Why Are Prices Stalled and not Falling

> then raising your rent 10% next year

Oh, so you'll only be subsiding 50% of my costs, not the 55% you did last year.
Except, whoops, your taxes went up, too.

So more losses for you!

cu guys i am off to my beach house and boat which renters like nyc and jjun bought for me!

"That is assuming that he bought in the last 18 months. If he bought 10 - 15 years ago and is up over 200%, he is way ahead."

Yes, and if I bought dell for 3 cents a share, I'd be great, too. Lets not cherrypick periods decades ago to defend a decision that has ALREADY proven bad.

If you want to cherrypick, pick the right period. Down 20-30% in the period we've been talking about.

NEXT!

"Well said, Parkside. Its kind of sad when you have to remind people we are debating decisions for the present, not the past. "

Well, there are morons who buy stocks that way, too... and lose there as well.
Remember dot com?

Its folks who pointed out previous returns in a bubble period as "evidence" who were the biggest morons of them all.

> cu guys i am off to my beach house and boat which renters like nyc and jjun bought for me!

Perfitz, we prefer to call it by its real name, Alcatraz.

And I don't like spending so much on prisons, but we do have to put scum like you somewhere when you're just a drain on society.

julia, i'm not 10022, but i'll put in my two cents worth. i wouldn't sign a two-year lease right now. sign a one year. there's little to no possibility of rent rising, measurably, so you're not risking much to keep your options open. i think 2011 is probably a good goal, but since you have a fall moving date you might want to ask your landlord to go month to month for the second year of the lease to give you more flexibility.

i haven't seen much in the alcove studio area to report, but i've seen some major movement in straight studios. i've also seen a fair amount of decently priced large real one bedrooms, which are out of your price range so you might not be seeing them but they are coming down in price. oddly, there are some truly decent one bedrooms that are a much better value than the alcove studios. so i'd say keep hope alive.

i think i know what pfitz's issue is. you just don't understand middle school math. see you think you only make or lose money on a cash flow basis. i.e., renter's rent = money lost, landlord rent = money gained. its the math we all did in grade school to see if we have enough of our allowance left over to buy a popsicle.

now the reality with real estate is that there is an asset price. if your the landlord, you own that asset at that price. the cash flows from rent give you an investment yield. you got your a$$ handed to you the last couple of years because you took huge losses on your properties, but your too stubborn to admit it. what losses you say? if you sold in early 08 and repurchased them in a couple of years, you would have far more wealth than you are going to have on your current trajectory.

the fact that you make much more in rent than you pay out in mortgage (as usually is the case if you buy early enough, can refi into an attractive rate, and rents generally increase) is completely irrelevant. you miss the forest for the trees.

your way of thinking is like me buying a bond for $1,000 and a 4% yield. two years later, the bond loses value and is now $700 but every year i still get a $40 coupon. so in your world, you're still breakeven!

"nyc10022...you always have good advice so my question is....should i rent for two more years (in a different apt.) and by then the prices will have come down..."

Julia, I actually agree with AR on this. I'm actually coming near a resign, and I'm going back and forth between 1-2. While I think 2 financially pays off a little better mathematically, I think the "option" is worth something staying to just 1.

I don't think rents will drop SO much more. I think there are good deals to be had if you put in the work. Will it be time to buy in 12 months? I don't think so.... remember '87 took four years to bottom. We just started this decline.

That being said, what the worst case on the other side...? If you sign a 1, do you think rents are going to jump 20%? Of course not. Fact is, even if you have to pay a couple more grand in rent, the flexibility it gives you can save several times that.

In the end, if you pick a 2, you can always break.

But, I think of the 1 as buying an "option" to get out after 1 year. That flexibility is worth something.

" think i know what pfitz's issue is. you just don't understand middle school math. see you think you only make or lose money on a cash flow basis. i.e., renter's rent = money lost, landlord rent = money gained. its the math we all did in grade school to see if we have enough of our allowance left over to buy a popsicle."

Yup. This got pointed out several times over the past year.

The guy literally doesn't know math.

Of course, Petrfitz. Instead of answering my question you resort to your other method - this fantasy world you have created for yourself. But I am surprised that it has become a beach house now. I'm pretty sure you've never mentioned it before. You have mentioned the hot wife who's father happens to be a billionaire, the trusts, the home in Las Vegas, the children's video game empire, the ridiculous private school your child/children will attend, your enormous backyard in Manhattan that you throw lavish parties on, etc. Now a beach house and boat too? Sorry to jump off topic for a moment everyone; he is just a little too much for me sometimes, but too hilarious to put on ignore.

"People have failed to mention the specter of inflation, which currently looms large. Inflation does not bode well for renting, nor for waiting to buy."

There's going to be a lot of sorry people out there in a few years when inflation kicks in. The fed outright said they will do everything they can to put it into high gear.

"Of course, Petrfitz. Instead of answering my question you resort to your other method - this fantasy world you have created for yourself. But I am surprised that it has become a beach house now. I'm pretty sure you've never mentioned it before. You have mentioned the hot wife who's father happens to be a billionaire, the trusts, the home in Las Vegas, the children's video game empire, the ridiculous private school your child/children will attend, your enormous backyard in Manhattan that you throw lavish parties on, etc. Now a beach house and boat too? Sorry to jump off topic for a moment everyone; he is just a little too much for me sometimes, but too hilarious to put on ignore. "

Yes, his stupidity is addictive, like crack. Ironic, given he's on crack.

Yes, it became a beachhouse and a brownstone he bought for $100k. Maybe its the same thing... its the brownstone beachhouse.

If you want to make a speculative bet on inflation, do so. However, do not try to use is as a bull case for real estate. It doesn't work. Interest rates rise with inflation, which offsets (usually more than offsets) the impact of rising rents.

