The New Income Inequality Is RE

That's a very good argument for buying "best of breed". The marginal areas are the last to rise and first to fall. And when they move they do so in larger movements in either direction.

Just one quibble - the less desirable 'hoods in Manhattan that took a nosedive will be the first to benefit from the priced-out-of-best-of-breed buyers - you won't see Battery Park City and FiDi continue to plummet while CPW skyrockets. It's the location.

you did a nice job selectively picking those data points that support your contention and ignoring those that don't. i would suggest that everyone pull up page 7 and take a look. how about those lincoln center condos? or those on the upper west side? and the fifth-park avenue corridor? or this piece of analysis from page 8?

"All price indicators increased over the past year, largely due to the increase in the size of the apartments that were sold. The entry-level coop market is the most common entry for first-time buyers and market share for lower priced apartments was unusually high in 2009."

In case it isn't obvious, entry level co-ops also tend to have the lowest ppsf. your ability to distort source material is rivaling RS's.

The data is sliced up into too many small pieces, it becomes unreliable. You seem to have a bad case of selection bias. Did you notice how Lincoln Center coops were up 12.5% (the 2nd highest out of maybe 40 categories) while Lincoln Center condos were down 17.9% (the 2nd lowest)?

People don't want Battery Park. They want central Park West. They basically expect to get paid to live in the less desirable location. Central Park West also has fixed housing stock and essentially nothing new will be added. And Battery Park has the issues of owning the land. Some buildings/areas have very limited appeal.

On a separate note, anyone follow Nevada coop in Lincoln Square. Very undesirable building. So the units always go very cheap which is the only way they can sell. Regardless of market these units never seem to go up very much.

You also seemed to fail to notice that the rising category was mostly coops, and the headline "PRICE INDICATORS RISE WITH SHIFT IN MIX TO LARGER APARTMENTS".

Not surprising. I think it is something like 10% of top income Americans have money in the stock market. So the top 10% just saw their investments double over the last 18 months. Extrapolate that kind of percentage over the planet and you understand that there is growing disparity in wealth. There was one investor 2 weeks ago (obviously with insider info) who made 15 million in one single trade in weight watchers calls (so very little money at risk) in 48 hrs. Do you think that the people that make that kind of money in 2 days really care about price psf? or return on RE investment?

I did notice the Lincoln Center data and I think something odd is going on there, so I left it out. Anyone have any ideas? I think there are some very poor condo buildings there mixed in with some very nice co-ops.

I chose the highest few versus the lowest few.

I did notice the headline. But I think that just MAKES my point: Larger apartments are purchased by richer customers. The rich are going to the business as usual approach to real estate. The poor are falling farther behind.

But the point is this: if you were a broker, would you price according to the overall median NYC prices? No. Urbandigs and others have stated that in-building comps are the way to go, and prices are reflecting this.

The media is reporting the medians and averages for RE in macro. Rich buyers and sellers are starting to buy and sell again, because they see the market as it really is: in micro.

the thing is, needsadvice, is that the vast majority of the properties for sale are of no interest to the rich. those properties make up an inordinately large percentage of total sales volume, given the number of transactions. but it wasn't just the lincoln center data, it was a number of data points that countered your supposition.

how does the miller/samuel data that you are using to prove your "point" have anything to do with in-building comps? you do realize that analysis of in-building comps doesn't just mean one two-bedroom sale at 20% more than another same-sized unit means the market has gone up 20%? that you need to account for condition, view, floor, etc.?

Off topic: I was watching the sitcom "Outsourced" the other night, and there was a line that I think sums up the increasing wealth disparity as it relates to the average worker. Two supervisors were talking about firing a low level employee:"Let's fire him, divide his work among the other workers, and we can split his salary between the two of us".

That pretty much sums it up for me.

What's your definition of "rich", needsadvice? The $4M+ market only represented 6% of sales. FYI, the rental market for those types of units is very weak, weaker than 2009 in many cases despite the recovery in the economy as a whole.

