Historical fact or analogy based arguments why Manhattan real estate will hold better than -40% from peak value.

Manhattan real estate will drop by 70.08%. Then, after that, they will drop by 40.64%. Then after that, they will drop by 20.93%. Then after that, they will rise by 2.14%. And finally they will drop 167.54% more.

In addition, have we mentioned how much nicer Chicago is than New York City?

When considering the best liked cities on earth, Chicago looms large among them. Chicago is one of the world's greatest tourist attractions. And not without reason, for Chicago has much to offer. Chicago does not have a multiplicity of skyscrapers like New York, but it has much beauty and elegance. And Chicago has an illustrious background of history.

In Chicago there is a number of young men who are very beautiful, very charming, and very lovable. Chicago is called "the windy city". But these young men who are very beautiful, very charming, and very lovable, prefer calm days for their social activities.

One of the most beautiful streets of Chicago is called Miracle Mile. It is very broad, bordered with trees, and very pleasant to look at.

One of the most beautiful things of Chicago is a lady. She is not too broad, bordered with smiles, and very, very, very pleasant to look at. When a gentleman contemplates a lady of Chicago, the gentleman is apt to exclaim: "oo la la", for the ladies of Chicago are very charming. And the ladies of Chicago are dedicated to the classic declaration, expressed in the words : "L'amour, toujours l'amour !"

A Russian man once said that the eyes of a Chicago lady are as intoxicating as good wine, and that her burning kisses are capable of melting the gold in a man's teeth.

In Germany, in Italy, in Congo, in China, and in the United states, there are men who say : "If you've never been kissed by a lady of Chicago, you've never been kissed at all."

Stupid answers to stupid questions!

My property values drops to 2004 levels. Let me think.

Yes. I'm still very well off.

Now what to do about this screaming newborn I have in the other room?? I suppose he is the ultimate depreciating asset. He will cost more every day as he gets older, peaking at college, right before he leaves us to make his own money. None of which I am likely to see.

Get a fucking life Rhino. Along with Steve. Life is for living. Not pissing your pants on Streeteasy. I'm here per the paragraph above. Why, on a Sat. night are you posting on a real estate blog?

Loser.

I think the non-response from bulls (including what seems to be avoiding the question) is pretty telling...

what non-response from bulls? no one is denying price declines. it seems the debate has shifted to "does the average owner care?"...in my case no. I answered the question clearly: even if property values drop to '04 levels I will still be happy to have been buying real estate in NYC over the years. And I will continue to buy real estate in NYC. And I will also continue to invest in the stock market and look for opportunities in in emerging markets. My guess is the average "bull" as you're stuck on calling us is doing fine. We're already only 30% of NYers so, not to be obnoxious, we probably are better educated and more well off than the 70% or renters. But, just a guess. Will I concede that a percentage of new condo owners who over leveraged themselves might take a bad hit...yes, I will concede that. I am not clear what pleasure you derive from that, but have fun with it. But, I do think, on balance, the average buyer will weather this fine.

I think Rhino asked a very decent question. Why must people be so nasty? Incredibly immature. Please vent your anger elsewhere.

I like to hear people hypothesize. I want to buy and I'd like to have an idea where prices are going. I enjoy reading Rhino, Steve & whoever else wants to opine. Can you try to be more civil & mature? If you can't, then please don't post.

I was just kidding rufus, the nutty pro-Chicago poster - sorry if my post #2 above was mis-interpreted...

Wow, this is a fine good morning! Eah, where do I begin? Your baby was screaming and you stopped on the way to him/her in order to boot up your computer so you could tell me to get a life? Are you smart enough to see how sad that is or no? It looks here like my past post was about 8:30pm last night. Do you miss being out on the town or something...blame your baby for it? You two work that out and leave me out of it.

Second, its worth noting there wasn't one intelligent response from a bull. And listen, I'm not celebrating or pissed or what have you. To the people out there who bought in 2006-2007, never expected to have to sell, who now are forced to sell, my heart goes out to you. To people who bought before that, as of right now, you are probably still in the money, enjoy it while it lasts...or don't care about it because you never plan to move, or what the hell ever.

Maybe most importantly, this blog is all about observing trends and making predictions. And you can't be above it, telling people to get a life and fuck off, and yet be on it and reading it? If you don't like bulls and bears going at it, why the fuck are you on here?

If I go back to my initial post...I'm just saying, if nothing changed, and price to rent ratios went to the historical average, we would be cut in half from a very very inflated 24x at the peak. Further, what is going on in the finance industry is far far worse than average...its far worse than the average DOWNcycle...It may be in secular decline (look it up if you don't know what it means).

So yeah, let me get the bulls started. Here are the only two arguments I have heard and can appreciate. One is anchoring. Watching things fall 30-40% may bring buyers in on the simple fact that they have seen prices much higher and will perceive bargains. Second is interest rates. They are still relatively low, and as such, after tax cost of living can represent a substantial savings vs. rents with 30% declines in price...Caveat being, not as substantial of savings compared to prior cycles (see decade, 1990s).

PS: Dwell, you are not B.L., are you?

Rhino - good question. i dont have time to answer it as I need to get to the bank to cash your rent check.

Dude that is so witty. Did you create the name on the fly for the purpose? That's awesome man great job. Its even funnier than you likely don't own jack shit, or if you do, that its underwater and you're lashing out with bitter sadness.

My landlord bought my building in the 1970s from the city as it was teetering on bankruptcy...That's how you buy property. That is something you would never catch me arguing about. Its all the geniuses who bought after 2004, with the short term sale in mind and missed their window, who need to stop taking victory laps.

Who are these people that are taking victory laps in this environment? What exactly are they celebrating...paying $2500 sq/ft? Seems a bit ridiculous no?

You don't have to go back to the 70s - I know a few who bought in prewar co-ops in 10025 at 200/sqft circa '93.

