Real estate bears!!!

1) congrats on learning to read;
2) miller is an admitted re shill until 2008, when he started backpedaling;
3) 2004 buyers got bailed out by silly loans and crazy nimrods;
4) in 2001 bf 9-11, NYC re was heading into a healthy mini recession (but we know that never occurred after 9-11 bc of 'nationalistic' ir policy by greenie and America is great mentality);
5) how quaint of you to think that NYC re never pops above historical rent multiples (but it did) and now will stop on a dime when it hits 'your' IN price;
6) I hate laundry too

flmao. Look your equity will be toast, you'll stop reading se, and in 20 yrs you'll come back to se to say 'i never lost money' on re. Ask someone from 1989 who bought at $300k studio.

Again, $339 psf in NOMINAl terms 30 years ago. When NYC was in shambles. Before Wall Street even had its 1980s boom. When rates were 16%. It's interesting.

When did I say NYC "never" pops above historic rent multiples?

I think that you focused strictly on condos is a seriously flawed base.

How many condo buildings (as you left out coops) were there in 1981? 10% of the market?
Do you think maybe they sold at a premium because their weren't too many?

How many condo buildings were there in the 90's? 20%?

How many today? 50%?

setting aside the other criticisms for a second, you do realize that there was an enormous increase in prices between the beginning of 2004 and the end of 2005?

They show coop prices too - those were $250 psf. Now $850 psf (according to the corcoran 1Q 2010 report). In real terms much the same increase.

>> setting aside the other criticisms for a second, you do realize that there was an enormous increase in prices between the beginning of 2004 and the end of 2005?

I agree, but the point is over that in 2004 prices relative to personal income were WELL than they were in 1981. And I'm comparing it to today's prices anyway when i talk about psf.

the problem is that your timing is off. almost all of the increases in income occurred prior to the massive increases in pricing. from 2000-2008 there were almost no income gains, and huge price gains.

but my point was that going to 2004 pricing indicates another rather steep decline, especially in the lower-end market.

>>> almost all of the increases in income occurred prior to the massive increases in pricing. from 2000-2008 there were almost no income gains, and huge price gains.

Read the entire report, and get back to me. The article acknowledges this - and says over the longer term this cannot last - but says that it was just catching up. In 2004, relative to 1981, housing prices relative to personal incomes were actually well lower.

CPI index is up 240% since 1981. Prices are up only 30% above that. Think about NYC in 1981. Why is that crazy?

i guess they were overpriced in 1981 also.

but nonetheless, if you're looking for a 2004 level your looking for significant depreciation. i sold my condo for about $1M in early 2004. in summer of 2005 it closed for around $1.3M, same selling broker no less (my timing could have been one year better, i'll concede).

You're missing the larger point by focusing on 2004 levels. Anyway, I do think there is some downside risk in NYC real estate - but not that the sky is falling.

Why in 1981 would Manhattan have been overpriced? Why would that have been a bubble? It's easy to say why 2007 was a bubble.

Great economy? No
Low rates? No - 16%
Bustling wall street? No
Low crime? No
Great schools and quality of life that made families want to stay in cities? No

Manhattan is just generally insanely expensive - and it's possible the 1990s was a blip of undervalution caused by so many things.

Lmao. Kspeak way to Cherry pick data. Go trough to trough. Like 1995 to 2015, that'll be more telling. Yeah another five years till 'absolute' bottom. Re is a slow beast made up of lots of emotional 'heffers' such as yourself kspeak (just using financeguy terms).

kspeak, well, that's the date you gave. there's a very big difference between 2004 and 2005 pricing. we're at late 2005ish pricing for most units.

if the income/purchase price was more extreme than it was in 2004, and/or rent/buy levels, then it was overpriced. why i don't know. i could do some research, but it could have to do with many factors. it may have been that the rates were so high they limited transactions so greatly that the supply was nearly non-existent. hell, i don't know. but i do know these income/price levels are not historically representative.

Okay. Kspeak let's see NYC re with 16% interest rates flmao. FYI my Porsche in 1989 cost $40k. My current 2007 sold for $130k. The monthly is the same cause I had a 18% loan in 1989 now I can pull a car loan for 1.8%. Hahhaahaj

If I wanted to cherry pick data, I would not have started with 1981. People act like 1981 was some kind of peak - the peak was 6-7 years later.

Sorry but who need sto a report to know or say that RE will go up in value over a ten year period.
That's the only true conclusion and no duh.
What the charts both RE and stock market quite consistently show is patterns of decline or stagnation for 3 to up to 8 years at a time.
We just passed year 1.

Also
"In REAL terms, since 1981, prices have only increased 25%" Well it's more like 30% (your average of $1000 is todays average of both coops and condos, not condos only) and it somewhat coincides with the rate of inflation. There are numerous threads showing real estate over long periods of time is not reall outpacing inflation.

Oh and now they have 7 yr terms. Flmao. Just like re baby. Let's go to 100yr io mortgages whooot!

NYC had 16% interest rates in 1981.

>>> i could do some research, but it could have to do with many factors. it may have been that the rates were so high they limited transactions so greatly that the supply was nearly non-existent. hell, i don't know. but i do know these income/price levels are not historically representative

Rates were high for years around this period, so it wasn't a blip. And if you look at the graph, real prices of condos decreased a little between 1979-1981 while real prices of condos fell a bit, so this isn't really just a one year period.

Pg 28 has some great stuff on personal income levels relative to Manhattan real estate. But the highlights are that in 2003-2004 (admittedly current prices are above this but not by 2x) the ratio of prices to personal incomes was basically on par with that in the early 1990s, and well under anything seen in the 1980s.

