What's happening to Manhattan residential real estate prices this summer?

and there's still that huge turd in the punchbowl, new development condos. no matter how you look at it they will put downward pressure on prices for the next few years.

ooooh condoooos, come out come out wherever you are.

if the cost of buying (including frictional transaction costs) ever came down to the cost of renting in NYC, I'd consider buying - but that day is probably very far off on the horizon.

"Another is if the recent buyers were in fact 'pent up' and now their gone. Are there buyers behind them? That's really the only question."

I don't know about it being the only question.

But it is a good one. How do you reconcile "sideline buyers" composing a substantial portion of the new buys (assuming that's the argument people are using for the sales increase), and not think that you will need more price cuts to bring in more of the group still sitting on the sideline? Why are they still on the sideline? I think it's hard to argue the answer is differern than "that are waiting for prices to come down MORE".

"Another is if the recent buyers were in fact 'pent up' and now their gone."

I love this. They were pent up and now they are gone! Bye bye pent up buyers, come back soon someday.

"Bottom line is that every sale eliminates a willing buyer at the given market price level."

Rhino, I generally find your posts very intelligent but did you read this one before you hit submit? Every sale eliminates a willing buyer? You can't seriously believe that can you?

"How people willing buyers didn't find what they wanted in May, June and July?"

Finding what you want in this city is difficult. Ask anyone on this board who owns, it is a long, tiresome, frustrating process to find something you truly love.

I must admit that I agree with rhino on the logic which you find so ludicrous.

Juice what is ludicrous? Every transaction shrinks the buyer pool at a given price point. How can you call a tautology ludicrous?

30 yrs it's the only question in the sense that buyers make the maket price and if there are enough to absorb supply at this price level that can override all else.

I should not be considered a "sideline buyer". I am a real buyer who is waiting for the right apartment at the right price. So are a lot of other people. If prices get even more crazy again, I will become a sideline buyer and so will a lot of other people, I suppose, who I hope learned a valuable lesson during this recession about being fiscally responsible for the purchases they make.

Rhino, I generally find your posts very intelligent but did you read this one before you hit submit? Every sale eliminates a willing buyer? You can't seriously believe that can you?

Did you agree with him when he called out stevejhx's logic just because he was homosexual?

there are some prime areas where there is summertime stability

Summer is too short a time frame. Should be looking at multiple year trends.

> it is a long, tiresome, frustrating process to find something you truly love.

for me, yes, long (1 year), but also interesting and educational. and not so much frustrating as all-consuming. prior to and going into closing, i was petrified about the RE market, the economy in general, and the commitment of a mortgage. as soon as i closed, those fears disappeared. (knock on wood.)

i am so relieved to be done with it, and can feel my quality of life (mental and social) improving just by virtue of only checking in on streeteasy when i'm bored instead of more-or-less continuously.

to all you regulars who make street easy what it is: thanks for the education in RE and economics. and thanks for the laughs. i'll remember you fondly, but so glad to be getting on with life.

so, back on topic, pent-up demand, vis willing buyers not finding what they wanted: lotsa people i talked to are looking for lower prices, and as prices go lower, i don't think there's any way demand won't continue to pick up, even if it lags a bit. whether it will pick up enough to cause price appreciation is another question. I think Rhino's pretty close: 2 more years of 10% annual declines, then maybe appreciation around 2% above inflation.

Lecker: depending on the situation, there are places where buying is about as cheap as renting already.

I think the considerable weakness in the rental markets is continuing to pull down prices. (Part related to new college kids not getting jobs and moving to the city.)

People speak of price-to-rent ratios as being high by historic standards.

I've never quite understood this metric. Seems to me that the more relevant metric is price-to-net-rents. (Put yourself in the shoes of a condo owner who rents out his place. Your real net income is "after" what you pay in maintenance and taxes.) When I look at price-to-net-rents I see numbers well into the high 20s and low 30s. That translates into a net yield in the mid-3%s. Meanwhile, New York office buildings are trading (with very low volume) at cap rates of closer to 8%.

You figure.

Price to rents is a short cut that basically assumes that tax benefits, down payment %, maintenance relative to price and interest rates are relatively constant. The biggest problem with it is that it ignores interest rates. People do look at price to net rents...but they look at the reciprocal (cap rate). The bulls on the board demand that cap rates are irrelevant. Their biggest problem is the tax benefit is ignored. Either way, compare the cap rates to muni bond yields and they look terrible. However, cap rates do ignore appreciation. It seems to me though, in data I have found, is buying makes sense when cap rate < mortgage rate. People refer to that as positive leverage. Also you might say you can get the appreciation for free in those cases. This is a chart illustrating this for apartment buildings. The condo/coop math is not that different.

http://www.realestatechannel.com/news-assets/GraphE.jpg

Sorry "when cap rate > mortgage rate". In other words, the problem with the current market is that it is still charging the buyer for appreciation.

when cap rate > mortgage rate

mortgage rate should be looked at net of the tax deduction of the interest expense.

independently, what is your issue with gay dudes? We all have them in our family somewhere, so get realistic.

"what would the catayst be for this next leg down"

Another leg down assumes it stopped declining...

but it didn't.

I don't know if we need another "leg", quarterly numbers so far will be down again.

