NYT: Sharp Price Drops in Manhattan Apartments

"Right, but average price was down"

You are now going to argue that average price is the one to look at?
Seriously?

I am not missing that. We have a different opinion about what is fine. I think first time buyers between 2004-2008 basically made a mistake with bad math. They overpaid based on some standard rules of thumb. You may disagree, but in some sense, the market has proven my opinion right based on where it is today. I could have easily been one of those buyers. If I had been, I would admit to having made a mistake. The transaction costs and potential interest on a downpayment on any purchase made around 2004 or later, would not have been recouped via tax deductions yet - even if employed for the whole term...and clearly it would not have been recouped via appreciation.

Agreed. Given the fact that it was cheaper to wait (renting vs. carrying) and the prices relative to the period in question are at best flat, and worst down 30%, there was a huuuuuuge payoff in waiting if you buy now or at any period of prices near here or lower.

We looked at a place for $1.2mm, where the seller paid $740k and put $150k into it in 2004. He sold in the fall for $950k. Clearly, they did not make money with commissions and flip taxes. The dogmatic buyer stood aside after 2002 or so...time has proven them right, unless they bought, flipped and rented.

Maybe we should build a monte carlo simulution to demonstrate the option value of renting. I've looked at this 1000 ways. I think the best I got is to buy when cap rates > mortgage rates. At least then, even if you are early, your monthly return on downpayment is being positively leveraged. Or alternatively, buy when prices flatten and even rise a few Qs.

Back to the 2004 buyer....A much nicer place in the same building sold for $1.025mmm more recently. The original seller would be lucky to sell the place he sold for $950k in the fall for $825k today, putting them at a loss for a 2004 purchase.

For reference, I am talking about 7D and 3F in 16 east 96th street.

"You are now going to argue that average price is the one to look at?
Seriously?"

No, my argument is that Q2 08 report numbers were peak or very near peak, so looking at YOY NOW (what I suggested much earlier in this thread) gives us a more accurate % from peak. Got it?

So by that logic, which seems sound, will people stop arguing that the market isn't down 25% vs. peak, or will they find a way to cling to that? If anything, transactions in such a weak market are skewed toward higher quality places...True mark to market is likely worse.

rhino, you originally were talking about people who bought before 2002. Obviously, if someone bought recently and prices dropped 25-30%, they would have been better off waiting before they bought.

2002 is my rough guess at the people who will 'be ok' over the long term. 2004 is my guess at people who are clearly not ok. Again, this isn't about predicting the future. This is about sound rent/buy analysis, which didn't work after 2002. Its not coincidence that the market is putting buyers who didn't perform rent/buy analysis in the appropriate way in jeopardy. You and I don't agree about history or how to look at rent/buy analysis. Its not surprising to me that people who did it your way are underwater.

"why don't you like at it from the other side of the coin and ask what is it that will hold up these prices at the current levels. If supply greatly exceeds demand, unemployment is going up, income levels are going down, and there is uncertainty in the market, then economics says the prices must continue to drop until we reach equilibrium. There are not enough new buyers to boost the market because renters with the means to purchase can continue stay put, watch the market continue to drop, and strike only when they feel the best long term bargain is available."

Actually, HDLC, most of what you suggest are still assumptions: IF supply exceeds demand (it does, for the moment; for how long? Has it already had all of the impact we can expect?), there are not enough new buyers to boost market because renters with means can continue to stay put (can, but why do we assume they necessarily will?), strike only when they feel the best long-term bargain is available (how does anyone know that it isn't now? Many people would view 20% off of New York real estate as a pretty good long-term deal, which might explain the fact that the properties on my watch list are pretty much going into contract instead of simply being delisted).

My current theory, as I am continuing to refine it, is that decent apartments in good neighborhoods will generally hold their values, while fringe-y areas, individual developments, "unique" or "white elephant" apartments that are difficult to price, and the oversaturated trophy apartment markets will all tank hugely. For people like Trompiloco and I looking for good apartments to live in on a comparatively modest budget, the downturn may wind up being a bit more of a disappointment than I would have expected even a few months ago. I openly admit I may be partially or wholly wrong; I hope like hell I am, because it would certainly be in my interests for prices to come down, but I don't want to let hope and expectation get in the way of seeing what's actually occurring.

> No, my argument is that Q2 08 report numbers were peak or very near peak

So, you are now reversing yourself on that not being the bubble?

"So by that logic, which seems sound, will people stop arguing that the market isn't down 25% vs. peak, or will they find a way to cling to that? If anything, transactions in such a weak market are skewed toward higher quality places...True mark to market is likely worse. "

I go by Noah...

HIGH END ($5M+) - down aprox 25% - 40% from peak
HIGH/MIDDLE ($2M - $5M) - down aprox 25% - 30% from peak
MID END ($1M - $2M) - down aprox 20% to 30% from peak
LOWER END (Under $1M) - down aprox 15% - 25% from peak

"My current theory, as I am continuing to refine it, is that decent apartments in good neighborhoods will generally hold their values, while fringe-y areas, individual developments, "unique" or "white elephant" apartments that are difficult to price, and the oversaturated trophy apartment markets will all tank hugely."

