Manhattan rental mkt report-June 2011

inonada is furiously looking for an obscure anecdote that will disprove this entire report.

haha..right. "but wait this report came out @ 8am and it's now 12pm talk about old news! I mean c'mon people" or " I know a guy who knows a guy who knows a friend who has a second cousin that said that this report is not credible"

If non-doorman units are doing better than doorman ones, that indicates a bad economy.

Frankly, I'm not sure why you guys are putting all that much stock in these MNS reports. Real rents are notoriously tough to gauge - which is why people draw so much on anecdotes.

I think that's supposed to be an em dash, not a minus sign, before the 2.10%.

Miette, right, or they could've avoided confusion -- and been correct -- by using a colon:

"Month-to-month changes show increases of 1.82% overall: 2.10% in doorman units and 1.54% in non-doorman units."

sht i need to be charging my tenant more and the bish just signed a 1-year.. any way to up it legally 2 months in??

i assume these prices don't reflect broker commissions, so effective rent can be higher?

Is this really a surprise? More folks looking to rent, less looking to buy... that's going to push on rent prices, which haven't had much upward movement over the last 5 years.

SteveF, how did you miss this is a bad sign for you?

hey, swe just woke up. R U kidding that higher rents have no impact on pricing? They go hand in hand! Please go back to sleep. You are losing it swe. Losing it.

Actually, swe is right in his logic. It's just that sales volumes have not tapered off in the way he has been assuming. He will almost certainly ignore the data, as usual:

Volumes data for Manhattan (coops and condos):

2010 - 10,060
2009 - 7,430
2008 - 10,299
2007 - 13,430
2006 - 8,493
2005 - 7,780
2004 - 8,653
2003 - 8,488
2002 - 9,094
2001 - 7,858
2000 - 8,799

jason, inonada is right far more often that most posters I can think of on this board.

"hey, swe just woke up. R U kidding that higher rents have no impact on pricing? They go hand in hand!"

poor, poor, SteveF... absolutely confused between cause and effect...

"Please go back to sleep. You are losing it swe. Losing it."

From you, that's a compliment.

How much have you lost already, SteveF?

True, but the CPI data, all the surveys, and news stories say the same thing. YOY rents are up in Manhattan. Nominal and effective. Anecdotes do not disprove this.

It's gotta be tough to be SteveF. The guy buys a bunch of condos in 07/08 at the tippity-toppity-top of the market, watches their value plummet, then spends all the time since then underwater, clinging desperately to hope, clawing at any crumb of optimism while at the same time ignoring the brutal, overwhelming reality of his situation.

That said, I do give him kudos for finding a reason to smile despite his situation.

Nadan always right? How do you know? I'll admit he spins a good line of bullshit, but he is the 3rd reich minister of propoganda, so what do you expect?

Rents ARE rising... But how is this spun positively? -- "While vacancies are up 2.99% overall, we attribute much of this number to turnover."

Anecdote:

http://streeteasy.com/nyc/rental/759271-condo-200-riverside-boulevard-lincoln-square-new-york
02/11/2009 Previously Listed by Raz Realty at $2,900.
05/12/2009 Raz Realty Listing rented. Last priced at $2,800.
04/28/2011 Listed by Raz Realty at $2,800.

Data from Miller Samuel that uses actual rents, not asking rents, and goes back 20 years rather than just 3:

