Caveat Emptor: Manhattan Still Way Overpriced!

Steve we just have to agree to disagree on the quality and availability of rental properties and how to appropriate compare them to the same breed of co-op apartments. 24 5th is a good example. The exterior of 24 5th has peeling paint and borders on dilapidate. The common space is in a state of gross disrepair that is finally being addressed. It has a very transient population and I know people who have lived there and reported on numerous cockroach problems. Go next door to 30 5th ave. The building exterior and interior is in immaculate condition with a very stable population. So that is just one example. We can go back and forth all day. Everyone has a different standard for the quality of life that they are willing to tolerate in their "shelter". And I still agree overall the the prices are currently too high. It is the direct correlation of rental prices and co-op prices that many of us here find interesting as side note, but not completely compelling as a way to decode proper valuation.

In terms of condos and co-ops there is a link for sure. But others have noted that the overall quality of life in the city as a whole has also contributed to this price increase over time. That sounds about right. So on the one hand, as the city improves, the prices of co-ops go up. And then on the other hand developers see an opportunity to bring new condos to market. There is some competition between co-ops and condos for sure, but not every buyer is willing to buy either a condo or a co-op. I don't have a simple economic formula to break it all down. If I did, I certainly wouldn't share it with you all. I'd be out there making millions.

I looked to rent at 24 5th Avenue in 1997; I looked to buy at 30 5th Avenue in 2005. There is something of a difference - roaches in both places, old construction - just at what price?

I also agree that there is a difference between co-ops and condos. After owning 2 co-ops with nutcase boards of directors, I would never, ever do it again. Ever. If there were a way to make that more definitive, I would.

"It is the direct correlation of rental prices and co-op prices that many of us here find interesting as side note, but not completely compelling as a way to decode proper valuation."

That is more than an "interesting side note": it is, in fact, an economic principle used everywhere in the world. The only economic benefit you get from buying is the right not to pay rent. All the advantages and disadvantages that homeowners have landlords have, which is why they offset each other. The only thing the landlord gets is a profit, but that profit is exactly the cost of your not investing your money in another asset class. In other words, your profit lost is his profit gained.

It is BY DEFINITION that no property is worth more than what it would cost to rent it. Only Bill Clinton argues with definitions. And historical data show that over time the relationship between home prices and rental costs is 12x annual rent, that being constrained by the 40x income, 28% total housing expense requirement. If that requirement were to change then housing prices would changed. It didn't change, though. What changed was the financing that allowed people to reach the 28% total house expense requirement without having the long-term income to support it. That is what is plainly happening now in the market.

Why do you think that all these ARM resets are a problem? Because they change the carrying costs of a home to a more realistic (unsubsidized) one. Why do you think 0% and 10% down mortgages are a problem? Because if prices fall more than the down payment, it's cheaper for owners just to walk away, which is what's happening.

Why do you think banks are now requiring 30% down? Why are they requiring PMI for down payments of less than 20%? Why are they not financing co-ops again? Why won't you be able to take out an ARM unless you have the current income to support the maximum reset?

They are overcompensating for the problems of the past, and returning to prudent lending standards and going beyond (because they foresee a further deterioration in the property market). With these new rules, the only thing that can happen - since credit is no longer loose - is that house prices will fall to compensate, so the carrying cost is still 28% of income, based on different credit criteria.

Briguy, it's inevitable, and it's happening all around you. Listings are going up, rents are coming down, banks have tightened credit. Even if you don't have a specific formula, can you say categorically that it makes no difference to people whether they put down 5% or 30%, or whether their interest rate is 4.5% or 6.5%? Because I don't think you can.

PMI 25%, btw

stevejhx you are a very very every sick individual. You need help please please take your medication.

Steve, is it not soon time to consider Manhattan foreclosures? How does one study the foreclosure market? Thanks.

steve, get some fresh air man. spunky's right, you need a break.

Disclosures:

1. I have owned elsewhere, but I haven't been in NYC regularly enough to own here yet.
2. I do think NYC is "different" than elsewhere in the US, but I also think the current climate can/will affect that in some way.

That being said, and hopefully without starting another this way is better than that way brawl, I'm interested in some insight from someone who is better at crunching the numbers than me about this scenario:

Rental:
http://www.corcoran.com/property/listing.aspx?Region=NYC&ListingID=1212206

Sale:
http://www.corcoran.com/property/listing.aspx?Region=NYC&ListingID=1217537

The rental is probably a few floors lower and the layouts are flipped, but these apartments are basically the same. The rental is $3500/month. The sale is $1.3 mil - at 20% down and a jumbo of 7.15% with maintenance and tax abatement that comes to $7,827/month.

The NYTimes rent/buy tool allows one to run some scenarios. I see three variables. When and by how much the realestate tax will increase is a blank that I'm sure someone here could fill in. The anticipated property appreciation and rental increases are the points up for argument.

Therefore, my question is: based on these metrics, what realistic projections for these variables would make one option (renting or buying) better for this particular property?

11201962, I have no idea about foreclosures, and wouldn't buy one even if I could.

JuiceMan, you're right, I need a break. Off on vacation this Thursday - Monday. Yipee!

And this is actually a break, gets my mind of a tedious document about oil spills in Panama.

secondandc, the NYC market is not "different" from anywhere else. In fact, with all the market rentals, it's more and more similar.

