Credit Crunch Turns Condos Into Rentals

Great Locations and Great Amenities are going to be the lone survivors. If they're lucky.

cricket, cricket, cricket..... I guess the bull can't find the silver lining. I'm surprised the evidence is mounting and even the most bullish and wishful thinkers are seeing the light of a NYC collapse.

dco, you missed the part about ..

... and the brokers said "this will increase the price of condos because there are fewer condos for sale, AND increase price for rentals, because, well, everybody wants to live in Manhattan and there are a lot of foreigners, and because Manhattan is an island" ...

... All these foreigners are buying up condos because of the cheap dollar, and renting it out .. but are realizing that the rent is in dollars too - so they don't know what to do ..

WOW- fewer condos means higher prices for the current market, really what about the thousands of units held back by the developers what happens when those hit the market. Eric do you actually think that they believe this or is it just a survival response?

:-) I was just making it up - playing on broker's instinct to react to any news with "here's how that will imply increase in property prices .."

Let's try a few for kicks ..

(a) We are seeing a very hot summer, with temperatures over 90 ..
Broker: "This will, no doubt, cause rich foreigners from warmer countries (e.g., India) who till now didn't play a big role in Manhattan property markets, to buy up properties immediately, causing the prices to go up .. "

(b) Tornado kills 4 people in Iowa
Broker: So, this will no doubt create an increased pressure on housing markets in Manhattan as all Iowans want to buy up a place with no tornadoes .. and as we all know, there are none in Manhattan, because it's an island, and Tornadoes cannot swim all that well

(c) Microsoft ends talks with Yahoo
Broker: This will imply Yahoo will sell to Google, and what do you think the Yahoo execs will do with all that money?

...

Do either of you two braniacs even live in Manhattan? Reading your posts are as mentally stimulating as a Woody Woodpecker rerun. Shit....MMAfia, dmag, steve, iMom, aboutready are all bears, but they are INTELLIGENT bears. I'd rather watch cold noodles slowly slip down the drain then read more of dco's pathetic attempts to get attention. It’s fucking nauseating.

Juice, I just don't get you.

Your assessment of these two dopes is on target. But Steve, intelligent? Excusing the total mental meltdown he suffered the other day, how can you claim intelligence when he is blatantly deceitful in his argument, refuses to listen or learn (the true sign of intelligence) beyond what he can read in a book or research paper, points fingers to shift attention when he is obviously wrong, and is so overly dramatic that even if his arguments had merit he destroys his own credibility and the tolerance anyone could have for possibly listening to him.

This is a guy who took credit on a post for knowing that MCI was involved in massive corporate fraud because he had an error on his personal monthly internet service bill. Who achieves 60% annual returns for the past 10 years on his personal equity portfolio. And who claims to know real estate and the NYC market so well, but at the same time was so hampered by his rigid Fed formulas that he missed the market to the point of extreme bitterness towards both owners and renters who pay less than him.

Good point VVerain, I don't disagree. People use intelligence in weird ways and you have to admit, there is a certain mental capacity required to be as creatively wrong as steve usually is. I know a lot of really intelligent people that can’t get out of their own way. I have no idea what it is with steve but what I do know is that when comparing him to Beavis and Butthead above, there is a distinction.

Well guys once again I don't get it. I am constantly looking for 1 bedroom condo resales in great buildings to rent out east 36 to east 46th and you know what, I had 2 offers refused today for 5% below ask. In fact one seller said thanks but I want full ask. Now I know these are isolted incidents but I have been activly seeking good 1 bedrooms for 5-10% below ask and it ain't easy. I will be patient but I thought by now I would have purchased my third. I for one think Manhattan is a great investment long term and now not later is the time to be activly searching for that below market gem .I don't like new construction and think those buildings are way way overpriced, I will stick to 675-700 sq.ft 1 beds for 672,000- 690,000 in top condo buildings.Patience is a true virtue!!!!. Please don't start another Steve marathon it is excruciatingly painful to get through those threads.

hey, hey, JM, VV, chill - I'm just having some fun.
Not even the most die-hard of the bulls can get offended by some broker-jokes ..
take it easy -

peace out

eric_cartman, I enjoyed your "broker hype" jokes. Very entertaining, very creative!

" While smaller units in the adjoining building, the Bridges South, have been sold..."

The Bridges South: 7 units remain for sale: By smaller units he means 1 Bedrooms 750 sq.ft at $653/sq.ft asking price.
and among 7 units that left asking is even lower per sq.ft, for example 2br, 2baths 1305sq.ft asking $532/sq.ft (The only unit I saw in Manhattan New Construction with plasma TV in the bathroom).

"The trend in East Harlem is affordability, and the building just missed the mark a bit."

