It is hard to make a compelling bearish case on prime Manhattan condos

"Apartment 6E is on the market for $1.4MM, but was purchased in 2006 for 900K. "

Years from now, we will look back on that and say, wow, that was stupid.

DaBulls - real estate as a general matter lags behind the stock market. Just wait. (I like how the bulls are not saying that the real estate market is strong - they are just saying that so far it's not that bad.)

How do you know 4E sold for $1.2MM? Wasn't that the asking price? Maybe it went to contract for less. Maybe it won't close at all.

"Real estate as a general matter lags behind the stock market. Just wait"

Hmmm . . . sounds vaguely familiar to this thread: http://www.streeteasy.com/nyc/talk/discussion/347-buyers-mkt-buy-now-or-wait - which was posted almost 2 years ago. I have no idea what the market is going to do, but if you listened to people on this board, no one would ever own a place and we would all become disgruntled people who post incessantly on this board trying to convince anyone who'll listen that the market is going to crash. All along keeping our money "safe" in the tanking stock market.

MMAfia, your comment is hardly helpful to proving a case, rather only a feeling that you seem to have. Sentiment is of course important, but fact is fact.

And West81, the $1.2MM price for 4E supported the subsequent listing of 6E for the higher price. If 4E went into contract for less than the $1.2, it wasn't much less than the $1.2, and it is still up nicely from the 2006 price.

October - I do believe that the real estate market is strong. It is not as strong as previously, but it is strong. So here's a bull saying that the real estate market is strong. And backing it up with evidence.

"October - I do believe that the real estate market is strong."

So did David Lereah (aka Baghdad Bob) before he left and so does Lawrence Yun.

http://marinrealestatebubble.blogspot.com/2006/02/some-fun-at-someones-expense-update.html

So...you're saying that condos are up, but peaking, while stocks are flat. It sounds more like you're making a bullish case on the stock market!

Hi East-Cider. No, I didn't say that condos are peaking, just that the increases aren't happening as fast as in the past. Stocks are actually down quite heavily in the past 9 months, so over the recent history, you would have been better off avoiding buying stocks.

east_c: insightful!

"no one would ever own a place."

You make it sound like a moral duty to "own a place." It almost sounds like we'd never have children, come down with leprosy, and hang ourselves from the nearest flagpole, too, all because we don't "own a place."

"we would all become disgruntled people"

No one who has refrained from catching a falling knife has ever become disgruntled over not being cut.

Most of the world does not own property; most of the world is not disgruntled.

"trying to convince anyone who'll listen that the market is going to crash."

Since 23% of all listings here have seen a price cut in the past 60 days, I think you used the wrong tense.

"All along keeping our money 'safe' in the tanking stock market"

You can get out of the stock market with a click of the mouse, and a $75 transaction cost. Not to mention you can be extremely well diversified.

1 apartment in Manhattan does not diversification make. Costs you a veritable fortune and a long time to get rid of it, if ever you need to.

And it doesn't pay a dividend.

It's easy to make a bearish case: double-digit interest rates.

I'm a real estate agent in SoHo, Chelsea, etc. and so far we're holding our own in choppy waters -- there is still foreign demand and still (somewhat) limited inventory -- but clearly purchasing is being supported by interest rates that look historically low.

Rates may not be at the rah-rah sub 6% level of the crest of the boom, but even at whatever jumbos are at today -- 7.5% for 30% down? -- that's pretty good.

10% or 12% rates, however, would be another story.

I don't think that's going to happen any time soon -- my personal prediction is another year or two of lowered transaction volume and relatively flat pricing -- but radically more expensive money would slam this market.

I'm sitting at home in a prime Manhattan prewar condo, and the last time its price really tanked, it was the combo of Manhattan being an unpleasant place to live, a relatively high level of unemployment citywide, and double-digit borrowing costs.

ali r.
{downtown broker}

"a relatively high level of unemployment citywide"

aka Wall Street?

"double-digit borrowing costs"

untrue. In 1998 interest rates were about 8%, and nobody needed a jumbo loan.

"In 1998 interest rates were about 8%, and nobody needed a jumbo loan."

Steve, do you know what the conforming loan limits were in 1998? Besides, 1998 was the end of the dip. I think Ali was referring to the beginning of it.

joepa - have you even looked outside? The stock market is tanking, Bear Stearns is dead, people are losing jobs, inventory (according to Urbandigs) is not out of this world - but higher than it has been for a while. If you think these are signs of a strong market - you're crazy. (I'm not one of those sky is falling people - but the days of a 20% rise in a year are gone.)

Dabulls - "it is not as strong as previously" - you prove my point.

The bulls are a tad uptight these days.

i think what is happening right now, is that lending standards are very tight, to borrow anything over $1M requires 25% to 40% (depending on lender and type of property) to be in the high 6's. these tough lending standards ( the DTI numbers are very important and no more stated programs), have taken many buyers out of the market. People just can't qualify for the loans, the supply of buyers has been diminished. To add to this problem is that many individuals to get into their homes in the past 3 to 5 years have taken short-term mortgages (ARMS,to justify a lower payment for their higher purchase price) when these mortgages reset from low 5's to high 6's or even 7's (still relatively low,(some won't even qualify for new mortgages) their will be a price shock and/or some people will be forced to sell.
Buyers are not rushing in to buy right now, they know the market has shifted and are willing to wait and rent (most instances it is cheaper to rent versus buy, especially if you calculate a depreciating asset rather than appreciating). in the end pricing is determinded buy supply vs. demmand. supply is still tight and if supply doesn't increase then prices will not have to come down, but i believe over time supply will increase and demmand has been decreased (tight lending standards and buyers willing to wait. its just that this game will not be played out in days or weeks.

