Will the SE index dip below 2009 lows?

And the list goes on. This from today's WSJ:

"After years of housing prices gone wild, China's property bubble is starting to deflate.

Residential prices are heading downward in some major cities, damping some undesired real-estate speculation but raising the prospect that the Chinese economy may slow more rapidly than anticipated with profound consequences for global growth."

According to Noah, a reliable source, spring selling season definitely did not suck http://urbandigs.com/2011/06/may_in_the_booksmanhattan_stil.html

Nada, for the SE index to break its 2009 low, I think you're looking at one of three scenarios:

1) smaller apartments (studios and 1-BRs where the market has been sleepy since the first-time homebuyer tax credit expired) start to trade at lower prices.

I think this is unlikely given the way smaller-apartment rents are taking off; I think instead smaller apartment sellers are going to try to hang on, price-wise, and see if the market comes to them.

2) larger apartments (two- and smaller three-bedrooms where the market has been pretty hot) start to trade at lower prices.

I think this unlikely as I think there's still demand pressure on this segment -- certainly in the "desirable" areas of UWS, Village, Chelsea, Tribeca, where we still see multiple bids for certain places because inventory is so tight.

3) "family" apartments (larger three- and four-bedrooms) start to trade at lower prices, or simply stop selling at the pace they have.

I don't sell in this segment, so I can't speak to it -- but I think this would be the most likely cause of a decline, that high-end buyers suddenly back off because of concerns about Greece or whatever, and the index dips because of the mix change.

I doubt it, though.

ali r.
DG Neary Realty

Regarding Noah, two things:

1) That was a pretty middling post. No talk of "Hey, don't blame me, but I call it as I see it: there's a lot of activity and interest out there, I've seen a number of bidding wars".

2) Noah is no dummy. He rents in NYC. He made a pretty penny selling his condo 2006/2007. He's making plenty of money from his business. He did buy a property recently this year. Only issue is it's in CT, not NYC. A second home in CT while renting his primary home in NYC. Enough said.

Regarding FP, those are about the weakest words ever written by her on the subject. FP, you know I love you and all, but has there ever been a time you were bearish on NYC RE? A year ago, your outlook was quite positive. We've been up 2% since, tracking CPI, not that one should expect anyone to be a perfect predictor. Now you're talking "will hold the line" rather than "will march up". My indicator of broker sentiment is not whether or not it's positive (it pretty much always is), but rather the extent to which it's positive.

I think the risk to the NYC RE market will be the banks. Many, including Schiller, think the double dip in housing will continue down even further for a few years. The banks cannot keep holding all these loans on their books. They need to deal with robo signing and securitization breaches. These issues are an overhang on the stocks. Which means layoffs. If the foreign buyers are too stretched to pick up the slack, it will mean downward pressure from the top and with the lower jumbo qualifiers, downward pressure on the bottom.

Schiller: cchttp://www.cnbc.com/id/43339262

apt23, I think we make too much of the supposed rationality of economic actors. All it would take is a good spook of the financial markets to hurt real estate in NYC. So much of the trading of real estate is tied to Wall Street, and so much of the "value" depends on government interventions, one sneeze in the wrong place and we'll all catch the flu.

The higher end really got going earlier this year, starting around FEB..Pending sales by price point on UD show this. When these start a) closing, and b) get captured by public record for inclusion in these indexes and reports, I think you will see a bump up. Just a hunch. Seems logical. Its likely it comes in July or Aug, maybe even Sept. Lets see. From what Im hearing, these higher end deals are taking place at levels well above fear trade levels in early '09, but still below peak.

in the last 60 days SE shows 1543 recorded sales of manhattan coops, condos, and houses. 335 of those, or 22%, sold for more than $1.5 million, 274, or 18%, for more than $2 million.

no, nada, I've never really been bearish on Manhattan, which has become a substantially better and better place to live in the decades I've been here. I think that rising quality of life has counterbalanced a lot of other factors.

I'm somewhat anti-Park Slope though, does that count?

