Reuters: Is the housing bust about to take Manhattan?

"About to take"...?

Guess I can finally pick up my mansion on a fork.

For this article to even appear, with obvious background sources in the RE and lending industry, means we are about to see developers and owners blink. not in the summer but the fall. get ready for another 20% haircut or more for those developments holding on to delusion pricing.

wow.

There are so many new developments on the market and in various stages of completion that this is to be expected.

Folks who have pulled their properties off the market with expectations that we're about to see a pick-up and price improvements are in for a painfully rude awakening.

As anxious as us some of us sideline sitters have become recently, maybe our patience will be rewarded....

Curbed highlighted a very interesting part at the top of page 2:

Some lenders, wary of an announced foreclosure's negative effect on sales, might opt for a more subtle scenario in which they quietly take control of a property.

"You walk in there as a potential buyer and there's still a developer and a broker and a marketing person but in reality the developer has been eliminated from the equation and the bank is deciding whether or not to accept your offer," Hersh said.

Hopefully posters here will report when bank-direct sales are discovered.

If the article is any indicator of the general consensus of new developers, then things will get a lot worse:

"Others maintain appearances but lower the real price -- often about 5 percent -- by using concessions such as extra storage or the payment of transfer fees as bargaining chips"

Yeah, closing costs are what's keeping people from buying... nailed it on the head. Everyone just save yourself the time and send your offers right to the lender.

I visited the Laurel recently. This is prehaps an example of just such a property.
http://www.streeteasy.com/nyc/building/400-east-67-street-new_york
Prehaps what was once high end 'Gordon Gecko' schmaltz seems out of place in todays enviornment.

This over priced poorly executed pseudo-luxury habitat with it's worthless ansilaries located on the posh First Avenue's Health and human services distric will be a prime example.
Watch!

The article lack real substance, there's nothing to back up their idea of another imminent plunge. My 5 year old could have written that.

falco, there are so many to choose from! but I agree, the Laurel is a prime contender.

infamous, you should put the child to work then.

Aboutready,
There are a lot better stuff out there talking about the decline and backing it up. This article is repeating the same thing but with nothing to support it. It's okay to be bearish, but don't take everything you read and think it's worth a bucket of gold.

infamous, just a joke. the point that tentamental highlighted, if true, is news and is interesting. if lenders are actually taking or are about to take possession of buildings and market them themselves, even if doing so behind the scenes, that could affect the negotiating process significantly.

InFamous, thanks for your permission to be bearish, I really needed that. I was soooo scared of you writing something really deep, insightful, original and mood-changing such as "Buy now or be priced out FOREEEVER" that I couldn't sleep well at night. But now that Your Highness had deemed it appropriate to allow us mere vassals to be bearish, phew, what a relief!!

Otto - Thanks for that article. It's priceless!

alpine says that bullish news out of Westchester means good news for Manhattan. This weekend we saw bad news about Manhattan and the Hamptons on Reuters and the NYT had bad news about Long Island. Alpine is silent. he can only read good news.

maybe alpine has reality on 'ignore'

"Curbed highlighted a very interesting part at the top of page 2:

Some lenders, wary of an announced foreclosure's negative effect on sales, might opt for a more subtle scenario in which they quietly take control of a property.

"You walk in there as a potential buyer and there's still a developer and a broker and a marketing person but in reality the developer has been eliminated from the equation and the bank is deciding whether or not to accept your offer," Hersh said.

Hopefully posters here will report when bank-direct sales are discovered."

I did this with a number buildings in the late 80's (2 examples being 214 East 9th Street and 1-5 Bond St).

I don't see how you can compare the Hamptons to Westchester and Manhattan being that it is a second house market.

The focus in the article is on new-development condos. If those do tank, what will be the effect on co-ops?

riley, what do you think got this market so juiced? condos were flying off the shelves faster than the developers could release three or four at a time and then raise prices for the remaining however many percent left by huge amounts. it was positively a feeding frenzy, and it hugely affected the market, psychology is not everything in a real estate market, but it is a large amount of market movement.

"I don't see how you can compare the Hamptons to Westchester and Manhattan being that it is a second house market. "

Blinders. Psycho. I said negative articles on the Hamptons AND Long Island. Two separate articles, one on how bad it is in Long Island. The Hamptons article ALSO discusses Manhattan new condos. Blinders. Psycho.

well excuse me idiot, but I do not have time to read every freakin NY Times article. I'm not a human RSS feed.