Forget about the abatement, it's included in the property price. (A property without the abatement wouldn't cost so much.) Every single time you do an analysis like that in today's real estate market, you will find the same thing: 50% fall. Rents are going down.

The NY Times tool is not very sophisticated, and I wouldn't rely on it. It only allows for constant rates of return, which is a fatal flaw. For instance, if you have $100 and it goes down 4% the first year and up 5% the second year, you wind up with $100.80. The other way around - 5% down then 4% up - you wind up with $98.80. The Times tool does not help you if properties fall in value, because it only allows for a constant fall over time.

12x annual rent is the historic average. Wait till we get there? I won't. But pay twice as much for the "honor" of owing? I don't think so!

Steve, why would you not buy a foreclosure?

Because I don't know anything about them. I don't buy anything I don't understand. And I wouldn't buy property now with a ten-thousand foot pole.

To clarify "different" - since the mid-90s I have known many people that actively wanted to and were trying to move to NYC. Not because of a specific job or because their company was moving them here. They simply wanted to live here and would apply for jobs or do whatever they could to accomplish that.

I do not know anyone that actively wanted to and was trying to move to Detroit. My apologies to anyone to whom Detroit is near and dear. It's just one of many cities I could throw out.

Now I grant you that this could change for many reasons and also applies to some other cities (LA for example), but my non-scientific assessment is that NYC has the strongest such draw of any US city, and this has to have an affect on the demand side whereas in Detroit it does not.

affect = verb
effect = noun

To clarify "different" - since the mid-90s I have known many people that actively wanted to and were trying to move to NYC. Not because of a specific job or because their company was moving them here. They simply wanted to live here and would apply for jobs or do whatever they could to accomplish that.

I do not know anyone that actively wanted to and was trying to move to Detroit. My apologies to anyone to whom Detroit is near and dear. It's just one of many cities I could throw out.

Now I grant you that this could change for many reasons and also applies to some other cities (LA for example), but my non-scientific assessment is that NYC has the strongest such draw of any US city, and this has to have an affect on the demand side whereas in Detroit it does not.

I have to disagree that you can't do a proper rent/buy comparison. Here is a unit in my neighborhood that is listed both to buy and for rent in a recently renovated building.

http://www.streeteasy.com/nyc/rental/293464-condo-11-east-36th-street-murray-hill-manhattan

http://www.streeteasy.com/nyc/sale/127354-condo-11-east-36th-street-murray-hill-new-york

The asking price is $1.3m while the asking rent is $4950. Renting is about 50% cheaper! I think that's pretty clear-cut.

In this thread, Stevejhx has had more comebacks and come out of retirement more often than Sinatra did

Steve. Unless there is a mass exodus out of Manhattan, if more people decide to rent rather than buy, won't that drive up the price of rentals until such time that new rental units can be built to accommodate that demand. Is it not possible that rents will go up to such an amount that buying will become more attractive, especially if rates go down? I seem to remember Jonathan Miller describing this phenomenon occurring in 07. As you may remember, inventory was as high as 7,800 units in 2006. Part of that was due to the belief of certain buyers that the market had peaked and they wanted to wait and rent until prices went down. This lead to higher demand for rentals, which led to higher prices, which made buying more attractive, which led to a tremendous absorption of inventory in 07.
You can go to Miller Samuel to check out the inventory stats to make sure I am accurate.

mh23: Yes, the rental market can provide support to sales prices, either by draining off excess sales inventory (as rentals) or by raising rents to the point where buying becomes more attractive. But that support will tend to break down if rental inventory expands too rapidly, or if the local economy contracts to the point where both sales and rentals enter a deflationary scramble for scarce customers. If both things happen, as they might, you could even see the sort of carnage stevejhx keeps predicting.

"rents collapsing blah blah blah blah 12:1 rent to buy ratio blah blah blah property values crashing all over Manhattan blah blah blah did we talk about the 12:1 ratio blah blah
I need to discuss the 12:1 ratio blah blah. Don't buy to expensive.blah blah blah
rents decreasing blah blah blah 12:1 ratio blah 12:1 ratio blah blah"--Stevejhx (a.k.a 12:1)

Steve seems to be getting inside your head there, Spunk.

West 81st. I am aware of that, and you are right, if there is a mass evacuation of Manhattan, prices for rentals and condos/coops will go down. However, if Manhattan continues to maintain or increase its population, people will need a place to live. Now, they may move to the Bronx or parts of Brooklyn or Queens, or even perhaps Jersey City, but they will need to live near Manhattan. I would suspect for the lower priced rentals or condos, moving to the outlying areas is a more realistic prediction.
I think it is worth remembering how high inventory was in 2006. That year was a year of record bonuses, and Wall Street was humming. The reason for the build up was that everyone thought the market had peaked. It didn't, and over 2007 all of that inventory was eroded down to something like 4800 units. That may happen again.
Steve's analysis and predictions have a compelling feel to them, but what will happen, at least for the foreseeable future, will be something lie a stand off. Prices may stay flat for a few years, they may go up slightly, they may go down. MAny people who are trying to sell now are doing so because they want to upgrade to something larger, and they need the equity from their existing home to make the purchase. If they can't get the price they need, they will have to take the unit off of the market and wait until they can. That will drive down inventory as well.

mh23: On the macro level, I think you're 100% correct. On the micro level, where most people only need to buy or sell one apartment, there seem to be pockets of opportunity for buyers with ready cash, and pain for owners who need to sell (or who just figure it's time to take what they can get). I've already seen a few reasonably attractive listings being cut to what look like pre-2006 comparable levels - and that's nominal price, without even considering inflation.

