NYT: Sharp Price Drops in Manhattan Apartments

. . . and that the person that made the buy decision in 1994 will still be better off in 2024 than the equivalent person who made the rent decision.

true angler...bet youre right that on precipice of bubble popping, the rent decision was smarter...

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

OMG. That is close to the stupidest thing you have ever posted in your history here.

Just look it up: "Correlation: A mutual relationship of interdependence between two or more things. Interdependence of variable quantities."

Movement is not necessary for correlation. Look up "static correlation" and get back to me.

There is a direct correlation between weight and height. No movement is required.

Your answers are getting lamer and lamer.

And you STILL haven't posted a single link to support anything you have ever said.

"smart buyers will detect disequilibrium quickly and that their actions will cause reestablishment of equilibrium..."

It doesn't happen that quickly. Such deals were available from 1992 to 2000 or later.

Angler you are picking the right two points...hmmm but 30 years? I think thats too long a statement. Besides, it is unlikely that the 2007 renter will not encounter a good buying opportunity in the next five years, never mind the next 30 years. I would say that in the last 15 years of the next 30 years, the 2007 buyer will likely make up a lot in lower monthly payments...As rents in 15 years are likely to be much higher than 2007 owning carrying costs basis.

Suffice to say, those with brains here agree...when the rent/buy math is appropriately used, your investment, sorry Steve - capitalization of a cost, is sound and you are relatively safe.

Summarized 1992-2002 buyers safe. 2003-2007 buyers in danger. Obviously 1992-1996 buyers are ecstatic. If you don't feel like thinking about opportunity costs and transaction costs....figure pre-tax payment < or = rent and you will likely cover the other two with your annual deductions. Further, if you ever need to move, hopefully you can rent it out and cover your costs.

SirW: The economic theory you report is an account of a market at EQUILIBRIUM, and it's not quite right even an equilibrium. Owners assume a good deal of risk that renters do not (undiversified market risk up and down, and the risk of massive facade repairs at financially awkward moments). Normal market analysis assumes that rational people will not assume risk for free. So at equilibrium, renting should be more expensive than owning, assuming similar quality of property. Just one way in which the rich get richer...

However, NY (and most of the country) have been seriously out of equilibrium for the last decade, more or less. After being more expensive than buying for the 1930s, 1940s, 1950s, 1960s, 1979s, first half of the 1980s and first half of the 1990s, renting became unprecedentedly cheaper than buying.

Current sales prices cannot be justified on any known theory of equilibrium price. Buying on the assumption that you are in an equilibrium market when you obviously are not, is generally a good way to lose money -- you can only win if enough people make the same error that other people conclude, rationally, that the trend is likely to continue for a while, so that the price moves even further from equilibrium. That's a bubble -- what we had in the last decade. Bubbles tend to end, because the price irrationality creates tempting profit opportunities (build, renovate, sell) that tend to increase supply, while demand eventually hits ability-to-pay constraints even if willingness is infinite.

Equilibrium has a kind of gravitational attraction, even if we never orbit around it rather than sitting in it(much as the sun attracts the earth, even though we hope not to crash into it in the relevant future). The story of eternally rising prices created willingness to overpay and the free flow of credit and high bonuses created ability; together they overpowered that gravitational field for a while. Now we are in reverse mode. What is the counteracting force that could make prices rise before we reach -- and fall below -- equilibrium?

Rhino86 - I was using a bit of an artifical circumstance to make a point. To wit, the renter/buyer of equivalent means sticks with their initial decision for 30-years. I grant that the variances will tighten over such a long period.

FinanceGuy, old buddy old pal. Where've you been?

I think when they say equilibrium, they mean pre-tax....in which case the equilibrium employed owner enjoys some tax deductions to offset all those very real costs.

I think 7-yrs makes the most sense for apartments. And I got a feeling my renting since 2001 (not that it was my choice per se in 2001-2002) is going to be at worst a breakeven decision.

good points finance guy, but i'm not sure i fully agree with your point about such a difference in risk...agree with your points about risks owners take on, but renters have signif risks as well, namely the risk that their rents unexpectedly rise by a large magnitude...i am prepared to accept your general point, however, that prices differences can persist for different risk among alternatives....i dont have the data or studies to back up my belief that there are not signif diffs in risk between renting and owning, so i will only state thats what i believe and would be willing to change my view if the evidence supported...as the cost of ownership skyrocketed over the last decade+, rents skyrocketed as well (in market rate apts), so at any given point in time, i still dont believe the rental and owner markets were divergent for long...

