Listing Prices in La-La Land....

Pay more or wait.

Tough being a buyer from Warsaw in Manhattan.

ESS,

Prices remain in lalaland. Many buyers of the '06-'08 vintages will soon run out of their cash cushions and realize that their "investment"', is underwater and can no longer be flipped. Cap rates don't justify prices. The economy seems to beheading for a bad double dip. Bounuses will be dissapointing at best. The beauty with bubbles are the dramatic collapses in prices, once sellers rush to the door. Save your powder, rent, and enjoy the ride. Alternatively, lock yourself into a 30 year mortgage, burn the downpayment (you don't need the cash anyway, right?) and rent it out for less (even after adjusting for your principal payment) than maintenance plus tax adjusted interst payments. Taxes sure to go up, mortgage deductions in question. Newer buyers wont be able to bail you out, as the next round of qe3 will not produce the mirage of recovery that duped buyers of the '09-'11 vintages.

If you have existing assets, lever them up now, as you will probably getmore for them than what they are worth. Invest in 2 year treasuries to defray the after tax cost of carry. Buy property at 500psf in prime manhattan or reasses in the future, the unwind is easy.

777 when do you predict this 500 per square foot pricing to occur? I've been reading about it in this site for nearly 3 years.

>>>777 when do you predict this 500 per square foot pricing to occur? I've been reading about it in this site for nearly 3 years.

http://streeteasy.com/nyc/sale/610535-coop-320-east-57th-street-sutton-place-new-york

certainly headed in that direction.

Brooks --- in the same building for $570 psf

http://streeteasy.com/nyc/sale/439640-coop-320-east-57th-street-sutton-place-new-york

$500 psf is a number that W67 proposed. i believe it is the reversion to the mean. If so, it would be a historically probable number.

ESS --This is going to be an extremely rocky month for the markets and the global economy. Why not wait a few months to see how it pans out. Why not rent even for one year to see what happens. Better than losing equity in major investment. German courts rule on Wednesday on constitutionality of bailouts and if the decision comes down on the wrong side of the euro, it will be a steep slide.

I believe 500psf is a euphemisim for a large correction in prices. Please don't miss the forest for the trees. Also, ask yourself if you have the patience to be a disressed buyer.

CPW classic 7 for $500psf - not happening. Not even WEA classic 7. Even West 81st's FABULOUS DEAL - RS tenant with major leverage over sponsor- apartment Sneeding major work if were sold to an "outside" buyer - close to $800/psf.

Brooks2
about 1 hour ago
ignore this person
report abuse >>>777 when do you predict this 500 per square foot pricing to occur? I've been reading about it in this site for nearly 3 years.

http://streeteasy.com/nyc/sale/610535-coop-320-east-57th-street-sutton-place-new-york

certainly headed in that direction.

how long did it find you to find that listing? this is on the home page of this website. we've got a long way to go. the last market correction didn't even get us close to that majic number. i know i know, this one will be scarier.

Street Fact
Manhattan Condo Listings Snapshot
Size (ft²) $ per ft² Price
Studio 536 1,114 599,900
1 BR 781 1,104 875,000
2 BR 1,282 1,228 1,599,000
3 BR 1,975 1,500 2,985,000
4+ BR 3,025 1,729 5,400,000

eastside, if the property is priced higher relative to others on the market, you can just put bids for properties which you think are more reasonably priced. 2006 prices are not so bad. The market is at late 2005 level. Also, I have seen closings in the village at the peak prices. If you really like the property, you can put your bid and move on if the price is not accepted. Due to poor economic conditions, you can expect some softness and may be time to recheck with the sellers who refused your offer.

apt23, you seem to say that roughly 500psf has already been achieved? That will surpise many on here. Can you give other examples? Or did you just mindlessly cherrypick one apartment?

apt23, should reversion to mean involve inflation adjusted numbers? (you seem to imply not)

What is reversion to the mean, and why does it only apply selectively? Shouldn't reversion to the mean always happen, if it is some sort of law like gravity? 200 and 500 years ago, what was the average lifespan? Will we revert to that? Will obesity end because we revert to the mean weight? What about travel? Will we revert to mean travel parameters and include the time period before the wheel?

Is all of life like a sine curve? Or why do we differ from the mean to begin with if we are bound to revert to it?

The flip side of "something is worth what someone will buy it for" is that "something costs as much as someone will sell it for". I don't think prime manhattan real estate prices would move more than a little lower even if a 2nd recession occurs. With the exception of some quick movement post-Lehman they didn't in 2008/2009. More than ever you've got the haves & have nots in the US and the haves are always going to want to be in Manhattan. Case-Shiller and US unemployment are largely irrelvent to Manhattan RE. (The only thing that would changes things IMO is - God forbid - a terrorist attach of much greater scale that 9/11).

bernie123-- so we are back to 07'08' prices.. come on.... do you actually believe that?

Reallynow - what sort of inflation index would you suggest using? Methinks one could construct a property specific index which produces an inflation adjusted result that may surprise you.