My definition of rich is the new economy version: secure job, steady income, some equity in their homes. $4M+ is super rich to me, and they are too few and far between (6%) to be useful, as you pointed out inonada.

Hey Needsadvice, I've been reading this thread, very interesting but I notice that in your postings of data that you left out Harlem, so tell me how does Harlem figure up in this thread ?

Since I'm looking at relocating to NYC, Harlem is at the top of my list so any thoughts would be greatly appreciated.

Thanks

I couldn't help but notice that 96% of the charts in the report have been trending up since 2009.

Brothaman: Click through to the link I posted. Also, look up the neighborhoods in Harlem, so you can read the data accurately, Harlem is a big area.

Spinnaker: Which is why I bought in 2009. Wish it was Feb 2009, but it was in the fall.

Spinny, don't you think this is mainly an inventory mix issue? Take, for example, the place next door to you. From what I can tell, it has 50% more indoor space, 3x more outdoor space, and a nice renovation that your place lacked. It's gonna sell for a lot higher than your place, but on paper it's the same thing: same number of bedrooms, same number of bathrooms, outdoor space, same location. To you, does it set anything other than a comp that is plus or minus 5% on your place?

The Harlem data is, as usual, pretty much useless ... not only because Harlem is a big area (which it is), but because they split it up and glom it onto Morningside Heights (much more expensive/desirable/stable) in one case, and East Harlem (much LESS expensive/desirable/stable) in the other.

"My definition of rich is the new economy version: secure job, steady income, some equity in their homes."

Isn't this suppose to be a definition of middle class?

@Sunday: Yup. But compared to the new poor, who will be getting poorer, they are rich.

My definition of rich is being debt free with savings, which I hear is this centuries equivalent of a new BMW.

This country is full of the "working rich". This group can't survive more than a few months of unemployment since they spend everything on their life style.

I think you are talking about the $350K household income rich, needsadvice. These people net $200K after taxes and should probably spend no more than $140K of it while saving the rest. It's pretty easy to do: you can rent quite a nice 1500 sq ft 2BR apt on the UWS, newly constructed, for $6000 a month and have another $6000 a month to spend on stuff while saving $6000 a month. A decade later, they'll be sitting on a million dollars plus.

Instead, they buy the same place for $1.8M and feed $10K a month into the alligator. They're not going to buy a 1BR, because it is not worthy of their status in society. Nor are they going to rent, for the same pretentious reasons. But as a result, their savings falls to a paltry $2000 a month. It should really be going into a 401k, but it's too much at the margins for them, so they don't even save for retirement properly. Here they are, what should be "rich" people with a $350K income, living month-to-month. Then they come to SE and bitch and moan about their middle class existence, which is shameful given the situations of the real middle income people in this city.

Now these people are going to feel a hit in the end because of undersaving. However, the charade can go on for a long time: that $6000 a month they should be saving can buffer many a bad financial decision. That is why you see relative strength at this income level. They have the ability to feed the alligator indefinitely, and they have too much at stake to walk away. Pretty much the same story across the country, not particularly special to this location or this point in time.

nads, I imagine the mix argument can be made with any yoy data, but with the predominance of the positive trend here I think makes it difficult to discount it as a change in the inventory mix. We may be saying the saying thing, although in slightly different ways. I think the growing gap between prime and non prime is a more compelling explanation, as I've said before. I believe people are making a conscious decision to protect against downside risk and they are doing that by limiting their hunt to properties that gravitate more towards prime in terms of location, quality, etc etc.

I think there has been an uptrend of 5%-ish, with the SE index being my favorite barometer. While I think there has been a gravitation in the market towards more prime properties, I think it's less about downside risk and more about "as good as it gets". As verbalized by west81st a few weeks ago, people just aren't buying that 1BR unit thinking they'll be able to upgrade in a few years. I don't think this has really created a special situation for prices, however, for prime properties. If you start looking at the real "prime" units, say the top 10% that Miller Samuel defines as "luxury" with a $4M average, there just isn't much strength. I remember a just-shy-of-$4M unit that sat forever, still no takers, and I'm scratching my head wonder why it has no takers.