Sorry this sounds like one of the 12 steps...denial. The bull cycle is dead. In the early stages of this rollover, it seems like this modest or isolated decline tact is too common.

"So, you are now reversing yourself on that not being the bubble?"

It's right on the cusp, so whatever you want to call it. Semantics aside, are you now reversing yourself that the YOY figure is best? That was the original point.

Those ranges average to what, 28%? Remember, this is what is moving. Its moving because its better. Force sell the shittier inventory, that would have moved a year ago, and those figures look worse.

Rhino, I never have been a bull on this board. Don't even attempt to go there. I would like to get past all of the name-calling and hammering home points as though they ought to be taken at face value. Nuanced discussions are more interesting than watching two or three bozos endlessly going at it hammer and tongs over the same silly points.

How am I name calling by saying I think you scenario is too rosy?

It feels good to say that crazy condos will crash and sensible pre-war coops in desirable nabes will be relatively ok...However, I don't subscribe to that view. I feel like the fact it 'feels good' is why it is seductive, and ultimately flawed.

I was not referring to a specific instance of you calling me a name; I was referring to general behavior on the boards.

And, I didn't present a rosy scenario. I presented a decidedly depressing one.

"I would like to get past all of the name-calling and hammering home points as though they ought to be taken at face value. Nuanced discussions are more interesting than watching two or three bozos endlessly going at it hammer and tongs over the same silly points."

Amen, brother. I wholeheartedly agree.

"I feel like the fact it 'feels good' is why it is seductive, and ultimately flawed."

You're disregarding the fact that for some people, a crash-and-burn scenario "feels good." I agree with you on the point that judgment seduced by emotion here is often flawed.

"For people like Trompiloco and I looking for good apartments to live in on a comparatively modest budget, the downturn may wind up being a bit more of a disappointment than I would have expected even a few months ago."

Rosy for sellers. I don't think the downturn will disappoint in this segment. I think you are softening your expectations for a bargain in the face of a little busy season activity that has barely 'eaten' 5% of the giant inventory overhang, only 10 months into a correction...corrections typically last 2.5-3 years or more. Your doubt, and others of the same mind, will slow the decent.

> Semantics aside

Its not semantics. Being in a bubble is the, well, opposite of, well, not being in a bubble. I figure the peak price is pretty much the absolute definition of bubble.

> are you now reversing yourself that the YOY figure is best?

Only if it peaked exactly the year before and thats the definiteion of YoY they're using (because, technically, its wrong use of YoY as well). If not, nope.

I'm going to go through the numbers and get it for sure.

Crash and burn feels good to a renter, no doubt. However, its supported by historical ranges, corrections, etc....As well, its supported by the dismal state of the finance industry. Its also supported by momentum which has been incredibly swift. Its supported by the fact we are coming up on out first post-Lehman slow season. Its supported by the fact most hedge fund have only managed to clear half their 2008 high water market with a 40% rally off the stock market bottom...

Its all academic if there are more people out there with money and confidence than I imagine, more than the number of condos. Its not a bet I'd make.

I'm reporting what I see, Rhino, and trying to make sense of it. In the face of data that is different from my prior expectations, it makes more sense to try and refine my expectations than it does to disregard data that doesn't support them. Bjw, great point - honestly, until a few months ago, I was looking forward to the crash and burn scenario with glee and avarice. It was emotional, which is why I am now trying to reevaluate.

That's fine. What's the data that supports the idea that this segment of apartments you refer to has held up better than certain other segments. If anything, I see that condo owners and developers have held out, so the market there is difficult to ascertain. If anything the data that points to a 30% decline is pointing right at the desirable mid-range stuff you are talking about. And the data says some of it has moved in the last few months, during the busy season, concurrent with a strong stock market rally and media coverage of green shoots.

Stock trading provides an analog. One is bearish and shorts a stock... The minute it moves down one is inclined to cover the short. However, they should actually hold the short because the market is somewhat confirming their bearish view. This to me, seems like what you are doing. On the first move down that pauses, you are tempering your expectations. I don't see the data that supports this, and what data I do see, I don't make the interpretation that it is time to temper downside expectations.

And I don't think your nuances view is any more interesting or informative than mine. I think its a product of the minds tendency to over complicate and over interpret every blip, its tendency to temper expectations so as not to be disappointed in the future.

Just like with the stock market low quality tends to be more volatile. In a down market you lose more than average. In an up market up make more (from a percentage perspective).

The reverse also holds true for high quality. It is less volatile. In a down market you lose less than average. In an up market you make less (from a percentage perspective).

"Being in a bubble is the, well, opposite of, well, not being in a bubble. I figure the peak price is pretty much the absolute definition of bubble."