What model of markets would support reversion to the mean? Or prices that depend on demand without regard to cost of creating new supply?

Ordinarily, market prices for capital goods, like real estate, are the result of two processes. First, fundamentals -- the point where the demand curve meets the supply curve, where supply is a function of the cost of production. Second, market speculation or momentum -- investors' predictions of where prices are going, which affect the price they are willing to pay now.

I don't know what the fundamental price of NYC real estate is, but it must far lower than current prices: it doesn't cost $1000 psf to build a white box even in Manhattan. Current prices are not set by fundamentals but by speculation -- the bubble mentality of people who think that prices can't go down more than they already have because they haven't done so yet, or because rents tend to go up with inflation.

But bubbles usually require momentum. Rising prices create buyers who've profited on their last investment, lenders willing to assume the risk of non-payment, and buyers who view purchasing as cost-free consumption. When the bubble stops growing, these pools of demand slowly dry up. Sometimes very slowly, since people sitting on bubble profits may be quite willing to reinvest them in even obviously overpriced property (paying funny money prices with funny money profits is just gambling with the house's money, and that's not as painful as using hard earned money), while people sitting on paper losses are usually very reluctant to realize them.

On the other hand, supply tends to rise so long as prices remain above fundamentals. Eventually, usually slowly, prices return to something closer to fundamentals or, depending on how much demand and supply was purely bubble-based speculation, even less.

Is there something special about NYC that makes standard economics inapplicable? Or are we just in the normal slow decline of a post-bubble market, still sustained by the large amounts of funny money? If the latter, any buyer should be planning on large, long term, real price declines -- at a minimum down to the point where prices are similar to building costs and renting is more expensive, on an after tax cash basis, than buying.

@Brooks: no but I'd say only 10% lower than peak. Let me stress I am talking about prime Manhattan property.
@Financeguy: I somehow agree with each sentence you wrote but not the conclusion. Think about this market model (censored regression is i think the fancy term) what if the new Yankee stadium had a seating capacity of say only 15,000 and they were $50 each. In this case unemplyment could go to 11-12% and prices would not come down.

I am talking from the perspective of someone who has scoured Greenwich Village for a year looking for "a deal" & concluded they just weren't there. There was a short window in Oct/Nov 2008 but once we got into Spring 09 I think that window was closed.

financeguy - perhaps its just a market with products that have a deeper demand pool and all the unique forces that come with that luxury? A buyer pool where the masses likely have a higher net worth and average salary? Just like any major city? Granted the relationship between median prices and median incomes might go a little nutty as you deal with major city housing markets. Maybe in Long island, a buyer will buy up to 3-4x salary whereas in Manhattan its more like 5-6x, or whatever the banks will lend on? Im making up #s for sake of argument here.

We know this market is not immune to outside macro forces and still trends with general economic/psychological trends, but it certainly reacts differently. Just look at what happened here between 2009-2011 as opposed to outside local markets across this country. Just talking out loud here.

Just place your bid. Our bid was rejected and after the unit sat on the market another 4 months, we got a call to see if our offer was still good. You may hear nothing, but months or even years later, you may get a call.

"Ordinarily, market prices for capital goods, like real estate, are the result of two processes. First, fundamentals -- the point where the demand curve meets the supply curve, where supply is a function of the cost of production."

"I don't know what the fundamental price of NYC real estate is, but it must far lower than current prices: it doesn't cost $1000 psf to build a white box even in Manhattan."

So Mr. Financeguy continues to hold onto this delusion that "fundamental" real estate value is based entirely on the marginal cost of construction. He doesn't seem to think that land/location matter in real estate so any differences between the cost of construction and the actual price must be pure "bubble-based speculation" ...

>>>I don't know what the fundamental price of NYC real estate

I think finace guy just likes to hear himself talk or watch him self right...

He should have just stopped at I dont know...

Bernie: In the short run, your analogy works. Indeed, if the number of seats is small enough and the effects of unemployment don't hit everyone, prices could even rise. In the longer run, however, supply of RE is never fixed. If buyers are willing to pay huge sums (for all the reasons Urbandigs mentions) then builders will build, landlords will convert rentals to owner occupied, renovators will renovate, and team owners will enlarge the stadium, because some of them are profit driven and if buyers are willing to pay more than marginal cost of production, there are excess profits to be made by creating supply for them. Over time, the number of seats keeps increasing until the excess profits disappear.

Urbandigs: Buyer willingness and ability to pay (or borrow) puts a cap on prices. When NYC buyers weren't willing to pay 5-6x salary and when fewer had massive salaries, NYC prices were lower than construction costs for decades. Sudden drops in income or ability to borrow or increases in fear can rapidly lead to changes on the buyer side, as you have documented.

But a cap is not a floor, and in normal capitalist markets prices are rarely determined by the maximum buyers can afford. I could afford to pay twice list price for my car, but I wouldn't, because I don't need to.