Interesting, $532/sq,ft in East Harlem is not affordable. Even West Harlem commands $700/sq.ft

barskaya- They sold 0 units in the north. Not 5,10,20.... 000000000000. They couldn't even find 1 sucker. That's because the market is terrible. People are not willing to invest in developing areas in tough times. It signals that in order to move the inventory in the next "it" area's the price is going to have to be reduced significantly. I laughed when the developer and broker blamed the size of the units as the problem. Oh really, it wasn't the ridiculous asking price for the area. Give me a break, it is and always will be about price.

Areas like Harlem, LIC, Greenpoint, Wiiliamsburg.......... are going to see inventories increase for two reasons. First the demand is way down and current inventory is not moving. Second the developers are sitting on thousands of new units that haven't been released yet. This is a problem throughout the city. The "it" areas will see the hit first and the rest will follow. Every excuse will be used, however the truth is that things are on the way down and will get worse daily. Recovery will only occurs when wallstreet starts to hire and people feel comfortable about their job security. The credit game has changed and it will eliminate thousand of potential buyers in the future. A year ago you needed $50,0000 to buy a 1M unit. Today you need a minimum of $200,000 and paper work to support the monthly nut of $800,000 and CC's.

NYC and the rest of this country had an artificial housing market which benefited both the consumer and the street until the "Market" recognized the error and is now correcting. This is exactly what markets do. You maybe able to fool them for a while but inevitably the data will reflect the problem and right it's self. Now the consumer and the street will pay for their greedy actions. The consumer will lose their home and wallstreet will lose market value. Free markets have a way of making people pay for their mistakes.

I say Free but we all know that it really isn't. If the FED didn't step in many more banks would of went under. The funny thing is that most people still don't understand the significance of that move and the illustration of just how bad things are and will get. There are banks on paper that are actually broke. If it was your checking account you would be bouncing checks all over the city. Lehman, Wamu, and several others are in very bad shape and if not for opening the discount window to IB's there would of been a run on them. And now we're all suppose to believe that everything is great. I'm sorry but that's just a joke and for those who want to know how that is going to effect NYC real estate, it effects it in every way.

dco you are so pathetic, I saw your initial post yesterday and figured I'd ignore it and hopefully everyone else would too, but miserable attention craved hobbit you are, YOU couldn't ignore it. you're reduced to posting articles about east harlem, and when no one cares enough to engage, you thrash about hoping to draw a bit of attention. well I suppose it ultimately worked, nice job.

dco - prices are never going to drop in Manhattan or LIC to levels that you can afford, all of your nonsense analysis notwithstanding.

Looks like there will be a merger boom in the second half of this year:

http://money.cnn.com/2008/06/13/markets/thebuzz/index.htm?postversion=2008061311

hmm, dco, wouldn't a lot of M&A activity be good for Wall Street jobs? . . .

"Manhattan or LIC"? never heard those two words used in the same sentence before ... :-)

"Manhattan or LIC"? never heard those two words used in the same sentence before ... :-)

Apologies - didnt mean to post twice

LIC, you are like the brokers I pointed out earlier:

News: There will be more M&A
Broker: all M&A due deligence is done in Manhattan, so it will imply everybody will rush to Manhattan to take up M&A jobs, which will drive up condo prices

News: There will be fewer M&As
Broker: With fewer M&As, companies will be forced to grow organically - and what do you think the shareholders and management will do with all the increased value due to growth? Buy condos in Manhattan, ofcourse ..

So you don't think increased M&A activity is good for Wall Street investment banks? You can't attribute your second BS argument to me, I would never say less M&A is a benefit for Wall Street jobs.

good analysis cartman, except for the part where he didn't say any of that and you made it all up. as always nice contribution.

LIC, sure - now, instead of 50,000 financial svcs employees being fired, and an additional 500,000 being too scared to buy, we'll only have 48,000 financial svcs employees being fired, with an additional 500,000 being too scared to buy.

stop grasping at straws and face reality already!

(numbers just illustrative)

ccdevi: it was not analysis - it was just poking fun. why is everybody so tense?

cartman, you obviously don't work in the investment banking industry, because you don't seem to understand what is going on at the Wall Street banks or how things usually work regarding bonuses, layoffs, etc. However, your opinion that a boom in M&A activity will have a neglible effect on Wall Street is noted. It is silly, but noted.

Increase M&A compared to what? That is the question. There will always be deals being made. It's a lot more complex then just deals being made. Here are a few concerns. Is the deal going to create or reduce jobs? Is the job creations going to be located in NYC or the US at all. You think that there will be deals and that's great, the problems is not that deals wouldn't be made, but is it going to exceed previous years M&A? Nothing would please me more then to see more jobs being added then lost, however it's just not going to happen for a while. Sure eventually they will begin to hire on the street but how long will it take? This goes hand and hand with the withheld inventory. Can the developers wait until the bonuses and jobs return? And if they can how is the tighten credit going to effect future sales. These are all questions that you need to consider when you position your opinions on the state of the market and more importantly the FUTURE of the market.

