Are we a rental bubble in Manhattan?

hope so. i'm definitely not low income and i'm having trouble seeing my rents keep going up.

kevo, u have opened a can of worm .. watch them crawl out in 3 ... 2 ...

can of worm?

Is it a bubble? Or just a temporary rise due to folks not wanting to buy?

btw, can a rental good be in a bubble anyway? You can't really bank on appreciation when you rent.

> You can't really bank on appreciation when you rent.

not in terms of appreciation but in terms of the "parabolic" rise maybe

hb, can of worm ?

plenty of posters will say it isn't a bubble and then we'll get into another one of those mudslinging debate of rent vs buy vs sell ... a can of worm

can of worm?

mmmm, worm. aboutready, would you like to share a can with me?

Childrens, you learned about it in Junior High School:

http://en.wikipedia.org/wiki/Diet_of_worms

It has something to do with Wartburg Castle ... a relation, perhaps?

alanhart, a relation? of whom?

thankfully i've blocked all detailed memories of junior high school. as all moderately (or better) functioning adults ought.

hb, no, i would not share my can of worms with you. but you are growing on me, kind of like a mold. i just hope you're not the toxic sort.

>Is it a bubble? Or just a temporary rise due to folks not wanting to buy?

Temporary rise due to folks not wanting to buy would imply that buyers are coming back soon...and the catalysts of that would be? The lower mortgage rates, because rates are pretty high now. Nice pops in manhattan incomes, wall street hiring is just about to kick in, dont believe the press..all that layoff info is incorrect.
So..is this a temporary rise in rental rates or a bubble?

"because rates are pretty high now. Nice pops in manhattan incomes, wall street hiring is just about to kick in, dont believe the press..all that layoff info is incorrect. "

????

Stop giving your money to the landlord.

Can't afford to buy? You can't afford NOT to buy.

Why rent when you can own?

> ????

Exactly - I say this bc I do not see a catalyst on the near-term horizon for any real wholesale buying. I was being faceitous of course..

I say this bc I have an apt for sale that's in contract that has a decent amt of equity - say deep into the 6 figures +48% from purchase price. A very rentable condo that I could rent out and make about $500/mo positive cash flow. If I kept the place for 10+ years, I may make a return over the years considering the mortgage paydown and some mortgage interest and RE tax benefits but since I would be a passive investor as well as ATM, I wouldn't benefit much from tax writeoffs. I would probably have a better return investing the equity in a combination of a REIT and high dividend multinationals if I still wanted RE exposure without the headache of 1-2 months of vacancies every year or two. Let alone the potential for one bad renter.

I ask those out there..is this a good call. Sell and take the chips off the table or keep it and rent it out for quite some time bc I am under no impression that its going to go up 10+ % per year over the next 3.

Thoughts?

I agree

kevo,

it's a rent bubble! i will get tons of hate posts telling me i'm a rent-loser .. k, and your point is ? what u stated, WS going through another belt-tightening cycle and how does that help the demand side of the equation ? it doesn't. when WS tightens the belt, lay-offs follow. when lay-offs follow, vacancy increase. when vacancy increase, rents fall. it has nothing to do with renters waiting to buy. yes, of course there is a portion of the renter population in that category but when you are out of a job, you have just taken yourself out of 2 pools of 1) potential renter! or 2) potential buyer! and both pools won't help rent increase.

btw, you will hear that WS hiring is UP! Nice way to "hide" the fact that senior level positions are getting chop while entry level positions are getting filled. At the end of the day, senior level position employees can afford to buy and pay high rent, junior level position will be living in the outer boroughs ...

* [Goldman announced new cost cuts, but it was already reducing expenditures. The bank previously planned to cut annual costs by $1.4 billion, a figure it has now increased to $1.9 billion. Operating expenses fell 8 percent in the second quarter.

Goldman cut 100 employees from its payroll last quarter, and has cut staff in five of the past six quarters. The bank had 32,300 employees at the end of the second quarter, 10 percent fewer than it had at the end of 2010.

