What do you think? Will the residential sale market stablize, drop more, or inch up in 2010?

I've been following RE for a while because I'm buying. For my situation, it makes sense right now. I have no idea what will happen to RE in the future, but from following these forums for a little while I would say that:

Most of the dire predictions on here read as desperate attempts to rationalize further extreme declines in prices. People just want to be able to afford their dream apartment, and hope posting on internet forums will make that reality.

There are others who desperately try to rationalize the opposite, but they are not as vocal and usually not as bitter and hateful - seriously people, you're talking to other human beings, not your computer.

Charts cannot explain reality, only our version of the past. People largely make decisions based on emotions and use "common sense" to justify it. These predictions for further declines, probably start with the assumption that prices will continue to fall, and then try to prove that. Everyone has an agenda.

I rarely see anyone taking into account Quality of Life, and the massive amount of inherited wealth in NYC. It's not just kids on Wall Street buying apartments. NY is the epicenter of old-money in the US and a magnet for any wealthy person in the world. I'm not sure the American Dream was meant to include Manhattan.

Stephanied do you really take these opinions seriously? I think the hatred of brokers expressed on this site is again a denial of reality. Sure they have an agenda too, but covering your ears will not change that.

Chairman, I and many other renters here can already afford to buy our "dream apartment", whatever that means. We simply choose to rent instead for financial reasons. You can pretty much rent anything you can buy, and you can pretty easily set up leases with 3 years worth of one-sided options to renew at predetermined pricing. A notable exception here is many coops, of course. The only quality-of-life difference that is real is that you might want a place for 10+ years, which is not doable when renting. On the flip side, many of us renters care much more about the quality-of-life upsides of renting: the ability to easily change your setup, the ability to always live in something newly built or renovated rather than 10-years dated, etc.

I don't care too much what happens to RE prices: I am happy to rent indefinitely as long as renting is a bargain. If foreigners or whoever want to pay high prices that in turn creates more high-end inventory for me to be able to rent on the cheap compared to what it costs to build, the more the merrier!

I am sure many others feel the same. Just because you might make decisions based on emotions, it doesn't mean everyone does.

Chairman- I tend to agree. I started ignoring the super bears when one said he was holding out for a 1500 square foot, top of the line, apt with out door space on a park block in prime UWS for under a million. That was when he felt prices would be "normal".

In functioning markets, over time prices are determined by the cost of production. If "old-money" wants to move to Manhattan and is willing to overpay to do so, it won't remain "old-money" very long. But more importantly, all it does in increase demand -- and over time supply will increase commensurately.

In free markets, in the short run anything can happen. However, if prices exceed costs, then developers/investors can make excess profits creating new supply by selling rentals, conversions or new construction. So they will. Eventually, that increased supply will absorb the demand and prices will revert to no more than costs.

Unless there is some reason to think that Manhattan rentals are worth (as rentals) over $1k psf, or that it costs over $1k psf to renovate, it is highly unlikely that prices will stay over $1k psf over time.

Since Manhattan rentals as rentals are worth about half what they are worth as sales, we should expect ever growing supply -- regardless of inventory blips -- as investors figure out how to convert their rentals to sales. Prices will adjust downward, or rents upwards, until investors are indifferent between holding for rent or holding for sale.

That's just basic market economics. Even if every bit of "old-money" or new bonuses is willing to overpay for NYC apts -- and old-money doesn't usually get to be old by being irrational like that -- the market is still likely to function.

And if it functions, prices are going to drop. Nothing "doomsayer" about that: that is what keeps our system working. The notion that markets are permanently broken so that prices can rise independently of costs is the truly depressing idea.

Personally, I am forever grateful to the bears in this board. I have been waiting to buy for a year and a half and prices have been coming down ever since.

mimi- You think the bears caused this?

Financeguy, this is well thought out and could very well be accurate. I'm just saying that in my view, reality behaves more irrationally, and bubbles seem to be the norm rather than exception.

Rent, buy, whatever, it all depends on circumstances. By emotions, I mean that people make decisions based on what they need/want and often use some form of rationale to justify.

My post was more in response to the ridiculous bears on here and the nasty tone that they perpetuate.

steph steph...come on, there is enough substance in this thread that you can ignore the vitriol and engage on the issues various of us have raised

>> ridiculous bears on here and the nasty tone that they perpetuate

David Broder, is tha'chou?

