Think the worst is over? Wrong.

roubini's a downer, but a must read. ugg, don't bring me down.

Never underestimate the influence of Roubini on NY RE market after his predictions about the economy proved to be so amazingly accurate last year.

"This crisis was caused by massive government subsidies to purchase homes by people who couldn’t really afford them. So what does Congress do? They pass an $8,000 tax credit for people who can’t really afford to buy a home to buy one. I mean, how stupid can you get? - John Makin"

http://housingdoom.com/2009/11/16/aei-subprime-vi-complete-annotated-transcript/

This is the type of thinking that got me out of the recent surge in stock prices. DAMN!!! I could have mad a killing! I thought I was in the "W" recovery, but after all the recent reports and earning statements from DOW Jones and like companies doing really well... well, I missed out.

Let me guess, as soon as I embrace the "V" recovery, the market is going to crash and follow the "W" projections!

Ah Murphy! Give me a little break!

Unemployment lags behind stocks and other indicators. Most companies do not shed jobs all at once so we still have some rolling shedding to go. Besides, people are waiting it out on selling. The correctly priced units are on the bidding war which makes a great headline (per NY Times) but most are still over priced. While it is regionalized, I still fear the commercial RE defaults which would be the big news next year. More job cuts will be announced by year end, making the stocks dip but it would still go up.

Spring would be interesting in the RRE. While smaller in numbers of recepitants, the bonuses are much higher. I see guys, those who have a job, buying in anticipation of their bonus so they could get some what of a deal now.

Prices would still fall but it will not be a crossed the board, mainly incorrectly priced units per 2006-2007 prices.

"Third Quarter Mortgage Delinquencies Hit New Record AGAIN"

"The good news is that the pace at which people fell behind on their mortgages slowed during the summer for the third quarter in a row. The bad news is the overall delinquency rate hit another record."

http://www.businessinsider.com/third-quarter-mortgage-delinquencies-hit-new-record-again-2009-11

http://globaleconomicanalysis.blogspot.com/2009/11/bernankes-outlook-for-recovery-and-what.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

Yet even under this optimistic scenario, unemployment will still be above 10% at the end of 2014 and will not dip below 8% until the end of 2020.

AR - What part of that scenario causes you to label it as optimistic? That is a pretty negative forecast of jobs and not a whole lot of evidence to support the projection.

those aren't my words, waverly. it's a quote. and pull up the other referenced materials, have a look at the projections used in the various scenarios, and get back to me.

I already have and that is a very negative projection with a lot of liberties taken to arrive at the numbers used.

i'm not talking about that one. i'm talking about the other ones referenced in the article.

http://globaleconomicanalysis.blogspot.com/2009/11/mapping-unemployment-you-make-call.html

I just read something by Roubini at http://www.reuters.com/article/ousivMolt/idUSTRE5AB4AG20091112 where he predicts inflation - doesn't RE (timely-purchased, that is) benefit from that scenario?

"doesn't RE (timely-purchased, that is) benefit from that scenario"

Key words "timely purchased" as well as a low fixed rate mortgage if not all cash purchase.

An untimely purchase is still worse than just renting and cash in the bank collecting higher interest rates directly correlated.

The problem is with all the manipulations by the Fed and government over the last 15 years, rules are hazy and past models less reliable on what should or shouldn't happen.

My humble opinion, whatever "happens next" has never been more "unseeable."

Inflation just got me thinking, so let's say you buy an apartment for 1 million, and 5 years from now you sell it for 1.5 million, but inflation in these next 5 years is 25% (not ludicrous considering what looks to be ahead) you have a 500K gain you will pay tax on (sans 1031) of which 125K of that profit was inflation and no real gain. So upper bracket after fed,state, city of around 50%, your paying 250K in taxes on the 500k plus the 125K you didn't really make, your in pocket is 125K on a 1 million investment in 5 years.

I don't know, renting just keeps looking more and more attractive....and simple.

Call me dopey but, if you purchase that apartment for 1M and 5 years from now you still want to live in it, is that not better than investing your $ else where and and waiting 5 years to buy the same place for 1.5M?

This from the cover page of this site is way more relevant to NYC real estate.

http://therealdeal.com/newyork/articles/new-york-could-see-a-double-dip-in-residential-market--2

falco.. just dont' call me shirley.

truthseeker, is saying 25% inflation over 5 yrs, or 50% of the "profit" is inflation. I.e. if you put your $1MM into anything it would be worth $1.25MM in 5 yrs.

