40-50% decline in prices from here?

Yes.

Housing prices will plummet 70% from where they are now. It'll be a real estate vulture's wet dream as middle-class renters move into Fifth Avenue Classic Sixes.

Of course, along with this wonderful "equalization" of the real estate market comes a crash in tax revenue for the city, so expect to see streetlights that won't be replaced, garbage that won't get picked up, graffiti everywhere, and a return to 1970s-era "community policing" because we'll have had to lay off 60% of the NYPD.

Enjoy!

I've lived within 2 blocks of the Bowery for 13 years. There was nothing nice about it, it was full of junkies and angry alkies.
You can't unring the bell, the Avalon and the million dollar condos are there to stay. It's also lined with traffic cops almost 24/7, and fights, stabbings and public OD's are way down.
So in brief, I can't speak for all of Manhattan, and some prices got ahead of the gentrification, like in Hell's Kitchen and parts of Harlem, but other areas have changed so prices won't go back to that level.
One thing to keep in mind is that NY, unlike other places, has more renters than individual homeowners, and most owners in Manhattan are coop owners who were never able to borrow without a downpayment. I think the best "deals" to be had will be in new development condos built in the last 4 years, and at the very top of the luxury markets, because those prices were multiplied by 8-12 in the last 10 years, so 40% down is really not that crazy.

From here? No.

Couple of points.
1) We'll see a shift from owning to renting driven by fear of commitment and tougher
underwriting standards
2) High End will get hit more than low to mid end
3) NYC survived Depression, 1970's...etc, odds are we survive this

We could see a general 10-20% decline from here, but then expect low single digit price increases.

Not 50% from here. Probably another 30% - $800 psf in prime Manhattan, approximately, which will make about an overall 50% decline from the peak.

either way, nyc survives. i don't understand why discussions of dramatically lower prices (which, of course, are only dramatic relative to the last 3-5 yrs) always come down to nyc survival. there is a very strong case to be made (and that has been made repeatedly) that significantly lower re prices would create a revival in ny.

"Look at the history of all bubbles."

a key feature of this times that wasn't present before (during other land and housing bubbles) is the ability to print confetti like there's no tomorrow. the purchasing power of money is such a big part of the pricing clearing mechanism (and totally out of our control) that maybe talking about nominal prices is just non sense. in real terms? yes, they have to come down. nominal terms within 10 years? neither bernanke knows, he knows how much he's printing, he has no clue where it's gonna show up.

1) We'll see a shift from owning to renting driven by fear of commitment and tougher
underwriting standards

shiller wrote a book that's coming about changes in the psychology of the consumer. he thinks (and i agree) that the length of the decline in RE prices and the recession will determine whether the change in preferences (rent vs owning, small vs mcmansion) will be permanent or transitory. i don't see fear of commitment (only in the sense that limits your mobility and gives you exposure to even lower prices, in my case, higher future property taxes is a big one). people might end up thinking that their house is a money pit versus an investment. hence "small is beautiful" and the like mentalities could prevail.

"there is a very strong case to be made (and that has been made repeatedly) that significantly lower re prices would create a revival in ny."

"Revival" of what? Crime? Litter? Deterioration of buildings?

That's what you get when there's an across-the-board drop in real estate prices.

"there is a very strong case to be made (and that has been made repeatedly) that significantly lower re prices would create a revival in ny."

the idea that the starving artist will come back in hoards like it was in the 70s?

"the idea that the starving artist will come back in hoards like it was in the 70s?"

Because everyone knows that starving artists are the economic backbone of this city ...

"the idea that the starving artist will come back in hoards like it was in the 70s?"
Because everyone knows that starving artists are the economic backbone of this city ...

that's what the pot entrepreneurs are saying. heard it was refuted by the entrepreneurs of the soap and shampoo sector. we will see.

i don't see fear of commitment (only in the sense that limits your mobility and gives you exposure to even lower prices

Admin, crux of my argument. Fear of Committment will be due to fear of price declines and future income uncertainty.

he knows how much he's printing, he has no clue where it's gonna show up.
Admin, If you increase currency by 50% to not expect a decline in the purchasing power of that currency in the long run defies logic.. Weimar Republic? The big difference between the U.S. & Weimar Germany is that Bernanke believes he can successfully target a 2-3% inflation target...

riversider, you must remember that excessive credit is inflationary as well. it puts money into the economy, via balance sheets. currently the money is just trying to fill holes, and not very successfully.

the credit boom was the mother of all inflationary forces. and we saw it in our housing costs, both rental and purchase. but that money went directly to the people who were renting and buying. there's not a hell of a lot of increasing the discretionary spending capability of the consumer going on right now that could be utilized toward additional housing costs.

lol, who knows what they were thinking/hoping for in weimar (to be more delusional than bernie is tough, regarding his ability to dry liquidity out of the system at exactly the right time... ).