No, I think greed, hopeful thinking and mass delusion caused this. I am only saying that I wanted to buy over a year ago and my broker told me that it was a good time, since I was thinking of having the place for over 5 years. She insisted a lot. I found this board. Some people advise to not buy. Some bulls here said, well...if you are going to stay 5 years or more, the good time to buy is when you are ready, and you can´t time the market. 16 months later, I can buy way, way more I could have bought back then. So I am forever grateful to the bears, and I don´t use a buyer´s broker anymore. I am not a bear not a bull. Just a sideline buyer. So much buy now or be priced forever gives you broker allergy.
Financeguy, great post.

UWSer, I know from her previous posts that Mimi was fully planning on taking the plunge and buying a year and a half ago, and was dissuaded by bears on this board. She initially started using this board only to determine where and what to buy, not whether or when to buy.

Bears cause hibernation.

finance guy...But then how do you explain the runup over the last decade? The market has been out of equilibrium (worth more as sales than rentals) for quite a while, and while it has been correcting, one wonders if the correction will go as far as it logically should.

Maybe one of the sage brokers on here could answer -- have their been many rental buildings converted to sales in the last few years because of the economic reason finance guy mentions. Just one note but the rental building I lived in 15 years ago at 250 west 19th is still rental and rents are up by about 50% after all those years.

Chairman:

Let me guess: You are a woman. In a "helping" profession - nursing, teaching? Or maybe sales. Or an EA. But nothing with hard science behind it. What you are doing is projecting: You're taking YOUR method of decision making ("People largely make decisions based on emotions") and assuming that we all really do that, and that our "charts and graphs" are really just a crutch to validate emotional decisions we've already made.

Nothing could be further from the truth. In the past, I was an strong buyer of residential real estate. For the past few years, a seller. I've done the same with equties, fixed income investments, and commodities. All things have their cycle. Your comment "Charts cannot explain reality, only our version of the past" is nonsense. The science of statistics is just that - a science. Some relationships are statistically valid - the relationship can be proven to be less than 1% likely to be due to chance. Now, we all know that past relationships are not necessarily indicative of future relationships. But often times they are. For example, look at the last 40 years, and see how many times housing starts declined by 35% or more (5 times). And see how many times the economy went into recession shortly thereafter. Each time. Can you really conclude there is no relationship there? Using that and 3 other key indicators, I spotted this recession long in advance and exited equities before the downturn. Likewise, each time residential real estate has greatly exceeded a mean level of appreciation over a statistically valid period of time, it has reverted to the mean. EACH TIME. So we did have a basis for predicting the residential real estate decline that you and those like you never saw coming, and we have an equally valid basis for our prediction that we still have a ways to fall in NYC (less so in Miami, Las Vegas and other places that have already regressed closer to their mean). I realize my words are over your head, this post wasn't really written for you. It was written for those who might, on a bady day, be influenced by you, and are tempted to make emotional decisions on real estate. Seems kind of silly with Manhattan real estate being pricing in seven figures; who wants to make an emotional decision on something that big?

"Financeguy, this is well thought out and could very well be accurate. I'm just saying that in my view, reality behaves more irrationally"

No, what you are really saying is this: "I don't understand this stuff as well as you and some others on this board, so I behave irrationally".

Hugh,,,That was hilarious.

However, the point that markets can behave irrationally is a valid one, and there is no guarantee as to when markets will revert to logical levels.

alanhart...have you checked stephs page?...weren't you on some real blond patrol kinda thing recently?

Everything I said referred to blonds, not blondes. And anyway wigs don't count in the real blond / normal blond (or real blonde / normal blonde) assessment.

I eat your cat C_Meow.

It's true, w67thstreet does, he really does.

-burp-

Jimbo - while I agree that markets can, and often do, behave irrationally, people behave irrationally far, far more frequently.

Hugh G. Rection

"ridiculous bears on here and the nasty tone that they perpetuate"

LOL. Might the term "ridiculous bears" be a bit out of place in 2009?? Is NYC real estate not down from 2008? Are we not at the highest unemployment in decades years, and the worst recession since the 1930's? Is this person living in a parallel universe where unicorns romp freely in a field of rainbows??

For aggressive posts, see what happen in SE before Sept 28 with super aggressive bulls attacking bears like stevejx. It was vicious.
Bears here have reasons to get allergic at broker rote selling rants. Chairman smells more like broker than buyer. Maybe thats why w67th ate him.

jim, as long as the abatement program was extant, the advantage went to new construction. but that was a factor imposed upon the market. extraordinarily lax underwriting standards were another, which accounted for a large amount of the runup, although certainly not all. whenever you see exceptional times, look for exceptional reasons.

