Where do people think the NYC rental market is headed for the next, say, 10 years? One of my thoughts is that the 20-30% drop we have witnessed over the past year or two is temporary: when the economy comes back, rents will pop back up. So we'll see inflation increases of 2-3% a year, plus the 20-30% gain spread out somehow. Another thought is that what we have witnessed is a more permanent... [more]
Where do people think the NYC rental market is headed for the next, say, 10 years?
One of my thoughts is that the 20-30% drop we have witnessed over the past year or two is temporary: when the economy comes back, rents will pop back up. So we'll see inflation increases of 2-3% a year, plus the 20-30% gain spread out somehow.
Another thought is that what we have witnessed is a more permanent change. For years, NYC has run on extremely low vacancy rates that gradually got as low as 1%. When inventory gets this tight, prices are react very sharply to the marginal availability of units. Pre-crash prices were a reflection of this, and now with the greatly-shrunk finance sector which in all likelihood won't bounce back with the greater economy as much, the marginal inventory issue won't be there, so the 20-30% drop won't bounce back. Sure, there will be inflation increases of 2-3% a year, but that's it. This is what happened in SF during the tech boom, but it was all in a very compressed amount of time (a few years for boom an bust), so it was quite easy to see.
Of course, I'm not sure if rent drops will stop at 20-30%...
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Response by aboutready
over 16 years ago
Posts: 16354
Member since: Oct 2007
i think unemployment for new grads will affect it for at least a few years. if the hiring patterns remain persistently lower, it will have a downward effect, although that would find some equilibrium at some point in that as it became more affordable the population density in apartments would decline.
a few years ago i read an analysis of the developers' plans to build the new apartment towers we now see being completed. even then they didn't think that they would have enough population upon completion to fill them. they were anticipating forward, household creation from increased population and roommates moving on to their own apartments. so they started assuming an inventory overhang, but wanted to go ahead because money was easily had and credit was cheap. and now there will probably be numerous condo developments, particularly in brooklyn, that become rental. some brooklyn renters will prefer to migrate to manhattan as prices decline, but we largely forced the young to create an alternative to manhattan, and they have. many of them now want to be in brooklyn, so when you consider inventory vs. demographics you can't not consider those, particularly for rentals.
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Response by NYCROBOT
over 16 years ago
Posts: 198
Member since: Apr 2009
Or there's another, unfortunately more likley scenario:
that this economy will never fully recover and we have sluggish growth for the next decade and a permanent higher set-point for unemployment of 8-9%. The lucrative jobs in the NYC area never come back and we start seeing a permanent exodus of the middle class as the state tries to bolster revenues with unbearable tax increases. That, combined with the massive over-buidling of new buidlings that is continuing to push forward will leave it a permanent renters market.
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Response by 30yrs_RE_20_in_REO
over 16 years ago
Posts: 9880
Member since: Mar 2009
I was talking with a guy in my office who owns a number of properties which he rents out. one condo we were talking about the building and 5 units are in default already on the common charges. So we got to the topic of one of his units in the building, and he bought is at 60% to 70% off recent transaction prices, is carrying a mortgage with a balance of 50% of what he paid for the unit.... and he's still at $2500 rent vs $2200 costs. now if this is the position HE is in, think about what's going to happen to not only him, but an awful lot of people who are in much worse positions than he is if the rental market erodes further any appreciable amount.
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Response by NYCROBOT
over 16 years ago
Posts: 198
Member since: Apr 2009
I actually can't say I'd feel bad for the big rental corporations if they took some really big hits. They've been getting fat on renters for years. Everyone else is feeling pain in this economy, it doesn't bother me that they feel the pain too.
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Response by inonada
over 16 years ago
Posts: 7952
Member since: Oct 2008
That's pretty dire, nycrobot, but maybe that's the way it will go.
30yrs, that's a pretty scary story. The truth is that guy will have no problem hanging on. Others will just bleed their losses over a decade. Plenty of people have the means to bleed $3K a month over the next decade, investor or primary resident. To be honest, I never really considered a permanent drop in rental rates when I was doing my rent vs buy decisions since I've been in NYC. My mistake / good luck, perhaps, but it was an easy enough decision to rent without it. Now did the buyer / investor get blindsided by this? I don't think so: from my interactions with bubble buyers, they don't seem to make a connection between prices and rental rates, so what's the difference? In the rare case that they do, they don't make the connection between rental rates and CPI, but that's a different story altogether.
