Urban Digs' Message to Vulture Buyers: Be Careful What You Wish For!

"I would argue that crime leads to lower real estate prices. That seems to be the relationship I recall reading about, not the other way around."

True, but lower RE values can lead to some crimes, like arson. Got a house you can't sell? Then get a match and a gas can...

No, the economy weaking leads to price declines. You are so ass backwards. This was a housing-led bubble, but the ecnomic decline happens BEFORE price declines in 99% of recessions.

...and even then, not always. Prices went up despite the recessions of the late 70s and early 80s in NYC and SF, for example.

...and nationwide, the average US home price did not decline during the last FOUR recessions.

"nationwide" means nothing since everything is local. During the dot com bubble burst and the recession that followed, prices in SF fell significantly.

prices did not go up during the 70s and 80s in NYC. What the heck are you talking about? Back then apts. were selling for $1.

NYC prices also declined in the early 1990s during the recession then:

Big Developments Stalled in New York's Real-Estate Slump
By DAVID W. DUNLAP
Published: Monday, March 4, 1991

http://www.nytimes.com/1991/03/04/nyregion/big-developments-stalled-in-new-york-s-real-estate-slump.html

"justin, this isn't so that you can save a few hundred K. this is so that the city will once again be a feasible place for people other than those employed in finance to live."

AR, do I wish the doomsayers turn out to be correct so that the city will once again be a feasible place for people other than those employed in finance to live...

I guess still no. That doesn't sound like fun for people already living here, and probably not that enjoyable for those new folks as well when they finally can afford a detroit-like nyc.

But that's just me, and I am just one jerk who wishes all this widespread pain and suffering ends asap.

"If prices decline, so does tax revenue. In such a case, one or both of 2 things will happen:"

Which tax are you talking about? If you are talking about RE Property Tax, you are 100% wrong.

justin, if nyc becomes detroit-like, then i'd guess that there wouldn't be many other options. and if that happens, then the bubble creators have even more on their shoulders.

i wish that the pain and suffering would end as well. but how, justin, will it end? by housing prices continuing to be elevated? people act as if one can just turn the knob to an option, like on an oven, bake, broil, preheat. not possible. nyc hasn't been fun for many people these last few years, with or without those QOL issues. affordability is a major QOL issue.

http://www.nytimes.com/1991/03/04/nyregion/big-developments-stalled-in-new-york-s-real-estate-slump.html

never liked Dunlap as a RE reporter: look, we left out David Walentas who basically bought/obtained control of DUMBO - yeah, like the who friggin' neighborhood - just in time for the market to crap out and then had to wait (and had the perseverance, foresight, guts, whatever) to hold on for more than a decade.

"AR, do I wish the doomsayers turn out to be correct so that the city will once again be a feasible place for people other than those employed in finance to live..."

I've had this discussion recently a decent amount: I've talked here about "price support levels" levels for Coops/Condos. one way of searching for such levels is to look as who is going to be left with a solid jop when the smoke clears, look at what they can afford vs. what "should be affordable" for that socioeconomic niche (whatever that means, I'm not even sure) and that's what the price equilibrium will be. For example, i remember growing up in Queens (but I know the same thing was the case in most places across the country) and Doctors were the Upper Middle class. now, unless you are talking about Cosmetic Surgeons, Cardiologists, etc. most doctors can't afford to buy a good 3 BR apartment in a a good neighborhood. That would have been unthinkable years back.

I think you will see a transformation of WHO (job title wise) is the "new upper middle class" and this will define where pricing of where upper middle class people "should' live ends up at.

Alpine, you got it all reverse.
Crime increase when real estate prices go up, not down. It's called white collar crimes and it almost took us all down. On a smaller scale, you can't read a paper daily without hearing about mortgage fraud, ponzi scheme, liar's loan, you name it... Any report about increase of mugging in the city sounds insignificant to me. It makes me almost laugh that people are afraid of that, while billions of $ have being robbed in front of their eyes and nobody went down in the street to demonstrate....

"affordability is a major QOL issue."

True, but crime is a much more significant QOL issue. Elevated housing price is not necessarily evil, but elevated crime rate is.

Sledge, care to compare the death toll of white collar crime vs that of murder, or even mugging?

30yrs, I get your point that RE decline does not necessarily causes more crime. What I don't get is the way people priotize betweeb the two given the assumption that one comes with the other.

Good night all.

none of us really had an option when prices rose, and we don't really have one as they fall. it's the market, frothy or not. and while i am not willing to say that there will be no more crime, if it does increase it isn't due to the real estate decline, it's due to the economic decline, which includes the real estate. rampant unemployment is a major QOL issue, and not one that i would welcome in any way.

excessively elevated housing costs are evil, as are declining real incomes in an increasingly expensive world. stress causes untold numbers of premature deaths yearly.

wow, this discussion really did trigger some response both here and on streeteasy. Im glad it caused a reaction, and started people talking, but I also learned that my writings can be interpreted in various ways.

