Housing deflation forecast in NY

Mark Zandi of Moody's says NYC real estate is 11% overpriced.

Note, however, that they are still predicting over 5% appreciation for Manhattan.

I saw that statement, but it is highly qualified. For the lazy, here's the full para, to give better context:

"Manhattan apartment prices are in perilous shape, having tripled in the past decade. The Big Apple could take a “Big Fall” in housing values. For now we’ll stick with our forecast of just 5.2% appreciation for the year in average values. But market indicators are pointing to increasing deflation."

Isn't there some saying that economists have predicted 10 of the last 2 recessions? They just seem to be the somber conservative personality type, so they fail to take into account markets, and even manias, that truly drive supply and demand.

I recall seeing the Zandi quote. I believe he was talking NYC-wide, but I could not find the article. At the same time, I am not sure that 11% overpriced is so bad unless your buying as a short term investment, given that any price decreases will be dependent on neighborhoods, building, etc.

Heh, what's up with the new construction of Georgica at E85th and 2nd. Construction halted? Is this Wall Street?? Worse yet would be financing concerns e.g lack of new buyers whether they are US or foreign.

Halted Construction Today = Lower Inventory Tomorrow = Higher Prices

Higher Prices to absorb the empty commercial store fronts that are showing up all over?

No doubt the macro economy is going to pull things down. My point was in the longer run re condo developments halted, etc. I would imagine that inventory will go up a bit the next six months to a year, and median prices will come down a bit (I think quite a bit less than Zandi's 11% but who knows). Because of credit, Wall Street,etc., new construction projects may be halted or not start. While I think things will start ticking upward again by mid-2009, inventory is still going to be rather high because of new projects already in the works for 2009-2010. But a lot of projects that would come online in 2011-2012 won't, just as the economy is going into another period of high growth. At that point, inventory will drop and prices will start rising again significantly.

I am not basing this on any scientific or econometric data. I got a new crystal ball at the flee market today. No need to respond now. Wait till 2012 and then tell me if I am right or wrong.

economists and anaylists are always behind the curve..they love the stock at 80, they love it at 70, they love it even more at 50, but when they warn and profits are down and the stock slumps to 30, they downgrade it. When will people learn to ignore 90% of economists and analysts. Not that they are all wrong, but they are more wrong than right!

urbandigs I am totally shocked at your above post. Is this really you?

Oh, come on, As long as you guys are all bearish nothing is coming down. Its not until everyone is the pool that everyone will get burned, urbandigs included. NOT that I think you're in the pool, urban, I know you're not, but let's face it, too many people out there are bearish right now. We will get a good headfake beartrap, and the market will implode (read: drop 15% and then who knows) from there.

streetview makes an interesting comment I haven't heard before on these boards...I too have been noticing a marked increase in vacant storefronts. I would guess that many landlords jacked rents during the boom driving out the old tenants and either failed to find new takers or found tenants who quickly found they bit off more than they could chew. Columbus Ave in the 70's is riddled with vacancies. Are we the only ones noticing this shift in Manhattan?

kgg $ streetview: You are correct about increased storefront vacancies. I see them all over the place, much more than 6-12 months ago. I suspect that its because businesses can't get the credit for start-up costs. The traditional sources of capital appear to have all shut down. So once a business' lease expires and the landlord jacks-up the rent, that business closes down and no new business can get the capital to take its place. Besides, no business owner wants to risk opening a new venture in the face of a recession. Doesn't make for good 5-year projections on the business plan.

It would be interesting to see data on increased storefront vacancies. There does seem to be an increase, and it reminds me of the last Bush administration when I was living in a different city.

Still, I've lived near 7th and 8th Avenues (between 14th and 25th Sts) the last five years, and there have been frequent empty storefronts, sometimes for relatively extended periods of times. Usually, but not always, new occupants move in eventually. So, I am not sure that there are more, or maybe we're just viewing the ones that exist through the lens of an imminent recession. Or maybe a little bit of both.

Re OP's point, I think the overall economy/WS has already created a slowdown and softness in Manhattan RE. I think that decreases will be relatively small (3-5-7%) and not go on for long, though the market could remain flat and soft for a while, perhaps through 2009. As usual, different neighborhoods and buildings will be impacted differently. Northern Manhattan will be affected most. Other emerging areas, like the Financial District, may also be impacted, though I think that FiDi will surge in 5-7 years. Right now may be a good time for tough negotiation.