Well, ok, we should probably have hammered out a more precise definition of what peak means then. I factor in price AND volume, and it's clear that QOQ, in Q2 08, prices were at or just past their highmark, and volumes were already way down. That's why I say it's just past peak (and therefore not bubble, but you could argue that the coming-down part is part of the bubble - semantics, as I said).

"Only if it peaked exactly the year before and thats the definiteion of YoY they're using (because, technically, its wrong use of YoY as well). If not, nope."

What do you mean by "wrong use of YOY"? Are they not really showing prices and volumes relative to 4 quarters ago?

Yes, Topper, but in real estate the junk isn't moving...so its not in the data. Therefore, the declines sited might actually be conservative.

How is that for nuance?

> Well, ok, we should probably have hammered out a more precise definition of what peak means then.

How about, well, top? ;-)
Highest point?

You want to redefine peak?

"What do you mean by "wrong use of YOY"? Are they not really showing prices and volumes relative to 4 quarters ago?"

I'm going to check. I don't really trust these guys with their math. Will be interesting to see the overall graph of these numbers, I'll just pull it raw.

rhino, you can say that people who looked at the rent/buy ratio the way I do are now underwater, but I can say that people who look at it the way you do have been renters for 10 years and are worse off for it.

"I think its a product of the minds tendency to over complicate and over interpret every blip, its tendency to temper expectations so as not to be disappointed in the future."

Rhino, you may have a point there, but to play devil's advocate, I worry about the tendency to over-simplify, to try to create a nice, pat story. That's not always the case. I think the more bullish posters here ran into serious trouble when, during the run-up, they put the burden of proof solely on the more bearish because that's how things were going, but I'm now seeing the same thing with the roles flipped. Past performance, however recent, doesn't guarantee anything, and while I think the bearish case is most convincing right now, that doesn't mean that we shouldn't question it and change it as things move along. Smart analysis requires constant re-evaluation, even in a market as illiquid as real estate, given how many factors there are.

"How about, well, top? ;-)
Highest point?

You want to redefine peak?"

It may sound silly to you, but it sounds like you work solely off price, whereas I'd argue volume is important as well.

Actually the people who have rented since 2003 are break even and improving. In another year, it might look like the people who have been renting for 10 years are break even.

Yes, the people who had money in 1999-2000 and didn't buy are worse off. But my rent/buy math worked in 1999-2000, so I would not have made this argument, then. That is my point, only in the years for which the rent/buy math worked and they sat in a rental did they actually make a mistake. Using your math is when the purchase was not sensible.

Yes, it does sound silly to me. The definition of market bubble is based on price. Not saying volume isn't a factor of price movements (but so is psychology, but its not the indicator), but bubbles are when prices overinflate.

and don't just take my word for it..... investopedia...

"What Does Speculative Bubble Mean?
A spike in asset values within a particular industry, commodity, or asset class. A speculative bubble is usually caused by exaggerated expectations of future growth, price appreciation, or other events that could cause an increase in asset values"

"What Does Bubble Mean?
1. An economic cycle characterized by rapid expansion followed by a contraction.

2. A surge in equity prices, often more than warranted by the fundamentals and usually in a particular sector, followed by a drastic drop in prices as a massive selloff occurs.

3. A theory that security prices rise above their true value and will continue to do so until prices go into freefall and the bubble bursts. "

"What Does Housing Bubble Mean?
A run-up in housing prices fueled by demand, speculation and the belief that recent history is an infallible forecast of the future"

One other thing about the "prime holds value" argument.

Everyone, and I mean everyone, just repeated this urban legend that, fringe areas get hit, but prime doesn't go down, on the basis of prime's performance in the 90s. As a result, a premium gets built in to valuations to support extraordinary prices for prime. All that means is that, when prime actually does lose value, this premium will get reversed out as well.

The conclusion is, because there was dubious conventional wisdom pricing in a premium, prime may have further to fall than nonprime.

"Yes, the people who had money in 1999-2000 and didn't buy are worse off. But my rent/buy math worked in 1999-2000, so I would not have made this argument, then. That is my point, only in the years for which the rent/buy math worked and they sat in a rental did they actually make a mistake. Using your math is when the purchase was not sensible."

Agreed. You don't always get to cherry pick years.

The arguments we're talking about are all for the last few years. This board wasn't around for the years before.

If you bought 2004-2008, it more likely than not was not the right move on a financial basis.

Not sure that you can document that the junk is not moving, Rhino.

There's actually documentation that the highest quality is what is not moving. As I recall, sales of places in the $5M-plus category have plummeted about 80% YOY while demand for studios has held up reasonably well.

Anecdotally, perhaps junky one-bedrooms are not selling nearly as fast as quality one-bedrooms. That would, presumably, simply reflect greater denial among the junky one-bedroom owners that their property would "naturally" decline faster than the overall market.

Rhino - I just did a quick (and somewhat rough) calculation of your example and it seems to me like they basically came out even or maybe a couple of bucks ahead. That doesn't even count the tax deductions they got for 4+ years.

