The New Renter Hallucination: "Prices Are Going to Fall 50% Because DB Says So"

also, is Miller correct in his blog in that, if prices actually do fall as much as DB says they will that we will be back at 1990 prices? Or am I mis-reading him? Because I can't see the market giving back 20 years worth of appreciation.

Prices in Vegas just hit 60% below their top.
We could hit 50% off. Time will tell.

Vegas is full of foreclosures and speculation. NYC is not.

I can't stand Alpine but he's got a point. NYC NEVER saw the kind of ridiculous, rampant run-up through speculative activity that Vegas did. We can argue all day about bubbles and so forth, but the reality is an overwhelming majority of buyers in the Vegas market (and other hot markets) purchase purely out of speculation - in NYC, an overwhelming majority of buyers purchased homes to live in.

90% of foreclosures in Vegas are owner occupied -
Just like Vegas, once prices fall 30% + here, the number of foreclosures in NYC will escalate. People who are underwater are less inclined to borrow money from friends, family, credit cards etc to make their mortgage payments and they are much more likely to just walk away.

Agree that co-ops will really help prices stay firm, but a problem we have that Vegas didn't is our exposure to the super jumbo loan market.
Again time will tell, but my money is on declines of more than 45%.

J-man - I would take that bet... wait, I own a place so I kinda already did.

When everyone agrees something is the right thing to do it usually isn't. Seems everyone is as convinced prices are going down now as they were of them going up four years ago...

Seems the only one guaranteed to make money from this strategy is the humble real estate broker... Considering the cost of entry and exit in this market.

When Silver peaked during the Hunts, everyone was lining up to buy not sell.

Riversider - what makes you say most people think real estate is headed lower?

Riversider, everyone I know thinks prices have stopped falling and will start going back up now. If you are defining 'everyone' by the Real Estate obsessed on this board, I think you need to spend some more time off the MB. ;)

Riversider - what makes you say most people think real estate is headed lower?
1) voices on this thread
2) comments by neighbors
3) case schiller index

i'm speaking primarily about nyc

Everyone I know thinks prices have stopped falling and will start going back up now

Contrast that with buyers low-balling every property they see.

Im mid 30s, renter, good income, lots of my friends fit this profile too whether they are married or single. Only a small % own, but there are a lot who are talking about continuing to rent FOR A YEAR and then buying. I think that my contemporaries will be pleased to have seen the market drop, go back to 2004-2006 prices or so, and then buy apartments in the $750-$1.5MM range depending on their circumstances. So my conclusion is that this market may fall a bit more, but not too much more. I'm talking about Upper East, Upper West, Downtown Manhattan.

"When Silver peaked during the Hunts, everyone was lining up to buy not sell."

same as buying RE 2 yrs ago. What everyone thinks is irrelevant, only what they do, and 'everyone' is not buying RE at the moment.

UEFront is most on target with the default inclination of families after they grow up, save some money, and get past the transitory rental period.
It would be interesting to get a better sense of the size and breadth of his demographic, exactly how many people are in their 30s and would be owners now but for the general economic decline recently and also the run up in housing prices... and therefore will be owners after a period now of stabilization or correction.

Talking about this, especially throwing out numbers like down 50% without creating any number index makes it all hard to follow for me at least. Can anyone put this in perspective, like take an apartment today for $1MM, what was it at the peak (and exactly when?) and do people then really think it will drop to $500K and when was it last $500?

<>

This of course implies that the continued detorioration of the housing market doesn't have a negative impact on the economy that affects their income in the coming year or so. If it does, they may be inclined to wait ANOTHER year. While the sellers decide to wait ANOTHER year for prices to bounce back.

Oh, it's all so messy!

above quote in response to this from UEFront0

I think that my contemporaries will be pleased to have seen the market drop, go back to 2004-2006 prices or so, and then buy apartments in the $750-$1.5MM range depending on their circumstances.

Just a math exercise, if 2007 was index 100 and we are down 25%, that is 75 now. If the total top to bottom is 50% off, that gets to 50. So 50 means that prices then have to DOUBLE, 2x, to get back to a peak, which if increases are then 5% per year from the theoretically normalized 50, it would take 15 years to get back to 100.

how many years did it take cisco to reach its previous peak?