When Manhattan prices rise for 7 years and then Greenspan starts cutting rates aggressively and hedge fund emerge as competition for talent with banks in the financial capital of the world...its quite a cocktail for irrational prices....but truly all that matters is how many people with money are irrational. It'll be interesting no doubt. Maybe there are a lot more rich people than I believe. That said, of my most propsperous friends and relatives in Manhattan, one just sold to rent, another bought a house in Litchfield instead of a Manhattan apartment...another is planning to leave Manhattan for the burbs....another already owns his 'final' apartment and if they ever sold it would be to go to CT or leave this metro altogether.

ok, I know what kind of comments are going to follow, but I have more than 20 open searches for my customers in different areas and price ranges and I see that asking prices in the last few days are rising for several listings. I agree on the fact that this is an overpriced market, but may be Manhattan is historically overpriced and like other cities in the world offers low cap rates, however people are buying anyway if they can for other reasons?
If you compare Manhattan with other capitals in Europe you will see that is not so expensive.
On top of that Europeans like me love NY.

You are confusing overpriced as a concept to overpriced relative to current rates on the heels of a credit bubble in the face of emergency measures to lower the cost of money. Foreigners influence the market. If you think foreigners are the dominant force in the market, well then we will just have to see. Very typical of a broker to equate higher asks with higher prices.

Will FALL! BIG TIME!

Six more banks failed based on FDIC data on December 4, including Greater Atlantic Bank, Reston, Va., Benchmark Bank, Aurora, Ill., AmTrust Bank, Cleveland, The Tattnall Bank, Reidsville, Ga., First Security National Bank, Norcross, Ga., and The Buckhead Community Bank, Atlanta, Ga. The latest collapses bring the bank failure tally to 130 for the year.

One of these, AmTrust, was no normal bank failure. The bank, which had a total of 66 branches, was closed by the Office of Thrift Supervision, which appointed the Federal Deposit Insurance Corporation as receiver. According to The Wall Street Journal, "AmTrust is the fourth-largest U.S. bank or savings institution to fail so far this year." Its branches will be taken over by New York Community Bank.

Shuttering the firm is expected to cost the FDIC about $2.0 billion. The FDIC and NYCB entered into a loss-share transaction on approximately $6.0 billion of AmTrust Bank's assets, but it will likely not be enough to save the taxpayers a huge sum of money.

And the failure raises once again the issue of the adequacy of the size of FDIC funds. In early October, the agency ordered its bank members to prepay $45 billion in fees which covers the banks' premium obligations for three year. But, the FDIC has said the total cost of bank failures could hit $100 billion by the end of 2013. That begs the question of whether the FDIC will have to "tax" banks again to make up for another shortfall.

The FDIC has one other place it can turn for the capital--The Treasury Department which means indirectly the U.S. taxpayer. The credit crisis has already cost taxpayers a huge sum on bank bailouts and the jobs of millions of people. And, the FDIC says the misery may not be over for another four years.

Douglas A. McIntyre is an editor at 24/7 Wall St.

Why would a bank lend 80% LTV on a Manhattan condo right now at the prevailing asks? Are they?

Rhino86: you are making confusion here: I did not equate higher asking prices with higher prices, actually if you read my previous posts you will realize that I expect lower asking prices for 2010, so it surprised me to see a recent increase in asking prices in the last days, but hey what do I know, I am a typical broker, right?. We'll see if is a real trend.

As to the original question:
What do you think? Will the residential sale market stabilize, drop more, or inch up in 2010?

answer: Combination of hold and mild deterioration. changes to RE value have only small time pressures in the next few years. Between a slow modest economic recovery and a Banking system that is forced to act somewhat responsibly there is little upward pressure. There is a reasonable glut of residential RE out there plus the simple turn over with time. Urban conditions will worsen over the next five years as the city and state try to survive our collective needs on borrowing and taxing. Health care should continue to rise as old folks keep getting older. The city is a costly place to keep shiny, as the shine loses it's luster, the desire to live here diminishes. I call your attention to the 70's hit thriller starring Charles Bronson, Death Wish. Remember how the UWS and Riverside Park were portrayed? Dangerous crime infested cesspools of human decay, crime and, ambivalence. Such a portrayal should have angered the sensibilities of all New Yorkers if it were not for the fact that...that's how the city felt. I don't think we are heading back to the Bernie Getz days but, then again I'm not sure where we are heading at all.
On a separate note, all the bears on this site are as unhappy and disgruntle as Gummy bears.
Sweet, Chewy, stick to your teeth. The folks that hate bears are the folks with bad teeth.

jimstreeteasy:

Once a bubble begins, it's not hard to see how it continues for a while. Investors buy overpriced stuff (driving prices up even more) planning to sell it to even more deluded investors. Land and rental units go up in price as owners realize how easy it is to sell it for excessive prices -- which slows the adjustment process. And people who make money in round one come back for round two with even more money.

