The Death Knell of Manhattan Property Prices!

Ah, Spunkster, I did predict a firm or two would fail, and I think I mentioned BSC a few weeks ago. I said was that it makes no sense to rate a bond AAA when it's backed by mortgages issued to people who can't pay them back. Bear Stearns just happened to be the biggest player in the industry, which is why it died.

dco, I don't think there was a liquidity crisis at BSC, until everybody tried to pull their money out and unwind trades on Friday. It became a crisis of confidence, because no one knows for sure what's packaged in those securities, and what the default rate will be. Therefore, nobody will buy then, so there's no market price, so they must be marked to $0.

The major problem was the rating agencies, rating junk AAA. Auditors would have nothing to do with it; they'll just look to make sure that the securities exist, and that they're marked to market, or that they're marked to something. Every audit and management report states that the financial statements contain estimates made by management - those estimates just happened to be wrong.

The thing is, those mortgage-backed bonds aren't worth $0 because not 100% of the mortgages will default. JPM is going to make a fortune on this.

I just heard on CNBC that most BSC staff will be laid off, because JPM is going to close almost everything except for the prime brokerage. That's a huge hit on NYC's economy. If the starry-eyed real-estate bulls will tell me why this won't affect property prices, I'm all ears.

Of course I forgot to mention all the mortgage fraud, negative-amortizing mortgages, 0% down, ninja loans, exorbitant interest rates that can't be refinanced out of because of prepayment penalty clauses, etc. The three major ratings agencies rated bonds back with that Triple-A, packaging them with other types of loans to try to spread the risk out. Unfortunately, it had the opposite effect because no one knows for sure what's in these things. Basically, as I said before, they tried to apply the reinsurance model to the underlying assets - spreading the risk among the many - but there are no actuarial data to predict what the default rates will be. It was just dumb business.

I was offered I liar's loan when I bought on Long Island. I said no.

you're really good at talking to yourself and winning the strawman's arguments you create. do you really believe you're the only one who thinks this mess won't hurt NY real estate? How many people are actually arguing with you to the contrary?

I'm in late, but hopefully Steve knows more about some things than he does about taxes. Two points:

1) After the commuter tax was repealed for NYS residents, the courts held that it was unconstitutional to impose it on out of state residents. People that don't live in NYC no longer pay NYC taxes (although they'll still generally pay NYS taxes):

http://www.robertsandholland.com/article.ihtml?id=191

2) Outright stock grants or restricted stock are taxed as supplemental income; as such, taxes are withheld at the time of the grant/vesting. This means you're unlikely to end up owing taxes on the higher stock price and have to pay it with the shares at the lower stock price. Here's the first hit on Google, although they all say basically the same thing:

http://content.members.fidelity.com/products/stockoptions/rstocksawards/1,,0,00.html

ok ok - we all know things are really tough and times are heard. but steve ok - you can give it a rest now. how do you have so much free time btw?

Today's forecast: accumulating Little Black Arrows....

jordyn, 1) I stand corrected on the commuter tax - I didn't know about the court decision.

2) That's what I said about stock awards. If you were awarded stock in 2007 or had restricted stock vested or were given a cash, you'd have to pay tax on it at the price the award was made, regardless of what it's worth today. In fact, in the dot.com boom, I knew somebody who was awarded a $25,000 bonus, the firm went under, but he still had to pay tax on the bonus.

ccdevi, I've been taking heat for weeks here on my predictions. Now it's payback time.

girlygirl, it's my thread & I'll do whatever I want with it. You don't like it, start your own.

I have free time because I'm a multimillionaire, and I'm writing this from my yacht parked off the coast of Parsipanny.

Steve--you're missing my point. Taxes are not only due, but they've also been withheld at the original price (generally accomplished by selling off a portion of the original stock at the time of grant or vesting). So you end up with basically no money instead of in debt owing taxes. (Note: supplemental withholding rates are not as high as a lot of people's marginal income tax rates, so there's a chance that people could end up owing taxes on the gap between the supplemental withholding rates and your marginal tax rate.)

Ok Steve and Urban,

Before you scare the shit out of prospective buyers or those in less of "the know," humor me:

While both of you are experts in this field and I humbly value your knowledge, maybe you guys should zoom out from your financial lens for a moment. I see the writing on the wall, it all makes sense (I too have close friends who are reeling from BSC), and I buy into the slowdown/"mild" cooling period (still…many wallflower investors replete with schadenfreude grins will miss the boat of opportunity in jumping in at the right time), but come on...people make money in many other ways in this city other than finance. True, bonuses lead the way, but I get a bonus and I work in advertising -- not as massive, but modest enough. My salary is doable to own, but steve, your 20% DP + mortgage should = double your salary is shrewd, but unrealistic. That would assume a guy making $150k, who put 20% down on a $380k, would have a $300k mortgage, costing him +/- $1700/mo + $700cc = $2400/mo x 12, or $28,800/$150k = ~19% for debt-to-income ratio. Many experts agree that the total amount you pay toward your mortgage should not exceed 28 percent of your gross income. The total amount you pay in debt-related expenses, including your mortgage, car loan payments, credit card bills, student loan payments, and any other debts, should not exceed 36 percent of your income.

Your theory is well under the average and in general, varies from lifestyle to lifestyle. It's still smart and enables you to invest elsewhere, but you also seem much older, albeit retired. I'm just getting my feet wet ;).

My point being, all of this conjecture of 20-25% declines in RE, I find a bit proposterous. I could imagine 5-10% (targeting tired coops, poor locations, and the result of stricter lending standards) drop over for the next 12 months, but that’s it. Your 25% “educated guess” would be proportionate to a middle America RE market drop of 50% decline.

If I, a non-finance type who bought 1 year ago, for far less than $1000/sq ft in Brownstone Brooklyn, can weather the storm, certainly others can too. Speculators looking to turn a buck..well that's a different story.

Many people didn't bite off more than they could chew and I'll just start paying off principal now until the market stabilizes...and if in 3-4 years, I don't make what I want, I'll rent it, no biggie and place a downpayment on a bigger place.

I think you guys are caught up in the numbers (arguable 50% valid) and less in the psychology/mindset of how an average new yorker typically has the means of weathering the storm. We aren't sub-prime candidates, we’re smart, we make decent salaries across all sectors, we make enough to afford our mortgage and usually enough for an exit strategy, and we love living here. The world is more in love with NYC than quite some time. In my building alone, to someone's point on this thread, many Westchester types moved into my building because it now caters to families and quality of life has never been better, starbuck's notwithstanding.

You guys have every right to present the facts (and I read them with gratitude), but at the same time, if the average NYC condo falls to $750 sq/ft, I'll be happy to star in the next 2girls1cup video.

If they withheld enough at source, you're right. That's not always the case, however. If they sold the shares, etc., later at the high - when no taxes are withheld - then there's tax due.

Jordyn: Thanks for jumping in on the commuter tax and stock grants. I didn't want to take on stevejhx alone.

Curious007: There's no sound macro- or microeconomic reason that number CAN'T go to $750. It just seems unlikely, considering the potential sources of market support. Those supports could all fail. One key lesson from the past few days is that we all have to question our basic assumptions.

curious007, that ratio you mention includes not only the mortgage payment, but maintenance, tax, and insurance. All of a sudden it's a lot more than 19% - closer to 28% percent if it's a new condo.

Thusly: a $300,000 mortgage at 6.25% = about $1,900 per month. 28% of $150,000 = $3,500 a month. $3,500 - $1,900 = $1,600. Tax on a new condo = about $500 a month. Common charges = $500. Thus far we're at $2,900. Add insurance = $100 a month, electricity = $100 a month, and you're up to $3,100. Precariously close to that 28% ratio already.

The ratio I mention - twice salary, 80% down - is the historic ratio, in effect all the way until 2000.

