March 6, 2013

The economy at large will be humming along well. Banking will continue at its reduced size, with the govt continuing to tax its ass for past sins as the recovery allows it to do so without causing insolvency.

Short-term rates will rise a couple or few percent to normal levels as the need for negative real rates goes away as the economy recovers. Mortgage rates bump up a percent, perhaps as much as two, in response to this and a slow govt pullout from mortgage subsidies ala Freddie / Fannie.

Manhattan rents up 5+%, somewhat outpacing inflation trying to make up for lost time. Nominal rents from 2006/2007 perhaps achieved despite the passing of 6-7 years of inflation.

Prices flat nominally with today more or less. Worse interest rates offset rent gains, making buy vs rent about where it is today: buying overpriced. Owners will continue living in inferior places compared to their renter counterparts. Loss aversion continues, making people stay in too-small places to avoid transaction costs and losses. The slow bleed of negative carry, at 2% or so of price a year, continues but realities are ignored. Peak buyers circa 2007 now down 15% nominally, plus 10% in transaction costs, plus 15% negative carry. A total of 40%, but declared "not so bad" by people because it is only 15% nominally.

SteveF continues to post about the imminent rise of his investments, now having fed all his free cash into his alligators for the past 6 years.

Ironically, the current FED policy which has enabled an economic expansion, unbridled appreciation in the stock market and recent (and short-term future) price rises in Manhattan will be equally responsible for the City's downturn by 2013. More and more financial analysts are saying there will not be QE3. I have never thought the Republicans would stand for it. Even if the Republicans sweep the elections in 2012, it will not be enough time to cut budgets enough to stall inflation -- the inevitable result of printing so much money. Forget the perma bears in the market like Jim Rogers or Marc Faber, there are many market neutral gurus (Ray Dalio, Soros, et al) who are anticipating a relatively strong US 2011 but a weak 2012 and 13. Virtually no one denies that we will be facing high inflation as a result of QE Zero (Tarp), QE1 and QE2 --as well as the EU printing presses. It is an historical inevitability (hence the rise in gold prices)

With High inflation, tight credit, Cuomo's troubles with the public pension funds, a weak economy and higher taxes, NYC RE prices will be down. Plus though the financial wizards on wall street are given a free ride now as the govt is dependent on their expertise and recovery to lift the economy, that hopefully will not be true in a few years when things stabilize and we face a run of the mill weak economy. Banks will eventually have to mark their books to market and the public will eventually call for the heads of the greatest robber barons in history who have not been held accountable and continue to make fortunes on the tax payers back. Though even I have to admit that accountability is not a given considering Angelo Mazillo got off scott free and the Republicans will not have the temerity to seek accountability or retribution for the illegal excesses that brought on the near collapse of the financial system. (Just a personal hope)

And that is not even taking into account the possibility of EU defaults and long term instability in the Mid East. Hyper inflation is not out of the question in a perfect storm. Tom Freidman said this morning that basically the genie is out of the bottle and Saudi Arabia will be facing problems with their populace in an inevitable march to greater freedoms --if not immediately, then in the relative near term.

thoughtful responce...I think I agree.

Where's west67 when you need him to hurl gloom and doom on any prediction that doesn't have us all on a bread line 6 months from now, let alone two years.

Still waiting on those $500 p/ft prices he's been screaming for....