I know, they could have made money on their $148k downpayment and the $150k they put into the apartment...they also could have lost 40% of that when the market tanked.

rhino, the actual price and rent numbers from 2000 are similar to today. They are not exact, but they are relatively close. It is easy in hindsight to say what you would have done, but it sounds like you have always been a renter.

I see your point nyc10022. It's just that something about a major drop in volume despite pricing staying pretty flat (I think median price slightly up and average price slightly down indicates something along those lines) doesn't sit well with me as true "peak." But anyway, please let us know what you come up with as the drop from peak. I'll take a look when I have a bit more time myself.

I can't document Topper, but I can guess. I am also not defining quality by price. I am saying its the nicely renovated 2 bed 2 bath with a view that might be moving in 2009 and falling in as the 'median' whereas the 2 bed 2 bath that fell as the median in 2008 might not actually be as nice.

Nyc10022, my point is that post 2004 were not and continue not to be supportable based on sound financial analysis.

Waverly, this stock market comparison continues to be overplayed. All assets were overvalued in the bubble. The comparison is to renting and sitting in cash. Risk assets need to be judged in their own right. I am not sure what math you did or who you are talking about. If someone sells near their 2004 cost basis, I doubt that their pre-tax monthly payment was lower than rent to begin with, and I doubt their tax deductions offset their broker fee, flip taxes, lawyer on both sides, etc, to the tune of 10-12% of price.

> (I think median price slightly up and average price slightly down indicates something along those
> lines) doesn't sit well with me as true "peak."

I think I understand what you're saying... but thats just the unravelling beneath. Which could be happening for a year beforehand. The factors don't just all show up that day.

But in terms of the bubble itself, yup, peak is peak.

LICC, I am sure you are wrong about the price and rent numbers of 2000. We know this because prices have more than doubled since then. Rents have not, and interest rates do not account for a big enough difference. Additionally, maintenances are up substantially, offsetting some of the increase in rents. I can't help you more on this. If interest rates were 25% higher, but prices were 50% or less of current, I am not sure how you keep making this claim.

I have tried to be more civil with you. You need not take it back to a personal level. I did not live in NY in 2000-2001. When I finished grad school, I did not have the money to buy until prices were not sound in my view (post 2004). I was tempted several times and managed to avoid buying. Before I left for school in 1999, I considered buying. However, I did not have the money to buy anything that nice and was not inclined to be an absentee landlord. I know the math worked in 1999 to clear several hundred bucks a month, assuming a 20% downpayment on a pre-tax basis, on a small one bed or studio. That cannot be likened to the current state of affairs. I continue to be baffled by your denials of this.

"LICC, I am sure you are wrong about the price and rent numbers of 2000. We know this because prices have more than doubled since then. Rents have not, and interest rates do not account for a big enough difference. Additionally, maintenances are up substantially, offsetting some of the increase in rents. I can't help you more on this. If interest rates were 25% higher, but prices were 50% or less of current, I am not sure how you keep making this claim. "

Agreed. Rents did not double.

Rhino - could be and there is some information we don;t know about what they were paying. This was my very rough calculation:

$740k price / $148k down / $150k in renovations

Mortgage of $592k / mortgage payment about $3200/month

Sold for $950k / 5% broker fee of $47,500 + 2% tax/fees of $19,000 / leaves $883,500

$560k left on mortgage + $298k from downpayment and renovations is $858,000

They made $25,500.

certainly not perfect, but that was a quick 2 minute outline. Anywhere it is grossly off?

Oh them? Well I'd say, you need to deduct four years of interest on $300k at some low-risk level, like 2%, swamping out your 25%. Also, their maintenance was like $1500, and arguably they could duplicate that place in a rental for less than $4700/mo.... But yes, not grossly off. It basically illustrates the the fully loaded breakeven on buying is now back to 2004 or so...and prices continue to fall. I am just saying its very interesting to me that by 2011, the renting breakeven might be 10 years...which is amazing in a real estate market that is so unique, tried and true. And again, its a testament to the fact the only way to really protect yourself is to be honest in the rent buy analysis. It should cost less than renting on a PRE tax basis, to roughly compensate you for interest foregone at risk. You figure when they bought it 2004, they were right on the cusp. I am not sure their unit was a $4700 rental. It had no doorman when they bought it. Later they added one and the maintenance went up.

So if we go back to 2000 the rent/buy math worked better. Those people have enjoyed years of monthly 'dividends' that offset downside risk. This is not unrelated, but precisely connected, the the favorable rent/buy math they enjoyed at time of purchase. Ironically, the later buyers who need the tax deductions just to bring them down to rent equivalence, these are exactly the first time buyers who find themselves uncomfortable. People, like banks, are wiser to build in a margin of safety...rather then put their money into apartment to only enjoy the same kind of payment as rent, after tax.