Year Quarter Studio 1 Bedroom 2 Bedroom 3 Bedroom 4+ Bedroom All
2011 1 2,269 3,008 4,644 7,485 12,321 3,445
2010 4 2,319 3,069 4,722 7,558 12,941 3,499
2010 3 2,306 3,053 4,414 6,851 9,903 3,460
2010 2 2,268 3,159 4,945 8,024 10,290 3,710
2010 1 2,417 3,094 5,021 8,653 12,197 3,812
2009 4 2,253 3,026 5,228 7,515 12,749 3,789
2009 3 2,252 3,026 5,048 7,603 12,925 3,759
2009 2 2,304 2,874 5,018 8,849 15,430 3,839
2009 1 2,221 3,200 5,375 8,760 15,670 4,142
2008 4 2,294 3,245 5,257 9,378 18,825 3,958
2008 3 2,441 3,344 5,139 8,676 26,172 3,796
2008 2 2,449 3,311 5,250 9,564 16,814 3,806
2008 1 2,388 3,281 5,297 9,287 27,461 3,850
2007 4 2,315 3,303 5,272 7,846 13,527 3,801
2007 3 2,282 3,308 5,122 8,035 12,378 3,757
2007 2 2,257 3,313 4,895 8,016 13,655 3,704
2007 1 2,261 3,276 5,116 8,209 17,183 3,762

Going back to 1991 for the "All" category:

Year Quarter Studio 1 Bedroom 2 Bedroom 3 Bedroom 4+ Bedroom All
2006 4 3,874
2006 3 3,607
2006 2 3,436
2006 1 3,381
2005 4 3,341
2005 3 3,100
2005 2 3,112
2005 1 3,179
2004 4 3,200
2004 3 3,002
2004 2 2,989
2004 1 3,095
2003 4 3,097
2003 3 2,924
2003 2 2,973
2003 1 3,103
2002 4 3,302
2002 3 3,124
2002 2 2,788
2002 1 3,081
2001 4 3,375
2001 3 3,357
2001 2 3,420
2001 1 3,535
2000 4 3,588
2000 3 3,499
2000 2 3,133
2000 1 3,182
1999 4 3,277
1999 3 3,100
1999 2 3,316
1999 1 3,186
1998 4 3,222
1998 3 2,837
1998 2 2,822
1998 1 2,950
1997 4 2,954
1997 3 2,967
1997 2 2,749
1997 1 2,921
1996 4 3,048
1996 3 2,720
1996 2 2,567
1996 1 2,720
1995 4 2,639
1995 3 2,488
1995 2 2,423
1995 1 2,640
1994 4 2,670
1994 3 2,264
1994 2 2,149
1994 1 2,489
1993 4 2,162
1993 3 2,021
1993 2 2,027
1993 1 2,134
1992 4 1,952
1992 3 1,745
1992 2 1,881
1992 1 1,850
1991 4 1,863

Das is gut Herr Goebbels.

nada, good stuff. Are those medians or means? And how are they factoring in concessions? Either way, makes a solid case that rents are at or near 2006 levels. Crazy.

Why is it crazy?

Those figures show rent up about 11% above inflation since 1991. That seems about right given the increase in quality of life in NYC since then. All of the increase happened in the 1990s, when the city was rapidly adding jobs, reducing crime, and repairing its infrastructure.

Since 2000, the "all" column shows rents down about 20% (CPI adjusted), which also seems about right given the loss of jobs in key NYC industries (e.g., finance, publishing and advertising) and wage stagnation for everyone but CEOs and bankers.

Ergo, basically all the purchase price appreciation since 2000 was a function of easier money. Therefore, it would be many many years of higher rents before we could argue that purchase prices are appropriate. As it stands, price to rents are OK but only given the artificially low interest rate environment.

No, the price appreciation since 2000 was a bubble. Bubbles are caused by buyers who decide that prices are going to go up in the future and therefore it is ok to pay more now, thus creating a self-fulfilling prophecy. They continue when overpaid sellers re-"invest" their bubble proceeds by buying yet more overpriced bubble priced property. They end because ever rising prices eventually induce higher supply.

Bubbles are self-sustaining market phenomena, an inevitable by-product of markets themselves. They are a recurring force in every market where commodities can be purchased for capital gains.

Our real estate bubble was able to continue for as long as it did because of the astonishing failure of the banks and the securitized credit markets to perceive or price the risks they were taking, by the easy access to financing they offered to buyers who would otherwise have been constrained by ability to pay, by the misinformation spread by the NAR and the investment media, and by the failure of regulators to stop it.