Of course, when that number comes out, and the folks who thought all was great see it, that could push things even more negative.

of course, additional inventory can't help..

http://www.streeteasy.com/nyc/talk/discussion/13692-crains-shadow-units-cast-pall

Nice chart, Rhino. And thoughtful analysis.

"Issues?" Hope you don't have; that would be uncool.

I lost my temper with Steve a while back and referred to him as a gay accountant. I thought he was deliberately trying to rile me up, so the gist of the (inappropriate) comeback was to rile him up. Since forgiven by Steve, yet harped on by randoms.

"mortgage rate should be looked at net of the tax deduction of the interest expense. "

The problem with this mantra is an apartment, if viewed as an investment, should stand up to analysis of buying it, and renting it out. In that case, the return on equity should be able to cover the cost of debt... It can't, this is what makes the current market frothy. You need to put a bunch down, and then take a current loss on cash flow to equity and hope for future appreciation. Why do this, when history shows from time to time, opportunities to enjoy positive leverage (cap rate > mortage rate) recur. Now, if you want to argue that real estate changed permenantly in 2002, and we should never expect such opportunities to present themselves again...please explain why.

In your Cap Rates Minus Mortgage Rates chart, Rhino, walk-ups almost always seem more attractive as regards the leverage terms. Presumably their cap rates are higher than elevator buildings. Is this because the market expects elevator buildings to appreciate more than walk-ups over time?

I didn't author it... But if you forced me to guess, in downturns elevator buildings probably hold up better in value, so the market is probably commanding some kind of premium for higher volatility of cash return.

My friend bought a fifth floor walkup in a coop building on Jane Street in the mid 1990s and I think her cash on cash return was over 10%. Something like $60k purchase price, $500 maintenance and $1100 rental value.

Rhino, I certainly wouldn't argue that 'real estate changed permanently in 2002', but I do think, and statistics bear this out, that the demographics of the city have changed substantially over the past 10 yrs, in a way that would make a comparatively low price/rent multiple closer to the ratios seen in the rest of the country. Does that mean the 20x is the 'equilibrium' number? no. but neither is 12x

What about the demographics has changed and why should that impact prices more than rents? All I've seen in the last ten years is more bankers and more hedgies making more money. And loans got easier to get. Both of these things have been correcting. But again why are rents seemingly immune? One answer. Easy money. And it went away.

Cap rates were double digits last trough. Should we trough at 4 percent this time?

calm bf shitstorm.... watch out.. you'll smell little nasty wiffs... then it'll be drowned out by the TG Turkey, then X-mas eggnog... but you can only mask shit for so long....

The city has become a place where families are looking to stay, as opposed to flee. Which means a longer holding period. Which clearly tilts the math in favor of buying v. renting (transaction costs less meaningful, and smooth out the volatility of owning a risky asset). Demographic changes like this are very long-lasting trends, and short term events like recessions, or say terrorist attacks, don't move them.

And you've seen that thus far in this cycle - which is why most of the move down in price is the result of falling rents, not a collapse in the price/rent multiple (though it has contracted somewhat). Rents are certainly affected by earnings/employment, which is why we're seeing the move down.

btw, I haven't been on SE that long, but how many people in '07 were calling for 20% declines in rents?

recessions may or may not move demographic trends of families staying in the city, but availability of decent schools just might. and good luck with that, with the number of preschool kids, the number of family sized apartments, and what the administration is doing to and allowing to be done to the schools, i wouldn't bet the farm on the trend continuing.

actually, if you need a good public school, you're better off renting until all your children enter elementary school, unless you can purchase very, very close to the school.

"The city has become a place where families are looking to stay, as opposed to flee."

This was different in the 1990s? I think you are mistaking preferences for ability. The easier it got to borrow, the easier it was for families to borrow enough to buy a family-sized apartment. Easy credit also amplified the earnings per employee at banks and hedge funds. If there is one thing about bulls that seems to be a common characteristic, it is a failure to understand the role of cheap credit in the explosion of Manhattan prices from 1999 to 2008. This is both through financial employees' incomes, and the ability of anyone of a given income to leverage it into a higher purchase-ability. I just don't think you get it. Further, I don't think you have seen any evidence that holding periods have increasing in Manhattan... I think this is something you have dreamed up to support your bullish view. No matter. If there are really enough people with dough who think like you, you will be right. I fear there are not...

There were plenty of bears in 2007...and 2006 and 2005. Timing is everything.

Is there really any data out there to suggest that Manhattan has become more of a family place since the late 1990s. I think some are using trends that began in the 1970s to justify a sick run up in prices that really only took place from 2000 to 2008.

from wikipedia:

The borough of Manhattan is experiencing a "baby boom" that is unique among U.S. cities. Since 2000, the number of children under age 5 living in Manhattan grew by more than 32%.[35] The increase is driven mostly by affluent white families with median household incomes over $300,000.

so yes, it was different in the 90s. and one thing that bears consistently downplay is the constraints co-ops put on one's ability to use leverage to finance a home purchase - there is a reaon we don't see the foreclosures here that you've seen in other wealthy areas of the country like prime Miami, and its not just luck - it is by design.

i wasn't asking if there were bears - duh. I'm asking a very specific question - which is were you, or anyone else, calling for large declines in rents? I'm not saying you weren't - just asking the question.