I respect bearish views, but you have to acknowledge that this is at least interesting and makes you think

>>> Well it's more like 30% (your average of $1000 is todays average of both coops and condos, not condos only). There are numerous threads showing real estate over long periods of time is not reall outpacing inflation.

Yes, this is generally true - across the entire nation, real estate cannot outpace inflation.

However - when an area improves dramatically in terms of quality of life factors - crime, quality of schools, etc. - it can make that real estate permanently more attractive. Now, you can't get credit for that indefinitely - which is why I don't think we'll see a run-up in prices from here. But it can cause a permanent re-adjustment of prices.

The other factor here is interest rates. They were 16% then. Now, i'm a huge believer that they'll go back up again and we'll see inflation, etc.? But 16%. Even W67th was just saying on another thread that they'll be 10% in a few years; I don't disagree at all. But that's a long way from 16%.

kspeak, there is a very long-term record of income/price ratios, and we are still way out of whack. the fact that we are doing better than 1981 is intellectually intriguing i guess, but to me has no bearing on how i view our current position compared to historical norms.

but more to the point, inventory is still rising, wages are declining, municipalities are increasingly looking vulnerable, and future debt obligations seem ridiculous even assuming robust growth. then there's the rest of the world.

And yes, it's more like 30%. But I think the quality of life is worth 30% easily.

Quality of life is everything in real estate. It's why Summit, NJ costs more than Newark, NJ, though the commute from NY is easier, why Brooklyn Heights costs more than downtown Brooklyn.

i wouldn't be so quick to assume all of those quality of life factors can be sustained. maybe the feds will bail out the states for one more year, but it's looking rather grim on that front.

Those guys do a report and projection every year. Here is a summary of their 2007 report in November of that year:

"Last month, two researchers at the consulting firm Business360, John Marchant and Roger Sharp, analyzed long-term trends in Manhattan real estate prices and despite the national credit crisis that emerged over the summer, they predicted that Manhattan prices would continue to rise 5 percent a year for the next three years.

The pair cited figures showing an expanding base of wealth in New York City: the wealthiest 20 percent of Manhattan residents — the ones who can afford to buy high-end apartments at current prices — have a median income of $350,000, or 50 times the income of the bottom 20 percent. And they concluded that home prices are still catching up from the steep declines in the 1990s."

How did I find this? The legendary Spunky cited it in post on these boards.

what about the supply/demand factor? no one has really built anything new in the last 2 years. i've been looking for a place for the last 6months and the only stuff that's still sitting on the market is stuff that is crap or is insanely overpriced looking for 2007 prices. places offered at 2005 prices is flying out the door.

>> kspeak, there is a very long-term record of income/price ratios, and we are still way out of whack. the fact that we are doing better than 1981 is intellectually intriguing i guess, but to me has no bearing on how i view our current position compared to historical norms.

Not just 1981. On par with the 1990s.

>> more to the point, inventory is still rising, wages are declining, municipalities are increasingly looking vulnerable, and future debt obligations seem ridiculous even assuming robust growth. then there's the rest of the world.

Yes, these are all good points. The macro fundamentals are not great. But they weren't in the 1980s either; they were terrible then. The only way we are getting out of this mess is to inflate our way out of it and basically devalue our currency so that the debt obligations seem smaller. This is true for Europe as well. Long term it will mean the U.S. and E.U. will struggle compared to more fiscally responsible nations ...

supply/demand? eventually the insanely overpriced units get reduced. like the 25% cuts at the sheffield. it's a start, but it takes a long time for the process to occur, and the current sponsors at the sheffield bought the project on the cheap, i believe, after swig lost it.

By Vincent Del Giudice and Thomas R. Keene
May 19 (Bloomberg) -- The risk of deflation has increased
because of the economic crisis sweeping Europe, said Ward
McCarthy, chief financial economist at Jeffries & Co. Inc. in
New York.
“We do not have any inflation pressure of note,” McCarthy
said today in an interview on Bloomberg Radio with Tom Keene.
“We have seen some disinflation actually since the beginning of
the year. It could evolve into deflation.
“On the international level there is tremendous price
competition,” McCarthy said. “There is a risk of deflation
here at the same time it’s not completely clear what’s going to
happen.”

There will be cuts to state budgets but I don't think we're going back to the crime levels on the 1980s& 1990s. I think white flight is over. It's the opposite problem now; there will be more crime on the outskirts than in the center. European cities have always been like this. We're going in that direction.

kspeak, everyone and their brother wants to inflate their way out. it can't all happen at once for all parties. you're assuming china's going to go along with it, and they've got some pretty powerful weapons at their disposal.

i don't think we're going back to those crime levels either. where i do think you're going to see some huge issues is education. no libraries. access to emergency rooms. etc.

Kspeak

Unfortunately it is assumed that perpetual movement is guaranteed. have a look at chart 7 on your report. Particularly 1979 to 1995.
A 15 year period fluctuating between @ $200 and @ $500 psq ft.
1995 to now saw a steep incline to $1000. Expecting fluctuations over the next 7 years if not 15 between $500 and $1200 is not out of line.
Even call it 5 years, given interest rates can only go north from here, rent to sale ratio is the worst in history, it only reinforces my notion that we should be at an average of $700 to $800 per sq ft over the next 5 years.

Perpetual movement of waht is guaranteed? I don't think any of this is guaranteed.

For the record, I absolutely DO NOT think real estate prices can outpace inflation over the long term, or incomes, for the matter.

