Yes, Real Estate Prices Can Drop in Half--Even in Manhattan (June 8, 2007)
Started by Nik
over 16 years ago
Posts: 8
Member since: Mar 2009
Discussion about
One of the most enduring cliches of the real estate industry is that properties in "prime locations" such as Manhattan and San Francisco "never go down." Nice idea, but wrong. Let's take a look at a chart, courtesy of www.quadlet.com (link below). I've added some lines and comments to clarify the sobering reality: In the last real estate decline in the 90s, Manhattan prices fell 40% nominally and... [more]
One of the most enduring cliches of the real estate industry is that properties in "prime locations" such as Manhattan and San Francisco "never go down." Nice idea, but wrong. Let's take a look at a chart, courtesy of www.quadlet.com (link below). I've added some lines and comments to clarify the sobering reality:
In the last real estate decline in the 90s, Manhattan prices fell 40% nominally and 60% when adjusted for inflation:
go to source document
If you need more evidence, then read 100 years of Commercial Real Estate prices in Manhattan (MIT):
Then during the 1920s prices rose almost 3% yearly in real terms. The depression saw real prices drop in half, and the 1940s saw them slightly more than fully recover. Real prices dropped about 2% yearly from 1949 to 1969 and then rose 3% yearly from 1969 to the famous peak in property values of 1989. From 1989 to 1999 prices dropped in half – again adjusted for inflation.
Note in the above chart that when you adjust prices for inflation, current prices are actually lower than the peak set in the late-80s. Chart technicians would draw an inference from this: "lower highs and lower lows," meaning that the next low in the Manhattan real estate market would be significantly lower (in both nominal and real terms) than the last low.
If we extrapolate from history--and we do have 100 years of data--then we can expect Manhattan property--yes, every "prime" square inch of it--to decline 40% to 50% in nominal terms and from 50% to 60% in inflation-adjusted terms.
Any way you slice it, that's serious money being lost. Here is the link to the source of the above chart: Are Real Estate Prices Dependent on Mortgage Rates?
This data begs one nagging question: if "prime real estate" is set to drop in half, then how far will less-than-prime real estate drop?
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Response by funnygames
over 16 years ago
Posts: 1
Member since: Apr 2009
One of the most enduring cliches of the real estate industry is that properties in "prime locations" such as Manhattan and San Francisco "never go down
Huh? Who said that - it being such a cliche you must have a lot of references to this statement.
Oh, wait, your link, the only link you posted, shows the opposite. Can you help us out with this cliche?
If we extrapolate from history--and we do have 100 years of data--then we can expect Manhattan property--yes, every "prime" square inch of it--to decline 40% to 50% in nominal terms and from 50% to 60% in inflation-adjusted terms.
What? What are we extrapolating? That at one point real estate declined 40%. So therefore today it will decline 40%.
This data begs one nagging question: if "prime real estate" is set to drop in half, then how far will less-than-prime real estate drop?
Interesting question, do you think that the amount of increase of the "less-than-prime" has something to do with it? That seems to be missing from your analysis.
What the heck was the point of this discussion anyway?
Ignored comment.
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Response by dwell
over 16 years ago
Posts: 2341
Member since: Jul 2008
"In the last real estate decline in the 90s, Manhattan prices fell 40% nominally and 60% when adjusted for inflation:"
Appreciate your data, but, IMO, it's too sweeping. I owned Manhattan RE in the 90s & it didn't drop 40%. At the most, it dropped 15%-20%, but, then came back & went way up & now it's down about 15% from the apex of the bubble. But, I always knew that the apex bubble value was just that, so I didn't max out to the limit on refi.
"This data begs one nagging question: if "prime real estate" is set to drop in half, then how far will less-than-prime real estate drop?"
Again, too sweeping. I think RE purchased & financed at apex bubble values may drop further. Some may drop 50% depending on how close to the apex they were purchased or financed. But, IMO, your statements are too broad & therefore inapplicable to every piece of property.
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Response by janus7
over 16 years ago
Posts: 13
Member since: Mar 2009
"But, IMO, your statements are too broad & therefore inapplicable to every piece of property."
Isn't that a bit paradoxical? If you wanted an analysis that was applicable to every piece of property, it would have to be broad.
A specific analysis would leave too many properties out--not a broad one.
What I'm getting at is, What's wrong with a broad analysis? We know individual results may vary, but it's nice to be able to fly over the data for a bird's eye view of what's going on.