West 81st. Agreed. Anyone who needs to sell is entering the market during a challenging time. In the scenario you describe, one would think that a buyer will take advantage of that opportunity. The thing about economics is, so much of it is psychological. Now everyone is reading how the market is slowing and they can get a bargain, so they are trying to time a bottom, which is impossible to do. If things shift, as they did in '07, then the herd will move to buy as they did then. I recognize that economic realities set the price, but that has been the case from say 03-08. During those times, real estate appreciated. Can it go on appreciating forever, of course not. However, does that mean that prices must fall across the board, no. Desperate sellers will sell, others will not, and if the market stays flat for a period of time, things will adjust on their own. Some properties are unique, and will continue to find buyers, others are common and will have trouble. Realistically, real estate should be about owning and using, unless you are an investor. If the Superior Ink Building, for example, was offering the remaining 3 bedrooms that they have not sold for say 2 mil (2004 prices) as opposed the the 4.3 they are asking, I think they would obviously have a bidding war that would bid them up to 4.3 because that is what the market will bear. Now if you are a user, great. If, however, you think you can buy the unit for 4.3 and flip it for 5 when it is done, that is a gamble. It paid off for flippers of 15 cpw, and will probably here, but it is a bet that I would not make.

secondandc, what matters is not only raw numbers, but how much money they make. A bank hiring 100 tellers vs. 100 currency traders is quite a different matter. Right now the traders are losing their jobs. NYC is a big place - you can't afford Tribeca, you can afford Washington Heights. And you can't afford to buy, you rent. There are many options, none of which supports these price levels that I can see.

And "affect" is also a noun, and "effect" is also a verb. Just one more annoying thing about English.

mbz, you're absolutely right. If it were just one isolated example, that would be one thing. But it's everywhere.

mh23, you're right to a point, especially if inventory is fixed in the short-term which it usually is. In 2007 the economy was still growing, the effect of the mortgage melt-down had not been felt in NYC. Credit was still loose, people were "trading up," Wall Street had just been paid their biggest bonuses ever.

Now the scenario is different: rents are in fact falling across the board, incomes are declining thanks to the mess on Wall Street, banks are no longer lending to marginal borrowers and now are even requiring 30% down for some mortgages, PMI for any down payment less than 25%, and will let you take out an ARM only if you can afford the maximum reset.

Rents are closely correlated to incomes because they have to be: there is no leverage, there is no large down payment, there is no, "Well, if I can't pay it this month I'll pay it next month." There is no such thing as a "rent bubble" because the only way to do that would be to change the 40x income ratio which no one is willing to do because it's too much of a credit risk. It's far more prudent to lower rent to the point where someone can pay it than to rent to someone who can't afford it: the lost income and transaction costs alone for a nonpaying tenant can wipe out your entire income.

So, if rents are correlated to incomes and housing prices are correlated to rent, the only way to get housing prices to increase beyond their natural level is to add leverage to the equation, right? It is, in fact, a simple mathematical problem. Assume income = i, rent = .25i (25% of income), housing prices = 3i (12x annual rent = 12 * .25i), and leverage = l. The only way to make rents equal to property prices is to change leverage:

.25i = 3i * l

You can argue about the specific percentages, but market constraints make them fairly constant: rent is calculated as a function of income (40x monthly rent) as are housing costs for mortgages (28% of total income in housing expenses). The ONLY thing that can change in the long-run is leverage.

The market is way out of balance now because there was a bubble mentality, and an irrational expectation set in that housing prices would go up forever. Well, they can't. I maintain (and this is borne out by studies) that housing prices were in equilibrium in NYC in 2004. Prices have doubled since then, but incomes didn't. They doubled because of loose credit and irrational expectations. Alas, like any party, it must end, and that it is ending is borne out by the facts that Wall Street has collapsed under the weight of this, and market rents indicate that property must fall 50%. That sounds like a lot, but it's only going back to 2005, not to 1969.

Your analysis assumes an increase in population will drive demand. It disregards (as always) the price elasticity of demand, and the ready availability of substitute products, like Queens. (Sorry Queensters, I was born there, too!)

Thus, West81st is correct, except for "there seem to be pockets of opportunity for buyers with ready cash, and pain for owners who need to sell." There are too many variables involved to predict accurately how this will play out, but with so much air in the balloon, it must burst. And banks are forcing it to. If you can't buy it today and rent it out for your gross costs - that is, break even in cash-flow terms, disregarding tax factors, etc.) using the standard 30-year mortgage, then you're overpaying, and would be better off investing your cash someplace where you're not going to lose it. In fact, under your mattress would be safer.

shamrock, curtain calls!

cherrywood, you're assuming that Spunkster has a head.