I know...the rent ratios of the 1990s will do quite nicely. Do you know what 200/ft represented on a ratio at that time? Higher interest rates make comparisons a little tougher.

The problem with rent ratios is that they ignore interest rates (they share this problem with P/E ratios for stocks). My rough math has suggested that it might be tough to see declines of more than 50% without double digit mortgage rates (not that they can be rules out). Of course its all guesswork, before the ignorant masses jump down my throat.

Second, its worth noting there wasn't one intelligent response from a bull.

I think that this situation falls under the situation, if a tree falls in the woods and no one cares about the tree ...

No one cares, yet there are people logging in, reading and writing. Rainer, congratulations on disproving your own point and saying nothing all at the same time. Well played.

> what non-response from bulls?

Exactly.

> We're already only 30% of NYers so, not to be obnoxious, we probably are better educated and more
> well off than the 70% or renters-

Well, it is obnoxious, but also likely very wrong. The owners are primarily outer borough. Manhattan has always been a rental area. Sounds like you're in with the outer borough folk, and the senior citizens who own the crappy co-op conversions, and the kids whose parents bought for them.

Not to mention, every single schmuck who bought overleveraged in the last 2-3 years and is now taking a bath is in that 30%. Nice company you keep...

> Get a fucking life Rhino. Along with Steve. Life is for living. Not pissing your pants on
> Streeteasy. I'm here per the paragraph above. Why, on a Sat. night are you posting on a real estate
> blog?

Yes, posting on a real estate blog on Saturday nights is for losers. The cool kids are responding to them with insults on Saturday nights..

> Second, its worth noting there wasn't one intelligent response from a bull.

Exactly.

I don't think anyone with a brain (who isn't shilling) gets that we're down in double digits, probably in the 20s down already, and the only question left is how deep.

Rhino...uh, there is something my wife can do for the screaming baby that I cannot. I was on here killing time for her to finish so I could tend to the little man so she could get some sleep.

Back to my point, some people will get hit but for the most part...owners in NYC (not outer areas) will be fine as they likely have owned for years. Owners then to own over and over. So the majority of us have made a lot of money over the boom outside of the equity in our primary residence and are fine.

Exactly what kind of argument are you looking for Rhino? Someone to say RE will shoot up 10% every year? No, no one will say that. You're looking for a non-existent fight. Most homeowners want to own their primary residence. If it goes up lovely..if not, that's also fine.

I maintain, it is new condo owners who might get screwed if they purchased for the short term.

eah: you act like layoffs have not hit the city of ny. what about all the people who will be forced to sell sice they have lost their job or the people who are spending more than 50% of their gross income on housing.

> owners in NYC (not outer areas) will be fine as they likely have owned for years.

That is EXTREMELY wishful thinking and not really supported by fact. Witness the record number of sales over the past couple of years...

> Someone to say RE will shoot up 10% every year? No, no one will say that.

Thousands of posts on this very board to the contrary...

> .Most homeowners want to own their primary residence. If it
> goes up lovely..if not, that's also fine

Did this guy COMPLETELY miss the last 5 years? Either that or he's living in fantasy land.

Fact is, homeowners across the country are so freaked out about the equity losses in their homes that even those that didn't foreclose stopped buying, creating the first decline in retail spending in half a century.

The idea that America will "wait it out" and just pay their mortgages is one of the biggest jokes I've heard in a while.

"I think the non-response from bulls (including what seems to be avoiding the question) is pretty telling"

you don't think it could be they view the original post as unworthy of a response or they simply don't care if somebody tells them to "have at it"?

"I think Rhino asked a very decent question."

I think many would disagree.

"Why must people be so nasty?"

Because they're tired of this crap.

"I enjoy reading Rhino, Steve & whoever else wants to opine."

just a matter of opinion.

Heck: I'm an owner with approximately 30% equity and I'm freaking out. Thinking of selling and sitting in cash.

The person I know bought for 200/sqft in '98 (classic 6, north of W96) and the same unit was sold for close to 1k/sqft in '08.

nyc10022 "I don't think anyone with a brain (who isn't shilling) gets that we're down in double digits, probably in the 20s down already, and the only question left is how deep."

Can I see where just exactly you get this figure from? Or is it your "educated" guess?

"you don't think it could be they view the original post as unworthy of a response or they simply don't care if somebody tells them to "have at it"?"

In the history of this board, no one has ever held their tongue. But, all of a sudden, you're claiming every bull is.

Thats pretty funny...

> "Why must people be so nasty?"
> Because they're tired of this crap.

Tired of watching prices decline, tired of losing money, tired of being told "I told you so".

Yes, I can see why the bulls would be a little nasty these days...

"Thousands of posts on this very board to the contrary..."

Nah, just a few outliers who you uber bears use to justify your continued "education" of the board.

"Fact is, homeowners across the country are so freaked out about the equity losses in their homes that even those that didn't foreclose stopped buying, creating the first decline in retail spending in half a century."

Are you claiming that renters have nothing to do with the decline in spending?

"The idea that America will "wait it out" and just pay their mortgages is one of the biggest jokes I've heard in a while."

What will America do?

> Nah, just a few outliers who you uber bears use to justify your continued "education" of the board.

Yeah, got it... the logic spewed by 70% of the board came from the "outliers".

Don't lie... check the history. Guys like dco got SLAMMED by most of the board for even suggesting that prices might go down at all.

Have to love the revisionist bulls... now they're saying they never said things would increase. Sorry, but the majority of the CITY did...

> Are you claiming that renters have nothing to do with the decline in spending?

Not in any meaningful way relative to the decline in spending from homeowners... who started pulling back WELL before the wall street panic.

I guess you're not one much for facts, but a HUGE portion of spending was driven from home equity, and that dried up.

> What will America do?

