2010: The Year of the Renter?

Wow, that's grim. Admission of rental prices being back at 2000 levels by both NYT and a broker. A decade passes with 30% total inflation according to CPI, and rents here are flat.

Thankfully, this will have no effect on sale prices since NYCMatt told me that rents don't matter, just whether one can afford the monthly payments. In all seriousness, there's a lot of truth to that statement: the herd can drown out rational pricing for very long amounts of time so long as they believe, and not a whole lot you can do but sit and wait. Buffett did go a decade or two piling up a $50B cash hoard sitting. Guess what? It's all been spent finally, and not a penny on RE despite a 50% crash in the commercial space.

game over for manhattan RE. bulls can spin and spin and spin, but eventually the reality takes over.

Investor Properties(Buy to lets) may sell into this... The lower rents have to hurt.

But RS, if you were previously a believer in capital appreciation despite a deeply negative carry, why does a little more negative carry matter? All a minor issue since you're not in it for the carry 'cause you'll just hang on until prices just start shooting up again.

Not sure what I specifically said in the previous post you refer to, but I would distinguish primary residence vs investor property. For Investor property negative carry is a definite negative. I have no clue as to how much this affects future sales(supply). I still maintain that prices in NY will at most be low to mid single digits over the next year which is in keeping with various expectations. Investor properties are like investing in bonds. I see many trades that would seem to work out when you ignore the negative carry(how the trades are financed).

Oh NO, these are neighborhoods for people who don't know New Jersey from Williamsburg and don't know that Jacob Javitz was a Senator from NY. The guy in the article who said this is way different from lower rents in Chelsea or other areas is right.

RS, I am referring to the fact that investment properties have been deeply negative carry for the past several years, and you had to have an unrealistic view of rent increases to ever make the math work out. More typically, the bubble investor would not be interested in collecting carry, because the real money comes from appreciation. To a "rational" market participant, there's a fundamental link between carry and appreciation. However, this link does not exist in the bubble investor. Now why would a change in a component unrelated to investment value in their minds (the carry) make a difference?

Stated another way, what killed the tech bubble? A realization by the bubble-head masses that earnings growth could not vastly outpace GDP growth plus inflation? I don't think so.

I also find it funny how they are trying to frame a $2000 studio in that area as a "bargain". Please...

We're on different plains. Bubble investor bought to flip. They are very sensitive to capital appreciation or being under water. Mortgage for them was short term financing and the mortgage of choice one that offered the lowest payment. They never intended to be long term holders.

I was referring to buyers who had a property that was generating positive, flat or slightly negative current income. Properties purchased in 03 or earlier. Increased difficulty in locating a tenant or having to accept even lower rent may encourage some of these owners to consider selling. I've seen a little of this in my own building.

I didn't realize there were so many new original rental units being built. For some reason, I just assumed every new construction were condos, but just turned into rentals because they couldn't sell them. I knew that rental prices is a factor for RE prices, but I thought that at least for the next couple of years, the main driver would be people who have to sell because of unemployment and mortgage rate reset related foreclosures/short sales and retirees selling to get out of the city. Now I'm beginning to think that rental prices could have a bigger impact then I originally thought since it can force some to sell (supply) while also decreasing the number of buyers (demand) if the rental prices drop even more than current levels.

You're right, the formerly positive carry investor is feeling the pressure.

sunday, there was an article a couple of years ago, NY Times i think, on this issue. the developers with land bought a number of years earlier were going ahead and building, even though they thought (at that time, no less, before the collapse) that demand would be light initially, because money was available and inexpensive, and they felt that in the future household creation would occur (if i recall correctly, the landlords felt that there were large numbers of roommates that would grow up and want their own space).

money was indeed cheap, but building became horrendously expensive, and the household creation? well, that's not going so well for them.

Buildings are not where NYers want to live.

jimhones??

bulls???

wrong. the fringes always affect the other areas, unless there are issues such as crime. the relative lack of attraction of the neighborhood (although some of these buildings are in perfectly fine, although distant, locations) is offset by the newness and the amenities. and the months of free rent.