Again steve, nice "book" theory. Problem is, there are constraints on both sides of that equation that make it, well theory. If you have infinite supply of both rental and purchase properties, equal accessibility to both, similar financial benefits, and equal property types, etc. than this is equation holds true. You have been talking for two weeks about an unconstrained equation that is an impossibility in Manhattan. You can’t make this equation true steve, it sounds sexy but your whole argument is based on perfect (unconstrained) market conditions. All objections made by posters above are (correctly) attempting to add constraints to your equation. You argue each constraint individually but you cannot argue those constraints in relation to your famed equation.

"I maintain (and this is borne out by studies) that housing prices were in equilibrium in NYC in 2004"

A study doesn't make it true steve and I have yet to see proof of this. If it were true, the only thing that tells me is that Manhattan property was extremely under valued and that the run up (or a least a portion of it) was justified. This point that you continue to make actually hurts your argument that prices will fall by 50%. Equilibrium = overwhelming buy signal. You cannot argue that steve.

Actually JuiceMan, yes I can argue what I've been arguing. Listings are now up to 6,902, from 5,113 on December 31. They're up by the hundreds a week recently. Rents are going down, because I've been watching them since 2005, when I started to rent in NYC after I sold in Miami.

What constraint is anyone trying to add that can be quantified? Granite countertops? Nicer neighborhoods? Those are not constraints, because people will pay more to rent them just as they will to buy there (just not as much more).

Here are the constraints that I've been using: rent = 40x annual income, total housing costs = 28% of annual income, leverage = terms of a 30-year fixed mortgage, 20% down, and owners' carrying costs = market rents on a cash-flow basis.

Those are the constraints in the market. Name another.

Juiceman, people can ask any price that they want, but if no one can afford them within those market constraints - which are definitions, not subject to argument - then they won't sell. If you want to buy an apartment to rent out with carrying costs twice rental income on a cash-flow basis, go right ahead! You'll be bleeding for years to come: at an annual 3.5% rate of growth, it will take incomes 20 years to double, which is how long it would take for rents - which are correlated to incomes - to catch up.

The fact is, with the near death of rent stabilization, the advent of market-rent buildings, and condominiums that can be sublet, the property market in Manhattan is far more liquid than it was during the last major downturn.

You say:

1) "if you have infinite supply of both rental and purchase properties. You don't need an infinite supply because there's never an infinite supply of anything. You need a supply sufficient to meet demand, which given the increasing number of listings and the large number of rental listings with falling prices, seems to exist.

2) "equal accessibility to both." In fact, in any market, rentals are more accessible than purchases because you don't need to provide a down payment. And never mind trying to get into a co-op.

3) "similar financial benefits." The financial benefits are, in fact, identical, as I've repeatedly said. It's called "imputed rent," and you should really, really study it and its implications because it drives all economic policy. You and spunky seem to be the only ones who haven't understood it yet.

4) "and equal property types." Here we go again. The property types are equal. Go to any Related Rental, Archstone rental, Rockrose rental, any of the big rental companies. Search online here for people subletting their condos. How could you POSSIBLY argue that renting in Chelsea Stratus is any different from buying there? That's just absurd. And the fact is that the bulk of the rental market is comprised of brand-new buildings, and having lived in a 1962 co-op with wooden joists and a 2003 steel and concrete building, I can tell you very quickly which one I prefer.

Then your conclusion: "then this is equation holds true."

Well, my friend, it seems to hold true, unless you can show me where it isn't.

As I said, buy right now at these rates and then rent your unit out at half your carrying costs. Seems like a brilliant investment strategy to me!

You are an economist of convienece steve.

I don't have five hours to debate this with you today, so just asnwer this simple question. Is equilibrium an overwhelming buy signal? Why or why not?

Is equilibrium and overwhelming buy signal? It depends. For residential property, to buy, I wouldn't necessarily wait that long as long as you have a long-term horizon. However, 20 years for rents to catch up to prices in a falling income and rent environment seems to me to be excessive risk.

To buy investment property? First, I would never buy investment property because I think it's a horrible investment that takes a lot of time to manage and has a very high risk of bad tenants who don't pay or trash the place, and it's very illiquid which means that if you can't rent it for whatever reason you could lose it quickly, or if you can't rent it to cover your cash flows, you'll lose it slowly.

Just one man's opinion, but I prefer liquid assets for investments. A click of the button, and they're gone.

"An economist of convenience"? What in heaven's name is that? I simply must understand the fundamentals of any asset before buying into it. Apparently, not everybody has that same requirement.

Ok. Thanks. So if people won't wait for equilibrium (investors won't either), they will probably buy at some point before prices decrease by the 50% you are predicting?

I think it will depend on what the job market is at the time, and how the deflation actually occurs, neither of which can I (or anyone) predict accurately.

I didn't say "people won't wait." I said I won't wait. Often, the correction overshoots, so prices might have to fall more than that to change the psychology.

But I simply don't know. All I know is that the market is severely out of balance by any metric, and that it will correct here as it is correcting everywhere. I also know that for most people that won't matter, because they either bought long ago or don't have to liquidate. Only the people who bought in at the very top, or those who purchased a product they can't afford, or who bought to rent and can't cover their expenses, or who bought to flip and can't or who lose their jobs, need to worry. How many people are there in that category? Well, since prices doubled since 2004, there's probably a lot.