What it alwasy does... rationalize on the way down, then overcorrect.

nyc10022

still waiting for you data, dude.

don't ask for it in multiple places then... and then huff and puff 3 minutes later. I just got finished replying to your duplicate post on the other thread.

chill, duuuude.

wait, i just caught on to this.

Let me get this straight... you ask a question on one thread. Then immediately go to another thread, and reply to an older post from 20 minutes before, and then complain you didn't get an answer?

Something wrong with you dude?

NYC10022, we're not discussing homeowners across the country, are we? We're discussing NYC. My household is a perfect example. Lets go back ten years. If I had been laid off, we would have had my wife high paying job to fall back on and vice versa. I assume this holds true right now. We always owned in NYC. We purchased our first home with cash from a student loan. Was that dumb. yep. But we did and it got us on our way. The first time we had a bad economy and we both found ourselves making less, we rented our place out and I transferred to the Asia emerging markets division and we were back on our way. NYers are not immune to market forces but they are uniquely positioned to respond to them in creative ways. The city will hit bad patches and get beat around but it always does fine. As is true for London, Hong Kong and all other places where the best and brightest flock.

Again, you're ignoring that I am conceding that the population you pointed is in trouble: people who over leveraged for a short term profit will be at the least very disappointed and at the worst bedemolished financially. But this is not the bulk of NYers. Only time will tell who is right but we have these threads to hold each other accountable.

Rhino,
I am not BL. I don't create aliases to post, which I suspect a number of people here do.

This post crystalizes something for me: I think when we discuss the deflating market & how low prices may go, those who bought recently or who are highly leveraged view the discussion as a personal attack on them and they need to defend their purchase and attack those trying to figure out how low prices will go. Then, there are others who use inet boards as a means to discharge their hostility. Let's face it: there's a lot of mentally disturbed people in this world who don't think there's anything wrong with them and so instead of facing their problems, they go about trying to spread their grief & pain. Very sad.

Back to the question: I don't know where prices will level. Steve posted the purchase price history for apts at 350 Bleecker St & it was illuminating. Seems prices took major jumps from 1998-2000. I know that bld & think it's a good gage. So, if the market levels at 2004 prices, prices still seem inflated. In view of Wall St's transformation, the stock market, job losses, TARP & the world economy, who knows where we're going? So, I think it's important to keep revisiting this issue since conditions change rapidly.

"Only time will tell who is right but we have these threads to hold each other accountable"

Why must "we" hold others accountable?? We do not pay for opinions posted here, ya take it or ya leave it. Anyone who purchases or sells solely based on the posts of this board is a fool.

I think this notion that people are "accountable" for their posts here is why some play the 'got cha' game. As long as someone posts in good faith, that is all that matters and if they are wrong, so be it. Even the geniuses on Wall st f'ed up big time, so why beat up on a streeteasy poster?? It's pathetic.

nyc10022

you bring up the same "facts" on each thread. You throw numbers around and then seem not to be able to back them up. That is all I am looking for. If you can point me to the research that states data to conclusion that RE in Manhattan in total has droped 20%, I will know you are correct.

I read the posts on different threads, and there you are. Still waiting for your answer "dude"
Now I will pop over to the other thread and see if you have answered there.

nyc10022

Just checked dude. Nope! No response on other thread to your same postings, or are you still reading Urbandigs Website. Checking out his data?

ruff,

Isn't one of the problems that the 'data' is provided by brokers who have a vested interest in showing that prices are not declining?

dwell..accountable means who predicted what...bot "got ya"...

eah:
Agreed: Accountable means " who predicted what", but the way you & others do it, it's "got cha". It's tone & manner: facts & opinions are fine, anger & hostility isn't. If people are wrong, note it & move on, but don't attack.

dwell

I don't honestly know. It could be, especially on site which is really nothing but broker provided. (for current info) That is why there inventory count is so high.
But for true numbers that can't be lied about you can only look backwards to get a "total" picture.
And there are sites that provide nothing but hard data. In the case you don't know, one really great site is "radar logic". There monthly report is due out either Monday or Wednesday. But they have a special index on Manhattan Condos, that gives all unfiltered numbers.

Bulls, once and for all, the market is already down 15%. It will show up in Q4 data. Hundreds of examples have been given in other threads and it really adds nothing to the discourse (generous characterization) to keep demanding to see data. Besides the real current market is never known. We have no idea what it would take to sell an apartment TODAY. One example, I have a friend in a boutique condo. He paid $950/ft in 2006. Apartments sold in his building for as much as $1,400/ft in 2007. He asked a broker for an opinion on a realistic price and that broker told him and his wife that $1,000/ft was a real expectation. I could not agree with Dwell more. Its nothing personal to guess how low real estate can fall... Its a matter of debate. To all those who bought before 2002, you are probably fine and congratulations on being lucky and/or smart. To those who bought after, I hope you are ok on a personal level and can ride this out. To those who didn't buy after 2005, you probably dodged a bullet. To those with a wife nursing in the other room who see fit to attack me at 12am for a post I made at 8:30 on a Saturday night, you should find a therapist. You're probably a sad old piece of shit who has never had the valuable lesson of being smacked in the mouth for being inappropriately rude to a stranger.

Rhino86
Besides the real current market is never known. We have no idea what it would take to sell an apartment TODAY.

My point to ny10022 exactly and the likes of him that make pull a % out of your ass statements with no supporting docs.

Rhino86 debates are won not with talk, but with talking facts. Q4 will tell us what we already know that people are scared and have reacted as such. It will more likely be Q1 that gives the best insight as to what is to come. Unless by that point the world has come to an end. Can Paulson leave any sooner and take the decision maker with him?

Ruff, there have been whole threads of examples supporting a 15-20% decline from peak. You are already geared up to ignore the Q4 data as an overreaction. You and others need to accept a 30-50% correction in real estate is not equal to the end of the world. It has happened before. It will happen again. Life will go on. Don't take it so personally. I don't know what white horse is riding in during Q1 but good luck. Real estate is like a battleship. Once it turns it takes a while to do a 180. Don't count on it before 2011.