"Admin, If you increase currency by 50% to not expect a decline in the purchasing power of that currency in the long run defies logic.."

that's what i meant, medium term declines in RE should be thought of as in real terms. in nominal terms nobody knows as we are back to the discussion of "till when deflation? from then on high inflation".

its not about starving artists. its about people who make good livings being able to afford decent apartments. how many times have we documented that $250 K income doesn't buy a reasonable sized place in manhattan.? always to the extreme....last time I looked $250 K was not starving artist salary.

You must remember that excessive credit is inflationary as well.

Only too well A.R. Easy credit seems more likely to fuel asset bubbles than consumption. I do buy into the argument that by keeping short term rates low(which the Fed has some control over), the Fed is hoping savers will tire over 0% interest on their savings and invest longer term(probably at the worst possible time) or invest some of it or consumer more. Fed & Treasury are acting on the assumption that with no prospect of positive return investors will assume risk and invest in Residential &Commercial R.E. let alone long bonds , stocks..etc etc

Not quite sure how it plays out myself.

you raise an interesting point re going long term for some income. if you look at 3.5% long enough compared .75% it starts to look good.

they're doing their best, the great reflationary experiment. i can't see a happy ending.

It's like the classic remedy for hang-overs....
Hair of the dog that bit you

"they're doing their best, the great reflationary experiment. "

sure, nobody says their mean, just incompetent.

A.R. I am not sanguine.
My assumption is the Fed will not have the political courage to raise rates and sop up excess liquidity. So if the Fed will not remove excess money from the system, The currency will debase. The Chinese have been very clear about their concerns...Expressed multiple times to Timmy.

well...perhaps the good news then is that at the end of the day, they have a lot more power than tim.

timmy's got WAY too many people to listen to. right now he's tuned in to bank frequency, and can't turn the knob.

that's a funny image...him hunched over the ham radio with the big earphones on anxiously twirling the dial trying to get a clear signal.

damn, he keeps getting vik and ken, where's the big guy from gs again? oh, he's at the white house? throws down the earphones.

"My assumption is the Fed will not have the political courage to raise rates and sop up excess liquidity."

do they know what "excess" means? honestly, this reminds me of mishkin saying... oh well, maybe we do need to pay attention to bubbles. but wait! we were saying in 2005 that we didn't know whether housing was a bubble... oh boy... if they didn't know back then while at the peak of the biggest housing bubble in history, what chances do these guys have of seeing the next one for what it is?

"ts not about starving artists. its about people who make good livings being able to afford decent apartments. how many times have we documented that $250 K income doesn't buy a reasonable sized place in manhattan.? "

No, but they can afford to RENT.

No one ever said buying NYC real estate was a birthright.

this reminds me of mishkin saying...

Admin, you quote Mishkin, I'll stick with Minsky

"Admin, you quote Mishkin, I'll stick with Minsky"

good choice!

but guess who's in charge of research at the FED? you think misky would have been even invited to the club?

hmm. Fed appointments are primarily from the banking industry......NO

bernanke is from academia, volcker a public servant... this wave of people coming from GS is unusual to say the least

http://www.federalreserve.gov/pubs/frseries/frseri4.htm

Selection and Representation
Reserve Bank boards of directors are divided into three classes of three persons each. Class A directors represent the member commercial banks in the District, and most are bankers. Class B and class C directors are selected to represent the public, with due consideration to the interests of agriculture, commerce, industry, services, labor, and consumers. Class A and class B directors are elected by member banks in the District, while class C directors are appointed by the System's Board of Governors in Washington. All head office directors serve three-year terms. Two directors of each Bank are designated by the Board of Governors as chairman and deputy chairman of their nine-member board for one-year terms.

just need a class D representing savers, both local and foreign.

Imagine if the FDA was appointed by the Drug Companies..
SEC appointees by the Fortune 500
FCC By broadcasters
Justice dept by....

Juno Credit Suisse thinks it could go down another 45 percent! I think by next summer we will see how low it will go, and I think that by then it will be off another 15-20 percent! Economics is taking over and poping this nasty bubble. Should have happened a long time ago

If NYC R.E. prices come down 45% and I can buy something that even ekes out a 1% cap rate.. I will buy.