But in the end, bubbles must collapse, hopefully before they've sucked too much vitality out of the city, absorbed too much capital that could be used usefully elsewhere, or hurt too many people who stretched too far.

With enough help from professional speculators, panicked buyers and lenders willing to bet the bank for their annual bonuses, demand can go up faster than supply for a while -- but in the end, people hit a limit to how much they can borrow and supply catches up. The bigger the bubble, the more profit from creating additional supply (how many new luxury apartments were added to NYC in the last few years?) and in the end, increased supply force prices down. Prices can't stay above costs forever.

But all that is history that ended a year ago or so.

Today, no one who is paying attention imagines that they can overpay because they'll be able to sell to someone who will overpay even more. And no bank is going to lend on that theory for at least 6 months without a government guarantee; they have bad incentives, but not that bad. The only reason to overpay is because you are determined to turn new money into no money -- conspicuous consumption or just emotional impatience.

So even if some European or bonus money is wasted this winter, the odds of the bubble returning are basically zero. The ordinary folks -- the ones who face a choice between renting from a landlord or renting money from a bank -- aren't going to be willing or able to spend double to rent from the bank. Without them, supply will quickly catch up with demand, and prices cannot stay above costs.

Of course, this all assumes that the recession is just a recession and will have no lasting effects. If it turns into a secular decline -- if big law and Wall St and advertising never recover, or if NYCMatt is right and the bubble destroyed the creative sources of NYC's success -- all bets are off. In a shrinking city, prices can stay below replacement cost indefinitely, as they did in NYC from 1929-1980 or Buffalo/Detroit for the last generation, or Venice from 1600 onwards. And fear can create an inverse bubble pushing prices even lower.

What's cool is that market valuation pegs the chance of a secular decline at less than zero.

Thanks finance guy. I take your point, and tend to agree.

Everyone is entitled to their opinion but those who talk about stability, or hold, or mild deterioration, ought, in my humble view, couple that with some explanation of how they think these still bubbly prices, which are still way way up over just a few years ago, can be sustained. At least the bears give reasons.

I had a seller who did not sign the contract at the last minute since he didn't really need to sell and he didn't know where to invest that money.
He did no trust to keep money in the bank, to invest in WS, to buy gold or other commodities.
After all he though that keeping that property was not so such a bad choice for him.
I guess that some people feel relatively more "safe" to own real estate in prime cities/locations than other form of investments.

There's a word for those people. Wrong.

There's something for those people to consider. Cash, an ample allocation of.

may be that they are really wrong, but how do we really know that? don't you have any doubt?
what if we'll have inflation in the next coming months and years?
And there is another part of market, other people that want to own and not to rent simply because they feel better to live in a place that they own. May be that they could do more money buying financial stocks, but hey it's their choice and they do represent another part of the market. We cannot ignore that.

cash? would you really keep millions in cash? what if your bank defaults? there is a limited protection for cash and the natural desire to invest after some time anyway.

-burp-

just ate a plate of rocky mountain oysters.....

Hi w67thstreet, what about this: I am going to read your econ book once you read The Book of Good Manners, ok?
This is a public discussion after all, why don't you try to be polite.

hey Hugh_G, are you calling me a realt-whore.?
Do you really think you can be so aggressive insulting people with no reason and stay anommymous at the same time?
Are you sure?
Does SE provide you with the license to insult other people?
Or is just because you think to be protected?

coulmbiacounty: so if is a broker has a comment that you don't like you think to have the right to use this language?
hmmmmm

Brokers suck.

you are just showing what kind of people you are

now I am out, no need to comment anymore

anybody can see what happens if somebody wants to reply to you...

I feel like the three of us are now a gang...What should we call ourselves?

Will the below report have any bearing on the real estate market in New York?

http://www.cbsnews.com/video/watch/?id=4668112n

hey columbiacount, now let's have some fun and see if you do really have a good attorney, ok?

sounds good.

Rhino86, just look at the commments, did I insult you or others?

you criticized our friend.

when will the papers be served?

listen columbia,
I have no time to waste with you
It's not possible to have a normal conversation here
You just hate brokers and have zero respect

It's enough for me that you are showing what you are.

why don't you threaten me again? good strategy.

"now I am out"---so why haven't you left?

"now let's have some fun and see if you do really have a good attorney, ok?"---are you six years old?

columbiacount: your comments and insults are honestly quite boring, now new material here, there is no reason for me to continue this conversation, but I will comment what I like when I like without need to ask for you permission and I could take any action that I want.

good night my new friend, and try at least to be more funny

Rhino86: you are so predictable
anyway, good night new friend and next time let's just try to some fun

Do bring some insight rather than trite broker boilerplate next time! Toodles!