Rhino...stop rewriting your tone. I attack you because you're morbidly pleased about property values going down and people losing jobs. You start threads on it non-stop and go on and on about "bulls" and a that hour it was quite annoying to see the same shit from you. No one is denying data. People are more making the case that for some the data does not matter. The data is real and accurate but its meaning varies. Todays data is most relevant, AGAIN, to new buyers who plan to sell soon (forced or as a choice) or people who over leveraged and lose a job. It's very annoying that you don't get that. I used the example of my newborn to illustrate that most of us who own see our homes the way we see parenthood. Ups, downs, sideways moves...but overall the right decision. It seems to me it is the renters or "bears" to stick with your analogy who want to keep this conversation moving into absurdity.

Eah, tell it to Oprah. This is a real estate website. Where do you get that I am pleased about people losing their jobs? Are you unemployed? If you are, I am far from happy about it. Anyone who doesn't own property either by choice and/or because the bubble priced them out is bound to be happy about seeing the market come down to a more reasonable level. By any measure known to anyone with a moment of financial training, it got way above reasonable somewhere in the 2005 to 2007 range. If you think my post and question is not relevant, why did you click it? You are just way off base. I start threads on it non-stop? I think this is the first thread I have ever started, other than to comment on a specific property. Some of us see real estate as an investment, a choice between buying and renting, a little different than parenthood. Its a good decision when it goes up between the time you buy and the time you decide or are forced to sell. Otherwise its a bad, or at best unfortunate decision. At least Ruff sees it for what it is, a debate. And again, the bears have nothing to debate a 50% correction to the median price to annual rent ratio, even assuming rents can hold.

Ah--same time, same place...whatever will we do when the baby is sleeping through the night? If you were priced out the last few years and want to own, I do hope you have the opportunity to do so. Thank you for your concern if I were unemployed. Sadly, I am not. So just be sorry that I will be quite tired tomorrow.

Ok so to review, the bulls offered nothing. Eah's mental problems have me circling back to my initial post and his initial reaction. It is more ridiculously inappropriate that I expected. He brought his newborn and personal wealth (shrinking daily) into it off the bat, and called me a loser for posting to a real estate site at 8:30pm on a Saturday night. Brought the F word into it straight away too. Haha. It's worth reprinting.

Eah reacted with this: My property values drops to 2004 levels. Let me think. Yes. I'm still very well off. Now what to do about this screaming newborn I have in the other room?? I suppose he is the ultimate depreciating asset. He will cost more every day as he gets older, peaking at college, right before he leaves us to make his own money. None of which I am likely to see. Get a fucking life Rhino. Along with Steve. Life is for living. Not pissing your pants on Streeteasy. I'm here per the paragraph above. Why, on a Sat. night are you posting on a real estate blog? Loser.

To this: Let's hear the best from the bulls...either by analogy to other real estate markets or time periods, relevant ratios, etc, etc, etc. I've played with the numbers and can't find a more bullish outcome than -40%. This would take us to 2004, which seems to be the inflection point of all things bullish, which have since cratered. The only things not below 2004 levels are emerging market stocks and their close cousins, natural resource based stock...neither is a reason for Manhattan real estate to hold. Have at it.

"Ok so to review, the bulls offered nothing"

You ask a question on a Sunday, don't get much of a response that same Sunday, and suddenly the entire opposite side of the argument has nothing? Interesting way to take facts and generate a consensus. I'll read your "20% declines" consensus (or whatever, I just skimmed) as having been generated through an equally rigorous process. nyc10022, you're guilty of the exact same gross exaggerations.

The fact is that many reasonably priced properties (we're talking real resale coops, not new devs or recent flip attempts) are justified by rent vs. buy math. At least in the 1 and 2 bedroom market, which is the one I've been following. Rents seem to be falling... marginally. 5%, maybe less? Unless rents fall farther (which they very well may), I can't see property prices falling for more than the very short term.

How many times do I need to remind bulls that there was a 300+ post filled with examples of 15-20% declines. Listen, you can assert that rents need to fall to drive purchase market further down, but there is nothing in terms of purchase to rent ratios or after-tax savings vs. rent math or yield on downpayment in terms of after tax rent savings to support your assertion...There is nothing what-so-fucking-ever. The asking price is still around 17-18x annual rent for most apartments and the historical median is around 12 or 13x.... And there is nothing "average" about current conditions.

tech_guy....shhhhhh Don't bother nyc1002, he is still trying to figure out why he did not know that urbandigs gets all his info form Street Easy. He just can't seem to wrap his brain around it.
And I know also that he is hard at work looking for all the empirical data priving that Manhattan in total RE has fallen 20-30%. But he is having a tough time because no one has joined into his circly jerk today, so he must do all the jerking himself.

For the record, can the bulls tell us how much they think the market is down vs. peak? 0%? 5%? What do you honestly think? There can't be data if nothing has sold since the day Lehman went bankrupt which is basically the reality of the marketplace right now.

Rhino, your 12x ratio is just wrong. I've gone through the numbers plenty, and 18-20x is more accurate. Do the numbers yourself and it will be obvious. 12x just doesn't make sense when assuming an 80% mortgage and factoring in the mortgage deduction benefit. You can rant all you want, it doesn't change the facts.

All I know is the ratio was under 7x in the early 1990s and it peaked at like 24x in 2007.... So how wrong can I be? I'll concede it may be more like 15x. 15x divided by 24x = -40% off peak pricing. And the average is almost a moot point because what NYC and the US of A is going through right now is FAR FROM AVERAGE. I know for sure that 12x is 70% higher than the 1990s trough. Seriously, what is there to counter that with? Rates were not much higher in 1998...and things traded under 10x. Again, there is simply no compelling argument for prices to hold better than getting cut in half. None at all.