Perfitz smacks of someone who didn't earn their money, who is also not afraid to make shit up to sound tough and cool.

Julia, sign a one-year lease, but rent for two years. Why not make the simple bet that a downcycle takes three years to play out...just as it did in 1989-1992, and in prior downcycles. What are the chances a 15-year upcycle is followed by a one year downcycle? You would be happy as a renter to see inflation and interest rates spike...The idea low rates help buyers is such a widely held misconception.

> "People have failed to mention the specter of inflation, which currently looms large. Inflation does
> not bode well for renting, nor for waiting to buy."
> There's going to be a lot of sorry people out there in a few years when inflation kicks in. The fed
> outright said they will do everything they can to put it into high gear.

Actually, it could.

Stocks will do better. Salaries will go up. Rents can't outpace salary growth.
And with prices still tanking, it could very well be an even better time to buy.

If anything, inflation is going to seriously hurt municipalities.

That does not bode well for owners.

and, uh, that whole interest rate thing going up.

If you think things can't get worse for owners, watch out. Seriously.

Oh, okay I'll be first to admit I was not clear. (sorry been working on something else while blogging here, haven't been reading all the comments.) What I menat by being a landlord these days as opposed to being a renter. I meant to say if you were to buy and be a landlord in this enviornment as to renting, as I would think there would be differnt arguments depending on which period you pick. I'm saying most of the landlords would be subsidizing my rent for the same size apartment snd also have a negative cashlow. Said "most" cause not sure if that's the case for all properties out there, perhaps there are some that you could make positive cashflow (distressed sale?) in the current market? I couldn't find any, when I did my search.

but actually it's good to hear that some are happy as landlords currently as opposed to being a renter. I'm not someone who gets the kick out of others losing. It's good that the math makes sense for y'all despite the rent and prices falling at the same time. I thought it was a really bad time to be a landlord in this circumtances. Envious that you guys bought at the good times... still would have been better if you could have sold in the recent years, took the profit just rented right now. but guess you can't have it all.

Higher rates, rents (relative) and incomes is basically the late 1990s scenario which created a good buying opportunity. Right, real estate prices could not keep pace with incomes and rents from this starting point....where prices were already so far ahead of incomes and rents.

"but actually it's good to hear that some are happy as landlords currently as opposed to being a renter."

Or more likely, not at all happy about it, and trying to go off on the very same "bitter renters" who "give them half their paycheck" while pretending they didn't lose money... as payback.

Lets also not forget... that the flip side of the perfect intelligence of buying in the perfect year, say its 2001 or 96 or whatever... would have also meant ALREADY SELLING. That was 2007, maybe 2008. Already long gone.

If we're talking about "investment", you don't just need to know when to get in, you need to know when to get out...

Timing the market isn't as important when the investment works on cash flows without appreciation. The whole point is that such an investment has not been possible since before 2002. I am assuming a standard 20% mortgage. I don't expect landlords with good cash flow to have liquidated in 2006 or 2008. I just don't expect them to act like investing was smart after 2002.

Agreed.

I was just responding to the stupidity of choosing the example of buying an asset at the perfect time as evidence of the intelligence of an investment made at the worst time...

You don't have to time things perfectly to avoid making massive perfitz-like mistakes. You just have to do a little math.

inflation is definitely an important factor that most people here don't consider. When inflation comes, owners, not renters, will be in the best position.

unless of course the renters have access to cash. i'm eagerly awaiting rising interest rates. this is not normal, and is helping but a few people going forward (and banks), although the resets/HELOCs/credit cards that are based on prime + rather than libor might take a hit.

The_President (Alpine): If you are speaking of already having an asset and not needing to sell if hyperinflation kicks in, then yes, owning would be better. However, when interest rates spike to handle inflation, that will hurt the value of your real estate.

Most importantly, do not hope for hyperinflation. My grandmother lived in Germany after WWI, when it took barrels of money to basic food stuffs. Noone will be in good shape if that happens, owner or renter.

"Most importantly, do not hope for hyperinflation."

Yeah, but I always wanted to be a billioniare. In Zimbabwae, I would be a trillionaire. I would have more money than the Forbes 400 combined.

"Its also very tough and cool when Perfitz pretends to be everyone's landlord."

Perfitz is not everyones' landlord. The government is, regardless of whether you own or rent. My mortgage is owned by Fannie/ Freddie so Obama is my landlord.

Alpo, seriously, do you know you're this dumb?

Don't Count on Manhattan RE as an Inflation Hedge
http://www.urbandigs.com/2009/03/is_inflation_good_for_manhatta.html

A: A new argument floating around out there is that future inflation threats are good news for Manhattan residential real estate - so buy now and protect yourself against the dreaded 'inflation monster'! Umm, no. Not this time around anyway and right now deflation is the battle. These are anything but normal circumstances and unless you were asleep at the wheel, we just witnessed a housing boom of unprecedented proportions fueled by parabolic credit that the system allowed for at the time. Now fed/treasury policy has been to print/borrow their way out of this mess. If your looking for a real estate related inflation hedge, income producing property is a better way to play it because you will generally benefit from rising rents; but you still have market risk there that is linked to the strength of the local economy. I would argue that the type of inflation we see will be the result of fiscal & monetary policies, showing up as an unintended consequence that further stalls future economic growth. I don't see wage inflation threats. Outside of that I would want to know, 'where did we come from' and 'what allowed housing to boom so fast', to figure out if future inflation is good news for property prices.