So going backwards, if you have to move, and pay the taxes on the $500K of gain, you are net after taxes ahead by $125K or an annual compounded appreciation of 2.36%.

And FYI, the annal compounding that you need to get to 25% appreciation in 5 yrs is 4.47%. Someone double chk my math, I've chucked my HP for the iphone app 10Bii.... still a little shaky on it.

So long long story short, an annal compounding of anything closer to 6% earned on your $1MM leaves you far far ahead.... except truthseeker forgot the $500K tax elimination on home purchases on couples..... one of the great many regressive "buy NOW" tax schemes in our 50K page tax law.

Oh and don't forget the subsidized leverage afforded by putting down jsut 3%.... just remember to not buy prada shoes with the $970K... they don't hold their value as well as a bucket of manure in the dry heat.

do they offer fha loans to people buying in manhattan i dont think so

stop calling me shirley

bulls ?

I'm no economist, so help me out here. If I buy a well-priced apartment today (as I have and believe it was) and decide to rent it out five years from now, won't the projected inflation be a considerable boon to me?

My thought in buying was that it would give me a RE "chip" that I can use down the line - leaving the money exposed in the equities markets is no surer thing than RE, which at least affords you a roof over your head. The people I know who chose to rent rather than buy back when I bought my first house are far less well off now than me - that's anecdotal and perhaps a fluke, but, while they took better vacations and wore better clothes, they don't seem to prosper - maybe it's just the discipline of having $$ tied up in a home that keeps you from buying all those Prada shoes?

I think the issues with your logic are these. One, like many you think stock or real estate, and ignore cash and bonds. I think the problem with your plan is this. Buying now and renting will provide a terribly low return in the near term. Why risk your principal for a terrible return now? When you can buy a home and rent it out and earn a 5%-7% or greater return, great. If you bought a condo today and earned 2.8% on your money, it would take a lot of rent inflation to bring that 2-3% up to something more commensurate with levered equity risk. You shouldnt need a big mortgage to budget yourself sensibly. Also remember (and I know its a dead horse) but the ratio of price to rent right now is so stretched, there is no guarantee that values will move up with rents. Also, dont forget vacancy.

Inflation measures a basket of goods and services. Although inflation affects rents in the long long term, rents are mostly affected by supply and demand. Supply remember goes to lowest marginal cost supplier in times of slack demand, ie you will be competing with the guy who paid $300psf for his apt back in 1995 and is happy to rent for $30psf

we continue to talk about inflation as though its not only a done deal but already ravaging the economy. the price of oil has dramatically shown that previously sacred demand can and will drop in the face of price increases. our economy is teetering on the edge of deflation; investing to protect against inflation can prove to be disastrous in this environment.

umm... hellooo. we've already had the inflation in housing. recall 2003-2008. i doubt inflation will have any affect but downwards on housing prices. unless of course, we get wage inflation. haha. like that's gonna happen anytime soon.

We're also talking about Manhattan rents as if they are up since 2001. They dont need to move in lockstep with oil and gold. The reality, sad for some but happy for others, is that finance has been booming (with short breaks) since 1980. The industry has hit an inflection point. The relative value of living in Manhattan to people is going to be contracting for a long while. Thats rents and purchase prices.

w67th
Yeah I didn't forget, just not counting on any tax benefits with the Pelosi/Frank gang if they have 5 more years under their belt, or me turning into a couple though it's happened to a few friends recently who were of my mindset. Who knows what our tax structure will be 5 years from now....even 2.

And yes, my investments have far surpassed 2.36% or even 4.47% per annum over the last 15 years.
I used to get killed by friends for investing in double or triple A bonds collecting 8/9%. Meanwhile I weathered the storm and they are crying today.
Don't get me wrong, there are intangibles to owning your own home, and I am not adverse, it's just not as rosey as many thread posters convey. It is by no means a slam dunk.

In the end it's better to wait for the actual bottom and overpay 10/15% on it's way back up rather than buying on a false bottom.

It's always a risk reward play, RE cetainly more stable than stocks (RE doesn't go to zero, a stock can) but stock can reward you much higher, faster.

And though true you can survive a RE mistake much easier than a stock one, It's just healthier to spread between the two.

For all you bulls who think RE is the be all end all, I offer you this question; If I could offer you the Biff Tannen option and send you back to yourself in time to ten years ago for 30 mins with 500K but you could only spend it on either real estate or stocks, which would you choose?