LICC, that's implying an avg of over 1000 sq/ft for most apts. This would imply a 0 drop in prices in manhattan

Streakeasy, I think for 2 beds and higher, for nice doorman coop space, the price got to $1,200 or more.

streakeasy, the rent ratio isn't a forecast. It give a measure based on current factors. If you think rents will drop in the future, then you expect a change in the ratio.

Rhino, you just pulled a 15x number from thin air. If you want to argue that bad economic conditions will drive prices down in the future, fine, but you are providing no support for your ratio argument and you just throw out conclusory statements without the facts behind them.

I actually pulled the 12x from thin air. Either way, 12x is way above the last trough. Where is your 18-20x from, because I'll bet you $100 that is very high. There is no way that we saw 7-8x in the 1990s if the average is 18-20x. I would venture a thin air guess that 20x was never seen in history before 2004, no less an average. How is what you are doing any different than what I am doing? Dope. You are countering my guess with your own "providing no support". 8x in the 1900s is not a guess. 22-24x at peak is not a guess. 18-20x as an average is CLEARLY WRONG. I do appreciate that 12x is also probably low....but its probably high as a trough, so again, we are probably looking at -50% peak prices.

I don't tend to hang out on the board on Sundays, especially of Thanksgiving weekend.

I appreciate the bear case, god knows I hear it often enough. Let me state that hubby and I want to buy something bigger, so we would appreciate prices coming down for our own sakes.

However, I'm not sure that's going to happen.

The bull case: 1) money remains significantly cheaper than it was in the last slide (6% vs. 12%) supporting prices;

and 2) real estate prices track employment, and although Wall Street and publishing are getting hit, it so far does not look like a worse job loss, than, say '00-'01, a recession where real estate prices didn't fall 40%.

I can see one scenario, which would admittedly be bad for my business, of two to four years of glacial real estate markets -- few transactions with fairly slight declines in prices -- without a major crash.

ali r.
{downtown broker}

Rhino, you're showing your ignorance. I ran the numbers on another thread. Take a $700k apartment, take 80%, use a current interest rate to calculate your monthly mortgage payment, add monthly common charges and taxes, reduce the monthly cost by your tax savings from your deduction benefits, and see what comes out. 12x is ridiculously low. 18x-20x is what works.
You can't look at historical ratios out of context. The ratio is affected by interest and tax rates. What were rates in the 80s and early 90s? I guess that is too hard for you to understand.

And you can run the numbers at any price point. This isn't that difficult.

The issue here is I am talking about a raw ratio of purchase price to annual and you are talking about the concept of after tax cost of living vs. purchase price. I assure you that no one else who talks about price to rent ratios means what you mean. And I fully understand interest rates as a factor in this. That's why we might hold at a 12x vs. the 8x we saw in the 1990s. You are also generously assuming rents hold and rates stay low...And even then we are still back to the same -50%. In terms of what I can understand, I have an economics degree from Harvard and an MBA from Wharton as well as a CFA... So I'm sure I could teach you a lot about this. Your ratio makes absolutely no fucking sense because you don't compare it to rent at any point... what good is it to care what your after tax cost is compared to what you paid? That tells you nothing. You are an imbecile.

oh, and 3) in the bull case is the "quality of life" argument -- several NYC neighborhoods are far nicer to live in than they were in the late 80s -- Tribeca, Chelsea and Park Slope are three good examples of neighborhoods that are markedly safer than they were 20 years, and have better retail and better schools.

ali r.
{downtown broker}

"The asking price is still around 17-18x annual rent for most apartments and the historical median is around 12 or 13x."

If interest rates shoot up, 12x may be right. At current prices, 17x is justified, regardless of how much you swear about it.

Let me splice together 2 quotes of yours for a better answer to the underlying question:

"For the record, can the bulls tell us how much they think the market is down vs. peak? 0%? 5%? [splice] All I know is the ratio was under 7x in the early 1990s and it peaked at like 24x in 2007"

If you think 24x was accurate for most of the market in 2007, I'd say we're down about 25% from that level - to 18x. The thing is, I disagree that 24x accurately described the 2007 market. New dev sales and flips don't count for me, since I thought they were grossly overpriced all along.

Here's a rough 20x support: Rental costs $1/year, purchase costs $20, annual maintenance $0.40 (scale up figures appropriately, of course). $4 down payment, $16 mortgage, at 6% (I never unsubscribed from Manhattan Mortgage's daily rate emails, and thats roughly what they quote for an agency-conforming coop loan, up to about 700k loan value I think).

Annual interest on that $16 is $0.96. Lets say half the maintenance is tax deductible, for a total annual tax deduction of $1.16. At roughly 40% marginal taxes (federal and local), that's really only $0.696/year out of pocket. Ignore principal payments as that all adds to equity. Add in the $0.20 maintenance that's not deductible, you're at $0.896/year. Add in the opportunity cost of the down payment - I personally use 8%, taxed at 25% (15% federal cap gains, 10% local) and you get $0.24 opportunity cost, for a total cost of $1.136. 13% more than renting. Keep in mind my opportunity cost is probably on the higher end of what others use.

Bring the ratio down to 18x, and you're doing just fine.

Ali, you're leaving something that's probably key out of your analysis, which is the unprecedented depth and extent of the run up in prices between 1998 and 2007. In places that did change a lot for the better (say, Harlem) the run up was over 400% in many blocks. In places that didn't change much (say, Yorkville in the UES) the run up was close to 200%. A run up in line with inflation would have been maybe 50%. The numbers we're talking about are so huge and unseen that even if you don't believe we're facing the deepest economic crisis of the last 50 years (and why exactly wouldn't you believe that?) there's some deep correction to be had. I mean, you could find real 2br/2bt in doormen bldgs in Yorkville for 450K in 2003. Those are asking 800K now, after asking 900K a year ago. They were probably 300K in 2000. You tell me again WHY AND HOW you think they won't come further down. Thanks.