As for printer's quote from Wikipedia, it's better to follow the footnote. The source of this is from an analysis of Census data done for the NY Times. See:

http://empirezone.blogs.nytimes.com/2007/03/23/the-manhattan-baby-boom/

Yes, there is a baby boom among affluent Manhattan whites. One of the ironies of this baby boom, is that it has been promoted by the Bloomberg administration through generous tax abatements to new buildings that house the affluent white families. This is creating a bit of a demographic time bomb, as the services needed to accomodate these growing families (schools, playgrounds, et cetera) will increase across time while at the same time limiting the ability of the city to generate the tax revenues to provide the services...

I have generally seen Manhattan residential cap rates in the mid-3% area. (High price-to-net-rent ratios)

If that holds, builders will "build, baby, build!"

I can't see how it could. Manhattan office building prices have plunged (albeit with very low volume) such that cap rates are back in the 8% area. (Average price-to-net-rent ratios)

"The increase is driven mostly by affluent white families with median household incomes over $300,000."

And this has a lot to do with easy credit...through investment bank and hedge fund professionals' earnings, and their borrowing power. You are siting an effect as a cause. Yes, more families stayed because they could afford to do so. They drove up prices. Now all the sudden fewer people are making as much money, and its more difficult to borrow. Do you follow? Regardless of coop boards, you can't get a loan for 60 or 70% of $4mm like you used to be able.

Affluent white people making over $300,000, you say?

There goes the neighborhood!

Cordially,

Hugh

Rhino - what you are saying makes little sense. If it were purely an economic decision to stay vs. move, then the demographic move would have occurred when prices in NYC were comparatively lower vs. the suburbs vs. higher. But the opposite happened. And it has happened, though with less force, in other cities in the country. You are the one confusing cause/effect.

You don't have to get in a twist about everything - the facts are quite clear that Manhattan (and brownstone brooklyn) have become much more attractive for families IN SPITE OF their increasing cost.

and to your second point - yes, few people are making as much money, and it is more difficult to borrow. and as a result, prices and rents have plunged. you speak as if prices haven't adjusted at all - they have, massively, especially in the market we are discussing - probably on the order of 30%+.

Rhino86
about 7 hours ago
ignore this person I lost my temper with Steve a while back and referred to him as a gay accountant. I thought he was deliberately trying to rile me up, so the gist of the (inappropriate) comeback was to rile him up. Since forgiven by Steve, yet harped on by randoms.

You apologized to steve who doesn't have pride in his homosexuality, so it was simply ok that it was no longer directed against him. But the fact of the matter is, you made a factual reference - him being homosexual - and used homosexual as an insult as if there is something wrong with it. You may not need to seek forgiveness from steve, but you have atonement to the homosexual community. You need to say there is nothing wrong with homosexuality and you'd be happy to have a gay brother or gay son.

Printer, increasing in income (and borrowing power) drove prices. Prices didn't triple in 9 years because Manhattan suddenly became more attractive after 1999. They triples because they allowed investment banks to lever returns per employee. Again, stay to point. We are talking about price to rents ratios, not prices per se. $300k earners didn't suddenly decide to stay in NYC. I would argue that because of cheap credit, the number of $300k earners in Manhattan exploded. There are good charts of Manhattan coop prices vs. banking bonuses. I really think its people making more money, not making a decision to stay here. I think many young couples would have always preferred to stay. Also, incomes allowed more families to rationalize the cost of private school. I can say first hand that I will likely ultimately move from Manhattan when my first child ages out of PS 6. Whether I buy between then and now will depend on whether or not it is cheaper to hold short term bond funds to fund my rent or buy an apartment.

'increases in income'

You need to make bank to accumulate a 30% down payment on a family apartment. The explosion of hedge funds and the 2/20 model generated a ton of buyers who competed with bankers for $1mm apartments...ultimately bidding them up to $3mm.

Prices literally exploded from 2003 to 2005. Why? What was so special about that two to three year period? Basement level interest rates and a decision to scrap almost universally the most basic of underwriting standards, LTV and traditional income/mortgage multipliers. In Manhattan there is a significant lag time between interest in developing and finished product being available, creating a huge amount of hype and pent-up demand. Some foreigners and then the banking industry profitting from the national bubble, and voila, a massive bubble over Manhattan.

Yes that, and the same standards allowed hedge fund of funds to lever one investor dollar into four, driving up AUM and multiplying the nummber of hedge funds and hedge fund analysts making $400-$800k. It also allowed banks to run with 35 to 1 leverage. It was squanking Manhattan on both ends.

The idea that "demographics" drove prices from 2000 to 2008 (especially 2004 to 2007) is just not realistics... Unless you call the number of people making $500k or more exploding demographics...I would just call it INCOME.

" It seems to me though, in data I have found, is buying makes sense when cap rate >* mortgage rate. People refer to that as positive leverage. Also you might say you can get the appreciation for free in those cases. This is a chart illustrating this for apartment buildings. The condo/coop math is not that different.

http://www.realestatechannel.com/news-assets/GraphE.jpg"

Not so sure I agree. Look at 1995, 1996, 200 and 2001. All negative, all made sense to buy. look at 1987, positive, but did not make sense to buy.

