Discuss: Headwinds & Tailwinds for NY Real Estate Market

Can i ask are you a realtor OR a big time real estate investor? What are your credentials..Interesting post

Mhillqt - Ha, OP is certainly not a realtor - the headwinds-to-tailwinds ratio is completely wrong. If OP were a realtor there would be 2 headwinds and 14 tailwinds.

"I think this all paints a bleak picture where the only solution to bring buyers into the real estate market is to have prices continue to drop until prices make fiscal sense.

Based on my personal experience as a financially strong buyer tracking about 100 properties in Park Slope and BoCoCa, and seeing none that make financial sense,my conclusion is we're a far way off from bridging the disconnect between buyers and sellers.

Since buyers are unlikely to gain cash infusions anytime soon to meet elevated prices, there's only one thing that will open up the market —– a significant, prolonged price drop, which will take a long time."

Interesting that there has been no response to this in 2 hours. Could be the August lull, but more likely it's just that the thesis is so clearly correct that there isn't much to say. The only thing I would debate is the very last part; it may take a long time or it may not.

Another major headwind: the fact that it's become relatively cheaper (and MUCH safer) to rent instead of buy. As soon as sideliners like me get the sense that buying is only a little more expensive than renting, and that the risk of losing my life savings in a declining market has diminished somewhat, then we'll venture into the market.

i think everyone is on vacation......this poster could be an urbandigs type realtor...IE honest!

The OP says all there is to say.
I don't understand the currency trade bulletpoint, tho.
Could you explain?

On the tailwinds side, it's hard to see them when all recent and current indicators are negative. Whether we're in the bottom of a cycle or just starting a hideous, long period of sideways or worsening winds ... no one knows. Sentiment is bad right now.

lowery, if you see my post, I don't think the OP said "all there is to say", as he/she missed a huge headwind - the fact rents have declined. Lower rents should lead to declining r.e. prices. That's a big factor to add to their otherwise pretty exhaustive and accurate post.

Although I could also add a couple of tailwinds - the general upswing of the stock market over the past several months (although this could drop back down) and the fact that senior management seem to be getting paid as much as ever, if not more.

lowery - re: currency trade, this addresses the bull notion that everyone in the world wants to own a piece of Manhattan, blah, blah, so wealthy foreign buyers will support prices here, especially if their home currency is strong against USD (which makes their money go further and gives them a hedge on their currency/chance to make money regardless of property price appreciation if the dollar strengthens). This argument probably has some validity from time to time, although my suspicion is that even then it's more realtor BS than reality.

Anyway, two years ago when the global economy was strong and the Euro (sterling, Korean won, ruble, etc.) high against USD was probably one of those time where the phenomenon was somewhat real. With the global recession, many of the potential buyers are no longer flush, and with the dollar no longer as weak against many currencies the buyers who are left don't have the same buying power or see the same attractive currency trade embedded in the purchase.

decaying abatements..the various mortgage balloons

a tailwind you forgot:

buy now or be priced out forever

I do have one tailwind.

Capitulation. We still have some more to go, but we're at least finally getting to see the general populace understand the Manhattan market tank. Now, that probably means more declines in the immediate, but once the last few get it, there won't be much more to fall.

headwind -

More "anecdotal" bad history data. This relates to sentiment, but figure the bubble was propagated by "I know a guy who buy for $1, and sold for $1 million" stories.

With every sale happening post-decline, there are more and more of the flip side ones to be had.

This is partially why RE bear markets drag on for so long.

Headwind -

Goldman Bonuses (at least perception-wise).

But the reality is a tailwind, Crain's pointed out that Morgan Stanley, Citi, and BoA bonuses will all be lower than last year (which was a bad year to start), which Goldman won't make up for (which would concentrate bonuses anyway).

And hedge fund $$$ will be down for years (have to make back losses before getting their performance share)

10022 re: your headwind. Good one

On capitulation, I think there is still a long way to go. I agree that many people now get direction (that the market has declined) but not so many get extent (how far it has declined and may (must?) decline further from here). Once last few get direction and the many get extent, there won't be much more to fall.