LICC, no defense of your defenseless idiotic statement about correlations?

And everything else?

steve, it really is getting boring explaining things to you that a 5th grader could understand. How many basic things can you fail to comprehend?
I had said there were intangible benefits to owning that outweigh the intangible benefits to renting. You then said that if that were the case, they wouldn't be correlated. Which is such a foolish statement that I'm not surprised it came from you. From wikipedia - "A statistical correlation indicates the strength and direction of a linear relationship between two random variables." Notice the word "direction" steve?
Are you that dense that you can't understand that owning can have a greater intangible value than renting, but that the statistical correlation of the direction of ownership costs and rent costs can still be near 100%?
You really do embarrass yourself quite often on these boards, probably because you let your biases and your insecurity complexes cloud your thinking. Examples include your completely mistaken conclusions on the marginal and effective tax rate, opportunity costs, and now this.

LICC, no one agrees with you ex. Alpo. Reread this thread. Reread others.

Typical response from rhino when he knows he lost the substantive argument.

Why don't you start cursing at me again rhino?

LICC, how did I lose? Reread the thread. Count the number of people backing me. Count the number making fun of you. Find any supporting you side of the argument.

LICC, I defy you to find one person supporting your arguments here. Then I will post just a handful of the people (ex. Steve) referring to you as delusional, completely off base, etc.

After that, once you have failed to produce one...You can declare yourself the winner again like a mental patient.

I am waiting. I am waiting for you to show me one person saying 'Hey, LICC is looking at this the right way.' Please explain the quotes below, vis a vis your claim of winning an argument. Your claim of winning is as disturbing as your silly argument that prices are not out of line with rents right now. Here you go, stupidface, from this thread alone ->

sidelinesitter: 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.

josefsz: It's obvious that Licc has no idea what he is talking about here.

Topper: 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!

angler7: As far as your real estate tutorial Rhino86, you are right on the money.

financeguy: However, NY (and most of the country) have been seriously out of equilibrium for the last decade, more or less. After being more expensive than buying for the 1930s, 1940s, 1950s, 1960s, 1979s, first half of the 1980s and first half of the 1990s, renting became unprecedentedly cheaper than buying.

Thanks for repeating your typical response when you know you lost the substantive argument. The day steve agrees with me on real estate is the day I know I am wrong.

It must be tough for you to hold back that foul language.

How have I lost when there are five people above who agree with me and not a one that agrees with you? And I am not even counting Steve in that five.

You have serious denial problems.

Renters and bears are the only ones posting. These people have always had the bear view.

How have you won?

This isn't about bulls and bears. Its about you being a fool ignorant of history.

So many people saying the relationship between prices and rents remains elevated. None but you arguing it is normal. If I were on here, no one agreeing with me, I'd want to do a little research.

Hi, sorry if the question has been asked before. You all spent lots of time arguing rent vs buying, which is a debate that I understand. But tell me, if someone is making very good money, much more than his rent. What is he supposed to do with his savings, if he doesn't use them toward buying his place? Investing in stocks? Putting them in treasury and risk seeing his rent going up by more than the interest rates he earns? Don't you think that someone who has been renting for the last few years might have invested his money in the S$P, and so be worst than someone who bought? Please no insults, it is tiring.

Well first thing to recognize is that rent/buy is rent/buy not rent/buy/S&P. The second thing to recognize is that a credit bubble inflated the values of all assets, real estate, stocks and bonds alike. Using one expensive asset class as a reason to invest in another expensive asset really makes no sense. Obviously in hindsight, treasuries were the best risk-adjusted return for those who saw other things were overvalued. It seems real estate was the easiest to see was overvalued, as rents give a very visible and timely reference point. On the S&P, normalized earnings multiples were way too high. Only now are they 'fair' at 15x normalized Shiller EPS for the S&P.

LICC - "direction" is not movement. Height and weight are correlated. Bigger people weigh more than smaller people. There is no "movement"; just direction. Lots of things have direction without movement. Magnetic particles point north-south, yet stay in the same place.