At the end of the day, though

1) We're at not too far off of 1990s levels in terms of price/incomes.
2) In real terms, prices are only up 30% since 1981. I think the quality of life adjustment is worth 30%.

I don't think real estate can CONTINUE to grow faster than incomes. That's why I don't see any UPSIDE to real estate. But I question how much downside there is - I see a max of 15%, barring, of course, a massive deflationary spiral.

First thing, look at Miller Samuel data for condos. We are currently 25% above 2004 prices. Peak 2008 prices were 25% on top of that.

Second thing, look at the infamous Chart 7 in the report you sent. Note how 2004, which is 25% below today's prices, is already at the cyclical top on an inflation-adjusted basis with a 30-year history. Note how inflation-adjusted prices got cut in half subsequent to that peak-to-trough.

On an inflation-adjusted basis, we are currently at a point that is 25% higher than the peak on that 30-year history and 150% higher than the trough on that graph.

I agree that many things are different -- interest rates, quality-of-life, yada yada -- but them is some stark differences.

Don't you think NYC 1979 was a worse place than NYC 1997? Yet somehow prices in 1979 were 2x higher on an inflation-adjusted basis than in 1997...

"1) We're at not too far off of 1990s levels in terms of price/incomes."

On Chart 7 of our "no bubble here" report, you can see that the 2004 condos were trading at $900 ppsf. They are currently trading at $1150 ppsf. Same data collector. Therefore, we are higher than 2004 by about 28% according to this data. Given that Chart 7 puts 2004 at $315 in 1979-equivalent dollars, that means that we are currently at $400 in 1979-equivalent dollars.

According to this same data, the entirety of the 1990's in 1979 dollars was spent in the $150-$200 ppsf range.

How is it possible that you can say "We're at not too far off of 1990s levels in terms of price" when the data you provided puts us at more than 2x that???

Inonada, not sure what you are trying to say.

On a real basis, condo prices in 2004 roughly in line with where they were during 1979-1987, according to chart 7 ... when NYC was a lot worse.

Doesn't seem crazy to me to be 25%-35% higher than the 1980s, given the stark differences in quality of life. Comes back to why Newark is cheaper than Summit, why Bed Stuy is cheaper than Brooklyn Heights.

It's easily worth 30%. Of course it's not sustainable going forward to cause further appreciation - it's a one time adjustment, but once it's priced in, prices should only increase with inflation.

Why would you expect real estate prices for constant quality to correlate with income?

Computer prices don't. Clothing prices don't. Diamond prices don't.

Usually, when people get richer, they buy MORE or better rather than paying more for the same thing.

In capitalist markets, normally prices reflect COST of production, not consumer income.

We're not too far off the 1990s levels IN TERMS OF PRICE / INCOMES.

Reading comprehension issues?

"We're not too far off the 1990s levels IN TERMS OF PRICE / INCOMES."

My bad -- I thought you were saying prices "slash" incomes, not prices "over" incomes.

How much exactly do you think incomes have grown on an inflation-adjusted basis since the 1990's in Manhattan?

In any case, what FG said. Did you know that unsubsidized wheat prices in third-world countries is about the same as it is here?

>> Why would you expect real estate prices for constant quality to correlate with income?

>> Computer prices don't. Clothing prices don't. Diamond prices don't.

>> Usually, when people get richer, they buy MORE or better rather than paying more for the same thing.

>> In capitalist markets, normally prices reflect COST of production, not consumer income.

OK, this is so not true. Real estate costs more when incomes are higher; this is why NY and SF cost more than Pittsburgh.

And diamond prices don't reflect the cost of production; they reflect scarcity (admittedly created by the diamond manufacturers)

Manhattan has both scarcity AND rich people.

Prices reflect supply and demand in a capitalist society. Manhattan has limited supply and higher demand than 30 years ago - in terms of both dollars and people.

Rich people buy certain apartments. And then there are the rest of the apartments.

Kspeak that's just insane. all you have to do is look at the change in lending standards in 2003-04 to figure out the source of the increases. that and the fact that large numbers of condos were coming on line.

Fine, I'll go with a 2004 price point. We would then have 25 percent more to drop.

What's just insane?

kspeak, according to the following site:

http://www.bea.gov/regional/reis/default.cfm?selTable=CA1-3&section=2

Annual nominal income growth in the U.S. was 4.5% 1990-2000, and it was 3.5% 2000-2008. In NYC, it was 4.5% 1990-2000 and 4.5% 2000-2008. On an inflation-adjusted basis, that amounts to 2% a year, or a 20% between decades.

Where are you getting that incomes more than doubled?

Is this directed at me? "We're not too far off the 1990s levels IN TERMS OF PRICE / INCOMES. Reading comprehension issues?"

My question, in case it is not clear, is why would anyone expect p/i to be a constant? If construction is susceptible to technological innovation, costs should decline as productivity improves and incomes increase. If there is no productivity increase in construction/renovation, costs should decline or increase depending on labor costs in the building industry.

The claim that prices should rise with income basically is a claim that when bankers make more money, building costs increase. Why would that be?

Not sure where I said they doubled.

But, at any rate, at a 4.5% growth rate, things double in 15-16 years, so I guess they have.

1) Construction costs have risen over time. Some of it's labor, some of its' the environment/saftety/insurance/red tape aspects

2) Construction costs dramatically higher in NYC. This is just common knowledge.

3) Supply is limited by construction costs but available real estate, which is in short supply in NYC.

