Praying for a 50% Drop

Citing Stockton, CA as an example of what happens when values drop 50% is a somewhat cheap shot. Stockton is a shitty suburb in the Bay Area and was never a desirable area during the RE bubble or the dot com bubble. Oakland is even more happening than Stockton, and most Oakland is pretty ghetto.

Los Angeles is a better comparison to New York City. Here in L.A. price reductions of 30-40% off the previous purchase price in desirable areas like Los Feliz and West Hollywood and gentrifying neighborhoods like Downtown and Silver Lake have brought tons buyers out of the woodwork without any increase in crime. In fact crime is down overall.

I rarely saw other buyers at Manhattan open houses in areas like FiDi, Harlem and Williamsburg in mid-to-late 2008; I had the luxury of noting places I liked, and letting them sit on the market while tossing the seller an occasional low-ball offer because no one else was bidding. In L.A., I frequently met other buyers during open houses and watched as properties I liked were snatched up. Buyers with the cash or credit are out there and waiting, if not for the absolute bottom of the market then at least a significant chunk off peak.

I don't think Prime Manhattan will get to a 50% drop, because 30-40% seems to be the magic number.

"Because that would be the logical thing to do and the city does not know what logic is. So what will happen to the banadoned properties?"

I disagree. I don't think the city will let things go that route. You don't agree and that's fine, but you present no shred of evidence as to why things have to happen exactly as you envision, and I remain unconvinced.

I didn't just cite Stockton. I also cited lots of other cities that have seen 50% drops, including Phoenix, Miami, and Detroit, all of wich are absolute hell holes. Who wants to live in a city (Pheonix) where you are more likely to be kidnapped than you are in Baghdad??

wow, Phoenix is so bad that there are even defense lawyers out there who specialize in kidnappings! That's when you know it's time to move...

http://www.criminaldefenselawyerphoenix.com/Criminal_Defense/Kidnapping.aspx

You want evidence? Here is your evidence, and it only took me 2 minutes to find:

Foreclosures in Jamaica now home to squatters, druggies - making ghost town

The empty houses that surrounded her South Jamaica home didn't concern Marilyn Cush at first.

"There were always people going and coming," said Cush, 49, who noted that turnover in ownership of the single-family houses has been common in the 18 years since she and her husband moved to 152nd St.

But lately, no "For Sale" signs have been going up when previous owners move out. Then a new neighbor - an illegal squatter - moved in.

"He knew it was a foreclosed house," she said and pointed at a smashed upstairs window and scattered debris in the front yard. "He's destroying the place."

Even for homeowners who have weathered the subprime mortgage debacle, the epidemic of foreclosures in Jamaica, South Ozone Park and Rochdale has created another major headache.

Friendly streets once populated by predominantly black, working-class families in starter homes are now haunted by drug dealers and squatters.

Five of 20 houses on Cush's block went into foreclosure last year; 32 homes have foreclosed within a five-block radius.

Vacant, litter-strewn yards have become the norm for residential blocks like 118th Ave. and 152nd St., the epicenter of the foreclosure crisis in Queens.

"It's not good. Not good at all," said 30-year resident Billy Alston, 43, who inherited and now owns his home on 118th Ave.

"When squatters go and stay in houses, they start smoking and the houses catch fire," said Alston, though he said it has not happened nearby "yet."

A neighbor, who did not want to give her name, said that a recently foreclosed home on 118th Ave. that is behind her family's home has been turned into a crackhouse.

"You see drugs, you see young kids coming through, adults passing through. It's a disaster," she said. "It's sad. It devalues our block."

Stray cats roam yards strewn with real estate signs, loose trash and flyers offering to buy the house in an "all cash sale."

http://www.nydailynews.com/ny_local/queens/2008/02/17/2008-02-17_foreclosures_in_jamaica_now_home_to_squa-4.html

And please note that this is a story about Queens, not Pheonix, Detroit, or some other far away city. If you want to see what happens when prices flal 50%, then I recommend that you take the train out to Jamaica one day.

Look Alpine, alot, if not most, of the US will be a bit of a shitshow over the next couple of years. Not as bad as you're painting it, but sadly it's true that we have no money, and municipalities scattered here and there will likely go broke.