The most troubling sign was the spring selling season. This the usually the time of the year that historically eats into inventory and the result was the opposite. Inventory numbers increased and this not even counting the inventory with held by developers. So instead of clearing units we actually added them. So in reality the number is double when seasonally adjusted. And this is only going to get worse. LICComent I know that I have been hard in LIC but it is a great example of diminishing demand and with held inventory. The only way you clear inventory is to find the equilibrium price and clearly the bar is set way to high. The developers need to re-test the market to discover the most optimum price to more the inventory and profit from doing so. Other wise they may actually be left in worse shape by being left with units they can't profit from in the future. A lot to these developers are walking a tight rope and it's a long way down. ANd renting unsold units is not always an option.

LIC,

Bear sterns no longer exists, with Lehman at risk of following suite
Citigroup CEO has quit, and Citi has taken over 11 BN write down, and has promised over 30 k head cut
CDOs are being forced to be marked to market by FASB157, leading to more of the underbelly being exposed
BoA, Countrywide, Freddie/Fannie, and other notable US institutions are at risk of collapse
UBS, Deutsche, and other foreign players are hurting as well
Fed is extending discount window to all and sundry, impacting dollar, inflation, and interest rates
Soverign wealth funds tried pumping money - most notably into Citi, but it went nowhere ..

and you think uptick in some M&A activity will counteract all this? It's like trying to put out the sun with your little water-gun.

Get your head out of the sand. It's going to get worse before it gets any better. Stop looking at every news item desperately trying to link it to how it will have a positive impact price of your condo.

eric well said

The big Wall Street cuts will come in the fall, right before fiscal year end. Bear's fiscal year end is June 30 which is why we saw so many (>= 55%) already. Maybe LEH this summer gets bought out, maybe some CEO's/CFO's get fired. The average Joe/Jane banker/trader/support person won't be affected until they get a pink slip or a zero bonus announcement in Dec. Also, year end is when the restricted stock the company gave out 5 years ago becomes unrestricted. For LEH, stock is awarded at a 20% discount, so 5 years ago, that was $50 which can be cashed out for $25. So anyone with a $1,000,000 bonus package in 2003 probably got $800,000 in stock which is now worth $400,000 if the company manages to hang on.

I know a lot of Wall Street types who count on their bonus to pay their bills for the year because their base is around $150,000, the rest is mainly restricted stock becoming unrestricted and a little bit of cash, which is heavily taxed as "extraordinary income". The real crying on Wall Street is in the fall.

80sMan, exactly.

However, the ball is already in motion.

Why? Because these wall streeters are actually smart people. They know the big payday bonus is ain't gonna happen this year. As such, they're mentality has shifted in anticipation already.

But the full effect of reality raining down on them, aka the clincher will be at fiscal year end. Which is the fall as you state.

woops meant their mentality

Bingo, and this will lead into the 09' spring selling season with little to no interest. No 08' and 90' spring bounce plus new developers adding to inventory in the next 12 months could push inventory to 15,000 this time next year. It's going to be an interesting 12 months. it going to be every developer for himself. Once on falls an starts to reduce competition will do the rest.

09

.. yeah, but the M&A guys will buy one condo each, the foreigners will buy one condo each, and all the foreigners who work in M&A in their respective home countries will buy 2 condos each -- there goes your 15K inventory ... hence, Manhattan prices always go up ..

the 2 stooges just keep talking to themselves. keep telling us that everybody's tense cartman and that you're only joking.

Back to the original topic . . . .
http://www.nytimes.com/2008/06/15/realestate/15cov.html?ref=realestate

october- That was a great article. It showed many aspects of market conditions. I'm sure both bear and bull will see different positive angles to enhance their argument. It shows me that developers see the writing on the wall and are reacting to market conditions. Demand is diminishing and they need to react. Price will continue to fall for both rentals and condos. I know that people will say how is this possible. The answer is simple, inventory of new development will still out pace both rental and condo demand. There will and increased competition by developers to draw both renters and buyers. It appears that people have figured out that renting is much more affordable and in most cases half the price of buying. This really was a great article to illustrate the market and how it's the consumer who sets the market and not the developer.

ccdevi, if you have a point, please make it.

dco, did you miss the part of the article that said people are not buying so that is driving rents up? Or that you can't find quality rentals in Manhattan? Have a look at sonme of the average rents in this article regarding Manhattan. Still 2x to buy? If you are talking about issues with over inventory in Brooklyn that is one thing, but Manhattan? Maybe you should focus your "analysis" on Queens where you have (little) credibility.

