Why would the rental market be soft?

More apartments not selling, sellers start renting rents go down.

JuiceMan: Your points are all valid to some degree, but I think they suggest a need to distinguish between the rental market being weak and rents actually falling in nominal terms.

A weak rental market, to me, means that new leases do not provide landlords an acceptable profit margin, if any. With costs rising, margins/yields/cap rates can fall even if rents remain stable or rise somewhat.

To take a simple example, if you own a condo and the common charges go up $300/month to cover increased energy and labor costs, you have to be able to pass that entire increase on to a tenant to maintain your margin. In a strong market, you can probaly do that. In a weak market, you can't. Although your second and third points (both inflation-related) may lead to higher nominal rents, I don't see how they contribute to market strength or happier landlords.

As Zorter's post suggests, your first point is likely to be something of a wash too. With sales slowing, buyers become (or remain) tenants, and sellers become (or remain) landlords. There's no way to know which swing is more prevalent. The combination might actually be worse than a wash over time, because it's a lot easier for a buyer/tenant to exit the Manhattan market altogether (reducing elastic demand) than it is for a landlord to move his property to a more favorable market (reducing elastic supply).

As for point 4, I don't know much about the annual cycle of rental demand. As a matter of basic methodology, it seems to make sense to adjust for seasonal phenomena of this kind in assessing market health.

JuiceMan, are you still on with this nonsense?

You need to get a job with this guy:

http://www.tregny.com/manhattan-apt-rental-report.jsp

In a continuation of the growth we saw last month, the majority of citywide rents are up compared
to May of last year, as well as from April ’08, and it appears that this year’s peak rental season
is off to a solid start.

TRANSLATION = SOME PRICES ARE UP, SOME ARE DOWN, LET ME POINT OUT THE ONES THAT ARE UP FOR YOU.

Prices increased in every sector of the market from this time last year except for doorman two-bedrooms, and though they’re not commanding the same rents as they were then, an overall comparison of year-over-year rental prices shows that the Manhattan rental market is still extremely healthy.

TRANSLATION = A LARGE SECTION OF THE MARKET IS DOWN, BUT WE'LL IGNORE THAT FOR NOW SINCE THE RENTAL MARKET IS "STILL EXTREMELY HEALTHY."

From last month, prices increased across the board with the exception of doorman one-bedrooms, which decreased only marginally.

TRANSLATION = DOORMAN 2-BEDROOMS FELL FROM LAST YEAR, DOORMAN 1-BEDROOMS FEEL FROM LAST MONTH, BUT NOT BY A LOT SO NEVER MIND.

In fact, there were no drastic changes to note, which comes as no surprise if you’ve been keeping up with our data and observations about the rental market each month.

TRANSLATION = THE RENTAL MARKET IS DEAD.

All in all, we’ve seen nothing out of the norm in May, which we’re excited about as we anticipate a productive summer for all.

TRANSLATION = ARE YOU INTERESTED IN BUYING A BRIDGE?

I am glad to see more inventory available for our clients, whereas, in years past, that may not have been the case, and renters may not have been able to find exactly what they were looking for.

TRANSLATION = MORE INVENTORY AVAILABLE, SO PRICES WILL NATURALLY GO UP.

With the steady pace at which rents have been rising, we expect there should be no problems moving properties in this healthy economic climate.

TRANSLATION = I JUST SAID RENTS HAVEN'T CHANGED MUCH, BUT THEY'VE ALSO BEEN RISING AT A STEADY PACE. "THIS HEALTHY ECONOMIC CLIMATE" HAS NO TRANSLATION.

There are pockets of opportunity for both landlords and renters, as the former may be able to increase prices where occasions present themselves and the latter may be able to find housing deals in spite of escalating rents.

TRANSLATION = WHAT?

The greatest year-over-year increase was 4.5% in non-doorman studios, which is right on par with standards of rent stabilization and comes as a welcome change over the 10%-15% price jumps witnessed in years past.

TRANSLATION = THE GREATEST INCREASE IN MARKET RENTS WAS AT THE RATE OF STABILIZED APARTMENTS. MEANING RENTS ARE BARELY KEEPING UP WITH INFLATION.

That being said, the 2008 busy season has positive beginnings, though only time will tell whether or not the demand for rentals in Manhattan will be able to keep pace with the supply.

TRANSLATION = THINGS DON'T LOOK GOOD.

Now that we've dealt with an "expert," on to your points:

1) A potential increase in demand for rentals based on deterioration of purchase confidence and increase in mortgage rates

That may well occur IF incomes are increasing - no one can rent with income of less than 40x annual rent, unless they double or triple up, which runs into legal constraints on occupancy.

More likely, however, is that market rents will fall along with property prices, since they are nearly 100% correlated over time.