And what do you bring to the table?
Do you think to be able to find really valuable insights on a public forum? I don't think so.
If you are a buyer, seller or a broker just go out and talk to people make your own opinion and don't insult others just because they have a different point of view.
I hope that in normal life we could have a normal conversation.

If you search this board, you will find me attacking many people. You will also find more than a few compliments on my insights and datapoints.

I dont think you have a point of view. I think you parrot boilerplate.

Thus, take a hike. You are a waste of time.

It makes me sad for humanity when people think the point of a **discussion** board is to "voice their opinion".

Rhino86, so I guess that I am in good company?
I am sorry that I have to leave now, but I will be back tomorrow after all this is my favorite website now. And thank you for the warm welcome.

Bring a personal, well thought out and articulate opinion on the future direction of Manhattan real estate prices. Try not to use the actual words from the early edition of the Sunday real estate section.

Skinny - yes it's the point to debate. Particularly, its the point of this board, its the point of this thread by its originatiors design.

Saul said: hey Hugh_G, are you calling me a realt-whore.?
Do you really think you can be so aggressive insulting people with no reason and stay anommymous at the same time? ... just because you think to be protected?"

Yes, Saul, I am calling you a BIG, STINKING REALT-WHORE. But not for "no reason". I have two reasons:

1) I have probably met 30 or so realtos in my life. All but one was a complete fraud, a shill, far more dishonest than any prostitute or drug dealer I have ever met. So as a general rule, I am biased against realtors. You don't like that? Sue me. Or pick up your panties and go on to the next message.
2) You've given evidence, in your prior posts, that you're a shill, a hack, self-interested, with no real insight into the market, just a desire to raise people's buying temperature. Your messages can best be summarized as "Buy! Buy! Buy!"

As far as my need to be "anommymous", I have no idea what "anommymous" is. Go back to school, and when you learn to speak and spell in English, come tell me. And no, I don't think by being "anommymous", that "you think to be protected?" I suspect I have little need to be protected from you. In any way. In a professional sense, I can shut down people like you rather handily. If you want more trouble than that, then use your skills at making people not "anommymous" and come find me, come to my home. And see what happens.

Saul, first of all, don't get into it with the 3 Muskateers + Hugh G. Rection. Though I agree with their views, they thrive in fighting. Best to sit back and enjoy the show unless you get pleasure from hurling lame insults back. See hfscomm1 as a reference. Melikes w67th's insults and drunken rants best, especially if they are incomprehensible and coming during the middle of the day when no person should be drunk. I like to imagine he is simply texting while driving, not something more sinister. Pure genius at some points, a "moment of clarity" as they say, eh?

You say: "may be that they are really wrong, but how do we really know that? don't you have any doubt?"

Of course one has doubts. There are theories of herd mentality based on this doubt. Suppose you think buying X is silly, but you see others doing it profitably. So you sit back, saying it'll correct, but it doesn't. This goes in for a while, and eventually you give in and latch onto some hokey theory and join in. That's how bubbles form. Once they break (as they have done now in RE), it's hard to see them reinflate immediately. Can one be sure? Hardly: markets can stay irrational for very long times. Can prices go up next year? Perhaps. Would that have made it a prudent decision to buy today? Hardly.

NYC has been a year or two behind the rest of the country on the whole bust. If you look at the rest of the country a year or two ago, were there people jumping in and/or thinking they had the bottom? Yeppy-yay! That's where we are in NYC. Am I sure? Nope. Do I care if l turn out to be wrong? Not really. In 2006, I didn't think prices would go down in the next year, but they didn't. I can tell you I have zero regrets about any decisions I made despite the fact that my prediction was incorrect.

The beauty of bubble/bust pricing is that decisions are easy. Stocks in 1999? Easy decision to stay away. Stocks in early 2009? Easy decision to load up. Stocks today? Have to think. Manhattan RE today? Easy decision to stay away. I prefer the easy decisions, hate it when I need to think.

"In 2006, I didn't think prices would go down in the next year, but they didn't."

Err, that should read: In 2006, I thought prices would go down in the next year, but they didn't.

"NYC has been a year or two behind the rest of the country on the whole bust. If you look at the rest of the country a year or two ago, were there people jumping in and/or thinking they had the bottom? Yeppy-yay!"

Since then, places like Miami, Las Vegas, Phoenix, and others are down 30% or so.