Rhino, there's no point in debating with LICC.

Ali I thought you went to Harvard. Maybe rates can stay low (which is why we get 12x gross annual rent, not 8x), but if you think crime isn't gonna creep up...that's just crazy. Also crazy is the idea that apartments "ten-tupled" in value since the mid 1990s and someone none of that quality difference was captured in the price.

Tech_guy, in declining markets, buyers look for more that equivalence, they look for compensation for the risk of owning a falling asset. Its just historical fact. Justified is a word that doesn't really mean anything until buyers start hitting asks, and that's just not happening yet. Also tech_guy, the market is the market...its not all exactly the same, but its all connected. I agree condos were the most grossly overpriced and will go down the most. But again your ratio is meaningless, because it doesn't compare price to rent, it compares price to carrying cost. Your ratio is about as meaningful as 1 / 1 = 1. Front_porch you must be smart, please educate him on why this ratio is meaningless.

Rhino, if you have all those degrees and are a CFA you must have some rich parents, because it doesn't appear that you accomplished anything on your brainpower.

The ratio is to compare monthly rent costs to the purchase price of substantially similar units. All I'm doing is breaking down the analysis to show the actual monthly costs at specific price points. I'm still waiting for you to provide any analytical support for your numbers. But just curse and rant some more, I'm sure that will persuade everyone.

Your ratio is not to rent, its to carrying cost, again that is why it is meaningless. My parents aren't rich, but I am. I am also a value investor. I am excited to see Manhattan real estate cheap, like it HAS NOT BEEN since the 1990s. Just like I enjoy seeing stocks cheap, like they HAVE NOT BEEN since the 1990s.

"Tech_guy, in declining markets, buyers look for more that equivalence, they look for compensation for the risk of owning a falling asset."

Didn't they teach you about circular logic at Harvard and Wharton? You can't use a conclusion as evidence to prove that same conclusion. In this case, you're saying a decline is proven by the fact that buyers expect lower because there's a decline.

"But again your ratio is meaningless, because it doesn't compare price to rent, it compares price to carrying cost."

Now I don't believe you went to Harvard or Wharton. Reread my math. I certainly do compare to rent.

"Ali, you're leaving something that's probably key out of your analysis, which is the unprecedented depth and extent of the run up in prices between 1998 and 2007"

Cherrypicking 1998 isn't particularly enlightening. There was an absurd push downward in the decade before it - even the bears here say it overcorrected on the down side. So naturally part of the following runup is expected to be well above inflation - its correction back up, plus appreciation for a significantly nicer city than we had in 1987.

You compare price to after tax cost of owning, not rent.

If you think markets aren't self-reinforcing in both directions you are sadly mistaken. Maybe look up the term vicious circle. http://en.wikipedia.org/wiki/Vicious_circle

Buyer absolutely expect to be compensated beyond rental equivalence. See Exhibit A [The 1990s].

Listen I am out. I can't sit here any more and school you all in the 1990s. Yes, I understand the city is safer and interest rates are lower, but neither of those things is static. Also, much of this upside is reflected in the values which have increased by factors of 8-10x. So to imagine something purchased in the 1990s might deflation to a 4-bagger over 15 years is far from as insidious as you imagine.

The first line of my math was "Rental costs $1/year". The last line of my math was "13% more than renting." Are you going to continue to tell me that I didn't compare to rents? Its amusing to see how quickly you prove you couldn't possibly have gone to Harvard or Wharton.

tech_guy, Rhino might have went to Harvard or Wharton. Grads of those schools can be just as mediocre as everyone else.

""Thousands of posts on this very board to the contrary..."
Nah, just a few outliers who you uber bears use to justify your continued "education" of the board."

Exactly. Some gross exaggerations here. I really wish Streeteasy would let you click on usernames so you could bring up all their posts.

"It's tone & manner: facts & opinions are fine, anger & hostility isn't. If people are wrong, note it & move on, but don't attack."

Careful - some people will call you a "hall monitor" for appealing for civility here.

"Bulls, once and for all, the market is already down 15%. It will show up in Q4 data."

What is with this imaginary war you've concoted in your head - "Bulls vs Bears!"? It would be one thing if we were talking about two (pretty bad) Chicago sports teams, but please move past this juvenile, facile, and unhelpful labeling. eah is correct - the damage will be felt by people who overleveraged and those who need to sell. Even stevejhx acknowledges this.

I just interviewed (I'm a half-time journalist and a half-time real estate agent) an appraiser who said "the batteries in my crystal ball are broken" and I feel the same way. I don't know what's going to happen.

1998 is an interesting pick because obviously it takes mortgage rates out of the equation.

However, to erase the run-up from 1998, are we going to slide back to 1998 in terms of crime? I don't see it. Quality of life? I live in Midtown West and it would take a lot of, for lack of a better word, "degentrification" to push my neighborhood back in time. Is Time Warner Center going to close? Are ALL those law firm jobs near Times Square going to go away?

It would be interesting to find, and I will look for it, median income Manhattan 1998 vs. median income now, that would tell us something as to whether the city's run-up in prices was supported by rich people moving in (probably somewhat sustainable) or by speculation (probably not sustainable).

I would argue the Harlem rise was somewhat speculative, because it doesn't look like there was a lot of job creation there, but, let's say Chelsea is probably a neighborhood where the rise in incomes that drove the rise in prices may be sustainable (I can't talk about Yorkville, I'm not an uptown girl).

and yes, I did go to Harvard, and I highly recommend "Harvard Beats Yale 29-29" which is being held over at Film Forum.

ali r.
{downtown broker}

Hope everyone had a good holiday! Working and catching-up on things here, but thought I would just throw a couple of thoughts out there.