I don't know the actual inventory figures for market, but nybits has 1439 market-rate rentals listed in Manhattan, and streeteasy shows 4,693 rentals with an address. Let's assume there's some overlap and put the figure at 5,000 rentals on the market. Manhattan's population only grows at the rate of 10,000 people per year. So if everyone who moved to Manhattan rented an apartment, there are enough for rent for half of them. Of course that doesn't happen, so it seems like there's a lot of inventory out there.

2) Surge in fuel and labor costs for all buildings

Market rents are not determined by the cost of inputs. Regulated rents are. For a man of such fabled (laugh laugh) economic experience you should know this: Adam Smith thought that prices resulted from the value of the inputs; modern economic theory states that prices result from the value of the output. Basically, it doesn't matter what it costs to produce something; it only matters what people are willing or can pay for it. If no one can or will pay a price to cover the costs, no one will make it.

Let's give an example. You own an apartment that costs you $1,000 a month to operate. The market will only bear a price of $900 for that product. You have three choices: 1) hold out for your price and lose $1,000 per month; rent it at $900 and lose $100 a month, or sell it.

It makes absolutely no difference what it costs you to run that apartment; only what you can get for it.

3) We are on the verge of an inflationary period that could last for some time (which I feel will cause a net increase in rents, not decrease as you stated)

First, we are not on the verge of an inflationary period. The largest component of "inflation" is imputed rent, making up some 40% of the CPI. As property prices fall imputed rents fall, decreasing inflation.

Second, it is an "inflationary period" ONLY if incomes go up at the same time as prices. There are currently no wage inflation pressures in the economy, especially the NYC economy. And in any case inflation - as your fabled economic experience should tell you - only changes the relative value of money, not the relative value of the things that money can buy.

If the price of goods increases beyond the rate of income growth that cannot last long - you either get wage growth (inflation) or a reduction in demand (recession).

4) About to enter the strong summer rent season

At the same time that 55% of Bear Stearns has been laid off, Citigroup is cutting back probably 20%, JPMorgan is cutting 20% of its investment banking operations, Morgan Stanley, Merrill Lynch, Lehman Brothers are all cutting back.

So much for interns rushing in to rent. Maybe foreigners will.

What a surprise, a six hundred page dissertation from steve. steve couldn't have an intelligent discussion with himself, never mind the posters on this board. Not to mention, half of what he wrote above is complete garbage, and I would expect anything less.

West81st, as usual, solid information. Thanks.

Which part is garbage, JM? The part where I quote the market analysis from a professional, who SPECIFICALLY says that "The greatest year-over-year increase was 4.5% in non-doorman studios, which is right on par with standards of rent stabilization."

Doesn't bode well for market rents, does it?

Or:

1) A potential increase in demand for rentals based on deterioration of purchase confidence and increase in mortgage rates.

Correlate that with "The greatest year-over-year increase was 4.5% in non-doorman studios, which is right on par with standards of rent stabilization."

Because that statement = no demand

as does "I am glad to see more inventory available for our clients."

2) Surge in fuel and labor costs for all buildings

You can't rent something out for more than anybody is willing to pay for it, regardless of what your costs are. Case in point: "The greatest year-over-year increase was 4.5% in non-doorman studios, which is right on par with standards of rent stabilization." "I am glad to see more inventory available for our clients."

Or do you claim you can?

3) We are on the verge of an inflationary period that could last for some time (which I feel will cause a net increase in rents, not decrease as you stated)

Inflation does not cause rents to rise because incomes also rise during inflation. All that changes during inflation is the relative value of money.

If incomes didn't rise during inflation, inflation would be impossible for very long, because no one would have any money to buy anything.

4) About to enter the strong summer rent season

So what?

I don't know which part is garbage steve, I didn't read it. I just assumed since 50% is a good ratio of garbage to sensible information from you

Not surprising, though what I said is essentially what West81st said.

As usual, I give you real figures for market rents in Manhattan over the past year - they did not rise even as much as regulated rates - and you call it "garbage."

That's the problem with you, JuiceMan - you just want to hear what you want to hear, believe what you want to believe, and disregard anything that contradicts it.

Like market facts: "The greatest year-over-year increase was 4.5% in non-doorman studios, which is right on par with standards of rent stabilization." "I am glad to see more inventory available for our clients."

Market rents are falling.

The rental market is going soft because loss of jobs have people leaving New York and less people arriving to work.

Not according to JuiceMan.

"The rental market is going soft because loss of jobs have people leaving New York and less people arriving to work."

Exactly julia.

Loss of jobs in NY trumps all other mental masturbation analysis people can try to conjure up. And we've barely gotten started with the job loss so far.

But... but wait!!! The foreigners will save us!!!! What's that? London is having a housing recession too? Oh no!!! It's ok, the foreigners are so stupid that they'll still buy my overpriced apt here in nyc!!! Yeeeeeessssss!!!