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Response by dco
over 16 years ago
Posts: 1319
Member since: Mar 2008
If you can't see that renting today is clearly smarter then buying then I'm not surprised. After all those who can"t see that are the reasons we are in this mess. It really amazes me. People are willing to float a $7k mortgage when they can rent the same unit for $3500-$4000 just to say they own it. I don't care how you "creatively " run your numbers. It's just wrong to buy now. Sorry.
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Response by inonada
over 16 years ago
Posts: 7952
Member since: Oct 2008
Agreed dco, but what about the 20-30% drop in rents over the past year or two? Were you expecting that, and do you think it'll revert in an inflation-adjusted way? It was certainly a possibility in my mind (as was high inflation and increasing rents), but I wasn't expecting it. Don't know how things will go forward, but if you expect it to revert, it makes buying in the rent vs buy equation less "wrong" (using your words).
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Response by jimstreeteasy
over 16 years ago
Posts: 1967
Member since: Oct 2008
The situation in the rental market makes the purchase market look even more ridiculous. My understanding (based on personal experience) is that rent increases have been nowhere near the magnitude of purchase price increases, and have roughly been equal to inflation....and now rents are even falling, so, geez, the price and rental streams seem even more out of whack.
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Response by The_President
over 16 years ago
Posts: 2412
Member since: Jun 2009
"and we start seeing a permanent exodus of the middle class as the state tries to bolster revenues with unbearable tax increases."
And where are they going to go? Nearly every state is increasing taxes too.
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Response by The_President
over 16 years ago
Posts: 2412
Member since: Jun 2009
"That, combined with the massive over-buidling of new buidlings that is continuing to push forward will leave it a permanent renters market."
I don't think we will have a permanent renter's market. If we look back in recent history, it has been a landlord's market more than a renter's market.
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Response by marco_m
over 16 years ago
Posts: 2481
Member since: Dec 2008
rental market continues to get crushed. I walk around the UES and see so many "for rent" signs on every block. landlords are taking some pretty heavy losses now. not to mention all the empty commercial spaces. just on 86 between 2nd and 1st, there a bunch of empty retail...thats gotta be hurtin someone
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Response by sunclaus1
over 16 years ago
Posts: 139
Member since: Jul 2009
The situation is not just isolated to Manhatten Queens in Sinking economically and prices--Even in places like Flushing where there is a constant surge of immigration..The Hamptons are on verge of Collapse ..The NYC owners are encouraged by STOXX Rally and wont Sell ..Will that Last ??
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Response by dco
over 16 years ago
Posts: 1319
Member since: Mar 2008
inonada- I believe the condo/coop market will eventually bottom out in 2 years after a 40-50% plunge. I have posted my thoughts for over a year on where I believe the market was headed. In many cases way a head of many. I have not changed my opinion. I actually have become even more bearish. Mainly because nothing has changed. Someone please tell me how we have fixed the problems with the banks. Not only has it not gotten better it's much worse. You can't ignore the math. Sorry for the rant. My answer about rents is clear. They will plunge along side home prices. If you are renting now you are either very savvy or lucky. Either way be patient and you will be rewarded with much lower prices.
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Response by bigapple2
over 16 years ago
Posts: 30
Member since: Sep 2009
Jobs jobs jobs! With the vast majority of new rentals being new hires and the busy summer season being mostly made up of lateral moves within Manhattan-I think we are looking at a flat line for some time to come.If Manhattan prices go down another 20 to 30% I think you'll see the Brooklyn/Queens crowd heading in for great deals. No matter what happens with the economy-people still have babies, break up and hook up. So I am cautiously optimistic for Manhattan.
i think unemployment for new grads will affect it for at least a few years. if the hiring patterns remain persistently lower, it will have a downward effect, although that would find some equilibrium at some point in that as it became more affordable the population density in apartments would decline.
a few years ago i read an analysis of the developers' plans to build the new apartment towers we now see being completed. even then they didn't think that they would have enough population upon completion to fill them. they were anticipating forward, household creation from increased population and roommates moving on to their own apartments. so they started assuming an inventory overhang, but wanted to go ahead because money was easily had and credit was cheap. and now there will probably be numerous condo developments, particularly in brooklyn, that become rental. some brooklyn renters will prefer to migrate to manhattan as prices decline, but we largely forced the young to create an alternative to manhattan, and they have. many of them now want to be in brooklyn, so when you consider inventory vs. demographics you can't not consider those, particularly for rentals.