Gee Ward, I think your being a little hard on the Beaver, I mean Alpie.

dog food: shoulda stoped at the truth: "I'm not a human."

from crain's: "In Manhattan, the inventory of unsold condos hit 5,469 last month, up 21% from year-earlier levels, according to appraisal firm Miller Samuel Inc."

And "about to take"?

You don't think 25-30% down is already a bust?

More good news (for buyers) from Reuters:

In Manhattan real estate, worst seen yet to come

Fri Jun 19, 2009 3:41pm EDT
By Jennifer Ablan

NEW YORK (Reuters) - With apartments piling up on the market in Manhattan, isn't this the time to snap up the real estate equivalent of buying Champagne on a beer budget?

The savviest minds on Wall Street say it's not.

Even though prices have fallen around 20 percent as Wall Street's ranks have been thinned on fallout from the financial crisis and recession, top economists, strategist and analysts at the Reuters Investment Outlook Summit said they would be in no hurry to purchase a slice of the Big Apple.

Many expect prices to drop even more, as much as another 25 percent as unemployment rises.

"Absolutely not," Nouriel Roubini, an economics professor at New York University who is known for his prescient call on the financial crisis that has gripped global markets over the past two years, said when asked if he would buy Manhattan real estate.

"With all the job losses, whether it is Wall Street or otherwise, demand is very weak," Roubini said. "I think prices are going to fall very sharply."

He sees Manhattan residential real estate prices dropping another 20 percent to 25 percent. Home prices in New York dropped 21 percent in the first quarter compared with a year ago, though they had held up relatively well until the second half of 2008 when financial markets seized up.

Greg Peters, global head of fixed income and economic research at Morgan Stanley, also predicts another 20 percent in New York City. "Brooklyn, I would have down 30 percent," he said. "Although I would move to Brooklyn before Manhattan, actually."

Robert Prechter, founder and president of Elliott Wave International in Gainesville, Georgia, and known for his prediction of the 1987 stock market crash, of Manhattan real estate said: "I would probably put it on my list for an eventual bargain."

Up until the bankruptcy of Lehman Brothers Holdings Inc last September, New York City seemed immune to the real estate woes plaguing the rest of the country. The dominance in the Manhattan real estate market of cooperative apartments -- as opposed to condominiums -- that impose their own strict financial standards on buyers was seen as protecting the market against the foreclosures and repossessions that had already decimated other areas of the country.

But though Manhattan still hasn't experienced the wave of foreclosures seen in other areas, the golden days of ever-rising prices and rapid sales of multi-million-dollar apartments have evaporated.

The demise of Lehman and the disappearance of Bear Stearns Cos. and Merrill Lynch & Co. through distressed sales have transformed Wall Street.

The securities industry, which helped boost city and state tax surpluses in the last boom, has axed 21,800 jobs over the last year. And the heady days of year-end bonuses that financed the purchase of high-end apartments have fizzled out, leaving the real estate market holding the equivalent of a glass of warm, flat Champagne.

In a city where the securities industry accounts for almost 35 percent of all salaries and wages, New York's jobless rate climbed to 9 percent in May, its highest since October 1997 and up from 8 percent in April.

The pink slips have been felt.

The number of sales in new Manhattan apartment buildings dropped a whopping 71 percent in April from a year earlier [nN1497848].

And there may be more bad news to come.

"If there's going to be higher taxes as we've seen proposed, you're going to have caps on bonuses or income, and this city is a little bit more dependent on Wall Street than a lot of other places," said Tobias Levkovich, Citigroup's chief equity strategist.

Reuters did find one interested party. Dino Kos, who previously ran the New York Federal Reserve Bank's markets desk and is now at research firm Portales Partners, told the Summit: "If I had the money, yes. Yes, if I had the money. But I don't. Too many years working in the public sector -- public sector will do that to you."

http://www.reuters.com/article/InvestmentOutlook09/idUSTRE55I56C20090619

SteveF would love this one.

"Even though prices have fallen around 20 percent..."

According to the SE bears, I thought RE prices in Manhattan are down 30%.