* nb: I corrected the mistake in direction made in the initial post.

I don't want to seem like I'm disagreeing that it wasn't a change in demographics, but certainly the HUGE influx of foreign buyers (as investors mostly) accounted for SOME of the impact in rising prices. It certainly accounted for a change in transaction volume, as buying an apartment in NY as a foreign investor became much more viable as the percentage of apartment which were Condo vs Coop vastly shifted during this time period.

Do I think whithout foreign buyers the bubble wouldn't have occurred? No, it still would have. but there is no denying that there was some non-insignificant impact.

Rhino,
you wrote:
"$300k earners didn't suddenly decide to stay in NYC. I would argue that because of cheap credit, the number of $300k earners in Manhattan exploded."

but that wouldn't have any impact on the absolute # of people, which is what we saw. yes, it was concentrated in higher income families, but according to you its just that everyone, or a lot of people made more money. they did, and instead of moving to the suburbs they decided to stay in Manhattan.

and i never claimed that 'demographics' were the sole driver of prices. I am saying that rising incomes led to rising rents, and demographic change were part of the increase in price/rent ratios, along with speculation. and falling incomes -> falling rents, which along with the absence of speculation have been the driver on the way down.
My whole point is that when all is said and done I don't think we will return to pre-bubble price/rent ratios (which were lower than the country as a whole), because a greater proportion of people are here for the long term, which makes owning a more attractive proposition.

if preferences were static, and it were purely buying power that moved prices, then Manhattan would have had the exact same price movement as the suburbs did. in fact, it would have had lower appreciation, because co-op rules, difficulty of renovation, etc. make speculative flipping much more difficult.

AR - you are confusing Manhattan with what happened in the rest of the country. If what you say is true, we would have the same massive level of foreclosures of single family units. but we haven't, because that type of borrowing was not prevalent in Manhattan - co-ops won't allow it.

how you can think that co-op financing rules have no effect on our market astounds me.

30 yrs, those seem like one off years in green periods. 1995 and 1996 had high cap rates and low price to rents in absolute terms... Ok, maybe its not the ONLY thing to look at. Its not clear 2001 purchases made sense without the benefit of hindsight toward a credit bubble... I am not sure 2001 purchases will prove a wise use of capital by the time this correction is said and done but who knows. I'd be curious to know why 1987 popped green like that in the middle of starkly red territory.

"My whole point is that when all is said and done I don't think we will return to pre-bubble price/rent ratios (which were lower than the country as a whole), because a greater proportion of people are here for the long term, which makes owning a more attractive proposition."

I feel like you speak in circular logic. People do not decide to be here for the long term and then stick to their guns regardless of their life circumstances. I still say values followed incomes and borrowing power, and now that incomes and borrowing power are falling, price to rent ratios should go back to something more normal...yes closer to 12x than 20x. Of course I speak from my own experience (albeit indicative of the primary industry in New York). I think now that incomes in finance are deflating to 1990s type of relationships to other industries, Manhattan values will revert to more normal relationships to other cities. Prices need to become more affordable. I am confident in my assertion that the current pace of finance wealth accumulation here and credit available cannot support a "new normal" higher price to rent ratio as you seem to suggest.

"but that wouldn't have any impact on the absolute # of people, which is what we saw."

Yes it would.... The $300k earners who used to move out stayed in Manhattan because leverage bumped their incomes to $500-600k and their borrowing power boosted their threshold of affordability even more. Nor are they as confident at $300k that they can afford private school, as they were at $500k. Watch.

I believe income improvements and lax borrowing standards stemmed family outflow, not preferences in isolation. $300k earners stayed because banks started lending them $1.5mm to say, whereas in the past a bank would not lend nearly that much to a $300k earner.

3 things:
1) why should Manhattan price/rent ratios be systemically lower than that in the rest of the country?
2) co-op prices moved up dramatically, and NO ONE was buying a co-op with a $1.5mm mtge on a $300k income.
3) if what you say is true, then buyers used all of the increased income and more to pay for their overleveraged purchases, making school, etc. less affordable.

finally, where is your evidence that incomes in finance are deflating to 1990s type relationship to other industries? for right now their may be fewer people in finance, but the ones their are still making huge $$.

Blah Blah. If you want to think that after 1999 something changed that made a higher percentage of $300k earners decide to stay here go ahead. I think that there were simply that many more $300k earners to consider staying, and a similar percentage did so.

(1) They are higher, I don't know what you are talking about. I think they should revert to a similar average now that the credit bubble popped.
(2) Neither of us has this information, but surely people were taking on bigger $$$ value of loans than would have been possible in the past on the same income.
(3) I don't think the buyers used all their increased income, just a lot of it.

Finally, I have no evidence... But many of the people still making huge money are already owners. The numbers of "new owners" being created by the finance industry via down payment accumulation is greatly reduced. The rate of buyer creation vs. the rate of supply growth will dampen prices for a while in my view. I have heard nothing from you to support the idea that price to rents should remain structurally higher than they were before the credit bubble. Sorry. If anyone else thinks Printer has made this point it might be helpful to hear.

"AR - you are confusing Manhattan with what happened in the rest of the country. If what you say is true, we would have the same massive level of foreclosures of single family units. but we haven't, because that type of borrowing was not prevalent in Manhattan - co-ops won't allow it."