The earnings figures were on CNBC today: Wall Street employs 11% of NYC's working population, but represents 35% of its income. That is huge; it means that Wall Street types earn 3x the average income in the city.

I've said all along: as long as you're not laid off and don't plan to move, you're fine in the long-term. The problem is for people currently looking to buy. It's not affordable.

West81st, I give up easy if I'm wrong! What I said about the stock grants is unchanged; I wasn't aware of the court decision.

$750 seems unlikely. $800 seems possible. It would bring us back to 2002 levels, which isn't where the rest of the country has fallen to, but it's where they seem to be headed.

I stand by all my basic assumptions since I've been posting here. Somehow most of my detractors have disappeared into thin air, or relegate themselves to insults. I said firms might fail - they did. I said things are out of equilibrium, and I'm standing by it.

That said, if prices fell to $1,000 psf in Manhattan I'd start looking again, and put in a low ball offer.

stevejhx - did I read somewhere on this thread that you think 200k is a good salary? In NYC?

"One key lesson from the past few days is that we all have to question our basic assumptions."

West81st, I don't disagree, but in order to truly challenge assumptions, you need to look at both sides of an argument. stevejhx communicates like all of these negative events have already occurred. They have not. As he correctly points out, it's his thread and he can cry if he wants to, but remember, there are two sides to every story. Stevejhx has an opinion and that’s great, but I find him overly dramatic and skewed towards the worst possible scenario (stevejhx, not an insult an opinion). Would you ask Rush Limbaugh about how the world should work and take his word for it? Why not? Challenging basic assumptions is one thing, but assuming every possible negative scenario to create some catastrophic event is a stretch for me. If everything happens that he is predicting, none of us will have to worry much about Manhattan real estate, we’ll all be picketing the White House with poorishlady in our tie die t-shirts.

stevejhx - am reading through your posts and am not sure what your point is? If you've worked in the industry you know there are the wealthy and the "rich" and you know the difference. From where I stand, I just see a lot of the people who thought they were "rich" finding out they were precariously balanced and over leveraged. Will this hurt RE prices. Sure. But only in some brackets. Do we need elaborate analysis to call this? No. For the most part, little will change. The middle class will likely sit in their rentals or buy in Brooklyn/Queens/NJ and the wealthy will sit back and watch it unwind and snap up good properties. The poor will just get poorer. What is your stake? To call trends and see how many you get right? To warn people? To discuss buying in a downturn? I am not clear on what you're driving at?

eah - yup. Far above the median, quite possible to live someplace nice for $4,500 a month.

JuiceMan, I stopped taking insult. I'm not crying. I'm only concerned about real estate. Read again what I wrote: I see no recession, don't think banks are in real trouble. Just real estate is out of whack, and nobody - even you - has presented a single rationale why you think I'm wrong.

Rush and me in the same paragraph? Yikes, you got that wrong!

(And it's "tie-dyed," not "tie die"!)

I haven't posted before but am a long-time investor. Put me in the -30% camp (stevejhx has it right).

Thought this was an interesting article excerpt...

"Cayne still owns 5 percent of Bear's stock, the value of which fell under the JPMorgan buyout to $11.7 million from $333 million four days ago. Last month, Cayne paid $27.5 million for two adjacent 14th-floor condominiums at New York's Plaza Hotel overlooking Central Park, according to city property records."

huh. ok. someone only making 200k should not be in a scenario where they are paying 4500 in just housing costs. unless their significant other is making money also. they would be saving virtually nothing after taxes and normal spending. i suppose if they're paying 4500 in mortgage that could be considered enforced savings but we already established that the home you live is not an investments.

yeah, that's ugly

Here's an interesting tidbit, if I read it right (blogger comments interspersed in red with Fed statement):

http://wallstreetexaminer.com/discuss/index.php?topic=6

It says: 1) vote to open discount window to brokerages (not just banks) was UNANIMOUS. 2) vote to cut discount rate was UNANIMOUS. 3) vote on Beat Stearns financing package (i.e., to guarantee JP Morgan against losses in some of the BSC assets) was NOT unanimous.

No, eah: 28% of $200,000 is $4,666.67, exactly what the ratio should be.

I won't get into the rent vs. buy argument again, other than to say the monthly out-of-pocket expenses for both should be the same for similar properties. That's the historical norm.

mbz: It's in the database...

http://www.streeteasy.com/nyc/closings/manhattan/name%3Acayne%7Cdated%3C180

...so it must be true!

I wouldn't worry about Cayne. $27.5MM is membership money at the bridge club.

and eah: my point is that real-estate is overpriced in Manhattan as everywhere, and that it is going to fall. I don't know how you differentiate between the "rich" and the "wealthy"; I just look at the difference in cost between buying and renting (renting costs half as much as buying), the increase in property prices over ten years (700%) vs. the increase in incomes during the same time (about 30%); the effect of Wall Street's (now proved to be fake) bonuses in propping up property prices; median wages vs. median property prices, etc. It's all out of whack.

I have no "stake": I rent. But I want to know where all the Rosy Scenario people are who've been after me since I started posting here ... BSC seems to have shut them up.

Stevejhx: You're dead-on regarding front-end and back-end ratios. But isn't parity/equilibrium between renting and buying a more complicated calculation, requiring assumptions about tax savings and other factors that are even less predictable? The AMT makes it even worse, because the privileged treatment of mortgage interest vs. other deductions requires additional guesswork regarding the current and future value of anticipated tax savings.

Then there's the emotional side of ownership. Historically, that factor has tipped the pendulum toward buying over renting; but if enough people get burned in a downturn, sentiment could actually swing the other way. The more risk-averse people (and their lenders) become, there's a chance of irrational bias toward RENTING, of all things. Imagine that.

I'm sure Cayne won't starve but I'm not so sure he's still filthy rich. This was on Wikipedia...

Just days later Bear Stearns came to agreement with competitor JP Morgan for a full buyout at only $2 share, roughly $236 million for the entire firm. At the time, Cayne had significant exposure to the company's stock, with most of his net worth tied up in shares that he had not yet exercised. It is estimated that the value of Caynes' holdings had dropped to less than $15 million as a result, decisively removing his foothold as one of the wealthiest individuals in the nation.

stevejhx - i can go to the same calc. and find that ratio. But we're limiting this discussion to NYC and everything is expensive. 200k is not a decent salary in NYC. Can you do it? I suppose. But can you do it and raise a family comfortably, or travel or go out? No. You just cannot.

West81st, of course it's more complicated, and not a magic formula. Expectations play a key role, emotions, AMT, etc. But tax savings is generally wiped out by the opportunity cost of not investing the down payment in something else that might make a better return. Generally, though, the out-of-pocket costs for both should be the same.

I wouldn't wait for that "magic moment" when everything's in balance, because it won't last. It's just a guideline. But I also know with more prudent lending standards that are now being implemented, and the collapse of investment banking in the city, that these out-of-reach prices - where you have to make $800k a year to afford a median-priced apartment in Chelsea - won't last long. Vendors can ask what they will, but if nobody has any cash and nobody's making the money of yesteryear and no bank will lend you money, there's only one way to go, and that's down.

eah I can't get involved in a lifestyle discussion with you, but I know plenty of people who make plenty less than that in Manhattan and live very nice lives. Granted, they didn't buy property last year - maybe 10 years ago - and they don't send their kids to uberkindergartens, so maybe that's how they can do it.

That said, if prices fell to $1,000 psf in Manhattan I'd start looking again, and put in a low ball offer.

OK, so this is your point? I am actually serious...are you trying to be "right" or just tell us when you'd feel comfortable buying? I can somewhat see why urbandigs is anlyzing trends as it may serve his clients but not exactly where you're coming from. If you want to discuss the right price/time to buy property as an investment, I'd be happy to.