I'm sorry evnyc, but I just cannot believe you're a buyer. You're just sweeter than Jesus, aren't you? You write that a few months ago you were subscribing to the "crash and burn scenario with glee and avarice", and now you have changed your mind. What? Have you repented? Have you discovered that your wish for a decent 2/2 that can be affordable to the middle class (you know, the NYc middle class makes 180K per year) was sinful? I'm sorry but that rhetorical move of implicitly accusing the people who expect the RE prices to come back in line with rents, historic affordability, etc. of being avaricious, taking pleasure in other people's pain, etc. is so mean and realtorish, and so transparent. You call your old self "avaricious", I can just say I'm glad you've now seen the light. I'm sure it was reflected off a Corcoran polished brass logo.

Rhino - good points.

I do think if you are going to look for buying to cost less than renting on a pre-tax basis you will find very few years where that worked for NYC. I think that point has been hashed and re-hashed on SE more than anyone would care to read, so we definitely don't need to go down that road.

I also wonder if there is any significant difference in how apartments are holding up based upon the down payment required. For instance, how are 20% down co-ops faring versus 25% down co-ops versus 30% down co-ops and so on. My initial reaction is that the 20% down buildings are doing better, as long as their financial are okay, since less people have the $ for a downpayment.

Rhino, you wanted "my" data on apartment price declines by size: check urbandigs:
http://www.urbandigs.com/

The price of studio apartments declined 16 percent from a year ago to a median of $405,000, according to Miller Samuel. One-bedrooms dropped 17 percent to $650,000 and two-bedrooms fell 23 percent to $1.27 million. Three-bedroom units fell 37 percent to $2.35 million and four-bedrooms plummeted 47 percent to a median of $3.92 million.

I'm surprised that 1-bedrooms have held up so well. Also posted by 10022 in a separate thread.

Keep in mind I'm not even looking at over-$1 million 2-bedrooms.

"I do think if you are going to look for buying to cost less than renting on a pre-tax basis you will find very few years where that worked for NYC."

Really? I find many. I find it to hold true roughly 1/2 the time. 1992-2002 YES vs. 2003-2008 NO...if forced to guess at the exact cutoff. You are subscribing to a very prevalent myth...as well as a bias toward the most recent data. If we go back further than 1992, I think we'd find it to be true more often than not.

Yes there are apartments on Park having a bitch of a time finding people willing and able to plop 50% or more down and still have mucho money in the bank. However, 10% down condos are also having a terrible time as the banks won't lend on those small downpayments anymore. I bet its a barbell of sorts.

Given the intangible benefits and desirability of owning compared to renting, it makes perfect sense that a buyer would be willing to pay some reasonable premium to own over renting. rhino, this discount that you insist was the historical norm is quite questionable.

Rhino,

I think you've eclipsed Uncle Steve!

We looked at the numbers for 2000. It definitely did not cost less to own than to rent.

If the market troughed in 1992, and peaked in 2008...and midcycle is 2000...and I know I looked at condos that threw off pre-tax cash with 10% down rented at market prices, I don't find it questionable at all. I don't think this premium idea was prevalent until the boom took hold. It was prevalent in 1988 too, and people got killed. I am not sure what is questionable about the idea that real estate investments should sustain themselves on cash flow. What is questionable is the idea that developed in the boom that prices could outpace rents forever and the gap could approach infinity. Sooner or later prices will need to fall more than rents. All we have had so far is a similar fall in both. I don't think you truly understand the role of credit in all of this.

A buyer, yes. All buyers, I don't think so. Which is why markets go through periods of renting being cheaper.

There are benefits to buying, but there are also downsides as well.

With renting comes much more flexibility, greater opportunity for diversification (if you put down $100k on a $1 mil house and your net worth is $300k, you are way overexponsed to RE), 0% change of significant capital loss (the flip side of the potential for significant gain in a bubble), less maintenance (the physical/time part), no worries about subletting if you go to school, take a different job, whatever.

If it becomes significantly cheaper to buy and/or I move to a more boring phase of life, I anticipate buying... but I absolutely value the freedom/flexibility yearly leases bring.

"We looked at the numbers for 2000. It definitely did not cost less to own than to rent."

Really? With the correction in rents recently, there are nearly the same as in 2000. Yet prices are more than double and maintenances are probably 40% higher? Can you appreciate how bizarre your assertion sounds?

"intangibles".... let me pay my dinner at 4seasons with intangibles..... WHAT A F'N Delusional stmt... it's complete RE bullzpoop....

my rentals got doorman, elevators, bathrooms, bedrooms, kitchen... and yeh that thing called a washer and dryer.... yep renters gotz no INTANGIBLES.... LMAO ... no really really LMAO

"We looked at the numbers for 2000. It definitely did not cost less to own than to rent."

I am also surprised. We bought a smallish 3br in a middling location in 2003 (when prices were well up from 2000) and even then it was clearly cheaper to own than rent. Perhaps in part because family size rental inventory is (or at least was before the latest boom in condos geared to family size units) so scarce. I didn't follow the evolution of rent vs. buy in the subsequent years, but prices took off basically right after we bought, so I think that Rhino is fairly close to the mark in making 2004 the dividing line between the better-to-buy and better-to-rent phases. I would have guessed the crossover was 2005, but that is instinct, not analysis. Of course this is of the last cycle. Of course it's one apartmnent at one point in time, etc., etc., so take it all with a grain of salt.