Wow. Fool.

"you know you lost the substantive argument."

Which one? The one that we're still all waiting for you to post any data about? Such as your ridiculous theory about transaction costs - that they don't matter? Or your self-contradictory posts, where first you say the buy/rent decision is based on the current market, then say you have to include future price and rent increases in the next sentence?

Where you say that it makes sense to pay more money for taking a greater risk (owning more expensive than buying, that is)?

Where you say that it makes sense to pay more to purchase today than to rent today, when purchasing is a hedge against rents?

Where you say that there's no such thing as a ratio that can implicitly include a price input, such as a tax benefit?

Where you say that it doesn't matter that you can't buy an apartment and rent it out to an unrelated third party and even break even, when that is the decision that leads to rental properties being built?

Where you say that owning has more intangible benefits than renting, when it does not?

Where you say that Long Island City was a great place to buy at the top of the market in?

LICC - in the long time I've been visiting this website, I've never seen you win an argument.

Not one.

Maybe you can do us all the favor of pointing out just one argument you've won. Just one. That's it.

We'll even create a new thread called: "The Argument LICC Won" so all of us who know you're an idiot can pay you props.

Beaty, he wins them all - in his mind.

Its amazing that someone would sit here and deny that the cost of ownership has not outpaced the cost of renting by a wide margin. Then based on nothing, that the person would claim victory. We are in the midst of someone who would deny the bubble existed in Manhattan....who would deny easy financing impacted Manhattan to any great extent?

See the NYT LICC? Does this sound like Manhattan to you at all?

Interest rates on jumbo mortgages have typically been higher than rates on conforming loans, in large part because they are considered riskier without a guarantee that Fannie Mae and Freddie Mac will buy them.
But mortgage executives say the spread has been growing, forcing some borrowers to accept riskier adjustable-rate mortgages, or ARMs. Qualifying for jumbo loans has also become more difficult, they say.
“Two years ago these loans could be accommodated very easily, but today the requirements to get those loans are much more stringent,” said David Adamo, the chief executive of Luxury Mortgage in Stamford, Conn.
For borrowers with household incomes between $250,000 and $500,000, however, mortgages are not as easy to get, Mr. Adamo said. “These people are living in places where starter homes might be $1 million,” he said, “and it’s really affecting them.”

According to Monte N. Redman, Astoria Federal’s president, the bank has tightened its jumbo-mortgage lending requirements not just because it is logical to do so in a bad economy, but also because it has so little competition. “We’ve tightened things significantly, because we can,” he said.
To buy a home with a jumbo mortgage of less than $1 million, Astoria’s borrowers must have a down payment of at least 25 percent; and for mortgages above $1 million, borrowers must have 30 percent. Astoria’s jumbo borrowers must also have more cash on hand than a year ago, Mr. Redman said. On loans below $1 million, borrowers need 25 percent of the loan’s amount in reserves, and that figure increases as the loan amount grows.

Who would pay $1,000,000 for an apartment you an rent for $3,500 a month? Without including interest, maintenance, taxes, transaction costs, etc., it would take 24 years worth of rent even to pay the $1 million.

Oh, I forgot! THE TAX BENEFIT!

(Then - yes, the "intangible benefits" of owning! 24 years worth of rent seems pretty tangible to me.)

At the bottom of every major bear market in the last 200 years, stock market P/E ratios have been below 10.

Call me when you see it and THEN I will invest into Manhattan RE.

Not that I am convinced it was the bottom, but 660 was 11x normalized EPS of $60. By keeping interest rates low, they are forcing P/Es up.

NYT Op-Ed 7/5/2009

Unless substantially more relief is forthcoming, Moody%u2019s Economy.com projects that some seven million homes will fall into foreclosure this year and next. Of those, nearly 4.5 million will result in distress sales, prolonging the recession by adding to the downward pull on house prices, home equity and household wealth. And those dire projections may prove too optimistic.

there are no earnings LOL

Ha, I know there are no earnings. I'm assuming you don't expect a single digit multiple on current earnings including all the financials' writedowns. I am assuming a normalized type of figure as a guide to what's cheap or not. Anyhow, I'd rather look at some kind of measure of real estate valuation than use the stock market as a guide.

y that's maybe the better way

Anyhow, currently I believe we are in the midpoint of a 5-6 year bear market for stocks and after we hit something like 1000 in the S&P cash which is conveniently also a 3/8th retracement of the whole down move, we could tank hard into new record lows. By August I will know if wrong/right - hope I am wrong.

