Manhattan Prices Will Drop

His argument is unconvincing. I actually agree with him that manhattan real estate is probably due for a fall in the next 1-3 years, but his rationale why doesn't make sense. Anybody who can afford to buy in Manhattan can afford to pay that extra 0.1% in interest he's so afraid of. Even before deductions, on a 1 million dollar apartment apartment with 20% down, that extra interest means only about $30 a month. And if you were so close to your debt limit that an extra $30 makes a difference, then the co-op board wouldn't have let you buy the apartment anyway.

For subprime borrowers or even prime non-Manhattan buyers, then yeah, maybe that extra bit of interest will make the difference between struggling by and defaulting. But not in Manhattan.

to #2. I believe he's concerned about the trend .. not the extra 0.1%. Bond Guru Bill Gross is now expecting 6.5% on the 10 year.

http://money.cnn.com/2007/06/07/markets/bondcenter/gross/index.htm?postversion=2007060721

If we did hit 6.5%, that would bring rates up ~ 1.5% from last month which makes a difference of

4,796.40 <-- 800k loan at 6%
5,593.72 <--- 800k loan at 7.5%

.. And remember 7.5% isn't even considered 'historically' high!

Not sure why I missed this 4 weeks ago. I believe it was when 10YR bond yields surged to their new trading range which brought higher lending rates into the public eye.

I can tell you this. First hand experience in the field I am seeing many buyers, especially first time buyers RETHINK buying right now as prices are remaining high, inventory is tight, and they are now aware that a loan is going to be more expensive than they originally thought.

However, this market is so tight, inventory wise that I cant find anything for my buyers. And the alternative, rentals, are seeing huge rate increases giving really very few options for those without the luxury of tons of $$$ and very high salary. As long as inventory stays this tight, prices will have to remain around these levels. Like #3 said, its not the 50 basis point move in the 10YR that worries me, its the trend of globally higher rates and the fact that we are STILL in a low interest rate world historically with tons of liquidity and fast growth out there. I think rates will trend higher over the years; something many are not used to.

Just my opinion. Lets see how it all plays out. If 10YR rises to above 6% you will notice a dampening in buyer demand even in Manhattan; as 30YR rates will be well above 7% if that happens.