Q: Where did we come from? Well, from a level a lot lower than where we are today. In 2001-2002, you could buy a doorman condo unit for about $500-$650 per square foot or so; I'm ballparking here so lets keep range wide to account for variable sell side features. Then something happened. BOOM. Money was cheap, lending standards were very loose, banks wanted to pump & dump loans, loan products were designed to allow people to buy more house than they would otherwise afford, more loan products were designed for the buyer whose credit was too weak to get an affordable loan, and appraisals were easy to come by to make the deal work for all parties involved in the transaction. The secondary mortgage market was alive & well and RMBS were traded actively. Banks created loans, packaged them up, sliced and diced them, rated them and resold them to investors as structured credit products. Bank earnings soared and housing began to become a very hot asset class that everybody wanted a piece of. In the beginning housing was still fairly affordable given salaries and price/rent ratios - the asset boom had not yet occurred! But that would change quickly.

That is where we came from. When I look at the market now, I see that housing prices appreciated about 100% or so, more in high end I'm sure, from 2001-2002 levels. Take a look at DEC 2008 S&P / Case-Shiller New York Condominium Values Index, and you can see the runup since 2001:

Ask yourself, did incomes follow suit with a related rise to justify the higher prices? Rents certainly rose, but not to levels that would justify where prices went. The price rise was more a function of a parabolic credit boom and cheap/e-z money.

Paul Fried, chimes in on this past Real deal article titled, "This time, inflation may have different impact":

Paul Fried, a principal at AFC Realty Capital, a national boutique investment bank, said real estate might be a hedge in inflationary environments — as long as it's not the sector that went through the inflationary period.

"Normally, you would think it would be good to hold real estate in an inflationary period, but you're assuming real estate is not the asset that's in the inflationary cycle," he said. "Right now, real estate values are at historical highs as a result of going through an inflationary cycle caused by cheap monetary policy."

Exactly. Moving on to the system in place that allowed the boom to occur.

Q: What allowed housing prices to boom? When I look at the credit/mortgage markets now, I see something very different than what was in place during the boom times. Today, I see:

1) a frozen securitization market - very low bids for toxic MBS, flawed ratings models
2) more expensive money; especially for jumbo loans, weaker credit quality borrowers
3) elimination of exotic loan products that allowed buyers to buy more house than they can afford - now you can only buy what you can afford to buy
4) a significant tightening of lending standards - banks now actually check to see if you can afford the property before committing to the loan
5) appraisals using negative time value - for markets deemed to be declining, appraisals are negatively adjusted for time. No more e-z appraisals to make the deal work.
6) banks cutback on lending / hoarding cash for own balance sheet repair and corporate survival

The combination of where we came from and what has changed that allowed the boom to take place, must be taken into account when looking into the future. In short, prices are still high and the system of credit that was in place during the boom, has deconstructed itself.

For now deflation is the enemy the treasury/fed are fighting. But many look at recent policy, bailouts, and fiscal stimulus as ultra-inflationary and something to be on guard against if it comes early. Me? I think it's a ways out and any inflation we see in the early phases will be confined to food, energy, health care, metals, etc..That first inflation wave will be painful, an unintended consequence, because it will hurt consumers at a time when they are already hurting from years of deflationary beat downs.

But lets assume inflation comes, what will happen? Well, for one, rates will rise! Given the artificial lowering of rates by our fed through rate cuts, lending facilities, and quantitative easing, the snap-up of rates may be quite fierce - unless of course you think that the fed can keep low rates forever and ever, without any consequences at all. I wonder about things like, how will housing perform if mortgage rates are 200-300 basis points higher? I think early signs of inflation will move the markets that make money more expensive, and that means inflation as an unintended consequence of policy, will act to depress real estate a bit further as the latter stage of the housing cycle plays out. I want to buy towards the end of that phase, not in anticipation of it for a hedge.

For most people, buying a house means taking on a mortgage; DEBT! If debt is more expensive, well then, the borrower can afford less house. How will confidence in housing as an asset class be viewed if/when inflation does appear? Will people be so sick of housing that the asset class is simply, unsexy? Will people be afraid of taking on debt? These are the questions that remain unanswered right now.

Inflation as an argument to buy real estate, to protect your precious dollars? I don't buy it at all right now or in the near future, given what type of inflation I see down the road, where we came from and the changes that have occurred that allowed the housing boom to occur in the first place. Buy a home because you can afford to do so, need a place to live, and you are happy with the products and the value out there right now; not because someone tells you it is a hedge against inflation!

Noah is not the last word when it comes to RE being an inflation hedge. Mish disagrees and has written that RE is indeed an inflation hedge:

"However, let's assume for a moment that hyperinflation is going to happen. Where then could one get the most bangs for their buck to take advantage? The answer to that question is in real estate, where one can buy on 5% down. Nowhere else can one easily get such leverage.

****Note that there has never been hyperinflation in history where real property declined in value.**** Therefore, if Schiff really believes in hyperinflation, he ought to be suggesting that his clients buy houses."

http://globaleconomicanalysis.blogspot.com/2009/01/peter-schiff-was-wrong.html

> Noah is not the last word when it comes to RE being an inflation hedge

Yes, alpo the New Jersey bubble buyer is!

> The answer to that question is in real estate, where one can buy on 5% down

mmm, mmm, mm, sounds like a great idea. Lets put 5% down on real estate!

Oh wait, did that f*ck half of america just last year?

ha, i love it! You always get the best RE advice from alpo!

The_President: Note that while Mish agrees that real estate is a hedge against hyperinflation, he says directly below your quote...

"Schiff thinks housing prices will continue to crash. So do I. And if they do, you can kiss hyperinflation theories goodbye."

So Mish believes housing prices will continue to crash. Interesting. Granted, the article is from January, but of course this could never apply to "prime" Manhattan real estate.

buy now or be priced out forever!