"These factors are all driving up the prices of Brooklyn rentals and slowing down sales, according to StreetEasy.com. From May 2007 to May 2008, Brooklyn rents rose 6 percent, while sales prices fell 4 percent. And while Brooklyn's 3.1 percent rental vacancy rate means the market is not as tight as Manhattan's, at 2.3 percent, Brooklyn is doing better than the rest of the country. The national average vacancy rate is 5.9 percent, according to Reis."

"Melissa Osipoff, 27, a corporate lawyer, had wanted to rent a one-bedroom in Manhattan for about $3,000 a month. She went directly to the managers of 10 buildings in Chelsea, the West Village and Gramercy Park and found that most didn't even have apartments available. She wouldn't rent in a building without a doorman because she works late and wanted security. Units in Manhattan buildings with elevators and without doormen, on average, rent from about $2,927, according to Citi Habitats."

"That's not quite how Russell Brattain feels. Mr. Brattain, 29, who works on airport security systems, wishes he could afford to rent a Manhattan apartment similar to his three-bedroom rental at the Mynt. He and his co-worker Steven Gilman, 24, pay $3,350 a month for the apartment, which includes a terrace and a parking space. In Manhattan, the average three-bedroom apartment costs about $9,958 a month, not including parking, according to Citi Habitats."

JM- Like I said each can find something debatable. I see slowing demand (already here) and a huge increase in inventory on the horizon. More units means cheaper rents and lower condo prices. I'm not quit sure how you think increases in inventory for both rentals and condos will increase prices. Rentals may be higher now because there are few units available. However as developers start to convert that will increase availability of rentals and the newly released condo units will drive prices down due to excessive inventory. It's clear that it's not just a little inventory in actuality the numbers are staggering. So if the inventory far exceeds both demand for rental and condos it results in only one conclusion lower prices. This is how markets work. And it doesn't matter if it's Manhattan or Miami the fundamentals are the same. Higher inventory equals lower price for both. It's what is happening in the rest of the country. As houses foreclose the price of homes depreciate and adds to new rental property that were once owners homes. This drives the prices of rentals down because of the excess of inventory.

In 2005, Brooklyn developers started building thousands of apartments to satisfy demand from buyers who had easy access to mortgages. Back then, developers had little financial incentive to build rentals, which provide profits at a snail’s pace compared with condos.

By 2010, when all the currently scheduled condo projects are completed, Brooklyn developers will have built nearly 10 times more condo units than rentals, according to Reis Inc., a real estate research company based in New York.

The company’s figures show that in new buildings with more than 40 apartments, Brooklyn developers are building 9,882 condo units, compared with 1,149 rental units. If all new construction is included, however, the numbers could be much higher, because many new buildings have fewer than 40 units. StreetEasy.com, a real estate Web site, says more than 30,000 condos in Brooklyn have been approved by the state attorney general’s office since 2002.

But as thousands of apartments have been completed, consumers’ preferences have shifted toward renting because they consider it easier and less risky. Lenders typically require buyers to have credit scores over 700 to qualify for mortgages, while landlords need renters to have credit scores above only 620 to qualify for apartments, according to David Maundrell, the president of Aptsandlofts.com, which is based in Williamsburg.

Selling has become more difficult. Thomas McAteer, a Prudential Douglas Elliman broker in the Park Slope office, spent eight months trying to sell condos at 710 Sixth Avenue in Greenwood Heights, which has 15 units. Even though four buyers went into contract, only one actually went through with the deal, he said. The others could not get financing or backed out over concerns that real estate values would decline. He said that two renters have moved into the building, where the monthly rents range from $2,400 to $4,800. These renters could afford to buy because they have as much as $500,000 in assets, Mr. McAteer said, but they’re waiting.

“They would rather take the money and put it into a rental rather than a mortgage,” he said.

What happened to all of the bull spewed by you and steve about rents going down and that sales demand has no correlation to rents? I find this hilarious. Where is your “analysis” on this?

JM- did you read my post. My analysis is stated above.

"These factors are all driving up the prices of Brooklyn rentals and slowing down sales, according to StreetEasy.com. From May 2007 to May 2008, Brooklyn rents rose 6 percent, while sales prices fell 4 percent."

This is what I'm talking about dco. Your past prognostications of rent declines when sales are slowing are hilarious. Regarding significant inventory coming to Brooklyn, that is a different question all together.