I don't want to buy property as an investment, eah, I want to buy it as a place to live. If you want to put down your thoughts about what's up in the property market given yesterday's developments, that's what this thread is about. That is, it's about when property becomes affordable again, and what measures people should use to gauge it, and how ongoing developments in the financial sector are going to shape the future.

Personally, I think $900 psf would be a decent price for a nice place in Chelsea, West Village, etc., down 30% from where it is today. $1000 psf is probably more realistic, but $900 is better. $800 & I'd buy 2!

For the most part, I have made my thoughts on RE clear. I buy a property a year, every year. I do not time anything. Which is why I find some of these discussions tiresome. If I sense a region is overheated I go elsewhere. This year I purchased in Washington Heights as I felt I had tapped the downtown market and there was little money to be made.

In terms of the markets--they will unwind and we will all survive. Even people who go under will likely have Act II. No one will really call it--but I am interested in hearing other investment strategies.

Dollar-cost averaging? Works for some.

Yes markets will unwind, yes we will all survive. If you're a long-term investor it makes sense what you're doing. I don't like investing in property, only in stocks (and no American ones right now). I like living in property.

This is all about being "overheated," but I think Washington Heights doesn't qualify as a "region."

Why does it not qualify as a region? I use that word because it is a part of NYC that has unique market forces. My building was very cheap yet physicians and Columbia students prop up the rent. If all else fails, I can use it as a Section 8 property. So the downtown rules do not apply in this investment.

Did you recently finish grad school? You're quite stuck in this literal arguement style that precludes discussion.

Thanks for the insult. I am 48 years old, finished graduate school (at Columbia) years ago.

It doesn't qualify as a region because of the definition of "region": "1. an area of a country or the world having definable characteristics but not always fixed boundaries. 2. an administrative district of a city or country."

I've never been to Washington Heights except to go to the Cloisters, so I know nothing about it or the rules that apply to it.

It's not an insult. Your style is one I happen to associate with students; I don't see how that is bad. You just defined region for me when you knew the essential point I was making. And my point was related to what you claimed you wanted to discuss - nyc real estate and what we've seen in terms of trends and opinions. Adults typically move past that type of parsing of words to find fault. Particularly when talking money/investments. However, I am sure this trait served you well when doing audits. You appear to be so anal, I suspect one has to count the couches when you stand up.

Not an insult? "You appear to be so anal, I suspect one has to count the couches when you stand up."

That's funny.

Actually, I'm so unanal that that's why I'm not an auditor anymore, and haven't been for 15 years.

Nonetheless, you said you invested in "regions"; that brings to mind, say, the mid-west, which I would classify as a "region." Washington Heights I would never classify as a "region" as I understand a "region" to be. So, in fact, based on what you said I did NOT know what you were talking about, which is why I tried to clarify it.

It's not parsing words; it's coming to an understanding of what we're talking about. If you were talking about the Pacific Northwest - another "region" - I need to know that to hold a discussion.

So, what do you want to say about "trends and opinions"?

stevejhx, it is hilarious that there hasn't been a peep out of spunky in a while, other than the bitter "you're so smart" comments that got old pretty fast. I understand most of what you're saying (though as someone a bit younger and lacking the experience, some of it is over my head), and though I try never to be too reactionary, I have to admit you've got me a little worried, especially since I'm this close to signing a contract for new dev in prime Williamsburg. I plan on living there at least 6-7 years, possibly more, since I'd the space to grow into (2br/2ba). But if Manhattan falls even 10%, what the h will happen to WB and the rest? I don't think I'm alone here in thinking that I was getting priced out of Manhattan forever (at least until a major boost in income, if that ever happens). I'm just not sure yet if the trends point to us being priced back in?

In terms of opinions I agree with you that 900-1000 sq. ft. in the village and chelsea sounds about right. And I do foresee this as a near term reality, particularly in older coops and condos. I do not think we will wait have to wait longer than six months. One unknown for me is how long developers will hold out ontheir pricing. I'd like to hear what others think.

I miss the Spunkster, bjw2103 - she made me laugh!

If you want to stay 6-7 years you'll probably be all right. I've never been, but Williamsburg is supposed to be hip. I may be 48 but most people think I'm 35 - except eah who seems to think I'm so anal I act 105 - so I'm still in hipster mode. But if you don't feel comfortable and won't lose any money and want to back out, you might make the developer nervous & get a better deal. Here's what happened to a friend in San Diego w/ a McMansion: someone offered under his asking price, he accepted but they wanted to lower it more when the market went south, he agreed once, not twice. Never got another offer on it, he rents it out less than it costs him to carry it, and as of last night was teetering on bankruptcy.

That said, yours isn't an investment property, so if it's a different animal. But of course I have my own personal Miami story for that: I sold an apartment for $1 million the day before Hurricane Wilma; the people 2 flights above me refused the person's offer, tried to hold out for $1.1 million, and now it's for sale for $750,000, 2 1/2 years later, and nobody's biting. Thing aren't that bad here (yet) but they're getting worse than Miami, and as long as you're willing to back out and are serious about it, I think any developer would listen to a lower offer. What happened yesterday - and fear of what might happen tomorrow - must have the shaking in their boots.

eah - why do you think six months? Usually property takes a lot longer than that to collapse: it happens over years. That would be a 30% decline in a very short time. It wasn't that bad in 1987, when the financial industry lost 87,000 jobs in the city. (Though we might be headed to close to that in a year.)

I think in a year you will see broadcasted price drops. What I see is individuals in older condos who don't want ther future competition of selling against all the newer condos and their amenities. Right now, to me, there is not panic selling but rather couples saying: pigs get fat, hogs get slaughtered..so let's get out at what is still a fairly decent price. Currently, I am in talks over a unit in a nice, but rather boring, art deco condo building on west 19th st. I think we'll settle on abut 850-900 sq. ft.

Off for some beers. Interesting times, let's see what tomorrow brings....

Remember, the boomers are also retiring, and haven't really been replaced. NYC real estate may be interesting for many years. I have recently made the reluctant (and I'll admit, easily retractable) decision that the rent v. buy ($10000/month or more to buy a $5000/month rental apartment, with RE taxes also pushing me back up into the AMT) means I'll probably rent forever. I guess that's timing the market.

This whole mess is just really, really sad. I'm not at ALL happy that many of my predictions are becoming reality.

Anyone know where you can find a long-term historical price series for manhattan housing? The case-schiller is OK but doesn't go back as far as I'd like and includes a pretty wide area, not just manhattan. I'd be curious to do some work on how past cycles played out.

aboutready, I made that same decision years ago. I'd love to buy again, but only when it's as cheap as rent.

eah - I still don't see any reasoning besides conjecture. I like to see prognostications backed up with data.

mbz, there isn't such an animal b/c co-op prices were never recorded until last year, I think, and they made up the bulk of properties in Manhattan until recently. However, you can go to http://350bleecker.com/policy/sales.html to see some prices back through 1998.

We need to push for a real MLS so we can see how many units are actually on the market. Too much obscurity in Manhattan.

bjw2103, I'm guessing the answer is yes, but have you considered the inventory in the Williamsburg pipeline? It must be over 3000 units. Over 1000 for Edge and Northside Piers alone, then the massive Domino project, dozens of other buildings, lots of projects we haven't even heard of yet. And what will become of all the promised parkland when the city's budget takes a dump, which is already happening with expected budget gaps from lost tax revenue. The WB park so far is pretty terrible, hardly what’s pictured on Northside's renderings; I just don't see it adding to property values in any significant way.