Interesting how stevejhx mixes some and statistics factual numbers that give his arguments some sense of credibility than mixes them with garbage numbers to prove his point. Only a moron would take his arguments at face value.
BTW-I'm sure the majority of renters in Manhattan are going to agree with you steve when it's time to renew their lease they will enjoy lower monthly rental payments.

spunky, which are which? which are "statistics factual numbers" that give my arguments some sense of credibility, and which are "garbage numbers" to prove my point?

I've yet to see any of your numbers or anything. Sorry you're stuck with properties you can't sell. So I'd say, only a moron would listen to you at all since you contribute nothing but insults and insuation.

Lower rent payments are easy. If they want to raise my rent to $4,700 and I show them that it's $3,700 across the street, they will. Remember, there's lots of product out there, and very few takers right now. And if I leave, they lose not only somebody who always pays his rent on time, they have an apartment potentially vacant for a long time and they're not going to get any more than what it costs across the street, anyway. And they might wind up renting to somebody who doesn't pay, whereas I have a history.

Right now, Spunkster, it's a real buyers' market, and it will be for a very long time to come. People with money are just waiting on the sidelines. JuiceMan is right, we will pounce, just not until the moment is ripe.

50% later.

Then move across the street.. You get to pay moving fees, application fees, credit and background fees as well. Stick that on the 3,700 which by the way won't be available come May.

application fees, credit and background fees are a few hundred dollars. Moving fees have to be paid when you buy, too, but if you pack yourself it costs a few thousand dollars at most.

And don't even have to move across the street. Since this building will be charging what the building across the street charges, I'll just switch apartments here.

A no-brainer that, Spunkster. You should have known!

And I'm talking December 1, not May.

Spunky why are you so angry with stevejhx? I agree with both of you. I've been looking to upgrade from a studio (I purchased recently) to a one bedroom under $650k but sellers are not accepting lower offers....It's a statemate and we have to wait who will blink. Until then both of you are right we just don't know yet.

julia, just be patient, time is on your side. When rents = carrying costs on a cash-flow basis (not counting tax and other deductions) using a 30% fixed mortgage, 20% down, then things will be back in equilibrium. We're 50% away from that, though.

Spunkster is made because this real-estate market is a Ponzi scheme and he's trying to offload his properties at top dollar but the time for that is gone. I put up real figures to prove it, he's a bull shouting, well, bullsh*t.

Spunky and Juice. Steve has laid out, ad nauseum,his macro economic theory as to why Manhattan real estate will drop 50% in value over some unspecified time frame. Let me give an incomplete list of questions/statements that Steve has not responded to:

1) When in the last 50 years, over any time frame, has Manhattan real estate gone down 50% in Nominal value?
2) Steve keeps saying that there will no longer be 5/1, 7/ interest only or 1 month, six month, one year libor available. That is false. You will need to put down 20%, but those products are not going anyway. Steve refers to proposed reforms, which should be ignored until they actually are in place and impact the market.
3) What appreciation, if any, has Manhattan real estate enjoyed from 2004 today? If you disagree with the amount of appreciation, is any appreciation present?
4) Money paid in rent is money that could be used for a down payment. Should that be considered for someone who definitely plans to live in a unit for say 15 years, but is waiting for a bottom?
5) Is it possible that inflation and salary raises will lower the gap in Steve's proposed overvalued apartment model?
6) Is there any inherent value in owning, beyond the economics that may motivate someone to own rather then rent? If so, what are they and how can you value them?
7) Have the fundamentals of Manhattan changed, thereby making it attractive to foreigners, retiring baby boomers, tourisits, etc., or is it simply a place where only those who work here live here?
8) How will your model change if say, bank spreads narrow, Fed lowers rate to 1.5% and credit market stabilize?
9) Is what will drive down values in Manhattan a byproduct of not enough buyers that can afford, or too many subprime mortgages resetting I say the latter is a non-issue for most of Manhattan?
Obviously, Steve can choses not to address these points, but even if he does not, I think they are valuable questions to reflect on before accepting an economic theory lock, stock and barrel.

Also.

10) Why, in 2006, in the midst of a booming Wall Street and easy money, did Manhattan inventory swell to 7,800 units, only to be absorbed by half a year later? Shouldn't inventory today exceed that of 2006, given the economic climate?

stevejhx-give it a rest already. what are you trying to prove.

mh23, I try to respond to everything.

1) First, that's irrelevant, and second, because there were no condominiums in NY before 1964, and co-op sales were not recorded until this year, there are no accurate data.

Third, until the last ten years or so most rental property in Manhattan was stabilized or controlled, and there were no "market rentals." Therefore such data there would be skewed.

Fourth, my point is that incomes and rents and property prices do not remain out of balance for long. They never have, they never will, because they can't because of the 40x rent, 28% housing cost ratio. The only thing - long-term - that can affect housing prices would be a change in the structure of the market - which we've seen, as above - and leverage, which is what we have seen in the past few years.

Is that good enough? (And I've answered it before.)

2) It is false that they have been eliminated entirely, it is true that they have been severely restricted. And it is also true that there will be much tighter regulation in the future.

Unless you agree that credit is as easy today as it was in July, in which case you will be alone.

I've answered this before.

3) 100% by my calculations, which no one has refuted. I've answered this before.

4) No. Imputed rent = market rent is a DEFINITION. You really need to understand that definitions DEFINE things. The theory of imputation states that things are not valued by the work that goes into them (Adam Smith) but rather by the value that comes out of them.