The bank said it plans to cut senior positions, but it still plans to hire junior employees through channels such as regular campus recruiting, meaning overall headcount may increase by the end of the year, Viniar said.]

http://articles.chicagotribune.com/2012-07-17/business/sns-rt-us-goldman-resultsbre86g0fv-20120717_1_david-viniar-goldman-private-bank

Str33 and Books - seems as if you share my gut check. 8 out of 9 ppl I speak with (not as plugged in to manhattan as you 2) say I'm crazy to sell, I should keep it and rent it out forever, manhattan rents will always go up and the apt will always increase in value. We all know, nothing is forever and of course I lose the primary residence tax free status if rented out > 3yrs. Decent amt of chips on the table but I am on here, honestly bc I have had second doubts.
Reminds me of when cab drivers and shoe shine guys were talking about internet stocks in 2000.

I know someone who moved out of town, and rented out his condo. The tenants lost their jobs (or something), stopped paying rent, and finally my friend had to forgive their unpaid rent and actually GIVE them additional money to move out ... just so he could sell his condo at that point. Because both sides knew how protracted an eviction in NYC would have been.

Rent it out forever ... hohoho!

The "rent bubble" thing is a little overblown. Sure vacancies may be down, and rents may be up in certain parts of the city. It is not city wide, and rents are still below 07' 08' levels. Look unemployement in the city is ~10%. Finding a good long, term tenet can be challenging.
Don't believe all the hype. Also being a landlord can be like having a second job, that doesn't pay well. It is also risky.

alan, I saw that movie, with Michael Keaton. Creepy.

Jeez the economy is bad when the factory is limiting production to one worm per can.

>Reminds me of when cab drivers and shoe shine guys were talking about internet stocks in 2000.

Really? the shoe shine guys? Sounds like a tale from 1929.

> I know someone who moved out of town, and rented out his condo. The tenants lost their jobs (or something), stopped paying rent, and finally my friend had to forgive their unpaid rent and actually GIVE them additional money to move out ... just so he could sell his condo at that point. Because both sides knew how protracted an eviction in NYC would have been.

> Also being a landlord can be like having a second job, that doesn't pay well. It is also risky.

Exactly. NY is very tenant "friendly."

Kevo, it sounds like you bought in late 2002 or early 2003? You rode a bubble nicely, would have been best to dump it somewhere 2006 - 2008.

You've got an asset where you're making $6000 a year positive cash flow, but that's with a purchase price that was a third lower than today. What would the cash-flow look like if you purchased today, what would the return on equity be? And what sort of rate of increase would you expect on that cash flow?

Manhattan prices are bouyed by a variety of factors: wealthy RE holders who can handle negative carry indefinitely, lowered interest rates, govt support of banks, etc. I personally think we're in for a decade of meandering in terms of prices, barring some sort of shock. People who are buying these days and running numbera seem to have calculations that, after tax benefits and rosy assumption, they are getting a 3% return on their equity for an illiquid investment, and that's OK.

You've had a good run, what are you waiting for?

If we were in a rental bubble there would be a massive building of rental properties with new players entering this field. While interest is up, there's nothing that would be described as a mania.

RS - that comes next, no?

> If we were in a rental bubble there would be a massive building of rental properties with new players entering this field. While interest is up, there's nothing that would be described as a mania.

RS, just on the UWS you have the Aldyn, Ashley, Aire and The Corner all within the confine of north of W57, west of Broadway and South of W72nd ? All around the city, there are more lux rental than lux condo ?

I think we're using the word "bubble" too liberally as brooks2 mention. Let's call it rent exuberance ? Rent rising but NYC economy is not especially after seeing some of the numbers from GS, BAC, JPM and MS re: compensation and revenue ? That's the disconnect that many have put forth in this "rental bubble" argument.

One developer basically...So?

> One developer basically...So?

So ? Where are they gonna build ? Knock down the Ansonia ? LOL! In other words, RS, the lack of "new entrance" is not a sufficient condition to say there isn't a "rent exuberance"

However, given the NYC economy and what the banks' are reporting these days, there is a sufficient condition to say there is "rent exuberance."

Rents are going up and up (5-15% 1 year renewals in my buildings).

It does not matter if jobs are not paying more, the demand still grows and the supply is still constrained. This is NYC, there are enough people looking at every price point still. TenantX might have to downsize if his/her pay has not gone up, but the market value of the apartment has risen, and someone else will come along and fill it. Quickly too, and for more than you were offering the renewal for.

Thats the X factor on Manhattan RE..unless we get another Lehamn type event where evrything gets crushed, the demand will always outsrip supply in manhattan. even if we get another Lehman, then its just another dip to try and take advantage of.