Too much gone on in this threat to make individual omments so i'll just add a few points:

1) Prices ARE falling. They may not be falling as quickly as potential buyer WANT them to, but they are falling. In general, prices are "sticky downwards", so that's no surprise
2) In many cases, sellers CAN'T lower their prices (because of the debt they are carrying) so even though they have them on the market, they can't just go price chopping even if the market indicates they should.
3)As someone said before, prices move slowly: even if prices do end up down 50%, it's not as if you are going to wake up one morning and they are going to be under the Christmas tree.

Agree with 30yrs.

Let me add another perspective.

As of June, 2009 NYC had lost 117,000.

According to New York City OMB the projected total job loss through 2010 will be 250,000.

That suggests to me a continuing slow-motion train wreck in NYC residential real estate.

Let me add yet another perspective.

The NYC commercial real estate market has pretty much ground to a halt.

The few major transactions that have taken place in A office buildings have been in the area of $300 to $400 per square foot - more than a 50% tumble from earlier record levels.

One more vote for patience, dear Julia!

THANK YOU to everyone posting on this thread who are successfully bringing it back, or attempting to bring it back, to rational discussion and debate.

Can some of the industry experts weigh in on peak price, when it was achieved in prime neighborhoods and where 1 bedrooms today should trading relative to peak?

How do you mean "should"?

Ok numbnuts, 50% below peak, got it. Your input is invaluable, if not nauseatingly predictable.

Funny because many have complimented my input. Seriously though, what are you asking? Are you asking what the market is right now? My buddy sold a one bed right on top of his 2004 cost basis off CPW.

Julia asked why sale prices don't seem to be falling in her target market segment so it might be worthwhile exploring market stats and seeing where her 1br should be trading today. In other words are prime 1br sellers more sticky on their discounts or are her expectations unrealistic?

I think one beds and studios laggged a bit in the final stages of the bull market. It also may be an issue where sellers are sitting unless they can get enough to make possible the financing of an upgrade. It seems to me like they are falling. You had that NYT article about the return of $200k studios. My buddy originally was advised to ask like $575k at peak, took it off the market, put it back on more recently and ended up taking something like $440k. I think he paid $425k or something in 2004.

"Funny because many have complimented my input."

Many? LOL
All you do is fight and call name on these boards. What the hell value your inputs?

Many examples.

> Am I wrong...rentals are falling fast but sellers don't seem to be moving down that much.

I think Julia is correct. I did a search for doorman/elevator alcove studios w/laundry in the building on ues- (exluding yorkville, carnegie hill and lenox hill). There are exactly TWO apartments available for sale. Hardly crushing inventory. Can this be right? or is streeteasy not capturing all of the inventory? There was significantly more inventory (but still not high) when I did not select "laundry in building" under amenities- but don't most elevator doorman buildings have laundry facilities in the building?

hotproperty, excluding yorkville, carnegie hill and lenox hill? that's a whole chunk of the UES. plus, many buildings don't put laundry in the description. for larger buildings you can assume laundry is available. same with elevator.

julia, when i update your studio thread it doesn't show up, take a look at this one. it is first floor, and the bedroom is small, but it has a separate bedroom and total costs before tax benefit are slightly over $2000. it sold for quite a bit less in 2004, but looks like they did a significant renovation. looks lovely. honesty forces me to admit that it is listed by my broker, but didn't notice until after looking at unit. and although it is in yorkville, it's not all the way over at the river.

http://www.streeteasy.com/nyc/sale/440424-coop-220-east-82nd-street-yorkville-new-york

That is a great little place...and 82nd between 2nd and 3rd is a nice block...And pre-tax costs lower than rent (figure they could get $2200-2300 if it were a rental) is solid.

All that said, the other apartment on the first floor sold for less then they are asking...In Q1 2008. The starting offer should be near the 2004 purchase price, and then let them tell you what they did and what they paid for renovations and pay something less than 100% of their costs.

"julia, when i update your studio thread it doesn't show up, take a look at this one. it is first floor, and the bedroom is small, but it has a separate bedroom and total costs before tax benefit are slightly over $2000. it sold for quite a bit less in 2004, but looks like they did a significant renovation. looks lovely. honesty forces me to admit that it is listed by my broker, but didn't notice until after looking at unit. and although it is in yorkville, it's not all the way over at the river.

http://www.streeteasy.com/nyc/sale/440424-coop-220-east-82nd-street-yorkville-new-york"

This place is so small, i can sit in the middle of the living room and touch all 4 walls. You want someone to fork over 370K for that tiny little thing? The subway is a good 5 street block and 2 ave. away. I hope this is not a walk-up too. Live a little....
Come over to LIC, for 100K more you can get yourself a 1bedroom (800 psf).

so...your wing span is 18 feet?

and...wrong on the subway too...86-82 looks like 4 blocks, not five...hey you were only 20% off.

Come on, 30% more space for 30% more money in Long Island City instead of a solid block like 82nd & 3rd...is a no brainer?!?

rhino, i agree, still not perfect (to me small units are still horribly overpriced). but as an initial ask with a very nice renovation, actually one of the nicest i've seen for a small one bed, it's an interesting option.

I agree. I wouldn't buy now, but this is a good looking listing. I'd offer there cost basis + something small and have them substantiate every dollar they put into it and go from there.

West34 brought up a good perspective in his/her posting a couple of days ago. Prices relative to income in the New York area. Way out of line with history.

I'll repeat for convenience.

West34
2 days ago

Harvard Housing Affordability Study: New York-Northern New Jersey-Long Island, NY-NJ-PA MSA, Median House Price/Median Household Income Ratio

1980 3.1
1981 3.1
1982 3.0
1983 3.2
1984 3.4
1985 3.7
1986 4.4
1987 5.0
1988 4.9
1989 4.4
1990 4.2
1991 4.0
1992 4.2
1993 4.1
1994 4.0
1995 3.8
1996 3.7
1997 3.7
1998 3.8
1999 3.9
2000 4.2
2001 4.6
2002 5.2
2003 5.6
2004 6.4
2005 6.8
2006 7.1

now, for the math challenged: from 7.5 to 4.0 = -47% (did we actually exceed 8 in Manhattan in 2007?)