I haven't experienced 25-30% downpayment requirements (at least around the 1 mil range). Two banks I contacted only require 20% for jumbo loans and 10% down for conforming. Also for some new developments that are offering financing, their rules seem to be much more lax. One sponsor was offering financing with only 5% down and another still had interest only loans!

PMI is harder to avoid now though. There are no more 80/10 loans and lenders will not grant a second loan unless you have at least 20% equity.

Good one = the anecdotal bad history one

yeah, there are just a host of reasons that residential RE has SUCH intertia, and most of it basically boils down to having a market on "investors" who don't know the first thing about investing or markets or data, for that matter.

Its how we got such a bubble on the way up, and what keeps things in the toilet long after recovery.

NY real estate market behaves in a less typical fashion that other markets in the country. We suffer here from some of the same basic drag downs - uncertain economy, bad press, tightened availability of mtge funds - but our lows never go as low as some areas, and we set highs well above the national norm. Right now the problem seems to be a reticence to make the leap into a purchase and the more obvious benefits of renting vs. ownership in this current climate.
I have seen real estate go thru this cycle 3x now and it always comes back. Stronger than ever each time. There are significant headwinds now - including the gigantic amount of shadow inventory we've yet to absorb. But this can also be viewed as a future opportunity (more product = more competition = lower prices) for investors and owner/occupants alike, starting the cycle on its upswing yet again. As for tailwinds, we seem to have absorbed the first sharp blow of layoffs and are adjusting our thinking for the near term, so we'll be less surprised when additional punches come our way. We'll carry on as we always do here.
Don't forget, NY is a thriving international center of business, culture, style and trend-setting. People want to be here, success here can bring remarkable wealth and our finite size (esp. Manhattan) cannot be underestimated.

pjc - roger, missed that
of course rents are declining by reason of the other headwinds mentioned by OP
when people are in the mood most of us are in currently, the tailwinds may be there, but a smaller minority recognizing them

I went through the last cycle, and it went much lower peak to trough, and took a very long time to recover. I don't believe each cycle repeats itself identically, any more than recessions and stock market crashes. Logic would suggest that this one has further down to go and a longer recovery, but that's the rear-view mirror talking.

BTW, rents are getting now to where they're tempting to ME!

Some info about Wall Street pay. Essentially buy-side bonuses are expected to be down 20-35% from 2008, and sell-side bonuses will be up from 2008. Investment banking is a mixed bag.

http://news.efinancialcareers.com/News_ITEM/newsItemId-20738?efc_namerica=18

> but our lows never go as low as some areas, and we set highs well above the national norm

Which could still mean a larger percentage decline than anywhere else. It doesn't have to go anywhere near "lesser" markets to have a substantial decline (which it already has). Going from 10x as expensive as the median to 7x would be a 50% decline.

This one doesn't really help your case.

> I have seen real estate go thru this cycle 3x now and it always comes back. Stronger than ever each
> time

Unfortunately, thats what happens in EVERY bubble. Its almost definitional. Every long term prospects looks great at the top.

If you want to go by long-term historical, the return on RE just isn't that great, and the return to historical norms (based on the correlator factor of income) shows we have a LOT more to go.

> But this can also be viewed as a future opportunity (more product = more competition = lower prices)
> for investors and owner/occupants alike, starting the cycle on its upswing yet again

So, the logic is, prices are going to go up, because they're about to go down? Ah, such magic.

> Don't forget, NY is a thriving international center of business, culture, style and trend-setting.
> People want to be here, success here can bring remarkable wealth and our finite size (esp.
> Manhattan) cannot be underestimated.

All true, but that doesn't save you from major declines. It was already factored into price. In fact, overly factored. If apartments went to one trillion per square foot, your statement would still be true, but would that justify the price? of course not.

Yes, manhattan will remain vital and important and desirable, but that does mean any price you want is the correct market price. Thats a huge fundamental mistake.

