UD: 'Armageddon' Price Discovery To Come First

Or they could just stay flat nominally, and fall in real terms as inflation returns. Unfortunatly for you, I think that is what might happen, nominally flat prices for like five years.

"Now, what remains to be seen is whether these types of sales are considered outliers"

interesting wording.

my comp is your outlier and vice versa.

Why is it unfortunate for mimi if things stay flat? If that is the case, she loses nothing by waiting, as the price will be the same nominally and, as you point out, fall in real terms as inflation returns....

I think we are just as likely to see nominal prices fall. I've been noticing substantial price reductions in recent days on properties I've been following on SE, some for more than a year and a half. I believe a lot of owners were hoping against hope that somehow and suddenly, the Obama administration would save the real estate markets through a quick fix of what remains a fundamentally feeble national economy, and not the continuing weak indicators across the economy that we are in fact seeing. I don't think we need assume that inflation elsewhere in the economy is going to have that great an impact on real estate, particularly on resales and current condo developments (as opposed to future developments, where inflation may well see a rise in costs). Moreover, unless there is wage inflation, the refusal to lower asking prices seems to me almost inevitable. I was one of those who was able to take advantage of the 1990s bottom-- the Chelsea property I bought appraised for more than I paid because the sellers had held on to the property for much longer than they should have. I sold last September (before Lehman) for 8 times the original purchase price and am sitting tight like Mimi. History suggests that the patient buyer will not regret waiting another 12-18 months, at a minimum.

We first started thinking about buying (in downtown) right before Noah's "fear factor" months and are just waiting for now. One thing that I think is important in the current market and will (in our opinion) continue is the ability to just wait. The past few years have instilled a sort of panic reflex with buyers, whereby there is this notion that you have to buy something RIGHT AWAY or the price will increase, someone else will buy it etc., right at that very moment. Historically, that's just not how real estate transactions have worked. Of course eventually the price moves/some other buyer comes along etc., but historically, people have had time to make a decision. The panic mentality is new.

With the mortgage crisis (which you know is going to continue if you look at any bank's balance sheet), this panic mentality is going to slowly go away. The more buyers realize that the cool property that they just saw will still be there next week, the more the panic over "buy now or be priced out forever" (how stupid) will subside, eventually leading to market stabilization. A "V" recovery is possible for sure, but we think, only for LIQUID asset classes. You can rush back into the S&P no problem because it takes 30 seconds to use the money in your checking account to buy an ETF. With the current mortgage environment, you cannot do the same for a piece of real estate. And really, with unemployment where it is now, why the heck would you want to fly back in to a risky asset class anyway?

http://downtowny.blogspot.com

RE in manhattan will have more downard pressure in the next 12-24 months. Look at the inventory and shadown inventory...Especially in Fidi area. This is the first RE high season after Lehman. If the sellers can sell their properties now, they will have to wait a full year and offer at a hugh discount just to move it. I recommend that the sellers should lower their prices quickly before it is all over.

yea I agree RE_PRO - I certainly dont see any upward pressure, only a 'world is ending' fear taken off the table compared to FEB/early MARCH. I think things like higher unemployment, higher taxes, and higher rates will continue to pressure housing and prevent any substantial turn around in supply. nothing goes in straight line and there will be deals at every price. Certainly, even with tick up, there are tons of properties that still have not sold. Its just misleading when one discusses a tick up in the manner that it is a new sustainable recovery and that you should buy now or be priced out from substantially higher prices down the road. Sales volume and prices that we saw at peak, wont be seen for a loooooong time.

Also, we'll have to see what happens with the kind of for-show macroeconomics that shouldn't really affect RE but do, like the Dow. Since the TARP did a lot of RP but nothing in terms of the TA, and also created a PR crisis for the banks which would block their way to extra dough if need be, the next few months will be crucial. I have no clue how they expect to manage in the long run with the TA still in their balance sheets, not to mention the gazillion off-balance sheet vehicles full of TA to the cusp. I mean, they are very insolvent still and their MBS, prime loans and etc. are deteriorating quickly, if anything. So a reverse in the Dow is very possible still.

What I'm trying to say is, if come July or August, shortly after Q2 RE figures are released, the Dow enters a sustained down cycle or, worse, a tailspin, even if the panic is not comparable in order of magnitude to Oct-Mar, and is like a watered down sequel to the horror movie, both factor, the Armaggedon price discovery and the worsened economic mood, would coincide. What a cocktail!

yes, but I wonder if that is next years problems. I got killed being short because of that very concern. I know its coming, but when. Lutnick said the CRE, LBO, prime problems will be a late 2010, 2011 problem...makes sense. Right when people get really into the growth and we actually see some GDP growth, will the rug be pulled from under them. Hey, Dow may be at 11000 by then! Why not given the amount of stimulus, acct tricks, converting preferred to common, m2m changes, off balance sheet hiding junk, and latest round of stock offerings to raise capital from this rally. I think timing is where Im wrong on that WAVE 2. I think sometime next year. For now, this is when people really believe in total recovery, like ericho75...but it will likely get even better bringing many others in that wave 2 was avoided, until it isnt. For now, reflate away and let people think that higher rates is a sign of sharp economic recovery. Like higher borrowing costs will do all of us good.

Mimi said "My feeling is that prices are not going up at all, and, in the need to get in contract before july, prices will continue going down in the next couple of months, finding a new low."