4) Are you really asking why prices of real estate would increase when people make more money? Prices are driven by supply and demand. In Manhattan, supply is by defition limited - admittedly this has always been so, so this cannot explained SUSTAINED growth faster than personal incomes - but my point is on the personal income front there was some catching up to do.

First of all, what FG said -- increases in real income allow one to purchase more of the same stuff. If they simply allowed one to purchase more of the same at a higher price, then it'd simply be an inflationary increase, not a real increase. You want to argue that community/home improvements have resulted in a 30% improvement in the past 30 years, fine, but that's it.

"Not sure where I said they doubled."

You said price/income are where they were in the 1990s. I said that using your data that inflation-adjusted prices were at $150-$200 while they are not at $400. Hence, with some simple math, you said they doubled.

"But, at any rate, at a 4.5% growth rate, things double in 15-16 years, so I guess they have."

Yeesh, you're trying real hard to convince yourself without thinking anything through. Inflation-adjusted prices were at $150-$200 in 1990-2000 in 1979 dollars. We are currently at $400 in 1979 dollars. Real income growth during that time was at 2% (4.5% minus 2.5% inflation), which compounds to 1.35x over 15 years. Given that prices did somewhere between a 2.0x and a 2.66x on an inflation-adjusted basis while incomes only did a 1.35x on an inflation-adjusted basis, even your poor price/income metric (for the reasons FG points out) has nearly doubled.

"Prices reflect supply and demand in a capitalist society. Manhattan has limited supply and higher demand than 30 years ago - in terms of both dollars and people."

Manhattan has vastly more supply of upper class apartments than 30 years ago. That's what normally happens in capitalist markets when demand increases: supply increases. Ordinarily, in functioning markets, prices reflect marginal cost of production, and in Manhattan RE that is, basically, the lowest of the cost to build a new high-rise, upgrade or convert an old one, or sell a condo that is currently rented.

Any story that claims that NYC RE prices are based in fundamentals rather than bubble needs to start by explaining the price/rent ratio. Quality of life and high incomes doesn't do it: those should be completely reflected in rents, unless for some reason (Perfitz?) quality of life has only improved for condo owners and not condo renters.

Then it needs to explain why ordinary capitalism markets don't apply. To be sure,markets fail all the time. But what is the failure here? What is the reason why landlords/condo investors who can make more selling than renting won't eventually do so, thus increasing supply until prices drop down to marginal cost? What is the reason why builders who can build at $500 psf and sell for $1000 won't keep building until all sunlight is blocked and demand disappears, or prices drop down to marginal cost of construction, or the next available landfill site costs more than 500 psf? What is the reason why owners who want to move on with their lives won't eventually recognize that selling for less, and then buying for less, is a better alternative to waiting for the bubble to reflate? (In CA, some owners have a problem that they are going to lose too much of their downpayment to be able to trade, but that should be less true in co-op land).

Bubbles create demand: when prices are going up, people buy housing they don't need at prices they can't afford in order to avoid being locked out forever, or to flip. And those who already own, discover they have more buying power than expected, so they seek better quality housing. As the bubble ends, that bubble-created demand disappears. Less demand, more supply, prices should drop. If you disagree, you need to explain where the story breaks down.

>> increases in real income allow one to purchase more of the same stuff. If they simply allowed one to purchase more of the same at a higher price ..

ok, this is just stupid. you can't buy "more of the same stuff" in NY because not everybody can buy more of the same thing - there is finite supply. sure, people would prefer to have more space for the same dollars, but they can't. no reason to waste my time on this though - this is silly.

>> Yeesh, you're trying real hard to convince yourself without thinking anything through. Inflation-adjusted prices were at $150-$200 in 1990-2000 in 1979 dollars. We are currently at $400 in 1979 dollars. Real income growth during that time was at 2% (4.5% minus 2.5% inflation), which compounds to 1.35x over 15 years.

1) Ok, if we're talking about a 31 year period, then we need to comound the affects of this over a 31 year period, not a 15 year period (Talk about simple math!!!). This gives us a multiplier of 1.84. So, again, we're at most a 1/3 off and we have better quality of life and lower interest rates (which are likely to rise but not to 15%).

2) I'd bet NY incomes grew faster than nationwide during this period, but I don't need this to make the math work ... because ..

3) Anyway, according to corcoran, the median coop price in Manhattan was around $850 psf in Q12010. According to CPI - see http://www.bls.gov/data/inflation_calculator.htm - one dollar in 1979 is worth 3 today. So, that means on a coop price basis we are actually at 283 (850/3) in 1979 dollars. which given the quality of life improvements + increase in incomes + lower rates, may be justified.

"2) Construction costs dramatically higher in NYC. This is just common knowledge."
-- Yes, marginal costs, and rents, are higher here, and that is likely to remain true. No one is arguing that NYC should cost the same as Las Vegas.

"3) Supply is limited by construction costs but available real estate, which is in short supply in NYC."
-- really? When prices were $300 psf and construction was $250 psf, land was limited. But with $500psf profit margin to play with, you can simply tear down a low rise, evict a tenant, convert an office building, dump earth in the ocean, build an extra 10 stories, or convince people that some further out neighborhood -- UWS, SOHO, FIDI, Williamsburg, Bushwick, East New York, Philadelphia -- is a fine place to live.

"Any story that claims that NYC RE prices are based in fundamentals rather than bubble needs to start by explaining the price/rent ratio. Quality of life and high incomes doesn't do it: those should be completely reflected in rents, unless for some reason (Perfitz?) quality of life has only improved for condo owners and not condo renters. "

The added factor is expectation of appreciation (which is the bubble factor).... which is the cardinal sin of real estate investment.