The ECONOMIC value of buying a property is the value of what it would cost to rent it. Therefore, it makes no difference if you rent for 15 years or are an owner-occupier for 15 years. The economic result is the same.

If you don't believe me, as the Federal Reserve. This is so true that inflation is measured as market rents not asset costs or owners' carrying costs. Until 2000, since the values were the same, it was an accurate measure of inflation. It has not been since 2000.

I've answered that already.

5) Inflation will affect nominal prices, not real values. However, we are currently experiencing rent deflation.

The ONLY thing that can cause a REAL increase in property values is a real increase in incomes because they are nearly perfectly correlated. When property prices increase because of leverage, the same basic ratios apply, just money got cheaper or risk got higher. But you cannot continue to increase leverage forever.

I've answered that already.

6) There is no inherent value in owning, no. As many reasons as you can think to own, you can think to rent, and they're all the same: the only value in owning is not renting. Some people prefer to own, some to rent, some people like marble countertops, some don't mind Formica. They're individual decisions which as a whole always behave in the same way.

I've answered that already.

7) The fundamentals of Manhattan have indeed changed over time, but that's not what makes overall prices rise. What makes overall prices rise is increased income, which is what has happened.

If you've never noticed, as a general rule wealthier people live in wealthier neighborhood, and wealthier neighborhoods are nicer. But if a person doesn't make enough money to live there, then he can't live there.

Regarding foreigners, if you hadn't noticed the market in Ireland, UK, Spain is collapsing. There was never a boom in most other countries, and certainly not Switzerland, where almost everyone rents.

Retirees may in fact prefer to live in Manhattan, and they can, if they can afford it.

I've answered that.

8) The model doesn't change based on the Fed's actions because the interest rate used for the calculation is the 30-year fixed rate, which is not directly affected by the Fed.

Even if the credit markets stabilize, which they will, the lesson has been learned: either through regulation or self-restraint we are never ever going to see this much leverage in the housing market again. It's imprudent. No one will ever take this risk again.

I've said that already.

9) What will drive values down in Manhattan is reduced income and reduced leverage. There are not many subprime mortgages in Manhattan, but as many as 65% of jumbo mortgages are ARM's. ARM's are usually (though not always) set to short-term rates. If they remain low - and I doubt they will for long - then resets aren't a problem. But if income goes down and stays down - as seems likely on Wall Street - then there will be no recovery in rents, and anyone who bought an investment property and can't meet the payments will have to sell, causing a vicious cycle. I don't know exactly how it will play out.

I've answered that already.

10) I don't know when in 2006 that happened, nor why. Had you asked me 2 years ago maybe I would have known, but I don't. Rents, however, were increasing in 2006, whereas now they're decreasing.

Just FYI, we don't know the full inventory today, because most new developments don't release inventory all at once. Giving all the building going on, I suspect it's far higher than anyone knows.

I've already answered all of these questions. I don't care if you "accept an economic theory lock, stock and barrel." That's how it works, it's inescapable, whether you or spunk or juiceman or anyone believes it or not.

Prices will come down.

Rest assure if stevejhx wanted to he can prove Mahattan RE has already gone down 20-50% He'll demonstrate this with his silly examples and figures. He also can prove that over the past several years rentals in NY have dropped at least 10-25% and will show in some cases they have come down even more. Trust me mh3 he can even illustrate that property values in Manhattan have been actually on a steady decline since November of 2001 by at least 10 to 50%.
No matter what the actual figures are stevejhx is working with a different set of figures. These figures are his own home made recipe consisting of a pinch of facts here and there combined with a gallon of fiction. Not sure why he's spends all his time on the board but I have a hunch he thinks if he keeps posting here he'll get prices and rents down by 95%.Remember, in his own mind he believes they have dropped by 50% so we have 45% to go. Even though I find him entertaining and comical I do feel sorry for him. I really do.

jmcbyr8, if you don't like it, don't read it. I'm answering questions and challenges.

yes, spunky, we've all heard you say the same thing over and over again.

I cannot prove any of the things you said: if I could, I would be a buyer. I told you where I got the figures from.

"Remember, in his own mind he believes they have dropped by 50% so we have 45% to go."

What? Wow! What a nutcase you are, spunkster!

Sorry you're going to get caught as the last man in this Ponzi scheme. Just don't jump off a bridge when you file for bankruptcy, k?!

stevejhx- 90% of the comments on this board is from you. are you being paid for your efforts....

What? Wow! What a nutcase you are, spunkster!

Talking about the pot calling the kettle black.

jmcbyr8, I'm not getting paid to do anything. Sometimes I do consecutive posts so I can read it better, but only half the post are mine. But it's my thread, so I feel loyal to it, at least until I finish this damned boring job I'm working on and (with luck) take tomorrow off.

And despite all the posts I make, people still say, "Let me give an incomplete list of questions/statements that Steve has not responded to."

Even though I already had! :0

"Rents in Manhattan have and will continue to collapse it's a fact. Saw a one bedroom in the West Village that is asking 1500 but last year it rented for 4500. What more proof do you need" --Stevejhx type of comment.So It Shall Be Written, So It Shall be done

There was a posting for a 2 Bedroom in Manhattan for 1.8 mil in 2007. Same apt is now being sold for 950k.
--Stevejhx-So It Shall Be Written, So It Shall be done

This is how I see things playing out.. this is just my opinion... nothing more, nothing less..

