New Construction bad investment?

he's right...stay away

Financing will be very difficult if you are under 70% owner occupied. However, if the developer is offering financing you may want to invest for the long term. Otherwise, you may want to purchase a building with over 70% or an established building.

or...he's right...stay away.

unless you can get a phenomenal deal and you have a long term horizon stay away, because you will not be able to get reasonably priced financing. You can always get financing, but you will have to go through different channels, and they have you over a barrel and they know it. Be very cautious for other reasons also. The developer may not complete all the amenities that you are paying for. Then the homeowners assoc will have to kick in. I'm less worried about the maintenance/common charges that the developer is responsible for because the bank that will take over the project will eventually pay them if they have a foreclosure.

or he's right...stay away.

so buy 40% of the units and you will be all set.

Is there only one unit in the whole building you like? Is no one else buying because the price is too low and they would prefer to spend more?

If not, you have nothing to lose and everything to gain by just waiting for other people to step in and take the risk for you. At 70% sold you will still have plenty of units to choose from and probably at a lower price than they are currently asking.

So just keep an eye on the place and stay away.

Resales will most likley be next ot impossible due to the 70% rule. Plus the unit owners who do close will likely have underwater mortgages(negative equity) giving them an incentive to default and walk, which is an added burden to those who stay.. Your lawyer is right.

Better opportunity would be an almost new building (five years oldish). You are more likely to strike a good deal with another unit owner (one on one). In a new building you might also see the sponsor sell the remaining 70% below market to one big buyer who will turn your building into a rental...

And if they do sell a big chunk to someone, you still won't get financing because part of that 70% rule for mortgage lending is >10% of the building can't be owned by one person/entity.

cbm, if you need to buy, then buy in an established building. With what you save you can tart the place up to look the one in the Georgica.

Is the 30% sold stat from the developer? SE only shows 5 units in contract, with only one or two of those going to contract in the last year. SE depends on data that the sales office makes public, so the listings could be very incomplete/outdated, but I'm just saying...

This one look to me as if it missed the window. I think the jury is out on the Brompton and Lucida (how many buyers walk from deposits, where will remaining inventory have to be priced, etc.), but the developers might get out of those ones in decent shape. Or might not, time will tell. The Georgica is in a less desirable location and is a year behind B and L in sales and construction/occupancy. Life looks challenging for this one.

any of the new developments i've seen lately had been built within 1 year or so. not an expert here, but is that enough time for a well built structure? many of the stuff done at the peak of the bubble and right after the crash will have higher maintenance cost as a result of building in a hurry using not the best labor nor materials... buying something built during a bubble is a no-no for me. unless you are thinking of flipping and not staying for when high maintenance costs knock your door that is.

you have to think that the 70% rule will relax in time.

gcondo, but probably not after 2010-11 or so, when the buildings started in 2008 are completed or have stalled completely.

it might not relax, but as time goes by units will get occupied, even if a super big price cut is needed to accomplish that. those buildings that occupy units with renters instead of enticing home buyers with price cuts might face lending restrictions. banks generally don't like to lend in a building full of renters.

I agree with Columbia county. But, I would only buy if, you can get a ridiculous deal (which in this declining market may not be ridiculous after a year) AND you don't have to close until the building is 85% sold, and if they don't reach that by a certain point, you get your money back.

Make sure you have a very good lawyer to negotiate the contract.

Or, he's right, stay away.

oh, and I would not sign ANY contract right now, especially new construction, that isn't financing contingent (mortgage available with appraisal at full price directly from a major bank, list 3-4 you find acceptable).

Personally, I would buy anything right now either.

isn't it simpler to stay away?

70% rule will be here for some time. We've been here before, but this time the banks will probably be conservative longer...