Of course Manhattan real estate levered 10 to 1. But then id sell it right now and sign a two year lease. Invest in something with low
duration.

You are illustrating the recent history bias perfectly.

Rhino86

Did you see the HBO documentary, "Schmatta;rags to riches" on the garment industry? Amazing the powerhouse that NY was fueled by this industry. It was a sad ending.
Finance seemed to replace it for NY for a long time.

That's the question, init? Will finance still be the powerhouse? Will NY continue to be the core of the financial world or can it survive another 20 years of technological advances?

Sorry, that's questionS.

How would you have answered your own question in 1998? 1988?

It really wasn't a fair question, easily stocks. 1998, you could've bought just google alone and outperform any property.
1988, I was too busy worrying about having enough money to make it to ft lauderdale for spring break.

fyi, google didn't go public until 2004.

Yes I know, the condition wasn't that you had to buy ONE stock or ONE property and in 1998 only.

Though I see know the way I worded my answer, it suggests I would buy google IN 1998.
I meant in the 1998 to 2008 period.
And my initial question was poor and undetailed as well.
Simply if you give yourself instructions in 1998 what to do with 500K and it had to be used only in RE or stocks but you could buy and sell as many of the "products" in that period.

@truthskr10

In the past 15 yrs which double or triple A bonds have you found with a 8/9% yield?

Ok, just pulled out a file from 2000.

Let's see...
Equitable COS Senior notes 9% Rating A2A
JPM Capital trust II cap secs 7.95% Rating A2A
Sun life Capital 144A 8.526% RatingA1A
Great Western Finance trust 8.2% Rating BAA1/BBB

and yes sorry, I see a lot of triple B (car companies)

THIS JUST IN - NOVEMBER 18, 2009. The NYC Economy Contracts to 1.6% in Q3. The US economy grew by 3.5%. Ouch!!!!!

I wish I sold real estate in 1988 to buy stocks. In 1998 I wish I sold that stock and bought back my real estate. I wish in 2008 I sold that real estate. Wishing you bought real estate in 1998 if no fucking reason at all to buy it now. None of the then-observable reasons that made real estate attractive in 1998 apply here. Cap rates are 1/2 what they were in 1998. Maybe the fact is that after this stock market run and debt recovery, people should be heavy cash right now.

Nice snippet GoingDown.

These are not double or triple A

Well anything that had an A in it somewhere at the beginning of the rating was good enough for me at the time and considered pretty safe.

And a quick glance at my '99;

KFW Int Finance 9.125% RatingAAA
Mellon Financial 9.75% Rating A
Mountain State Tel & Tel NTS 9.5% Rating A+
Orange and Rockland County Utils 9.375% Rating A+
Chubb corp notes 8.75% Rating AA+

What would a 1999 interest rate environment do to the value of NYC real estate.... Look out below. It should cost 8-9% to borrow. The rates we have today are unnatural.

Rhino

Sorry brother absolutely nothing. An obscure element on my earlier post is being picked on and I am defending it.

"I used to get killed by friends for investing in double or triple A bonds collecting 8/9%. Meanwhile I weathered the storm and they are crying today"

Rhino
Yes I am 'tarded today!
I thought you asked "what does 1999 ....... have to do with the value of NYC real estate"

It would kill the housing market completely.

Right. Yeah, I didnt follow your last response. My only point is we are still working through what has now proven to be the anomaly in interest rate history. The downside to buying real estate here is a return of more normal rates. 1999 wasnt even a high rate environment to that date.

If I recall '99, I think banks were paying around 5% interest on savings. Bonds then seemed really safe at most ratings.

The manipulation of interest rates today is like a battlefield medic putting pressure on your wound.
Some people think we are over the hump.
We didn't even get out of the hospital. Heck we are still in critical condition.

I make no comment on the economy per se. I just think buying when the government is artifically holding down interest rates in a city like NY coming out of a historic bubble is indefensibly stupid.

Rhino - if I put my cash under the mattress and inflation kicks in, what good does that do me? Rents may be soft now, but they'll go up when housing prices recover and by then you will have missed the opportunity to buy at a good price. With your logic, there is never a good time to buy and you spend the rest of your life living someplace where you need permission to put a nail in the wall. Wouldn't work for me.