Some say that process has already begun. The process to new lows that is. However, some of those say it was nullified when we climbed over 927, albeit briefly. Why do you hope you're wrong? Its about time the baby boomers transferred some wealth back to me (in the form of stock they puke at single digit P/Es). I see the whole situation in light of that greedy generation protecting the value of their assets to the death.

The whole generation is greedy?

People look out for their own survival. That is humanity.

maybe you should transfer some of your wealth to the baby boomers.

maybe you should get your head out of your ass . . .

No one does greed like the Baby Boomers. Its the first generation in American history leaving their children worse off... Real incomes, etc...However you want to slice it. Maybe DogFace is part of that generation, hence the offense.

http://www.businessweek.com/news/2010-01-05/manhattan-apartment-prices-fall-as-finance-jobs-lost-update2-.html

Prices still falling...

By Oshrat Carmiel

Jan. 5 (Bloomberg) -- Manhattan apartment prices fell for a third consecutive quarter as Wall Street job losses drained demand and the decline in co-op and condominium values reached 21 percent since the market peak.

The median price slid 10 percent to $810,000 in the fourth quarter from a year earlier, New York appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate said today. The median price hit $1.03 million at the top of the market in 2008. The number of sales jumped 8.4 percent to 2,473 in the three months ended Dec. 31.

Values continued to fall across apartments of all sizes as New York City recorded 10 percent unemployment in November. Fallout from the recession and credit crisis that cost more than 184,000 finance jobs in the Americas is still hurting New York. The city lost 25,200 finance jobs in the 12 months ending Nov. 30, the state Labor Department said Dec. 17.

“We have some big macro issues ahead of us,” said Jonathan Miller, president of Miller Samuel. “My view is: We’re not done.”

Five Manhattan property reports published today showed price declines for the fourth quarter from a year earlier. The Corcoran Group, a New York-based broker that conducts its survey with the research company PropertyShark.com, said the median apartment price fell 15 percent. Brown Harris Stevens and Halstead Property LLC put the decline at 11 percent and StreetEasy.com said it was 10 percent.

Inventory Drops

The number of apartments for sale dropped 25 percent to 6,851, according to Miller Samuel and Prudential. The 10-year average of quarterly inventory for sale is 7,094 units.

“For most people, interest rates were great and you could buy into the New York City market at a better price than you could have in the last couple of years,” said Dottie Herman, president of Prudential Douglas Elliman.

Miller called the decline in inventory “an anomaly” brought on by a wave of buyer interest built up during the first half of 2009. More than 6,000 apartments in new developments have yet to be listed for sale, he said.

The biggest price reduction in the past three months was for a 43rd-floor, two-bedroom condominium in the Financial District’s William Beaver House, according to StreetEasy. The price was cut to $1.66 million from $3.05 million and the unit sold 10 days later for $1.53 million, according to StreetEasy.

Price Cuts

A smaller proportion of Manhattan apartment sellers discounted their listings in the fourth quarter. About 27 percent of properties for sale carried price cuts, compared with 33 percent a year ago, according to StreetEasy. Condo sellers cut an average of 7.8 percent off their asking prices, while co-op sellers whittled an average of 7 percent from prices in the three months ending Dec. 31.

“If we have not hit a bottom, we have definitely hit a level of resistance here,” said Bill Staniford, chief executive officer of PropertyShark.com. “This is an area where buyers and sellers met and agreed there is value at this level.”

Studio apartments prices fell 11 percent from a year earlier to a median of $375,000, Miller Samuel and Prudential said. One-bedrooms dropped 7.6 percent to $661,000; two- bedrooms fell 23 percent to $1.24 million and three-bedrooms plunged 42 percent to $2.35 million.

Apartments with four or more bedrooms fell 38 percent to a median price of $5.4 million.

Fifth Avenue Apartment

Three of the five most expensive closings of 2009 took place in the fourth quarter, according to StreetEasy. The priciest was a 12th-floor unit at 820 Fifth Ave. bought by Ken Griffin, founder of Citadel Investment Group, for $40 million. He bought the property from philanthropist Lily Safra and closed the deal last month.