To be honest, I've been wondering how Williamsburg's fall (sorry, I think it's headed for bad times) will drain off the East Village. WB has been the affordable alternative for people priced out of the EV for as long as I can remember. When there is a ton of inventory over there that's not selling and prices start to come down even further, it'll be that much more of a drain on demand for the EV. Think about it: if there was no WB, how much pricier would the EV be? Flip that around: if there's a WB glut (which I think we're headed for) and the EV alternative gets even cheaper, wouldn’t that lower pressure on EV prices?

I've been thinking about this one for a while, but I've been holding my tongue expecting to be on the hit list of every recent WB buyer, but since you haven't signed yet I felt I really should say it. Take the overall situation being discussed with NYC, then take this one specific neighborhood you like (EV), and add the possibility of its "Brooklyn twin" getting hit hard. Do you really think WB will be less affordable to you in a year, and that it's not worth waiting to see how these legitimately tough situations (NYC in general, WB inventory in particular) play out?

And before anyone accuses me of just trying to talk the EV down for my own benefit, I've actually been focused on buying in the West Village, as prices for the apartment I'd likely buy have grown to near parity in both neighborhoods, and I'd love to get off the goddamned L train and spend more time riding my bike on the Hudson River path. That said, the thought of the East Village becoming significantly more affordable to me than the West Village has me thinking the lower monthly nut (and staying in my “home” neighborhood) would be worth the sardine can rides.

I’m not trying to talk shit here, bjw2103 (though I think I’m about to get some), but there are some posters here that are in a position very similar to my own that I’ve kind of developed a kinship with (you, newbie08 and khd come to mind) and I’d feel wrong keeping my mouth shut.

tenemental, I think that's an excellent analysis. I live in Chelsea, like the EV, would love to get back to the WV or FWV. But right now, I'm holding on.

WB might stay cool, but the inventory is, in fact, endless. Sort of like Florida in on an island: dev after dev after dev. That will only keep prices from rising; look at Vegas, where developers have the option of lowering their prices and still making money (when they can sell): anybody who bought is screwed.

Worse would be LIC - my grandmother lived there, and it was as much a dump in 1965 as it is today: nobody there, nothing to do, no way to get there except the 7 train, grand views of where you really want to live: Manhattan.

That's the key, bjw2103: do you really want to spend the rest of your years looking out your window at the place where you'd really rather live? When I was in Miami I had a friend who bought in downtown, wound up looking at South Beach from his window, where he really wanted to live. His price doubled in 10 years; my price doubled in 4. My price is still slightly above what I paid for it (but not much), his price - if he hadn't sold it - would be less than he paid for it 10 years ago.

Location, location, location.

I think LIC is headed for the same fate as WB, but I'm not sure if there's a Manhattan neighborhood it would drain from (Midtown East?). In a way, its even worse. If you wind up with a depreciating WB condo on your hands, at least you can have some fun in your neighborhood while you're trying to figure out the rest.

Totally agreed, WB is waaaay better than LIC, where some developers were pushing for $1100 psf. Ha!

I may have been born in Queens, but except for a few neighborhoods Brooklyn is far better.

I think LIC might drain from other Queens neighborhoods - Jackson Heights, for instance - but I know some people in Manhattan who were considering it. I advised against it.

I also think all of Manhattan will be suffering a lot very soon, and prices will start to come down. The market psychology was just shattered yesterday: we are not a real-estate island.

And for anybody reading, yes, the Spunk does own Manhattan property. Claims to own a few. No wonder she's so bitter!

tenemental, believe me, I appreciate the input. Unfortunately, there are very few posters on here from whom I've gotten a reasoned, balanced, and helpful perspective - so thanks for that.

What drew me to WB (after months and months of not even being on my radar) was the new construction, the increased space, the proximity to Manhattan, and yes, the overall feeling that the neighborhood would be a great place to be in the next few years. I actually already prefer it to several Manhattan neighborhoods (UES, all of Midtown, most of the UWS, upper parts of Chelsea even), but the huge inventory has had me a little concerned. Since I plan on being there a while, I thought/think it would be absorbed eventually, and while I don't think the Bear Stearns news directly impacts much there, it looks like it might destroy confidence to the point that WB is really going to take a hit. The other thing going for me was the fact that I'd be buying in a small building that's pretty much done (I don't like most of what is there actually, and I think you know which development I'm talking about based on previous conversations) and well located for WB. Most of the units are in contract as well. I negotiated a discount, but am waiting to see what happens this week before I sign anything. It's getting mighty scary.

For the record, I don't know how anyone can consider LIC, especially at those prices. The marketing must have been pretty good to get so many people in already.

The interesting thing about WB is that it has been overpriced given the cost to buy and build. There is not a lot of room for reduction for certain Manhattan new developments (although you may still see, and will see, reductions, ala BSC going from almost $80 to $2), WB properties are often, like central Harlem properties, still at $800 and up per sf, sometimes over $1000. I doubt the cost of land warrants this. So there may be a fair amount of room for negotiation.

Steve, I thought you were from Potomac, MD. You seem to have lived just about everywhere! BTW, the Dow went up today.

Tony, but why? and not the S&P. The Asian and the European markets took a bath. They must really hate our market, which can't seem to face reality. The markets seem to be anticipating a fed rate cut. Why that would make the market happy is problematic. Temporary gain, longer term pain. Dollar is taking a BATH, and our fed is encouraging it.

Aboutready - I am glad you are back posting with your reasonable point of view. You have been talking about affodability and were bullied endlessly. Your previous arguements regarding affodability for those making in the top 1% of incomes are even more revevant.

Eah people simply don't make as much money as you think.

While Eah talks about "200k is not a decent salary in NYC". He misses the point that is where most people are. 90% of Manhattan residents make less than 350K.

And I think most of those are closer to 100K and not 350K.

From the NY Times November 11, 07

"the wealthiest 20 percent of Manhattan residents — the ones who can afford to buy high-end apartments at current prices — have a median income of $350,000"

(The median of the top 20% is the 90th percentile)

http://www.nytimes.com/2007/11/11/realestate/11deal1.html?_r=1&scp=2&sq=new+york+wealth+real+estate&st=nyt&oref=slogin

People who bought their apartments 5 years ago, can't afford to buy their own apartments let alone trade up. Their incomes have not kept up with the increases.

Tony, I was expecting your answer! The Dow went up b/c of JPM, that's all. They got the Deal of the Century. Here are the full figures:

DOW JONES INDUS. AVG 11,972.25 21.16 0.18% 03/17
S&P 500 INDEX 1,276.60 -11.54 -0.90% 03/17
NASDAQ COMPOSITE INDEX 2,177.01 -35.48 -1.60% 03/17
S&P/TSX COMPOSITE INDEX 12,952.15 -300.69 -2.27% 03/17

Everything was down but JPM. I told you it was a great deal.

And Tony, the stock market is hitting a bottom. We still haven't broken through January's lows. I don't think we will. But property is a completely different market.

And Tony, here's where I've lived in my life:

Queens, NY (Flushing, Forest Hills), East Meadow LI, Red Hook NY, Carmel NY, Potomac MD, Redding CT, Washington DC, Arlington VA, Alexandria VA, Singapore, Miami FL, London, England, Concord CA, Madrid, Madrid, Spain, New York, NY

That enough for you? I've been around. Forgot to mention: I've been to:

US, Canada, Mexico, Bahamas, Cayman, Guatemala, Panama, Colombia, Venezuela, Ecuador, Peru, Paraguay, Chile, UK (inc. Channel Islands), Ireland, Spain (inc. Melilla & Canary Islands), Portugal, France, Italy, Vatican (ha! it's a country!), Switzerland, Belgium, Denmark, Greece, Turkey, Singapore, Malaysia, Hong Kong, PRC, Macao, et al.

Okay? I've been round. Don't mess with me.

aboutready: there's plenty of fat to be cut. Watch new developments turn into rentals. I've seen it before. They'll reduce when it's to cut losses.