The purpose of this post, a daily thought in my head triggers most posts here, was:

1) to describe that more buildings are finding themselves seeing weakening financial stability as this severe economic slowdown hits our local economy. Buyers should be at least aware of this trend as I lost 2 deals in 2 weeks after atty read board minutes and issues discovered - a nice piece of real time information I thought to pass on to you guys

and...

2) that the biggest bears on manhattan re see this market falling 60-70% peak to trough. Well, if that happens, and a $2M pad sells for 600K, the socio-economic forces AT THAT TIME is probably what will drive a market already down 40% or 50%, to start trading down 60% or 70%. Its hard for local housing markets in general to trade down 70%, but yet some bear see this here via an overshoot to the downside that is common in boom/bust cycles.

Well if that happens, I think some of the forces I noted above would occur (and that is not good) to make that happen.

This post was NOT a bottom call. This post was NOT meant to say falling prices means higher crime (rather a steep economic slowdown where the local economy is hit hard with budget deficits and has to raise taxes big time or execute massive service cuts, seems to have a longer lasting effect on quality of life for residents in the city - hard to argue the opposite I would think). This post was NOT a bullish call for sustainable recovery, although Im way less bearish now that the process started than I was 18 months ago when we were at/near peak. This post was NOT a call for a 70% drop, but did include a section for those thinking the market will fall this far. This post does NOT call a 50% buyer a vulture buyer, although I can see that interpretation easily from rereading the piece (media does need good titles to catch the eye!). In this case, when I said the term VULTURE BUYER, it really was meant to the biggest bears that see this market falling 60% to 70% peak to trough, and my point was that the eats at that time may not be too yummy because of the forces at play AT THAT TIME that may make this market fall that far!

But I can see how its interpreted differently. Anyway, Im glad it triggered such a lively discussion thread. Lets keep talking about all these issues and I love reading comments, especially those that disagree with my thoughts. Thanks

oops, meant here and on UD in that first sentence

"excessively elevated housing costs are evil, as are declining real incomes in an increasingly expensive world. stress causes untold numbers of premature deaths yearly."

Wow, premature deaths caused by stress caused by high housing prices... Stretching a bit far aren’t we?

Let’s say prices drop 50% so that attorneys and doctors no longer need to stress about being able to afford 3brs in Manhattan, and let’s say the city somehow remains a somewhat desirable place by then. The next thing you know, an even larger number of plumbers, janitors and NYT econ reporters will stretch their income to move into the city. Won’t you be concerned about the stress level of this bigger crowd? Would you want prices to drop another 50% to reduce the premature death rate of these hard working people? And if that wish comes true as well, what will happen to the stress level of the lawyers and doctors who bought earlier

I think everyone agrees that the things that cause a really bad economy, as in Detroit or Gary Indiana, clearly lead to lower home prices. What Alpine is saying is the reverse.

Alpine, you dummy, I have said 100 times that home prices declined in NYC in the early 90s. Now you agree with me.

However, the second part of my point is that crime went DOWN, both in NYC and LA, despite the decrease in home values. Hence the opposite of what you claim.

You are all scared little morons. You cannot compare crime rates of the past with today. Today we are in the age of anti terrorism and Homelan Security. Even if local police funds are down, crime rates will still be kept low in NYC based on all the anti-terrorist protections that the Fed funds.

There are also about a gazillion more camera's spread through the city than there were during the last recession. http://www.mediaeater.com/cameras/locations.html

There will be an increase in some crimes caused by people needing money or pissed off about their situation but nothing like you guys are talking about.

i agree petrfitz, you cant talk about a repeat of the 70s/late80s...i certainly never talked about that. All i talked about are what forces would likely be around that would take a housing market that is trading down say 40%-50%, to start to trading down 60%-70%.

So, a 2M pad (lets say a classic 6, 1700 sft from peak), starts to trade around $1.2M or $1M...this is not there yet, but generally a good 25% drop has certainly occurred. Now, what would make that same apartment to shoot down again and start to trade around $600,000 or $700,000? In my opinion, it is some or all of the forces I discussed - 10 of them! 'Rising crime rates' was all I said, as part of the 10 forces that may mark endgame for this local economy.

the main point is that buyers of manhattan property should be aware that as this slowdown matures and hits home here, building financials can be negatively effected and this comes out during the diligence phase of all transactions. That is something worth watching because i just lost two deals strictly because of that.

""nationwide" means nothing since everything is local"

Alpine, if this is true then you will need to start looking at LOCAL crime statistics and stop posting crime stats for Phoenix, Miami, Detroit, and so forth. Those large cities have their own problems. There has been a slight uptick in property crimes in New York, but I've read elsewhere that this could be attributed to the popularity of iPods, which insulate the listener from her environment and are easy to rip off from people. I'll see if I can find the article.

As for arson, yes, people have tried that; most get caught. Insurance companies are keeping an eye out for that activity and there are some amazing forensics available these days. Most people who do that just screw themselves even further.

FWIW I agree with everything "30_yrs...." said. As if I wrote it myself. What determines real estate prices are incomes. Once we have a handle on what will be 'normal' incomes for Manhattan (and that figure will be far lower than it had been 2002-2007), then we can begin to figure where RE prices will settle. The rest just follows as part of the equation. Employment and incomes first ---> RE prices and city services second. There can be a vicious downward cycle if the politicians don't handle the situation properly and provide 'pro-growth' initiatives. That said, they'll need to have the borrowing capacity to do so. Absent that, it can get real ugly...real fast.