"As for tailwinds, we seem to have absorbed the first sharp blow of layoffs and are adjusting our thinking for the near term, so we'll be less surprised when additional punches come our way."

I think this is a headwind.

The first blows cratered Manhattan RE. It blew away a lot of folks thinking "it will not happen here". Additional blows IMHO would be more powerful.

nyc_observer: what the banks may require as lenders is not as important as what the co-ops will say. Regardless of what your lender is willing to do most co-ops require 20% or more. And 75% of our housing stock is co-ops, at least in Manhattan.

Mhillqt:

THanks, I think......I'm neither, I'm a guy who owns a branding company in Manhattan that's been looking to buy a home in Brooklyn for abt 10 months.

I happen to be an economics buff, so I get a bit tired of the boring threads on sites that are jsut opinions and stances that have nothing to do with actual common sense analysis of the situation.

So glad to see we've gotten so many replies. I posted it on brownstoner and got 1 response. Not so much for the in-depth discussion over there unless it's abt real estate porn.

I figure most of the city is pretty much like that (the negative part).

Not looking at data is what got us into the real estate bubble in the first place.

".this poster could be an urbandigs type realtor"

Funny you mention that, Noah Rosenblatt is actually my realtor. I chose him specifically because he isn;t a salesman/chapperone hybrid like every other NYC realtor.

Your bullet points at the top of this thread have been discussed on this forum. It could be that people are burned out on the arguments, which turn into mudslinging ("You don't know anything! I do!")

TAILWIND: Thousands of twentysomethings continue to move to Manhattan looking for a place to live.
HEADWIND: They want to pay cheap rent
TAILWIND: Lots of huge family-sized apartments, brownstones and townhouses are on the market
HEADWIND: They're too expensive for younger home-dwellers

Hmmm, what to do, what to do...

TAILWIND: Brownstones, townhouses and large family-sized apartments get subdivided and convert to rental housing for young, single city dwellers.

Gee, has this ever happened before????

Watchnwait: developers default on luxury bldgs which are sold at auction and cut up into studio and 1br apts which happend in the 70s/80s

"Watchnwait: developers default on luxury bldgs which are sold at auction and cut up into studio and 1br apts which happend in the 70s/80s"

Unless you are talking about the gut renovations of loft/industrial space, where did you see this in the 1980's?

"As soon as sideliners like me get the sense that buying is only a little more expensive than renting, and that the risk of losing my life savings in a declining market has diminished somewhat, then we'll venture into the market."

While not really a tailwind or headwind (more jsut a general sentement), this summarizes the situation for me in many ways. I'm not worried about losing my life savings, jsut of overpaying by the tune of 1 or 2 hundred thousand dollars. Add the interest on that over 30 years, and it's a huge number.

SO many people who say "if you plan to live there a long time it shouldn't matter" just seem to miss this point. B/C by that logic, last year was also a great time to buy if you are staying for 15+ years.

But it would have ben a horrible financial decision.

Lowery posted:

"I don't understand the currency trade bulletpoint, tho.
Could you explain?"

A brief explanation: in 2007 (I believe) one in 3 condos bought in manahattan were purchased by foreigners because the dollar was so weak vs other currencies, that to buy hard US assets was a great deal for a foreigner. They were getting things at 50% discounts to their purchasing power in their own country.

Once the global recession hit, and gloab RE markets also were hit hard, the Eurozone and the UK devalued their currencies just like we did (though not as hard).

So a big part of the NYRE runup included foreigners buying US peoperty, beleving it was a great ivnestment.

Now that this currency trade (purchasing US dollar denominated assets with stronger foreign currency) is far less appealing, you've seen a huge part of the demand side of the equation in NY evaporate. It was one of the major tailwinds of the NYRE market for a few years.

Money - so in the hypothetical where we know that prices themselves were stable, you say that you would be willing to pay a little monthly premium for owning vs. renting. are you looking at that on a gross or net (of tax benefits), and what type of premium would be acceptable (% wise)?