You asked to be educated and I tried. With my logic, you buy when the value is there. If inflation kicked up, chances are interest rates would be rising....offsetting the positive impact of rents on values. I'd rather buy for the same price in a higher rent environment, but at a better "yield". If it makes you feel better to think that there are no circumstances under which I would buy, and that makes you feel better about your ill-formed conclusion to buy...so be it. I'd rather buy in a period of strong rents and high interest rates, like the late 1990s.

I dont need to figure out where to tell you to put your money in order to win this argument. I for one would me much more confortable in TIPS and energy stocks as an inflation hedge. Don't worry though, you have all the right misconceptions.

Cash has such a bad name. Cash has been better than stock over the last five years. Right about breakeven against Manhattan real estate. If a Manhattan mortgage reit trades at a double digit yield, why should anyone buy at a 3% yield. You just dont get it. Buy away. Hedge your higher rent fear....and pay DEARLY for that hedge.

"I'd rather buy in a period of strong rents and high interest rates"
Without a doubt the safest time to buy.

At the very least, strong rents.
How can anyone talk about real estate recovery until rents stabilize...at the very least stabilize for a quarter.

Apparently we can talk about it because rents may be much higher in five years... and its going to happen so fast we wont be able to react. The reality is when the economy recovers, driving up rents, the government is going to withdraw the pressure holding interest rates down...Mitigating the upward impact. Paying rent here around the level of 2000 is a gift...enjoy it whiles you can. Believe it or not people I would have bought in the 1990s if I had the money. Saving hundreds of dollars a month BEFORE TAX BENEFITS is a no brainer buy when you can.

I don't know about fast but there will certainly be 1 to 2 year window.
Wave 2 will be the commercial re impact on residential. I don't exactly what it will be but it won't be good and it won't be fast either.

http://therealdeal.com/newyork/articles/banks-face-commercial-real-estate-trauma-analysts-at-reuters-global-finance-summit-say

My use of 'fast' was sarcastic. This idea that Manhattan rent inflation is an imminent danger is retarded. Its not gold, its not oil, its not a hedge against the dollar. Finance is still reeling. Many empty condos are going to be put to the rent market.

Rhino - I love cash. And it was my instinct to sock it under the mattress before the meltdown. But in the event of significant inflation, that's not a great investment strategy. I think what you're describing is akin to not jumping into the stock market until it has significantly recovered. I'm happier with the decisions I made to buy stock in March when all was gloom, doom and sky falling and now I have 130% gains.

I'm not trying to win an argument; I'm not even arguing. I'm genuinely interested in the vastly different approach you have to mine. Let's check back in five years and see which of us did better.

If its true, I am happy you picked the bottom in the stock market. So far, I haven't been able to discern your rationale for expecting rent inflation in Manhattan. Hopefully you had a more precise method for picking both the top and the bottom of the stock market. How much are you worth since we're measuring dicks?

thought Rhino didn't like homosexuals

it comes down to jobs jobs jobs

as long as we see WEEKLY initial claims of 300-500,000 there is no way that RE will lift off.
It will rather move the other way LOL

Right...But those figures are not relevant to Manhattan. Unemployment is a higher percentage here! As well its an even higher percentage within finance, which provides most of the support for these prices.

All in all, I am amazed at how apparently robust sales have been this autumn.

According to Urbandigs, 1,100 contracts have been signed during the past 30 days. I'm guessing that at least 90%, if not 95%, of these will go on to close.

To me it's the "greater fool" theory in action. But we will see.

topper, i agree. and i'm also amazed at the fact that inventory despite this robust sales still remains at around 9000.

Rhino, your comment is offensive, especially since I'm a female. Sorry you feel so threatened by my good calls and good fortune.

Its not that I'm threatened, its that I'm just not that into you.

You are bringing your irrelevent and likely false stock market calls into an unrelated discussion.

In my opinion it all depends on where and what you are looking to buy and if it is going to be your first home, an investment or second home. I am a broker myself and I see that so many listings are still at very high prices, apparently not really good investments if looking at the cap rate, but there are different expectations regarding the economy, inflation, and the dollar (remember that there are many buyers from other countries). Many owners in Manhattan are affluent enough to keep the apartment in a buyers market, especially if condos that they are renting out. In my experience if the property has not some interest for price, location, conditions it won't easily sell unless seller is willing to give a big discount. In any case I believe that is always better to own your first home, there are many reasons but the better reason at least in my case, was to have more diligence with my money: I do not waste money since I have to pay a mortgage and I do not invest in the stock market, which virtually saved me a lot of problem this year.