Why the home prices will continue to fall

what I've been preaching ad nauseum

That's probably where Deutsche Bank got the idea!

Three take-away pts:
1) DB reckoned that housing prices are more or less reasonable when the ratio returns to its 1999 level. Why 1999? Because the ratio was relatively stable throughout the 1990s, and it was the year the steep rise in prices began in earnest.. At the end of the third quarter of 2009.
2) "What does that mean for future prices?" => "Rents... are still falling."=> prices will continue to fall;
3) "enormous adjustments are needed in still-exorbitant markets such as New York and Baltimore."

where the bulls at ?

Don't know, economy is showing modest signs of improvement.. The bears have to acknowledge that if prices were going to fall they would have done so already. More likely scenario is flat with a slight tilt toward decline.

How many of these "reporters" are either fresh out of school or hacks. My guess 90%

I like the Money article, but the thing about that source is, everything is always over-simplified in Money. And I think this article is OK as far as it goes, it just doesn't go far enough.

The fact is that the relationship between prevailing rents and housing sale prices is complex.

In San Francisco the demand for rental housing is way higher than the demand to buy housing. The vast majority of people are renters. So I have a nephew who is shopping in the $1.2 million range and he can get a heck of a lot of house for that.

But then, he'll be an owner, not a renter...which many people think is just dumb in an earthquake-prone area.

There are numerous places in the United States where buying is relatively cheap and there is strong rental demand, and that's where investors go who invest for that kind of thing.

Yet in Nassau County right now, you can rent for a lot cheaper than you can buy a comparable place.

I wish 30 Years was around to comment on whether or not the ratio mentioned in this article (which seems to make sense) is actually as historically accurate for NYC as it appears to be for other regions. Fluter points out this is not a one-size-fits-all metric.

"The bears have to acknowledge that if prices were going to fall they would have done so already. More likely scenario is flat with a slight tilt toward decline."

This drives me up a wall. The last downturn took three years and it followed a much less severe rise. Where do you get this shit from?

I can't speak to the degree of this bubble (as of today) vs the late 80s/early 90s (what metric measures that?), but "it took three years last time, so it will this time," isn't compelling; it isn't some law of economics. Also, the economy is more global now than before, and i suspect there are many more foreign buyers in recent years than before, and also teh city is perceived as safer, nicer, etc by many. Prices may fall for three years, but they might also stay flat, and if they were going to stay flat, things would unfold more or less as they are now, wouldnt they?

Revisit the language. He is the one that posed that it hasn't happened yet, therefore it won't. His assertion on that basis is silly. I never put a bear case out there that was dependent on it needing to take three years. However, that it took three years last time is the easiest quickest way to shoot down his silly assertion.

maybe, maybe not. yes, the economy is far more global. i can see that being a definite negative for us. however attractive NYC condos/townhomes are for foreigners (and there have always been those who have bought here), we're not very conveniently located for those foreigners who are ascending (europeans may be looking to sell, for instance). and their rise is looking awfully shaky.

the world economy is looking rather putrid. despite the many trillions that have been infused. we don't have endless money. we spent our way to "prosperity" the last decade. it was all fake. little to no real growth, no real increases in income. and ever-increasing debts.

but please, go buy. if you are truly secure then it doesn't matter. if you care enough to worry about whether we are at the bottom now, just wait. where's the f'ng fire? if things stay flat, then you've saved some money renting and can buy with a greater sense of security. odds are really unlikely that prices will take off any time soon.

OH no.... MR. Bill, he just shot the messenger.

What percentage of Riverside drive unit owners believe they are not under water? 100%
What percentage are incorrect? 100%
When your neighbors' unit sell in bk, your units' value a) increases 2) stays the same 3) don't know bc rents still favor renting even based on bk price 4) as long as you believe in unicorns, it doesn't matter.

Riversider.. don't make me call you penisbreath.

This concept of prolonged flatness, which seems to have gained a lot of popularity on this board lately, would have a lot more teeth of the after tax cost of owning were at least a hair less than renting. It seems like more a construct for buyers to say to themselves...I could be a renter for 10 long flat years or I can buy a nice home. It both denies downside and pulls at the scab that is long time renting.