"my rentals got doorman, elevators, bathrooms, bedrooms, kitchen... and yeh that thing called a washer and dryer.... yep renters gotz no INTANGIBLES.... LMAO ... no really really LMAO"

Actually, I like that better on the rental side.... if the dishwasher breaks, they bring you a new one.... free.

Sidelinesitter, I dont think your example need be taken with any grain of salt. The margin of error you eliminate by telling us it was cheaper to own in 2003 is huge toward making the point it was CLEARLY CHEAPER in 2000.

2004 is a guess. Whenever it was, it corresponds to a now recognized (BY MOST SAVE THE MOST STUBBORN) bubble in progress.

I've got to run. Hope that everyone has good holiday!

you, too waverly.

waiting for the damn rain to stop....

"rhino86: Maybe we should build a monte carlo simulution to demonstrate the option value of renting. I've looked at this 1000 ways. I think the best I got is to buy when cap rates > mortgage rates. At least then, even if you are early, your monthly return on downpayment is being positively leveraged. Or alternatively, buy when prices flatten and even rise a few Qs."

rhino's exactly right in the last sentence...there is absolutely no need to speculate about when the bottom occurs or try to 'time' it perfectly...the data will tell you...simply wait til prices stop declining, flatten or rise over a few qtrs...i've offered this same advice on several previous threads and whole heartedly believe it....we do not need to beat each other up over when the market will bottom or that it has bottomed...simply wait and follow the data

in the meantime, BUYING NY REAL ESTATE IS LIKE CATCHING A FALLING KNIFE

At a certain valuation, I wouldn't mind taking the knife... If we bottom too high, I wouldn't mind continuing to rent.

I'll join the chorus. Better to wait and lose a couple of points coming off the bottom than to buy into a depreciating asset. And I see no evidence that prices can "hold up" at current levels in any market segment.

Ultimately a long term perspective is what is necessary. Short term expectations are foolhardy.

From a long term perspective, real estate has been a bad investment since 2002. From a long term perspective, real estate is still correcting from a historical bubble value.

wow - still fighting the good fight LOL

Manhattan RE will be dead for years to come - there is not much hope for any price appreciation.
The only thing which will go up is the carrying cost in form of higher interest rates, higher maintainence, higher RE taxes plus higher City and State taxes.

High unemployment rates has trashed consumer confidence and keeps everybody on alert. The US consumer is bombed out, overleveraged and has just seen all its assets (201K, RE) shot down. Now it is time to save - as we have seen since begin of the year.
Just remember each 1%point increase in the savings rate will reduce GNP growth by 0.7%points.

Any business model which was based on high leverage is dead and needs urgent re-engineering.

A couple quick comments on the smaller/lower end apartments holding up:

1) It seems they are holding up based on "artificial" factors - subsidized mortgage rates and government incentives. Those are, of course, unsustainable in the medium/long run. So unless our esteemed government plans to continue those forever, they will run out, causing prices for those apartments to drop.

2) If the RE bubble and bust proved anything, it's that people with short time horizons should rarely, if ever, buy. There are very few people/families who can live in a 1-2 bedroom long term. As more people figure this simple concept out, more of them will rent, reducing demand for those smaller/lower end apartments.

Just my 2 cents.

agree with both your points newbuyer

Newbuyer, your points are excellent. I think most of the glorification of home ownership applies best to lifetime homes, more appropriate to houses in the suburbs. In the boom time when money was cheap, it was a foregone (bad) conclusion that apartments could be sold for a gain after a 4-5 year holding period. People sold and bought bigger apartments with house money (double pun). For a while the best way to buy a big apartment seemed to be to buy a small one and make money on it. Your points bring up another point... all these underwater 1s and 2s that hoped to upgrade with built it profit no longer have it. This whole thing is eroding. Misconceptions getting broken one by one.

Now that we've exhausted the rearview mirror(Q2), what does the future hold for NYC RE? This boomlet in RE sales the past 8 weeks was almost entirely due to an exceptionally strong bear market rally. That rally is about to roll over. We are on the precipice and it looks like we revisit the March lows. What that does to investor and RE buyer confidence will be devastating. I think we hold the lows but sit there for quite sometime, making for a choppy stock market. This trader is not happy about that as my style of trading works best in markets that are trending.
The employment picture is grim, taxes are rising though collections are down, interest rates remain low but loans still hard to get. Inventory is high, especially when you consider shadow units. Big supply + weak demand equals lower prices. Doesn't get any more basic than that.

If you want to sell, you must lower your price dramatically from 07/08 comps and down to 05/04 comps.

David Rosenberg:

....
As we said above, companies have permanently reduced the size of their operations with the knowledge of how much credit is going to be available to them in the future to survive because the financial sector is going to be operating under more supervision and regulation and leverage ratios, which means the funds available to support a given level of GDP is going to be measurably smaller than what we had become accustomed to during the secular credit expansion, which really began in the mid-1980s, only to turn parabolic during the %u2018ownership society%u2019 era of 2002 to 2007.