No way, this is isolated and unpleasant.

so was fidi. and west chelsea. and tribeca.

oh, and the lower east side.

Article refers to buildings concentrated in Hudson Yards, downtown BK and Williamsburg... so how does a blanket statement such as "game over for manhattan RE. bulls can spin and spin and spin, but eventually the reality takes over" make sense?

I would love to find a 1BR aptartment in a luxury building in Soho, Village or upper Tribeca for $3k, but prices aren't there. Have to go down to the Fin district to get anything in that range where it's a ghost town after 5pm during the week and on the weekends. I could find that in Hells Kitchen, but have no desire to live there and find access to transportation terribly inconvenient.

so you won't rent here. but it adds to the total rental pool. and young grads will rent there, particularly if they are giving "one to five months" of free rent.

and on top of this you have all the condo units that have been and will be added to the rental pool.

Financial District is hardly isolated ever. Lower East side another area never isolated, that's just plain silly if you knew about anything about New York City history. You picked two areas that show you don't know NY. These places have museums of life back over a century ago. Stop being hostile and think.

funny.

OK, budhudson, since you know so much about NYC and the "good" neighborhoods, how much have rents dropped there and what year are things back to?

It's interesting how people always make the bubble they build around themselves smaller and smaller to defend their point. If someone make a statement about Brooklyn or Queens, they say it won't effect Manhattan. If someone make a statement about a specific neighborhood in Manhattan, they say it won't effect their neighborhood in Manhattan. If someone make a statement about their neighbor, they say it won't happen to their side of the neighborhood (above or below a certain street). If someone find an example at a specific street, they say it won't effect their specific building. If someone find an example in their building, they say it won't effect the higher floors in their building...

heres ur sub 3k luxury rental. took less than 30 seconds to find. I know ur gonna argue with the apartment, but its just an easy example. the entire rental market is deflating in manhattan. that is indisputable. its only going lower..the question is how much lower

http://streeteasy.com/nyc/rental/494322-rental-yorkville-new-york

I don't know. Did I say I did? Why are you hostile?

ar, I think the household creation estimate probably wasn't too off by itself. The crazy prices probably just caused people to live with less space. I think the demand is still there for the right price.

"you picked two areas that show you don't know New York"

no confrontation there. not one bit.

the black knight syndrome of the bulls really is incredible

You confronted me first, go read the tone of your posts before me.

And really, Lower East Side, a new neighborhood, are you kidding? Financial District with all of that transportation, how do you come to your conclusion with a straight face?

I have long passed relatives who rented on the Lower East Side.

sunday, i agree. but the incomes and jobs aren't there for the projected household creation. these next couple of years (and the one that just occurred) have the largest numbers of graduating college kids in recent history. if the economy turns around quickly, they'll be fine and full and rents will likely return to 2005ish rates. but if not, rents could remain depressed for a fairly long time. after the graduating class of 2013, i believe, there is a marked decline in the number of children.

NYC, at least manhattan, really doesn't lend itself to the young and unemployed now.

easily. 15 years ago there were no "luxury" places to live in fidi. i seriously considered buying at 176 (my number may be wrong, but it's around there) broadway. the prices were in the basement. do you think 20 years ago anyone would have considered opening Stanton Social? really?

"I don't know. Did I say I did? Why are you hostile?"

I wasn't intending to be hostile. I merely was asking where you thought rents were in "good" neighborhoods.

"The guy in the article who said this is way different from lower rents in Chelsea or other areas is right."

That is what made me think you had an opinion on the subject: you said the guy was right, implying you knew something about the subject and were agreeing with they guy's assessment. BTW, that "guy" is an owner of a huge number of rental units in "other areas".

"70 percent of 8 million residents live in rentals". I wonder what the percentage is for apartment buildings, hi rises, etc.? 80%?? Is the remaining 20% such a small number (relatively) to explain low inventory, fairly stable prices, etc.?

marco - tis but a flesh wound !