This is one of the prime reasons that Deutsche Bank considers the New York market to have the worst price outlook of any city in the country. They have a model that calls for New York, NY prices (not metro area) to decline by 40.6% (Q1 09 to trough) compared with an average 14.0% average decline for other U.S. cities (Q1 09 to trough). The main reason for this is "affordability" which was the point of west34's posting.

I return to this thread to read the terrible irony of having been laughed at for having friends who are strongly considering purchases of these 1brs. Yes, their jobs are stable, yes, they are buying them. Just reporting what I see.

booya: i think the comments were not personal but general. The more 'seasoned' bloggers on this site are commenting on something that happens in every generation in real estate transactions. You friends may have stable jobs - for now-- and may be attracted to prices that have recently come down but they lack historical perspective and may not realize that job situations can change and if you have overpaid for an apt, the spiral downward can be dizzying. (see rushmore, harrison threads)

The seasoned bloggies know that youth is attracted to what is hot now. Investors look to what will be profitable in the future. Take the Caledonia eg. Young buyers have flocked there because the Hi Line is hot, the Meat Packing District is sizzling, But the prices at The Caledonia are high and many layouts are broken up and not conducive to efficient living in the next stages of young lives (kids, etc). The high design, while cool and appealing now, in 10 years might appear dark and dingy and very expensive to change.

Plus if you have historical perspective, you know that as the economy continues to turn down, the citizens who will bear much of the burden are living in the public complex next door. There could be strained neighborly relations as resentments build. As things get worse for the people in public housing, all the residents in Caledonia will be equated with AIG workers in 3 million dollar apts. It might develop into an unpleasant and very long walk to public transportation. And, when the newly minted young move on to the next hot neighborhood, it is going to be mighty difficult to sell at a profit. Young professionals have propped up the prices in that building and the results will be akin to eating your own young.

So some people think they have seen it all before. Take heart that at least you are not a cynical, jaded, old curmudgeon.............yet.

apt23...very insightful but does your analysis equate to lower prices or just heartache in 10 years..what does it mean for now..

I recall the stock market peaking in March, 2000.

Thereafter, as the market "began" to correct the cry was, "buy the dip, buy the dip."

Volume actually picked up.

But the market didn't bottom until late 2002 at MUCH lower levels.

Caveat emptor.

This is simpler, because the real estate market doesnt have short covering rallies or usually even false starts. The hedge against rising prices here is that if the economy recovers, the fed will get less accommodative and interest rates will rise offsetting some of the improvement that would have otherwise been seen.

You can't buy a small apartment here unless you are resigned to grow old in it....and even then unless you are saving much money per month vs. renting.

Julia: I think there are many overpriced buildings in that area - including boutique buildings. Right now it might be dazzling to walk out the door to the Meat Packing district for a cocktail or champagne brunch but I think it will amount to a very expensive hangover.

Who knows if the re market will go down from here. I think it will, but what is for dang sure is that it is not going up anytime soon. (Specter of Commercial RE debacle) That public housing next to Caledonia will not be improved for many years. And it is a long walk to the subway -- especially in your Jimmy Choo's.

And you have to factor in the unknown. Take for example if a judge rules that Rushmore buyers can opt out of their contracts. Even if it is a slim chance, if you have had any dealings with the courts, you know that slim chances can come true. If so, everyone but naive Trust Fund Babies will pull out of their Rushmore contracts because they are already at least 20 % underwater. I am not a re professional but I am willing to bet that most of them would say (maybe just in private),that if that happens, real estate prices for new construction will adjust across the city -- except for the exceptional like 15 CPW (or maybe even the high, high end too). Professionals on this site: Could you please speculate re: the repercussions on the re market if a judge rules in favor of the rushmore buyers?

So, as for now, I would not be buying overpriced new construction unless you are Russian, have ties to the oil market and are related to Putin.

apt thanks for the feedback, I don't think it was so much personal as a phenomenon of people willfully ignoring what is going on: that right or wrong, new buyers ARE buying now, for a variety of reasons.

I think it's interesting to note that you chose new construction as examples of smaller units that are being bought - which are really not the ones actually being purchased, and I think that's the point. The buyers I know are looking beyond the shiny new construction in marginal areas (and yes, I will call way the middle of nowhere "Chelsea" as marginal), and are buying, at lower prices, prewars in co-op/cond-op buildings in areas that nobody can really turn their nose up at, eg 60s&70s west of Lex on the UES, 70s&80s on the UWS east of b'way.

With respect to job security, the majority of my friends who are looking now are couples who have two medium income earners, eg: a medical resident and a NYC teacher. Others are just rich but prudent, work a job like inv. banking, and want a place to live but also to keep as a modest pied-a-terre for later on. I guess what I mean is that these people (myself included, recently), are taking the long view - the crazy long view, and picking up something that seems reasonably priced relative to world real estate. My boyfriend's parents buy anything they see in Hong Kong in a prime area that is within their target price range, and just sit on it, sometimes renting it out, sometimes hanging onto them for just a little while before selling. It seems to be working, and they have amassed a mini-empire for him and his sister to inherit. This never happens, however, if you spend your life on the sidelines. I'm not saying this is exactly the right time to buy for everyone, but for some, they can justify buying now.

I am curious if any of your smartest buying friends have come up with a good argument for why now is attractive other than in reference to a peak that was related to a credit bubble - now exposed as the biggest and frothiest in history? Are you saying because NY is cheap to Hong Kong and other world cities? The only time buying and sitting and renting works is if you pay cash and/or don't need the rental income to cover your carrying costs. Buying real estate will work out just as well as it did in 1985...lower ten years later.