I do admit that I've been bullish all through the dip and the recovery, but I think I've been mostly right.
I said (battling my good friend 30_yrs) that we wouldn't see 50% price cuts, check; thought summer 2009 was the bottom (and bought), so far, that's a check; said the NYC recovery would follow the pattern of the early '90s recovery, with my business slowly recovering every six months, so far, check.

The place I've been wrong is not seeing the national double-dip; I'm on record as being with Cramer in having called a bottom and not having seen the second bottom. I still think on a 45-state basis, that's right, but I was wrong about the extent to which the problems in the really troubled states -- Florida, California, Michigan, Arizona, and Nevada -- would skew the data.

However, I heart you too, and so even though I'm on the other side of this SE index question, I'll leave it to time to settle it...

ali r.
DG Neary Realty

What I don't understand is why Manhattan price-to-rent ratios are so much higher than virtually anywhere else in the country.

Yes, Manhattan is a nice place to live. So that should be reflected in high rents (which I think it is).

Why are the price-to-rent ratios so high? (And BTW, what do you think they are today?)

Noah? Ali? Anyone?

Thanks for humoring me.

Boy I need more pillows for all the borkers. It's the only humane way....

Bankers being laid off SOON, mortgage limits going down $100k in oct 1, interest rates will go up, anybody with a pulse and $$ to buy has not only one or two, but most likely 3 homes under their belt.... And nyc re will go up!!!!! FLMAOzzzzz.

The final last gasps. The correction cometh. I ride on my headless horse warning the British. Or is it the other way around. Let me ask my weiner.

Topper pls no more rent buy ratio. It sucks and is way outta whack. We r coming off the greatest nyc re bubble where TH went from $800k to $10mm in 12 years. Do the Fking math. It ain't normal. It's not sustainable. It's not even desired. As surely as the water flows to the sea, nyc re will hit $500psf in prime nyc.

Damn, gotta go look at a maserati granturismo. It's been so Fking awesome picking up toys fueled by this credit orgy and collapse. Seriously, thinking about a viking 55. Bargains galore buy ya'll just keep poking the dead pig on the streets of nyc. FLMAOzzzzz

Topper: Exactly. The one key factor that makes me nervous about the current Manhattan RE market is that the P/R ratio just doesn't make any sense. The fact that Manhattan is a nicer place to live should impact both sides of this ratio equally, so it should be a non-factor. The other claim I often hear is that rental buildings are lower quality and that this ratio is affected by a difference in the quality of housing available for buy versus rent. This makes sense, except the problem with this argument is that I've done a number of comparisons where literally the same unit was available for buy or rent in a condo building, and the ratios are still out of whack. Something has got to give, and it seems buying means you are making a major bet on one side of this equation.

Seems to me, thoth, that the only possible justification for the super high P/R ratios is "if" future rents were expected to rise super fast well into the future. (That would make Manhattan like a growth stock which naturally commands a high PE ratio.)

Could happen, I guess. I'm just a bit skeptical. (I still remember the dot-com boom and even the Nifty-fifty market from the early 70s.)

Nice, though, to see someone else struggling with the same conundrum.

I'm somewhat of a newbie on this but I don't think P/R ratios take into account the incredibly low mortgage rates. The actual monthlys on an apt in this low interest rate environment can be locked in for 30 years while rents cannot. In my case I have a low rate mortgage and a 25 yr tax abatement so again I have a lot of long term price protection not available to renters. Obviously rent vs buy will be an ongoing conundrum with the correct answer being different for different people.

Howz about the fact you are applying efficient market theories to an inefficient mkt made up of fktards like you topper.

Harlembuyer: A good idea, except that the impact of interest rates on home prices is apparently far from clear. It also doesn't account for the fact that the same interest rates apply everywhere in the country, not just NYC, and it doesn't see to be supporting the ratio anywhere else. Your 25 year tax abatement can certainly help, though. I've personally never seen an abatement that long, so it seems like you may be in a very good, but unique, situation

"will it also dip to / below the 2009 low nominally at some point this year?"

I don't know about by the end of this year.

alison, shill as you must wherever you do, park slope will be just fine without you.