Or maybe because prices heading downwards in Manhattan has lagged the rest of the country. If you look at the current state of the units across the country which are in some phase of foreclosure, AT THIS POINT IN TIME, the sub-prime loans are totally overshadowed by non-sub-prime.

"1) why should Manhattan price/rent ratios be systemically lower than that in the rest of the country? "

Because historically it has ALWAYS been that way?

"2) co-op prices moved up dramatically, and NO ONE was buying a co-op with a $1.5mm mtge on a $300k income. "

They sure as shit were. Not ever Coop has the same standards. If you got a 3% teaser rate om $1,500,000 it cost you about 6300 a month. If you bought a unit with $1,200 mtc, that's $7,500 a month or 90,000 a year total. that's 30% ratio. And lots of Coops were silly enough to look at the Commitment Letters and only look at the number without thinking that it was ojnly a teaser rate. Or they got parents as guarantors.

"3) if what you say is true, then buyers used all of the increased income and more to pay for their overleveraged purchases, making school, etc. less affordable."

in their desperation to "buy now or be priced out forever", that is exactly what happened in many cases.

An awful lot of them did.

Historically, Manhattan price/rent ratios are not different from the rest of the country, when you compare COMPARABLE units. 8-10 x annual rents is what investors need to receive to earn a reasonable return on rental properties regardless of how attractive the city is, so that's where prices tend to land, here and everywhere. When investors are pessimistic about future rent increases, prices head towards the bottom of the range; when they are optimistic, towards the top.

What is distinctive in NYC is MEDIAN PRICE/MEDIAN RENT ratios (which is the only commonly reported number). In the rest of the country, the high end rental market is crippled. Thus MEDIAN sales price is for a far higher quality unit than median rental price. Historically, Manhattan had a highly successful high end market with good apartments available for long terms. Even with the end of rent stabilization for high rent apartments, we still have an unusually wide range of high end rental options. So long as we maintain a high end rental market, our MEDIAN price/rent ratio will be higher than the rest of the country, because our rentals include more high end units. Not because the rules of investing are different here than elsewhere.

No doubt the City has become more attractive to high income earners. In a normal (non-bubble) market, that would result in more high income units available for sale and rent -- not a higher price/rent ratio or a higher price for low quality apartments.

30yrs is the unretired, pre-Wizards Jordan of SE.

"Historically, Manhattan price/rent ratios are not different from the rest of the country, when you compare COMPARABLE units. "

Sorry, but you are just factually incorrect on this matter. I'm not going to go write a thesis because I have neither the time or inclination to wast my time arguing flat facts.

printer, for the last f'ng time, how many of the recent sales were CONDOS? Did we just undergo a coop building boom? No dipshit, we did not. And as 30yrs states, our primary mortgage origination period was not 2003-07 like many parts of the country, because it takes longer to get the machine going here our condo mortgage factory didn't get truly pumped up until 2005ish.

I know a number of people who refi'd or took out large HELOC's on their coops. As steve has repeatedly noted, foreclosure occurs much differently in new york than it does in florida or california. because it takes a couple of years to foreclose on a property you will be much more likely to see short sales in Manhattan. they don't get nearly the press, don't sound as impressive, but affect the pricing they will.

you REALLY think that new yorkers took a magic pill that made them immune to overspending? somehow we managed to avoid being stretched, despite having one of the most expensive housing markets in the country? that mythical coop purchaser? you think there is no way that post-purchase he/she decided that a place in the Hamptons was just the ticket? or a fractional share of a plane? or more vacations on St. Barts than was wise? just think about it for a second, think. Or was approved based on a five-year history of bonuses that suddenly changed? And it doesn't have to be finance.

I am still trying to figure out how a boom in finance incomes (and numbers of professionals) is a permenant demographic change in Printer's. Honestly, I am.

Just because a coop requires that you put down 25% or 30%, doesn't mean the bank wasn't lending you an unhealthy amount for the 70% or 75% remainder vs. your income. And sure, the coop checks your bank statements when you apply, but 5 years down the road, you could have nothing in the bank and they wouldn't know it.

30 yrs: I'm unaware of any statistics comparing prices to rents controlled for quality; all the statistics I've seen compare medians.

I based my (badly overstated) claim about quality controlled ratios on limited anecdotal evidence: investors I know in NY and four or five different cities who -- pre-bubble -- used the same 8-10x rents rule of thumb as a filter (adjusted, of course, for actual expenses and local trend projections). But maybe I should have been more careful and said "while there are always local variants based on local optimism/pessimism, all those variations are overwhelmed by the need to earn a normal return in normal times, and by the bubble mentality in the last several years (which made overpaying seemingly impossible, since there would always be someone willing to pay even more)."

If you have either statistics or better anecdotes, a "thesis" would be really helpful.

"3) if what you say is true, then buyers used all of the increased income and more to pay for their overleveraged purchases, making school, etc. less affordable."

Clearly someone wasn't aware of what was actually going on in this country.

Several people have asserted that real estate prices rise with incomes. I'm puzzled about what mechanism would bring this about (if it's true -- I don't see this correlation in Shiller's long term data). The prices of food, clothes, computers, and virtually all manufactured goods rise slower than incomes, as productivity increases. Medical care, education, handcrafts and other services with limited ability to increase productivity rise faster. In each case, it is the cost of producing the object or service that determines price, not incomes. Why should housing or building be different?