In non-bubble markets, price doesn't stay about costs of production for long, because supply increases to meet demand. If condo investors conclude that the bubble is over, some of the will decide that prices aren't rising rapidly in the near future and they will start to think about the relative merits of holding to rent or selling now. At current prices, that's easy -- at current prices and rents, condos are a miserable long term investment. Without bubble capital gains, unless you expect massive rent increases at rates well above inflation, the only rational thing to do is to sell. Each one who sells increases supply and decreases demand.

Maklo: Land is a cost of construction. In non-bubble markets it is priced at its cost of production, i.e., the opportunity cost of the alternative use (parking lot, tenement, rental building, office building) or the cost to make raw land accessible (subway/sewer/highway/utilities) or to create it (landfill), or, in NYC, to make it acceptable as a place to live for the wealthy (filling the neighborhood with artists or hipsters for a few years as in Dumbo or Tribeca or Williamsburg), whichever is cheapest. Those are not trivial amounts in NYC. For most of the 20th century, in fact, they were high enough that the marginal cost of production was higher than the marginal demand, and there was little new building.

Location matters enormously. Just not enough to explain why the same apartment in the same location sells for twice as much to an owner occupant as a buy-and-hold investor would pay to rent it out. Is there some NYC exception to the "law of one price"?

A lot of great insight on here. As a broker I have noticed that many sellers especially ones that bought thinking of a renovation and flip are not grasping reality. Instead of realizing that the profit they were hoping for was never a guarantee to begin with and is now gone they keep holding on to the idea of it.

If your truly in the investment game either hold and rent or dump and move on depending on your situation. That being said a lot of these sellers do not grasp that the money never existed and the chance for it is currently gone.

80% back to buyers 50% back to sellers
http://theartinrealestate.wordpress.com/

>>>>Just place your bid. Our bid was rejected and after the unit sat on the market another 4 months, we got a call to see if our offer was still good. You may hear nothing, but months or even years later, you may get a call

This is a bad Idea!! it just gives the unscrupulous(adj not really needed) an opportunity to shop your bid.. If a broker came back to and asked me if my offer was still good, I'd be 10% lower, then revaluate . How many qualified buyers do you thing are out there?-- rhetorical.

unscrupulous

broker

Fully agree! Just place your bid?! No make it happen and definitely be lower if someone comes back to you... negotiation 101. The only problem is if it's the sellers broker (even if they disagree with the seller) their fiduciary duty is to the seller not the buyer.

Not all brokers are unscrupulous just like bankers, lawyers, contractors, doctors or anyone else.

80% back to buyers 50% back to sellers
http://theartinrealestate.wordpress.com/

"Just not enough to explain why the same apartment in the same location sells for twice as much to an owner occupant as a buy-and-hold investor would pay to rent it out."

Ok please provide a non-theoretical example of this.

>>Not all brokers are unscrupulous just like bankers, lawyers, contractors,

agreed.
I never said they all were.. But, it is my experience is that most brokers are not realistic with pricing- or if they think they are being realistic, they are hacks or unscrupulous. A "good Broker" would not let a seller have their apt sit on the market for so long at an above market price(and I see this time and time again even though it is a buyers market). Additionally, he/she would not shop the offer. Yes, a broker has the "fiduciary duty" to the seller as a seller broker. This means means acting in good faith and being honest. It does not mean trying to get the best price for him/her by being dishonest with a buyer. As an expert in the RE market, a "Good Broker" would not let a seller put an apartment on the market at a price so far above the market. And, If they get a fair offer from the buyer, they should advise the seller to take it!! not hold out for to see if they can get higher. Odds are in this market they will not be there. It a buyers MArket, you should take your best market offer!!!

please tell me your definition of a broker fiduciary duty of a RE Broker..

brooks, it is elsellers who are unrealistic with their pricing. i have seen quite a few posts from you bashing the re industry. so tell us, whar exactly is it you do for a living that? are you curing cancer for free?

Brooks, Jim has a point.

Its like saying that a Shrink shouldn't have a crazy patient for more than 6 months before the crazy patient is cured and can move on.

communistguy keeps talking about non-bubble markets.
First, what is the definition of a bubble?

Second, since you talk about things like the LAW of One Price, why doesn't the law apply all the time? The Law of Gravity seems to work just about every time I think I've tested it.

brooks, it is elsellers who are unrealistic with their pricing. i have seen quite a few posts from you bashing the re industry. so tell us, whar exactly is it you do for a living that? are you curing cancer for free?

sorry. i did not mean do bash it all. I thought I made it clear that I have met and dealt with solid professionals in the RE industry. It is just a shame that it does not seem to me to be the majority.

>First, what is the definition of a bubble?

Ok, let me just answer the question myself.

A bubble is any time that an economists "laws" or models don't actually work. i.e. any time the real world comes into play. Like today. And yesterday. And tomorrow.

that doesnt answer the question. what do you do?

>>Second, since you talk about things like the LAW of One Price, why doesn't the law apply all the time? The Law of Gravity seems to work just about every time I think I've tested it.

the apts that are price fairly in this market have sold with in a decent amount of time..

Jim says you didn't answer his question. And you didn't answer mine either, though you did respond.

so how about it brooks?