April-July 2008 -- Buyers and sellers wary.. a lot of price flatness and sitting on the sidelines.. inventories grow

August-October -- Sellers start to drop prices, 5-10%, depending on location, etc.

September-November Buyers start buying again, inventory drops back

December-January 2009 -- Seasonal lull, slight increase in inventory, slight additional drop in prices (1-3%)

Feb-April 2009 -- Economy recovers, Wall Streeters with (perhaps diminished) bonuses feel more confidence in spending bonuses.. inventory drops more.. prices start gradual climb

Maybe I'm nuts but I think that's the way it is going to play out. So my thinking is, no great risk in buying now, but sit tight for some modest short term depreciation.

It's 15 minutes has since expired and stevejhx has not responded. I hope his pogo stick didn't break down while he was on his way to the local drug store to get his prescription meds.

So, for question

1) The answer is never. You have reasons why it never has, but all the same, your prediction, if true, will be a first for Manhattan real estate.

2) They have not been eliminated, and regulations are still at the proposal stage, and therefor are not impacting the current market. I agree that credit standards are tighter, however, coops have had, and will continue to have, tighter standards than banks. Their values have gone up as well. I know, I know, all of the potential buyers' incomes are down.

3) There are been zero appreciation since 2004. All of it is a bubble. I appreciate your clear response. I disagree. If prices today were as low as 20% higher than in 04, there would be nothing but bidding wars. A 2600 square foot three bedroom with out door space in Tribeca, would be overpriced at 2.4 (20% above 04 prices). I disagree.

4) I am not arguing that renting has a certain appeal to certain buyers that would warrant a premium for renting. An extreme example of this are hotel rates, or 1 month rentals in the Hamptons, they are pricey because of their short duration. I am simply saying that there are similar intangibles to owning. No need to list them again.

5) What if the properties are bought by people from around the world whose incomes are not tied to Wall Street. Not a large segment, but one nonethless. If it all comes down to income, what if 30 mortgages were going for 2.5%. People with the same income from say 04 could buy more house today. I get your income argument, but you are over emphasizing it.

6) I disagree.

7) You are making my argument for me.

8) You are purely speculating. That is not a factual argument but an opinion.

9) I am not sure what you are arguing here. You have a number of assumptions, but your assumptions may well prove false.

10) Go to Miller Samuel and you can get JM's take on why this happened. To summarize, people were waiting for a bottom that did not happen, and then they jumped back in for higher prices.

oh, mh23! You are so funny!

1) So what if it's a first?

2) Have you checked the bare-naked rates for jumbo mortgages? I suggest you go to e-loan.com and take a gander at the interest rates being asked on a zero-point loan (which represents the real cost of the loan). They are about:

1-year variable = 10.75%
3-year variable = 9.625%
5-year variable = 8.625%
30-year fixed = 10.75%

Go check yourself.

3) What? Nominal prices have doubled since 1994, to make it clear. See the opening post on this thread.

4) What?

5) Perfectly possible. Quantify it, because I can't. There is no way to "overemphasize" income. Without it you can't buy things.

6) You can't "disagree" with an economic principle. If you do, you are bound to suffer tremendous losses.

7) No I'm not. All that changes in any particular neighborhood is the people who live there, not the 40x income / 28% housing expenses changes. If all the rich people moved to Bushwick and all the poor people moved to Tribeca, the only difference would be where they lived, not the overall cost of property in NYC.

Sorry, mh23, but I'm restraining myself from making a personal comment.

8) Yet again I'm biting my tongue, but dealing with ignorance is not easy. Long-term market rates determine long-term interest rates. The Fed does not control long-term interest rates.

9) My assumptions are not false. The endpoint is defined. Just the path to get there is as yet unknown.

10) That is pure speculation.

Look at the interest rates, mh23. Calculate them into your $2000 psf model and tell me what your monthly payments will come out to be, and who will afford them.

I'm sorry to see you so uninformed about economics; it doesn't bode well for your future. I do hope that you sold your other properties before buying in Bergen County.

That's a $1 million loan, BTW. The don't lend to co-ops.

Boy am I tired. Nominal prices have doubled since 2004.

Steve. I may not agree with you, but I appreciate your comprehensive responses, and I am not being sarcastic.

Neither am I, tough I am exhausted from doing a tediously repetitive translation about an oil spill in Panama, and I haven't eaten today.

Just take a look at the market rates being asked for $1 million mortgages. It is now officially not possible to afford a luxury apartment. Co-op loans are falling by the wayside, as well.

What is with all of the discussion on Jumbo ARMS. I thought the whole point of the bull argument was that Manhattan was different and co-op boards didn't not let people take unusual financing.

I am not bond or currency trader or investor. And I don't presume to no what interest rates will do. But if you are paying a lower ineterest rate to have an ARM even a seven year one. You are taking a certain amount of interest rate risk.

How prevalent are ARMs in Manhattan? when will they reset? Will the people who took them out be able to refinance at an affordable rate/ payment?

And most importantly won't co-op boards stop allowing new purchasers to take out this financing going forward after everything they have been reading about in the rest of the country?