Buy now, or sadly rent an un-homey home for 15 years over which time there will be no attractive entry for ownership. Gimme a fucking break.

even in california and florida it has taken YEARS to get to down 40-50%. their downturn started in 2006, no? and now they are saying there could be another slog down, even there.

this is natural. you have people on the sidelines who have been saving who are willing to come in at certain price points. or investors who are willing to do so at lower price points. there are valleys and plateaus, with a few head-fake mini-peaks.

jim, if tomorrow we discovered a method for diagnosing who would suffer from heart disease, diabetes, cancer and obesity (likely even just one of them) and concurrently discovered a pill that could cure one or more of those diseases, we could see a very different economic future (for at least 20 or so years). there are many things we can't see. but with what we can see right now, things ain't looking so good.

I admit its sad that the securitization boom/credit bubble made prices so high that the sensible thing is for most renters to rent for another few years...and that it makes a 25% pullback underwhelming. All this said, that doesn't mean I don't think I can be wrong about this. There is just as Aboutready says no evidence whatsoever to suggest it.

scoots, i can't talk about it historically, because back in the '80s i was just trying to find a relatively safe illegal sublet in chelsea/hells kitchen. but i can tell you that something really odd happened at the end of the '90s. rents went through the roof (so did purchasing costs, but they're more sticky so it took a bit more time). somebody had up the miller samuel rent graph. you really need to see it. it was crazy.

ar, apart from buying or not buying, just understanding the market, i was reacting to the argument about the three years from early 90s...

i do think that a total nyc implosion miami style is% very unlikely (but that doesn't mean it can't go down a lot more, another 20% perhaps, nor does it mean that some imploding new condos wont produce opportunities) because people think more globally and before nyc got to be a miami thing where you can't give away condos in some hoods that residual demand would kick in from foreigners, american expats, people in the burbs,....you may disagree, but i dont think this is an outlandish argument...i personally know people (in europe, colorado, for example) who would love to buy in nyc but feel priced out, and , say what you will, they wouldn't rent something as a second home

but, yes, a total global ultra-crisis could mess up nyc and a lot of other places, but a lot of storms have been weathered before....

isnt likely i meant to say

Manhattan can fall another 30-50% off the current 75% of peak.

jim, how many extra condos does miami have. we have well over 10,000 (if you count the boroughs well over, i've read as high as 27,000). at some point it is just supply and demand. and miami was designed to be a MAJOR second-home market, which it is. so i'm not sure about your analysis.

remember, it has nothing really to do with inventory. it has to do with inventory you can't sell.

manhattan has a huge capacity to absorb inventory. just not the inventory that was created. so maybe they're equal with miami, which probably had much lower land and construction costs.

This idea that NYC is a better city than city X, therefore it cannot fall as much from peak to trough has no logical basis....Even less so given that we not only gained from easy financing...easy financing leveraged the earnings power of such a huge chunk of the buyer population...Notice I said buying population not total population. I wonder what multiple of their population % that finance people are in terms of the owner population.

brickell avenue alone had 20,000 new condos coming on line ...after the crash started...

im not following your point about manhattan not absorbing the type of inv, created -- you mean it was too high end?

we need some stats on the total size of the housing stock, and what amount of new dev is done or in pipeline and not occupied; id be surprised if it is as much as miami as a percent of housing stock, or in terms of months needed to absorb at current sale rates....i dont know

brickell avenue alone had 20,000 new condos coming on line ...after the crash started...

im not following your point about manhattan not absorbing the type of inv, created -- you mean it was too high end?

we need some stats on the total size of the housing stock, and what amount of new dev is done or in pipeline and not occupied; id be surprised if it is as much as miami as a percent of housing stock, or in terms of months needed to absorb at current sale rates....i dont know

I thought the number of pipeline/completeed new dev in all nyc was usually quoted as 8,000 or so...but i might be wrong.

actually, rhino, pretty much everyone benefitted from easy financing, and given that we have coops there was some initial purchasing restraint at least (as i often posit, many then purchased more, and i've seen it).

but you're right, there was a circular conduit that led the money back to NYC.

rhino, you overemphasize the finance people owning, though. remember, price movement often comes from distress and particularly the ability to undermine the market. foreclosures/short sales do that. but so do sales of coops that were bought years ago and the owners just need to get out (and maintenance at $2psf could do it for many old timers, really). estates. people who don't find good school options and can afford to sell lower than market, etc.

jim, i've seen 27000. and i'm seeing renewed development efforts. i don't know if these developments received loans earlier and just haven't tapped into them (i suspect so), but wow.

jim, yes, it's too high end. think about it. for your williamsburg condo, do you think a russian oligarch will be bidding? no. it will be likely a young couple, probably without kids or just having had one, who have been dinks and have been able to save up a fair amount of money. or a similar situation.

but saving up a fair amount of money to meet lending standards hasn't been so easy recently. life's been expensive. FHA has only really affected a small part of our market, and given its woes i wouldn't rely on it. so you have the expansion of the conforming market. well, guess what, that may very well be a dying beast. in which case you have just bought yourself a dying elephant.

caveat emptor.