"you can't buy "more of the same stuff" in NY because not everybody can buy more of the same thing - there is finite supply."

-- now we are getting to the important stuff.

This is classic bubble thinking: "Land-they aren't making any more of it, so buy in Battery Park City or this conversion that added new upper-class apartments that didn't exist a few years ago".

If kspeak has company, this bubble still has a long way to go before prices are back to equilibrium.

1 to 3 sounds about right very generally

Memory lane, high school (1984)
a gallon of gas was $1.10 $3.20 today (gas was well behind until 5 years ago)
a slice of pizza was .55cents (what's a topping?) $1.50 today (toppings seem to dominate $2.50)
a pack of cigarettes was $.80 cents $10 today (sin taxes skew this comparison)
a nickel bag was...duh $5... is it avail today in less than a 1/4 ounce?
a record album was $4.99 $15.99 for a cd
of course you also had the Columbia Records club deal....10 records for a penny, you had to buy 5 more records at list over the next 2 years. You didn't and got angry letters for a while and that was the end of it
Today....limewire $0 .......a wash :)

>> This is classic bubble thinking: "Land-they aren't making any more of it, so buy in Battery Park City or this conversion that added new upper-class apartments that didn't exist a few years ago

woww ... you're so smart ... thanks for explaining that. yes, you can build more, but there are high barriers to entry. prices in fact are correlated to incomes, because you can convert, find empty lots, etc., but only so much at one time.

>> bubble still has a long way to go before prices are back to equilibrium.

Yes, and according your logic they've never been in equilbrium. Even 1981 was a bubble!!!

Prices may come down a bit more - 15% I could see. But the sky isn't falling without a massive global deflationary spiral.

"If you disagree, you need to explain where the story breaks down."

1. "Any story that claims that NYC RE prices are based in fundamentals rather than bubble needs to start by explaining the price/rent ratio."

Broken record here, but if creditworthy buyers can lock in 30-year money at 5%, the price/rent ratio SHOULD be higher than during periods where that same 30-year money costs 8%, all else equal. The bubble was inflated (partially) by cheap money, and ratios remain higher than historical averages because low rates are still available.

2. "What is the reason why builders who can build at $500 psf and sell for $1000 won't keep building until all sunlight is blocked and demand disappears"

True, but RE is not quite a commodity. Not every type of RE demand can be met by building new condos in the locations where new condos are currently allowed to be built. This satisfies only a portion of overall demand.

3. "or the next available landfill site costs more than 500 psf?"

What is to say this won't/can't happen? Thereby mitigating the impact of #2.

"ok, this is just stupid. you can't buy "more of the same stuff" in NY because not everybody can buy more of the same thing - there is finite supply. sure, people would prefer to have more space for the same dollars, but they can't. no reason to waste my time on this though - this is silly. "

Yes you can! Look at this chart:

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

On an inflation-adjusted basis, rental ppsf was $56 in Q1 1999. So that you don't claim I'm cherry-picking the data, note how it's 16% below the Q4 2000 peak of $65. Fast-forward to today, and we are at $48 ppsf. During the intervening 11 years, there was 30% inflation, but that is nullified by the data.

Yet during this entire time we had:

1) 24% income growth.
2) An 11% improvement in quality-of-life and quality-of-housing, assuming we linearize your 30% improvements since 1979.
3) A 16% drop in the real costs.

The rental stock is subject to the same exact issues that you bring up: finite stock, etc. Yet, you can get yourself 16% more space of housing that is 11% better for the same number of inflation-adjusted dollars. That's 27% more stuff for the same amount of real dollars while real incomes rose by 24%.

Why exactly is this "silly"?

I can confirm I rented in 1999 unit 217 in the printing house for $4500 per month with a fee (13%).

Same exact size three doors over #220

StreetEasy History
02/12/2010Listed by ORB Management at $5,700.
02/25/2010Price decreased by 4% to $5,500.
03/02/2010Price decreased by 2% to $5,400.
03/18/2010Price decreased by 4% to $5,200.
04/01/2010Price decreased by 6% to $4,900.
04/09/2010Listing rented.
http://streeteasy.com/nyc/rental/619165-condo-421-hudson-street-west-village-new-york

Same square footage?

It is the exact same apartment.

$4500 plus 13%(585) = $5085 . Now if this renter got a month free,that's close to 15% better today than 1999.

Still even without the month free, the point is made.

{And I'll bring a copy of the lease to any non believers at the next meetup. :) }

anyone that is trying to argue that renting the same size apartment at a cheaper monthly carry than owning the same size apartment has their head in the sand. most apartments for rent in NYC are dumps. and you end up paying a hefty premium for the ones that aren't dumps...at least in the west village...

hey!....yo! read the thread first. At the very least the last 5 posts.
Then post something relative. :)

"woww ... you're so smart ... thanks for explaining that. yes, you can build more, but there are high barriers to entry. prices in fact are correlated to incomes, because you can convert, find empty lots, etc., but only so much at one time."

Thing is that doesn't justify ANY price.

The factors might be true, but at some point, if you keep increasing prices, you have exceeded the point at which it is already been factored in.

Google is a good company, its stock is in demand, lots of good reasons that will keep the price high.

But does that mean it goes to $1k? $10k? $100k?

Bubbles always have some point of truth under them. The problem is when that is OVERpriced in.

That is what we had.