Or there's another, unfortunately more likley scenario:
that this economy will never fully recover and we have sluggish growth for the next decade and a permanent higher set-point for unemployment of 8-9%. The lucrative jobs in the NYC area never come back and we start seeing a permanent exodus of the middle class as the state tries to bolster revenues with unbearable tax increases. That, combined with the massive over-buidling of new buidlings that is continuing to push forward will leave it a permanent renters market.
I was talking with a guy in my office who owns a number of properties which he rents out. one condo we were talking about the building and 5 units are in default already on the common charges. So we got to the topic of one of his units in the building, and he bought is at 60% to 70% off recent transaction prices, is carrying a mortgage with a balance of 50% of what he paid for the unit.... and he's still at $2500 rent vs $2200 costs. now if this is the position HE is in, think about what's going to happen to not only him, but an awful lot of people who are in much worse positions than he is if the rental market erodes further any appreciable amount.
I actually can't say I'd feel bad for the big rental corporations if they took some really big hits. They've been getting fat on renters for years. Everyone else is feeling pain in this economy, it doesn't bother me that they feel the pain too.
That's pretty dire, nycrobot, but maybe that's the way it will go.
30yrs, that's a pretty scary story. The truth is that guy will have no problem hanging on. Others will just bleed their losses over a decade. Plenty of people have the means to bleed $3K a month over the next decade, investor or primary resident. To be honest, I never really considered a permanent drop in rental rates when I was doing my rent vs buy decisions since I've been in NYC. My mistake / good luck, perhaps, but it was an easy enough decision to rent without it. Now did the buyer / investor get blindsided by this? I don't think so: from my interactions with bubble buyers, they don't seem to make a connection between prices and rental rates, so what's the difference? In the rare case that they do, they don't make the connection between rental rates and CPI, but that's a different story altogether.
If you can't see that renting today is clearly smarter then buying then I'm not surprised. After all those who can"t see that are the reasons we are in this mess. It really amazes me. People are willing to float a $7k mortgage when they can rent the same unit for $3500-$4000 just to say they own it. I don't care how you "creatively " run your numbers. It's just wrong to buy now. Sorry.
Agreed dco, but what about the 20-30% drop in rents over the past year or two? Were you expecting that, and do you think it'll revert in an inflation-adjusted way? It was certainly a possibility in my mind (as was high inflation and increasing rents), but I wasn't expecting it. Don't know how things will go forward, but if you expect it to revert, it makes buying in the rent vs buy equation less "wrong" (using your words).
The situation in the rental market makes the purchase market look even more ridiculous. My understanding (based on personal experience) is that rent increases have been nowhere near the magnitude of purchase price increases, and have roughly been equal to inflation....and now rents are even falling, so, geez, the price and rental streams seem even more out of whack.
"and we start seeing a permanent exodus of the middle class as the state tries to bolster revenues with unbearable tax increases."
And where are they going to go? Nearly every state is increasing taxes too.
"That, combined with the massive over-buidling of new buidlings that is continuing to push forward will leave it a permanent renters market."
I don't think we will have a permanent renter's market. If we look back in recent history, it has been a landlord's market more than a renter's market.
rental market continues to get crushed. I walk around the UES and see so many "for rent" signs on every block. landlords are taking some pretty heavy losses now. not to mention all the empty commercial spaces. just on 86 between 2nd and 1st, there a bunch of empty retail...thats gotta be hurtin someone
The situation is not just isolated to Manhatten Queens in Sinking economically and prices--Even in places like Flushing where there is a constant surge of immigration..The Hamptons are on verge of Collapse ..The NYC owners are encouraged by STOXX Rally and wont Sell ..Will that Last ??
inonada- I believe the condo/coop market will eventually bottom out in 2 years after a 40-50% plunge. I have posted my thoughts for over a year on where I believe the market was headed. In many cases way a head of many. I have not changed my opinion. I actually have become even more bearish. Mainly because nothing has changed. Someone please tell me how we have fixed the problems with the banks. Not only has it not gotten better it's much worse. You can't ignore the math. Sorry for the rant. My answer about rents is clear. They will plunge along side home prices. If you are renting now you are either very savvy or lucky. Either way be patient and you will be rewarded with much lower prices.
Jobs jobs jobs! With the vast majority of new rentals being new hires and the busy summer season being mostly made up of lateral moves within Manhattan-I think we are looking at a flat line for some time to come.If Manhattan prices go down another 20 to 30% I think you'll see the Brooklyn/Queens crowd heading in for great deals. No matter what happens with the economy-people still have babies, break up and hook up. So I am cautiously optimistic for Manhattan.