FYI: mostly ultra high end. I have recently heard this in many quiet dinner conversations over the last 6 months from slightly older wealthier folks. They don't want to sell at (in their minds) reduced levels, because remember, "the gov't will take almost half of our gains." In spite of the fact that they want to leave NYC and/or downsize. Another overhang of hidden inventory on any potential bounce or stabilization.

rhino wrote: This idea that NYC is a better city than city X, therefore it cannot fall as much from peak to trough has no logical basis....

I guess you disagree but I do see a logical basis for arguing that there is ex-nyc demand for nyc at some price level from those i mentioned (i know a number personally). I'm not saying it's becaause Nyc is better. I just think a lot of people like nyc, many more than did 20 years ago, and it would put some floor on prices probably at some point....

[About, at the infamous building in wmburg the spiel was "10% done, we have a list of banks that have approved the building" (and indeed some seller were steered to the building by a bank). I assume that was not fha approved. Apparently, the initial list of banks required at least 30% in contract, and the list would expand to other banks when they hit 50% in contract. Are you saying you expect this kind of financing to become harder to get?]

jim, i expect the financing to become harder to get. but i also expect the pool of said buyers to become smaller.

and i expect the pool of sellers to become larger. this is a small market. doesn't take much in the shift to change things. and there's a lot out there to shift the shift.

Aboutready I am not talking about finance owners as distressed sellers. I am talking about a much reduced flow of finance buyers to meet the normal frictional turnover of apartments...older people, families leaving, etc. The market is driven from the bottom up. All these expensive one bed condos....not only are there fewer young singles making the money to afford them, there were fewer being hired, more being fired over the last two years. Also, idea that a single person must buy a one bed just to keep a toe in a market that always rises was debunked. Oh and now you need a real downpayment to buy a one bed condo.

Jim, I just don't think those people exist in high enough numbers in these circumstances. Those buyers add froth at peaks, but second and third home buyers from exotic locations certainly CERTAINLY do not carve bottoms. I mean, come on.

"even in california and florida it has taken YEARS to get to down 40-50%. their downturn started in 2006, no?"

Actually, because of the record foreclosures down there, their decline was relatively quick... about 2 years. NYC has been in a decline for close to the same time frame and we have seen less than half of Florida's decline. In order for all of the doom predictions like those from Deutsche to come true, we will need a lot to forecosures to rapidly force prices down IN PRIME MANHATTAN. Let me repest that for everyone who criticizes me for saying there are no foreclosures in NYC. THere are no foreclosures in PRIME MANHATTAN.

"i suspect there are many more foreign buyers in recent years than before, and also teh city is perceived as safer, nicer, etc by many."

I'll address your point in the context of the the last crash in the late 80's/early 90's, since that is the context you wrote it in: There are NOT more foreign buyers than then; the japanese were flush with cash that they bought Rockefeller plaza in the 1980's, not to mention huge swaths of California and Hawaii. Then, Japan imploded from it's own real estate bubble. But at the time, there was a TON of foreign money coming into New York that ppl said will prop up the market. It didn't.

As far as the city being nicer, safer, etc - it is. But this point works against you: A buyer in the early 90's could say that the benefits of the recent down trend in crime etc (which the book "Freakonomics attributes, correctly or otherwise, to the use of newly-legalized abortion among the criminal class in the 1970's producing fewer thugs 18 yrs later) had not yet been factored into the price of NYC real estate. There were good times ahead for the city. But now, when every square inch of Times Square has been Disney-fied and crime is slowly on the rise, I'm not sure what unrealized positive event would drive prices upward.

"Let me repest that"

Freudian slip, Alpo?