">> This is classic bubble thinking: "Land-they aren't making any more of it, so buy in Battery Park City or this conversion that added new upper-class apartments that didn't exist a few years ago

woww ... you're so smart ... thanks for explaining that. yes, you can build more, but there are high barriers to entry. prices in fact are correlated to incomes, because you can convert, find empty lots, etc., but only so much at one time."

The part you're missing is SUBSTITUTES. Yes, physical manhattan will only grow so much.

But do you really think supply only grew by Battery Park City?

Of course not.

You have to factor in new substitutes. Harlem was not a substitute for yuppies, now it is. Brooklyn was not a substitute for most folks, now it is. The folks with the money to spend now have more places to spend it.

We used to have just a few "safe" neighborhoods. Now we have tons of 'em.

Ibanking analysts used to mostly live upper east. Then upper west, w village, downtown. Now, not only have those neighborhoods effectively grown (UES top "border" being 86th, then 96th, now, what 103?)... we have new neighborhoods they live in. Caroll Gardens? Most would have no idea where that was 20 years ago. How many folks who would have been in Manhattan 15 years ago are in Williamsburg instead.

Its the flip side of gentrification.

The pool is MUCH bigger.

So to only point at the land mass of manhattan is completely illogical.

The "market" has been expanded to include MUCH more property.

"And I'll bring a copy of the lease to any non believers at the next meetup."

Bring it!

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

On the whole the data here shows that rents rose 25% since the late 1990s. Prior to the market meltdown in 2008, rents were on the whole around $50 psf. Rents appear to be coming back up to the 50s. Prior to 2000, rents were under $40 psf, as shown above. Yes, rents fell in 2009 - we had a huge shock to the system. But on a normalizes basis rents are up about 25% since 2000.

http://www.nytimes.com/2010/04/25/realestate/25cov.html

That's a 25% increase, roughly on par with inflation. Why didn't they rise with incomes? People were buying instead, putting pressure on the rental market. Between 1995-2000, rents increased about 50% - see below.

http://www.nytimes.com/2000/11/10/nyregion/residential-real-estate-manhattan-rents-go-ever-upward.html?pagewanted=1

So, this is interesting. We DO in fact have proof that rents do, over a longer period of time, rise when incomes rise. It's not a perfect, year over year or 1-1 correlation as there are times buying is in favor (2000-2007, when rents rose slower than incomes and purchase prices exploded), and times renting is in favor (late 1990s, when rents rose faster than incomes).

Supply and demand. More money, limited inventory, prices go up. Maybe not quite as quickly as incomes because you can build more, but you can't build'em as quickly.

That said, I don't see much upside to incomes in Manhattan - I see more downside - but my point is that actually throughout most of the 1980s (even the early 1980s before the 1987 peak of prices) the price to income ratio was higher than today ...

>>> The part you're missing is SUBSTITUTES. Yes, physical manhattan will only grow so much.

>>> But do you really think supply only grew by Battery Park City?

>>> Of course not.

>>> You have to factor in new substitutes. Harlem was not a substitute for yuppies, now it is. Brooklyn was not a substitute for most folks, now it is. The folks with the money to spend now have more places to spend it.

I've thought about this. All of this is true.

The ability to "build more and out" is why prices do not go up EXACTLY with incomes. But because you can only build so much in the center, they do go up. The data shows do go up a little faster than inflation and a little slower than incomes.

But - and this is what is so interesting. When I was looking at 1979 prices, those were for all of Manhattan south of 96th (usually Harlem was not included in any of these metrics - it was not considered Manhattan until recentely).

So .. when I look at late 1970s/early 1980s prices for coops ... these included a lot of neighborhoods that were bad then.

So, if the average price then was in the $150-$350 psf range (depending on which year, condos/coops, etc.) for ALL of Manhattan and that included places that were dangerous then - Hells' Kitchen, Chelsea, etc., we can deduce that prices for GOOD neighborhoods then were PROBABLY EVEN HIGHER THAN THIS RANGE, and if the average for the Upper East Side, say, was probably WELL north of the averager for all of Manhattan. If you take the midpoint of condos and coops throughout Manhattan, from 1979-1980, as $250, based on this data, it's safe to assume the UES was probably at least $300. CPI is up by 3x, so that implies $900 psf in real terms, which is below condos and above coop pricing today. But now ALL of Manhattan below 96th street is nicer in many ways than the UES was then.

kspeak, you analogy with 1979 is out of whack. Never have wall street bonuses been as high as they have been over the last 10 years. Also, like Aboutready said, over the last 10years, incomes have remained flat with the exception of the 1% top earner in this country. Call me what you want but yes, i'm a firm believer that that 1% top earners have used lobbying and their political ties to rip off the working class AND the Middle Class (pretty much America as a whole) and led us where we are now.

your other problem kspeak is that jobs and income AND new positions have been declining the last year and a half and don't appear to be returning to "normal" any time soon. this increases inventory and decreases the numbers who are available to buy an apartment when a seller wishes to move up. plus, it simply changes the price income analysis.

add on an unexpected shift in demographics? which wouldn't surprise me at all.

You keep missing the point - I'm not disputing that wall street bonuses, etc. are higher than they were 10 years ago, I'm not saying that our economy is in good shape, I'm not saying that it's fair or right.

You've got to admit it is at very least interesting that in real terms prices are only 1/3 higher than they were in the late 1970s and 1980s - an era of 16% interest rates, rampant crime, hardly any Wall Street, "white flight," and dramatically worse price/income ratios than today.