"FORECLOSURES AND JOB LOSSES TO BLAME FOR HOUSING CRISIS"

Not the other way around, alpine.

http://ny.therealdeal.com/articles/foreclosures-and-job-losses-to-blame-for-housing-crisis-nicolas-retsinas-joint-center-housing-studies-at-harvard-university-department-of-housing-and-urban-planning-foreclosures-and-job-losses-obama-administration

http://www.foreignpolicy.com/users/login.php?story_id=4178&URL=http://www.foreignpolicy.com/story/cms.php?story_id=4178

Okay. I must have seen this in print somewhere, since it requires a login to access the full article, which I don't have. It's from March/April 2008, so I would hope the author used more up-to-date crime stats than 2005.

"Consider New York City’s subway system, where major felonies increased by 18 percent in the first three months of 2005. The spike coincided with a boom in iPod sales. And, if iPod and mobile-phone thefts are excluded, crime on New York’s subway actually fell by 3 percent. In Britain, officials now believe a surge in robberies in 2005—including a 42 percent increase in crime on London’s Underground—is linked in part to iPods. “They’re carrying around an expensive device that’s obvious to a potential robber [and] that tunes them out,” the Urban Institute’s John Roman says of iPod owners.

Of course, this is not the first time an iconic product has attracted the attention of criminals. Crime waves have coincided with the proliferation of expensive Nike sneakers and North Face jackets. Which raises the question of whether the iCrime wave might have been foreseen, or even prevented. “It could easily have been predicted that the iPod would be a desirable crime target,” says Shaun Whitehead, a crime expert at Britain’s Loughborough University. “The sheer high visibility of the white iPod earphone wires is bad.” He believes many robberies could have been prevented with a more thoughtful design."

justin, actually no. i'm fairly certain that blood pressure rates have skyrocketed in the last year or two, along with alcoholism and other self-destructive behaviors. Economic stressors, one of which is lack of discretionary income and/or the inability to pay one's bills and/or foreclosure, do play havoc on people's lives and do cause premature death. the toll that this will take, along with reduced access to health care and medications, worries me much more than a few muggings might. it's just harder to measure.

AR, I’m confused. If housing continues to tank for a ew years, do you expect to see less high-blood-pressure, alcoholism, foreclosure, and other economic stressors? Is that why you are willing to put up with a few muggings to see it happen?

don't you get it justin? it's not what i want, or what you want. it is what has happened and what will happen. we don't have any choice. overpriced housing was very damaging, the bubble bursting is very damaging. it is a suck, suck situation. but the last few years couldn't continue, and the current situation is bleak.

What i want or what you want of course does not matter in terms of changing the bleak reality.

But take a look at the title of this thread: Be Careful What You Wish For. We are discussing what you and I wish for, right?

people talk about the bubble bursting as if the end of the world is coming. this is just another inning in a long game. recessions happen. when this over, everything will be stringer for the long run.

sorry guys...real estate does go down, just like every other asset class.

usually i agree with Noah, but i think this obfuscates the real issues. i think there are a few bottom feeders who would be happy to see destruction and view it as an opportunity. i think there are many who would decide to leave if they perceived the city as becoming increasingly uninhabitable. but i don't think there are too many people here who would like to see the city destroyed, and there are many who don't think that a return to affordability will destroy the city. what many are debating is exactly what we are wishing for, and what that may or may not cause.

i'm adding the opinion that what we wish for is irrelevant. i wish the fucking bubble had never happened. i wish Greenspan had had a mild health condition that required him to step down years earlier. i wish that santa claus were real and my friends and neighbors weren't losing their jobs. i wish that the ratings agencies had utilized proper modelling techniques. you can't always get what you want....

Well, not everything, Macro. The US balance sheet, for example, will not be stronger. This is a particularly severe example of the recession form.

i certainly am not wishing for the city to be hurt, because I love living here. But I have debated with perma-bears, and no I am not a perma-bear but I consider myself a realist, that see this market falling 70% when all is set and done, via an overshoot. I just dont see that. I can see 50%, and perhaps pockets of distress seeing more than that, which would occur with one more wave of illiquidity like the 4th qtr..

I see that as likely. And yes, I am very concerned about feds balance sheet and the position we are in for the future. I dont see all this stimulus and policy not having unintended consequences to it

some argue that a currency crisis is how the end of this crisis will manifest itself, and that is why they believe in the gold trade

ev..wasnt referring to that..but even that too will eventually be stronger

Noah, i don't know where i think this will land any longer. i'm here for the next eight years regardless, but i probably won't buy, so i don't have any personal interest in the price floor. but i keep asking myself when did the bubble start? when was the last time we saw appreciation based on fundamentals, real income (relatively, as NYC has often been an unaffordable city)? i don't think you'd care for the date i seem to keep coming up with.

and eventually the 16% of our people who are underemployed or unemployed may have full-time jobs. but when? and doing what?

i would say the bubble started when the credit bubble started around 2003 or so. that is when credit went parabolic for 4 years. Although there was a surge in prices from say 1996-1998 to 2002-2003 or so, probably a bounce from the wealth effect of the late 90s tech boom.

but what happened to the tech boom?