I'll put my ny won't be like miami point like this. In Miami they have buildings that are not selling AFTER prices were drastically reduced. I seriously doubt if that will happen in manhattan. Buyers will be there. From various places within and without nyc. This partly turns on my guess that overbuilding in nyc is not on the scale of miami but I have no hard numbers to back that up.

hugh...interesting point....but were japanese buying residential units?..or primarily commercial space?...and i wonder if it reached the scale of foreign buyer presence in so many buildings.......

> This partly turns on my guess that overbuilding in nyc is not on the scale of miam

Yes, but overpricing in miami was not on the same scale as NY.

"Actually, because of the record foreclosures down there, their decline was relatively quick... about 2 years."

Actually, NO. Florida and California started falling MID 2006 and it took until 2009 to see any bounce (and stop markets declined AFTER that).

Alpo, a broken clock is occasionally right, how come you NEVER are.

> NYC has been in a decline for close to the same time frame

Uh, nope.

> and we have seen less than half of Florida's decline.

Uh, nope!

> Let me repest that for everyone who criticizes me for saying there are no foreclosures in NYC. THere
> are no foreclosures in PRIME MANHATTAN.

57th street near carnegie hall, "not prime" right?

I love it!

Alpo, you couldn't be more wrong if you tried!

jim, interesting psychology. once you have to reduce prices significantly, many people become afraid. one or two developments people can rationalize as being situational. widespread reductions reflect the "market," not just something gone awry.

> and we have seen less than half of Florida's decline.

"Uh, nope!"

Florida has seen declines of over 50%. We have not. That is indisputable.

also, jim, if prices decline to a level that makes sense in the rent/buy analysis (single-family sales in many parts of california, for example), then investors will come in and buy. i still don't think that's true in miami, and we're a long, long way away from that here. plus, when developments can't cover common charges, taxes, or look as though they will enter bankruptcy proceedings or some such, most people tend to stay away. we have a hearty crowd here, but it isn't widely typical, and i doubt it could extend too far.

jim:In Miami they have buildings that are not selling AFTER prices were drastically reduced.

There is a caveat with that. What happened in Miami was a strategic rape of the banks. Like the Trump buildings on Sunny Isle and Hollywood. Imagine if you built 10,000 new units on Coney Island at a psf price of $1500. It sounds good because you have buildings on waterfront property but you will not get 10,000 buyers at that price and the banks won't let you drop it below x, so it doesn't sell at all. The other units that are not selling at all are equivalent to foreclosures in the Bronx and distressed areas like Queens.

The similarities to NY is that more people who were never buyers before -- very young professionals, singles, lower income residents, long term renters -- were lured to buy by easy credit. Then, many became investors, buying more apts to to flip. It was much more extreme than it was here but there are some comparisons. The high end, prime Miami real estate is suffering losses when people have to sell. Or when people decide to bail and take their profits. Yes, prices are down 30% or more from peak in these buildings but it is not a disaster. Think Park Avenue. Yes, some drastic cuts but it won't rock our boat.

Most of the pain in Miami came from developers who could not service their debt and had to bail. The rest of the pain comes from the mass movement of the first time buyers who were over extended and could not hold on in the face of the recession. I wonder if we will see the first time buyers of all the new condos in NYC be able to hold on -- there were an awful lot of first time buyers in 1m plus apts. And the jury is still out about how many developers in NYC will default.

Florida is decimated by inventory.

Check out these numbers from Dade county Jan '09.

19,000 condos available!
http://www.miamicondoinvestments.com/2009/07/28/miami-miami-beach-condo-trends-july-2009/

i stand corrected. for the population, the numbers are much more extreme. although it would be interesting to see figures on the percentage of condos in the area owned by investors.

Apt23..that explains some of the history in miami, but the sheer mega amount of inventory, as truthseeker shows (and ive seen worse numbers) is the key thing that we don't seem to have,..i think...in nyc. I put up another post to try to focus on what is the scale of the pipeline inventory in nyc, because it seems to me to be perhaps the biggest problem issue hanging over nyc even in the absence of further shocks like interest rate rises, more credit problems, et.

jim, we may not have the SAME amount of inventory, but much of our inventory hasn't been forced onto the market yet by the banks. it may never be in the same way because we've entered the extend and pretend mode. and much of ours can probably go rental and fill eventually, which obviously isn't a real possibility in miami. but that will still affect prices, significantly.

just for fun, try to imagine this. in january in shanghai over 32000 units were sold. in one month. their population is more than double ours, but still.