Even if you find a bank willing to lend you'll very likely need a large down payment. If the sponsor can't sell and starts to rent you could very easily end up with a large captial investment in a building that is potenitally less than 50% owner occupied. 50% owner occupancy had been the standard for banks lending in buildings for years and even if they go back to that criteria, and your building isn't, you are going to have a hard time selling. Plan on owning the unit for awhile if you make the purchase.

figure 25% downpayment.

Not that I wouldn't listen to your lawyer on his advice but doesn't the 70% sold only come into play if it is conforming mortgage which would be sold to fannie. I would assume this purchase would require a jumbo.
BTW cbm I am in the situation you are contemplating getting yourself mixed up in and I would agree that you have absolutely nothing to lose and much to gain by just waiting.(or staying away)

I think kiz brings up an interesting question.

But regardless of the answer, I would guess that banks would be reticent to make such jumbo loans for the same reason Freddie/Fannie don't like them - higher risk. They would then price them accordingly.

You like?

In this market the banks are basing their requirements for jumbo product on the conforming one...

Everyone is right = stay away. Here's why. Let's say the building owner manages to sell 50% of the units, but can't unload the other half. He's in a bad situation and is forced into bankruptcy. The entire building is insolvent, meaning more money goes out each month then goes in. You might feel like a genius for getting 50% off the list price, but you'll get slammed with assessments to cover the difference between what is owed and what is actually coming in. Or even worse you need to sell your apartment, but you are now competing with a developer that will dump at any price, or a foreclosure that will be 75% off list. There are lots of very bad scenarios here. Why take the risk, buy a previously owned property.

Everyone is right? This is so much like those bank stress tests

Offer them what you can afford to pay in cash, or $500/sqft...whichever is less.

cbm - you're getting some good questions/concerns here that you can go back to the developer with to see how they address them. To summarize from above, ask if they have secured a list of mortgage lenders at reasonable rates that will do jumbos in a building with so few % of apts sold. Ask why Streeteasy shows only 5 in contract and if there is a institutional buyer that has more than 10% of the total units. Ask if there is a cut off date before they have to switch from trying to sell apts to just trying to rent them out. Good luck and let us know what they say !

I think blanket "stay away" comments ignore the fact that not all new developments are equal.

Related seems to be pretty solid and their three main projects - Brompton, Harrison, Superior Ink - all have units left but are also more than 70% sold. Closing time for two of those has yet to come and may change that but I doubt it. Harrison purchasers had to pay 20% down. 10% at contract and 10% a year later which was Q1 2009. Most people paying the second 10% will most likely close.

There are other developments in closings that are mostly sold too. Getting a good price on these could be possible.

That said, the "stay away" advice I tend to agree with for the mostly unsold developments. Any small-ish developer sitting on massive amounts of unsold inventory will most likely find themselves in trouble.

But I wouldn't stay away just because something is new construction. I'm not a fan of any of the three Related projects I mentioned above but can see how some people like them. Just because they're new doesn't mean they pose the same risk as other new projects.

I think they're over-priced but I don't think there is much risk of developer default, massive rentals, or inability to get financing; the three main risks with other projects.

Buyers to new construction....
Like moths to a flame..

OldWest, I think when so many new developments are going to be forced to fire sale, I think the blanket stay away is actually very sensible. Until you know what a distressed one is going to cost, how the fuck do you know what to pay for a not-distressed one. How do you know that the distressed ones will not get so cheap they will be more attractive then the good ones.

Extell is finishing up Rushmore. Beautiful upper west side building. There has not been a closing posted on ACRIS for a while now. Developers try to sell you on a life style and amenities. They never address the investment side of it. Seems like only a few units have closed and ACRIS reported them a while ago...

Where you been, there is a whole post dedicated to buyers trying to weasel out of the Rushmore.

Good description Rhino. Seems like they have a misplaced sense of entitlement. If the contract is valid, then ones options are close, default and lose the 15% or engage a lawyer who has valid legal challenge. But please these group protests are silly. And I suspect there are many shady lawyers who will take client's money without regard to probability of success.