1. With the historical 12x rent number as a baseline, is NYC historically "average" now? I think not. What I mean is, NYC is cleaner, has less crime, better infrastructure and a significantly better quality of life than it's historical average. Even with the challenges of a downturn (increase in crime, litter, etc) NYC is a place that people WANT to be, versus much of the 70's, 80's and 90's when it was really not that great of place to be (for many neighborhoods). From a demand standpoint (which definitely affects prices), this will keep interest in apartments in NYC higher than for many other parts of the country and certainly for NYC historically. I think the 12X number is too low and the 24X rent for some buildings in recent years way too high. Factor in rents going forward (down a bit now, but almost certainly going up), tax deductions for owning and low mortgage rates and I don't think 15-18X rent for most NYC neighborhoods is that unreasonable to maintain. If mortgage rates go to 12% or 15% than that would change things.

2. Ali - I do think the jobs situation for NYC is going to be worse than in 2001/2002. I don't think we will know how much worse until March or April of '09, but I think we will be a slight tick worse than that. Nationally, I think it could get ugly if it goes much higher than 8%.

I want to thank front_porch and waverly for being the first two to actually address the question without vitriol.

Ali, I find 1998 interesting for the same reason, the interest rates are similar. I fear that if you ran your median income analysis, it would give a horrifying result. I will tell you what I know. A new investment banker made about $150k in their first full year in 1997, and now if they still have a job, they will probably make $150k. This is a round trip from $300k in 2006.

The issue of average is interesting here as well. Finance as an industry is clearly worse than it was in 2002, and likely much worse than 1992-1994. So we are below average in that sense. Crime is the flip side. NYC as a whole is safer and certain neighborhoods are much much safer. However, remember we are generally talking about median prices. So you can dump Hell's Kitchen, a previously uninhabitable area from a yuppie perspective, but what does it really tell you? In a sense, the more neighborhoods that get gentrified the more condos there are that need to be absorbed by a city struggling with unemployment and non-existent hedge fund bonuses.

I'm sorry how it makes people feel, but a $5000 2 bed rental x 12 months x 12 multple = $720k off a peak price say $1.35mm = -45%.... Oh and by the way its probably at least a double since 1998, and you can be sure incomes have not doubled since 1998... And you can stop saying that 1998 is a dire price point because it was not. Wall Street was booming, the S&P 500 was booming, and there is really no comparison to the vibe in Manhattan compared to today...No white horse is coming in Q1 2009. We are down 20% and Ali tell them its true because it is. And if we slice another 20% from the peak, that is 25% from here for the mathematically challenged.

I love how you said goodbye to this thread for an hour... just long enough for my arguments, which you clearly can't refute (perhaps you're just not smart enough to understand basic math?), to scroll up a page or two.

Tech_guy you don't have data either.... Neither is rental equivalence a real argument because we have crashed through it miserably in the past. In the 1990s you could buy an apartment and save hundreds upon hundreds of dollars a month vs. renting. How do you explain that with your math? I have just refuted your math with that simple statement of historical math. What else can you say? You have hope and a prayer on your side.

The financial services industry is admittedly wounded right now, but certain firms were hit hard at various points over the past 8 years. The typical startegy for the banks is to set their headcount numbers for the following year at year-end time. They usually have a better sense of what their revenue will project out to for the following year than a manufacturing company that may have supply, regulatory, union, tax or amny other issues that can pop-up on them throughout the year. The banks will fire as many people as they deem necessary and this often leads to letting too many people go and they begin hiring as soon as they stabilize and have a quarter of positiver growth. I don't think we will stabilize until the middle of '09, but the banks will be hiring throughout '09 and I am already hearing this from clients. The banks are closer to stabilizing, but 2009 will still be much of a slog.

To address your new argument though: "And you can stop saying that 1998 is a dire price point because it was not. Wall Street was booming, the S&P 500 was booming, and there is really no comparison to the vibe in Manhattan compared to today"

But real estate didn't appreciate any noticeable amount in the years prior to 1998 to reflect those changes. That's why 1998 was a dire price point. That's why a good portion of the runup that started in 1998 was justified by fundamentals, not speculation, not a bubble.

A slog is generous. Also don't under estimate the impact of hedge fund bonuses, gone in 2008, and likely gone in 2009 (highwater marks). Also realize many many glass condos are gonna be completed in 2008 and 2009 and 2010. So even if many people are ok, its the incremental buyer that is gone. So its purely a guess, but -50% is not draconian. Also interest rates may not have risen, but I can tell you, you simply cannot get the loan you used to be able to get...The loan to values are down, the appraisals have gotten stingier. This is not 'hard data', this is what professional investors use to make reasonable guesses.

1998 was not dire. 1993 was dire. Check the data. And don't ask me to spoon feed it to you. It took 10 years to re-achieve 1988 price highs in 1998. We are looking at same. Calculate a reasonable appreciation to 2007 levels in 2017 and work backward. Call it 5% a year. Its -50%.

If someone is paying $5000 to rent, and can have a comparable monthly cost to buy a place at $1 million, why are you using 12x at $720k? Again, you have no practical support for your conclusions.

Dude, let it go. My support is the 1990s. And to follow front_porch's lead, my support is specifically 1998, and what can be deemed reasonable appreciation over the following 10 years. Check it out. History can be fun.

I spoon fed you numbers, which you promptly ignored. Now you accuse me of asking you to spoon feed me? That's your excuse to justify your own hand waving. And, despite your best efforts, you are spoon feeding me gold:

"And don't ask me to spoon feed it to you. It took 10 years to re-achieve 1988 price highs in 1998"

Nominal price highs, not real price highs. Which means it was still 10 years of inflation below the previous highs. During that time, of negative real growth, the city became MUCH nicer. Where do you account for that change in fundamentals, Mr. Wannabe Value Investor?