Riversider could you please explain what a '1% cap rate' is ?

http://www.invest-2win.com/caprate.html

The Capitalization Rate or Cap Rate is a ratio used to estimate the value of income producing properties. Put simply, the cap rate is the net operating income divided by the sales price or value of a property expressed as a percentage. Investors, lenders and appraisers use the cap rate to estimate the purchase price for different types of income producing properties.

Think of cap rate like yield on a stock..

is there any provision in the calculation for loss of principal? or, is it assumed that its a long term holding and that is not the point.

\mbox{Capitalization Rate} = \frac{\mbox{annual net operating income}}{\mbox{cost (or value)}}

CC
As a stock investor , When I buy based on yield , I make a judgment regarding certainty of dividend and assume the stock will reflect that intrinsically. I would also assume long term holding.

I'm from dividend school of stock market investing, at least I think I am.

Thanks Riversider.

I know the thread has moved past this point, but I just wanted to suggest that big drops in property values, while jarring, are probably not as bad as having lots of properties sit empty.

The level of services provided by state and local governments in NYC is not vastly greater than it was in 1999 before the bubbly, certainly not greater in the same proportion as property sales prices have increased. But lowering prices would get more people living in all those buildings that may otherwise sit empty for years. This would mean more people living, working and spending money in the City. In the long run, I would imagine that the benefits of that increased activity have to exceed the lost property tax revenues . . .

I thought Fed governors are appointed by the president?

"I've lived within 2 blocks of the Bowery for 13 years. There was nothing nice about it, it was full of junkies and angry alkies.
You can't unring the bell, the Avalon and the million dollar condos are there to stay. It's also lined with traffic cops almost 24/7, and fights, stabbings and public OD's are way down.
So in brief, I can't speak for all of Manhattan, and some prices got ahead of the gentrification, like in Hell's Kitchen and parts of Harlem, but other areas have changed so prices won't go back to that level.
One thing to keep in mind is that NY, unlike other places, has more renters than individual homeowners, and most owners in Manhattan are coop owners who were never able to borrow without a downpayment. I think the best "deals" to be had will be in new development condos built in the last 4 years, and at the very top of the luxury markets, because those prices were multiplied by 8-12 in the last 10 years, so 40% down is really not that crazy."

I think you may be confusing whether the buildings will still be there with whether that changes in the neighborhood will still be able to support the kind of PRICING which bubbled. There is now question that many neighborhoods have changed in similar ways in teh past (Soho, East Village), but still fared very poorly in market crashes. One often seen phenomenon in crashes is a "flight to quality". What this means is that people reduce their propensity to the "risk" of low quality that they had abandoned during booms. Take a look at prices in Christadora House as an example.

My folks lived in a nice neighborhood in Brooklyn. When the neighborhood changed, they stole the clock and furniture from the lobby..

Extreme case, but makes the point.

So, Riversider, what do you think the cap rate for Manhattan residential property "should" be?

I would like to see 3-4%.
.....
Been waiting a long long time.

We were probably there about ten years ago before things started taking off and investors only considered capital appreciation.

and that's with some debt...

I don't agree that there will be a vast shift to renting instead of buying. Rampant inflation seems unavoidable given the moves the government/Obama are making; owning real estate is a good hedge against that and in uncertain times, the psychological reassurance of owning something "real" will remain a major incentive.

Sisyphus. A change in ownership rates in the mid to high single digits could have huge implications.

Riversider: "My folks lived in a nice neighborhood in Brooklyn. When the neighborhood changed, they stole the clock and furniture from the lobby."

Are you sure it was your folks who stole the clock and furniture? It seems like a sort of wild accusation. Why didn't they simply move when the neighborhood toined, and take their own stuff with them?

Brooklyn 1960's.....
And a lot of people wound up moving..

Don't know that I'd agree with you, Riversider, as regards cap rates. 3% to 4% cap rates sound too low to me.

Particularly now "publicly-traded" (REITs) are selling at close to 8% cap rates.

My two cents. But thanks for your thoughts.

My folks lived in a nice neighborhood in Brooklyn. When the neighborhood changed, they stole the clock and furniture from the lobby..

You should have implored your folks to give back the clock and the furniture. :)

I didn't realize Soho fared badly. The East Village reeks of dog piss, as it did 10 years ago.
Some of the prices were completely nuts, there were almost no difference in pricing between gorgeous, well-maintained buildings and 6th floor walk-ups.
I agree about the flight to quality, both in neighborhoods and buildings. When the cost of borrowed money (in personal downpayment and/or interest rates) gets real, people make more rational decisions.