NYC in two years? Down another 20%, at least. Impossible, you say? I'm a "doomsayer" with "dire predictions"? Just remember that a year ago, I and others like me said a decline was imminent, and those same people on SE said we crazy, doomsayers, dire, or (my favorite, considering I have enough cash to choke a small bank), "jealous renters". And yet, here we are, down what since then? 10%? 15%? 20%? But it could NEVER go done another 20% from there. No, of course not...

We're down 25-30% from peak. The last downturn lasted three years. Its easy to imagine another 25-30% from here. This said the first 25-30% down did seem to create buying interest. We will see how large a supply of qualified buyers remains.

We took our hit, faster than at any other time in history and faster than any other market in the US. We have leveled off with strong support at current market prices. There is no support at inflated prices and those, mostly in new construction condos and lux markets, have a way to fall. So I partly agree with some of the bearish statements, but not in the broader sense. If you look at late 80's, early 90's the decline took 18 to 24 months, followed by years of flat prices. That's where we are, the flat part. Le plateau.

How can you say the condo market has a way to fall but the coop market is in plateau. If condos need to cut down from $1800/ft to $800/ft you can be sure the coop market will not continue to be in 'le plateau'. They are substitutes. Maybe not for everyone, but for enough people for one market to bleed into the other.

I think another leg down is a likely outcome, the 20-35% drop in the next couple of years. Another likely outcome is the lose-it-through-a-decade-of-inflation scenario. I.e., it's 2020, general prices have inflated 30%, but NYC RE is flat. This is certainly the least painful route economically for people to take their losses (by overpaying to own each year), and is what the govt is trying to achieve. However, onr never knows for sure. If you think you do, you are an idiot who will likely be handed their ass at one point by the markets. So yeah, there's some chance of a run-up from here, but it'll eventually be smacked down unless rents go through the roof on some hyper-inflation scenario.

To a large extent the new construction condo buyer is not the same as the uptown coop buyer. So no, I don't agree that they'll give up the schools and parks for a tiki bar on a roof in midtown.

Let's have a little respect for the English language here. "Dire" predictions are predictions of something bad. "Doom" originally just meant fate, but it's meant a bad fate for a long time. "Pessimists" are people who are predicting something bad.

People who call predictions of the end of the bubble "dire" are like people who call predictions of the end of a drunken binge "dire". Hangovers hurt, to be sure, but they are the inevitable result of the binge, and prolonging the binge just means the hangover is going to be worse.

The pessimists and doomsayers on SE are the "bulls" who predict that real estate prices will rise indefinitely because of the cargo cult Gods or European/Wall St bonus luxury consumers, thus continuing their destruction of NYC and the economy, without inducing any supply response. That would be a grim future indeed.

inonada - what will trigger the next leg down in your forecast?

interest rates go up
significant bad news out of the banking/finance sector
chinese balk
unemployment stays stuck at 10%
shadow condo inventory hits the market priced to sell
municipal defaults
backlash in washington re: deficits

Maybe not a tiki bar in midtown for an UES coop...but maybe the Brompton or the Harrison or some other tasteful condo in the right neighborhood. Maybe the Azure. I agree condos need to fall more because the buyer pool was relying more on borrowed money that has since dried up. I dont need to prove that everyone thinks like this...Just enough. I can tell you I think that way. I'd weight the Brompton vs. coop X, for sure.

The trigger for the next leg is that there are only so many qualified willing buyers to shop around for "bargains" with their 2007 and 2006 bonuses. The other trigger is simply momentum. Another is condos cutting price. Another is weak bank recruiting hurting the market from the bottom up. In 2010 their will be many fewer newbies to shop for one beds with their first year bonus. Other catalyst is changes in attitudes and preferences. I heard the other day that "Bronxville is really nice" from a person I thought would rather die than leave Manhattan. Another friend is selling his big place over off York to move to Harrison. He doesnt want to budget $60k/month any more because he is not sure he is going to make $1mm year in and year out anymore.

Spinnaker, not sure what would trigger the next leg down if it happens. Not sure a trigger is really necessary; bubbles can deflate on their own. What caused the nationwide housing market to tank? It was just the weight of itself, no trigger. In fact, it was the housing market itself that triggered the economic fall, the collapse of Bear / Lehman / AIG / Freddie / Fannie / etc., not the other way around.

For possible triggers, here are some ideas. First and foremost are foreclosures, both at the individual level as well as the wholesale (unsold development) level. Another is a real cramdown on banking bonuses. Another is a simple war of attrition: every year that passes with some investor looking at a $30K loss in carrying costs and a little loss of equity makes them more likely to sell. The days of bubble mentality have ended. Sure there are individuals who think bubble pricing is still OK, rents be damned, you can make money, but without the herd they are just going to get picked off.