Pez, that's mh23's argument - you can take out a cheap arm. But they're not cheap anymore, that was my point.

In fact, banks are stopping making co-op loans, so it's kind of immaterial.

Yes you are taking an interest rate risk, ARM's appear to be 65% of the market, probably not for a few years and right now there is no affordable rate. We just don't know what will happen in the future.

Fortunately, condominiums are the new norm in Manhattan. (I hate co-ops.) But there is no financing. The market is dead.

Steve. You bring up an interesting point. If financing for coops become more and more difficult, will that make condos more desirable, and push their prices up. I recognize that you think prices are going to fall, but I am thinking about a few years out.

mh23, co-ops are dinosaurs in NYC. No one has built one here since the failures of the 80's. Everywhere else in the world has condos so I don't see the thing that, "Well, only owners live here!"

Yeah, and only nutcases are on the board. I want what's mine, and a condominium is mine. I do own a co-op on Fire Island because there are no condos, and yes - we have no underlying mortgage so now they wan to take out a $5 million dollar one to change all the windows and doors.

They are nuts.

Condos already carry a hefty market premium. I don't think The Donald ever built a co-op, and as obnoxious as he is, he's not that dumb.

mh23, you are wasting your time. Everything in steve's world goes down. There is no market balance or common sense.

mh23. How do you know that is not what has already happened? There has been a great demand for Condo's both because of the quality of the recent builds and because financing and building approval are much easier as compared to co-ops. (More buyer and better supply). This has created a valid rise in Condo prices. However co-ops have tagged along with corresponding increases their prices. The number of condo sales approximated the number of co-op sales in the fourth quarter even though the total number of co-ops is more than twice that of condos.

stevejhx the world is not that negative unless you want it to be. give it a rest

jmcbyr8, sorry you don't like the truth, and want to believe that things will keep on going up and up and up forever.

I am not negative on anything but housing (and banking, but I'm not in that market). I finished work at 9 pm last night thinking, "Oh! My first real day off since December," only to find work had piled in from California overnight. I've never been so busy at the beginning of the year, ever. And while some of it is bankruptcy stuff, not a lot is. Emerging markets are doing fine (though not their markets - a function of ours), we're at a stock market bottom, things are cooling down in the world like they should be. But housing sucks, it's way overpriced, and it has to come down here like it has everywhere else.

Unless you're one of those "Manhattan is Special" believers, in which case, close your eyes, tap your heels together three times, and say, "God I hope the market doesn't crash."

This says it all:

http://www.bloomberg.com/apps/news?pid=20601109&sid=ahgWx1z6LFxE&refer=home

New York City Real Estate Market Slows as Wall Street Cuts Jobs

By Sharon L. Lynch

March 31 (Bloomberg) -- New York City's residential real estate market is showing the first signs of fallout as U.S. banks and securities firms cut the most jobs in seven years.

Manhattan apartment sales fell in January and February from a year earlier and new properties came to the market at the fastest pace since at least 2000, according to data from New York-based real estate appraiser Miller Samuel Inc. Transactions slid 6.4 percent to 3,250, while the number of condominiums, co- operatives and townhouses for sale at the end of last month climbed to 6,225, 15 percent more than at the start of the year.

wait...what horrible comment did i make steve? i forgot? the one where i grabbed onto the puuppet joke?

i guess it wasn't so bad..the report abuse police never dragged me out of my office.

This thread has been disproven over the past 3 months.

Shame

Duhh.. that's because Manhattan real estate never does down right?

It's the foreigners silly!!!

No, M&Mafia, it's not the foreigners; it's the Martians.

Martian soil **could** sustain life. So those hypothetical microbes may just evolve into condo-snatchers and invade. Seriously, when we're in the midst of bad news and arrows pointing down, it feels as though it will continue. What none of us knows is when things will turn aound, or where. The mortgage mess blew up and now financial institutions are laying off. Nothing like this has happened. But that doesn't mean that what is happening is the worst that ever happened, or that we can look backwards and see the future couple of years. For all we know, the economy could bounce back late this year and banks could be rehiring.

And yes, there are ways to make money in this RE market. When the #s are right.... buy! Problem is, the reason #s crash is that there is no one left standing with cash. I don't see that happening.

Banks rehiring this year! I don't think so. Even a blind man see that.

What does it mean to be overpriced? People are buying, and at record prices in prime parts of Manhattan.

The upward trend may not be as steep as before, but upward trend still.

looking to activity in "prime part" of manhattan as representative of market conditions may be misleading. Prime areas can be the last and least affected. Marginal and mediocre areas and apartments that come with serious compromises (poor/obstructed views, awkward layouts, not-so-great buildings, bad locations) are absolutely NOT breaking any records lately. They are sitting longer, cutting prices more often and slipping in price points back to levels of 2007 or 2006. No major shifts yet, but such apartments priced as if the market never cooled are simply not selling.

This is an interesting thread from months ago!

Where's DaBulls?

Steve, DaBulls is probably trying to negotiate new mortgage terms with his bank before they foreclose.

stevejhx - serious question here - what is it that draws you to Streeteasy? From what I can tell, you really are not inclined to buy at all. What's the pull then?

I'll buy - when prices are right.

And it's fun to read things like this: "For all we know, the economy could bounce back late this year and banks could be rehiring."