The downside of 50% down

your point?

I agree that irrationality causes problems. We had it on the upside and that displaced many, and now as things decline so broadly there will be more crime and destitution.

The best thing would be a very fast, very harsh decline, and then back to equilibrium rates of increase.

Uh, what was NYC like 50% back in price time?..............

Columbiacounty, are you also the person who posted as ccdevi in the past?

nope...just me

very true, development is going to slow down a lot. many of the best buildings in nyc where planned at the height of previous bubbles and finished after they burst. during the 30s you have the candela's on park avenue and the rockefeller center. remember reading the same thing about big buildings on UWS, planned during a bubble, finished as it went bust (but 20-40 years before the great depression). so big bubbles do sometimes leave us something to enjoy. i do feel that the luxury rentals were the consequence of exuberant semantics more than a coming back to higher living standards.

Exhuberant semantics are still happening. Today I came across a really ugly phrase in a listing: ¨tempered glass windowed shower fit for a mogul¨Ah, the apt is in East Harlem, mogul's paradise...What is the broker thinking? This mindset shows how crazy the bubble was and how urgently we need a correction.

The whole Chicken Little argument that the sky will fall if (high end Manhattan) residential real estate falls 50% from peak is silly.

First, down 50% puts us at what, 2001 or 2002 pricing? Manhattan was not exactly a Blade Runner theme park in those years.

Second, most owners simply saw the paper value of their apartments go up and then down again. There can certainly be a wealth effect on confidence and consumer spending from this, but the people who got caught buying at near the peak and having much of their equity snuffed out, while fairly numerous in absolute terms, are a small-ish minority relative to the whole market. As an example, about 25% of the apartments in our building changed hands 2002-present, maybe slightly fewer if you eliminate double counting of units that had more than one trade in that period. So the other 75% felt richer for a while and now will feel less rich, but having their apartment go back to early 2000s pricing isn't going to kill them.

Third, I think that not to long from now people are going to look at the peak-of-the-peak years - say 2006 to maybe early 2008 - and just ignore them as an irrelevant aberration. Yes, those prices happened, but I think people will come to recognize that the market just got it wrong and so peak prices don't mean much. We'll probably still see lots of all caps headlines and exclamation points in SE highlighting numbers like -50% because they are entertaining, but I don't think that the price change from a peak that was just silly and unfounded actually has much (maybe any) analytical value. Consider stock market examples of this. The NASDAQ peaked over 5,000 in 2000, then blew up. I don't think people really think about valuations of tech companies today by starting at "the NASDAQ is 65% below its peak". Instead, NASDAQ 5,000 is viewed as an artifact of a time that was, is no more and does not bear materially on today's reality. Nikkei at 39,000 in 1989 - same thing.

To NPNP's original post, sure, there won't be much investment in the near future. Not much needed, either, given the backlog of new buildings and conversions on or coming to the market. That's what an oversupplied market looks like and that supply needs to be absorbed. On the less than luxury point, maybe. Just the reduction in the incentive/ability of landlords to take units out of rent stabilization will be a plus in this demographic. Falling costs for construction and renovation is another benefit. There are many variables; bursting of a price bubble at the luxury end is just one of them.

the problem at this point, though, is that only a small minority has come to understand the new pricing so that the market cannot function. and most brokers (no, no, not just a random bash) don't seem to be able to understand its to their benefit to get the market moving again; of course, years of bad behavior and general mistrust of them doesn't help either.

and then there IS new development. another multi-headed beast.

yes...with the power to move the market more quickly or remain a drag on unreality. interesting...starting to see the articles on tv news clips on the delight in FL and CA as people start to move into homes at 30-50% or their previous value. gotta to remember that our area is a good two years behind.

agree. today the term "market" is a misnomer when applied to Manhattan residential RE. You could argue that any individual trade sets the market for that unit on that day, but there are so few trades that it's hard to conclude more broadly that there is a functioning market.

To this I say, OK, whatever. One of these months or years there will be enough liquidity that we can call it a market again. Until then, I get paid (in the form of lower prices later) to watch and wait. Onus remains on sellers to put their 2007-era fantasies behind them. I don't hold out much hope for brokers as bearers of the message of truth.

but having no market is a real problem for people ( of whom there are a growing number now every day) who want to realistically and responsibly adjust their life style downwards. nuts to buy something without selling what you have; risky to sell at realistic price and then discover that you can't buy/rent a smaller place with the proceeds.

cc - the folks in your post are by definition current owners. It seems to me that there are a lot more owners in denial today than there are frustrated wannabe downsizers. A turbulent market will always be hard on someone (no avoiding this), but sellers as a group will decide, by pricing until they find the market level, when the market will become liquid and transparent enough that the process of selling and buying to change lifestyle does not mean betting one's financial future.

I'm sort of in the opposite camp as I'm waiting out the market so that I can upsize more affordably. My current place has certainly lost value vs. peak and I am hopeful will lose more, but the larger place that I will eventually (2010?) buy is falling by more.

you will be surprised how many owners of aptms had leveraged up during the recent years:
college payment not out of bonus but from a mortgage/home equity loan
huge run-ups of credit card balances, then balanced out via HEL, another run-up of CC balances and so on ;-)
a great example were the margin calls on equity loans this year, some CEO's had huge exposure and were forced to sell at bottom prices
there is still too much leverage in the system
from a very individual level up to the business models of companies

i completely agree--many more in denial than trying to downsize. lets break current owners into three groups: wannabe downsizers (tiny minority), in denial active sellers, i.e. apt on market (they are choking the market), owners who have no (current) desire to sell (probably by far the majority of manhattan, at least at this point).

subsets of third group are

a. really don't have to sell -- remarkable financial situation (minority)
b. in denial of their financial situation --- growing by the week.

owners who have no (current) desire to sell (probably by far the majority of manhattan, at least at this point).
subsets of third group are
a. really don't have to sell -- remarkable financial situation (minority)
b. in denial of their financial situation --- growing by the week.

disagree - some people just live in their apartments. They bought some time ago, their apartments appreciated but they continued to pay down their original mortgage. The apartment appreciated in value, but it had no wealth affect. If they didn't refinance then the value only matters the day they bought, they day they sold, and how their taxes may be assessed.

gleeclub, this is a market that in a normal year only sees 5-6000 sales transactions in Manhattan. What do you think the addition of a couple of thousand of seriously stretched/distressed/needing to downsize sellers does? That's not a very high number, really, but as a percentage it is HUGE.

and i won't even start on new development.

"So with a huge decline, 50% from the peak, 50% from today, whatever it is, no investment in new housing stock, no renovations, no improvements"

I think this is backward.

You could sell any crapbox for good money a year ago. Now sellers will have to compete to sell theirs at all.

Money Magazine all the last few months has been about how owners are upgrading their places because they can't sell.

"First, down 50% puts us at what, 2001 or 2002 pricing? Manhattan was not exactly a Blade Runner theme park in those years."

Not a particularly valid comparison.

Difference is, economy was booming and on the upswing those years.

Stock market down 50% too.... and our economy is much worse than 12 years ago.