I didn't mean to call them weasels... But unless there is a valid legal loophole, they should just up and leave there deposit behind as they are entitled to do.

I'm sure we would all call a Mulligan if we could.

Please follow this link to the NY Times article. On the bottom of page 2 and first paragraph of page 3, there is a clear explanation why anyone buying a condo, should really think twice or trice before committing.

http://www.nytimes.com/2009/02/08/realestate/08COV.html?_r=1&pagewanted=2&ref=realestate

I am sure the struggling developers will pursue all their legal remedies!

Applies to the newer buildings more where borrowers owners have negative equity. Very applicable to Rushmore, not so much to older Condominiums where the average owner has built up equity.

Rhino, your point, "Until you know what a distressed one is going to cost, how the fuck do you know what to pay for a not-distressed one. How do you know that the distressed ones will not get so cheap they will be more attractive then the good ones" is a good one.

but it also applies to re-sale buildings.

Actually, if one believes the NY Times article that ab_11218 posted, I could argue that buildings that closed in the past 2-4 years are in greater danger than a brand-new one closing now that is 80% sold.

The NYTIMES: "“There’s a greater likelihood that many apartments were sold for more than they’re worth today. And newer buildings have many people who bought with no-income-verification loans and very relaxed criteria. They also have younger owners who may be less established."

Since anyone closing today in a 80%+ sold building, we can use the Brompton as our example, has certainly been income verified, certainly put more than 10% down, and had more stringent criteria, then the logic would follow that that building is in a stronger position than one that closed in 2006. Even with a few unsold apartments.

Considering where mortgage rates are right now and the general 25-40% down required with income verification, I could easily make the point that a well financed, mostly sold building like the Brompton could easily avoid the issues mentioned while a building from 2006 actually finds itself with purchasers unable to pay maintenance and underwater mortgages.

I'm not hawking new development, just that ANY purchase, whether new or re-sale, should be a well researched, smart one. One could easily avoid a new development and buy in a building that closed in 2005 and find themselves in a shitload of trouble. Do your homework.

Old West , disagree good underwriting is important but owners with equity in their apt more so. The equity assures the building that there is something to go after if the unit is in arrears. A full doc mortgage mortgage still leaves you exposed to an owner who loses his job and falls on hard time.

Yes but who has more equity?

The buyers who put 10% down with a liar's loan in 2006 or someone closing tomorrow and the bank making them put down 40% on their verified jumbo?

I'm saying that a solid, mostly sold, jumbo-type building (aka Brompton) versus some building that closed in 2006, I'd bet that there is more equity in the Brompton.

Any recently closed building, say 2005/2006+, the owner has no more equity than the minuscule principle payments made to date. From purchase price there is zero appreciation and maybe even a loss. So if they put 10% down -- which wasn't hard to do back then -- they've got 1/4 the equity than someone closing in the Brompton last week.

I can find bad examples of new closing buildings too. Make no mistake.

But who do you think has more equity right now in aggregate between The Brompton and The Link? Apples and oranges, I know but I couldn't come up with another 2006/2007 close building off the top of my head.

My point is actually you should not buy anything until the distressed sellers and developments reset the whole market at a lower level.... That includes coops too.

ditto rhino: see my recent post re: 200 West 20th St in 1992

or two or three levels lower. look for stability, for at least a couple of quarters, taking into account normal seasonality, and then think about it.

My point is actually you should not buy anything until the distressed sellers and developments reset the whole market at a lower level.... That includes coops too.

Actually, unlike Condos, Coops require significant downpayment and unlike Condos the common charges are not subordinate to bank debt. So a very compelling argumnet can be made in favor of Coops. Plus the coop boards vetted the financials of the applicants in ways the banks did not.