I don't think its crime that going to dictate whether we fall 50% or 70%....its interest rates. Maybe what happens is the less policed areas fall 70%, and the more policed fall 50% or so.

Yes 2004 is when money really started flowing into hedge funds....multiplying the number of mid-level finance types making $500k +/- who with their spouses income could bid $2mm on a classic six.

well it went bust, but Im sure plenty got way rich from it during the process and many more average joe's got wrecked than made out.

i think first you had a lesser bubble promoted by lower interest rates, and then in 2003ish you had the complete destruction of underwriting standards.

Most people aren't scientific...they spend as much as they can afford. We'll find out in time how much money people have vs. how many empty condos there are. The link to crime I guess is that if tax rolls fall enough, quality of life will have to fall. Sadly, I think everyone should expect it. But based on the ridiculous highs it would seem you need less hell on earth than you might think to see a 70% decline.

sadly, I think there are a small minority here who don't care if NYC becomes another Detroit just so they can buy their shoe box for a 75% discount.

sadly, I think there are a small minority here who don't care if NYC becomes another Detroit just so they can buy their shoe box for a 75% discount.

Ive been living in manhattan since 1997 renting the whole time and I am hoping that real estate declines 75% so I can buy my shoe box. why dont people understand that prices go down and they go up. manhattan will always be manhattan..greatest city in the world. RE cant change that

great point Rhino86, yes that is a very possible spark if it gets bad enough. Treasuries roll over, and you see rates fly to 8-9%, that will cripple the market for one more wave and that can last years. there are no free lunches, and so many people I talk to just dont care what they do as long as stocks go back up. its crazy, they dont get it

"I am hoping that real estate declines 75% so I can buy my shoe box."

Even if it means that crime skyrockets and we see a repeat of the 1970s? The quality of life and real estate values is kind of like someone giving out free pizza. Everyone wants a free slice of pizza. But how many people would take that slice if it had bleach poured all over it? Everyone wants an apt. for a 75% discount. But how many peole want that discounted apt. if it is surrounded by gang bangers?

No marco, Manhattan will not always be the greatest city in the world. If the quality of life declines significantly, you will see all the upper and middle class resdents fleeing to the burbs at the speed of light.

The hate of bears is so visceral. What happened in Tokyo? My sense is it wasn't consumed in flames but I am no expert. Why is their never visceral anger at the ridiculous appreciation that priced people out of Manhattan or forced them to rent for years. Down 50%...down 70%....who cares. Why are people so sure you can't have 1990s conditions with 1990s prices?

why would you want to have 1990s conditions? We were in a recession in the early 1990s. And I would not compare U.S. crime to that of other countires, epsecially Japan since the people there are more civilized. The kids there don't have time to join gangs since they are in school for 9 hours a day with no summer vacation.

Alpine, what does "75% discount" mean? Discount off what price -- some "proper retail value"? What is that proper price -- what that apartment sold for in 2006?

And middle-class families have already fled the city, because they could not afford to live here in a acceptable fashion:
http://www.nytimes.com/2006/06/22/nyregion/22income.html

A return to reasonable housing that is affordable to people (and families) in a range of classes will, in the long run, make this city a much more vibrant, welcoming place. The idea that if apartments that sold for $5mm in 2006 go for, say, $2mm in 2010, the city would morph into some mad-max anarchy-ville is just silly and has been pretty well disproven on this thread.

WRONG. Families fled the city becasue the schools suck and most cannot afford private school. Lower housing prices won't do a single thing to correct this, unless tuition also falls 50%, which I do not see happening.

Really? You think that housing costs have nothing to do with a family of 4 who makes the NY state median income of $75,513 not living in Manhattan specifically, if not NYC generally?

Alpine, since this thread started on the subject of what people "wish for" (as if that has anything to do with housing prices), what do YOU wish for in regards to NYC housing prices? What would you like to see happen to real estate prices over the next, say, 5 years, and how would that impact life in this city?

I would be willing to bet that most parents care more about the quality of education their kids get than housing prices.

Alpine I think apartments tripling in cost was more prohibitive than tuitions but it was both. 1990s were a recession but so is this...and worse. In the end Alpine though you really say nothing on these posts. You're really a dope and its clear every time you open your mouth.

no Ruhino, your a jerk and have no clue what your talking about. You obvivoulsy don't have kids. The NYC public school system is a thosuand times worse than those without kids think it is. Nobody is gong to live in the city regarldss of home prices if they have to send their kids to school with gang bangers.

I have kids, and I agree that NYC city schools are generally crappy. Still, the decision is by no means clear-cut. Commuting back and forth (not everyone can work from home) is hard on the family. You get more space for your $ in the burbs, but many families I know do the math and it's still not cheaper to move to the burbs.

I grew up in the city and the only reason I did is because my parents got me into PS6. If they couldn't, they would have moved to the burbs faster than I can blink.