My brother has an accepted offer (purchasing) on a ridiculously low (200 psft)short sale oceanfront condo in south FL. The bank has been painfully slow in getting it done. They may be stalling trying to get more but it's not going to happen. And the funny part is my brother still has a take it or leave it attitude. That's the problem in a territory that has so much second home ownership.

Jimster
Have a look at the new development page on streeteasy. No hard numbers but chelsea/tribeca look to be in for the roughest times (near 100 new dev buildings)
http://streeteasy.com/nyc/newdevs

truth..that gives some feel but has to be way too rough to do any estimate, because new developments don't post total units on se, just partial listings

So if I'm looking to buy in Manhattan for the first time this year do you think I should wait? But I don't want to wait till after interest rates rise, so what is the best time to buy? I don't want to buy something that's going to depreciate immediately.

If you dont want something that is going to depreciate immediately, then you should wait until interest rates rise.

clemencedane, of course if you wait until interest rates rise to purchase the additional interest you pay on your mortgage, depending on your time horizon, may be far more than the potential depreciation. The risk of depreciation is only one part of the equation.

rhino, the popular opinion on the board is that rising interest rates will further pressure prices, you disagree?

Is that not clear?

Rates will kill prices. And even if you plan to be there for a long while, you have a much better chance of making out well upon sale if you buy when interest rates are high.

It wasn't the first time I read your response to clemencedane, but it is upon rereading it. I don't follow your statement that "you have a much better chance of making out well upon sale if you buy when interest rates are high" though. I don't know what will happen to prices for sure, but I do know that interest rates are unlikely to be this low again in my lifetime. And a difference of 2-3% in interest rates buy a lot of downside protection. But we've had this discussion before haven't we :-)

don't want to get in the middle of another exciting interest rate rise/ apt cost discussion but do want to catch up on miami part of the thread.

Counting condos in Dade county is the equivalent of using Tri State area data to apply to Manhattan RE. It doesn't compute. And as I said above, in some areas there was no attempt to actually build developments that could result in condo sales. It was a case of bank rape. Developers built buildings only because they knew they could get the money to do so. There was never any hope they would sell those apts -- they built many in very late 2007 when everyone knew the jig was up. But Wall street wanted to sell those instruments so money was provided. But that didn't happen in the Manhattan equivalent parts of Miami.

Jim - I agree, there are a lot of differences btwn residential real estate here and in Miami. But, there are also enough similarities - namely, being way overpriced! - that I believe we still have a ways to fall. 15-20%, maybe. That's a lot on a $1M or so purchase.

clemencedane: You want to buy when rates are high and prices are low. You can ALWAYS refinance - in 2 yrs, 5 yrs, maybe even 7 yrs. But rates will be low again someday. The point is, you have what amounts to a free 30 year call option on your mortgage. But once you lock in a too-high sales price, that's forever -- you NEVER get a second chance at that.

I guess it all depends on how long you intend to live there and how long you intend to carry a mortgage. The analysis is akin to the decision to pay for points off your mortgage. Also operative if just how much you expect prices to fall if rates rise. If we assume its strictly proportional...if rates rise from 6% to 9%, then prices should fall what, 33? So I guess your breakeven is 11 years, assuming 0% down. Assume 25% down, your breakeven is about 15 years. However, that does not take into account if you buy when mortgage rates are 9% vs. 6%, you have a much better chance of selling higher, later, during a period of lower mortgage rates than when you bought. If you buy now, you basically have a zero percent chance of selling later, into a lower interest rate environment. See you may think there is a debate here. TO me and many others, this is self evident.

I would put 40-50% down....and try to pay the mortgage in 10 years or so, if not sooner... So for me, the answer is clear.

rhino, I was with you (which is not to say I agree with you) until the part about there being no debate because you and many others see all this as "self-evident." Why have a discussion with someone who is so convinced of their own argument that there can be no other reasonable position? All I'll say is that there are many variables and potential outcomes to the real estate market in the mid and long term. It is far from self evident.

This is one of the reasons why I think prices will continue to fall...

http://finance.yahoo.com/news/A-year-later-reality-sets-in-apf-380019995.html?x=0&.v=5

The government has been delaying foreclosure. The results are showing that about half of the current million people in the loan modification program will likely end up in foreclosure or short sale situations. The banks have been reluctant to process foreclosures and pushing the inevitable back as much as possible to avoid bad press or having to book the lost.

but what does that have to do with manhattan..

jim, so you think no one from Manhattan is in that program? What about from Brooklyn, Queens, and other boroughs? Are you one of those who believe prices in the surrounding area don't effect Manhattan prices and vice versa?