"Robert Prechter, founder and president of Elliott Wave International in Gainesville, Georgia, and known for his prediction of the 1987 stock market crash, of Manhattan real estate said: "I would probably put it on my list for an eventual bargain."

What the heck do Red Necks in Georgia know about Manhattan RE? Please, give me a break.

certainly at least as much as you do.

It's also interesting to point out that Dr. Doom (aka Roubini) is more bullish on the future of Manhattan RE prices than that recent Deutsche Bank report is. In my opinion, anyone who is more bearish than Roubini is likely going to be wrong.

alpie, you've just descended. and i didn't think there was any room for that.

what do you mean I've descended?

Yes, who needs a summit of top folks in finance, like Einhorn and Gross...

We have a guy who LIVES IN NEW JERSEY to tell us the truth!

Since when is Robert Prechter "top" in finance?

and people in NJ know more about Wall St. than people in Georgia. After all, you can see lower Manahttan from NJ. :-)

just try wiki, alpie. you can disagree with some of his results, but he's hardly a redneck. and your misreading of Roubini's position was breathtaking. he's calling for up to a 45% drop in Manhattan prices, whereas the DB report is a metro area report. that would be, i would like to point out, an average drop of 45%, meaning some properties 5-10% and some far more than 45%. apples to oranges.

"he's calling for up to a 45% drop in Manhattan prices,"

20% + 25% is NOT 45%.

oh, and thanks for the wiki suggestion:

Criticism

While Prechter has his admirers, he has been criticised by media and pundits. For example, the Wall Street Journal ran a page one article in August 1993 with the headline, "Robert Prechter sees his 3600 on the Dow--But 6 years late," in reference to Prechter's 1987 forecast for the Dow Jones Industrial Average.[15] Technical analyst David Aronson wrote:

The Elliott Wave Principle, as popularly practiced, is not a legitimate theory, but a story, and a compelling one that is eloquently told by Robert Prechter. The account is especially persuasive because EWP has the seemingly remarkable ability to fit any segment of market history down to its most minute fluctuations. I contend this is made possible by the method's loosely defined rules and the ability to postulate a large number of nested waves of varying magnitude. This gives the Elliott analyst the same freedom and flexibility that allowed pre-Copernican astronomers to explain all observed planet movements even though their underlying theory of an Earth-centered universe was wrong.[16]

Recently, Prechter has missed the latest portions of the rally in gold and oil. In July 2006 he asserted that gold had reached its peak and that oil, then around $70 bbl, also had peaked in price. His analysis was clearly flawed, as oil in late May 2008 reached $135 bbl and gold was at $925/ounce.

Way to take the focus off your comments alpie. I made an error. You were just spouting nonsense.

Way to cherry pick. And oil and gold? Bye alpie, you are a waste of time.

in no way am I trying to take focus off my comments. I personally just cannot stand when anyone in finance is cited as an "expert" since these "experts" are the reason why we are in recession. I remember not too long ago, Lehman analysts were cited by CNBC as if they were God.

president, are you president... of a coop or a brokerage?

> and people in NJ know more about Wall St. than people in Georgia

Finance people in GA know a whole lot more about Wall Street than alpine, whether he lives in jersey or moves to DC.

Hell, anyone who ever took an economics class in Paraguay knows more about Wall Street than alpine.

hey (and with all due respect) the guy/gal in the token booth knows more about everything than alpo.

lol

More bad RE news VIA Reuters:

No recovery for U.S. property markets until 2017

Mon Jun 22, 2009 3:29pm EDT
By Ilaina Jonas

NEW YORK (Reuters) - The U.S. urban commercial real estate markets probably will not recover until 2017, the head analyst of commercial mortgages for Deutsche Bank Securities (DBKGn.DE: Quote, Profile, Research, Stock Buzz) said on Monday.

"The froth is still working itself out," Richard Parkus, Deutsche Bank head of Commercial Mortgage-backed Securities and Asset-Backed Securities Synthetics Research said at the Reuters Global Real Estate Summit in New York. "We are currently in something which is comparable to what we saw in the 1990s and potentially worse."

U.S. commercial real estate values could fall by more than 50 percent from the peak in 2007, he said.

Although asking rents are down about 28 percent in New York, factoring in free rent and other perks by landlords, rents are down about 50 percent, Parkus said.