People on the UWS are also starting to realize that if they all send their kids to public, that hitherto "undesirable" schools will change overnight. I think this year will be an interesting one, for public schools. There were very few lottery spots left for any school on the entire UWS this year. If people stick it out for the first few grades, they might realize that they are greater force for change than they realize.

As for real estate, the bulk of the young families of my acquaintance are renters.

Alpine: I keep harping on this. I think there's definitely a generational shift in attitude. Yes, I know that "plus ca change" thing - but I've heard this over and over again.

Pay 4k to live in a 2-bedroom on UWS, with 2 kids. It's cramped, but any of the more favored suburbs will cost that or more (granted that you will get a 3bed2ba house). The attitude now is: I'll try PSwhatever for a couple of years and then see how it goes, not we'll move right away. My hope (and I'm a hopeful person, otherwise why would I even procreate?) is that they'll see that as PSwhatever's demographics change and their peers are all sending their kids there, is that a lot more families will stay.

Also, my generation of women/men is bone-lazy when it comes to domestic things (except maybe cooking). More space = more upkeep with the time they don't want to spend doing housekeeping stuff.

alpine292 what destroys cities is when an entire industry leaves or goes under. which is what happened to detroit and the auto industry. wall street is not leaving. its going through a transformation. all were going through is a nasty correction. the sun will come out again, but the real estate bubble has burst. this is how things work..its not bad..its just the way markets work.

What he is describing is a run of the mill balance sheet recession, where asset prices fall, and debt inflates. There is no way to pin a bottom, because it will touch it multiple times over the course of several years and you will lose your patience in it. The very definition of deflation is to own cash. When we finally do hit this so called bottom you won't want to own real estate because your friends will tell you what a terrible investment it is.

For 30 years, every idiot knew that all they had to do to get rich was save a few pennies and buy stock or real estate with it. Way tooooo easy, money will be a lot harder to make in the future.

So you think it is a "transformation" when 3 investment banks collapse? What are you, a broker? Only a broker would describe the collapse of 3 iBanks as a "transformation."

Detroit was also pretty much a one-industry town. As dominant as the financial sector became in NYC over the past decade, it has a much broader range of industries.

So Alpine, what's your wish for NYC real estate prices in the coming years?

Ha its not what we think and can afford...Its what the potential buyers at lower levels think about public schools and can afford. Maybe you do have prices low enough to keep middle incomes in the city (2 beds fall to $500-600k making them competitive with 3 bed/2 bath starter homes)...and there is some kind of grass roots movements to expand the now small number of 'acceptable' public schools.

Brendisch - don't expect a conclusion or commitment from Alpine...like this post, he just throws silly stuff out.

i work at deutsche bank where im the lowest of the low on a trading desk. i love this business and I can assure you its not going away. Im glad that you appreciate the severity of the banks that are gone because that is precisely the reason why real estate will be impaired for a while in manhattan. and Im lickin my chops to get my piece of the apple. as long as I can stay employed. so there ya have it.

Rhino: many people wouldn't buy even if 2-beds came down to the 500k level. But they'd still stay in the city as long as the following stayed true - 3k-4k gets you a rental in an okay school zone & 3-4k gets you a small 3-bedroom in a nice burb.

Lots of things destroy cities. Just as lots of things build them. They are constantly evolving, and each has its shortcomings and strengths. While macro data is helpful for comparisons, cities are very individual and the macro data doesn't tell the whole story. New York has long been a magnet for ambitious and well-educated young people. It is my hope that the decline in real estate prices will allow those who were pushed out to come and prosper again. So put me in the moderate but hopeful bear camp.

Nyc10023...I agree with you conceptually. However, I think some people don't like the idea of renting indefinitely. If you could buy the $4,000 for $500,000 it would be much more attractive particular in a decent district. But that really is like 60% down. Figure that $4k apartment was likely $1.25mm at the peak.

"i certainly am not wishing for the city to be hurt, because I love living here. But I have debated with perma-bears, and no I am not a perma-bear but I consider myself a realist, that see this market falling 70% when all is set and done, via an overshoot. I just dont see that."

Name when a market has done so. It never has. The markets ALWAYS "overshoot", dead cat bounce, etc. ESPECIALLY illiquid markets like RE which is like steering and ocean going oil tanker. You turn the wheel and 5 miles later the direction changes. RE in manahtan has ALWAYS overshot the top and the bottom; calling for it NOT to happen again this time after it happening every other time is, well.......... naive?

Alpine, you're living proof that a PS6 education is not, in itself, a desirable thing.

You people do realize that, by the time you fix the public school system, your kids will have already graduated from college. Many of the people who talk about fixing the public school system send their kids to PRIVATE school. (cough, Obama, cough, Obama). So please do not buy in a cruummy school district with the idea of fixing the school. If you want to be a pioneer, great. But don't make your kids be one.

"In this case, when I said the term VULTURE BUYER, it really was meant to the biggest bears that see this market falling 60% to 70% peak to trough, and my point was that the eats at that time may not be too yummy because of the forces at play AT THAT TIME that may make this market fall that far!"