Pez, you're my BFF, as Paris H. would say. Let's stop the arrogance and talk about what people actually make, not focus on the $10 million + market, 'cause I can't afford it.

Your point is mine: "People who bought their apartments 5 years ago, can't afford to buy their own apartments let alone trade up. Their incomes have not kept up with the increases."

I may not be as experienced as some of the folks who have been writing in this forum, but I do have experiences in flipping properties in NYC and Jersey City, and probably contributed to the high prices in these regions as much as hungry real estate agents in the last 5 years. I flipped properties twice; made 60% profit in my first try over 1 year, and 81% profit in my second try. Lately I have been looking for my third investment opportunity, but this time, I would like to keep it for living at least for 3-5 years. I started my apartment hunt 2 months ago, and came to realization that if I buy now in the same regions, I may be become the last owner for the next 7-10 years. Historically speaking this happened in these regions at least couple times before, and with the market conditions we are in, people who buys now or already bought in the last couple years will be the last owners for a while unless they find a major risk taker to unload their properties. People who buys now only goes with their egos of owning a property in the most desired city without thinking too much about the cash flow problems they may encounter in the near future.

Here is an insight from my apartment hunt in the last two months. 80% of the apartments which are under $900K are desperate to sell their properties, and willing to negotiate. Many of them already dropped their prices between 3-7%. In the last five years negotiation wasn't even an option, now I kept hearing sellers were getting a lot of low balling offers from investors, but the real buyers are holding back on putting offers due to uncertainty in the market. Real estate agents have been calling me and sending me emails on the properties I visited, and encouraging me to give offers with so much room to negotiate. This is the market we are in now.

There are very knowledgeable real estate agents, while there are so many who doesn't really follow the market, and blindly kept saying the same cliché stories about foreign buyers, and investment banker’s bonuses. No need to talk about the bonuses on spring 2008, by now we all know with low to no bonuses and major job cuts, Wall Street will have a big negative impact on the NYC real estate market from both sell pressure and less demands.

On the other hand, yes, there were foreign buyers due to currency benefits, but when there is a risk with the volatile economy they will not invest especially, when there is thread against US dollar. Until today, US dollar was the base currency for the other major currencies in FOREX, however, now there is a risk that US dollar may not be the base currency in the near future. China already declared not to base their currency against dollar. What do you think those foreign investors will do when dollar continue to loose it’s value and reputation. When there is no trust, no foreign investment can be attracted. When $1 was worth over millions of Turkish Liras (we all remember Howard Stearns radio show game named “who wants to be a Turkish Lira Millionaire”), Turkey was having major difficulties attracting foreign investors due to trust issues although currency was so cheap. Two years ago Turks dropped 6 zeros from their currency, and stabilize their index. Now lira’s value is almost equal to dollar’s value, and so much more investors are buying properties over there although their currency is not as cheap as it used to be. Cheap currency doesn’t always mean it will continue to attract investors from abroad especially if the trust to currency is lost.

Here is an example; the property that I am renting is for sale since the beginning of the year. It is ~$900K co-op. It is beautiful apartment. Real estate agent who is trying to sell this place was able to attract probably 4-5 potential buyers and have they visited the apartment in the last 3 months. Finally, he found a rich Chinese investor who was going to pay all cash, but he walked out on our broker and returned to China without purchasing anything last Friday. If you search Google, there are so many instances like this in the last couple of months.

This market will go down before it gets back up again. That is name of the game in every financial aspect. There is a lifecycle of events that repeats, otherwise, if the markets always go up, then we would have had $10 million studios in this city already, and we would have all been rich. Wait to see what happens to NYC market in the next 6-12 months. If I am right, the market will loose its value and there will be more supplies, which will give me better options to purchase. If I am wrong, market may stay stable or gain couple additional percent points, and I will loose from the opportunity of buying now. I don’t know about you, but I rather have an opportunity loss then the real money and sanity loss.

"nobody - even you - has presented a single rationale why you think I'm wrong"

steve-o, can you please summarize (bullet points preferably) what your actual stance is? The concise the better. At this point, I don’t even know what I would challenge.

On another note, since we have both lived in London (and I happen to be there right now) I was thinking about the insane prices of real estate here. Exploring your points, I think the rents in London are much more in line with what a monthly amortized cost would be (in fairness though, there is no tax deduction here). Both renting and buying are very expensive and people often buy to let at close to breakeven. I couldn't help but think that the problem in Manhattan may be on the rent side. Is there something inherent in the Manhattan marketplace that artificially depresses rents? If so, could the "spread" that you speak about could be explainable through other macroeconomic factors?

See op ed in today's New York Times, there is no place like home!

http://www.nytimes.com/2008/03/18/opinion/18tabarrok.html?_r=1&oref=slogin&ref=opinion&pagewanted=print

First to will - that article is all over the place! I think the author would fail Econ 101 only because I don't see what his thesis is. What is he arguing for? I mean, this is simply absurd from an "economist": "The debut of the reality television show “Flip That House” on Discovery Home Channel, followed shortly by “Flip This House” on A&E, was a clear sign that the boom’s end was near."

OMG.

Then, I can answer the JuiceMan and will at the same time, simply by quoting that article:

1) "In 1997, inflation-adjusted house prices were close to their average levels over the previous half-century. Only four years later, the price of the average home nationwide exceeded anything ever seen before in the United States. Prices continued to rise for another five years, peaking in 2006 at nearly twice the average price in 1997."

My point is that never in the history of the world have long-term averages been violated for long periods of time. I believe we will return not to "inflation-adjusted house prices," but to the historic income-home price ratio. If we were to return to "inflation-adjusted house prices" as this (idiot - sorry) economist says, then there would be no home-price appreciation beyond inflation, which is absurd. Historically, homes increase in value about 1.5% per year above inflation, that is, the same as incomes.

2) "Several studies estimate that the average house prices of 2004 were close to fundamental levels, so we may see prices stabilize near that level."

Bingo! That's exactly where I think we're headed. Unfortunately, that means an average of $800 psf in GV, Chelsea, which is about a 33% drop from current price levels of $1200 psf.

That would, not coincidentally, cause owners' carrying costs to equal rental costs, which is another historic norm that has been violated since about 2000, but that I believe will return to its norm.

3) "There are two very real problems for the housing market: tougher credit conditions and slower growth."

Bingo! That's what we're reverting to: normal, prudent lending standards. And historically, they were, for a mortgage loan, twice your annual income and 20% down. That ratio, when you add in taxes and other housing-related expenses, is very close to the 28% of income affordability threshold that was always used in the past. If fixed interest rates are low, that "twice income" can increase to 2.5.

4) "But there are good reasons to believe that much of the increase in prices was a rational response to changes in fundamental factors like interest rates and supply."

That's part of it, but I come to a different conclusion. The author concludes, "The deeper fundamentals continue to suggest strong housing prices for the future." I conclude that as loans dry up for unqualified buyers (subprime, alt-A), as credit standards are tightened, as nuclear loans become unavailable (liar's loans, no-money-down loans), as bondholders demand transparency in the securities they buy, there will be LESS credit (since it will only be issued on a prudent basis) and interest rates won't matter. If nobody will lend you money, it doesn't matter what interest rate they're not lending it to you at.

There's more to my theory, but that's basically it.

What cracks me up about this website is that if you type in "unaffordable" or "affordability," it marks it as a misspelling.

Forgot to mention, Tony, I've been to Morocco, too.

JuiceMan: That's very sound methodology, checking both sides of an unbalanced equation to see where the real anomaly lies.

Certainly, the math on the rental side of the comparison is simpler: the tenant has no complex tax incentive (a.k.a. government subsidy), no expectation of capital gains, and relatively few opaque transaction costs. That might lead to an assumption that if the equation is out of whack - as it has been - the cost of buying is too high, and the cost of renting is about right.