Yes, rates will go up, yes, Wall Street will shrink. But I don't think rates will be 16% or Wall Street will be smaller than it was in the early 1980s or families will move out of cities in droves or Manhattan is going to lose its wealthy people. The reality was over the last 30 years, Manhattan real estate has been extraordinary, shockingly expensive, except for during the early to mid 1990s.

None of this stuff is going to cause future price GAINS. But it provides support for the current level.

I repeat: 1/3 higher than the late 1970s and early 1980s in real terms. It is absolutely relevant.

>> plus, it simply changes the price income analysis.

it does. but we're still WAY better than the late 1970s/early 1980s even if incomes fell 30%+. that's the whole point.

were you around then or is this all academic to you?

may i join this cluster f?

kspeak... stop whining and enjoy the ride. "it's a home, that can never be $entized." GO YOU. FLMAO.

BTW, the smartest ppl on SE just schooled you... hope your husband's bonues grows year after year after year.

one other thing... .incomes never go down..... let me just tell that to the 15 unemployed business school chums.... yeah and they made the $800K./yr bonuses....

Nobody has schooled me.

They just keep pointing the fact that the economy isn't great. Well guess what - it wasn't then either. Prices are 1/3 higher in real terms, and price/income ratios are far saner now - even if you assume incomes in NY will fall dramatically, which I do, it provides tremendous support to this. I still think NY on average is going to be weathier in 5 years than it was in 1981 or 1979. Rates may be 10% but 16%??? Quality of life is better. This gets you to 1/3 higher. It just does.

But thanks for explaining to me that incomes never go down. Because that's what I was assuming.

Oh wait, didn't I say earlier that I think Wall Street has to shrink? I just don't think it's going to be smaller than it was in 1981.

It's funny that w67thstreet can never intelligently disect your arguments.

Instead he just accuses you of staying stuff you never said and calls you an idiot for stuff you never said. Find a post where I said incomes never go down. Find a post where I said Manhattan real estate is going to $3000 psf (as you accused me of earlier). But there is never any real intelligent, nuanced discussion. He's obviousy not that smart and covers it up with stream of consciousness posts, ridiculous statements, and "FMLAO" (which should be translated: i have no real rebuttal)

perhaps you missed my question: were you around then or is this all academic to you?

I was around in the 1970s, yes, why?

actually i was around in the '80s and '90s. by 1995ish the city had massively changed in terms of crime.

i think the increase in the population choosing to live in NYC rather than the burbs has just as much to do with the numbers of hours worked as it does with the post-1995ish qol issues.

so yes, kspeak, i get your point. i just don't agree with it, at least in terms of timing. and you don't get MY point. which is that demographically we may have hit the high point forever, and in the next 15 or so years may only see a decline. there is one area of housing that is dreadfully underbuilt. assisted living facilities. many of our baby boomers will be moving into them over the next 20 years, and they are specialized units that don't currently exist, so they'll add to our supply without replacement demand. but only time will tell.

btw, i'm not prophesizing, but i can envision much worse scenarios than you are even beginning to consider. i'm hoping that global self-interest, a sort of mutual assured destruction, keeps us from it. but i'm not taking any bets.

what was it like in the '70s?

kspeak.. you wanna have a nuanced discussion of the direction of nyc re?

kpeask: blah blah blah, 2004 prices... blah blah blah... more chance of stability at 2004 then not.... maybe even go up from 2004... blah blah blah

OKay I get your point. Do you plan to take the $7.5K tax credit for homebuyers?

besides, i'll take 2004 prices. as i keep saying. 25% down from here.

>> think the increase in the population choosing to live in NYC rather than the burbs has just as much to do with the numbers of hours worked as it does with the post-1995ish qol issues

I do agree with this. But I don't see this reversing - hours will remain long in a more competitive, global economy.

As far as "without replacement demand" - not sure I agree here. The U.S. birthrate was at a low in the 1970s; people born in the 1970s are the ones buying family apartments today, and there aren't that many of them. There are A LOT of 18-22 year olds right now. That's one of the reasons college admissions were so competitive over the last few years.

Could the demographic trends reverse? Absolutely. But in Europe the center of cities have always been more expensive that the outskirts - the french translation for suburbs has a very different conotation.
This was also true in the US until after World War II. In a greater historical sense, the "white flight" suburban mentality was a failed expirement.

>> I can envision much worse scenarios than you are even beginning to consider. i'm hoping that global self-interest, a sort of mutual assured destruction, keeps us from it. but i'm not taking any bets.

I can consider these too. There is a distinct possibility of a massive, global deflationary spiral; then all bets are off. But I think this is significantly less likely than the print our way our of it scenario. This isn't right because it robs savers and rewards debtors, but I think that is the direction we are headed in. It's better than a deflationary spiral for sure ...

w67th, I have spent very little time on 2004 prices, except at the beginning of the discussion, and I brought these up only because the report was focused on these.

the homebuying tax credit is meaningless in the manhattan market; it's simply too small to matter much

"So, if the average price then was in the $150-$350 psf range (depending on which year, condos/coops, etc.) for ALL of Manhattan and that included places that were dangerous then - Hells' Kitchen, Chelsea, etc., we can deduce that prices for GOOD neighborhoods then were PROBABLY EVEN HIGHER THAN THIS RANGE, and if the average for the Upper East Side, say, was probably WELL north of the averager for all of Manhattan. If you take the midpoint of condos and coops throughout Manhattan, from 1979-1980, as $250, based on this data, it's safe to assume the UES was probably at least $300. CPI is up by 3x, so that implies $900 psf in real terms, which is below condos and above coop pricing today. But now ALL of Manhattan below 96th street is nicer in many ways than the UES was then. "

Exactly, kspeak.