The problem is you're trying to sort of reverse engineer the outcome, and "guessing" at what could happen at the same time at a 70% drop occurred. Hey, prices could drop 70% because Al Qaeda flies a couple of planes into the Empire State building. Prices could drop by 70% because the artificial lowering of interest rates backfires and rates skyrocket to 14%. Prices could drop 70% because an earthquake hits NYC. I could go on and name 100 reasons. but the point is that for many of us, we can see prices dropping that 70% for the OTHER 100 reasons just as much as the one's you choose. but you're sort of leading with the conclusion and assuming backwards, and that's always a dangerous way of predicting the future.

Now, this doesn't say that the scenario you put forth can't or won't happen. but it's sort of like you're saying that people shouldn't want prices to drop 70% because they WILL happen, and there just isn't evidence of it working in that way. You're sort of saying that people shouldn't wish prices to go down because that would mean the other things happened, but there are lots of scenarios where that isn't the case. So when you say people should be careful what they wish for, you really need to be talking about things which would NECESSARILY have to go along with it, not things that MIGHT BE on cause of the event they wish to happen. It's sort of like saying you shouldn't wish that next week you had a million dollars drop in your lap, because it could happen because your spouse died and you collected the million dollar life insurance policy. Yeah, those things COULD happen, but you could hit Lotto, etc. just as well.

alpine: all I'm doing is reporting as I see & hear stories from the playground. Fact: people ARE sending their kids to previously undesirable (not the same as beyond the realm of hope ala Jonathan Kozol) schools for K & 1. And they're cautiously hoping that having a more involved parent body (we're not talking activists here) and different demographics (okay, whiter & wealthier) will change things. The truth is that there aren't enough private school spots for everyone who wants one, and as I've repeated ad nauseum, suburbs have become the last resort for my generation of parents (who grew up in burbs, unlike you).

And there's a certain element of "grass is greener". I take it, alpine, that you're a product of NYC publics. Most of us raising kids in the UWS are not.

PS Let's pick the most obvious reason prices drop 70%: that things go back to being EXACTLY where they were the last time prices were 70% lower. Think about what year that was and how things were: you want to describe that time as "Armageddon"? GMAFB. Everything was absolutely fine, now wasn't it? Or was I asleep during the entire decade of the 1990's?

just curious nyc10023, where do you and your fellow parents plan to send your kids to high school? I know people who live in the city with kids, and, unfortuantely, 99% of them have their heads in the cloud and think their kids are going to get into Stuvyestant.

PPS (note slipped secretly to the head of the opposing debate team:"Start with the 'prices are sticky downwards' argument").

your missing the point 30yrs. In order to see a 70% decline, we would have to see people fleeing the city because of high crime or an unemployment rate well into the double digits. If we do not see any of these worst case scenarios, then there would nothing that would warrant a 70% decline. Cities that most people would never want to live in have seen 50%+ declines. Yet, desireable cities like Seattle and Dallas have not. Why do you think that is? Think for a second.

Alpine: High school is a few years away. I'm not one of the (many) delusional parents who think that their kids are testing into Stuy for sure. It'll be interesting to see what happens in 8 years wrt Stuy/Bx Sci/Hunter et al. student pop. I think the Asian student population will decrease because of increased interest in staying in the city. The bottom line is that most of us will reconsider at that point when our oldest is 14 (or 11 for middle). At that point, it may mean a flight to the burbs - but until then, people will hang on as long as they can. That point has already been pushed out to 1st grade, 2nd grade. It'll be interesting to see how far that line gets pushed out. We are also not averse to boarding schools (having had positive experiences ourselves).

Alpine, no cities saw the same kinds of increases we saw in NY due to the finance industry. Also, you focus on peak to trough declines. Rather, you should consider valuations on price to rent. They easily accommodate a 70% decline. However, I think its interest rates that would drive us that low, not crime... I don't think -50% or -70% is determined by crime. People buy on a payment and crime or no crime there will be people who at price levels decide they want to stay here. Buy 30yrs set you straight there is not much more I can add. -70% is only Armageddon to those forced to sell into it. For the rest of us, it just means some of the cool people moving back from Brooklyn or White Plains.

No one really knows why the crime rate has gone down. Freakonomics suggests that it's linked to the legalization of abortion. Personally, I always wonder what would happen if 1) parents of tweens & teens were offered financial incentives to get their kids BC like Norplant and 2) Headstart programs were expanded and 3) if orphanages made a return

"Alpine, no cities saw the same kinds of increases we saw in NY due to the finance industry."

Comlete nonsense. Vegas, Phoenix, and Miami saw larger increases and even they have not seen 70% declines or anywhere near it.

"People buy on a payment and crime or no crime there will be people who at price levels decide they want to stay here."

Really? Ever hear of white flight? The peopel who stay during times of high crime are typically those who cannot afford to move out.

I honestly can't even beleive we are arguing about 70% drops. Sorry people, but we are NEVER going to see them in the absnece of the scenarios set forth by Noah. It's amazing that the bears on SE keep raising their presdictions. First it was 40%. Then for a while it was 50%. Now were up to 70%. Wake me up when you think we will see 100% declines. I always wanted a free apartment.