In other words, if your friends parents bought at the rates of return now prevelant in Manhattan and amassed a fortune, its only because they had a fortune to put down to begin with. You don't amass fortunes buying real estate at a 3-4% cap rate against a 6% mortgage. Or you build a fortune like one built in stocks bought the way up in the tech boom...the kind that evaporates unless you flip.

"I recall the stock market peaking in March, 2000.

Thereafter, as the market "began" to correct the cry was, "buy the dip, buy the dip."

Volume actually picked up.

But the market didn't bottom until late 2002 at MUCH lower levels.

Caveat emptor."

I'm sure there were a host of putzes who said "buy RE now" in '87, too.

Then it took - WHOOPS - four years for Manhattan RE to stop falling.

When the market traded at 32x eps down from 40x it was cheap, but only compared to territory forged during that bubble. The same is with the real estate trading at 18-20x rent right now in NYC.

"The same is with the real estate trading at 18-20x rent right now in NYC."

Are you implying that Rent needs to come up?

Rhino,

Because they can't really rent the equivalent units for less. You conceded the 1br that AR posted (granted, that one is east of Lex) was selling for less than its current equivalent rent, which no matter how you slice it, is still around $2200. Furthermore, we all hate moving and in order to get the best rent deals for 1brs, you have to be willing to move every year or so, which is too much hassle to justify. I bought an apartment in Soho for monthly carrying costs considerably LOWER than what it would have cost me to rent an elevator building apartment in Soho. It doesn't hurt that I may not need the money, though.

With respect to the fortune, amassing it is they key. buying and selling, trading up, buying the biggest apartment that you think you might ever need isn't the point. I may not have bought the apartment that we'll live in forever, but we'll be here for at least 7 or so years, and keeping it much much longer than that

The market prices aren't falling because people are buying and getting great deals. If they weren't able to buy properties at prices they felt were affordable the prices would be dropping. Not to say Manhattan is immune to the rest the world's financial problems, but people have money and are taking advantage of the lower prices.

http://www.luxurycondosnow.com

Its not clear to me how people say prices aren't dropping. Do prices need to drop daily and appreciably in order to say that they are dropping? Prices have been falling since September and have yet to uptick...so they are indeed, dropping.

Prices seemed to have stalled about April/May time frame.

Why does it seem like now all the stories are how people who really "get it" make money in real estate. Ten years ago, all the people who really "got it" invested in the stock market with every spare dime they had. Enough time hasn't past and pain occured for this to be the right timing in Manhattan real estate. The time is when people say its no longer smart to own an apartment in Manhattan. And it doesn't pass you by quickly. Buying an apartment in Manhattan was pretty solid from 1992 all the way through 2000.

Its end July...how do we know what deals closed at in June yet? Its such incredible bullshit that a two month pause, which even that is unsubstantiated, is a bottom.

Do these price to income ratios really work in NYC?

Raise your hand if you know at least a handful of people who either (a) have family money, (b) get some sort of income stream from off shore vehicles, (c) earn income in another region or country (but have a NYC home), etc. Regarding (a), I can count at least a dozen.....and we are not from wealthy circles. Granted, my child goes to a Manhattan pre-school, and we are the "average folks".

What qualifies as family money? The bottom line is until 2004, all these price to income ratios and price to rent ratios did work in Manhattan. Living in Manhattan or moving out to the burbs was a viable choice for a much larger swath of people. Now, you need to make a half million bucks. Its going to change back. Watch.

People don't move from other parts of the country to move out to the burbs - they do it to live in Manhattan, maybe Brooklyn. We're also not talking about the same units, broadly speaking. It doesn't hurt as many people as you think it might to cough up $100k or so for a down payment & closing costs for a small unit and people are doing it. That may not translate into higher prices (or slower price declines) for larger units, like 3brs, but my impression was that wasn't what we were talking about.

"Buying an apartment in Manhattan was pretty solid from 1992 all the way through 2000. "

So you sat on the sideline from 2000 to 2007? I would be upset too if i were you.

And you claim to be an expert in this field? Yikes!

I didn't have the money until around 2005-2006. When I say solid, I mean supported by math. I claim to be an expert in financial math. By solid, I also mean that even on the low side of where this market can go, investments made up to 2000 can prove to be a good return. Those made after 2004 will likely show a poor return, just like new dollars put into the market after 1996.

Family money? Trust income, daddy who pays for $800K starter apartment, or gifts enough cash for coop board approval and hefty down payment. People whose vacations are always paid for by family, etc. They gift money around enough to not trigger gobbs of taxes. Teachers, artists, writers, and social workers able to afford million dollar apartments due to "family money."

I don't know where prices are going. Just reporting what I see in real life on the UWS.

Fair enough. I know some like that. I think there aren't as many new ones as would be necessary to absorb these condos in the absense of many thousands of high earning mid-level finance professionals.

I can agree with that. Not sure what is to become of these new condos. That being said, I'm a prewar gal.

I have been looking for 1bdrms the past 2 years and I haven't found any UWS condos where I can break even buying (20% down) vs renting. There are now some coops which may meet the criteria but not condos. For condos to work cash flow wise I have to put down a lot more than 20%. That is the metric I use to decide if I should buy. By my count it has still a ways to go.

