Stock vs. Flow

For starters, in Demographic Door #1, you'll have a huge supply of rich baby boomers on the brink of retirement, ready to spend loads of cash, and ready to have fun in the city now that the kids are launched. They'll sell their $1.8 million house on Long Island, and move Westward Ho!

And yes, there are enough people making that much money, or who have already made it and are now ready to spend it.

who's going to buy the house on long island for $1.8 million?

Isle-of_Lucy - you're making my point. Those baby boomers on the brink of retirement have the majority of their wealth tied up in their homes. The prices of which their generation has bid up. Now they want to realize their wealth. So they downsize or sell their assets (argument works just as well for shares). Therefore someone has to buy that asset. My question is who? There are far fewer of the "next" generation, who do not have the wealth of the Boomers - and face a dead economy for the next 5+ years and higher taxes (to pay for the Boomers' unfunded self-promised healthcare and pensions). So, as columbiacounty asks "who's going to buy the house..."?

The housing market is not deep - you only need a large handful of people to buy at market prices to meet liquidity demands - vs. the 10s of thousands of people who live in a neighborhood. If supply doubles, without demand doubling, prices will face significant downwards pressure.

Where's your data coming from? You're making lots of blanket statements, e.g.:

-- majority of their wealth tied up in their homes
-- majority of apartments were bought a long time ago
-- by people who couldn't afford them today
-- most (I'd guess well more than 50%) of them couldn't afford them

Do we know what proportion of their income/wealth people in that market devoted to housing pre-bubble?

I believe the annual numbers of sells in the high end price is about 600 units to 900 units. i also believe that the numbers of young people who will gain financial sucess (through inovations etc) is at least as high as the supply. finally, all the rich professionals on Park have kids who would love to move to their parents apartments. I do not see the oversupply going up as fast as you believe unless of course all of the above 60 crowd decide to die on the same day...

NWT - you're right, I've not included data. Call the argument a hypothesis if you want, but I think (directionally) that none of those statements are incorrect. I've certainly seen data supporting them multiple times, and never seen consistent counter (or even attempts to argue otherwise). So apologies for not being precise... if you think they are wrong, then happy to dig deeper.

I'm trying to understand a macro issue that I've never seen discussed here, but that I've discussed many times with others off this board. i.e. That there are several macro factors against further house-price inflation in NYC, and that we are likely to see a long period (we can argue whether 5 7 10 years, but that's missing the point) where macro negatives outweigh macro positives. And this is one of the undiscussed negatives.

there is endless data that supports the fact that home prices went up at a significantly higher rate than incomes. now, many parts of the country are seeing big declines in home prices bringing this ratio back into more reasonable proportions. the question is how nyc can avoid a similar reset. it is already happening big time in the suburbs.

If law partners can no longer afford to buy on prime Park Avenue, doesn't that say something about the macro status of law partners as much as it says about Park Avenue?

ali r.
DG Neary Realty

I don't think anybody'd argue that the income demographic hasn't changed. It's much more skewed to finance now than to the traditional professions. It's been an ongoing process, though, and not the impending transformation that jeremyfg suggests. It's hard to tell, since we have turnover data for sample buildings only since 2004. Baby-boomers won't have been the first to retire/die/sell. There's a bulge there, but not all that big of one.

After all, in the cataclysm scenario, every estate that's smaller because of reduced RE prices is balanced by a family living more spaciously than they would've otherwise.

"who's going to buy the house on Long Island for $1.8 million?"

Any of the gajillions of young families who need 5 bedrooms and top-notch schools who are top level earners. In case you hadn't noticed, there are a TON of top level earners around these parts. They just don't hang out with you!

(or me......sigh.....)

and these people are all currently living where?

"...there are a TON of top level earners around these parts."

Does that add up to about 10 people (10 X 200 lbs.)?

I was curious too about this a bit ago. I found this nice animation that show population distribition throughout the years. Basically, the peak of the baby boomers are currently 55 or so.

http://www.calculatedriskblog.com/2009/08/us-population-distribution-by-age-1950.html

Peak earning years for high earners is 35-55:

http://thefinancialengineer.blogspot.com/2008/02/when-are-peak-earning-years.html

If you look at the movement of the boomers through the 35-55 year-old timeframe on the first graph (peak earnings and therefore peak invesrment), the overlap with the stock and housing bubbles are quite apparent.

jeremyfg you should also consider the strong demand by wealthy foreigners for a famous address in the city. If local demand really does not consume the supply, after enough time the coop boards will most likely open up their doors wider, instead of loosing large sums of money.

Totally Agree - We are a long term trend donw.. part demographics part buble delflation.. Incomes going down (bubble incomes) and taxes going up.. RE owners that have apts on the market should take heed and hit those bids!!!!!

finally, all the rich professionals on Park have kids who would love to move to their parents apartments

spoiled rich kids hah! they know how to spend money not earn it.

RE: kids moving in to their parents swanky digs. If you were lucky enough to have your parents die in 2010 with no estate taxes, then you just might be able to hunker down in your new manse. however, in 2011, you have to pay estate taxes on your 10million dollar b price basis. ( And maybe a new millionaire's tax). Not easy. Plus, if you have a sibling, they will probably want to be bought out. So if you are wealthy enough to pay the govt and your siblings, you might get the apt. But then what about the renovations. Do you really want that 20 yr old dishwasher and that stuffy decor that was the rage of your parent's era? I was recently in a Fifth Ave apt that a friend inherited that had not been touched since the 60s. It was like Grey Gardens in Manhattan. He inherited enough money to pay the taxes to keep it but not enough to fix the rain damage from an open window-- so 50 yr old faded and frayed damask curtains on one window, unpainted dry wall on a naked window right next to it.. It was both creepy and sad. Since he makes a modest living as an artist, my guess it will be on the market in the near future.

btw, great charts ino.