The areas are very different. Chelsea is in the middle of things. Hudson Yards are rail yards. The only people there 5 years ago were homeless hiding on trains over night. So if rents get lowered in Chelsea, and I'm sure they are, that is way different from low rents in Hudson Yards.

ah... marco i said village, soho, tribeca. you pulled a listing out in a crappy building on York in the 80's. i understand how to use the search function as well, and all apts returned in that search under $3k in village, soho, tribeca are in very, very old buildings and tend to be studios instead of true 1BRs. if i were to guess i'd say you don't live in the city, and would like to but it is too expensive.

ar, if price get to more affordable levels we'll see less family moving out of the city. So far that outward migration in terms of number of people have been offset by immigration and births, though there's still a decrease in net income because the people leaving made more than the people moving in. Number of jobs is of course the big question.

""70 percent of 8 million residents live in rentals". I wonder what the percentage is for apartment buildings, hi rises, etc.? 80%?? Is the remaining 20% such a small number (relatively) to explain low inventory, fairly stable prices, etc.? "

The research area of the site http://www.housingnyc.com has all this info through their reports and links to extensive data from www.census.gov.

I was personally wondering how much free-market rental stock there is in NYC, and the answer is 187,473 as of 2008. So 3500 new units, or about 2%, is being added. Doesn't seem as "insignificant" as the article seems to imply with their "8M" number. Perhaps they should have said "everyone in the world wants to live in Manhattan, and 3500 is insignificant when compared against the 6.7 billion people in the world".

@tomjones, your sentiment echoes that of many of my rental clients, they are more established folks that will not live on 11th avenue and 30th street. They want to live on Bank street for the same reasons my buy side people do; quality of life,access to great neighborhood amenities etc... This is what has kept the rental markets in prime downtown neighborhoods relatively tight with pricing down 15-20% from the peak.

That said, there are many 20-30 somethings that want the amenity laden new construction buildings and will deal with the location "issues". This rental stock can especially appeal to the "bridge and tunnel crowd", those trading up from an outdated rental-sick of their crappy kitchen, baths and building; wowed by the "wow" factor of Hudson Yards. They also like the fact that they can walk in without a broker and get a "deal". I would argue though that the deals are not as good as they seem. If you look at some of the buildings discussed in the article, rents for 1 bedrooms are $3200 to $3500 gross, so if you sign on for 1 year after the 13th month you will be paying $3400 or so a month...hardly a bargain? I think its more attractive the longer out you commit or if you know its only for a year.

You may not find a "luxury" building in the Village or Tribeca, but you can find a pretty good deal on a rental in one of these nabes. If your willing to give up the pools, oxygen bar etc...you can find a nice one bedroom rental, maybe with a doorman, roof deck and gym in a prime downtown neighborhood for $3000 to $3500 per month with no fee. This is how I keep busy and supplement my sales commissions, by ferreting out these deals. This is for clients to busy to be calling rental offices all day, competing with the 500 other brokers, "walk ins" vying for these deals. Don't flame me :) some people are happy to land a great home no fee if you provide them with efficient, professional level of service. this means setting up the appointment, at times I get people into apartments outside of "normal" hours when the on-site is gone, getting all the paperwork in order and delivering leases to their office to sign.

As a broker I am keenly aware of the incentives and lure these new developments put on my business. I am always looking for ways to add value, provide a service. I am currently giving clients that I rent in any of these new buildings a gift card equal to 35% of my commission, as long as you don't sacrifice any free months by being represented by me. http://nycrentrant.blogspot.com/
So kill me for a little self promotion....