Let's not forget recent memory as a factor in the 'buy now or be priced out forever' emotional responce. I am the classic example. Economic factors kept me from buying during the run up in the later 90's. As the market began to correct in late 1999 it was easy to see that RE(Manhattan) was over priced. The correction began and was augmented briefly by 9/11. The RE market sure looked like it had more correction in it. The behavior of the Fed and lending insitutions conspired to trunkate that correction. If you where trying to time the bottom (and you were me) you missed the boat. If I thought prices were too high in 1998 imagine what I was thinking in 2006-2008.
So here we are again. There is an inclination to act so that we don't miss the boat again. History doesn't repeat itself but, it rhymes. This time the factors are different and most of the bears agree that we are at the begining of a RE winter. I am inclined to agree but, it's easy to understand why so many sideline sitters got off the bench and pulled the trigger. It does not mean that prices will now begin to climb, or that prices will drop precipitiously. If it's up to me to guess...it's going to be a slow grind downward...for evey reason stated above in this thread.

What made it look expensive to you in 1999? It seems like in 1999 if you could come up with a downpayment you could save money vs. renting on a pre-tax basis, and with deductions a lot more. All this said, without 9/11 and the Fed's reaction, price may well have plateaued there.

Booya: I can't fault your reasoning on one score because I am also looking for pre war condos and coops at reasonable prices for the long term. However, you should not dismiss what is happening in these new constructions, even-- and especially--in marginal areas because they are driving the city wide market comps and affecting your margin of profit on the co op you are seeking. I am fascinated with the Caledonia. among others , because the prices are so damn high for so little -- and though sales seem to have suffered along with the rest of the market, my God, I can't believe they have the sales record they have. I would have thought they rigged the numbers but I have been on that roof and talked to those buyers.

I know you say that your friends can easily afford the 100 K down payment and you think that is helping drive what must surely be an upward trend. I think you might be right--temporarily-- because many young, new owners should be thinking of buying because of the govt. tax discount for newbies. And, I truly believe that if your in-breath consists of NYC air, you should be building up equity here. I may not have a mini empire but I have been blessed to do quite well in the NYC re market over the years. But in your research, your knowledge of numbers is important but it is far better to know the right questions. The right question is not whether your friends can afford the 100 K downpayment,. It is whether they can afford to lose 300-400 K on their purchase. One question will affect the market much more than the other. The question is not whether you can find the perfect apartment, the question is whether you can walk away from perfect apartment. If not, you may well over pay and doom the future of your mini empire.

If you are going to build your mini empire you must know everything about the local re market. The world re market is interesting but best left for the extremely fat cats on a day to day basis. But it is good to draw historical if not direct comparisons. Ask your friend's parents to give you a primer on the Hong Kong bubble. Pretty fascinating.

Also, a bit of a tip from a person who's actually a banker: we're trained to realize what a bad deal is. Back when the economy was fantastic, a lot of my friends bought massive apartments thinking they would be able to float them and were aware of the fact that they were bad deals - in essence, they transgressed their own training and bought with emotion. Right now, the reason why prices will keep declining is because there's little or no liquidity from banks as the major lenders attempt to shore up their loose ends as certain sections such as derivatives and S&L keep dragging down the profit margins of the entire corporation. Until the banks aren't afraid to loan - which won't happen anytime soon given the rumblings of Speaker and the President - the entire market is going to keep continuing on a downwards spiral. Value has finally found its place in real estate, and until prices are realistic banks won't offer anyone a loan even if you could pay for the apartment in cash ten or even twenty times over.

If you don't believe me, look at jumbo loans themselves as a whole. A jumbo loan used to be defined as a percentage, i.e. 50% of the purchase price of a loan. However, a jumbo loan is now defined as purchasing anything over approximately 500k although this of course depends on the institution. Try and call up your local bank and ask them to consider making you a loan on real estate and even if you had ten or twenty million liquid on a 5m dollar apartment you'd be hardpressed for them to give you the loan short of purchasing for under 1k a square foot.

Who are you kidding? Bankers run numbers, they aren't trained to make decisions of their own. CEOs and CFOs give you assumptions, and you run number to justify whatever price they want to justify.

Hey, if you don't believe me call up a bank and please use the parameters I set out above. I guarantee you you'll find very few offers, and if you they'll be at breakneck rates.

Bankers do ultimately have to make multiple decisions of their own, mainly because no one up above wants to take the blame for a bad call. You're simplifying the entire industry. Additionally, even if that was true it couldn't be done anymore given the current economic climate.

I can testify for youngbuck's premise. i bought in miami last year and had 3X the price liquid. Bank required 30% down (fine). But they tried to pull the loan commitment three days before the close. They also challenged the comps of their own appraiser and my mortgage broker had to supply more comps, written assessments -- endless paper. It was the longest most complicated close I have gone through. Of course, the banks have to be more nervous about the Miami market but I can't believe this won't be the new norm in NYC -- if not now, soon.

I am looking in NYC for $800 psf because that is the number I think I can get a bank to accept. Rhino, the execs might give assumptions but in my case in Miami, the assumptions were changing on a regular basis. The banks justification for pulling the loan was their change in policy on condo/hotels. Fine, but they committed to my loan before they issued that change in policy.

Sorry youngbuck I thought you were a young investment banker. What is special about $800/ft in NYC? I think we should be much lower... I start with 1998-1999 prices and adjust for mortgage rates...come to something closer to $500/ft.

Rhino: Having closely followed the follies in the Miami market, I would never say that prices in NYC couldn't fall back to $500 psf. However, I don't have that kind of timeline. I want to take advantage of conforming loan rates and I have to leave my rental within six months. I might indeed rent again. But if I can crack $800 psf and given my 5 yr timeline (with plan to hold it at least 10 yrs if mkt conditions demand a delay in a sale) then with tax advantages, it would make sense for me to buy over rent. Still, this is the first time in my long history in NYC where my plan only counts on the eventual sale of my purchase to equal breakeven plus inflation. Of course if mortgage interest tax law changes, my plan is screwed. Likewise if we have hyperinflation, which I don't think will happen in the next few years.