As for your "analysis", I know squat about Brooklyn so I choose not to comment on the area (but I see that doesn’t stop you), but if there is truly that amount of inventory ahead, the market will decide what will be rental vs. condo. A few things could happen, 1) more people will move to Brooklyn absorbing the additional inventory, 2) rent vs. buy ratios will stabilize based upon an equivalent conversion of condos to rentals, etc, or 3) the inventory will be a glut as you propose and prices will come down for both rentals and purchases. Your conclusion of price erosion is possible, but as usual, incomplete.

dco, I'm all for talking about downside risk, it is very important. What you and steve and the rest fail to mention is upside potential. Without looking at from both sides, you my friend will be the one with his head permanently in the sand.

Have a look at urbandigs.com. I wouldn’t call his latest post "bullish" but feel it is certainly an accurate overview of the situation. The "bulls" (as you refer to us) on this board have had this stance for the past year. Pity if digs is actually right………. for you.

JM- I fully understand the upside potential. I bought in 2002 and my property has just about doubled. Although I know I benefited the truth is that it was an artificial market that created the unprecedented returns in such a short time frame. The market is correcting and there is nothing anyone can do about it. I'm not saying that your property will not be worth more in the future, however if you wait and buy later your profitability will be greater. So when you say that I don't understand the upside, it's completely the opposite. My whole analysis is based on maximizing the upside. Why buy today at 1M when I can wait and buy it at $800,000.

Can you really wait and buy at 20% lower in Manhattan? Isn't it more likely you can wait some period of time and also buy at the same price as today?

VVerain, exactly.

vverian, you are right. manhattan prices never go down.

VVerain- You are 100% correct. Finally someone has figured it out. All of my analysis is exactly based on what VVerain has just asked. Can I wait to buy? Yes I can. Will I get it at 20% lower? I have no idea. That's why people get paid lots of money to try and figure out what is more likely to occur based on the information available. Based on that information is it imperative for an individual to analyze facts and then chart a possible series of events that are more likely to occur then not.

I know that many people think that it's more complicated, however there are only 3 results that are possible when deciding to buy now or wait. First you buy and prices increase. Second you buy and prices decrease. Third you wait and prices remain the same. Based on those 3 possibilities it's all a gamble unless you analyze the state of the market. It's just that simple. Is it more likely that prices will increase, decrease or remain the same? Remain the same is a possibility, but for obvious reason no one debates, and why, because it's a wash. It doesn't matter, unless it provides you with time to make the correct decision. No one on this site has any idea exactly what the NYC real estate market will look like for certain. I have my opinion and you have yours. Without knowing exactly who is right I recommend waiting. It gives you a 2/3 of chance you will be right. Buying now and your at 1/3. And that's without doing the analysis.

oh, a disagreement between ericcartman and dco, how nice.

Anyway eric, no, prices may go down

but you have to understand markets first - ease of transaction, demand, and supply.

dco -
the probabilities aren't so simple and you ought to know better than assuming that because there are three choices that each is equally weighted in terms of probability for best outcome,
but regardless, the probabilities need to be applied to the economics of housing, which would include factoring the cost of housing which are required for the decisionmaker regardless of the choice of buying now or waiting (or not at all).

"All of my analysis is exactly based on what VVerain has just asked."

What analysis? dco, you continue to talk about analysis.....what analysis? Do you consider opinions analysis? Do you consider words posted on streeteasy analysis? Do you consider "the sky is falling" analysis? dco, please look up analysis in the dictionary and let me know if that is what you are providing here.

JM/VVerain- It is that simple. People have 3 choices. If you can't see that I'm not surprised. BUY, Don't' BUY or Wait. That's it. VVerain- I said that to come to a decision one should consider the current market and it's future. And then you are still left with just 3 possibilities.

JM- It is very clear to me that no matter what I say you will just disagree. You to invested in this market to be objective. I have posted many reasons for my opinion and you just choice to ignore them all as BS. That's fine with me. I'm not trying to change your mind or anyone else. I just enjoy posting thoughtful analysis for others to hear. I enjoy the debate and I have learned a lot in the short time I have been posted on this site. What's clear is that this market is slowing. How slow it will get is debatable, of course I know JM you're hoping it's not going to be that deep and surprisingly, so I'm I.

dco has no analysis. His analysis is that he can't afford the high prices, and he read something about credit issues and a Wall Street slowdown, so therefore real estate prices will crash. Great analysis.

"You to invested in this market to be objective."

Funny dco, if you understood any of my posts you would realize that I'm probably one of the most objective people on this board. Try taking your "sky is falling" blinders off for a few seconds, maybe you will learn something.

"I just enjoy posting thoughtful analysis for others to hear."

No you don't. You enjoy posting silly prognostications so you can get attention. It is one thing to be bearish, it is another thing to be over dramatic. Here is a great example of one of many stupid posts:

"Why buy today at 1M when I can wait and buy it at $800,000."

Here is another simple question for you dco. Where and at what timeframe you feel you will get a 20% discount on real estate? Everywhere? New developments in Queens? Yonkers? West Village?