Could someine please explain why a large # of contracts need to be in place by July? Thanks.

mmarquez, I think that people try to sell in march, april, may, june, which is the peak sell season. When a property is not in contract until July, has way more of possibilities to stay stagnant until the bonus season, 6 months later. That's why so many properties are going off the market. As a seller, if I need to sell, I'll lower the price in June, July so I am not stuck with the property for months. Inventory is still quite high.

thanks for the info. We're considering buying into a new building which is trying to open in July but I don't think they'll have enough units in contract. I wasn't sure if July is some sort of standard deadline in the RE market.

"the crushing fear of having lost my opportunity in April/May"

how can you have this fear in this type of market? the only thing you lose is the opportunity to catch a bigger falling knife. "back to normal" is going to include high unemployment and higher fear of losing the current job. some sellers might believe that current nominal prices can be sustained, that's an illusion. i don't have a doubt that prices will go down to where they were before the bubble started and they shoot downwards some more (we are 1/2 way there).

nice houses are going to go into foreclosure but it will happen within the next couple of years. that's gonna depress the whole chain. why would anybody want to buy before that happens???... i don't understand that.

admin - i'm pretty new to the RE market, and I"m sure this has been answered elsewhere. How are nice houses foreclosing going to affect the price of lower end apts.(<500K) in manhattan? I don't see the obvious connection.

admin, I was just describing the feeling I had when my favorite place went to contract within 2 weeks of being listed...I am not saying that it's rational or that it made sense, its' just a feeling that explains the psychological shift that Noah describes in his piece. I was able to take a deep breath and very glad I did. Now I feel quite different, so my point is that there could be another psychological shift coming, a bearish one after the somewhat bullish spring.

mimi, my husband is going through the same type of roller coaster "let's make sure we don't miss it" type of feeling. it's just useful to totally disregard the peak when thinking whether something is a good deal or not. it reminds me of the new york times writing about how savvy Asian Americans were for buying when prices went down 5%. Even a 20% discount from crazy pricing is still crazy. even if prices in harlem go down 30% you would still be rewarded ($ wise at least) for renting versus buying.

http://www.nytimes.com/2008/08/17/realestate/17cov.html?pagewanted=1&sq=asian%20buyers%20brooklyn&st=cse&scp=1

Anything that affects housing at the top affects housing prices at the bottom. Housing is a ladder, around 3 upgrades per household up and (sometimes) one down at the end. Not only pricing has its effects but also carrying costs, like property taxes. Even if they increase them only for the rich, pricing on middle class housing and lower housing will go down.

That happened in new jersey. there's a paper that used that change to estimate the elasticity of prices to taxes. it was around 1:10 (a $1k increase in taxes reduced prices by $10k) but prices didn't go down only at the top as it was expected/hoped for by politicians.

My two rules right now when I consider buying:

1) If you feel pressure/panic, make no decisions. Wait till it goes away.

2) If you see a place you really like, but you'd have to stretch to buy it, don't.

I'm maybe more cautious than most, but NYC real estate is a HUGE investment that I don't have the $$$ to play games with.

my only rule right now is: if you are being paid for not being a homeowner (like when both rents and prices go down), take it and say thanks!

patience, patieince, patience. prices will go down. historically high inventory, much tighter financing terms, uncertainty in wall street. streeteasy often reads like a blg following a truly liquid market (like stocks and bonds) where prices can correct dramatically. RE is different because it is not liquid. there is ivrutally no chance of this market going up near term, some chance of leveling off at a bottom and a significant chance of futher price deterioration.

don't be so sure sure that prices will go down. If inflation makes into entry, prices will go the opposite direction. Housing prices always go up during times of high inflation. Most here argue that prices will go down with inflation, but history says otherwise.

"nice houses are going to go into foreclosure but it will happen within the next couple of years."

That is not true in Manhattan.

how much credibility does cyberhomes.com and zillow have towards approximate NYRE values? I recently tried to refi through one of those no-fee closing cost programs, but was not able to get it because of a low appraisal. I'm also weighing my options, knowing that at my 2 year mark from purchase date, the reality may be that I'll need to hold and rent out the place in the event of a 'baby birth blunder' until we see rebound from a lingering flat market.

"If inflation makes into entry, prices will go the opposite direction. Housing prices always go up during times of high inflation."

Only if there's also wage inflation, and right now the opposite is happening. If interest rates go up and incomes/buying power don't increase (which is the case currently), it's further downward pressure on housing prices.

I'm also a sideline sitter. My wife and I are about to sign another 1 year lease, at a nice discount, and look to buy next summer/fall. I remember reading that a few experts thought that next years bonus season will be even worse than this years (Noah at UD being one of these experts). Any thoughts on this with Wall Streets recent upswing?

Alpine, as I stated in this thread, I am looking in Halrlem and the UWS. There's LOTS of distressed houses in Harlem, FYI. Short sales have already started, and, as I check with acris, I know which sellers have mortgages substantially higher than what they can get for their houses.What do you think will happen to them?

mimi, alpine has a relentless optimism about the future of RE in NYC. he sees reality as it is, but only when it's firmly established, not when it's just beginning to show up.

"Housing prices always go up during times of high inflation"

Sure, they did in Gary Indiana, Baltimore, East St. Louis, and Pittsburgh in the 70s. Oh wait they DIDN'T.

Look at the recent thread on open house activity, and the one's which will probably happen every Sunday night/Monday from here on out, as well as traffic in general. IF traffic comes to a stand still this Summer (like it looks as if happened this past weekend), it will be a big indication that the Spring Fling was a flash in the pan (in most markets, people don't buy apartments if they aren't looking).

> Housing prices always go up during times of high inflation.

Uh, alpine. Seriously, why do you keep talking?

This is NOT true in Manhattan.

Try again though.