Manhattan Real Estate Rises and Falls in 10 yr Cycles

Doesn't the word 'cycle' imply both an up and down part?

One would assume...

Bears are screaming, screaming I say. Please drop! Please drop! Ya know a person usually starts talking very loudly and frequently when they are about to be proven wrong. Street_easy, boy your anxiety is sure out there. Dude, stop trying to time the market with Stevejhx, you and he will sleep alot better and that black under your eyes will go away. Unless inventory spike to 10-12k prices will not budge. They will only go higher. Everyone is ready to pounce as are you. BUY WHEN YOU CAN WITHOUT A BIDDING WAR.

Cute. Where do you get those inventory numbers?

street,
Well If 25k(INSANE AMOUNT OF UNITS) of NEW inventory hit the market in EACH year of 1986, 1987, 1988, 1989 and 15k for 1990, 1991, and the market dropped by 30%...hmmm...that number should be more like 12k-15k. Let's see, 130,000 NEW units hit the market(Holy Sheet!!) and the market dropped 30% before it was absorbed in 4 years than 12-15k looks pretty conservative.Wouldn't you say.

All this new inventory was related to rental conversions and 1986 TAX law changes.

http://www.millersamuel.com/charts/gallery-view.php?ViewNode=1132752161iuzhS&Record=6

Here is the Data.I love this graph

steveF, the 85 were conversions - not new buildings. please stop trying to mislead the group here.

wow, that chart is impressive. What really is even more impressive is that Miller Samuel estimated the new units back in 2005 and is basically right on the button up to 2008.

Not sure there's much to the ten year rule. I think prices have been going up for about 14 years, just at different rates. I agree with the bulls that there will be no major price drops but with the bears that the boom is over for now. Still, the rather bearish report cited below predicts 5.2% appreciation for Manhattan. Not boom appreciation but certainly not exactly what I'd call a crash.

http://www.housingpredictor.com/newyork.html

the chart says new construction and converted annually.

csn,
Your right on Man.I wish Miller would update to real time. His commentary when he released the graph was how visually stunning to see the numbers presented like that. Prices dropped because (1)Amount of new inventory(above) (2) cold war era ending recession and (3) 2,200 murders in 1990 in NYC--and you can see why prices dropped. If you see those factors happening again than start to reevaluate.

eric, it was conversions AND new construction. But who cares all I know is new inventory hit the market at breakneck speed and naturally there wasn't enough demand. Renters probably couldn't afford the conversions, rents went up from lack of rental buildings so they had to leave Manhattan, is my guess.

steveF, it does matter if it is conversions vs new construction.

In conversions, no NEW inventory hits the market - people already living in the houses as tenants get to buy it as a coop. no NEW supply.

If new building, it is NEW supply, which will impact housing prices.

On what basis are you saying that renters "probably" couldnt afford and hence left? My understanding is that they were mostly rent stabilized/controlled tenants who were given options to buy their place at low price as coops. (e.g., same thing is happening in buildings in some parts of roosevelt island now, with end of mitchell lama)

IF ANYONE IS THINKING OF BUYING, DON'T. THE MARKET WILL COME DOWN 20-30 ALL OVER NYC. THIS DOWNTURN TAKES TIME. YOU NEED AT LEAST 1 YEAR FOR ALL THE WALSTREET CUTS TO EVEN HAVE A LASTING IMPACT. CREDIT TIGHTENING WILL ELIMINATE THOUSANDS OF BUYERS. MOST PEOPLE ON WALLSTREET ARE STILL WAITING FOR THE PINKSLIPS THAT ARE MOST DEFINITLY COMING. BUY NOW AND YOU WILL BE BUYING AT THE HEIGHT OF THE MARKET AND YOU BETTER MAKE DAMN SURE YOUR JOB IS SECURE. FOR EVERY JOB LOST ON WALLSTREET it RESULTS IN 3-5 OTHERS

the sky is falling! the sky is falling!

dco, in support of what you're saying, I saw the Financial Editor for Crains NY being interviewed on PBS the other day. He compared NY's economy to an aircraft carrier. Said it doesn't slow down or turn around quickly. So when downturn begins, there's a 1-2 yr lag. He pointed out the real impact of the stock market crash of 1987 finally hit in 1989.

I wonder if some really understand what happened in the late 80's. Tax laws made it favorable for owners of rent controlled buildings to convert to coops. At that time there was no way to "sunset" rent stabilization and they had to manage the buildings for cash flow. But it was now possible to sell to insiders at favorable prices (discounts to market rate) and hence see a huge return. But if an insider decided not to buy they remained within rent-stabilization in a sponsored apartment, still subject to all rent-stabilization rules. The same tenants remain the same buildings, only where once they were renters or rent-stabilized tenants now they are coop owners. (Yep, the people on your coop board insisting on 3x value in liquid assets probably bought the 3BR on WEA for 150k.)