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Response by cfranch
over 16 years ago
Posts: 270
Member since: Feb 2009
Having bought and sold 2 condos and 1 co-op in Manhattan I can safely say the axiom of "properties in "prime locations" such as Manhattan and San Francisco "never go down." is a staple of broker babble. Another lie is "there is no place left to build in Manhattan". Wrong. Plenty of room in prime Manhattan to build. This is a vertical city and lo-rise tenement buildings, gas stations and parking lots have been fertile ground to build towers filled with over priced condos nobody is buying. These "truisms" are so entrenched that sellers and developers have become ostriches with their collective heads in the ground. With their subterranean sight lines they should eventually see the value of their property.
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Response by nyc10022
over 16 years ago
Posts: 9868
Member since: Aug 2008
Not to mention, the acceptable neighborhoods for yuppies to live went up like twofold in Manhattan, and like 10fold totally when brooklyn became an acceptable option.
Sellers are now competing with a MUCH, MUCH larger pool.
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Response by Topper
over 16 years ago
Posts: 1335
Member since: May 2008
Nik,
The link doesn't seem to be working anymore. Any idea how I might be able to get to see the chart?
Thanks!
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Response by upperwestrenter
over 16 years ago
Posts: 488
Member since: Jan 2009
Speaking of which, has anybody seen any condo's in NYC that have stopped work, mid-construction? I'm looking for a place to squat.
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One of the most enduring cliches of the real estate industry is that properties in "prime locations" such as Manhattan and San Francisco "never go down
Huh? Who said that - it being such a cliche you must have a lot of references to this statement.
Oh, wait, your link, the only link you posted, shows the opposite. Can you help us out with this cliche?
If we extrapolate from history--and we do have 100 years of data--then we can expect Manhattan property--yes, every "prime" square inch of it--to decline 40% to 50% in nominal terms and from 50% to 60% in inflation-adjusted terms.
What? What are we extrapolating? That at one point real estate declined 40%. So therefore today it will decline 40%.
This data begs one nagging question: if "prime real estate" is set to drop in half, then how far will less-than-prime real estate drop?
Interesting question, do you think that the amount of increase of the "less-than-prime" has something to do with it? That seems to be missing from your analysis.
What the heck was the point of this discussion anyway?
"In the last real estate decline in the 90s, Manhattan prices fell 40% nominally and 60% when adjusted for inflation:"
Appreciate your data, but, IMO, it's too sweeping. I owned Manhattan RE in the 90s & it didn't drop 40%. At the most, it dropped 15%-20%, but, then came back & went way up & now it's down about 15% from the apex of the bubble. But, I always knew that the apex bubble value was just that, so I didn't max out to the limit on refi.
"This data begs one nagging question: if "prime real estate" is set to drop in half, then how far will less-than-prime real estate drop?"
Again, too sweeping. I think RE purchased & financed at apex bubble values may drop further. Some may drop 50% depending on how close to the apex they were purchased or financed. But, IMO, your statements are too broad & therefore inapplicable to every piece of property.
"But, IMO, your statements are too broad & therefore inapplicable to every piece of property."
Isn't that a bit paradoxical? If you wanted an analysis that was applicable to every piece of property, it would have to be broad.
A specific analysis would leave too many properties out--not a broad one.
What I'm getting at is, What's wrong with a broad analysis? We know individual results may vary, but it's nice to be able to fly over the data for a bird's eye view of what's going on.
Having bought and sold 2 condos and 1 co-op in Manhattan I can safely say the axiom of "properties in "prime locations" such as Manhattan and San Francisco "never go down." is a staple of broker babble. Another lie is "there is no place left to build in Manhattan". Wrong. Plenty of room in prime Manhattan to build. This is a vertical city and lo-rise tenement buildings, gas stations and parking lots have been fertile ground to build towers filled with over priced condos nobody is buying. These "truisms" are so entrenched that sellers and developers have become ostriches with their collective heads in the ground. With their subterranean sight lines they should eventually see the value of their property.
Not to mention, the acceptable neighborhoods for yuppies to live went up like twofold in Manhattan, and like 10fold totally when brooklyn became an acceptable option.
Sellers are now competing with a MUCH, MUCH larger pool.
Nik,
The link doesn't seem to be working anymore. Any idea how I might be able to get to see the chart?
Thanks!
Speaking of which, has anybody seen any condo's in NYC that have stopped work, mid-construction? I'm looking for a place to squat.
Nik,
Pls. help. The link doesn't work.
Thanks.
http://www.quadlet.com/RE/REReport.html
Thanks, newyorker, that is an interesting article. But it doesn't seem to be the much longer term article that Nik references.
"Isn't that a bit paradoxical?"
You got a point, but, here's the statement:
"Manhattan prices fell 40% nominally and 60% when adjusted for inflation:"
In view of my personal experience, that statement is false. Ya like that better?
Your personal experience is irrelavent to the discussion.
Or should I try? I have personally never been robbed, raped, or murdered. Therefore the crime rate is zero.