May 15, 2009, 11:09 am
New Condos Up for Resale
By Jay Romano

Q I’m interested in buying an apartment in a 100-unit condominium completed in 2007. Twelve units are owned by the sponsor and are still unsold. But more troubling is the fact that 16 additional units are listed for resale. Is this a red flag that something is wrong with the building?
A

“While 16 is a large number of resale units, it is not in and of itself a reason to be concerned,” said Frederick W. Peters, the president of Warburg Realty Partnership.

Mr. Peters said that in 2007 and 2008, many new condos around the city were bought for investment purposes. “Many investors may have planned to rent and hold them, others to resell and profit immediately,” he said.

With the rental market soft and the prospects for large increases in value cloudy, these investors may be deciding that they prefer to extract their money from the investment now.

“Even in the best of times,” Mr. Peters said, “it was always typical to have a number of buyers who, for a variety of reasons, immediately placed their new condo units up for sale.”

anuary 28, 2009, 1:55 pm
Buying an Apartment in a Half-Sold Condo
By Jay Romano

Q I have been looking at a condominium in Brooklyn, but have been told that only one bank will approve mortgages for this building, because the owner-occupancy level is below 50 percent. That appears to be a red flag to many banks. Should I have the same concerns? How does this affect me as a purchaser?
A

Stuart M. Saft, chairman of the Council of New York Cooperatives and Condominiums, said that if the purchaser has a lender willing to make the loan and the terms of the sale and the loan are acceptable to him, there is little risk on his part in accepting the loan.

Mr. Saft explained that in a tight credit market, banks and other lending institutions become skittish in making loans. But he believes that lenders who are refusing to consider condominium loans being overly cautious.

The banks’ concern, he said, is that the presence of a large number of unsold units will cause a decline in the market value of all units in the building. If that happens, and the borrower defaults, the lender might not be able to sell the mortgaged unit at a price that will enable it to cover the unpaid principal and interest.

“I believe they are mistakenly thinking about the situation with unsold co-ops 20 years ago, when unsold apartments housed rent-controlled and rent-stabilized tenants who were paying significantly less than the fair market rent for their apartments,” he said.

“In the current environment, however, unsold apartments are likely be rented at a market rent,” which should be significantly higher than the monthly common charge on the unit, so it is not likely that there will be a significant decrease in the value of apartments in the building.

Yes but who has more equity?

The buyers who put 10% down with a liar's loan in 2006 or someone closing tomorrow and the bank making them put down 40% on their verified jumbo?

Someone closing today on a pre-construction unit announced in 2006 is already underwater. The comparison is extremely difficult. I think you need to be looking at Condos where the majority of buyers purchased at 2004 prices and earlier.

R., that's one of the reasons I follow the sales history in the Chelsea Merc.

R, I agree 100%. If we look at pre-2004 projects, there will be more equity. And buildings like Chelsea Merc are pretty solid. Not my idea of a great neighborhood but a wonderful building to be sure.

My only point was blanket statements about new construction ignore the underlying issues. Issues that in some cases may be more prevalent in recently closed fully sold/occupied projects.

And yes, many co-ops are in good shape, especially those with stringent financing and income requirements.

I would not recommend against new construction just as I would not recommend against an already closed building. If someone loves the Brompton and gets a decent price -- after all pre-construction purchasers have closed they may lower prices a bit on remaining inventory -- and gets a 5% mortgage and wants to stay for 10 years, more power to them. I'd go crazy in that area with the noise from two busy streets. But I doubt that would be a financial apocalypse scenario.

No one can call the bottom. I would recommend making sure the building finances are strong, whether it be re-sale or new construction. Homework is critical.

And while I've seen lots of other predictions on the state of the market, I actually believe good deals can be found in solid buildings. I also think the mortgage rates in 5 years will be substantially higher and someone willing to stay for awhile -- say 10 years -- and locks in a 30 year fixed at a great rate in the next 6 months -- will probably be very happy down the road.

To each their own. But the key isn't new versus sold or condo versus co-op. There is crap in all categories. And gems too. Homework.