I think each price point has seen its sweet spot narrow dramatically. It's not just neighborhood anymore as it is nabe, street, building, line. I also thought W81st's description was spot on.

I'd be careful taking any advice from inonada. I once asked for investment advice and he came back with"don't get into a land war in Asia" It wasn't like I was looking to buy in Chinatown or anything.

Sometimes what's looks cheap is actually expensive.
Buy quality while making sure you aren't taking on too much debt and aren't over-committing your resources to the upkeep.
Someday you may decide to sell and the best neighborhoods and buildings are more assured of finding a buyer than the marginal ones.

Shows what you know: Chinatown's not in Asia; it's in Little Italy.

Take inonada's advice, just don't pay him until he garnishes your wages. (Never eat the garnish.)

"Instead, they buy the same place for $1.8M and feed $10K a month into the alligator. They're not going to buy a 1BR, because it is not worthy of their status in society. Nor are they going to rent, for the same pretentious reasons. But as a result, their savings falls to a paltry $2000 a month. It should really be going into a 401k, but it's too much at the margins for them, so they don't even save for retirement properly. Here they are, what should be "rich" people with a $350K income, living month-to-month. Then they come to SE and bitch and moan about their middle class existence, which is shameful given the situations of the real middle income people in this city."

This is all well and good for illustrating a point but it's an awfully extreme example.

Correct-- people in this hypothetical situation should not be buying new-construction 2-bedrooms at 25x rents. Undersaving is right -- with those financials/income they won't pass most coop boards at $1.8 million. So you're talking about a minority of sales transacting in the market that might fall under this general description.

Would even the most bullish of the bulls here (SteveF?) advise that people in that situation, with little/no savings, should buy at 25x rents? I don't think so... but I could be wrong. ;)

It's just a matter of time before Italians take back Chinatown. You know, the Guccis, the Fendis, the Pradas. You seem like a bobo, NYCDreamer. You should get in on the ground floor.

>you did a nice job selectively picking those data points that support your contention and ignoring those that don't.

Like when you excoriated someone for threatening to sue you, while ignoring that you threatened to sue me?

I don't agree with your "coops are sacred cows" view, seg. Condos represent 50% of sales, and 25x is very much the norm at that price point. I think you view the market as significantly mispricing coops vs. condos. I disagree. If interest rates go up a couple of percent, the condo owner can rent indefinitely with their 2010 4.x% vintage loan courtesy of Uncle Sam. The coop owner just has to sell when they move. The coops are also much more intrusive, and the cost of this intrusiveness shows up on the rental side as well: the rare coop rentals go for appreciably less than their condo cousins. I think it's a mistake to compare coop sales prices to condo rental prices.

I think the song goes "Gucci, Pucci, Fiorucci!"

Now these people are going to feel a hit in the end because of undersaving. However, the charade can go on for a long time: that $6000 a month they should be saving can buffer many a bad financial decision.

Ino: I not only agree with this, I know several of these people. But I wonder what is going to happen down the road. Corporate pension funds which are just now getting back to par are being pawned off on insurance companies. Won't be long before pensions are not part of the employment package. Throw in a delayed age for collecting Social Security and rising taxes and soon these 350K'ers wont be able to juggle it all. Add in some inflation when QE2 --or QE3--ends, plus the dream being popped in RE returns and it is difficult to believer that the market will hold up over the next several years.

Don't worry about the 350K'ers and their retirement.

That's why people move to Florida.

Cheaper housing stock and no income tax. They sell their NYC place and buy a condo in FL for 1/5 the price of their Manhattan place.

"It's just a matter of time before Italians take back Chinatown."