Can't say I agree re: storefronts. On Bowery, I noticed a lot of storefront vacancies starting a few years ago - as buildings were refurbished or newly built, the storefronts sat empty. However, in the last 6 months or so, many have been filled - John Varvatos and Morrison Hotel Gallery in the old CGBG, Think Coffee across the street, a Chase, etc. Also, the new Avalon Bowery added even more storefront inventory, but these are already filling up - Blue & Cream and Bowery Wine Company are already open, and I understand there are restaurant committments from Veselka and Daniel Bouloud for a burger joint. To be sure, there are still some empty storefronts in the area, but the number is decreasing.

Also, in my old street (Avenue B) used to have a ton of empty storefronts when I lived there a couple years ago, although when I am back there I notice that many are now filled up - albeit with pizza joints and tattoo shops.

Of course, I am sure this trend varies a lot neighborhood to neighborhood.

I am fascinated by the incredible precision of housingpredictor.com. So Manhattan will appreciate 5.2% vs LIC at -8.8%. Does anyone know what they predicted a year or two ago vs actual outcome? I don't see any discussion on their website of how accurate they have been in the past. Seems like that would be important to know before caring about them at all.

I agree with you lorenzo, their track record would be interesting to get a look at. Kind of like going back and seeing how the talking heads did in predicting elections. Just about never happens. :-)

Evillager - you make a really good point. It could be that our perceptions of closing storefronts is misguided. It really demonstrates how other pychological factors, anxieties can affect our perceptions.

yes spunky..it was me! I stand by my slur!

Yes C is having a very nice comeback. Yield curve nice and steep. Credit crisis easing. Boding well for the stock market. Wouldn't it be ironic if we see all time historic highs in the Dow by the end of the year.Certainly we may experience more pain but as they say no pain no gain.

I've definitely noticed a build up of empty East Village storefronts for a while now (I mentioned it here in a response to aboutready months ago). I needed to walk my dog, so I thought I'd check out the strip of Ave A between E 10th and E 14th Streets. 13 empty storefronts, not counting the Mexican restaurant on the corner of 13th that I just saw will become a Lebanese restaurant, and not counting the old Cock space that is being done over in attractive tile. I did count the Rapture Café, which is going out of business. Also keep in mind that there is very little storefront space at all on A between 11th and 12th.

kgg - i've always wondered about the landlords that jack the rent up. it's interesting to me because sometimes they'll have storefronts that are vacant for 5,6,7 months. the jack-up in rent would obviously have to make up for the lost months of rent. now obviously, it's a straightforward situation in hindsight that they (the landlords) may have made the wrong decision, but beforehand, when thinking of increasing rents, they must be doing some kind of expected value calculation that includes the probability of not filling the store up in the future. i have no point, really. just seems to me that maybe they shouldn't increase the rent? :)

Where is all the "recession" talk, why is Wall Street experiencing higher highs and lower lows. Why are jobless claims dropping, what's with the positive durable goods. Why are earnings coming mostly in line. This was supposed to be the quarter that the credit crisis was going to hit. There was supposed to be a recession!!! What happened!!??........oh ya THE FED got in the way.

sorry higher highs and higher lows

luciato, there was a point, especially as neighborhoods were gentrifying, when landlords of commercial property really could ask double the rent (or more) at renewel time. Obviously, that's when so many lower-profit small businesses moved out and chains, banks and more upscale retailers moved in. I remember when Mikey's Pet Shop had their rent doubled (it might even have tripled) on Ave A btw 10th and 11th. They moved to a smaller shop on 7th btw A and 1st. They asked the landlord if they could stay while he looked for a new tenant. He said no, he had someone lined up already. He didn't, the place was empty for ages after they moved. It's been a series of failed restaurants since. Currently it's empty. Other storefonts have been vacant for well over a year. I used to call 12th and A the Four Corners of the Apocalypse, but 1 space finally rented.