The funny parts about your rants are that no one understands your points or agenda? Be happy in NJ and shut the eff up. Anyone with half a brain knows prices can fall 70% for reason of crime...or for other reasons.

You brought up 70% drops...50% drop is easy, 70% needs higher interest rates. I am not sure what windmill bear you are tilting against with a 70% prediction.

"your missing the point 30yrs. In order to see a 70% decline, we would have to see people fleeing the city because of high crime or an unemployment rate well into the double digits."

I'm not missing the point because that simply is not the case. And I illustrated it. Prices were 70% less without any of those things. res ipsa loquitur.

well, 30yrs, yes. i ask you, because i'm riddling this out myself, what year's prices seem to be at a level that is commensurate with rational growth, in line with fundamentals with an obvious adjustment for the fact that Manhattan is not Kansas? Is it 2000? I'd actually surmise 1998, but with an overshoot, where does that put us, do you think? 1995-96?

but prices were 70% less with what unemployment? you want a culprit, it's unemployment, and it's not that simple, because yes it's housing. And you just have to ask yourselves why.

It's a lot of things, and having cheap real estate in NYC isn't necessarily a bad thing, nor does it have to correlate with the national economy. I like reading about the UWS circa 30/40 years ago. There was a real culture of people leading alternative lifestyles (many of them gay) coming to NYC to seek each other, to escape conformity. I think people will always come to New York, but it remains to be seen whether it'll be the vanilla-bland "middle-class" yuppy types with families or if rising crime & lower rents will return it back to the 60s. The bottom line is: it will always be a mecca, just not for people like us.

30yrs_RE_20_in_REO

but I think people are making a mistake here in recognizing what is CAUSE and what is EFFECT.

I'm not missing the point because that simply is not the case. And I illustrated it. Prices were 70% less without any of those things.
_______

I don't always get a chance to respond, but I am on board with these points. I see lower housing prices (AFFORDABILITY) as the silver lining to the economic downturn. If people were spending even just $1K less a month on shelter, that is like getting a huge stimulus check. I think this kind of wealth effect at some point when job cuts are a thing of the past (no clue when that is though since our country is based on all of us providing services to each other and relatively nobody domestically "making" anything - but this is besides the point) will be the leading us OUT of the recession. Think of the tax revenues on that disposable income being spent with that new $1k everyone found in their pocket each month!

Urbandigs - in all sincerity, I respect many of your views and appreciate all your insight here and on your site, but I just think there are so many unknowns where all the uncertainty represents additional downside risk. I think 50% off of 2007 prices are a minimum requirement for equilibrium just from an affordability and key ratio perspectives (here I am going to reference Stevejhx's analysis as support). But it may be a larger discount (maybe 60, 70%) if city taxes start to escalate, interest rates rise, more risk in terms of risk of neighbors not being able to pony up their common charges, etc.

30 yrs,

definitely not a res ipsa. More like a guess ipsa.

"well, 30yrs, yes. i ask you, because i'm riddling this out myself, what year's prices seem to be at a level that is commensurate with rational growth, in line with fundamentals with an obvious adjustment for the fact that Manhattan is not Kansas? Is it 2000? I'd actually surmise 1998, but with an overshoot, where does that put us, do you think? 1995-96?"

Here's my point: IT DOESN'T MATTER. I don't care which year you pick, from the bottom in 1992 to any point since then. There's no arguing that they weren't 70% less at the bottom (well, I guess there is, I would just choose not to enter into a discussion with anyone who would make that premise; I mean it would be arguing that prices rose less than 200%, wouldn't it?), and there's no arguing that at no time since then have we had the "Manhattan is unlivable QOL wise" (again, I guess there is, I would just choose not to enter into a discussion with anyone who would make that premise, either).

So, given both those "facts", how can anyone claim that you can't have prices 70% lower WITHOUT ""Manhattan being unlivable QOL wise"?

dwell:"30 yrs,

definitely not a res ipsa. More like a guess ipsa."

Really? fine: point out the year where all those bad quality of life issues last occurred, and then we can argue about what prices were down at the point in time. But you have to find it first, and I think you have to go back a really long way to do it. but I'm REALLY curious to hear what year you are thinking of.

from the "comments" section by Noah/UD:

"My biggest fear is to undo the improvements this city has seen over the past 15-20 years or so"

personally, my biggest fear is that this city (well, Manhattan, anyway) will continue on it's arc of the last 15-20 years of homogenizing neighborhoods, pushing out artists, small unique shops, avant guard off-off Broadway theater, cheap but great restaurants, sleazy "red lightish" locations and everything else that made me want to ever live here. I have to say that in the better part of my almost 50 years which I have lived in NYC, I'm the least excited I have EVER been about being here, because all the things that made it exciting and vibrant are being suburbanized, sanitized and pasteurized. Yes, "safe and clean streets" and "low crime" is great. But if those are your overwhelming to priorities ... PLEASE LEAVE MANHATTAN TO US SLEAZEBALLS WHO LIKED IT THE WAY IT WAS AND MOVE TO THE SUBURBS (instead of making Manhattan INTO the suburbs). You can come visit whenever you want.