But those were enablers, not causes. The tulip and South Sea bubbles predate the Fed, Barney Frank, and Goldman Sachs; and easy money, Barney Frank and Goldman Sachs have also functioned pretty much as they do today during many periods of non-bubble pricing.

"'s gotta be tough to be SteveF. The guy buys a bunch of condos in 07/08 at the tippity-toppity-top of the market, watches their value plummet, then spends all the time since then underwater, clinging desperately to hope, clawing at any crumb of optimism while at the same time ignoring the brutal, overwhelming reality of his situation."

ouch

"Since 2000, the "all" column shows rents down about 20% (CPI adjusted), which also seems about right given the loss of jobs in key NYC industries (e.g., finance, publishing and advertising) and wage stagnation for everyone but CEOs and bankers. "

that matches what I've seen in looking over the years. I'm actually surprised rents didn't go up more.

@FG I disagree. The price of apartments given the cheap money was not that far out of line. It was the cheap money that made it stupid. Even now, for 15x rent I could buy my rental, which isnt terrible. I just wouldnt buy with rates this low unless I intended to live there 20 yrs. Then I would just take a big cheap fixed mortgage and invest the money.

"I'm actually surprised rents didn't go up more."

Because it was so easy to borrow that people left the rental market for the purchase market in droves. People who in the past could not have qualified for loans.

my doorman bldg. new rentals are down..renewals are $50 increase for one year and $75 for two year leases across the board ...from studios to 3 bedrooms.

Also, price to rent is not ok, if your numbers in the other thread are correct.

Even at current low interest rates (which reflect the reduced opportunities in an economy suffering from lack of demand and a political class determined to impose "austerity" and upward transfer of income regardless of the consequences), a rational investor holding NYC apartments to rent would be better off selling those apartments to an owner-occupant and reinvesting the proceeds in an investment with a better risk-return ratio.

Presumably, some landlords are considering doing just that. Others, however, continue to believe in the magic of bubble appreciation and therefore don't mind negative expected return on hold-to-rent.

I dont think buying my apartment for $1mm would be so awfulm if I intended to be there for many years with a high mortgage balance.

"Even at current low interest rates (which reflect the reduced opportunities in an economy suffering from lack of demand and a political class determined to impose "austerity" and upward transfer of income regardless of the consequences), a rational investor holding NYC apartments to rent would be better off selling those apartments to an owner-occupant and reinvesting the proceeds in an investment with a better risk-return ratio."

Totally true, but it can be a rationale decision for an owner occupant to buy a long-life apartment at 20% down and invest the 80% in a combination of stocks and cash equivalents, whose returns should exceed the mortgage rate on an after tax basis...when accounting for deferral possibilities on cap gains. Run the DCF.

Rhino -- I think we disagree because you are looking for a price at which you, as a retail buyer, would not be worse off buying (ignoring future capital gains/losses). But I'm fairly certain that in normal (non-bubble) markets, buyers will ordinarily be better off than renters (so you should expect capital losses).

Prices are set at the margin, and in non-bubble markets, the margin will be an investor who is entirely indifferent between aubergine walls or not and is sufficiently diversified that time frame is largely irrelevant.

The marginal investor is simply seeking the best available risk-return ratio. It follows that in a non-bubble market, rentals and purchases should be about equal in value to an investor that plans to either buy-to-let or sell to an owner occupant. Otherwise investors will buy in the cheaper market and sell in the more expensive one.

Since the IRS subsidizes owner-occupants by giving them a deduction for mortgage interest without requiring them to report the associated implicit rental income, but does not give this subsidy to hold-to-let investors, investors will refuse to hold rental units (absent a bubble) unless rents are higher than the cost to an owner-occupant. In other words, in a non-bubble market equilibrium, the tax benefit will go to buyers, not sellers. It will be cheaper to own by the amount of the tax subsidy.

In bubble markets, of course, none of this applies, since investors will expect to make their money by selling to a bubble buyer that plans to sell to another bubble buyer.