There is at least one possible flaw in that logic, though: the chance that landlords are effectively subsidizing their tenants with artificially low rents because they would rather hold their properties for continuing capital appreciation and other benefits than sell them. It's also possible that the pool of potential rental tenants has been depleted by a "gold rush" toward ownership, fueled by easy credit and expectations of capital gains.

Personally, I doubt either effect is very significant, so I think sale prices will come down much more than rent will go up. In a major local downturn, both would fall - with valuations falling much farther.

Love this article

Look! The sky isn't falling!

The market is showing tentative signs of recovery. Here's why investors should be encouraged....even though they also need to be prepared for more volatility.

NEW YORK (CNNMoney.com) -- Did you notice that the market didn't collapse yesterday?

There were scores of bearish (pun intended) headlines following news of the bailout/buyout of investment bank Bear Stearns (BSC, Fortune 500) by the Fed and JPMorgan Chase (JPM, Fortune 500). But after a rough start, the market bounced back a bit Monday.

JPMorgan Chase's 10% jump accounted for most of the Dow's gains. But AT&T (T, Fortune 500), Johnson & Johnson (JNJ, Fortune 500), Merck (MRK, Fortune 500) and Verizon (VZ, Fortune 500) all rose more than 2%.

And on Tuesday morning, there was more reason to think markets could soon calm down.
TalkBack: Is the worst over for the economy and markets?

Goldman Sachs (GS, Fortune 500) and Lehman Brothers (LEH, Fortune 500) both reported steep declines in quarterly profits, but the earnings were better-than-expected and the two stocks moved sharply higher Tuesday morning.

Yahoo (YHOO, Fortune 500), in the midst of fighting off a takeover attempt by Microsoft (MSFT, Fortune 500), reaffirmed its forecast for sales, easing concerns about ad spending in an economic downturn.

In addition, housing starts in February, while down from January, were stronger than economists had forecast, suggesting a possible stabilization in the real estate market.

"Housing might be bottoming," said Brian Stine, senior portfolio manager with Allegiant Asset Management. "There are still risks, but it looks like the decline is decelerating."

Don't panic but don't go overboard either

The temptation after yesterday's Bear Stearns news was to run and hide. But instead of panicking, some investors appeared to be acting as if there was a light at the end of the tunnel. And that light may be in the form of another big rate cut from the Federal Reserve today.

Yes, I've argued repeatedly in this column that another steep cut could do more harm than good since it will further weaken the dollar and lead to more increases in the price of oil, gold and other commodities. But I'm definitely in the minority here.
Issue #1: America's Money

There is a growing sense that more rate cuts, combined with the many moves the Fed has taken to provide more liquidity to struggling financials, are what's needed to end the credit crunch - and that doing that takes precedence over worrying about inflation.

"What the markets are now factoring in is that the Fed is using all the tools at its disposal to get the credit crisis unlocked. It's encouraging that the market is seeing this in a positive light," said Subodh Kumar, an independent market strategist.

Of course, investors still need to be careful in a market as jittery as this. Just as it doesn't make sense to panic on a day when the market is plunging, investors shouldn't get overly (or dare I say, irrationally) exuberant on a day when stocks are heading higher.

Despite the promising news from Goldman and Lehman, Phil Dow, director of equity strategy with RBC Dain Rauscher, said the worst is not over yet for most big banks.

"There are further problems with the financials. The most optimistic people think we may be only halfway through the subprime writedowns," Dow said. "For serious investors, this is a time to be cautious."

With that in mind, Stine said he's recommending investors buy more international-based companies as a way to capitalize on stronger economies and fewer financial headaches overseas.

And Kumar conceded that even though the lack of a big sell-off Monday and the rally Tuesday were positive signs, it's premature to say that the worst is over for banks or the market as a whole.

"The first step in confidence coming back has to be more interest in larger companies. We started to see that with healthcare, telecom and other defensive companies but it's too early to say the volatility is behind us. I think we will see a lot more back and forth in the market in the coming weeks," he said.

stevejhx - how can i give you data about something we/I expect to happen in the future? Also, thought we we're just laying bets, so to speak? This really is nothing more than the RE version of going to the track. Right now, my lone horse is a Chelsea condo. If we go into contract I'll let you know - it will just be a one off deal but, to me, indicative of a slow burn trend. But this is what I mean about your argumentative nature: are we not essentially saying the same thing about the RE market?

Pez, I still do not see how 200k is a decent salary in NYC. OK, wait..maybe be decent..but certainly not anything that allows for full NYC living.

JuiceMan, you say: "I couldn't help but think that the problem in Manhattan may be on the rent side. Is there something inherent in the Manhattan marketplace that artificially depresses rents? If so, could the "spread" that you speak about could be explainable through other macroeconomic factors?"

That thesis can't be. Rents are directly tied to income, which is what I've been saying here for weeks. Therefore, rents are rarely out of whack with market fundamentals. What causes property prices to get out of whack are all the things I state above: loose credit, artificially low interest rates, etc.

There is one exception in Manhattan's rental market, but it is one that keeps rent HIGHER than they normally would be, not lower, and that is rent stabilization. Stabilization keeps rents below market values for certain renters, thus causing a shortage, which would drive the rents of others HIGHER, and therefore drive property prices higher. Fortunately, stabilization is going away over the long-term; in every city in the world where they eliminated rent stabilization and similar programs, there was an initial spike in rents, and then they fell precipitously.

That will happen here, as well.

Spunkster, I've been saying all along that we're at the bottom of the stock market - after BSC, we never broke through January's lows. That is auspicious. It is, also, completely unrelated to the real-estate market.

eah: I don't ever make bets based on hunches. I always look for data, trends, which is what I've been publishing.

And stop with the lifestyle arguments: on $200k you can't go to the Met every weekend, but who would want to?

Steve in the article here is a quote

"Housing might be bottoming," said Brian Stine, senior portfolio manager with Allegiant Asset Management. "There are still risks, but it looks like the decline is decelerating."

stevejhx just for your inormation I ma aggressively looking for another investment property in downown Mahattan. Hope I can get a good deal and when I do I'll let you know but so far I am not finding anything that I like at lower than 2007 prices.

Spunkster, housing "might" be bottoming, but NYC is way behind that curve. And anyway, I don't think it is, because the foreclosures haven't started yet, and the new credit rules - which - imagine this: will make it ILLEGAL to give a person a loan he can't afford to pay back! - will cause credit to tighten even further.

Wait for 2004 prices. They'll be back.

Ok--we can suspend the lifestyle conversation. But, I do not seem, again, where we're differing. At a certain point it comes to a hunch. You'll either think we hit bottom and buy or your hunch will say to stay on the sidelines. It will come to a gut feeling. Unless you follow the herd and buy when everyone else is and sell when everyone else is - it is all a hunch in the end.

eah, you're right about that. As soon as it feels right, it will be right. Unfortunately, for most people, it will feel right but won't be right, because most people buy at the high and sell at the low.

"Wait for 2004 prices"stevjhx

Hope you're right but I thought you were predicting 1990's prices.

Never did I predict the 1990's prices. I predict 2004 prices adjusted by about 3% a year for inflation / increases in real income. Unadjusted that would represent a fall of 33% from current levels. Adjusted I reckon something like 25%, which would bring the Chelsea median of $1,200 psf to about $900.

The 1997 prices cited in the NY Times article above were artificially low, precisely because - as I noted - they represented historic levels unadjusted for inflation and increases in income.