You know, even when NY was at it's "worst", whenever they did worldwide surveys of where people wanted to travel to, NYC (meaning Manhattan) was always at or near the top, and "what do you want to see when you get there?" was almost always "Times Square". I knew how far things had gone down hill about a dozen years ago when some friends of my wife from LA decided they didn't really need to come here because they had been to "New York, New York" in Las Vegas. I'm starting to thing they might be correct.

"prices did not go up during the 70s and 80s in NYC. What the heck are you talking about? Back then apts. were selling for $1."

I bought an apartment in Brooklyn for $2.50 in ?1995/96? but if my partner had a dime on him it would have been $1. He didn't have any change on him so he turned to the guy next to him and all he had was a quarter, so they called that 10% and made the price $2.50.

30yrs,
I totally agree with your post about the pasteurized Manhattan. We have posted about it in SE before. Nevertheless, we should to be able to have a city that nurtures uniqueness and cutting edge art without the needles in the playground and the decadence of 42nd St. We went from hell to Disney in a nanosecond.

30yrs, i agree, sigh.

mimi, not so sure that's that possible, an edge is necessary for creativity. but even back in the needles days there were people raising families in family-oriented neighborhoods. it never was all needles all the time everywhere. and what's so bad with children understanding the vagaries of life? i'd prefer my child not be mugged, but many upper-class kids (how stupid can they be to not leave the very expensive watch at home when they travel the subways at night?) that i know were separated from their possessions without phsyical harm and they lived to tell the tale, often with great relish.

Of course you can have prices down 70% and have a decent QOL. Unfortunately you probably will have a diminished QOL if tax revenues are down 50%, and unemployment is at 10% or higher.

AR, I am not sure what kind of edge creativity needs, but I picture the west village of the 50s a little more civilized that the east village in the 80s. I witnessed things in alphabet city during the 80s that are pretty unspeakable. I agree though that total sheltering makes the young weak and limited. Life is not a rose garden for the vast majority of people in the world.

bring back some of the edge.

Alpine, in 198 posts you have still not shown any instance of a real estate decline leading to an increase in crime. Tokyo? Not the same, the Japanese are more civilized. London? They don't have as many guns. New York, SF, and LA, where crime INCREASED steadily despite the two real estate booms in the 70s and 80s? You ignore it. NY and LA in the 90s, where crime decreased despite those real estate busts? you ignore it. Virtually every other major US city, where crime rates have held relatively steady, despite price declines of 20-50% (so far)? You give us one story about crime increasing in NEVADA...even though that very same story clearly states that LAS VEGAS has had no change in its crime rate for 4 to 5 years. When I point out that on aggregate in the US, crime went up for decades even as real estate increased faster than inflation or GDP growth, you claimed only LOCAL results mattered...as though national crime rates and real estate trends are not an aggregation of many local trends.

As for Noah, I THINK what he means to say is that the massive economic decline that would lead to a 70% decline is something no one should want...however, this is a fallacious argument, because the bubble (and other bubbles like it around the US and the world) artificially inflated home prices separately from underlying economic fundamentals. The Spanish and UK markets, Miami, LA, Las Vegas, and San Diego, for example, like Tokyo before it, were all artificially too high...and (up to) 70% declines can and in fact have occurred without accompanying economic chaos.

The recent DB report, and the GS report before it, among others, say that return to normal historical price/rent and price/income ratios, Manhattan real estate should fall a total of 40-50% or so from peak. If it overshoots by more than that, there is no evidence that this decline and this decline ALONE will lead to horrible crime and mayhem. It just means an asset bubble deflated by too much. So sorry but you can "wish" for a 70% decline and NOT assume that wish also leads to "Gangs of New York", "Mad Max", or "Children of Men".

The only consistent theme here is folks giving way too much thoughtful consideration to responding to Alpine. The only relationship here to be considered is that a 70% decline would likely be related to a big slump in finance employment and compensation. I guess we would find out if Gladwell is right about abortion deserving credit for crime reduction or if it a function of the dollars thrown at it. That said, if the move from -50% to -70% was driven by a spike in interest rates due to the government tightening up against economic recovery, the reverse could actually be true. Conditions could improve during a 'real estate recession'...

"If it overshoots by more than that, there is no evidence that this decline and this decline ALONE will lead to horrible crime"

that is not what I said at all. I did not say price drops to 70% would lead to crime. What I said was a list of 9-10 possible items that may contribute to make a market trading down 40%-50%, to start trading down 60% or 70% generally!

"So, a 2M pad (lets say a classic 6, 1700 sft from peak), starts to trade around $1.2M or $1M (40% or 50%)...this is not there yet, but generally a good 25% drop has certainly occurred. Now, what would make that same apartment to shoot down again and start to trade around $600,000 or $700,000? In my opinion, it is some or all of the forces I discussed - 10 of them! 'Rising crime rates' was all I said, as part of the 10 forces that may mark endgame for this local economy."

thats what I said. I NEVER said that a 70% price drop causes higher crime rates. Others interpreted that on their own