On a gut level I think NYC Re prices are in many cases simply absurd, and the fundamental economics of the rent/buy is out of whack in many areas. And ridiculous financing policies fueled the price run-up, especially in condo new developments. Nevertheless, a huge economic crisis in the country, and lasting shrinkage of the finance industry and other employment in NYC, only knocked say 25% off... [more]
On a gut level I think NYC Re prices are in many cases simply absurd, and the fundamental economics of the rent/buy is out of whack in many areas. And ridiculous financing policies fueled the price run-up, especially in condo new developments. Nevertheless, a huge economic crisis in the country, and lasting shrinkage of the finance industry and other employment in NYC, only knocked say 25% off bubble prices, and activity hasn't ground to a halt. The adamant bears insist that buyers today are lemmings and that buying makes no sense and that prices have much further to fall. While I see the logic of that, I'm still wondering what is going to be the catalyst for another gap down, or cumulative drift down:
* Saying that prices haven't fallen further yet partly because of the slow foreclosure process in NYC is based on the premise that the precondition for foreclosure exists (default). Is there any evidence or statistics regarding how many mortgages are delinquent in nyc?...particularly, for example, in the condos where low downpayments might make that more likely? Or evidence or anecdotes of condos with owners who are delinquent on monthly dues (a different issue than missed mortgage payments, but once someone gets to the stage where they are allowing foreclosure that usually happens. All this stuff is intertwined -- in my humble view. It may be that condo owners (and others) who are underwater may be hanging on and still making payments precisely because the world hasn't fallen apart, stock market rose last year, re seems to have sort of stabilized, etc....in the hope that the future might save their investment by some moderate upswing. Prices in nyc haven't fallen quite far enough, i have the feeling, to make people lightly throw in the towel.. (The implication of my point: if prices fall further there could easily be a snowball effect to the downside).
* When people talk about what an obvious bubble this is, that to me is a way of saying irrational prices. And a key element of irrational prices is the pschology of buyers/sellers. It would seem that in a sense the NYC bubble hasn't really popped yet, because plenty of buyers seem to be focusing on the discount vs. peak , rejoicing that they can finally buy something (with a shout out to low rates), and not looking at the basic fundamentals of rent/buy, or the just plain absurd level of some prices. But....my question is: maybe this bubble-overflow demand will keep up quite a while, and dampen steep declines.
* The rent/buy ratio argument is quite strong if looked at in terms of logic. However, this argument alone doesn't make it a slam-dunk that prices will fall further. It was out of whack for years, and so maybe it will stay out of whack. People may put an irrational premium on buying a "home". Foreigners may just buy to have a home in nyc and not want to rent. And anyway, the ratio in nyc is not as out of whack in some areas outside manhattan, and even in manhattan some properties are a lot crazier in this regard than others (my impression is that the luxury condos on the westside highway are some of the most egregious).
* The point people make about exodus over time with families leaving seems, if valid, to be a negative factor but one what will play out slowly over time and dampen demand and diminish upward price movement but not precipitate anything.
* The fact that mega-downturns in Miami , Phoenix, redneck tract developments in Vegas or Fla, etc. had multi-year megameltdowns does not imply much about NYC. The difference is that the new housing stock accompanying those areas was huge and the new development overhang in NYC, large as it may be, is simply not on the same scale. Brickell Avenue in Miami had thousands of empty buildings and 20,000 more under construction...and there is simply nothing comparable in NYC., in my understanding.
* It would seem that higher interest rates could hurt NYC re prices (and elsewhere), and rates do seem certain to rise at some point (given our fiscal and monetary policies), but we don't know when rates will rise for sure, and the degree of impact on re prices will be greatly influenced by what else is going on at that time in the general economy and in NYC. If rates are rising because the economy is growing, confidence returning to wall street, etc. then maybe the impact would be more muted, and not catastrophic.
* Other macro factors -- euro crisis, california crisis -- could obviously hurt the market but we don't know when/if those crises will ocurr, and what will be the other ny specific conditions at that time, so the degree of impact can't be predicted for sure.
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