One has to separate out "real estate appreciation" from the gentrification effect. We can't go through that kind of gentrification again... because we starting from absolute crap before.

So many folks have these expectation of appreciation that include the factor of a city on the brink going to great. That can't happen twice.... and when that gets realized, that is going to be a serious financial revalation.

duh, blah blah blah.. .prefer inflationary spiral vs. deflationary spiral.... WOW. blk or white... nice nuanced solution you ignorant slut (SNL reference)...

how about we take away financial leverage where all the financials have 4 trading days of skin in the game, where the RE, the epicenter of the credit bubble gets rationalized (deflated below 2004 levels), and all the jacked incomes (construction, finance, dog walkers, re borkers, home flippers) based on said bubble get used to flipping burgers, m'okay.

FYI, I've done the nuanced blah blah blah... now just like to call anonymous RE bullz lemmings.

Oh, r u taking the tax credit?

the hours are sort of still there (although not so much in law) but the numbers of workers are not.

18-22 year olds? i agree. and they are the peak. and they can't get jobs. and study after study shows that there are long term implications of coming to work to the work force during a recession. and this is one mother of a recession.

the 18-22 demographic is also why so many rental units were built. they built them even though they thought they'd initially be not so profitable, because the demographics were there as was lending. and now many young people won't be able to leave mom and dad's basement.

Absolutey NOT arguing for appreciation. The gains seen in NY real estate over the last 10 years are absolutely not replicable. I have said many times - this is a one-time effect.

I'm saying if the average price of Manhattan RE was $250 psf in 1980 and that included the bad neighborhoods south of 96th street, it implies that places like the UES must have been much higher than that. Factor in 3x inflation and suddenly you realize the the UES have may cost the same amount in nominal terms as it did in 1980. Even though this was a "nice" part of NY then, it wasn't anything like today.

i wouldn't exactly call westchester and connecticut failed experiments. and i'm assuming those would be the competition here for at least the families.

kspeak, for someone who describes herself as slightly bearish you are preventing as just the opposite. i don't care at all what camp you're in, but i really hate people who prevaricate.

yup, yup, you hit it kspeak.

Two different factors, and one is no longer relevant.

> Even though this was a "nice" part of NY then, it wasn't anything like today.

Of course, at the time, UES was by far the nicest neighborhood....

preventing=presenting. interesting slip.

"Between 1995-2000, rents increased about 50% - see below."

You want to start at 1995, fine let's start at 1995, which was a trough. In 2000, rents were at $45 ppsf. The number for Q4 2009 was $48 ($44 in Q2, but I don't cherry-pick). If we use the article's $2984 in 2000 to $2046 in 1994 data point, that would put 1994 rent at $31 ppsf. December 1994 CPI was 148.2; December 2009 was 214.5. Thus, 1995 rent works out to $45 inflation-adjusted.

In your estimation, however, there should be a 15% premium now because the city (and the quality of the housing) is better. So, that works out to $52 vs. the $48 where it actually sits. Let's call the 10% difference a wash, maybe due to cyclical issues in your estimation.

On the income side, we've seen 4.5% growth during this period. That works out to a 1.94x increase. On an inflation-adjusted basis, that works out to a 34% increase in real incomes.

Yet we have not seen a 34% increase in rents, even after applying your adjustment numbers. Therefore, the evidence does not bear out your assertion that price/income ratios have remained constant.

Here's the problem with your argument. Rents have roughly tracked inflation. Incomes have exceeded inflation by roughly 2% annually. Yet during the same period, in the same city, in the same neighborhoods, and hell even for the same units, sale prices have vastly outpaced inflation, far beyond 2% annually.

no, kspeak. only certain areas in the "bad" neighborhoods had anything for sale.

>> kspeak, for someone who describes herself as slightly bearish you are preventing as just the opposite. i don't care at all what camp you're in, but i really hate people who prevaricate.

I'm not prevaricating. I'm making a case for flat to down only a bit from here. I do recognize both sides of the argument here.

not too small for you to take....

BTW, I'm not sure you really understand the difference between inflation and real growth.

If the price of a good goes up equal to incomes, and the price/income ratio remains constant, you don't actually have any real growth. You simply have inflation without any growth.

Does that make sense?

"a good" => "goods in aggregate"

kspeak, i really think you just wanted to start an interesting discussion here. but you have to realize that your title and your premise would bring out the best (?) in us.

i think that there is a fairly high chance that an extraordinary event or series of semi-extraordinary events leads us to another 10-25% decline. at a minimum i agree with nada that we see long-term negative carry eroding values for years to come.

also, kspeak, the thing that is irritating me is that you don't get how important the 2004 prices really are. that was when the bubble exploded. bubble, mind you. i personally think corrections tend to overshoot, so i thought initially (and i still do, but over a much longer inflation-adjusted time) that prices would get to 2000, which aren't that much lower than 2004.

so do you think that incomes, post-recession, exploded so much that your yorkville one bedroom shot up 40%? your studio in tudor city doubled? really?

"kspeak, i really think you just wanted to start an interesting discussion here. but you have to realize that your title and your premise would bring out the best (?) in us."

Yeah, let me say that I am enjoying the conversation and hope you don't feel we're ganging up on you.

kspeak seems to be holding her own (you go girl). but yes, it's a good idea to realize this is but a discussion. kspeak your ideas are interesting. but it is your sorry lot that most of the bullish people (and i'm not counting you as such, i'm just saying that they might provide more support), only engage in one "intellectual" conversation, rent/buy.