"Rents will be back to where they were in 2017," Parkus said. Building prices also will take six to eight years to recover, he said.

The U.S. commercial markets are deteriorating at an increasing pace as rent dries up and demand plummets. That is leaving borrowers struggling to make their monthly mortgage payments.

"The number of new loans that are becoming delinquent each month are defaulting at rates between 5 percent and 8 percent per year, with the most loosely underwritten loans of 2007 defaults at 8 percent per year, Parkus said. That puts accumulated losses at about 4 percent this year, and 12 percent over the next four years.

Loans loses ranged between 7 and 11 percent a year during the commercial real estate crash of the early 1990s.

"We are not only not approaching stability, we are at a period of maximum deterioration," Parkus said.

http://www.reuters.com/article/GlobalRealEstate09/idUSTRE55L3YZ20090622

Can they pay it back?

The U.S. is about to go broke and they’ll take us down with them
Tags: Barack Obama, China, debt, deficit, peter schiff

Can they pay it back?When Peter Schiff was making the rounds on U.S. cable news shows in 2007, warning about the collapse of the housing market, anchors and fellow guests literally laughed in his face when he launched into his gloomy predictions. That kind of meltdown could never happen, they said. The economy was on rock-solid ground. In those rosier economic days, Schiff, the president of Darien, Conn.’s Euro Pacific Capital, was repeatedly cast as a successful broker who’d gone off the deep end.

These days, a vindicated Schiff is back on the talk show circuit with an even darker message. The current recession, he argues, is only the beginning of a larger economic restructuring. The American economy has been destroyed by years of reckless spending and borrowing. And now, the U.S. government is so deeply in debt that at some point in the very near future, he says, its lenders—namely China—are going to come to their senses and cut America off. “We can’t have one country that just borrows and one country that just consumes that’s supported by the rest of the world. It doesn’t work.” When this system collapses—and it inevitably must, he insists—inflation will run wild as the U.S. prints money to support its spending habit. Interest rates will jump and everyone will suffer. The real day of reckoning is still to come.

This time around, nobody is laughing at Schiff. Anyone who has taken so much as a cursory glance at America’s financial books and seen the masses of red ink has come to a grim conclusion: not only is the situation no longer sustainable, it’s rapidly getting worse. The Congressional Budget Office estimates that the U.S. deficit this year will amount to $1.8 trillion (all figures in US$) and it sees the government spending about $1.2 trillion more than it brings in for each of the next several years. That’s one of the more optimistic forecasts. Others say that over the next few decades, revenues will remain relatively flat while spending soars as demand grows for benefits such as health care for an aging population. The U.S. debt now stands at over $10 trillion and will hit $17 trillion within the decade, according to the Congressional Budget Office—a number so large that it will nearly match the entire yearly output of the world’s most powerful country. In short, America is about to go broke and every Western country, including Canada, will pay the price.

What’s alarming about the situation in the U.S. is just how quickly and easily the country found itself buried under a mountain of debt. Back in 2001, the Congressional Budget Office was estimating that by now, the U.S. should be running a healthy annual surplus—in fact it figured that when added together, the surpluses between 2001 and 2011 would total $5.6 trillion. At the time, it seemed like a reasonable projection. After all, in 2001 the government recorded a surplus amounting to $128 billion. But two important things happened since then that launched the U.S. into a very different future: the dot-com bust and George W. Bush. The recession that followed in 2001 caused tax revenues to fall and spending on social services to rise, taking a good bite out of those estimated budget surpluses. At the same time, newly elected president George W. Bush—emboldened by the surplus he’d inherited when he came to office—proceeded to dole out steep and widespread tax cuts, which cut revenue by about five per cent. That was followed by a new $530-billion drug benefit program in 2003. To top it all off, the wars in Iraq and Afghanistan caused defence spending to explode. (The bill for those wars so far: $830 billion.) In just four years, America’s massive budget surplus was decimated and turned into a $400-billion annual deficit. Since then, it briefly showed signs of recovery, but when the recession hit in 2008, the deficit quickly plummeted back down to around $400 billion.