I think its self evident that if the cost of borrowing rises, that the value of things bought with borrowed money falls. That much is self evident. I am not saying that it is self evident that real estate will fall, even though that is my opinion. What I will say is that rushing in before interest rates rise, is a self evidently flawed argument.

Rhino86
about 2 hours ago
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I think its self evident that if the cost of borrowing rises, that the value of things bought with borrowed money falls. That much is self evident.

Can you please show me the historical time period(s), in the US, when rising rates were coincident with falling nominal home prices? There must be many if it is 'self evident'

another 500,000 jobs lost. ouch.

If nominal housing prices stay flat or even rise during rising rates/high inflation environment, but real (inflation-adjusted) prices fall, then perhaps it would be better to invest in something other than real estate? Something which will preserve the real value better?

All this real nominal talk is trying too hard. If rents are going to rise you want to own unless you are paying a premium to own monthly, and through a high ratio relationship as you are now. Rates are so low that even a little inflation would raise borrowing costs tremendously as a % of current. You'd have to see incredibly unrealistic rent inflation to offset the detrimental impact on values.

"Can you please show me the historical time period(s), in the US, when rising rates were coincident with falling nominal home prices? There must be many if it is 'self evident'"

There are other factors that go into home prices, like demand, which may rise with interest rates. In this case, where higher interest rates would likely be a function of demand waning for treasuries, there would be no such countervailing impact. What is evident is if most people shop on the basis of the mortgage + tax payment the bank will qualify them for, is that higher rates will crimp the buyer pool.

this is why will housing prices in NYC crash.
Even bankers can not afford anymore 200k for small 1 bdr 650 sf
Taxes, maintenance plus mortgage is too much.
You can rent same place (most condo buildings now rent) for much less.
Why would you buy than?
In best case scenario, prices will stay flat. So you never get any appreciation.
Jobs are not secure. people have no sense of stability.
And on the end of the day if you have job 9 to 6 you can always more further out of town. You do not need to be in Manhattan.

"Even bankers can not afford anymore 200k for small 1 bdr 650 sf "..........wtf is that one talking about....

somewhere, where do you get another 500,000 jobs lost? New unemployement claims were 473,000, but that's not the same thing as jobs lost.

""Actually, because of the record foreclosures down there, their decline was relatively quick... about 2 years."

Actually, NO. Florida and California started falling MID 2006 and it took until 2009 to see any bounce (and stop markets declined AFTER that).

Alpo, a broken clock is occasionally right, how come you NEVER are.

> NYC has been in a decline for close to the same time frame

Uh, nope."

Still no response from alpo on this!

not surprised...

NYC may continue to fall and for a similar amount of time as Florida and California. But NYC real estate will not continue to fall because Florida and California have fallen longer than NYC. Different areas will react differently. There are other variables at work such as demand, supply/inventory, the number of foreclosures, amount of foreign investment.

What I find interesting is this is the only city in the country where bank leverage not only impacted what people could borrow on their income...but it also heavily impacted the amounts that they were earning and the numbers of people who were high earning. Yet many want to argue we will be spared the same fate as lesser cities... "Lesser" is already factored into the much lower price level at which they peaked.

rhino ..it;s not just a simplistic argument that "nyc is great and wont fall as much"...but nyc new housing stock was , i believe, in no way comparable to the mega increases in places like downtown miami or suburban orlando, so the problem isn't quite as acute, and in my view makes it way less likely there would be a mega collapse (although prices could easily go down quite a bit more). To dismiss what I just said as ridiculous or laughable is unnecessary to sustain a bear view of nyc, and undermines credibility

Theres a supply and a demand element to this. Miami wasn't fueled by leverage of the incomes of finance professionals. There are fewer high earning finance professionals today then there were, fewer hedge funds....and the average hedge fund hasn't been paid a performance fee in two years. You are missing the demand site...and never mind that I don't even know if your assertion is true. In a city where there are so many renters...what was the increase in owned units as a percentage of existing owned units.

