clearly not an Irish carpenter posting from the year 2007.

I never said you can buy my house for the price of a median 1 bedroom condo in Manhattan. I said you can buy my house for the price of a 1 bedroom condo in Manhattan.

There's no pool or "acres" of land. It's a 5,000 square foot lot.

The funniest part is that you are from New Jersey rather than say Connecticut. It makes it so much easier to bust your balls. I am the first one to say NYC is going down hard, but the reason 1 beds are more expensive than Jersey homes in your neighborhood is because the market has spoken.

sure, which gives us a lot of latitude
still for the same building check:
http://www.streeteasy.com/nyc/sale/231307-condo-99-john-street-financial-district-new-york
Sold in reality for $615k on 5/8/2009

I dont see the listing for your place but if you are willing to mail it to harlemhouse@mail.com, I'll look at it -- seriously

5000 sq ft/43560 = 0.12 acres
Sorry -- values in the burbs are tied to land not housing -- you are way out on a limb
4000 sq ft house on this small a lot does not seem very promising. Still I promised and will take a look

12x annual rents is too high for a "normal" market: it means that the investor/owner'e expected return is lower than the lender/bank. Since owners take more risk and do more work, they should expect a higher - not a lower - return than the banks.

The only way that an investor would be willing to pay as much as 12 x annual rents is if (1) investor believes that rents are about to rise above inflation, e.g., because the neighborhood is going to become relatively more attractive than others, and the banks and sellers haven't noticed yet, or (2) investor believes that mortgage interest rates are artificially and temporarily too high, e.g., because the banks are unreasonably cautious, or (3) investor believes that another, future, investor will be willing to pay more than the cash flow warrants, i.e., a bubble.

Normal in NY, if normal means historic, is more like 100 x monthly rent (which is about 8 x annual). That's the number professionals and amateurs used, so far as I know, from at least the 1950s to the mid-1980s, with the exception of the panic of the "Ford to NY Drop Dead" era, when they went much lower. At the peak of the 1980s bubble, prices got up to 120 x monthly rents, reflecting extreme optimism about the future of NY and confidence that interest rates were going to drop quickly. After that, they went back down again, below normal, before rising in the current bubble to ratios never before seen.

I believe the 12x number is an artifact of national studies comparing MEDIAN sale prices to MEDIAN rental prices. Median rentals are of considerably lower quality than median sales, so that number is not an indicator of the normal ratio for the SAME unit, which is necessarily much lower.

In the end, in non-bubble markets, real estate investors need to be able to make enough money from rents to cover their time and costs -- and still have more left over than if they invested in the mortgage market as passive, diversified, investors. 12 x annual rents is too high.

You are right financeguy. 12x is consistent with a 5.5% cash return which is only roughly equal to mortgage rates. 8x rent is the 90s-ish ratio. 70%+ down vs peak.

"The median income in NYC is just $53K" -

And someone whose income is $53K can afford to pay, what, $275K, $300K? Or rent for $1,325/mo using the 40x rent = annl income formula or $1,019/mo using the 52x formula?

"yet my guess is the median price for these units that are for sale is $1,000,000."

So prices could fall 60% and be too high for a person whose income is at the median. The Manhattan market is a niche with several subniches, none of which are close to the median for the city.

"Normal in NY, if normal means historic, is more like 100 x monthly rent"

So $350,000 for a decent-sized one-brm apt? This should be interesting. I'm not convinced prices will get back down to those levels, despite the soundness of the logic.

The median income means squat. The median income figure lumps welfare people with hedge fund managers.

so...which one are you?

I'm an illegal immigrant maid who cleans the apts. of hedge fund managers.

INcome distribution for Manhattan people including map
http://www.gothamgazette.com/article/20030611/5/421

In Jersey they don't pump gas, they pump fists.

Lowery:

Markets are irrational and inefficient, so predictions are always reckless. Still, so long as sales prices stay above the level at which a rent-to-hold cash buyer can make a reasonable return -- by which I mean, significantly more than market mortgage rates -- landlords have an incentive to convert rentals to owner-occupied. Why work if you can make the same money by selling and lending the proceeds to someone else and letting them do the work?

But if landlords are converting rentals to owner-occupied, that means supply keeps going up. Given enough time, that should bring prices down. So it is hard to see stabilization above this price, unless there is some countervailing force that is stronger.

The countervailing force for the last decade was upward momentum. Real estate markets are heavily affected by momentum: rising prices create rising prices, and declining prices create declining prices independent of the fundamentals. The current direction of momentum is down. When the market drops, potential buyers who already own have less money, all potential buyers start trying to pay next year's prices to protect themselves, and banks become more reluctant to loan as they worry that the collateral may disappear. That reduces demand, which makes the market drop still more.

So, the question is what process will stop this momentum. Bonus babies so desperate to own rather than rent that they don't care about losing their investment? Investors who think that the good fairy or the Federal Reserve is going to make prices go up? Rents rising as a sudden new surge of suburban-raised hipsters is willing to triple up where the current crop is only willing to double up? Foreigners taking advantage of a drop in the dollar (and not concerned about more drops)?

Maybe, but it seems more likely that prices go down until investors realize that they can buy and make money renting out -- as is happening now in the worst hit parts of CA.

That means about 100 x monthly rents. Unless investors are concerned that rents might drop -- for example, because NY's most lucrative source of jobs is contracting. If investors are worried about dropping rents, they'll demand prices lower than 100 x monthly rent to protect themselves against the risk that they've mis-projected rents. They did in the '90s, they did in the '70s, and unless the local job market turns around fast, they will this time too.

Median income in Manhattan is a good deal higher than 53k.