Thoth: Not unique. Actually most new Harlem condos with construction started prior to 2008 have 25 year 421a tax abatements. Here's a good argument from an economist as to why the now ended 421a program should be re-instated http://www.observer.com/2011/real-estate/lesson-need-421

alison = borker
cramer = hedgefund millionaire
both called bottom in 2009 in RE

therefore =cramer is like a fking loser douchebag borker selling shit....

NOT ali = > millionaire hedgie

OK, continue on. Hey Ali say hi to 30yrs for me... were you guys able to afford an office where you are not 16 inches from each other's faces? Great fking both of you, I guess if you stare at each other and no one else in manhattan.

Cramer called the real estate bottom after he said that Bear Stearns was ok, right?

"Thoth: Not unique. Actually most new Harlem condos with construction started prior to 2008 have 25 year 421a tax abatements. Here's a good argument from an economist as to why the now ended 421a program should be re-instated http://www.observer.com/2011/real-estate/lesson-need-421"

That guy isn't an economist. Rather, he's the head of a very prominent NYC commercial brokerage firm.

but he went to wharton, and he's talking about widgets so he must be legit. he even cut his hair.

OF COURSE he wants the 421a program extended.

but the 421a is indeed a lively beast up in harlem. that along with extend and pretend have kept the neighborhood generally from totally tanking.

Downtown is hot. We bid for several places in the village but every thing going at ask or more. Here are some examples:

40% above late 2004 prices.
http://streeteasy.com/nyc/sale/591121-condo-1-morton-square-west-village-new-york

This one sold above ask. 1500 sq ft with nice renovation at $2.4mm.
http://streeteasy.com/nyc/sale/576460-coop-42-west-9th-street-greenwich-village-new-york

Geez 300_mercer, sometimes I worry about you. You're beginning to sound like Julia.

Let me tell you how NYC RE works. There are these people who build buildings called "developers". They and their lenders like to sell apts before construction is completed, so they do "pre-sales" well before the building is completed. Buyers are typically averse to agreeing to buy at prices 20% above the then-current market based on speculation that prices might increase by the time they take delivery of the apartment. So, they just pay the then-current market price.

The contract date on the 1 Morton Sq place was July 2003. The SE downtown index is up 36.5% since then. The SE downtown index's run-up between July 2003 and December 2004 (when this place closed) was 21%. The run-up between July 2003 and December 2005 was 43%. Welcome to the glory days of the bubble. The drop since December 2005 has been 3%, and the index is currently at late-2005 prices.

So, the 1 Morton Sq place closed 40% above its mid-2003 price, 20% above its late-2004 price, and around its late-2005 price. Very similar to the rest of the market.

Lest you think the downtown index is special, two facts. The downtown SE index had a 4% premium to the overall SE index as of April 2011; on the first date of the index (Jan 1995), it had a 6% premium. On average since 1995, the downtown index had a 0% premium over the overall index w/ a standard deviation of 4.5%.

thanks nada, i was too lazy to go look up the contract date on the 1 morton place but i had the same general thought.

Glad to see you're posting comps again. Nothing like the standard mid-week morning routine: a cup of coffee, a newspaper, and comps from w81st/AR/NWT. The dream-team is back.

Topper, I think that there are a couple of factors. But I think a big part of it has to do with the fact that the inventory isn't apples-to-apples.

The widely-cited Trulia data, for instance, compares the median two-bedroom available for sale to the medium two-bedroom available for rent. But I think in Manhattan, that's comparing cream to milk -- a lot of units available for sale are in co-ops, where renting is pretty restricted, if allowed at all.

If you look at properties where one can both rent and sell -- for example, established condos -- I think P/R is lower than the numbers that are generally batted about.

The very high-end, though, is another question mark -- search these boards and you'll find nada and I having a conversation about what the P/R ratio is in Time Warner Center.

ali r.
DG Neary Realty

The best comparisons are condos as rentals aren't for sale, and coops (which sell and rent at discounts) are very sporadic. At the high-end, 25-30x is pretty easy, though with work one can do 35-40x. For the normal end, 20-25x is the norm and dime-a-dozen; 30x is very rare, as is 15x. Not that people don't often ask for 15x, which typically results in no takers for 8 months before the listing is reduced or pulled altogether.