Some areas will be worse than others, but then, that's always the case. Did you see the chart of the dispersion of the stimulus funds? Would you be stunned to hear that New York is receiving the most considering level of budget shortfall? Our friends on Wall Street wouldn't like things to fall apart completely, and somehow they got their way. New York is somehow INCREASING spending next year (although taxes also). Sigh.

I knew I could find it! Read it and weep, alpine. New York is not going down the tubes. Just the real estate prices, and maybe a few neighborhoods with many single-family homes and high foreclosures rates.

http://www.econbrowser.com/archives/2009/04/the_allocation.html

Lol. The thing about undesirable areas like Jamaica is that people with cash or good credit now probably don't want to live there, whether the price is 20% or 40% or 60% or 80% off peak. Prime Manhattan is another story.

Extreme Caution

When Detective Cole finds a home that is already abandoned or vacant, he enters with his weapon drawn, to guard against squatters. The World Press Photo judges chose this image as World Press Photo of the Year.

http://www.time.com/time/photogallery/0,29307,1738458_1585589,00.html

"Prime Manhattan is another story."

Just because an area is "prime" today does not mean it will be "prime" tomorrow.

Oh alpine...come out and playyyy.

I didn't notice any steller rebuttal of my point.

Bad Block

Every home on this street has been boarded up or abandoned.

http://www.time.com/time/photogallery/0,29307,1738458_1585590,00.html

It's too early to tell what kind of impact the stimulus $$ will have. We all know that some of the money is going to end up in pork barrel projects and in other places where it has no business being spent.

alpine, i give you a D-. there were actually a number of decent retorts to my point (no, i'm not going to share). and then i would have had a couple of surreplies (again, not gonna do it). and then i would have pointed out that none of us has any clue what this is going to do to our people.

i've started doing research to find you a turnip farm, but they seem surprisingly scare. maybe that's an area that's in hot demand? let the bidding wars commence!!

how freudian, i typed scare instead of scarce.

Think of how many jobs the city can create if we build 10 bridges to nowhere. Calling Governor Palin...

If I could get a one bedroom in Stuy Town for under $2k I'd be very, very happy...the rooms are huge and i think the location is good, close to the village, farmer's market, etc. What I'm seeing rentals are dropping very quickly but sellers are not moving to lower their prices very much...i'm looking at alcove studios which are still over $400k.

julia, you can do much better than Stuy Town. Look at FiDi and I am sure you can find your dream rental for your dream price RIGHT NOW. Plus, why would you want to rent in a complex where the landlord is constantly being sued by the tenants and may default on their loan?

because she may get a fully renovated apartment that will become rent stabilized until 2017?

my current lease isn't up until November, 09 but I would definitely choose Stuy Town over FiDi even with a doorman, health club, etc.

julia, and the GREAT thing about Stuy Town, of course, can be its location. being at 19th and C might truly suck, but being at 16th one building in from First, or even A one building in from 14th, is a SUPERB location. make sure you add Trader Joe's to your list.

Peter Cooper has the nicer layouts, but some of the Stuy Town apartments kick booty in terms of location.

alpine292 - you have had a lot to say while I have been away - I am not sure if I will get to all of your points, but I will try.
_________

Lecker:"Lower monthly rent expenses will provide a large number of renters a raise of sorts and create a mini wealth effect with all of the wonderful spending (and consequent taxing) that goes along with it."

Alpine292: No, you are wrong. There will not be any lower monthly expenses.(1) In case you have not noticed, incomes have gone down along with property values (2) so no matter how low values go, people will still be paying the same percentage of their income in rent/mortgage payments (3). Plus, when people see the value of ther RE go down, they reduce their spending since they feel less "rich." (4) And since 70% of our economy is based on consumer spending, you have the recipe for a disaster. (5)

(1) If rents are lower as per the condition outlined in the statement you are responding to, then there will be a lower monthly expense (because rent is an expense)
(2) Don't disagree with this statement in general, but a larger decrease in rent than decrease in salary is effectively a gain. I am not in a position to know the relative amounts of these two.
(3) this ratio has gotten out of whack during the housing bubble - I just saw on the realdeal site that an ever larger percentage of new yorkers are spending HALF of their income on housing! This has NOT always been the case. I am sure someone more knowledgeable can provide some guidance.
(4) your statement is only true for underwater owners - people who sat on the sdielines of the property bubble and chose to rent may actually feeling considerably richer. Remember you are responding to my post on RENTERS.