Fourth-quarter sales of luxury apartments, defined as the top 10 percent by price, increased 8.3 percent from a year earlier to 247, according to Miller Samuel and Prudential. The median sales price fell 8.5 percent to $3.78 million.

South of 34th Street, sales at the Superior Ink Condominiums and Townhouses helped boost the average price for apartments with at least three-bedrooms by 39 percent to $4.67 million, according to Halstead and Brown Harris, both owned by Terra Holdings LLC.

“A lot of those units were bought some time ago,” reflecting prices at the peak of the market, said Gregory Heym, chief economist for Terra Holdings.

East Side, West Side

On the East Side between 57th and 96th streets, both condo and co-op prices dropped 21 percent from a year ago, with condos selling for an average of $1,094 a square foot and co-ops selling for $806 a square foot, Corcoran said.

The West Side between 57th and 110th streets, the average price per square foot for co-ops fell 11 percent to $849, according to Corcoran and PropertyShark. The price of condos for re-sale increased 2 percent to $1,394 a foot. Prices of new developments in the neighborhood plunged 38 percent to $1,400 a square foot.

New development sales declined all across Manhattan as lenders hesitated to finance purchases in buildings where less than 70 percent of the units were sold, Miller said. Sales at newly constructed buildings accounted for 19 percent of transactions in the fourth quarter, compared with 38 percent a year earlier, Miller said.

“Lenders are very wary of new construction because they’re worried about completion,” he said.

The market reports issued today are compiled from public records and brokers’ proprietary data.

--Editors: Sharon L. Lynch, Andrew Blackman.

To contact the reporter on this story: Oshrat Carmiel in New York at +1-212-617-3317 or ocarmiel1@bloomberg.net.

What about all the celebrations of bottom by recent purchasers? Especially Spinnaker.

If I buy at all, it will not be prior to 2012 - 4 years from the peak we will see the bottom IMO.

I agree that by the third year anniversary of Lehman going tits up, whatever will have happened, will have happened on the downside that is.

But what will the cap rates be, rhino? CAP RATES!

Rhino: I don't agree - this is going to take a lot of time to play out. The U.S. is in a completely situation from even the 30s & 80s.

i absolutely agree with 10023. the memory is kind of dim, but i'm pretty sure i've been saying 2012 for at least the last two to three years. now i'm thinking 2012-13. but it won't be quick, rhino, unless there is a massive disaster that can't be stemmed, and i don't care how big of a bear you are, i hope you don't want that.

How am I saying it will be quick by saying September 2011? How is this different then what your or bs is saying? I do think you, 10023, are making too macro a federal case out of it.

Positivecarry I thought I told you not to address me broker. Put me on your do not call list.

Strangely, it makes me an "owner" - if it's all going to crap-apocalypse anyway, at least I'm going all out and not trying to save my soon to be useless dollars by living in a rental.

between now and late2011/2012 we will have 2010, and 2011...when you talk about the outlying dates what are you expecting in the interim?..what you expect by the end of 2010? :

continuing decline, with something fairly soon nudging the market out of what some seem to call a plateau of sorts?.. slow bleed? .. .little likelihood of a significant price uptick along the way?

Two years of 12-15% declines... 12-15% by the end of 2010. Upside difficult for several reasons. Hiring has been bad, even if it gets better, those incoming classes of '08 and '09 remain small. That keeps pressure on rents. Further, the condo overhang limits upside. Some of those have and will continue to become rentals... Or private equity will buy them and start selling them low. See the Miller consortium news. Also rates can rise much more easily then they can fall...limiting upside. The simplest answer of all is that you don't normalize a bull run from 1992 to 1H 2008 in 16 months. And also, if you consider transaction costs and even a tiny interest rate on your downpayment...its cheaper to rent. Where is the temptation... To me it was much harder not to buy when rents were rising 10%/year. I dont see how that can happen for a while, given those small entering classes and the condo overhang. And also anecdotally I think a lot of marginally financially able to be here families are going to leave the city. People for whom cheap money and zero lending standards allowed them to buy big apartments in the past, or allowed them to think private school was reasonable for their incomes.