If the fight to shrink the San Gennaro festival from 7 block to 4 block is any indication, seems like Little Italy is in danger of being taken over.

Right needsadvice, nothing catastrophic, they just downgrade their lifestyle. Instead of retiring to that 3000 sq ft condo overlooking the ocean, they're off playing shuffleboard at Del Boca Vista Phase II. Just as long as they don't bitch and moan about how 401k's or the system let them down, or how the govt is screwing them with interest rates, or how cream cheese prices are up a nickel, or how new TVs that people actually want have unimportant features and how their old Zenith was just fine, I don't have a problem. However, recent experience suggests otherwise.

brothaman, it might help you to think of Harlem as roughly three neighborhoods: East Harlem (being everything east of Fifth); South Harlem (being 125th Street down to 110th, on the West Side, with FDB being the central strip), and the 140s (West Harlem North of 125th up to about City College, with Sugar Hill and the new condos in the West 140s being hotspots).

ali r.
DG Neary Realty

"They sell their NYC place and buy a condo in FL for 1/5 the price of their Manhattan place."

That's easier said than done. Hae you tried selling RE lately? And on a side note, I do not know of a single person planning to move to Florida. North Carolina has become the new Florida.

what we need is rioting in the streets to bring back income equality.

This should be interesting: The Koch brothers are soon going to be hacked. I can't wait to read all of their private e-mails.

http://www.examiner.com/democrat-in-national/anonymous-targets-koch-bros-with-opwisconsin

>what we need is rioting in the streets to bring back income equality.

Is that what you are really advocating?

And let me as you, how about current GDP is 100, and your group makes X (feel free to fill in which represents X%. After the rioting to bring back income equality, how about we say it works: What is the new GDP (express in relation to the original 100) and your group makes what percentage?

govt. workers also all need to go out on strike and shut the country down. That is the only weapon they will have if the union busting governors win.

Undesirable neighborhoods absorb overflow from desirable neighborhoods. When best of breed skyrockets enough, it will spill over.

govt. workers also all need to go out on strike and shut the country down.
How can they strike if they are taking two hour video game breaks?

>govt. workers also all need to go out on strike and shut the country down. That is the only weapon they will have if the union busting governors win.

So, my family presently doesn't receive any entitlements. How will this impact us? Garbage collection - there'll be enough people out of work to handle that for us. Transportation - I think the number of gypsie cabs will increase sufficiently. Schooling - already taken care of.

I'm afraid you'll only be hurting the poor, and yourself.

"I don't agree with your "coops are sacred cows" view, seg."

Nah, not sacred cows. Never said that.

Point is you took a hypothetical example and portrayed it as though it's broadly representative. It takes no trouble to find eye-popping sales and demonstrate that if the buyer tried harder he could have rented something of equal quality for the equivalent of 25x or 30x or whatever. But the converse is no less true. If a household is renting a 2BR for $6,000 and can't find something of equal quality for less than $1.8 million, then they're either not trying or they have no idea what they're doing, in my opinion. But reasonable people can disagree on this.

Also, point taken on comparing condo/coop rents, but it's hardly impossible to get a good coop rental comp.

You think there are enough gypsie cabs in NYC to replace every single bus and subway? The streets will be backed up with 30 mile traffic jams.

You missed my point.

@needsadvice and front_porch, thanks for the info, it's giving me a better understanding of NYC/Harlem.

Front_porch, when you say the new condos in the 140's being hotspots, do you mean that the 140's are the best area of Harlem ?

I was thinking that the 110's to 125's between Morningside Park and Adam Cayton Powell blvd with the new condos would be the better area's to live in but I could be wrong.

Thanks ahead for yours and anyone else's insite.

You're right, seg: it may have been an overzealous an example to be the "average" of the market. I guess the comparison is particularly stark in new developments where you see lots of sales & rentals all in the same line, so the comps are precise. Perhaps new development buyers as a class have less of an idea what they are doing.