However, if you are trying to predict prices when the bubble finally ends, the best available prediction is that they will reach a level at which investors cannot make extraordinary profits by converting rentals to owner-occupied, which means that owner-occupants will pay less than renters after the tax subsidy.

You are too dogmatic. The fact is the IRS does give this tax advantage and the fact is the marginal and only buyer of coop units are individuals.

I'm not denying the IRS subsidy; it is exactly the reason why I expect that market pressures will tend to keep rents above the cost for an owner-occupant. If the tax system were fair, at equilibrium both occupants and investors would be indifferent between renting and buying -- it would just be a question of which finance method is cheaper (as in the car or commercial real estate markets, where the difference in price between financing by renting and financing by borrowing tends to be small). The tax subsidy means that equilibrium point doesn't exist, so the question is whether investors or occupants determine the price. You are assuming that buyers do, but usually prices tend to reflect cost of production and arbitrage possibilities on the supply side.

As for coops, condos are sufficiently close substitutes for at least some buyers (and all developers) that the prices are unlikely to diverge too much for too long. In the bubble, for example, as condo prices got higher than coops (they are better vehicles for speculation on capital gains), developers responded by vastly increasing the proportion of condos in the NYC market mix.

The market real estate adjusts very slowly, but eventually this kind of investor behavior presses towards equilibrium. The harder issue is identifying the forces (like bubble psychology) that press in the other direction. (And balancing the high likelihood of future price declines against your current consumption desires.)

I agree it would be fair to have no mortgage interest deduction. Yes market will normalize but I think it normalizes by interest rates rising. As such, I dont think for a 20-year owner the math works out that much better. Unless you are a high cash % buyer, as I am... For that reason I am not afraid to wait. Although, I am probably CT bound in a year where the rental market is an inferior stock.

CT:

The combination of no rent stabilization (and no market equivalent to the long term commercial lease) and the tax subsidy kills the upper class rental market in most of the US.

Without rent stabilization, residential rental markets have trouble giving affluent customers assurance of a right to renew on good behavior and the ability to do at least minor personalization. Apparently, it is simply too tempting for landlords to take advantage of renters who don't want to move. Given the likelihood of this kind of landlord exploitation of local monopoly power, and the tax subsidy, affluent customers usually are willing to pay enough extra for "ownership" that the same property is worth more in the hands of an occupant than a hold-to-let investor.

Investors therefore simply don't offer long term quality rentals even though virtually everyone would be better off letting a large diversified investor take the investment risk of holding real estate.

The disappearance of the quality rental market is an alternative (and worse) theoretical equilibrium to the one I predicted for NYC. So far, however, we've been spared: NYC seems to have enough upper class tenants who are willing to discipline landlords by moving, or the cultural effects of rent stabilization on landlord behavior leak enough into the non-stabilized market, that prospective tenants don't worry too much about landlords taking advantage of those who don't want to move (although proponents of buying on these boards regularly invoke this problem as a reason to pay a premium for ownership -- if they convince enough people, the result will be not a premium but simply a shift of units to owner-occupancy).

"nada, good stuff. Are those medians or means? And how are they factoring in concessions? Either way, makes a solid case that rents are at or near 2006 levels. Crazy."

Yeah, 2006 levels. Or 2000 levels. Depending on your interpretation.

Those are means, and they don't factor in concessions. So, maybe not 2006 levels, but rather something like 2005 if you factor in that we probably now have more concessions than we had in 2006? That ballpark sounds about right to me based on what I saw 2005-2006 and what's in the market now.

On a CPI-adjusted basis, we'd need about a 15% increase to get to 2005-2006 levels on an inflation-adjusted basis. Or if you use 2000 as a basis, we'd need a 32% increase. Not that I think that's approrpriate as 2000 was the top of a cycle, and we're now coming off the botom of one.

Believe it or not, we're still below the cherry-picked 2002 low of $2788 on an inflation-adjusted basis.