Well that is an interesting question again columbiacounty. Actually, I wasn't making any judgments but I do have to say that your analogy doesn't quite work to pick one individual stock and equate that to a broad market. Financial advisors will tell you that diversity is the only free lunch in the market because a broader group of stocks has less risk, (and less upside too) than one individual stock. Certainly you can say that the DOW is where it was 10 years ago (or at least it was in March) and that is a fair way to look at it as a broad market like the broad real estate in the city.

diversification is over-rated. Correlation is asymetric.. And if you have investments that are more similar than you realize...well

http://lh5.ggpht.com/_qlaWo_7ZiZQ/SU84njS_JKI/AAAAAAAAC9w/d6EQ9SIt3Fs/image3.png?imgmax=800

Many times people seem to try to bolster their view with this 'contrarian' label. In this case, pretending that everyone is bearish makes it seem contrarian and cool to be bullish. Reality is being contrarian takes a long time to play out. Think about Buffett calling the Dow irrational at 6000. I think contrarian bulls are looking at as difficult a trade from here. Real estate is not like crude oil or the stock market. It can't whipsaw out of a selloff. Momentum is in place here. Further, I think we are a long way from being able to say that bearishness is ubiquitous.

Gordonbro - the last time the peak price (Q1 2008) $1mm apartment was $500k was roughly 2002. It might be able to sell today for $700-750k.

Its all academic anyway. It will take time to find out how many people have the money and the will to buy at each price level on the way down. Also the further it falls, there will be the interplay of people who think its becoming cheap, owners who fear further declines putting property on the market, and people who might have bought but become disinclined counter intuitively by the steepness of the decline.

The problem with some contrarians is that they believe the majority cannot be wrong. A more correct view would be the a better risk reward payoff if you are right.

I think the problem with contrarians is that they believe the majority cannot be right...for a long long time. I don't agree bears are the majority yet... And even if they are....bulls were the majority for four years, easy, and they drove prices up and through prior peaks on any valuation metric you could come up with....Just like the last run in the stock market in the late 1990s.

Gordonbro - per Rhino's numbers it's interesting to note that some US cities are back to 1998 prices - so NY has held up better than others, but many of us here think that our exposure to the financial sector and the small number of people who can get approved for $1M plus mortgages (read low demand) in this environment will hurt NYC more than other US cities - so we will underperform the rest of the US housing market for the next couple of years.

Finance is a late cycle business and the coop process is long. We rolled over late and should bottom later. The fact that so many fewer financiers are working, and those who are make much less is unappreciated in my view. Further, the 'creation' of new finance buyers in terms of big bonuses allowing them to accumulate down payments (+ now more stringent requirements) is going to sit on this market for a while. People buying right now are those who made money in the boom times who for whatever reason had not gotten around to buying. When you exhaust that supply of buyers, you require the creation of new buyers through the accumulation of down payments...which is going to be very very slow.

"90% of foreclosures in Vegas are owner occupied -"

I would take that number with 2 pounds of salt. Mnay invetors LIED and put down their houses as owner-occupied in order to make it easier to get the loan. Casey Serin lost 6 "owner occupied" houses to foreclosure. Need I say more?

"Gordonbro - per Rhino's numbers it's interesting to note that some US cities are back to 1998 prices -"

Cities that nobody in their right mind would want to live in I might add. Detroit is down to 1995 prices and still falling.

90% of foreclosures in Vegas are owner occupied -"

I would take that number with 2 pounds of salt. Mnay invetors LIED and put down their houses as owner-occupied in order to make it easier to get the loan. Casey Serin lost 6 "owner occupied" houses to foreclosure. Need I say more

salient points

All this talk of Las Vegas is a thinly veiled attempt to downplay the very real and defensible argument that Manhattan has a lot of downside from here. That is not to say it must or it will go down a lot from here...It is just to say there are multiple defensible bases from which to argue Manhattan needs a 50% or greater peak to trough decline. Las Vegas and Detroit talk used to downplay that is pretty weak.

and mark my words: If prices do fall 50%, the quality of life will suffer greatly. Crime in PRIME Manahttan is already on the rise. Assaults and robberies downton have increased by double digits.

"If prices do fall 50%, the quality of life will suffer greatly"

You make no sense - did quality of life INCREASE greatly when prices doubled earlier this decade??? Answer - no. So why would it decrease simply b/c the bubble deflates? RE prices going up or down do not CAUSE crime to increase or decrease - other factors [unemployment, # of cops, urban flight, etc] do.