Is it some kind of a Henry George-Ricardo story, in which landlords are able to charge economic rents based on the quality of the land they monopolize eventually destroying all economic growth absent regulation? Is it a monopoly story or a regulatory capture story? Or is just left-over bubble logic: if prices are guaranteed to rise, everyone should pay as much as they can, so prices will track income (or, more accurately, ability to borrow)?

Maybe price to rents in Manhattan have been lower than average historically because coops dominate, and coops are inherently inferior to condos (additional debt, lack of control).

Prices have typically risen with incomes, until securitization made lending much more lax. After 2000, prices rose much more quickly then incomes, that is the disequilibrium we are in. Because we trade on either side of equilibrium, there are opportunities. Prices are not guaranteed to rise in the short and medium term.

> Several people have asserted that real estate prices rise with incomes. I'm puzzled about what
> mechanism would bring this about (if it's true -- I don't see this correlation in Shiller's long
> term data).

Huh, really? What data are you looking at? The standard shiller chart over I think 100+ years has 'em in almost lockstep, with occasional blips, but then returns right to the center again.

about - no need for name calling. no, there was no 'magic pill'. but co-ops require substantially higher downpayments and income verification than condos. and one thing we saw in this runup was the price disparity between condos and coops grow, beyond the historic norm. and given the increase in supply of condos vs. co-ops, that makes no sense - we should have seen that differential decrease, not increase (you know, that whole supply/demand thing). So what I see happening, when all is said and done, is that the price differential between condos and co-ops will be lower than what it was before the runup began - in large part because, yes, many of the condos were purchased as speculative investments with little down, and will end up in foreclosure.
but i stand by my reasoning and contention that the price/rent ratio in Manhattan will bottom much higher than 12x, in large part because more people are interested in buying than were previously because of changing demographics, changes that are born out in the facts.
nowhere have I, or would I, contend that peak pricing is going to return anytime soon - we clearly had an income bubble which resulted from too easy credit, particularly in the securitized markets and credit markets which fed the massive fee-generating LBO machine.

interestingly, i haven't seen a single person respond to my earlier question of who predicted the massive fall in rents. please send the links from '04-'07 when you predicted this.

printer, you're always so polite and respectful. i'll keep that in mind.

i actually haven't focused on rents, but i'm fairly certain if i had been asked i would have predicted greater than 20% over time. while the rent/buy ratio was atrocious, rents also increased hugely at a time of little to no real income increase. i would have predicted less of a decline in rents than purchasing prices, for numerous reasons, some of which would have been incorrect (inventory is much less tight than even I would have expected it to be).

nyc10022: Here is one version: http://www.ritholtz.com/blog/2008/12/classic-case-shiller-hosuing-price-chart-updated/ . I don't have the book handy, but as far as I remember, it shows the same thing on the even longer graph: prices are basically steady in real terms.

Incomes rose spectacularly between 1890-1980, but inflation-adjusted prices are flat. Real estate prices go up with inflation, not with income.

Do you have a chart that shows something different?

Thats the chart I'm talking about. Leave off the bubble, and you're talking about a ratio that has ranged from .7 to 1.2 over 100 years... for a factor that bubbles quite a bit - without having the actual underlying data to play with - it seems pretty correlated to me.

"I don't have the book handy, but as far as I remember, it shows the same thing on the even longer graph: prices are basically steady in real terms. "

Shiller did the stat that showed the values do generally match inflation (slightly higher), but I remember there being a ton of volatility from year to year and decade to decade.

"nowhere have I, or would I, contend that peak pricing is going to return anytime soon"

Wow, talk about crossing over. Is printer suddenly a bear?

Ok, I'm confused about what you are saying.

Shiller claims that prices generally match inflation, although they move around a lot. We agree on this. The "little bit more" is, I suspect, because the CPI understates actual inflation, but that's a nit, and I don't have any way to demonstrate it.

But you also say that prices correlate with incomes.

Incomes, at least until recently, grew much faster than inflation.

So the two can't both be true. Either prices fluctuate around inflation, or they fluctuate around incomes.

No, no, I'm saying that prices *do not* correlate with inflation, they just happen to match rates over the long term, thats all.

hence my whole "I remember there being a ton of volatility from year to year and decade to decade."

The long term rates have evened out, but with little correlation over smaller periods. That might just be a coincidence.

And thats the US factor, I believe, but he also points out the Holland study data, where they look at the waterfront homes. He went back hundreds and hundreds of years and came to the same conclusion.

w67thstreet
about 23 hours ago
ignore this person
report abuse calm bf shitstorm.... watch out.. you'll smell little nasty wiffs... then it'll be drowned out by the TG Turkey, then X-mas eggnog... but you can only mask shit for so long....

Exactly what I was thinking. w67thstreet could only pretend to behave for so long, but after a slow weekend, he's back, stinking up streeteasy

"Or is just left-over bubble logic: if prices are guaranteed to rise, everyone should pay as much as they can, so prices will track income (or, more accurately, ability to borrow)?"