NYC will not collapse. This is not Florida and never will be, we do not have the room to build unless you go up and the cost of building in the city is prohibitive. Supply is going to go away eventually but not as fast as it has been going away in the past. The foreign buyer can not suck up all of the supply they can not keep a rally going, not enough demand from foreign buyers. With the dollar gaining on most foreign currencies and foreign currencies taking a hit it is not beneficial to buy for foreigners right now. Job creation will not happen fast enough to turn the NYC economy around. Prices may still adjust down but the city will not have a R/E crash.

Rhino - so now you are predicting that we will have a significant jump in interest rates without any increase in inflation? Or is it just rents that won't experience inflation? Quite a perfect situation you've developed for yourself, and quite unprecedented.

It is awfully simplistic to say 'Miami, etc. peaked in '05 and went down 50%, ergo NYC will follow the same pattern' - I would expect a little more thought through 'analysis' from you.

As to the 'only NYC benefited from the increase in leverage' - a little specious considering that most of the big mtge banks, especially the ones with the worst portfolios, were located elsewhere (Countrywide, IndyMac, WaMu, Goldenwest(Wachovia)), and southern cal was mtge broker central. Not to mention the areas like Phoenix, Nevada, South Fla where the easy money lead to vicious overbuilding which created a false demand that led to more building, etc. To say that only in NYC were earnings directly impacted by the easy money boom is either ignorant or willful distortion.

And you ignore the fact that in NYC more than half of all sales during the boom were in co-ops, which provided a much-needed check on borrowing. Not to mention that since so many properties here are/were $1mm+, at which point the mtge deduction disappears, so that the real cost of borrowing was always higher here than elsewhere. I think at this point it is, to borrow your own words 'self evident' that subprime borrowing wasn't anywhere near order of magnitude that it has been in these other places.

And just b/c some funds suck, doesn't mean that everyone in finance is in the same sorry predicament. I tried to explain to you last year how a reduction in leverage would lead to an increase in bid/ask spreads and thus greater profits, but, as usual, you ignored it and proceeded to bang your chest and curse - but what happened? Did we have a 'bubble' in earnings? perhaps - but we've had a 20-30% correction in prices too.

From such a low base on interest rates and such stretched ratios I don't think it's that wishful to think the denominator impact will overwhelm the numerator impact. A 200 bps rate increase would need be offset by what 30 percent rent inflation. Not likely.

Ps I don't find you valuable enough to read that whole treatise. Sorry.

Don't you think New York would have collapsed by now if that were going to happen. I dunno, but the decline in prices since the Lehman Brothers debacle doesn't strike me either as negligible or as the sort of collapse that has occurred in Florida, Arizona, Nevada and California. And the latest actual data give me reason for strongly guarded optimism, though, of course any number of factors could influence the future, which not a single person can predict with any certainty. I write about the situation and the latest data at length: http://malcolmcarter.wordpress.com/2010/02/18/have-we-reached-light-at-the-end-of-the-tunnel/

I don't understand that refrain. Last time it took three years. Two
more years of 15 percent declines would not be a collapse per
se. It's not the stock market. Would have happened by now is
poorly thought out and without any precedent. NYC can get cut
in half over three years. Down 12 a year over two years on top
of the 25 pcent we already have seen. It's not a collapse but it
works. The soft lander party needs to explain the condo glut away.

printer, great post. I think it's tough to deny there was a bubble in earnings here as well, but yeah, it's perplexing how dismissive some are of the declines that have already occurred. Given all the government machinations though, I think it's become a total crap shoot in terms of how much further prices will decline, and anyone banging their fist in certainty is pretending to know a lot more than they're letting on.

"Ps I don't find you valuable enough to read that whole treatise. Sorry."

Why bother posting then? Disagreeing is one thing, but paired with laziness, it's just impossible to take you seriously.

How does It always follow greater bid/ask lead to more profits? R u warehousing and frontrunning apts in NYC? Omfg. In an illiquid mkt that is propped by fiscal and monetary policy the likes of which we have never seen and never will and where our govt should actually be card carrying members of coldwell bankers, and every nimrod saying 'i'll wait till it gets back to 2007 prices to sell', I don't see where we go anywhere but DOWN.

All the headline data, were it just 20% down coops? No fnking way dude. 60% were New dev in NYC. Now unfortunately that headline numbers were used to sell 'ho hum' coops and 1bdrm for astronomical prices that will never come back, thatz a w67 guarantee.

w67 - thiz iz an english-speaking forum. pleaze study your 3rd grade grammar and re-pozt zomething intelligible.