The argument that declining real estate prices causes crime is weak. Sounds like an aspiration more than a proven observation.

Much like the Vegas and Detroit commentary...the 'crime' comments are meant to demean the bearish point of view. Translation - being a bear is wishing crime on the city.

The_President, any upward swings in crime would be due more to macro-economic forces, e.g., unemployment, than the price of Manhattan real estate. The fact is that Manhattan prices are still about 75% higher than they were in 2002, which seems to be the universally recognized baseline year for the bubble. With downward pressure persisting, despite significant drops of 15-25% from the peak along with historically low interest rates, prices have nowhere to go but down, especially once mortgage rates start to creep up and unemployment/severance benefits dry up.

misanthrope

Never mind that the 1990s enjoyed much lower price levels, much lower financial industry income levels, and higher affordability. Ironically, being bearish for 1990s price levels is the progressive view. Affordability for other than huge bonus earning financiers. Erasure of a bubble that took prices out of the reach of a lot of the people who make the city more interesting and diverse.

"You make no sense - did quality of life INCREASE greatly when prices doubled earlier this decade??? "

Yes it did. Crime was very low. Crime is now on the way up.

"Yes it did. Crime was very low."

Really? Crime decreased substantially in Manhattan between 2000 and 2007 as RE prices skyrocketed? Post some evidence.

Yes it did. Crime was very low. Crime is now on the way up.

Causal or Incidental?

BTW, it looks like your statement that "crime is now on the way up" is dead wrong for the first 3 months of 2009, when it was DECREASING. So suddenly everything has reversed??? Get real.

http://www.nydailynews.com/news/ny_crime/2009/04/25/2009-04-25_city_crime_still_falling.html

Remember, Alpo is the kind of intellect who would not distinguish between crime being low from 2000-2007 and crime getting lower from 2000 to 2007. His logic is very lazy and ill formed. He made the same mistake with inflation being good for real estate prices vs. abating of inflation leads to lower interest rates and higher real estate prices. He's just not a bright guy. End of story.

VIOLENT CRIME WAVE JOLTS TRENDY DOWNTOWN

http://www.nypost.com/seven/05192009/news/regionalnews/manhattan/violent_crime_wave_jolts_trendy_downtown_170010.htm

What did you sa about crime being down?

Is Bloomberg lying about violaent crime being down???

Here is the key quote regarding hospital statistics:

The number of people who went to New York City hospitals because they were assaulted jumped sharply in four of the last five years for which figures are available—a direct contrast to the plunging number of assaults the NYPD reported.

These hospital visits are numbered in official statistics of the New York City Department of Health and Mental Hygiene, Bureau of Injury Epidemiology—every bit as official as the heavily publicized police department data showing fewer and fewer serious assaults "known to the police" during the same years.

And the PBA statement:

Patrolmen's Benevolent Association president Patrick Lynch had said that officers "are forced to falsify stats in order to maintain the appearance of a drastic reduction in crime," the Daily News reported. And Sergeants Benevolent Association president Ed Mullins said his sergeants had witnessed assaults being downgraded to harassment cases.

Hospitals, the Patrolman's union, the Sergeants union, and retired detective Marq Claxton are all basically calling Bloomberg a liar regarding crime. And I can tell you the grand jury schedule is sure full. So it seems Bloomberg is not being honest with the city he wants a third term from.

http://www.dailygotham.com/blog/mole333/nyc_crime_up_or_down

"What did you sa about crime being down?"

Wow, up 5% overall (adds the numbers up) YOY - and police are responding. Whatever - your original assertion was that falling real estate prices CAUSE CRIME RATE INCREASES. You have offered NO EVIDENCE that there is any causal link. If anything, crime goes up when unemployment increases, not b/c RE prices decrease.

let me make my statement clearer:

1. Falling real estate prices cause the economy to go into recession

2. Recessions almost always result in higher crime rates

A couple of anectdotes regarding increased incidents in part of the city plus this opinion...
Deputy Police Commissioner Paul Browne attributed the crime jump largely to the neighborhoods' huge restaurant and bar scenes, which attract large numbers of late-night revelers.

Browne's statement makes no sense. Manhattan has ALWAYS had restaurant and bar scenes that attract late nigh revelers. They did not pop up over night.

"let me make my statement clearer"

OK, now you change your assertion - thanks for wasting my time.