In summary, I have no clue.

I suppose some of what you all suggest could impact but I can't help but look at the circumstances under which prices have leveled off and activity returned. Also the argument could be viewed another way: what happens if our economy recovers (and there is evidence that may be happening now)?

There is evidence that the Manhattan economy is levelling off? Please share.

how do you define recovery? small uptick in GDP? or gaining back the jobs that have been lost?

There is a strong case that the 35-year supercycle in the finance industry has begun to reverse. Wall Street was a dirty word in the 1970s.

I dont see how we can be flat when there is still more supply than demand. lets face it..Georgica,Isis, Azure and Lucida are doing terribly.

spin: here is a possible trigger. I don't hear anyone talking about the possibility that developers may default. That was the trigger in the other bubble ciites. It is beginning to happen in W'burg. It seems likely that it will happen more often in Manhattan. But no one knows because there is no regulation. So, just like you don't know your neighbor is at risk of foreclosure, you don't know about the developers. There are several stalled or troubled buildings on the West Side. There are also two major rental buildings coming on line in the spring -- on w 72nd and w 67th that might further complicate matters by attracting people who would otherwise be buyers. Say, a big building defaults and the sponsor makes a bulk sale at 50 -60% off prices -- just what happened in other cities. Suddenly, the original buyers can't sell except if willing to take major losses. The surrounding apts must decrease prices to compete. There is a ripple effect -- perhaps even to the coops that you think are immune.

marco _m - my take is those developments and developments like it will continue to suffer, and they should at 1200 - 1600 psf.

What I said was: "There is no support at inflated prices and those, mostly in new construction condos and lux markets, have a way to fall."

Are you a coop owner? This would explain why you want to think the coop market is isolated from the soon to be disasterous condo market. In this way, we could just move on from that misconception.

Well Rhino86 if you can't wrap your head around the fact that condo prices, at 20 -50%+ higher than coops and where prices are still stuck at 07 levels, then we may as well go back to our mimosa's. Most coops have taken their medicine, which is why they are selling.

marco --don't forget the avery, the rushmore, the apthorp, the 505, how is the Laureate doing - their website seems to be off--the avonova, the linden, the setai, one madison. and those are just off the top of my head.

Keep drinking if you think coops have bottomed. Hahaha.

"Also the argument could be viewed another way: what happens if our economy recovers (and there is evidence that may be happening now)?"

Same thing as what happened to NASDAQ in wake of the tech bubble. No question the economy will recover and probably already has. That has little to do with reinflating bubble pricing. Look at stocks as case in point. A year-and-a-half ago, they were at price levels that were not obviously bubblicious. After the panic, they are almost back to where they started. RE, which is supposed to be a much more stable low-volatility asset, went down an unprecedented amount (remember that no nationwide YoY drop had ever been seen since the GD) and is still down for the count. If you think pricing was reasonable, then sure you should expect a recovery in RE prices. However, if you think that was the case, you really have your head in the sand...

Nobody is talking reinflating the bubble or even recovery. I think I said flat with more pain to come in the condo world. You guys are hilarious!

This is like trying to talk evolution with born again Christians. Peace be with you brothers!!!

Anyone who thinks prices will be flat or up over the next 1-3 years is a complete moron. Prices are still declining today despite (conforming) mortgage rates being at all-time lows (all-time as in for the whole of history). Rates can only go up from here - every 1% they go up means prices are going down another 10-15%. Why do you think the administration is BKing the FHA to keep mortgage rates so low? The math isn't that difficult.

Fundamentally, coops and condos are substitutes and should sell for more or less the same price.

However, i a bubble market, on the way up, condos might sell for somewhat more than comparable coops, since they are more liquid and hence more suitable for speculation. Also they required lower downpayments.

Would the same reasoning imply that they'll sell for less than coops on the way down?

(Especially in striver buildings, where an underlying mortgage allows buyers to finance more than they could on their own unit; obviously this doesn't apply to buildings with strict financing/liquidity requirements).

There's an interesting paper on condo-vs.-co-op pricing at http://www.millersamuel.com/pdf-tank/1051930559WFulr.pdf

Spin, didn't mean to imply you were saying otherwise; just replying to your hypothetical. I was merely stating that I don't think a recovery in the economy means a recovery or even a flatline in prices. Certainly a recovering economy is better, but not enough, I don't think.