"Actually, unlike Condos, Coops require significant downpayment and unlike Condos the common charges are not subordinate to bank debt. So a very compelling argumnet can be made in favor of Coops. Plus the coop boards vetted the financials of the applicants in ways the banks did not."

Are you really so naive as to think that condo fire sales can happen, and somehow there will be no impact on coop values? Honestly.

"I also think the mortgage rates in 5 years will be substantially higher and someone willing to stay for awhile -- say 10 years -- and locks in a 30 year fixed at a great rate in the next 6 months -- will probably be very happy down the road."

The best time to buy is not when interest rates are low, its when interest rates are high. The price adjusts to the interest rate. 1990s = high interest rates = time to buy. 1982 = high interest rates = incredible buying opportunity. This misconception is so pervasive its maddening. You want to buy assets when interest rates are high, therefore competition for the asset is low.

I cannot follow this argument:

1)I also think the mortgage rates in 5 years will be substantially higher and someone willing to stay for awhile -- say 10 years -- and locks in a 30 year fixed at a great rate in the next 6 months -- will probably be very happy down the road."
2)The best time to buy is not when interest rates are low, its when interest rates are high

"The best time to buy is not when interest rates are low, its when interest rates are high"

This isn't an argument, as much as it is a fact. Low rates drive up prices. Therefore, the bargain you receive in a monthly payment is an illusion, because if rates were higher, your purchase price is much lower. Conversely, if you buy when rates are high, you buy cheaper. When rates fall, your apartment appreciates because it becomes affordable to many more people at a given price level. Thinking you buy an apartment when rates are low is like thinking you buy a bond when yields are low. Wrong, you buy a bond when yields are high. Then you collect a high coupon and have the benefit of appreciation when yields fall. Quite simply, buyers are done no favor by low interest rates...sellers are.

"The best time to buy is not when interest rates are low, its when interest rates are high. The price adjusts to the interest rate. 1990s = high interest rates = time to buy. 1982 = high interest rates = incredible buying opportunity. This misconception is so pervasive its maddening. You want to buy assets when interest rates are high, therefore competition for the asset is low"

Actually, if you're paying cash you would be correct. In terms of rates themselves, real estate prices should drop to account for the higher cost of capital. That said, right now we have both low rates and dropping prices. Will prices drop significantly more in a higher rate world? Possibly, but I don't believe by much unless we hit serious hyper-inflation in which case just buy gold.

The best time to buy is not a blanket statement based on 1982-1999. I think the situation today is more unique and looking to 1982 or 1999 will not give us the crystal ball answer.

Do I think NYC prices will fall further? Yes. But take rates from 6% to 10% on a jumbo and look at how much prices would need to fall to account for the difference in monthly payments. I don't think they'll fall that much. (I think we're due for another 20% then flat).

To each their own. It's what makes a market.

Yet I still maintain, avoiding any product on a blanket statement is an error. Co-op, condo, new old, there is mostly crap but some gems.

Also, maybe your confusion is you are pairing my quote of Old West with my assertion that low rates are bad for buyers....Bad in the sense that low rates retard appreciation potential...because if they are already low, then one source of appreciation has been taken out of the equation.

OldWest it doesn't matter if you are paying cash or not. When rates rise the price will fall. Low rates create demand... Don't you want to buy when demand is low? You are not buying a monthly payment...you are buying an apartment. The price adjusts to the rate.

Yeah, I do think prices need to fall a lot more. If we are -25%, I think we need another 30-40%. I think we get cut in half easy... And maybe mortgage rates rising in a tepid demand environment is part of the way we get there. If you triple in 10 years, getting cut in half is not unreasonable.

Housing stock, State of the economy, Value of the U.S. currency, Expectations, cost of rental alernative, preference for home ownership, etc all play a role too.