Keith (broker)

tomjonescok, where do you live yourself right now? FWIW, I think $3K is tough, but give yourself another $500 and you'll find something with a little hard work.

tomcock i live in yorkville and happen to think its lovely neighborhood. prior to being here I spent 10yrs down on 1st and 1st so its safe to say ur deductive reasoning skills are ass. now let me give you a try...broker?? if not then a miserable person who bought at the top?

sunday, we have way too many children right now in lower school. there is no way, at least that i can see, that they'll be accommodated in middle and high school. i know quite a few people who are currently debating the stay or go issue, and most seem to be leaning towards go.

well marco, you can just hope that if the market goes the way you vociferously predict on this board, you just might be able to move sometime in the future to a better neighborhood (that slow, steady progression)

KeithB, you kick ass, so self-promote away. Your insights are very helpful. I do agree that the rents being discussed in the article are a joke, but I'm guessing that's a function of not wanting to publicly say that they'll go 20% lower than that or whatever.

BTW, back when I was looking at places in the fall, one of the best deals I found was in the Village.

yorkville is quiet and filled w/ cute preppy chics. why would I ever leave?? we have families and St Josephs where the community comes together and gives back to the neighborhood. such qualities go beyond what shills like ph41 and the rest could ever understand. if meat packing district is what you consider to be the gold standard you can keep it! Ill still be here hittin balls at randalls island and runnin loops in the park when ur all gone.

impossible to tell what they actually rented this for, or if there were any concessions, listed as rented, $4800 for 1550 sf. in 11/07 they rented a 1365 sf apartment, listed at $6730.

http://streeteasy.com/nyc/rental/607006-rental-245-east-58th-street-sutton-place-new-york

i agree with inonada, self-promote away. you're providing a great service, Keith.

ar, are you referring to just private schools or public schools in Manhattan? In either case, being a parent myself, school is definitely a consideration for me as well. However, I am staying in NYC, even if it's not Manhattan. I am a believer that a kid with parents who pay attention can do very well in a slight above average school within a safe environment. In other words, I think there are plenty of choices in terms of schools; at least plenty that fits my personal needs.

sunday, i don't disagree with you. but there are too many lower school kids in manhattan, at least. i'm not that knowledgable about the other boroughs, and what the possibilities there are. some new schools have been opening, but it just doesn't seem to be enough. i'm referring to all school spots, not just private. many parents will not select the other boroughs, they will select other communities further afield.

ar, I agree, it is and will continue to be a big problem for many parents.

Hey, I'm leaning towards the "governess"/"private tutor" route. Cheaper than private school for >1.

60% of apartments in NYC are RC/RS, so if 70% of NYC'rs rent, about 10% rent at market rates.

Outside Manhattan, the RS rate is much closer to the market rate, and even exceeds it, so more than 10% are at market. Or so says the Furman Center at NYU.

inonada, great link, thanks.

check out the pie chart on page 4 of this report. it kind of surprised me, in a number of ways.

http://www.housingnyc.com/downloads/research/pdf_reports/09HSR.pdf

I think ChasingWamus is off on his numbers.

AR, yep saw that. Here's the real treasure trove:

http://www.census.gov/hhes/www/housing/nychvs/2008/userinfo.html

For example, you can see that 32% of renter-occupied apartments are free market in Manhattan.

Note the musical chair syndrome in the article. Now on the way up ppl would say holy crap 'rents' went up 10% but I got no choice and no alternaives. On the way down the grapevine works in reverse.... Leading to continual downward trend. The fact 8k 'new' units are willing to play ball will make ALL mkt have a little more give. It's time for LLs to play defense.

Hahahahhahaha. Flmao. No end in sight for rental prices. Hmmmmmmmmm. I wonder how the lemming buyers will feel when their rental neighbors tell them their rents are monthlies + $1.00.?

nada, and did you notice the vacant for rent figure for manhattan? 12,078 unregulated units for 2008. if i'm reading that correctly, and i think i am, the 3500 units coming on line are a huge addition.

I hadn't looked, actually. I think you are right.

Also interesting is the vacancy rates. In 2005, overall vacancy rates in Manhattan were 3.9%, and this dropped to 2.8% in 2008. For the free-market segment, it roughly stayed flat: 6.2% to 6.4%.