Thank you, vverain! No meltdown - just got to the evilness that resides deep in the hearts of some of you.

So the apartment 3 floors above the one I sold in South Beach for $1 million 2.5 years ago (#2004) is now on the market for $697,000, and it still hasn't sold. The one directly above mine (#1804) wants $989,000.

If somebody won't take a reasonable offer because they're holding out, walk. If one owner can't sell for $697,000, what makes another owner think that they can get $989,000 for an identical unit? Falling real estate markets are not rational.

Oh! This isn't Miami!

The apartment below mine in NYC was offered for rent on nybits for less than I currently pay in rent. Assume they got less than that.

Oh! Rents are rising!

Everything's rising! Real-estate Cialis!

When will you people accept the fact that real-estate is an illiquid asset and it takes time for prices to fall? It does not operate like the stock market. "Comps" are not the same as bid-ask prices.

Sales in Manhattan
We found 8,286 listings
Median price: $1,250,000 Median size: 1,150 ft² Median price per ft²: $1,166

Historical Sales of Manhattan Properties:

2007 - 13,438
2006 - 8,493
2005 - 7,780
2004 - 8,653
2003 - 8,802
2002 - 9,509
2001 - 8,198
2000 - 9,184
1999 - 9,522
1998 - 7,646

Average = 9,122

Take out the two outlying years - 1998 and 2007 - and the average is 8,767.

You're looking at nearly a year's supply, and rising. The slow season is now upon us. Lots of new buildings are coming online, with pre-construction flips (at exorbitant markups!).

Miller Samuel: "The 2007 average sales price was $1,351,621, up 4.3% over the prior year record of $1,295,445 and up 238.3% from the average sales price in 1996, when this trend began."

Too bad nobody's income went up 238.3% in that same time frame.

If you think this can last, you are in for a sad surprise.

Phase 1 = extreme short-term price increases
Phase 2 = inventory rises
Phase 3 = sellers stick to unrealistic prices
Phase 4 = buyers just wait
Phase 5 = inventory rises
Phase 6 = CRACK.

"if you understood any of my posts you would realize that I'm probably one of the most objective people on this board."

I think your definition of "objective" is anybody who agrees with you. Since you obviously agree with yourself, you must, by definition, be "objective."

Welcome back steve. dco will be happy to know he doesn't have to carry your water bottle any longer. It is getting a bit heavy for him. Are you objective steve?

LIccoment- How was your weekend? I hope you enjoyed yourself. How is LIC doing? Pace of sales?

"Are you objective steve?"

No, I have an opinion. I believe I base my opinion on the best facts I can get, such as the Miller Samuel data published above.

Although you occasionally do make sense, I have yet to see you publish any data or refer to any accepted economic theory that would support price levels where they are today.

The foundation of what I consistently argue is that purchasing prices are far above equivalent rental prices, and they shouldn't be because they never are over long periods of time. The rental market is more liquid than the purchasing market, and it more accurately reflects what people can pay at any given moment.

Subsidiarily, I argue that incomes are falling in New York City due to the carnage on Wall Street. Miller Samuel has repeatedly proved that median property prices in Manhattan are directly correlated to Wall Street bonuses. These are for the foreseeable future a) nonexistent, or b) greatly reduced. Therefore, if the principal driver behind increased property prices has died, how can property prices continue to rise or even stay the same?

Then I argue that loose credit drove a good deal of the price increases, even here in NYC. I don't buy the "co-ops stop that" argument because lots of them allowed purchases with 15% down or less, and all new building in Manhattan is condos. The vast majority of recent mortgages - I think 60% or more in Manhattan - were jumbo ARM's, all of which will reset. Most of those resets have not yet occurred, but they're coming. There is tremendous interest-rate risk built into this current market that we haven't seen realized yet.

I also argue that Manhattan suffers the same problem as other overheated markets: too much supply at a price point where there isn't enough demand. Here it occurred because of historical underbuilding after the 1988 crash constricted supply, but starting in 2000 supply began to go up. Oddly, even with increased supply, prices went up. Add to that Wall Street's drunken little escapade in securitizing worthless mortgages with AAA credit ratings, huge bonuses based on M&A activity financed short-term at a 0% real interest rate, then selling tranches of those loans to other investors (again, with AAA credit ratings).

All Wall Street's income - on which bonuses were paid - over the past 5 years has been wiped out. They're not going to do that one again.

Finally, we now have a glut of new buildings whose inventories aren't necessarily included in the streeteasy data because they do their own marketing and/or they don't release all their inventory at once.

Which part of that argument is wrong?

