What up wit that

yes, but the markets can remain irrational and behave disconnected from fundamentals for longer than many think. hence the irrationality of markets, especially illiquid asset classes like real estate where homes and human emotions are involved.

Irrational exuberance?

i wouldnt go that far..i call it a mini euphoria starting from an adjusted lower level...the extreme it started from was quite dramatic and the elevated risk premiums investors placed on all asset classes 12-18 months ago, simply are not being applied today

thats why new construction is the first to fall down

So if asset price bubbles usually take a decade to recover (i.e. tech stocks just coming back in vogue, NASDAQ way up over all other major indices) and if re market peak was 2006 then rebound not before 2016?

Whenever this happens there is a huge correction afterward. The stock market - as the close of the 1st quarter happens, watch people taking out the profit accrued as the Dow is up 1,000+ points in 6 weeks. It's just a matter of who pulls the trigger first.

Housing - that's a long-term thing. No use fretting, just let it happen.

ieb - so lets use your NASDAQ example as that was a bubble that bursted, went to an extreme depressed level, then naturally rebounded within a year from that extreme.

I as a NASDAQ equities trader then so I was on the front lines. If I recall, I believe the lows were around mid/late 2002 around the 1100-1200 level. Then, within a year from those depressed levels in late 2003, the market was up about 60% or so to around 1800 or so. A year after that in late 2004 it was around the 2000-2200 level, or about 100% rise from the extreme, yet more than 50% down from peak. So the peak was pricing IN of euphoria and potential of dot com profitability (of course with use of credit/leverage/margin powering the speculation and bubble) and the trough in mid 2002 was the pricing OUT of euphoria and Pricing IN of risks to hold these junk assets; of course with normal forces that follow a bubble bursting playing a role too...it took a year for the pricing OUT of risks/fear to run its course with markets normalizing in the 2000s level where it stayed and slowly rose for next few years to 2600-2700 level before the credit crisis began again.

So, using our NASDAQ example, can we honestly say that from the trough of extreme in mid 2002 and one year later the market improved and priced OUT the risks/fear that led to the depressed point one year prior?? Yes we can. This market behaved in a similar pattern, in essence, overshooting to the downside before seeing an improvement and normalization in markets. I use pricing in and pricng out terms because the markets are an imperfect discounting mechanism with investors constantly pricing in and out near term risks/uncertainty

Noah, you’re a good salesperson, very persuasive.

I would look at it in much shorter terms. We're in a trading range, and no reason not to be. The range is from 10,000 to 11,000 on the Dow. We've been there for a long time. Look at a 6 month to 1 year chart. Every time highs are reached or approached, they're followed by a sudden and precipitous sell-off.

This upturn has been on low volume, likely retail mutual funds, which are pretty illiquid. When the housing news continues to be bad, yet the housing index is up or flat, just get ready.

i too like to look at it in shorter terms..the trader in me says, hmm, the markets are not going down! Which usually means they are in the midst of an uptrend until they reach their point of saturation or until some unforseen outside force changes the world as we knew it. Same with gold. Dollar rose relative to major currencies, but you know what, gold just didnt seem to fall as much as one would expect relative to inverse of dollar moves. gold doesnt seem to be dropping? to me I wonder if the reason is because in the near or medium term future gold will hit 1300 or 1400, and then Ill say to myself, aha, that was why gold didnt fall.

I said the same thing with the DOW at 8000, and 9000, and 10,000. It would not go down! Why? Well when I look today the reason because it was on pace to get to 10,800 level...

silly I know, but traders view the world very different than average investors. Sometimes its a flaw. I agree with your points and I honestly feel now is good time to buy protection with markets up and volatility so cheap.

Just keep in mind that these asset classes trade on slightly different indicators.

The stock market primarily trades on future expectations corporate profits, which are rising right now. It doesn't trade on future expectations for "main street." Right now corporations have lots of support from government stimulus and plenty of tax breaks. Corporations have also kept costs under control, and have plenty of cash to allocate if things start turning up.

The real estate market in NYC will trade on future expectations for employment and interest rates in NYC. There are plenty of reasons to argue that real estate may be overvalued. However, there is evidence that the employment situation may be improving. Current consensus estimates are for an increase of 200K jobs in the next non farm payroll report on 4/2. Also interest rates are staying low so far.

If you think that the job market will not improve in NYC, don't buy real estate. If you think that corporate profits will not improve, then don't buy stocks. It is pretty simple, but in both cases the health of the consumer in the mid-west with 20K in credit card debt is only a small factor, and will not cause the sky to fall.

I am not tying to push a bullish argument. I am just suggesting that people recognize what causes stocks and real estate to go up are not always the same things that affect people on main street especially in the short term. Of course in the long term they are all more closely tied.

not only are they not the same thing, but the structure of both markets are VERY different. For one, stocks are a highly liquid asset class that is very inexpensive to trade. Real estate, totally different. So the bid/ask spread for real estate will never be as tight or transparent as they are for stocks, unless there is a euphoria going on at the time.

had to mention this. its all about the bid/ask spreads to me. I know I can sell INTC right now for 22.58, but I dont know what I can sell a clients 2BR/2BTH home on Riverside Blvd with minimal views/light and in need of X amount of work to bring up to modern day standards. Two totally different markets.