I think you'd be surprised at how much that effected the market. one reason is that for almost everybody, they want to buy more house than they can afford. So instead they buy the most house they can afford. And when you get into a buying frenzy, and agents know the incomes of their buyers and show them how they can afford to pay more for the unit than they thought, sop they should raise their bid over the guy who just outbid them, over time it leads us to exactly where we are. ESPECIALLY in Manhattan, where you can't just go build a bigger, better house 1 mile further down the road than the furthest new development to the city it serves.

"about - no need for name calling. no, there was no 'magic pill'. but co-ops require substantially higher downpayments and income verification than condos. and one thing we saw in this runup was the price disparity between condos and coops grow, beyond the historic norm. and given the increase in supply of condos vs. co-ops, that makes no sense - we should have seen that differential decrease, not increase (you know, that whole supply/demand thing)."

I am not so sure this is correct: it's almost impossible to tell the relative pricing of Coops vs Condos since the mix is so totally incomparable. The general "quality" of Coops has been somewhat stagnant 9although even that's not true since we've never seen the number of higher end renovations in Coops as we did in this last boom), while the general "quality" of condos changed drastically to the upside during the same time period. I have not seen anyone who has credibly factored that into their pricing calculations regarding Coops vs Condos in Manhattan.

The pesky thing about that - you know - supply/demand thing, is that there are two parts to it. One is supply. The other is demand. Demand for condos increased more than demand for coops. You know - because the universe of buyers who can put 10% down in an easy lending environment is - you know, like, a lot bigger than the universe of buyers who can put down 25%+ and pass a coop board. You know, banks were a lot easy to pass than most landlords who demanded 40 or 50x rent in income, and compared to coop boards they were your mom. As many of the bears seem to - you know - not to know, is that this was all about the credit environment. Now that's changing, you know. Now we will know what price to rent ratios will retrace to in a tight credit environment, you know?

Jeez I ignore Printer and still end up disagreeing with him through the quotes of smart people disputing his statements...you know.

thanks for responding rhino. i didn't feel like, you know, dealing with the issue of why of course condos were increasingly attractive as prices rose but, you know, credit became easier, making them the only option for many people.

Never mind that coops and condos are substitutes...and that the supply/demand of each is far from independent. The implications of which on the downside of this mountain the bears are scared to ponder. Streeteasy should honestly have an economics qualifed discussion area. I love when people like Printer you know, talk down to you, in the same breath that they demonstrate complete ignorance of finance and economics.

"The pesky thing about that - you know - supply/demand thing, is that there are two parts to it. One is supply. The other is demand. Demand for condos increased more than demand for coops. You know - because the universe of buyers who can put 10% down in an easy lending environment is - you know, like, a lot bigger than the universe of buyers who can put down 25%+ and pass a coop board. You know, banks were a lot easy to pass than most landlords who demanded 40 or 50x rent in income, and compared to coop boards they were your mom. As many of the bears seem to - you know - not to know, is that this was all about the credit environment. Now that's changing, you know. Now we will know what price to rent ratios will retrace to in a tight credit environment, you know? "

The flip side: How many people have 20% to put down and sufficient income to buy a $300,000 to $400,000 apartment and want to live in Manhattan below 96th Street? How many of them could buy condos? Or the same for 600,000 to 700,000 and want a large 1 BR? Or only want to live in Prewar (real prewar, not gut renovated prewar shell) buildings? While the universe of buyers who could buy due to being able to put only 10& down with marginal credit increase the demand for condos, the prices similarly pushed other buyers towards the Coops. this is also one of the reasons I don't think you will see condos get TOO far ahead of Coops, because when they start to, there is a natural market pressure for a correction in that there becomes a negative price premium on the Coops: in other words, there's just so much of a premium you can get on a Condo before a Coop looks better. And there are people who don't want new construction ("new" being anything after 1985 to some extent) under any cirumstances, which REALLY cuts down on the condo market for them.

30yrs, nonetheless, there's absolutely no denying that the availability of 10% down with 10% HELOCs goosed the condo market enormously. I've had a number of brokers admit the same to me. One confessed that it had been absolutely essential to the prior successes in the new development market.

Many people were simply priced out of buying at all. Some could still afford and gather the reserves for coops. And then there were condos, which many bought even if they did not prefer them. I considered buying in the Kalahari (thankfully i overcame that urge fairly quickly). Would that ever have been a viable choice for me, or even close, in 1998? People REALLY want to own. And often they decide to want something that can work, rather than waiting for what they really want.

unbelievable - you people have such tunnel vision that you can't even stop long enough to digest what I am saying.

AR you said, in your trademark condescending tone:

thanks for responding rhino. i didn't feel like, you know, dealing with the issue of why of course condos were increasingly attractive as prices rose but, you know, credit became easier, making them the only option for many people.

which is exactly my point - condos, as opposed to co-ops, benefited from the lax credit requirements, which drove their valuations too high on relative (and outright) basis. so as everything unwinds, I expect the ratio to not only return to its historical norm, but to get cheaper. If a potential buyer is equally qualified to buy either a co-op or a condo, the fact that there are now substantially more condos vs. co-ops than there were before the boom means that the scarcity value of condos has decreased.

but to another point, AR - so now you are claiming that there was no increase in incomes from 2000-2007? that's a new one. please explain, with some supporting evidence - and not 'because my manicurist said so'

get cheaper? how about fall into the damn toilet. condos are going to crater, and if you think that will only affect the condo market you're out of your mind. it will affect the condo, the rental and the coop markets.

condescending? fine one to talk. go do your own research, my manicurist is busy.

fuck off.

testy testy - what happened, your husband tell you no more private pilates instructor? or is your daughter home from camp and you have to do some actual parenting instead of indulging yourself all day?