JM- My best estimate is for a 20% decrease ( or more ) in most NYC areas. The outer boroughs will be the first to see the prices fall once the new developments come under pressure from their banks. The inventory numbers will continue to increase significantly as the year progresses. As a result of job confidence and tightening credit demand will decrease to all time low just as the inventory is spiking. The spring selling season has always been a very important time of the year to clear inventory and this spring season actually resulted in inventories increasing. And things have slowed even further since then. No spring selling 08' and no wallstreet bonuses for 09 will deliver the same results again just in time for increasing number of new development units coming to inventory. I would say by this time next year you will see at least a 20% decrease. The 1-2M will see the biggest hits.

JM- is that good enough for you? Wait don't answer I already know. At least I'm MAN enough to state why and when I think these events will occur. Lets hear your projection and time frame.

I say we're going back to 2003 prices. Here's the price history of 1 apartment (which I've been in):

12/10/07 1M $825,000
08/29/02 1M $385,000
12/05/00 1M $334,000

That jump from 2002 to 2007 seem a little odd? It's a 17% annualized compound yield, on an asset that produces no income.

Since incomes do not go up 17% per year, the price differential must be due to available credit.

Here's another one:

11/15/07 4DE $2,150,000
06/06/06 4DE $1,882,000

A 14% increase in just over a year.

Here's what it cost to assemble:

06/23/04 4D $337,500
07/12/02 4E $650,000

What cost $987,500 is suddenly worth $2,150,000?

Not.

I've repeatedly said I don't know how long this will take to occur, but it will occur. As you see in Miami, one person wants $989,000 for an apartment that someone else can't get $697,000 for. What people ask and what people will be willing to bid are two entirely different things.

In the meantime, inventory will continue to rise.

"Although you occasionally do make sense, I have yet to see you publish any data or refer to any accepted economic theory that would support price levels where they are today."

Well, I guess occasionally making sense is better than nothing. The problem with posting data or accepted economic theory as you suggest is that we have yet to agree on where we are today. I have posted plenty of data but if we can't agree with where we are today, then what good is the model? I have (repeatedly) said that that I understand the models you use, they make sense for the most part, and I have used them myself. I have also agreed that price/rents are out of whack in some cases and agree that we are experiencing a market downturn due to a Wall Street slowdown. I agree that new developments are, in most cases, severely overpriced. I even agree with your political affiliations.

When it comes down to it steve, the biggest areas you and I disagree on are your inability to see more than one solution to the problem and what I feel are severely exaggerated “computations” regarding the current problem (not to mention that you put a lot of stock on factors that such as Manhattan new dev inventory, number of jumbo ARM resets, the extent of future Wall St. issues which are very hard to quantify). Anyone can read the papers and paint a doom and gloom story (dco does it every day), what I want to understand is what COULD happen. A 40% decrease COULD happen, but it is not the only outcome. What are the other ways this story could play out? digs posted a potential scenario on his blog this weekend that I believe it has much more potential of playing out than yours. Understanding potential scenarios for how things could play out is much more interesting to me than trying to prove that steve is full of crap every day because he says it is 2x more expensive to buy than rent.

The market will experience a slowdown to the extent of flat to moderate price declines. Good apartments in good areas will continue to modestly appreciate, stink pots will fester until they are priced correctly. Inventory is currently decreasing at a snails pace, streeteasy reports over 7000 sales in the last six months (slowing significantly over the past few months), rents are climbing in certain buildings in certain areas and decreasing in others. What does it mean? Who the hell knows? What I do know is that your opinion is one I disagree with not necessarily because of the inputs but based on the extremity of outcomes you have fallen in love with.

Look at all the sales going on at the RENTAL CONVERSION TO CONDO building at 610 West 110th Street.

JM- It's not the sky is falling, it's condo prices. I have laid out step by step how this market decline will occur and you a several others have chose to ignore it until now. I read your post to steve and it signals to me that your out right denial of a bear housing market can not longer be defended. You are surrounded and taking fire from all angles. When you decide to knowledge the facts and accept defeat I will forgive you and welcome you back to reality. Until then my brother keep your head down it's a lot safer.

Well I'm glad we agree on more than we agree on, but that's besides the point.

I have continuously said that I think that prices will retreat to the 2003 level, as they are and have in every overheated market in the country. However - except in some of my more hyperbolic, attention-getting, drama queen moments - I have always said that I could be wrong, and that it could play out differently. It is possible that inventories will rise and rise and rise and no one will lower their asking prices. Therefore, asking prices will eventually get eaten up by inflation.

I've also said that not everywhere in Manhattan is it twice as expensive to buy as it is to rent. Some places are 1.5 times, some are 2.5 times, but I haven't been able to find any that are appropriately priced.

Urbandigs posted some data a week or so ago stating that he had heard that there would be an enormous amount of closings this year precisely because of new developments. He said 20,000 or so. It's possible, and those closings are going to stop the price data from falling in the short-term. But lots of them are investors who might rent them out, or try to flip them, or do all the other crazy things that people all over the country did, and got burned.