Yes they do. My point at this moment is that the common misconception that low rates do buyers a favor is just that. High rates reduce buying competition. Price adjusts. We know this because it was low rates that created the bubble to the upside. Right now we are falling because of demand factors outside of the interest rates. If interest rates rose, it would hit values hard. I think how fast and hard we have fallen despite how low rates remain is telling us how bad underlying demand/incomes are. Its a lose lose for buyers. If the economy picks up and rates creep up...values might not even recover. Buy at that time, and at least you have a better economic backdrop and some potential for appreciation on the basis of lower rates at some future time.... My analogy would be buying in like 1997-1998 when rates were like 8% if I recall...9/11 happens and the Fed jumps in and protects your investment with lower rates.

Low rates are only useful if everyone intended to stay in their purchased properties forever and ever. We know this doesn't happen, in any kind of market. Death, divorce, job loss, life changes.

"With...the prospects for large increases in value cloudy" Really, Fred? Ya think so? Thanks for sharing because I would never have figured that out on my own.

“Even in the best of times,” Mr. Peters said, “it was always typical to have a number of buyers who, for a variety of reasons, immediately placed their new condo units up for sale.” Of course what's relevant is not whether the supply dynamics are so different from the past (although I think he evades/fudges that as well) but that the demand has evaporated. When you have a functioning market and some of the new construction gets recycled right away, it finds its price, the flipper makes or loses some money and everyone moves on with life. Not exactly the dynamic we see today, is it?

http://realestateqa.blogs.nytimes.com/2009/05/15/new-condos-up-for-resale/

If there is a thread for classic broker BS, this belongs on it.

Just to play devil's advocate here. I can easily paint a scenario suggesting now is a great time to buy. I don't necessarily buy into this fully but here goes:
1) Nominal interest rates are low
2) Housing is a real asset and a long term inflation hedge
3) Fed & Treasury are pursuing a highly inflationary policy
4) Population of NYC has grown and can be expected to
5) Regulation and the failure of the Commercial loan market will limit future
supply

except for the fact that no one has any idea of what a reasonable price is any more. that's a huge problem.

"Just to play devil's advocate here. I can easily paint a scenario suggesting now is a great time to buy. I don't necessarily buy into this fully but here goes:
1) Nominal interest rates are low
2) Housing is a real asset and a long term inflation hedge
3) Fed & Treasury are pursuing a highly inflationary policy
4) Population of NYC has grown and can be expected to
5) Regulation and the failure of the Commercial loan market will limit future
supply"

I absolutely agree. It's the perfect time to buy AT THE RIGHT PRICE, which just probably happens to be a 30% discount off current levels.

Or, to use one of my favorite expressions: what is a "good deal" on a lime green leisure suit?

As a sideliner, I can tell that this are the exact reasons that keep me wanting to buy RE in NYC. I agree about the further 30% cut too, since there is a whole set of substantial reasons no to buy. That 30% will give me the push to overcome my fears.

but, as we've discussed endlessly here, what are current levels? and, what is the magic of 30%?

Well, in my case is an intuition based in the huge amount of data I read every day since september. I say intuition because I don't write down charts, just let the info simmer in my mind in kinda chaotic way. The 30% number on top of the current discount ¨feels¨ok. Sorry for not being more precise. At the end of the day, we can rationalize a universe, but we follow our instinct and our unconscious has a lot to do with our decisions at the end of the day, sometimes in a good way, sometimes in a destructive way.

Perhaps, we should think about the long term price vs the short term increases and what it would take to revert to the mean...
http://www.thedigeratilife.com/images/homepricesL.gif
Of course if you are long a one bedroom and your family just got bigger, the cost of upgrading right now is less. Not everyone wants to rent or have their child's bedroom be a closet.