> It does not matter if jobs are not paying more, the demand still grows and the supply is still constrained. This is NYC, there are enough people looking at every price point still. TenantX might have to downsize if his/her pay has not gone up, but the market value of the apartment has risen, and someone else will come along and fill it. Quickly too, and for more than you were offering the renewal for.

we shall see if your statement holds water down the road .. i suspect it won't but right now it's a he says she says argument ... give it a bit of time ... when reality sets in

Don't forget to factor in that 1/2 of the apartments are "protected" constraining the supply even more

> Don't forget to factor in that 1/2 of the apartments are "protected" constraining the supply even more

Can to be more enlightening ? protected from what ? rain and snow ? LOL!

Care to be more enlightening ?

I can see studios and one bedroom walk ups catching a stronger bid.. but the better apartments in higher end apartments will stay the same or compress(go lower). Face it, incomes are down, job security is down. Economic fear is up. You still have to quality to rent. If you don't have a good job making some good coin or have momy or daddy as a guarantor, you won't qualify. Bottom line

it's an RE bubble, all illegals, losers, foreign corrupted millionairs flock to NYC, how can the RE drop?

[The golden age of being a banker is so far in the past. After a brutal year of massive layoffs in the global financial industry last year, the axe is starting to fall again.

As of June 30, the six largest U.S. financial firms by assets had cut over 18,000 jobs in the past year, or 1.6 percent of the total, according to an analysis by The Wall Street Journal.

Bank of America Corp (NYSE: BAC), Citigroup Inc. (NYSE: C), Wells Fargo & Company (NYSE: WFC), Goldman Sachs Group, Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS) together have eliminated over 30,000 positions since June 2011.

Morgan Stanley -- The sixth-largest U.S. bank by assets said during a conference call with analysts that the securities firm's headcount at year-end will fall 7 percent from 2011,

Credit Suisse -- The Swiss bank which is have a particularly rough time lately, is handing out pink slips to another 138 employees in the New York region starting in August, the third round of layoffs it has made this year.

Deutsche Bank -- German daily Handelsblatt reported Thursday that Deutsche Bank will announce plans to cut around 1,000 jobs with its quarterly earnings report July 31]

http://www.ibtimes.com/articles/365193/20120720/bank-cut-job-layoff-bac-jpm-wfc.htm

> it's an RE bubble, all illegals, losers, foreign corrupted millionairs flock to NYC, how can the RE drop?

from exhaustion ... all the buyers you cited above, i.e., cash buyers, can't single-handedly support the entire NYC RE market ... if you think they can .. then i have a bridge i like to sell to you

Protected by: Rent regulations

> Protected by: Rent regulations

huh ? u mean rent control ? are you sure it's HALF ?

RS/RC/IMD.....

According to the 2008 NYC Housing and Vacancy Survey, of occupied apartments, approximately 59% of rental apartments in the Bronx; 42% of apartments in Brooklyn; 51% of Manhattan apartments; 47% of Queens apartments; and 16% of Staten Island apartments are rent stabilized.
(http://www.housingnyc.com/html/guide/stabilized.html)

>Sell and take the chips off the table or keep it and rent it out for quite some time bc I am under no impression that its going to go up 10 % per year over the next 3.

One more thing to consider in your decision making process. Possible fallout from no renewal of Bush tax cuts on the over 250K crowd. If you do decide to sell you may want to before december and avoid the risk.

Taxes, Interest rates, herpes, katie/Tom divorce, who cares. Nutin stops re from going up libor plus 800 bps/yr. just ask your friendly neighborhood re Borker.

MAV, thanks. I wonder if that # is still accurate in 2012 ?

> If you do decide to sell you may want to before december and avoid the risk.

agree, it's that "Mansion Cliff" video from cnbc ..

Rent up, so much cheaper to own!
Rent down, so much cheaper to own!
Rent is evil! Owning is holy!
Katie cheaper to rent!

MAV- you forgot the other 170,000 HUD units in the city. Many in CHELSEA or the UWS.

Unless you're referring to HUD vouchers, which are not particularly concentrated in Chelsea or the UWS, I'm not aware of any HUD units/buildings at all in those neighborhoods. Please provide examples.

> Unless you're referring to HUD vouchers, which are not particularly concentrated in Chelsea or the UWS, I'm not aware of any HUD units/buildings at all in those neighborhoods. Please provide examples.

Just trust me .. it's 170K or 17K or 1.7K .. one of those ... 170K sounds better b/c it constraint supply to the point that only HUD units will be left for rent ... too funny