Also puts the incremental 1% change in the widely-quoted stat (presumably from a different source) of the move of 1% vacancy rate to 2% vacancy rate in perspective. Presumably, that is 1% of the overall market that came mostly out of the free-market segment, which means around 5000 apartments (578K overall in the city) out of 187K market-rate units, or about a 2.5% uptick in the free-market vacancy rate.

"Admission of rental prices being back at 2000 levels by both NYT and a broker"

Was it Alpo dog who fought me tooth and nail on this assertion? Or was it LICC who argued that values could double since 2000 and rents could be the same...but that the price to rent ratio could also be the same? So many idiots...

Please find me 1 apt. on the market right now in Manhattan where the rent is the same as it was in 2000. Go ahead, find me one.

Tell us where to find the source data, Alpie. Doesn't exist. Can't be done. Leases in the city are only recorded if they're regulated.

There are plenty of luxury studios out there for $2k that were the same price in 2000.

Dogface, maybe you should take it up with the professionals from the article.

I dunno Shitcomm, why do you do what you do? Seek help.

Alpie...good to see at least one bull still hangin around. Where's the rest? I think the news has them not feelin so well

In August 2001, I rented out my 2 bedroom in co-op vilalge for $1,750. The apt. has the EXACT same floorplan as this apt. listed for $2,900:

http://streeteasy.com/nyc/rental/572409-coop-208-east-broadway-lower-east-side-new-york

so sorry, but we are nowhere near 2000 rental prices. Wake me up when LES rents for under $2k.

Asking rents have nothing to do with actual rents, Alpie.

So according to you Alpo, the cited experts from the NYT article are mistaking rents up 65% since 2000 for flat rents? How does such a statement feel sliding out of your ass?

I rented something for $1850 in 2002 that recently was asking $2150. 2002 rents were lower than 2000 rents. So I raise you one counter example.

Alpo, that place has sat empty for 4.5 months now. Probably not a good comp. Trust me, at those prices, you can get much nicer places in LES in a preferable location.

No but the experts in the article who have access to data are wrong. Rents are up substantially since 2002.

Values should be up since 2000 on cheaper money...wonder what sensible math is to guess at the adjustments. Rents flat... Maintenance up what, 40%...That probably bites off the benefit of lower interest rates right there.

Miller Samuel chart showing inflation-adjusted median annual rents dropping from a peak of $50K in 2000 down to $35K as of last quarter:

http://www.millersamuel.com/charts/gallery-view.php?ViewNode=1249522147RFeuS&Record=1

Translates to a 30% drop, so flat prices given 30% CPI increase during that time.

Here are 3 different rental indicators that show more or less flat nominal rents since 2000 peak:

http://www.millersamuel.com/charts/gallery-view.php?ViewNode=1263479298xkoid&Record=2

Where is LICC when you need him to tell you that is bad data.

Same thing inflation-adjusted, showing 30% drop in real rents:

http://www.millersamuel.com/charts/gallery-view.php?ViewNode=1263479338nkvcH&Record=3

Inflation confuses the issue... Rents are flat in nominal terms. Prices are double. Money is cheaper. Maintenances are much higher. Where is the bull case that values at 2x can stand.

Link to mean value theorem explaining that the average must be met or exceeded by at least one datapoint:

http://en.wikipedia.org/wiki/Mean_value_theorem

Enough?

I am going to submit to psychoanalysis by someone who invents new screen names daily to taunt others on a real estate site, who has yet to reveal an inkling of interest in or opinion about real estate? Hahaha. Was your dad a deranged taunting blogger? Did he beat your mom with the keyboard when she asked what he was doing with his pants around his ankles in front of the screen? Have you ever felt the touch of a woman?

alpie ur like a junkie...first it was manhattan will never be down 30%..then it was "there will never be a foreclosure in manhattan"....so many otheres i cant keep track..now we're at "Please find me 1 apt. on the market right now in Manhattan where the rent is the same as it was in 2000. Go ahead, find me one. "...when do you reach bottom??