I think the landlords have hit a critical mass with rent. I don't follow commercial real estate, so maybe I shouldn't draw too much of a parallel, but it seems similar to the sellers who refuse to believe that they can't double their money on the co-op they bought in 05. It just sits there. It does seem that some landlords are figuring it out, though. Like an owner who bought an apartment in 95, a long-time landlord will still make a tremendous profit at prices below 07. I hadn't noticed, but evillager mentioned the low-end shops going in on Ave B (though they definitely have some mid-range and even a little higher-end company). An Ave A storefront that had been vacant for ages (not one of the 13 I mentioned) has a new tenant, a fortune teller. The only change to the old, beat exterior was a coat of paint.

steveF, I realize recession is one thing and inflation is another, but both equal economic uncertaintly. I don't see any sign of the public at large being confident in the ecomomy. A quick look at the CNN businees page shows the links "Credit Suisse posts $2.1B loss," "Oil prices drop near $118 a barrel" (that's the drop?!), "Stocks turn lower" (yes, not as low as they have been, but also not nearly as high), "New home sales at 16-year low," "Oil and your food bill" and "Slumping U.S. economy's impact."

So for "balance," I headed over to Fox News, where I found the headlines "New Home Sales Plunge to 16-Year Low," "Stocks Dip Below Flat Line" and "Durable Goods Orders Dip 0.3% in March."

Under Latest News, there were a few positives:

Oil Pullback Helps Airline Stocks - 20 Mins Ago
Drug Stocks Mixed; Bristol-Myers Gains On Earnings, IPO News - 21 Mins Ago
Weekly Jobless Claims Drop 33,000 to 342,000 - 2 Hours 3 Mins Ago

And these negatives:

New-home Sales Plunge 8.5% To 17-year Low In March - 7 Mins Ago
Tech Stocks Post Early Losses - 24 Mins Ago
Motorola Reports $194M Loss in First Quarter - 1 Hour 37 Mins Ago
Credit Suisse Takes $5.3B Writedown Hit - 2 Hours 49 Mins Ago
Wal-Mart Rations Rice, Warns of 'Supply and Demand' Concerns - 3 Hours 12 Mins Ago

Then there was this one. Positive in general, but of course the weak dollar has long been touted as one of the reasons for the high cost of Manhattan RE:

Oil Prices Tumble as Dollar Gains Strength - 2 Hours 44 Mins Ago

Thought those involved in the "storefront vacancy" discussion may find this article interesting (not to mention those who were bashing the east village!)

http://www.nytimes.com/2008/04/30/realestate/commercial/30lower.html

Also - please note that the article confirms that a 1 bed at 188 Ludlow goes for $4,000...this is in the ballpark (perhaps higher) of the after tax costs of a comparable 1 bed in the area. Owning may be 2x the cost of renting in some areas, but not mine.

evillager, I don't think that anyone would argue that a small business who's 10-year lease is expiring isn't going to get hit with a major rent increase. Of course it is. I just think that the number of empty storefronts (I was speaking of a block north of Houston) points to numerous cases of landlords asking too much, whether they can't get someone in in the first place, or they get a string of tenants who fold after a very short run.

tenemental, never said you were arguing that...nor am I arguing with you. Just pointing out that storefront vacancies - as well as change in property prices - can vary widely from bith neighborhood to neighborhood, and in some cases even block to block.

I don't dispute your assessment of vacancies on Ave A near 13th street, and I doubt you would dispute with me that on Bowery from Houston to 5th street, storefronts have been getting filled, and largely with higher-end tenants (Whole Foods, John Varvatos, Morrison Gallery, Chase, Think Coffee, Gemma, Blue & Cream).

evillager, agreed. Things tend to get a bit polarized here (really!?); just making sure I wasn't misunderstood.

Had an espresso once at Think Coffee in GV - REALLY good. Hope they're consistent.

Yeah, they're not bad. Of course, nothing beats 9th st espresso on ave C!

"...On East Houston Street, asking rents on 5,400 square feet of retail space on the ground floor of the Ludlow, a 243-unit luxury rental building are $200 a square foot annually, according to Beth Greenwald of Cushman & Wakefield, the broker marketing the property..."

Of course they're trying to highlight the price, but the real issue is the size - 5400 sqft of retail space on the LES, not exactly the right size for a mom and pop shop. If someone pays them that price, btw, their daily sales will have to be about $25k to make some money. Good luck with that.

re: 9th st espresso: That corner, with the two parks, is one of my favorites. The espresso can be great, but sometimes it's a little - what's the word? - silty, for my tastes. I asked for it long recently; didn't seem to register. It's always nice to support the small shop, though, and (for the latte lovers out there) they will steam a flower into your cappuccino...

Esperanto has pretty good food - not great, not bad - but again, that corner... Sitting outside on a nice day you have huge willows in either direction, and classic Old New York buildings. Great stuff.