As I understand it, what happened in the 1980's was that demand for apts was not sufficient to keep prices up, so they fell. The exact reasons will vary, but look for history to repeat itself.

What is occurring now is very different for the late 80's. Pricing goes down for specific reasons. The largest threats we are facing is the Wall Street job market and a recession that will effect the NYC economy. Supply is not the issue, since levels are not astronomical. Interest rates are still rather low (credit tightening aside) and the population is still growing (although very slowly). dco, I don't think you'll see 30% price drops across the board and "timing" is difficult to do. Just ask my buddy who sold 4 years ago thinking it was "the top". He's still renting, and has basically been priced out of the current market. If you are looking to invest, I understand your point. If you are looking for a place to live, just buy and hold.

I'm not making any predictions one way or the other, except to point out what happened in the early 90s to sink the Manhattan market. The primary issue was not oversupply from new construction (although that's the industry story -- having to do with pouring the foundation by a certain date to avoid downzoning, I think).

What happened was the 1987 stock market crash and its aftereffects caused large-scale Wall Street job cuts (and lowered bonuses). Coop rules allow 2 years of subletting. Owners floated empty apartments for as long as they could stand after that 2 years was up. Then pffffft.

What's new to the scene is the condo market, which doesn't have the 2-year sublet restriction (I assume). But I don't know what percentage of the market is condos -- probably still not enough to dictate supply&demand effects. If the market collapses for coops, their prices would be sufficiently appealing to shift would-be condo-buyers to coops. So pffffft.

Perhaps foreign buyers or low short-term rates or whatever can mitigate damage from Wall Street job cuts, or maybe not.

The increasing importance of condos in the NYC market and the increasing importance of investors from Europe/Asia/USA etc could mean the NYC market is more subject to the possibility that condo investors will act the way condo investors have acted in Florida, Las Vegas, California, etc, ie. dump your property quick when real estate prices start falling. Just look how many apts in New Constructions eg. 325 Fifth ave, 220 RSB etc end up for rent or sale. These are all owned by investors who will not sit on their hands if/when the prices start falling. They will get out to preserve their gains or preserve their capital.
Once again, it seems very simple: when demand is not sufficient to keep prices up, prices will fall. How you get there is going to vary from cycle to cycle, but the end result must always be the same.
Do we think NYC real estate doesn't go in cycles? Do we believe in perpetual motion?

Cycles seem to be something most will look back in history and identify rather than be able to effectively predict into the future. It seems most "professionals" or "industry insiders" have a hard time determining where we are in the "cycle" until it's over. Although there are certain buildings as street_easy suggests that have investors in them due to speculation, how they act will be determined by several factors. Once prices drop, investors may become upside down, meaining they will actually have to go into their pocket at closing and pay for the shortfall between what they owe and their equity (or lack of). At that point, it becomes easier for the investor to continue renting, thereby bleeding out slowly (negative cash flow), rather than taking a hit all at once. The real problem (Florida, Las Vegas, etc..) is when the rental market drops as well and rentals are abundant on the market or go for very low prices, increasing the amount of negative cash flow. That's when prices will really drop and foreclosures/short sales really increase.

steve, I was wondering how this chart impacts your thoughts on your comparions of todays market vs. 1988?

steve, still curious on your thoughts regarding stevef's chart and your comparisons to 1988. You seem to reference Miller Samuel quite a bit, so you must think they are pretty credible. I would be interested to understand your thoughts regarding the inventory situation pre-1988 vs. today and how you think that impacts the market.

JuiceMan, I hadn't posted on this thread before, but I've already answered it. First, that chart is for all of NYC, not Manhattan. Second, a large number of those units were co-op conversions which do not represent additional inventory, merely changed status. Third, the new development at the time was as a result of the end of the 421-A tax abatement below 96th Street.

Fourth, we currently have at least a year's supply of apartments on the market in Manhattan in historical terms.

Fifth, Wall Street is cutting back in unprecedented numbers.

Sixth, leverage is drying up, especially for nonconforming loans.

Seventh, the historical 12x ratio between the price of property and rental prices now stands around 24x, but since the 12x ratio results DIRECTLY from the 40x income / 28% total housing cost ratio, it is impossible to retain that 24x ratio unless:

a) Incomes go up 50%, or
b) Prices plummet 50%.

Given Fourth and Fifth, a) seems highly unlikely.

Ergo, the 1988 chart is completely unrelated to what is happening today: it happened 20 years ago, in an entirely different market for entirely different reasons.

"Ergo, the 1988 chart is completely unrelated to what is happening today: it happened 20 years ago, in an entirely different market for entirely different reasons."

That is a very interesting viewpoint steve. Don't you think it is a bit contradictory to your 1988 thread?

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.
The economics can't support this unchecked imbalance the Banks are digesting currently.

Construction on some projects will be halted. In the longer term (3 to 5 years), this will decrease supply and lift prices. Just one of the outcomes of the cylical nature of things.

cyclical

Do you mean domino, rather than cyclical?