I think prices will continue to fall this next six months precisely because of youngbuck's premise. I think banks will continue to be tough on applicants. When we read on the front page of the NY Times Real Estate section that resales in new construction are suffering significant losses then I will have a wide selection of $800 psf in high end pre war across the city. It is already happening. I just need it to happen in the papers for the sellers to wake up. When the buyers at Avonovo and Harrison and Rushmore and, and, and . ...... cannot sell without huge losses and can't rent to cover their costs, prices will come down citywide. Of course so will rents. So who knows? At that point I might rent. And if it doesn't happen in the next six months, I might rent for another year. It is a moving target and my Excell is on overdrive.

"But if I can crack $800 psf and given my 5 yr timeline (with plan to hold it at least 10 yrs if mkt conditions demand a delay in a sale) then with tax advantages, it would make sense for me to buy over rent."

I am curious how these numbers work. If you run the assumptions as if this is only one year into the correction begun in 1989, if you assume two more years of 15% declines, I am not sure how you do ok. Buying when interest rates are low only serves to have you paying a higher price.

Great insight from Youngbuck.

For all of us sideline sitters.... patience will pay off here in Manhattan, I truly believe.

apt23

"When the buyers at Avonovo and Harrison and Rushmore and, and, and . ...... cannot sell without huge losses and can't rent to cover their costs, prices will come down citywide. Of course so will rents. So who knows? At that point I might rent. And if it doesn't happen in the next six months, I might rent for another year. It is a moving target"

Pretty good summary of where the rental and sale markets intersect and how supply and demand fundamentals continue to favor renting / lower sale prices. There have been entire threads on the state of the market where all the posts collectively didn't make as much sense as these few sentences.

Rhino: My projections are not quite as bearish as yours. Plus I have to take into consideration tax issues and quality of life issues. I am making contingency plans to be able to stay extra years if I buy an apartment in the hopes of riding out more downturns. And I am downsizing. Again, though in the past I always bought in NYC as an investment -- even though we always lived in the apartments I flipped--this time my expectations are far more sober. I am hoping for breakeven plus reasonable inflation. If I can make a profit, I will be surprised and happy but I am not counting on it in our financial plans.

Sidelinesitter: Glad you agree. And it is happening. Look at this haircut at the Avonova in one year. I can't find the final price but the rumor is that is was about $1.3. If true, that is a $450,000 drop in one year, roughly 25%. Buyer considered renting first but gave up. When a little sales volume in these buildings grows, prices will deteriorate further.

STREETEASY HISTORY
01/10/2008
Previously Listed in StreetEasy by Avonova Sales Office at $1,750,000.
06/26/2008
Previous Sale recorded for $1,750,000.
07/24/2008
Avonova Sales Office Listing sold.
02/19/2009
Listed in StreetEasy by Halstead Property at $1,575,000.
03/09/2009
Price decreased by 3% to $1,535,000.
04/14/2009
Price decreased by 2% to $1,499,000.
06/03/2009
Price decreased by 7% to $1,399,000.
07/21/2009
Listing entered contract.

Apt, it's funny because I'm using exactly the example of the real estate bubble in Hong Kong on which to base some of my thinking: his parents managed to buy two floors of a relatively well-known office building after the enormous bust in 1998, and while it took a while to get to the point of recovery, the family business has had lovely digs for the last 11 years and is now sitting on an appreciated asset. I'm not saying that we're all out to buy multiple small units, nor am I saying that this is the only way to generate wealth. All I'm saying is that I personally know a lot of people who are buying with a totally different perspective than "should a middle-class person who makes a median income be able to afford to have a 3br apartment to raise a family in at a given multiple." It's almost impossible for the people I know who are buying to lose $400k, because in many cases (not all), their apartments are asking less than $350k. Of course you might be asking "who wants to live in a 350k dump" but the fact of the matter is, we've been putting up with a lot crappier, sharing apartments amongst 4 people type situations for a while, for more money.

i think it is great for you to buy when you are young. I bought when i was young and it really worked out well. but think about the fact that it took your friends who bought AFTER the hong kong bust, many years of recovery to get back to an appreciating asset. You don't want to be in a $350,000 dump for 10 -12 years. And it is insane to think that young professionals can only afford dumps in NY -- that is exactly why the market has further to fall. The excess caused by the greedy CDO swappers needs to be wrung out of the market. If you inform yourself now, do serious research, save for your downpayment, and are patient, you will find a great place. Because you will be certain of it's value and how it will fit your lifestyle/future plans the minute you see it. Then you can live like a real human being in this big beautiful city. Just be sure not to buy anyone else's bubble misery. Btw, the crappy sharing thing is exactly what got me into re. at a young age-- we all did it. Does your name have any reference to the akasha?

"A jumbo loan used to be defined as a percentage, i.e. 50% of the purchase price of a loan. However, a jumbo loan is now defined as purchasing anything over approximately 500k although this of course depends on the institution."

When was this? (the first part).

My name has nothing to do with the akasha - it's the greeting that Ali G says whenever he's introducing his show. Also, my dad is Jamaican (Booyakasha is Jamaican slang) and while he can turn "off and on" his patois, I am gently reminded whenever Sean Paul comes on the radio that my dad can hear and understand every single word.

I already bought, in May 2009, due to personal circumstances, for what I considered (and still consider to be) a very good deal. I'm not saying that we can "only afford dumps" in NYC, because I don't think that's entirely the case. I think based on my and my friends' average incomes, we could technically afford the carrying costs for "more," but we've only been out in the work force for a few years, and we don't *need* more, and probably won't for a good long while.

For what it's worth, it's a breath of fresh air that people who claim it might be an ok idea to consider buying soon aren't getting shouted down and accused of being brokers