Falling real estate prices caused Manhattan to go into a recession? Shit for brains, the recession causes both crime to rise and prices to fall. I don't think Manhattan owners are going to take to the street and commit crime because their coop is down 30% or 50% or 70%. Once again, your lack of intelligence shines through. You can't even grasp and wield a concept like causality.

and as I've pointed out in the past, most cities that have seen 50% drops in values have higher crime rates than NYC.

2. Recessions almost always result in higher crime rates

http://www.scientificamerican.com/article.cfm?id=do-recessions-increase-crime

Take, for example, the Great Depression. In the years after the stock market crash of 1929, crime plummeted as well. “People sitting in their houses don’t make great targets for crime,” says Bruce Weinberg, an economist at Ohio State University. “People going out spending cash and hanging out in big crowds do.” That was especially true in the Roaring Twenties, a time that also suffered from Prohibition and its attendant crime syndicates.

American cities have gone through two other major crime epidemics in the last century—one in the late 1960s into the early 1970s and another at the tail end of the 1980s into the early 1990s, when the nationwide murder rate hit an all-time high. The first happened at a boom time; the second struck during a recession. But in both cases, the primary underlying cause was a spike in the drug trade—heroin in the 1970s, crack cocaine in the 1990s

Murder rates have never linked very well to the unemployment rate or other standard economic indicators, but Rick Rosenfeld, a criminologist at the University of Missouri–St. Louis, thinks that is because those statistics do not tell the full story. “When we’re trying to understand criminal behavior, we’re trying to understand the behavior of people,” he says, “so it’s preferable to use subjective indicators as well as objective indicators.” He and Robert Fornango of Arizona State University traced murder rates against the Consumer Sentiment Index—a survey of how people view their current financial situation and how hopeful they are about the future. They found that lower index scores strongly correlate with higher murder rates.

You really don't understand causation do you? Have you ever had your IQ tested? Did you get a four-digit score on the SATs?

You really don't understand causation do you? Have you ever had your IQ tested

In defense, In the film, "Trading Places" Dan Akryod did turn to crime..

It was more a lack of income than it was mark-to-market trauma on his townhouse, I think.

Alpo is interesting to have around...if only as proof that people with a pot to piss in can still have zero understanding of the markets in which they participate.

Report: Retail Crime Increases During Recession

http://voices.washingtonpost.com/small-change/ylan-q-mui/report-retail-crime-increases.html

Crime has increased during every recession since the late 1950s, sociologists said.

Of the 100 agencies who linked crime rises to the economic crisis, 39 percent said they had seen an increase in robberies, 32 percent an uptick in burglaries and 40 percent an increase in thefts from vehicles.

http://www.reuters.com/article/domesticNews/idUSTRE50Q6FR20090127

Dude, you are simply dead wrong - sorry

http://www.reuters.com/article/latestCrisis/idUSN03430836

remember he's not even linking crime to recession..he's trying to link it to prices, causally!

"he's trying to link it to prices, causally!"

Yes, it's laughable. He thinks that NYC will collapse into lawless chaos b/c bubble RE prices get popped. It's quite hilarious.

Retail Crime Increases During Recession
http://voices.washingtonpost.com/small-change/ylan-q-mui/report-retail-crime-increases.html
Trade group/lobby Would be interesting to know how they come by their data/expertise.

The National Retail Federation is the world's largest retail trade association, with membership that comprises all retail formats and channels of distribution including department, specialty, discount, catalog, Internet, independent stores, chain restaurants, drug stores and grocery stores as well as the industry's key trading partners of retail goods and services. NRF represents an industry with more than 1.6 million U.S. retail establishments, more than 24 million employees - about one in five American workers - and 2008 sales of $4.6 trillion. As the industry umbrella group, NRF also represents more than 100 state, national and international retail associations.

"People who are underwater are less inclined to borrow money from friends, family, credit cards etc to make their mortgage payments and they are much more likely to just walk away."

Why do you make the assumption that everyone who's "underwater" has trouble paying the mortgage? Everything else remaining constant, the *value* of your home should have nothing to do with your ability to pay the mortgage.

What does any of this have to do with the connection between crime and coops values...or better yet, what is has to do with prices falling another 30% on top of 30% (to -50%) being some kind of renter delusion?