President Barack Obama hasn’t helped matters. Faced with a severe recession he has had little choice but to push policies that have piled debt on top of debt. Nearly $3 trillion has been spent rescuing banks and the automakers (that’s about as much as the entire government spent in all of 2008), and stimulus programs have added another $800 billion to the government’s tab. “It’s hard to overestimate the massive spending spree we’ve had in the United States over the past few years,” says Brian Riedl, a budget analyst at the Heritage Foundation, a Washington-based research organization. Under Obama’s budget, the debt-to-GDP ratio will double to 82 per cent by the end of the decade—a level not seen since the 1950s, when the U.S. was recovering from the Second World War.

But that’s not the worst of it. The biggest spending is still to come. With 75 million baby boomers retiring, there will be massive new strains on social services in the coming years. Three programs alone—Medicare, Medicaid and Social Security—will create a $43-trillion liability over the next 75 years, says Riedl. That kind of spending would push America’s debt-to-GDP ratio to levels that have only been touched by bankrupt Latin American nations. To cover these costs, the government would have to more than double income tax rates to more than 60 per cent—an option no lawmaker would dare consider.

These trends mean that even if Obama’s stimulus spending packages wind down as planned and the economy recovers this year and next, there is still no hope whatsoever that deficits can be eliminated in the short term. This is an unprecedented position. After the Second World War, when the U.S. had a debt-to-GDP ratio of more than 100 per cent, nobody expected deficit spending to continue, and it didn’t, says Alan Auerbach, an economist at the University of California, Berkeley, who has studied the debt problem. The deficits of the 1980s were also quickly erased. “The difference here is that things will continue to unravel because we’re going to have rapidly growing entitlement spending and no comparable growth in taxes under current policy.”

Add it all up and by the end of the decade, the interest payments alone on the debt will cost U.S. taxpayers $800 billion a year. That figure will rapidly worsen, as the money spent on interest payments is added to the deficits, which in turn are added to the debt, which leads to even higher interest payments. “The whole process can start to feed on itself,” says Isabel Sawhill, a senior fellow at the Brookings Institution and a former budget official in the Clinton administration. “You get into a vicious cycle which can become explosive at some point.” By 2040, those interest payments will eat up 30 per cent of government revenues, according to some estimates. Sooner or later, the U.S. will be handcuffed by its debt, with a diminishing ability to pay for basic services, from defence to infrastructure to education.

The dismal state of America’s finances, and the prospect of decades of ballooning deficits, have understandably started to make the country’s lenders a little nervous. The U.S. raises money by selling Treasury Securities, largely to foreign buyers. Lately, those investors have been increasingly wary of the stability of those treasuries, which were once considered the safest bet in the investing world. Demand at recent U.S. Treasury auctions has been weak, leading to slight rises in interest rates—a potentially troubling indicator. Late last month, well-known bond guru Bill Gross, founder of Pacific Investment Management Co., warned the U.S. could eventually lose its AAA investment grade ranking.

The largest buyer of U.S. debt is China, which held $768 billion worth of Treasury Securities as of March. Recently it has openly expressed concerns about America’s ability to repay the loans. “Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried,” said Chinese Premier Wen Jiabao at a news conference earlier this year. “I’d like to take this opportunity here to implore the United States to honour its words, stay a credible nation and ensure the safety of Chinese assets.”

Those are the kinds of politically loaded statements that keep Schiff up at night. What happens if lenders like China and Japan come to the conclusion that their investments in America have turned out to be bad ones? “The fact that we squandered all the money they loaned us, and the fact that by lending us money they’ve contributed to our economy being less efficient and less productive, they’re actually in a situation where the more money they lend us the less likely we are to pay them back,” he says.

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Many scoff at the idea that China will suddenly say “no more” to the U.S. After all, the two countries have had a mutually beneficial relationship for years. China lends money to the U.S. and the U.S. buys masses of consumer goods from China. What’s more, it’s a long-standing relationship and many doubt that China would want to upset the status quo. Schiff sees no logic in that argument. “That they’ll keep lending indefinitely makes about as much sense as the argument that real estate prices have been rising, so they’ll rise forever,” he says. “Nothing that is unsustainable will go on forever.”

But the thing is, China doesn’t have to entirely cut off the U.S. to cause problems. Even if China decided to pull back slightly there would be consequences. The U.S. would still find itself short of the cash it needs to pay its bills, and like a homeowner who misses a mortgage payment, it would have to find that money somehow.