Note that the Bernie has given the tax credit to first time/ lower priced 'homes'. When you build a house of cards, you are gonna need a 'solid' base. And usually it's the 'heavy' cards on top that bring it down. Similarly classic 6s cutting their price is alot alot of weight for this 'foundation' to accept.

Yeah when I lost that fight in 5th grade, I made fun of his 'ugly' girlfriend too. What relevance did it have to my fight? Zero. But it made me m
feel better.

Comprendo dipshitter

Printer, yeah stick with placing ppl in finance jobs, cause if u r in the biz, you'd know exactly me broken enlzh

I wish it were true but I don't see prices in manhattan ever falling much...in my price point..235 east 22dnd street, studios still over $400k...i know i sound like a broken record but i don't see anything changing unless interest rates go sky high.

Didn't you not see them falling much back when they were 30% higher as well.

"Why bother posting then? Disagreeing is one thing, but paired with laziness, it's just impossible to take you seriously."

Well I don't need you to take me seriously. Its one thing to read someones post, its another to read 500 words from someone who bought and is therefore going to view the world that way.

"It is awfully simplistic to say 'Miami, etc. peaked in '05 and went down 50%, ergo NYC will follow the same pattern' - I would expect a little more thought through 'analysis' from you."

Its actually based on the idea that most downturns see a point in time where cap rates are >= mortgage rates. And mortgage rates have more upside than downside.

"As to the 'only NYC benefited from the increase in leverage' - a little specious considering that most of the big mtge banks, especially the ones with the worst portfolios, were located elsewhere (Countrywide, IndyMac, WaMu, Goldenwest(Wachovia)), and southern cal was mtge broker central."

You don't understand. The people who got bigger bonuses because banks were operating with 40-to-1 leverage were here. The people at all the new and growing hedge funds (that were growing due to more leverage in the system) were here.

"To say that only in NYC were earnings directly impacted by the easy money boom is either ignorant or willful distortion."

Nowhere else do you have a large % of people drawing more comp due to financial leverage in the system. You're just wrong, and wordy to boot.

"And just b/c some funds suck, doesn't mean that everyone in finance is in the same sorry predicament. I tried to explain to you last year how a reduction in leverage would lead to an increase in bid/ask spreads and thus greater profits, but, as usual, you ignored it and proceeded to bang your chest and curse - but what happened? Did we have a 'bubble' in earnings? perhaps - but we've had a 20-30% correction in prices too."

What the fuck are you talking about here.

Listen you bought, enjoy it. Of course you don't want to admit you paid a sky high multiple. You want to argue why the sky high multiple makes sense.

rhino wrote: Its actually based on the idea that most downturns see a point in time where cap rates are >= mortgage rates. And mortgage rates have more upside than downside.

Rhino, have you actually seen studies showing that? if so, interesting. Cap rates may be too low now, and shhould rise, I would concede, but I'm not sure it follows that they absolutely have to return to something exceeding mortgages. I wonder if that is true in London. And again, the cap rates do vary in nyc and the crazy new dev seems to be among the worst.

Omfg. Printer bgt into a deflating bubble? No f'n way!!! His shrieking like a little girl with nonesensical logic makes sense now.

Printer, god speed to you. God speed.

Cap rates are no longer reliable. A form of cash flow based measurement championed by banks to trade real estate like a stock.
Problem is, it was fine when money cheap and abundantly offered. (money right now is only cheap)
It was fine when you had stable with chronic increases in rent like clockwork (true rent is practically immeasurable today with plain vanilla or highly creative concessions)
A standard deposit and mortgage percentage{formerly 25 to 30% down commercially} Today some banks want 40% down.

Point is it is/was based on old leveraging mindsets.

Old leveraging mindsets? Is that another way of saying "this time its different"? Listen, saying cap rates need not go to mortgage rates is fine... Just realize you are arguing for a change vs. history. I have my view of course. If people think a 3% cash on cash return is good for something this risky, because rent is an after-tax expense, and they need to live somewhere... well I guess they've been in the majority for a while. For instance, if Printer can be comfortable in a 2/2 with two kids forever, and plans to keep his mortgage outstanding for a while, then he went for it I guess. I think there is scope to be a lot more opportunistic.

I guess if rents snapped back 20%...then that 3% would become 3.6%. Oooooo ahhhhhh.