Meanwhile, Miller: we have 'a ways to go' [down. Classic dog boy, starting a threat on a ridiculous basis...then drawing links where there are not based on non-existent logic. I am not sure how to measure the difference between another 30% down and 'a ways to go' but apparently Dogface has bent it into something that means a milder decline than 50%. Typically bullshit from a confirmed imbecile....followed up by crap about crime that has nothing to do with coop values.

can't you ever have an argument without cursing, you low life piece of garbage?

Fannie Mae did a study about a year ago and I think they found that the number of people who walk away accounts for less than 1% of all foreclosures. "Jingle Mail" as it is called is over-hyped.

they don't walk away, but turn to a life of crime?

NYC under-reports thefts:

http://www.commercialappeal.com/news/2009/jun/29/memphis-victim-of-crime-reports/

NYC under-reports thefts

ok. i'll agree with the article's suggestion that ny under-reports, how is this relevant to the argument?

what is the argument? Rhino has changed the subjeect 10,000 times.

There are two subjects that you have raised, Dogface. One, you tried to say -50% is a renters delusion by posting a Miller quote that NYC 'has a long way to go' as support. Apparently you know that a 'long way' is much less than 30% down (from 30% down). Then you tried to say low real estate prices drive crime...and you did so by posting articles that say recessions drive crime. I haven't changed the subject once. Those are your two subjects, Dogface. Neither of these arguments have you been able to even come up with a coherent position, no less win any debate points. I am open to hear from anyone else on this thread that I have changed the subject in any way. Calling you an imbecile, Dogface, is not changing the subject.

Please think of another way to refer to The President.

Crime forces prices down, not the other way around. As the economy heads South people in lower socioeconomic strata tend to commit more crime out of desperation (that's an over generalization, but I'm not going to write a "white paper" in one post). Unless you think it''s desperate West Village Coop and Condo owners who are mugging for mortgage payments, this is all but a tautology. If anything, rental prices steeply going down would tend to REDUCE crime as a result.

Alpo, I still want to know how I have changed the subject. From inflation, to crime, to interpretation of articles you continue to fall flat on your ass.

"I can't stand Alpine but he's got a point. NYC NEVER saw the kind of ridiculous, rampant run-up through speculative activity that Vegas did."

Correct, our ridiculous, rampant run-up came from additional factors.

Just because your bubble is for different reasons doesn't make it any less a bubble.

I'd like to throw the bulls a bone. Your only defensible argument for a floor anywhere near current levels is this - that there are enough renters out there with money that think like you. There is no fundamental or valuation based argument that supports a floor anywhere near here. So stop bullshitting around with distractors like crime, or in LICCs case, pure denial of historical facts. Stop saying New York isn't Vegas or Detroit. You're embarrassing yourselves.

I agree with Rhino to the extent that I can come up with MORE than a handful of scenarios where things either stop falling or even correct upwards a bit and I think the arguments which are being made by most of the bulls are not the correct one's, and that if they focused on ball a bit more they might make a few more hits.

30yrs, can you give us the top 2-3 scenarios?

@Rhino86
Stop saying New York isn't Vegas or Detroit. You're embarrassing yourselves.

You saying others are embarassing themselves is a joke. Weren't you the guy attacking homosexuals just the other week because you had trouble making your point? Aren't you the unemployed guy?

Attacking homosexuals? That's a bit of a stretch. Clearly I embarrassed myself by losing my temper. However, that doesn't diminish the rhetorical embarrassment that is using the 'NY isn't Detroit or Las Vegas' argument to claim NY can't fall 50%. Or better yet, the embarrassment that is using the argument that 50% downside in NY would drive crime, or even need be coincident with much higher levels of crime.

1) Wall Street gives big bonuses for 2nd year in a row despite everything else going on. Those getting those bonuses are emboldened that it's not the last bonus they are ever going to get and do what they have done for the last 15 years: go out and buy a bigger apartment with it.
2) Dow climbs another 2,000 points and flirts with going back over 11K because banks are offering 0.001% interest on all savings, CD's, Bonds, etc. and there's no place else to put your money and all State/Muni bonds have been downgraded to "junk" status. Fed presses lower interest rates and gets fixed 30 years back below 4%, Barney Frank et al get Fanny/Freddy restrictions removed and they go back to lending on cardboard boxes to homeless people because "everyone should be able to buy a home". Obama announces a $7 trillion per person tax credit for buying a home. (NB While the numbers are all tongue firmly planted in cheek, the sentiment isn't).

Did he ask for the top bullish scenarios or your top likely scenarios?