Oh yes, here i sit in Peter Cooper Village, a stay-at-home mom who has not had a caregiver since i quit work when my daughter was 20 months (because i wanted to stay at home with my daughter), who works out at Synergy (I upgraded from the city rec center because they only allowed 20 minutes on the cardio machines, tough, went from $75/year to $42/month), a daughter who won't go to summer camp because she likes to spend the summer with us, and a manicure habit that has included exactly one f'ng manicure my entire f'ng life (my daughter asked if i would PLEASE get one with her as a mother/daughter event). I think I've hired a babysitter approximately 15 times in my daughter's 13 years of life. Oh, and i just bought my first sort-of formal winter coat in 12 years. and the husband wouldn't give a rats if i had a private pilates instructor. nor would it be his decision. but the family does travel quite nicely.

once again, fuck off. and get over yourself already.

wow - your husband is a partner at a big-time law firm and all he got you was a crappy rental at PCV, a grungy gym membership and makes you do you own nails? no wonder you are so bitter and condescending. wonder where all the money is going?

oh, and you should get a babysitter more often and get out of the house so you don't end up spending your day on SE boards conversing with people like me

what's your excuse?

i'm not bitter and condescending, i just don't like you.

i can tell you where the money isn't going, manhattan real estate. our money goes to things that matter, things that make our family's life better. we don't need to hire a babysitter, our daughter can spend a few hours alone, or over at a friend's house (which is how we dealt with the issue when she was younger). she often goes out with us, she's great company and i don't feel the need to escape (beyond going to the gym). during the school year i walk my husband to work daily, 45 restorative minutes that most couples only dream of. i need a treadmill and seven weight machines, and my gym provides that. i need a home with decent ceilings, a lot of light, wood floors, enough room for three, two bathrooms and a nicely renovated kitchen. and my home provides that, along with beautiful if slightly ill-maintained grounds. we have a lovely upstate home, we travel eight weeks most years not counting time at the country house. i wouldn't spare any of your insincere pity on me. my priorities are my own, and i quite like them.

why are you wasting your time justifying yourself to me? and aside from these past 3 posts i've sent out, there has been nothing for you to hate me about other than I have a differing opinion on where the economy and manhattan real estate markets are heading. if that's how you decide who to like or not like, you are one strange person.

well aren't you just the cleverest little thing to grace these threads!!

obviously, i wrote what i wrote because i felt like it. just like you felt like making your cute little comments about the pilates instructor, the grungy gym, my being a dilettante (the worst on the board, if i recall), my mothering habits, the manicures, the woeful lifestyle we lead despite the law firm partnership. hypocrite.

you're easy not to like. i don't really need to know you better to know that.

and not 'because my manicurist said so'

that's a beaut above but hey, printer, you always sound like a complete jerk--and the moronic drivel you produce on this site speaks for itself
ar you have always sounded like a good person, with good insights--thanks for sharing--don't indulge this idiocy

so, how about those prices? i have noticed the pace of contract signings slowing appreciably. i think UD shows them at 833 for the past 30 days, and 178 for the past 7, which would be slightly more than 770 if extrapolated out to 30 days.

Ubottom, i confess it was kind of a self-indulgence. i was irritated, now i'm not. thanks.

I've tried to keep focus on our little rottweiler / chihuahua mixed-breed w67thstreet, but sometimes I just can't resist getting involved with aboutready. She's like the yin to his yang. He's all macho and can bench press a lot and squat a lot at the gym, has a Rolex and a Porsche and a yacht and a lot of back hair and proudly tells you he's ethnic (undefined), etc, and will tell you every chance he gets. And she's all feminine (just kidding), a pale strawberry blond woman, who is a frugal woman of the earth, just as excited to live in Alphabet City as in Harlem at the Kalahari, who paid off her dainty tax cheat husband's IRS debts so he could pursue a life arguing in front of a future Supreme Court justice who she despises for no primary reason that she's been able to tell us. He uses scat and sex jokes with a 'z' at the end of them, mainly for "shitz" and giggles, whereas she with righteous indignation tells you to fuck off or calls you a little shit to emphasize that she's got more time sitting at home to figure out the answer to life's puzzles than you do. They make an interesting pair. Perhaps when yep yepper's birthday coms around she'll start a discussion thread for him, just as he did for her a few months ago.

It would be love, if only maybe the world were a little more fair.

Wow, I knew Printer was stupid...I didn't know he was also a douchebag.

Inventory seems to running down at a fairly quick rate, according to UD.

I'd say we're going to bounce around the bottom (give or take a few points) and then prices will remain flat until inventory dips below 7000.

I really do not think things are going to change too, too much re price in the next year. I think they may go down a little more, then remain flat, and then slowly start going up again in mid-to late 2010.

nopigs - post of the year