Financeguy they should not sell for more or less the same price. A coop owner bears a share of an underlying mortgage (in most cases). A coop owner has limitations imposed. And most importantly, a coop is not property, it is shares in a corporation. A condo is property. When we have easy money, then condos can appreciate at a faster rate, because many more buyers can compete to own a condo. You need less money to put down. You do not need to pass a board and getting a loan was a joke. Therefore, peak to trough, condos should fall more in % this downcycle. This said, thinking coops, down 25%-30%, has already taken their pain after tripling in value over ten years, is a foolish stance..and one best paired with mimosas.

hg wrote: "I have probably met 30 or so realtos in my life. All but one was a complete fraud, a shill, far more dishonest than any prostitute or drug dealer I have ever met." ...Care to elaborate on how you "met" all these drug dealers and prostitutes?

Rhino...good post again.

Now regardless of the different dynamics and price differential betw coops and condos obviously on some basic level they are substitute products and a big drop in one will have to (to some degree) be matched by the other.　．ｇｅｅｚ．．．

Odd thing about that paper, NWT: There is no rule that Coops must have an underlying mortgage. So saying that the underlying mortgage reduces value makes very little sense. Similarly, there is no rule that Coops must have detailed restrictions -- they could adopt condo-like rules. In each case, the coop has an option, not a requirement.

Options only increase value. If the maximizing move is to have no underlying mortgage, then coops would elect it.

So, it seems to me highly likely that the underlying mortgage increases value. Perhaps not in 2006 when the article was published, but in most markets.

And the most likely explanation is this (in non-elite coops):

In non-bubble markets, most prospective home owners are financing constrained. That is, they can make monthly payments but do not have commensurate savings.

Solution 1: rent. That is, real estate specialist provides financing (directly or indirectly) and services.
Solution 2: condo. That is, bank provides financing, r.e. specialist provides services by contract.
Solution 3: coop. Landlord (coop) provides some financing (via underlying mortgage) and bank provides remainder. Tenant ownership of the landlord provides protection against arbitrary eviction and profiteering by landlords.

The three are largely equivalent, but in practice small differences (e.g., irrationalities in the lending market; difficulties of enforcing tenure during good behavior and eviction on non-payment; incentives to proper maintenance) can make large differences.

Landlords typically are willing to provide financing with almost no downpayment (1-3 months rent as a "security deposit" + brokers fee).

Mortgage banks usually require 20% (except during the bubble).

But for some reason, banks making coop loans don't count the underlying mortgage in determining how much of the unit purchase price is financed. So a buyer of a coop apt with an underlying mortgage can finance more than a buyer of a comparable condo. [Of course, during the bubble, banks were willing to provide financing to anyone that breathed on anything that didn't move, so for the last decade or so, coop underlying mortgages lost this advantage. That may or may not change going forward.]

Moreover, in more rational markets, banks may recognize that fellow inhabitants can better police the credit-worthiness of borrowers than banks can. Coops may be able to capitalize on that skill and may get a better rate than individual borrowers can. [Of course, if the government assumes all credit risk, this is not relevant either.]

Accordingly, in a relatively free market, I suspect coops would drive condos out of business. But government insurance for mortgage lenders eliminates much of their benefit, since the taxpayers, rather than the condo owners or the lenders, absorb the extra risk of the condo form.

Conversely, rental markets tend to have a market for lemons problem because it is hard to write a lease that (1) smooths out market fluctuations to protect tenants, (2) allows landlords to pass costs through long term without allowing them to profiteer from their local monopoly and tenant immobility, and (3) makes it easy to foreclose on tenants who don't pay while guaranteeing tenure on good behavior for those who do. A properly designed rent stabilization regime solves these problems and would make coops and rentals closely competitive. Unfortunately, vacancy decontrol and income caps destroy the utility of the rent stabilization regime for NYC luxury rentals. Coops solve these problems by having the tenants own the landlord.

Financeguy I like you...but can you be more succinct?

Come on spinny. 'your ph coop' is your unicorn. Hey my daughter is the prettiest girl in her class and my son the most athletic. One day he'll stop a puck that'll save the world.

Since you are my only kanadian buddy, I will point out 2 items.
1) saul is clueless;
2) we are talking averages. You may have the one coop ph on the uws that is not affected by condos going to $500psf.
3) nyc10023 congrats;
4) Columbia, thks for having my back. Was at a military wedding. I feel old seeing 21yos going off to war. They look like kids drinking and smoking and making $40k in a combat zone for taking a bullet. Yeah and stepanied gets what?, 6% on a 1bdrm bubble unit or 1.5times this guy. There in a nutshell is what the freak is so wrong with NYC re bubble.
5) I can't count.

Rhino: no.

w67th...oddly I never thought about the fact that Manhattan brokers get some much more $$$ for the same work simply because the real estate is so expensive...