I don't think the higher NYC ratios have anything to do with interest rates either: see the rest of the country. Nor is there anything special about NYC. Most affluent sub-markets across the country have similar ratios. Affluent people have the means of bleeding their losses slowly over time, and as these boards so aptly demonstrate, a willful ignorance of that.

Markets are always moving but I think today's P/R on my investment condo is a smidge over 18.

To nada's point that "most affluent sub-markets across the country have similar ratios" I think that another factor is that real estate, in some places, is seen as an extremely long-term holding. The commercial real estate guys have a saying that "real estate is for the grandchildren" and I wonder if a little of that doesn't take place here -- or in London, or in San Francisco -- places that are possible recipients of money from all over.

So there might be a little of a "safe haven" effect that supports purchase prices; the counter-example to this is of course Miami, which is a market that depends on foreign buyers, but Manhattan is tougher to build in than Miami, so the restrictions on supply support our market.

Also to the "real estate is for the grandchildren" point, I wonder if there's a tax policy support in that buildings depreciate (for tax purposes) faster than they actually crumble.

Insert your own 2 Fifth Avenue joke here.

ali r.
DG Neary Realty

Holy shit. 2 posts from Ali wo mentioning she's wasting her Harvard degree as a brokewhore and she 'wrote' a book. Hey maybe I should go to that self publish site and become an 'author.' I think I can get an MBA online also... What the hell, I'll get tHe twofer and become a chiropractor also.

Obtw, you were completely wrong on nyc re direction for 4 yrs running. U do know w67 never wavered?, right.

Ali:

"Manhattan is tougher to build in than Miami, so the restrictions on supply support our market."

But I would think that that would also support rent prices so shouldn't have any real impact upon the P/R ratio.

Thanks, inonada, for your perspective on P/R by market segments.

Again, all I can think is that the market is Manhattan market is pricing in large future rent increases...if it is being rational.

Or the market is simply wrong - and dangerously overvalued.

I own a condo in Stamford, CT and the price-to-rent ratio is around 13. Nice spot, right on the water.

But Topper if you're a foreigner who doesn't want to hold your own currency then you're more likely to buy an American apartment than to rent one.

ali

Perhaps.

But as a foreigner you are not restricted to owning U.S. real estate. You can also own U.S. stocks and bonds. You can also easily own U.S. commercial real estate through REITS. (And within REITS you can also focus upon apartment REITS if you so choose.)

The question is where is the best value?

U.S. stocks have a "trailing" PE of about 14.5.

Maybe Manhattan real estate is the most attractive. But in order to justify a P/R of 25 you probably have to expect pretty robust future rent growth. (BTW the R is the ratio is a "gross" figure. A "net" R - after paying taxes and carrying costs - would be far lower and thus the "net" P/R would be far higher.)

I didn't go to Harvard, though, so what do I know?!

nada, I take your point about 1 Morton going into contract somewhere in 2003 but there is no way to prove that the buyer paid 2003 prices. Also, look at the price per sq foot. It is 1600 using listed sq footage. Also look at the price per sq footage for the village apartment. I am merely saying the downtown market has to be very strong to justify this type of per sq foot prices. Streeteasy downtown figure is lower than it should be due to financial district which is still distressed.

I'm not following, 300_mercer. With ACRIS, the sale contract date is listed as 7/16/2003. That means an agreement to purchase was made on that date. What kind of pricing would that reflect other than 2003 pricing? What possible scenario are you thinking?

All I'm saying is that the specific apt in contract sold for $1177 a sq ft in mid-2003. As grotesque a figure $1675 might represent to you, it is within 4% of the broad downtown market move that has occurred since then, Fidi closings and all. To demand $1675 a sq ft in today's market, that location has to be very strong relative to the rest of the market indeed. However, the data shows that it had that same relative strength in 2003.

If you think $1675 vs. the Miller Samuel market-wide average of $1025 is "very strong", imagine the shock back in 2003 when it was $1177 vs. $654 (Q2 2003) or $691 (Q3 2003). No doubt the closing of the gap was largely due to a large bubble-induced push towards higher quality market-wide, but the "premium" for this apt appeared significantly higher in 2003 than it does now.

If Ali is any indication, maybe mercer-69 went to ha'vard also.......