What makes this cycle %u201Cdifferent%u201D is that three-quarters of the workers that were fired over the last year were let go on a permanent, not a temporary basis. A record 53% of the unemployed today are workers who were displaced permanently %u2014 not just temporarily because of the vagaries of the traditional business cycle. This means that these jobs are not going to be coming back that quickly, if at all, when the economy does in fact begin to make the transition to the next expansion phase. In turn, this implies that any expansion phase is going to be extremely fragile and susceptible to periodic setbacks. There may well be job growth in the future in health care, infrastructure, energy technology and the like, but we can say with a reasonable amount of certainty that there are a whole lot of jobs in a whole lot sectors where jobs lost this recession are not going to come back. For example, the 580k jobs lost in financial services; the 320k jobs lost in residential construction; the 1.7 million jobs lost in durable goods manufacturing; the 1.1 million jobs lost in the wholesale/retail sector; and the 380k jobs that were lost in the leisure/hospitality industry. That is over four million jobs that were shed this cycle that are not likely to stage a comeback even after the recession is over. To show you how big a number four million is, we didn%u2019t create that many jobs in the prior expansion until it reached its fourth birthday towards the tail end of 2005.
....

"Given the intangible benefits and desirability of owning compared to renting, it makes perfect sense that a buyer would be willing to pay some reasonable premium to own over renting."

Show me ONE source that proves that, LICC. There is none. The long-term correlation between rental prices and purchase prices is 99.99%. They are PERFECT substitutes. Only a fool (nothing personal) would pay more to own than to rent. Owning is far riskier - therefore, it should be CHEAPER.

"rhino, this discount that you insist was the historical norm is quite questionable."

Please. Show us YOUR data LICC. More crapola.

What's even STUPIDER about LICC's claim that buying should cost more is that LICC himself states that buying is a hedge against rent increases, and the comparison is at the time of the purchase. Therefore, as a HEDGE, buying should cost LESS than renting. Why would anyone HEDGE something at a price higher than what he is HEDGING?

Moreover, that is perfectly congruent with buying being less expenses as it's RISKIER.

LICC - you're the last surviving person on this board to make all these ridiculous claims regarding the current state of the property market. Time to hang up your cleats.

Has there been a more important story in the last 25 years than the credit bubble? This is why I can't stop picking at the scab that is LICC & Alpo. To have two grown men, with the financial wherewithal to own homes, deny that anything has been out of the norm in NYC real estate in the last five years. I simply never tire of it. A credit bubble inflated the value of all assets - stocks, bonds, commodities, real estate. However, residential real estate in the epicenter of all this - nah, here things have been pretty status quo. Nothing to see here. Renting vs. owning? Sure that ratio has been pretty normal, despite an epic, historical credit bubble. The graphs Rhino found? Bullshit. All the people telling the stories of apartments they purchased in the 1990s? Lies, all lies.

rhino, stop making up things I have said. Show me where I said the market was never out of the norm at any point over the last 5 years.

steve, your assertion that owning must be cheaper than owning because owning is riskier is ludicrous and supported by nothing you have ever posted here. I said it makes rational sense for renting to be cheaper to owning because of the intangible benefits to owning, which in most personal situations far outweigh the intangible benefits to renting, and because of the hedge against rent increases, which in no way means that rents have to be lower now in order to hedge against FUTURE increases.

correction - steve, your assertions that renting must be cheaper than owning . . .

You have said, the price to rent ratio currently is similar to the 1999-2000 timeframe. Given that rents have fallen a similar amount vs. prices, the price to rent ratio is pretty similar now to what it was at the peak last year. Therefore, you have basically said the current price to rent ratio is the norm. Don't backtrack you piece of shit.

"Don't backtrack you piece of shit."

Do you really need to go there Rhino?

It's obvious that Licc has no idea what he is talking about here. Just let your argument do the damage and not the slurs...

"your assertion that owning must be cheaper than owning"

Did I assert that?

I said that owning must be cheaper than renting, and the reasons are:

1) It's riskier (read about risk theory).
2) It's the only way it's possible to rent to a third party and make money (discussed ad nauseum).
3) It's a hedge against rent increases.

All of those are consistent with that statement.

"I said it makes rational sense for renting to be cheaper to owning because of the intangible benefits to owning"

Absolutely not. Renting has similar intangible benefits - less risk, ease of movement, no down payment, etc.

"which in most personal situations far outweigh the intangible benefits to renting,"

If that were true, then the correlation between purchase prices and rental prices would not be 99.99%.

Sorry.

"and because of the hedge against rent increases, which in no way means that rents have to be lower now in order to hedge against FUTURE increases"

Then exactly when do rents have to be lower if not NOW? You yourself said that the decision was what the ratio was at the time. Are you backtracking?

Flip-flopping?

And - show us where you get your information from.