Tech_guy, we can compare bank accounts another time. My basic thesis is that many of the changes in Manhattan such as crime, are more cyclical in nature than secular. Do you realize that inflation from 1988-1998 was pretty low. At best you are talking about 15%. So on a 'real' basis Manhattan was 15% lower than 1988 in 1998....Ok and then it went up by a factor of what, 6x conservatively? Do you admit in weak periods buyers demand prices low enough to yield monthly payments substantially lower than rental equivalents? Do you admit that rents are falling? I mean what is your basic point? I say Manhattan real estate is going to get cut in half. What do you say? What is your number? I have run the numbers and without higher interest rates 12x annual gross rent is nearly the same after tax monthly payment as 8x annual gross rent in the 1990s.

check out this sobering article
http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom#page1
can't see much reason it won't fall a long way, all things considered

" think when we discuss the deflating market & how low prices may go, those who bought recently or who are highly leveraged view the discussion as a personal attack on them and they need to defend their purchase and attack those trying to figure out how low prices will go. "

Well said.

> Ruff, there have been whole threads of examples supporting a 15-20% decline from peak.

No need to try and convince... ruff intentionally ignores what he wants to ignore.

> You are already geared up to ignore the Q4 data as an overreaction.

BINGO.

"You and others need to accept a 30-50% correction in real estate is not equal to the end of the world. It has happened before. It will happen again. Life will go on. Don't take it so personally. I don't know what white horse is riding in during Q1 but good luck. Real estate is like a battleship. Once it turns it takes a while to do a 180. Don't count on it before 2011. "

Well put...

"Don't bother nyc1002, he is still trying to figure out why he did not know that urbandigs gets all his info form Street Easy." - ruff

Ruff, you should learn what you're talking about before you open your mouth... UD's 15-18% assessment is not from streeteasy.... that being said, streeteasy does have tons of 20-30% reductions, with some actual losses of that magnitude.

But, what do you care, you'll ignore 'em anyway.

The makeup of the housing market in NYC is so fundamentally different from that in other cities in the US that it renders comparisons with ratios in the rest of the country useless. For starters, the ownership/rental ratio is approximately the reverse of the rest of the country. Secondly, for better or worse, our rent control & stabilization laws, combined with difficult-to-evict laws dramatically impact valuations. Finally, our high percentage of co-ops, and the restrictions they place on ownership (both qualifying for purchase as well as limiting or banning rentals), is completely unique in this country.

Most of the hedge funds that have struggled will get agreements from their investors to reset the highwater marks. If your hedge fund has made you a significant amount of money over the past 6 years you are still ahead of the game even after getting hammered in '08. Why pull your money out of a firm that perfromed so strongly for 6 out of 7 years? Agree or disagree with the logic, but that is exactly what is happening and will be happening for hedge funs in '09. They will also be under greater pressure to have more oversight and this will likely lead to the creation of more jobs at the hedge funds in audit and compliance that do not exist now. They will make less money, but still be profitable and they will create more jobs than they have previously....all of which are good things. As for their bonuses, they won't be good, but by resetting the highwater marks they will be able to make money going forward.

"Do you realize that inflation from 1988-1998 was pretty low. At best you are talking about 15%"

1.5% annual inflation over 10 years? You realize how ridiculous that sounds? Simple Google searches prove you wrong. You realize I don't need you to keep feeding me more and more evidence that you never went to Harvard or Wharton?

"I have run the numbers"

I honestly don't think you're capable of that level of mathematics, judging by what I see here. You keep saying you ran the numbers, but never showed us. I did run the numbers, showed you, and you first grossly misunderstood it (such that a first grade reading level would do better), then ignored it.

How about you show us some numbers?

Waverly,

I'm in the business and can tell you that almost nobody is waiving or resetting the high water marks. At best, some funds are offering lower performance fees for a while (say 10%) until you earn back twice your high water mark, but it is not common. You need the consent of your partners to do so and I doubt very many will agree.

It could easily be 2 or 3 years to get back to the high water marks for many funds, which is why a lot are just closing down rather than work for management fees. Hedge fund employment is going down, fast.

Brokers have their pockets full of extra batteries and offer crystal balls in many shapes and designs (you know, the lava lamp version or the Giants fan version, emblazoned and everything) when things are going on the upswing for RE. But when things suddenly (or not so suddenly) turn really really really bad, they lose the batteries and all their Nostradamus powers. And their jobs. Why don't you just do like Urbandigs, who doesn't feel that being a broker equals being voluntarily blind?

Modern - What is the advantage of closing? The fund doesn't make any money and the investors, who mad a lot of money with the fund, are out of luck and are going to put their money somewhere. They will close if they can start another fund and move their investors to the new fund. I am not suggesting that there will not be some shake-out that eliminates certain funds. But, I speak with many people in hedge funds and the better-performing funds that have a good history will be more open to resetting. Time will tell.

BTW, I hope your job will be okay.

"It could easily be 2 or 3 years to get back to the high water marks for many funds, which is why a lot are just closing down rather than work for management fees. Hedge fund employment is going down, fast."

You don't think these people are going to start a new hedge fund, thereby resetting watermarks in a very roundabout fashion?

[ignoring Tech_guy] and [nyc10022 = new BFF]

Waverly, I am also in the hedge fund business. You are describing the best of the best. The bottom half is basically closing down. Most of the top half will have trouble re-taking it's high water marks. There is no advantage to closing...but there is also no choice in many cases. Also most funds because they are working from a much larger denominator after gains in 2005-2007, they actually have lost all their investors original basis...and to those who put money in during 2006 and 2007, they have done much much worse to their money than that! Can someone post the link to the urbandigs data? Thanks.

I think there are many people here who need to brush up on the idea of the marginal seller and the marginal buyer vs. the average seller and the average seller. Its the former two who dictate 100% of the price movement. Seriously. Crack an econ book.

Actually I misspoke, its only the 2nd one, the marginal buyer, who dictates 100% of the price movement.