Yes Rental prices will continue to go up in Manhattan although I must say why would any person renting want to accept that fact.
Here is just a sample of a rental report in May and we aren't even in the thick of rental season which really kicks off in the middle of June.

In a continuation of the growth we saw last month, the majority of citywide rents are up compared to May of last year, as well as from April ’08, and it appears that this year’s peak rental season is off to a solid start. Prices increased in every sector of the market from this time last year except for doorman two-bedrooms, and though they’re not commanding the same rents as they were then, an overall comparison of year-over-year rental prices shows that the Manhattan rental market is still extremely healthy.

sorry but here is the Manhattan rental report for May. Let's see what June and July comes in on.

http://www.tregny.com/manhattan-apt-rental-report.jsp

spunky, did you bother to read stevejhx's post? You and juiceman are seriously losing your touch.

mrsbuffet why would anyone read stevjhx posts.

sorry mrs buffet the last stevejhx post I read was the following

http://www.streeteasy.com/nyc/talk/discussion/3645-biggest-bear-market-sign-yet-deal-to-build-at-railyards-on-west-side-collapses

but then I read this article a few weeks later

http://www.observer.com/2008/related-m-t-said-reach-deal-rail-yards

Like I said why would anyone ever read stevejhx post except if you enjoy mental masturbation. His forecasts may give you a good feeling in the beginning until you come to the realization that for the most part this man is full of Sh*t.

I have the Steve guy on mental ignore. But I did read some of the other posts.

There'll be fewer of the college kids coming out this summer for rentals.

Also, there are a lot of finished apartments in new developments that were bought by speculators. They'll be renting those out and often a renter will have a choice, so there will be some price pressure to the downside. Check out the Avery building as an example. Or the J condo in WMsburg. Or Sky House.

Lastly for those that are renting, there is a provision in some of the agreements that calls for rent increases when common charges increase. At the time of the signing of the lease, make the landlord hold up his bargain of $X per month for the period, and then cross out that paragraph. Also consider removing the landlord's right to terminate the lease if he sells or seeks to sell the apartment - that isn't part of what is advertised either. And lastly for now, gotta get me some milk, if the apartment is on the market for a long time, make the landlord pay the broker fee.

the rental market this year is weak because
(a) people are losing jobs and moving out of the city
(b) traditional healthy summer season, which was because of interns and new job offerees in banks are down to a trickle because banks are too busy firing people to hire interns or new hands

I believe it all depends where in the city you want to rent. If you want to rent in the West Village, Greenwich Village, Soho and Tribeca don't expect fantastic deals. Anywhere else in the city I'm sure as always there are deals to be had.

I'm really excited that the four bedroom rat holes that the college interns usually rent for $3000/mo may go down in price. I'm sure those are the same apartments that steve compares when stating that buying is 2x more expensive than renting and now, it will be 3x.

cartman, do you know anyone that lost their job and are moving out of the city? I know a few folks that lost their job and they are now riding our their severance, enjoying the summer, and have no plans at all to leave the city. Maybe that's because when they had all of those fat years, they actually saved some money, and can enjoy a little time off from those 80 hour weeks.

There is certainly a lag in market reaction to job losses, building inventory, overinflated asset prices, energy prices. I think both real estate and rental market will be soft in Manhattan going into the summer (traditional peak season). All the major economic indicators are looking bad if not worse.

I'm so glad spunky's back - now he and juiceman can form a happy pair!

spunky, I stand by the West Side Rail Yard prediction. Get back to me in a few years to see what's actually developed. Sort of like the Atlantic Yards - pay for the privilege of developing, then just put it on hold.

JuiceMan, you're becoming beyond moronic right now. The exact same apartment:

http://www.streeteasy.com/nyc/sale/167077-condo-99-jane-street-west-village-manhattan

http://www.streeteasy.com/nyc/rental/314504-condo-99-jane-st-west-village-manhattan

Originally offered for rent at $8,000, dropped to $7,500, taken off the market. For sale:

Price History

01/16/2008 Listed in StreetEasy with Sotheby's at $2,100,000
02/20/2008 Price decreased to $1,995,000
03/26/2008 Listing no longer available

Mortgage payments of $12,271.86, Common Charges: $870, (abated) Taxes: $667. Total cost = $13,308

Exactly TWICE the impossible rental price they were asking for. Impossible b/c an equivalent market rental at 100 Jane, across the street, went for about $4,500.

Then add the full tax in.

LMAO.

So what is your point steve? That the whole market is 2x based upon some building you continue to post over and over and over again? Now that's moronic. LMAO.

JM, you've become lame now. I've posted dozens of them, so has dco & others, this one is just easy to remember. You say purchasing prices aren't twice rents, you take a property priced at 40% below the median on a psf basis, and it's still overpriced by 27%.

Take one at the median - as I did - crunch the numbers, get back to me.