Mimi, gave me an idea...
Using 1991 as a base I played what if real estate had been going up @ 6% or 4% a year instead of the Miller indexed increases. I see we had two great years in 2005 & 2006 but
long term it's more like 9%..Bottom line is even if you don't like the assumptions, I think this is an exercise that might help give you a comfort level in terms of what "the right price" is....

year price/ft pct increase 6% 4%
2007 1101 0.086870681 1073.78 1053.52
2006 1013 0.013 1060 1040
2005 1000 0.18623962 893.58 876.72
2004 843 0.169209431 764.26 749.84
2003 721 0.077727952 709.14 695.76
2002 669 0.050235479 675.22 662.48
2001 637 0.090753425 619.04 607.36
2000 584 0.34562212 460.04 451.36
1999 434 0.048309179 438.84 430.56
1998 414 0.022222222 429.3 421.2
1997 405 0.341059603 320.12 314.08
1996 302 -0.047318612 336.02 329.68
1995 317 0.156934307 290.44 284.96
1994 274 0.10483871 262.88 257.92
1993 248 -0.111111111 295.74 290.16
1992 279 -0.085245902 323.3 317.2
1991 305

This is a unique time in New York's history when the secular attractiveness of the city rose over a 15-year period AND mortgage rates fell dramatically. Do not assume either will or even CAN repeat in the next 15 years.

I just think about whether now is the right time to buy in terms of the trade-off of renting. I know, I know, really simplistic, but I think that's how most people think about it.

Right now, I can still rent an apartment for say $2600 that were I to buy the same unit, I would be paying closer to $4200, not including renovations, upgrades, closing costs etc. Yes, there's a tax break for having the mortgage, but I'm also tying up $120-180k in a downpayment, which could be earning money somewhere else (the stock market, bond market etc.) and gives me more peace of mind sitting in the bank than sitting in my possibly still overvalued Manhattan condo.

Even though I think people (including us) would like to use a bunch of data, analyze historical prices, think about the impact of interest rates etc., I think the typical buyer starts with the rental equation and then goes from there. Right now, since the rental equation looks so bad in New York, we're not really seeing a point in continuing the analysis.

On a sidenote, I think 225 Rector (at least in the downtown area) is a major reason we're all kind of spooked by new construction:

http://downtowny.blogspot.com/2009/05/225-rector-is-why-we-are-all-afraid-to.html

So we need to look at a 30 year trend..?

throw out the trends, charts and graphs.

question: in the last 30 years, was deflation ever considered a serious (or for that matter even a long shot) possibility?

question: is there a chance (defined as greater than 10%) that we in the early, early stages of significant deflation?

The thing about end of the world predictions...
It's just awfully hard to profit if your right.

http://www.unshelved.com/strips/20030513.gif

who said its the end of the world? its just a different world. and i think we are at the point where it remains unclear how things will shake out.

p.s. great cartoon

Allow me to catch up...

(1) 30% down from 30% down is 1/2 off the top, which will catch eyes. It also might actually set carrying costs equal to rents on a pre-tax basis. Of course it can over shoot and get much lower than that.

(2) The world doesn't end when Manhattan real estate gets cut in half (or worse)...any more than it did at the bottom in 1992. Any more than it did when we just fell 30% in six months. Any more than when tech stocks got demolished in 2000-2002.

(3) Riversider, if you assume 6% is trend and that we increased at 9% on average from 1991-2008, then we are 65% above trend.... which means a 40% decline gets us to trend. And things overshoot trends on both sides. Price to gross rents average 12x... If we want to talk about trend, that is the trend. Price to gross rents at peak in Manhattan got to 22x-30x+ times.

(4) Downtownster, you have the right analysis...but the bulls on the board want to include tax benefits and exclude risk to their down payment. In this way, they can argue that after tax carrying costs right now are roughly equal to the rents (which are falling, but that's another issue). They also ignore that history shows 2004-2008 was really the only time in Manhattan memory that you needed to use the tax benefits to get monthly ownership costs down to rent.

In the end, expect three years of 20% declines... Worse if interest rates don't stay low.