Link to story for (3):
http://ny.therealdeal.com/articles/quarter-of-new-yorkers-spend-half-of-income-on-rent

Alpine292 - you seem to have a notion that cheap housing causes foreclosures and that foreclosures invite squatters. You have tied activities with what I had thought were complex cuases and boiled them all into one convenient and simple sound byte. I am sure a sucessful career in politics is in your future!

lecker, everything I have said is backed up with facts.

From the Federal Reserve:

The effects of foreclosures extend beyond these immediate families. One in five foreclosures appears to be affecting renter-occupied units. The families in these units may also be displaced, even if they are paying their rent on time and abiding by the terms of their lease agreement. In areas where foreclosures are concentrated, communities will suffer. Clusters of vacant properties can foster vandalism and crime, and studies have shown that they lead to lower house prices throughout the neighborhood.3 Municipal governments may have to spend more on maintaining properties and preventing crime, such as vandalism and arson, just when resources are stretched thin, in part because of the lower tax revenue associated with lower house prices. Such spending may well crowd out the provision of other types of public services.

http://www.federalreserve.gov/newsevents/speech/duke20090211a.htm

I am not doubting the real consequences of the foreclosures and clustering of such. I guess I am unsure if "lower housing prices" is THE cause of foreclosures rather than say "liar loans" is THE cause of foreclsoures, or Greenspan's fiscal policy is THE cause of foreclosures, or Freddie and Fannie's political goals to increase homeownership rates to marginal credit risks is THE cause etc. The cause and effect part of your argument is what I struggle with.

I guess I think that BOTH lower housing prices and broad economic fallout - like foreclosures are EFFECTS of all these various CASUES listed partially in prior paragraph. They were put into place years before ... The lower housing prices are just the sister spawn of the foreclosures and I still don't see the drop in prices as the cause of forclsoures. I see it more as a silver lining to the foreclosure problem, but perhaps this perception is distorted by my personal situation and not objective to the big picture.

So if helicopoter Ben says somewhere "if only housing prices stayed elevated, we wouldn't have any foreclosures and the negative consequences of such", you may have to point it out to me. I am pretty tired and will probably miss it if I try to read any more tonight.

while lower housing prices may not be 100% of the problem, they are a major factor. WHen house prices are going up, there are very few foreclosures. If your upside down, all you have to do is wait a year or two and you will have equity. If you can't afford the house, then you can sell it very easily since it it rather easy to sell an appreciating asset. So the result is virtually no foreclosures. And that is good for EVERYONE, including renters.

presented without comment:

http://www.oftwominds.com/blogapr09/housing-not-coming-back04-09.html

alpine, modestly appreciating assets, ones that do so to the tune of real income growth, are good for everyone. bubbles, as we now see, are toxic. give it up. this will suck on at least some level for almost everyone, but in different ways for different people.

just saw this on another post:
http://www.oftwominds.com/blogapr09/housing04-09.html

I'm not sure anyone should be taking Manhattan advice from alpine... he lives in New Jersey, is moving to DC, and demonstrated his complete lack of understanding of NYC by claming prices weren't down until a little over a month ago. He simply doesn't know what he is talking about.

This is the part that waaaaay too many people miss...

"1. Bubbles do not re-inflate in the asset class which just popped. It is simply a truism that bubbles never reflate, ever. Tulip bulb valuations did not rise to stratospheric heights after the Tulip Craze popped, and the Nasdaq dot-com bubble did not reinflate, either, for the very good reason that bubbles are never based on rational valuations--they are based on the psychological state of mania which cannot be reinstated once lost.

Consider tech stock Cisco Systems (CSCO), a well-managed "real company" which continues to make profits providing real-world goods and services. It currently trades at around $17.50 a share, down from its dot-com bubble valuation of about $81/share.

To "recover" its bubble-era valuation, Cisco would have to rise five-fold. That's not going to happen. Now that the mania has dissipated, Cisco is valued on more rational metrics like earnings, profits, etc."

Recovery does not mean return to bubble prices...