Steve, it appears that certain aspects of the fundamentals that have helped fuel Manhattan prices are weakening (Wall Street layoffs and diminished bonuses). However, you neglect to mention that the dynamics that drove appreciation in say suburban Tuscon or Delray beach (exotic lending instruments, speculative flipping, lending to unqualified buyers) were not present during Manhattan's run up. As you know, coops have strict requirements that are related to a buyer's personal net worth, most of the new condos required 20% in cash, and those buyers, while getting attractive mortgages, were not availing themselves of subprimes, and flipping was never a factor.
What drove Manhattan real estate, in addition to a strong local economy was:
High quality of life
Multiple streams of demand (foreigners, retiring baby boomers, families staying in Manhattan as opposed to moving to the burbs)
Low inventory
All of those factors are still in play. And as for mortgages, interest only products and 1 month libors, which is what many wealthy buyers use, are at very low rates and are still available for qualified buyers, which are essentially the people buying in the 2,00,000 range and up. I agree that emerging neighborhoods and parts of the outer boroughs may see more dramatic price declines, but I think it would be a mistake to ignore most of the fundamentals that have made Manhattan desirable.

mh23, agree with much of what you say. It's trite, but Manhattan IS different, and it's also NOT different in some respects. Co-op boards have certainly mitigated some of the run-up, but there are two additional things to consider: 1) as co-op board members would presumably be selling their places one day, they also have a vested interest in seeing prices increase steadily; 2) people who have already bought aren't of all that much concern to those shopping around right now, or at least looking to buy in the next year or so. Still, I think you have a point, there are just so many qualified buyers around, which could well prevent the serious dip stevejhx is predicting. But it's such a weird time right now - too many things are uncertain.

mh23, bjw2103, let's first drop the "foreigners" myth: there aren't enough foreigners to have a long-term effect on Manhattan prices.

Now then, mh23, what you say about exotic mortgages is partially true. However, 80% of all mortgages issued in the outer boroughs from 2004 were subprime. That has a direct effect on prices in Manhattan, and it will as these properties fall into foreclosure.

Second, since I used to live in Miami I can tell you that the boom started there much earlier - here things started going haywire in 2004, there they started going haywire in 2002. It takes longer to build things in NYC; the inventory is just coming online now. In Miami, lots of it already is.

Finally, Wall Street: it represents 11% of all jobs in NYC, and 35% of all income in NYC. That is a huge effect, especially at the upper end. Lots of these exorbitant bonuses over the past year were predicated on cheap money, and that's gone; packaging and selling mortgage-backed securities for hefty fees, and that's gone.

I don't believe that there is a low inventory of apartments: only 10,000 properties a year are sold in Manhattan. Current listings are about 6,000, or over a 6-month supply, and they're all at the top end. But builders withhold inventories as long as they can so as not to flood the market. That can't last forever. Real-estate agencies don't list every property on this website. People try to sell their own apartments, not through an agent. Our real estate market is opaque: no real price data until co-ops were recorded this year, no MLS to show real figures of listed apartments.

The co-op board business could have had some effect, but nobody's building co-ops anymore.

Manhattan is different for lots of reasons and it will always be more expensive than Kankakee, but it's not immune from market forces.

mh23, while co-ops certainly have helped provide stability to Manhattan, not all co-ops are created equal. A friend of mine purchased in Seward Park (admittedly not the most upscale address) w/ a no doc loan. The frenzied times also seemed to lead people to borrow from family and do anything they could to buy a place for fear of being "priced out forever." I wonder how many are struggling to repay "gifts" they received to make the boards cash-on-hand requirements? As for new-dev condos, almost everything I've seen is 10% down, and I get the impression people have reaaaaly been stretching in recent years. Look at a place like 110 3rd Ave, for example. With the all-glass exterior, you can actually see the aerobeds and Ikea furniture: people bought with nothing left over. I forget the source, but there was an article late in 07 about a large increase (I think 26%) in the number of condo liens for unpaid maintenance, as owners were getting tight and didn't have enough left after the mortgage payment.

Eah, I didn’t detect any nastiness in your post, and don’t intend any in mine, but I do take exception to the line “Pez, I still do not see how 200k is a decent salary in NYC. OK, wait..maybe be decent..but certainly not anything that allows for full NYC living.”

I agree that if you’re trying to raise a family and need the requisite 2 or 3br and possibly private schools it’s another story, but cultural and financial relativity are two of the things that amaze me about NYC. If you’re a student or other young person, maybe living with a roommate, going to clubs, hearing bands, hanging out in cafes, visiting museums, etc., you definitely feel that you’re having a full NYC experience. It is certainly miles above what you had in your hometown. In fact, you probably couldn’t care less about what wealthy people on the UES or UWS are doing.

I make less than $200k, but hardly think I’m missing out on a tremendous time in NYC. I may stop in at the Stone Rose or Maritime hotel for a $15 martini every now and then, but I’ll have a great time at the 7A café, enjoying free drinks from my friends who work there. And the fact that I can do it 24 hours a day makes it quintessentially New York (5:30am after a great night, watching the sun rise over Tompkins Square Park is hard to beat). I’ve taken wealthy friends to inexpensive restaurants like Frank and blown their minds (try the burrata w/ a nice sangiovese). There are much wealthier cyclists on the Hudson River path (the $7k bikes are a giveaway), but I don’t think they’re enjoying the Tom Otterness sculpture garden, a beer at the 79th St Boat Basin, or the beauty of Cherry Walk any more than I am.

I’m not saying I wouldn’t like more money (what would they serve a vegetarian at Per Se, I wonder?), and I know I’m low on the financial scale of StreetEasy posters, but one of the amazing things about New York is that it’s a scalable city. Unless money’s really tight or you have no imagination, you’ll have an incredible time here.

What I've been saying, the Fed can't do it alone, the only thing we have to fear is fear itself, and pass the Frank bill!!!

http://www.washingtonpost.com/wp-dyn/content/article/2008/03/17/AR2008031702152_pf.html

More good news...

http://www.washingtonpost.com/wp-dyn/content/article/2008/03/18/AR2008031800767.html?hpid=topnews

See guys? Let's not talk about lifestyles!

tenemental, for once, you took the words out of MY mouth! I don't make $200k either, but certainly don't feel like I'm missing out on anything because of income. If anything, there's just not enough time!

"That thesis can't be. Rents are directly tied to income, which is what I've been saying here for weeks."

Since the "spread" between renting and buying is much narrower in London, Londoners have a higher incomes than New Yorkers? That makes zero sense to me. London has had just as much of a run up in real estate as NYC did, but rents followed. That tells me there is something artificially depressing rents in Manhattan or, that rents should see some substantial increases in the near future. Maybe the market is "out of whack" but is there another explanation? If there are a number of people that will “wait on the sidelines” wouldn’t that impact the rental market? Could that “spread” be narrowed by both gradual downward purchase price pressure (or slower growth) AND a gradual increase in rents?

Rents in London include all the furniture, and are tied to the expat industry in the desirable parts of London. Indeed, rents in London are calculated on a weekly basis, not on a monthly basis, for that exact reason, and there are no large blocks of flats in London as there is in NYC. So the supply and demand are completely different - apples and oranges.

Moreover, mortgages in the UK are entirely different than they are in the US, there being primarily "endowment mortgages," which is a form of life insurance policy, rather than amortizable mortgages. They work in completely different ways: with endowment the principal is paid off in a balloon payment at the end, and only insurance payments are made in the interim. There is also no tax benefit in the UK for interest deductions, and even when there was one - 20 years ago - it was limited to the first 30,000 pounds, and so was not material.

JuiceMan, you are comparing completely different markets with a completely different housing stock and completely different financial instruments in completely different economies.

Other than that, it's a great comparison.

Nuance is hard over blog; particularly when one is partially distracted. You're right, for a single person 200k is a decent salary for many people.

"Rents in London include all the furniture"

No they don't. Some are partially furnished (bare bones) and the furniture has no impact on the rent. Most rents are based on furnished or unfurnished (because furnished is a bunch of crap)

“and are tied to the expat industry in the desirable parts of London”

Wrong, London is huge and rents are high throughout. Different by neighborhood, but no different than NYC. Oh, and NYC isn’t tied to an expat community?