It's what happens after these closings that matters.

There's a lag not only for that reason, but because Manhattan was late to the real-estate game. Yes prices have been rising for a long time, but I think there was a very good reason for them to rise through 2003. Of the oft-quoted tripling of prices in 10 years, they doubled in five: from 2003 through 2008. The other doubling occurred from 1998 through 2003, but they doubled from a much lower level, and right after a tremendous drop in prices from 1988 through 1998. In nominal terms prices in 1998 were still below prices in 1988 even in premier neighborhoods like the West Village, and in real terms far lower. It was natural that that would be corrected in subsequent years. It's what happened afterwards that was crazy.

What happened here starting in about 2003 started in Miami and Las Vegas and California in 1999 - 2000. When they were just starting to build Morton Square, Miami was in overdrive. We're behind them, that's all.

I don't think that "Good apartments in good areas will continue to modestly appreciate" simply because there are too many of them priced for people who are no longer making huge sums of money, who had access to unbelievably loose credit.

The worst is yet to come.

stevejhx: "However - except in some of my more hyperbolic, attention-getting, drama queen moments ..."

I suppose that is another hyperbolic statement ... Steve's "moments" are quite often cuckoo-cuckoo nutcase wackjob, or just plain outright deceit to support his positions, rather than simply hyperbolic or attention-getting. He does seem well-enough behaved today, which could mean that the new anti-psycho meds are starting to build up in his system.

But then again, of all ironies, his post ends: "The worst is yet to come."

Vverain, did you not learn from the last exchange with eah?

Personal attacks are unwelcome. To the extent I ever engaged in them, I have apologized and promised not to do it again. You might want to consider doing likewise.

"I read your post to steve and it signals to me that your out right denial of a bear housing market can not longer be defended."

Well if that's what it signaled to you, you may want to recalibrate your radar and make sure you switch off the doofus setting.

"You are surrounded and taking fire from all angles."

Are we looking at the same board dco? You are not on that GI Joe site again are you?

"When you decide to knowledge the facts and accept defeat I will forgive you and welcome you back to reality."

Thanks dco. I will knowledge the facts when you can provide some that aren't plagiarized from the NY Post or a Big Bird does real estate cartoon.

Personal attacks are unwelcome why? Because they forced you into a mental meltdown? Because you started them and couldn't finish them?

"To the extent I ever engaged in them" ... that's a laugh. You were the #1 person engaging in personal attacks. "Hyperbole" once again.

"I have apologized and promised not to do it again." ... I didn't see many apologies and certainly not one directed at me.

Nice to see the fraud is back. Add some more drama and we have our old Steve back.

(ps - if this starts to get too nasty, you can always ask to have it removed which you've done a few times rather than apologize).

"You were the #1 person engaging in personal attacks."

Doubt it.

"and certainly not one directed at me."

For what? I have no reason to apologize to you for anything.

"if this starts to get too nasty, you can always ask to have it removed which you've done a few times rather than apologize"

The only thing I ever got removed was the person posting under names similar to mine. I did block eah, however, since the posts were truly offensive.

Jm- How can I plagiarize something that you believe I make up with no bases or analysis. In actuality when you disagree and call me a person of no substance you actually mean that I steal all my arguments from very intelligent individuals and pass them off as my own. Well if that's the case then I'm a liar and all of my dooms day predictions are actually based on market experts who are much smarter then you. So which is it. I'm I a liar or are you just stupid and naive.

There we go. I knew it would only be a short matter of time before I could tease nutso, angry, deceitful Steve out of his shell.

relax dco, I'm just having some fun with you. You are not a liar nor a person of no substance. I just don't agree with you. Actually, I'm pretty tired of the back and forth market direction stuff. joepa had a great thread last week about neighborhoods, that was fun. VVerain, steve, dco, and others, let's move on from the endless market debate and talk about some productive things like terraces, the next great neighborhood, crabby neighbors, etc. I think we have beat that horse. I JuiceMan am officially done with market debate.

Juice- I haven't engaged in much market debate.

"I JuiceMan am officially done with market debate."

You've conceded you lost?

The market debate is the most important debate raging today. Who cares if people have granite countertops? Since when are terraces productive?

JM- I accept your invitation and I will try to refrain from the BS. You are absolutely right when you say we have beaten a dead horse. I'm actually exhausted. It's very clear that many people are passionate about this city and that's always a good thing. Rent or Buy we are all New Yorkers and I for one never like to see anybody lose their job, home or life savings. If anyone has ever been in that situation or seen a loved ones who has it's devastating and scary. Lets hope the brains on the street can right the wrong and get this train back on track. What do you steve, even Gaza has peace from time to time.