Come on, Rhino, is that the kind of language they teach in the Ivy League these days? You're much too well educated to slip like that!

As regards price-to-rent ratios I'd just note that I just renewed my lease with a 14% drop in rent. I'm generally seeing prices declining just modestly faster than rents. My experience is that anything I'm interested in buying is still generally in the area of a price-to-rent ratio of 20. Way too high still!

You know rhino is stuck and knows he is wrong when he starts cursing like a low-class fool.

rhino, for your theory to be correct, the downturn in prices in Manhattan would have had to occur even if there were no decline in the economy or the job market. Your theory is that prices became severely high compared to rent, and that prices had to come down relative to rents in order for prices to reflect real estate equilibrium. According to your theory, this would have had to happen even if the economy and job market didn't crash. Isn't it obvious that the bubble in NYC was not a rent ratio bubble but an income bubble? The Wall Street job market was artificially enhanced by bonuses and bank stock prices that were inflated beyond what was supportable by the banks' (employers') assets. Yes, easy credit for homebuyers was also a factor, but much less so in NYC than in other parts of the country. Under your theory, even if the NYC job market didn't change, home prices would have crashed anyway. I don't see you providing anything to support that conclusion.

steve, you caught a typo. Correction: " . . .because of the hedge against rent increases, which in no way means that rents have to be HIGHER now in order to hedge against FUTURE increases"

"which in most personal situations far outweigh the intangible benefits to renting,"

steve's response - If that were true, then the correlation between purchase prices and rental prices would not be 99.99%.

That is totally wrong and inconsistent with economic analysis. A correlation does not require equality of value, just consistency of movement.

"My experience is that anything I'm interested in buying is still generally in the area of a price-to-rent ratio of 20. Way too high still!"

20x is too high. 18x is too high. 16x is highish. All this crap you are saying LICC is silly. The problem with your rant is that credit contraction drove this recession. If there were no credit bubble to deflate, then prices would never have gotten where they did.

"Yes, easy credit for homebuyers was also a factor, but much less so in NYC than in other parts of the country."

Easy credit was clearly a factor in NY, where the sizes of mortgages availability played a huge role in people making $300k buying $1.5mm apartments. It played a huge role in lax appraisals that created an upward spiral. It even played a huge role in the incomes of employees at overleveraged banks. The more you write, the more its clear THAT YOU JUST DON'T GET IT.

"It's obvious that Licc has no idea what he is talking about here." Another one agrees. Can you count them all? Can you count that high?

"Has there been a more important story in the last 25 years than the credit bubble?"

I'd say the rise of radical "third-world" terrorism fed in part by complicit "first-world" consumption. But that's a topic for a different board.

As far as your real estate tutorial Rhino86, you are right on the money. I faced a similar situation as you where my ability to buy coincided with the 2003/2004 break-point. My analysis was rudimentary at the time, yet felt there was something fundamentally off about bidding wars on mediocre properties, removal of mortgage contingency clauses, lenders embracing "0" down mortgages, new development tax abatement baiting, and cheerleading brokers declaring "buy now or be priced out forever".

Worse than the brokers were colleagues who virtually demanded that my earnings potential required a lifestyle in high-end new construction. Temptation was strong in the 2005/2006 period as my earnings proved out the potential and I was getting impatient renting in Brooklyn. By then, however, I had the perspective of tracking the Manhattan property market's double digit y-o-y increases since 2nd-half 2003; noting that the rest of U.S. real estate was beginning its collapse. It smelled like trouble.

I totally agree. The height of my temptation was when rents really accelerated upward in 2006 and 2007. Two bedroom rents just seemed so high in absolute dollar terms, that it seemed too much money to put toward renting. Granted a huge mortgage is a lot of interest... But renting studios and one beds is easier to stomach than renting two or larger. All this said, it remained and remains the right decision to rent. Its going to take some time to re-shape all these effing misconceptions people have about the risks and rewards of ownership.

Agreed. Ownership, based on the "intangibles" argument, works under a +20-year concept; back to your raising a family in the 'burbs idea. From an investment perspective, the cold hard numbers require a vastly different balancing.

conventional ownership wisdom does not work well for condo studios during a credit bubble.

my understanding from an economic lecture on the real estate market yrs ago, was that the data show that in active real estate markets, which NYC is surely one, the owner and rental markets are generally in equilibrium since if one were cheaper, more would choose that option driving the price up relative...its simple economics that smart buyers will detect disequilibrium quickly and that their actions will cause reestablishment of equilibrium....i'm sure there are individual apts or shorter time frames where this isnt exaclty true, but i doubt it is EVER true, broadly speaking and over reasonably long time frames, that its cheaper to either rent or own....the mistake thats usually made is failing considering ALL costs associating with renting and owning (mortgage payment, taxes, common charges, buying and selling costs, finance costs, maintenance/repairs etc.) when doing the comparison

Fair points sirwinston. But I'd wager that the person that made the rent decision in 2007 will come out better than the equivalent person that made the buy decision, even after 30-years.