"rents in London are calculated on a weekly basis, not on a monthly basis"

So what? 4.3 times the weekly rate gets you to a monthly rate. Has zero impact on anything related to what we are talking about.

"there are no large blocks of flats in London as there is in NYC. So the supply and demand are completely different"

steve-o, you are completely talking out of your ass now. That sentence tells me you have no idea what you are talking about. The supply and demand are different? Why? I thought you said rents are based on incomes?

"mortgages are different...blah blah blah"

So what? People buy here because they want 1) a place to call their own and 2) apreciation. No different than anywhere else in the westernized world.

Anyways, I don’t care about London, I was using it as an example to prove a point (and it had the added benefit of proving something else to me – that you are more than willing to talk a whole lot of crap about something you know very little about)

Now back to the rent question from my prior post.

Actually, JM, since I lived there for 5 years I have a pretty good idea what it's all about.

I actually lived in some lavishly furnished places.

London is huge, you're right. But if we're talking about Manhattan then we're talking about the desirable part of London - Chelsea, SoHo, Mayfair, Holland Park, etc. not Hounslow, Oval, Pimlico or Elephant and Castle.

Actually, it makes a huge difference how rents are paid because if they're paid weekly there are more payments and the rent accrues differently. Just a mathematical fact. Plus weekly rentals are not only possible but they're the norm, which vastly skews the market because it becomes a replacement for hotel rooms. FYI weekly rentals are illegal in Manhattan.

How London is configured makes a huge difference in terms of the availability of supply in certain areas. Chelsea in New York is comparable in size to Chelsea in London, and probably 10x as many people live in Chelsea in New York, and there are many more units available for rent. The supply and demand factors are completely different.

There is no rent stabilization in London, skewing the cost of rentals. There are large blocks of public housing, however, which - unlike in NY - are owned by the people living in them: Mrs. Thatcher sold them off. So that is another important consideration to take into account.

The mortgage issue is not "blah blah blah": it's huge. I'm sorry if you didn't know about endowment mortgages, but read about them: they change the entire payment dynamic of a mortgage, since almost no mortgage amortizes in the UK.

Now, regarding home ownership rates, they vary enormously in the industrialized world:

Ireland 82% Japan 60
Spain 80 Portugal 59
Luxembourg 77 United States 59
Norway 73 Finland 58
Belgium 72 Sweden 55
Greece 72 France 54
Italy 68 Netherlands 46
United Kingdom 67 Germany 40
Canada 64 Switzerland 29
Denmark 60

They vary for many different reasons. If we must say, I am "more than willing to talk a whole lot of crap about something you know very little about," and then add your sweeping conclusion that: "People buy here because they want 1) a place to call their own and 2) apreciation. No different than anywhere else in the westernized world," one can only take away from that that the Swiss, Germans, and Dutch "don't want a place to call their own," and "don't want appreciation."

That is really dumb.

And here's that table again, easier to read:

Ireland 82%
Spain 80%
Luxembourg 77%
Norway 73%
Belgium 72%
Greece 72%
Italy 68%
United Kingdom 67%
Canada 64%
Denmark 60%
Japan 60%
Portugal 59%
United States 59%
Finland 58%
Sweden 55%
France 54%
Netherlands 46%
Germany 40%

The reasons why buy or don't buy are far more complicated than your narrow-minded analysis, and have to do with culture, mobility, job growth, rent laws, government subsidies, etc.

Unless you think 40% more Irish people like "a place to call their own" and "want appreciation" than Americans, then what you say (as usual) is nonsense, predicated on baseless opinion. People buy properties when they're plentiful, and affordable: how that plentifulness and affordability is reached depends on very complicated factors.

Only 29% of the Swiss own their own homes, but 82% of the Irish do. Yet the Swiss are far wealthier.

Does your theory explain why that is so?

It will be a bumpy ride, but let's enjoy the good moments.

http://www.cnbc.com/id/23692905

tenemental: there actually is a vegetarian tasting menu at Per Se :-)

Only 29% of the Swiss own their own homes, but 82% of the Irish do. Yet the Swiss are far wealthier.

Does your theory explain why that is so? stevejhx

I lived in Switzerland for short period of time. I beleive their is virtually very little Tax incentive to own a house most I beleive are owned by pension funds. There is very strong protection for tenants. It's difficult if not almost impossible to evict a tenant and very difficult to get approval for an increase in rent.

Thanks, kiky. Just checked it out. At $250pp service included, I may give it a shot.

Spunkster, I'm not the one who brought London real estate into this conversation - it was the JuiceMan. I have no theory about why the Swiss like to rent. (I've been there a few times myself: nice place to visit but...maybe they want to get out)

JM made this ridiculously sweeping statement: "People buy here because they want 1) a place to call their own and 2) apreciation. No different than anywhere else in the westernized world."

I merely demonstrated that it wasn't true.

Regarding the London market, I lived there, I rented there, and I almost bought there before moving to Spain, so I know something about the structure of the market and how mortgages work there. It's apples / oranges.

I don't really give a shit about the Swiss or why they rent or not. I was merely making a simple point about rent vs. buy spreads in London and then asked a simple question about the possibility of rents increasing at some point in the future in NYC. steve "I know everything" then piped in to try and show how smart he was and got caught bullshitting, and now he is trying to save face.

Lehman's next. Lehman's next. Disaster around the corner. The sky will fall in. Everything in the tank except Steve's translation business. Or except that Chelsea Condo he wants for 30% off current price. All going in the tank. Or not. But Manhattan real estate down the tubes with Lehman and Goldman and Sptizer and Blitzer. The sky is falling. The sky is falling. Happened in Miami and Kansas and Spokaine and Pluto and Mars. Must happen here, too. Blech.

Lehman's looking a little bit better today. Maybe it's morning in America.

No doubt we're still in for a recession. The economy usually follows the market by about six months. So could be some rough patches for Manhattan real estate, or buying opportunities, depending on your perspective. But I think today we can see some light at the end of the tunnel. My ongoing prediction: Lots of flatness with some minor upticks and downticks the next 12-18 months.

http://money.cnn.com/2008/03/18/markets/markets_newyork/index.htm?cnn=yes

Why do I get a feeling that no matter how many places stevejhx lived around the world he was hated by his neighbors. If his personality is any reflection of his posts there may be some long term repercussions. I just hope for our own safety he didn't tell his foreign neighbors he was a U.S citizen.

will, I think JuiceMan wrote that we were seeing "light at the end of the tunnel" right after the last 400 point rally and look what happened shortly thereafter. I think it's silly to be so reactionary after one day, although I'm right with you in hoping things improve soon. Everything seems quite tenuous right now, and I think we're all grabbing at straws here, trying to come up with some answers.
spunky, let us know when you're done with the attacks and ready to contribute in some meaningful way here.

Thanks bjw2103. Of course, I'd argue that today proves that Juiceman was right!

Dudes, don't extrapolate after 1 day. JucieJuice, you said what you did. Say the "Westernized World" wants one thing - which I demonstrated isn't true - then you say "I don't really give a shit about the Swiss or why they rent or not, and it exposes you as inconsistent, and a FRAUD. So, decide what you think. You don't know what an endowment mortgage is, FESS UP! If ignorance is bliss, it seems to me that you're very content.

Guys, study economics. The stock market is unrelated to the property market. The stock market is based on what companies make - the property market is based on what individuals make. WHEN WILL YOU LEARN?

Damn! U peeps need lessons in economics & accounting.

My Spunkster: "If his personality is any reflection of his posts there may be some long term repercussions."

I don't care what peeps think of me. What I care about is making another $750 k this year like I did last. & I think I'm on my way....