Anyone care to guess when will housing purchase prices become more rational? How many more years?

jh, that's true in the long-term, but not the short-term. Look at the charts.

Corporate profits are rising, but only because they're firing people. Nothing will really change in the economy until all the stimulus is pulled and the unemployment rate is back to 5%. We are a long way from there.

My inkling is that at year's end, we'll be right back at 11,000 again.

I really do think the decline will start again over the next several months and will continue for 3-5 years. Not wishful thinking, it's just based on the fact that the tax credit is expiring, Fed mortgage purchases are ending which will increase rates (that's just a fact), 2010 bonuses will be down from 2009, and psychology will switch to negative (as in the mkt is declining) as these factors come into play. All of this will drive a continued bumpy decline in NYC RE prices.

1. The tax credit had limited affect on NYC since homes over 800K did not qualify.
2. Mortgage rates increasing is not a fact, it is a projection. I happen to agree with that, but don't confuse projections with facts. In recent months rates have not increased as many have projected, they have stayed lower than projections. They may still increase.
3. 2010 bonuses less than 2009. Really? Based on what? I guess they could be lower.
4. Psychology will switch to negative. Aren't we pretty negative right now? Most measures of sentiment are at pretty low levels (Consumer Confidence, Mich Sentiment). They can decline from here, but it is a stretch to imply are positive right now. I would guess that 4/5 people that post on this site are very bearish on NYC real estate.

jhochle makes some good points, imo.

Tax credit - was never a Manhattan thing
Interest rates - not going anywhere, fed stated so week before last
Bonuses - that I cannot speak too, but just as a casual observer I just don't see Wall St. compensation decreasing anytime soon.
Psychology - I cannot fathom people being any more negative/bearish. We are almost all on here very bearish, any my acquaintances who are not that "into" RE like we all are are of the sentiment that the market could not get any worse. I feel like this at times too (and that's when I'm not as negative as usual, lol!)

That being said, employment is a huge factor. And I just don't see it getting better until 2012. I don't necessarily see it getting worse, but I do think it will remain flat or negligible increases until employers realize - as they will have to - that the current level of productivity, which is now very high and really can't go much higher, cannot sustain and people will have be hired again. So many people I know now are doing the work of 2/3 people. I think it will take until 2012 for employers to eek out the max productivity and make that move. And with employment/incomes, then the re market can start to recover for real.

1) Do you even know what % of the manhattan market sells for under $800K? 10%? Nope. 60-80% sells for less than $1mm. The tax credit not impacting Manhattan is a complete myth.
http://www.millersamuel.com/charts/gallery-view.php?ViewNode=1168397931yhNzR&Record=10

2) You don't understand the mortgage market if you think the fed funds rate dictates mortgage rates. FOMC members have publicly stated they expect mortgage rates to increase 25-100 bps when the Fed MBS program ends.

3) Banks wrote up their balance sheets during 2009 by a ridiculous amount (I can't find the number anywhere) which won't repeat during 2010. Fixed income trading revenue is already down 50-75% in the last quarter and that's what drove 50%+ of IB revenue.

jhochle - "4. Psychology will switch to negative. Aren't we pretty negative right now? Most measures of sentiment are at pretty low levels (Consumer Confidence, Mich Sentiment). They can decline from here, but it is a stretch to imply are positive right now. I would guess that 4/5 people that post on this site are very bearish on NYC real estate."

This is the paradox. Almost everyone on this board is a bear (maybe me too) but that is not what's happening in the real world.

I just made an offer on a total wreck ues and I was immediately overbid. The current bid is at market peak and totally discounts apt needing gut renovation. And, this is what I have repeatedly come up against.

I'm ready to walk away from the whole scene.

ieb: I encounter the "smugness" frequently. To some extent, it's warranted. Brokers who advised sellers not to panic have been vindicated somewhat. Those who predicted that normal transaction volume could return without total capitulation on the sell side were right.

The bid/ask spread on many NYC apartments was quite wide last year. I honestly don't think the midpoint of that spread has moved a tremendous amount since the "bottom", but the spread seems to have narrowed around that midpoint, and trades are occurring at the midpoint or even above it, rather than at whatever price a scarce buyer grudgingly offers, as often happened in 2009. So far, I think that's the biggest difference between 2010 and 2009. Although H1 2009 sellers were not all distressed, some were; and many who were not distressed made a reasoned decision sell in very adverse market conditions. Some traded up. Others cashed out. Whatever their motivation, they represented a small minority of the potential supply.

The current recovery/stabilization/equilibrium/rally could easily be short-lived. After an extended period of low volume, the market is finding support in large part from buyers who have been shopping for two years or longer. At some point, that impatient "pent-up demand" - which turns out to have been quite real - will work its way through the system. A new cycle of buyers will have to be wooed, and their benchmark will be post-bubble pricing, not 2006-2007 levels.

well said West81st...been trying to say this on multiple discussions on UD but got a handful of arguments against it

Hi W81st,

"their benchmark will be post-bubble pricing, not 2006-2007 levels."

Meaning prices will decline?