Regardless of precisely how and when this all unfolds, the dollar will inevitably become less valuable and interest rates will rise as the U.S. scrambles to attract new lenders. That will translate into inflation and higher interest rates for the average person, too. The cost of living will go up and the value of people’s savings will decline. Canada would likely get dragged into the mess too, just as it was affected by the current downturn in the U.S. The question is how severely this will all hit. “We could have another economic crisis or we could simply have a termites-in-the-woodwork scenario where we gradually have an erosion of our standard of living and become a nation in decline,” says Sawhill. At the very least, from here on in, the debt will act as a giant anchor, slowing whatever modest economic growth the U.S. can muster.

For the past five years or so, a small group of economists, researchers and former government officials have put on what they call the Fiscal Wake-Up Tour. It’s a kind of travelling road show aimed at raising awareness among citizens about America’s looming debt crisis. “We’ve been frustrated that there hasn’t been more attention paid to [the debt] and that steps weren’t taken earlier,” says the Brookings Institution’s Sawhill, who’s taken part in the tour.

Lately, however, the issue has been getting more attention, say some of the tour’s participants. The trouble is, nobody has any faith that this new-found interest will translate into any timely reaction from lawmakers. There really is no politically feasible solution to America’s debt crisis at the moment. For starters, no amount of economic growth can erase the deficits the U.S. is now facing, says Susan Irving, the director of federal budget analysis at the U.S. Government Accountability Office, a congressional body that oversees how the government spends tax dollars. No matter what numbers they enter in their simulations, she says, they can’t fix the problem.

That means any solution boils down to highly unpopular tax hikes and big spending cuts. To maintain the current debt-to-GDP ratio and prevent a debt explosion from happening over the next 75 years, the government would have to either raise revenues by 44 per cent or cut spending by 31 per cent, says Irving. It’s clear that there’s no appetite whatsoever for either of those options. Tax hikes are especially daunting when you consider that health care costs in the U.S. have been growing about two per cent faster than the economy. “You can’t raise taxes fast enough to catch up,” adds Irving.

Canadians know first-hand how hard and painful it can be to wrestle down a growing national debt. In the 1990s Canada embarked on an effort to slay its much more modest annual deficits. It worked, but not without sacrifice. We ended up with higher taxes and deep cuts to services like health care.

For the Americans, the first step is to at least “stop digging,” says the Heritage Foundation’s Riedl. “Take a step back and think twice before enacting [Obama’s] very expensive proposals.” Then, somehow, lawmakers need to get together and put some spending caps in the budget, he adds. Eventually, taxes will have to go up—on that point everyone can agree. The question now is whether this happens in the midst of a crisis, or in a more measured way, with some foresight and planning. “It’s just tragic that we’re not dealing with this now,” says Auerbach. “If we do it under time pressure because suddenly U.S. interest rates are going up, it’s not going to be nice.”

But all of this is much easier said than done. What’s happened in Washington so far is minor, says Sawhill, “a drop in the bucket . . . or in the sea,” she says. There are some signs that political pressure to curb deficit spending is growing (mostly from the opposition Republicans), but no agreement on how to proceed. Democrats generally fear the looming spending cuts while Republicans fear the taxes. “Those fears are understandable—but they should be outweighed by the fear of what will happen if we fail, if our debts overwhelm us, and if the fiscal meltdown comes,” said House majority leader Steny Hoyer, in a speech last month.

Riedl finds some cause for optimism in the fact that at least Americans, both inside and outside of Washington, are finally talking about the debt problem after ignoring it for all these years. That may be one of the few positive outcomes of the economic downturn: it has led Americans to slowly begin to acknowledge the elephant in the room. “The financial crisis has shown a lot of people that dire economic calamities can happen,” he says.

Schiff, the broker-turned-celebrity-prognosticator, is concerned enough about such a calamity that he says he’s now considering taking his message straight to Washington and running for a seat in the U.S. Senate. His threat to enter politics, which he first made last week on The Daily Show with Jon Stewart, has caused some buzz in Washington. But much as he seems to crave the spotlight, he says there’s another reason for his bid. “I’d do it because somebody has got to do something to stop this. It’s going to end in misery.”

interesting how the article cites Schiff as a God despite the fact that Schiff's clients suffered 60%+ losses in theri portfolios.