Quotes from experts and reams of data from inonada...but you need to find one special just for him.

And look what use you have put to the internet, little boy. Your dad must be proud. I bet he said, I hope one day my son will make his day by inventing screen names by the dozens to taunt strangers. Did he touch you in ways that made you uncomfortable, and ultimately antisocial?

Its funny to me that you think your MO on here is funny, or even find it personally enjoyable. No real estate, just taunting strangers. It makes me think that any human contact is a win for you. You must live a very sad life.

Is that your deal? Are you one of those people who logs on to be beaten up?

Sunday - well said. think the same way. we bought in williamsburg a few years back, and have had terrific school and community parenting experiences. the community is very solid, and we've been able to connect with great teachers. things change. there are so many examples of this in recent times.
also, i think that the condos going rental is good for current owners as it decreases supply in the long run.

I'm going to put you away like a toy now until you come back with another name.

Commie your using up all the letters of the alphobet. Hehehe

truly no end ins sight.

what did you all make of these quotes from the NYT article:

"After these buildings are completed, there's going to be nothing because banks stopped financing."

"This is going to be the end of all the rental developments that were planned three to five years ago."

"...new tenants are NJ or Queens residents who previously felt priced out of Manhattan. He said the % of renters coming from outside Manhattan increased to 30% from 20% in the last years."

I make of that the seeds of the next upcycle....but only after we make a real bottom. Demand needs to come back before a lack of supply creates upward pressure on price. The only one of those quotes that is near term in nature is people moving back from the outer boroughs. However, that decision takes time to take effect...plus most of the people I know in Brooklyn and Queens are very happy with it. More competitive price in Manhattan is no guarantee they will come pouring back...Some will.

"However, that decision takes time to take effect...plus most of the people I know in Brooklyn and Queens are very happy with it. More competitive price in Manhattan is no guarantee they will come pouring back...Some will."

exactly. and some will keep on moving out of manhattan towards queens and brooklyn looking for more space. the people i know that were already in B and Q that moved, did it within their neighborhoods. which doesn't surprise me. the premium for manhattan is still there, but prices are going down in each of the 5 boroughs at the same time.

> He said the % of renters coming from outside Manhattan increased to 30% from 20% in the last years.
that could be cause the % coming from everywhere else declined. it doesn't mean everybody and their dog will leave B and Q for manhattan.

Streeteasy administrator.....you just deleted umpteen messages from a person who created a screenname to attack me. They have done the same to others. At what point do you figure out a way to get rid of this person...?

Your posts make no sense.
First you threaten violence.
Then you attack people with eipthets.
Then back to violence.
Now you are shouting at whoever will listen to you in an incomprehensible manner like a typical crazy man.
What the heck sets you off?

Two questions - maybe Rhino knows.

1) When owners give 2 months free and the year is over, are they sticking to the full rent? Are they not adjusting downward because the market is dipping?

2) Why are owners keeping units empty or de-listing them instead of renting at lower prices?

Someone explained to me that the values are based off of cashflows so owners don't want to reduce the value of their property by reducing monthly rent, instead they give free rent. And I'm assuming there are debt covenants that could be triggered if rents drop below a certain value? But this all seems really ass backwards to me. Values have surely dropped and if you de-list an apartment you have zero cashflow.

Stephen Kotler, a director of rentals for Prudential Douglas Elliman, said that many developers of stalled projects had avoided foreclosure only because they had been able to keep current on their construction loans by spending “interest reserves” negotiated as part of their initial loan packages. “But a lot of those reserves are going to start running out midyear,” he said. “And that’s when you’re going to see more condo projects becoming rentals.”

Is aboutready entitled to treble damages and a toilet plunger?

sweetie pie, i'm entitled to whatever the court says i'm entitled to. you really don't seem to get that notion, do you?

Well, dignity is not one of your qualities.

funny. it certainly isn't one of yours.