"do you know what the conforming loan limits were in 1998?"

I know that in 1998 I bought a 2-bedroom 1-bathroom apartment in the West Village for $218,000. It would now (or at the peak) sell for $1.3 million, nary 10 years later.

It doesn't matter what the conforming level was back then. What matters is that my income has not up 5x in 10 years, and neither has anybody else's.

In 1998 the nominal prices for property in Manhattan was below that of 1988. The same will likely be true in 2018 versus 2008.

"supply is still tight." Not compared to demand it isn't. Supply / demand is not a static concept: it's supply and demand AT WHAT COST?

Therein lies the problem.

BTW I have changed my mind and I now think that the crash in Manhattan will happen rather suddenly. It feels to me that people have just stopped buying. Period.

it is certainly interesting how the mood has changed in three months -- the crash of early '90s happened pretty quickly, as I remember it -- one day it was buy, buy, buy, overbid -- a few months later .... dead -- I hope something can prevent a repeat of high unemployment of the early '90s -- about the foreign buyers, though, I notice a few people have said things like "they're losing their jobs too," as if the foreign buyers are investment banker types -- not always so -- there are people who are entrepreneurs, who have started and sold businesses, etc.

lowery, don't believe the "foreign buyers" thing. They said it in Miami and Orlando, too.

Orlando is a great comparison for Manhattan

It is if you're talking about, "The wabbits are coming hooway, hooway! The wabbits are coming hooway, hooway!"

Or was that foreigners?

Or Martians?

??

steve, I have always sniffed suspiciously at talk of "foreigners" propping up the market, but I have seen evidence that it is no joke -- a consortium of private Irish investors buying up huge blocks of a new high-end condo development, etc. It's just that nothing is infinite. A tremendous amount of wealth was created in the past two decades, and it's hard to "dimension" it. I have said before, what will be interesting is at what point in the downward slide it makes sense for people with cash to move in and set the bottom. Several people have thrown out the figure that Manhattan RE needs to shave 50% to bottom out. While I don't disagree with that in an absolute comparison to market rents, I suspect it will not fall that far before things like the currency exchange rate, lust for trophy properties, etc., come into play.

In our last big downturn there was simply no big cash sitting around. It was not an issue of quality in life in Manhattan versus suburbs or California; bargains were to be had, but most people could not afford to take advantage of it.

Pesky question -- I noticed you said somewhere you had bought a coop in WV in '98 for $218,000. Ouch! You should have been able to pay down your mortgage by now if you had kept it. Then there would be no comparing market rents to purchasing. So there are lots of ways to look at real estate. At some point a prospective buyer may actually look at a mortgage as something they intend to pay off, not to keep at bay for only seven years, and if people really live in Manhattan for its quality of life, they might actually live here for more than seven years.

Hope everyone had a good weekend.

I'm glad to see that my point regarding prime Manhattan condominiums stands unchallenged by fact.

The market for prime Manhattan condos is good, and has held up better than several other natural alternate asset classes, such as investing in the U.S. stock market.

Manhattan is a solid market, and if you are living here, you should consider owning as you will have a higher quality experience.

"I'm glad to see that my point regarding prime Manhattan condominiums stands unchallenged by fact."

What was your point? This, maybe:

"Manhattan is a solid market, and if you are living here, you should consider owning as you will have a higher quality experience."

If so, god bless the higher quality experience in overpaying!

Manhattan continues to be a solid market.

Take the following condominiums being built and on sale now:

William Beaver
29 Madison Park
W Residences
75 Wall
The Alexander, a very exciting development and for more established buyers
Lucida
and more

DaBulls,

How does that translate into Manhattan continuing to be a solid market?

All that tells me is more inventory coming online at a time we just experienced the largest drop in sales transactions in a decade.

Less sales, more supply = solid market?

Somehow, I don't think so.

Sales are down nearly 50% on co-ops, and high 20s on condos.

Sorry, but it takes an AWFUL lot of rationalization or stupidity to call that a "strong market".

DaBulls: "Manhattan continues to be a solid market"

Based on what?! Not sure how you imply that mate. But if you think so, then you had better kiss the ground a la Dottie

"Take the following condominiums being built and on sale now:"

Let me add to that list
Avery (> 50% of units being rented)
Azure (I bet you that units are flying off the shelves in this strategically located bldg on E. 91st Str.)
Georgica
Jasper (they recently had a ~20% markdown on one of their $1MM+ units)
and more

"more established buyers"

What is that? Someone more willing to overpay?

In the medium-long run, I continue to think there are opportunities to be had right now if you are patient and look for them--except in new condo construction. Staggering transaction costs, unknown construction quality, emphasis on finishes that will show age and need refurbishing as the time to sell rolls around, building amenities that can disappear or become prohibitively expensive to maintain, and expiring tax abatement that will cause carrying charges to soar make it hard for me to understand how most new development investments won't turn sour 5-10 years in the future. I'm not talking about exceptional properties like 15 CPW. I'm talking about Chelsea developments, and others around the city. I have not staked out extreme positions on here over the last year and consider myself pretty moderate, but I am baffled by those now deciding to buy into most of these new condos.

"I am baffled by those now deciding to buy into most of these new condos."

Agreed.

Old (-ish) argument, but.....

15 CPW.

According to New York Magazine 16 June, based on intel gathered on (where else!) Streeteasy.com, the average return on a resale unit at CPW was 92%, sometimes in a matter of months.

An admittedly unique and egregious example? Agreed. Bearish? For a certain opportunistic subset of flipper/investors (guilty as charged), yes.

So specific to the heading above "It is hard to make a compelling bearish case on prime Manhattan condos," there's as a compelling bearish case as I'm aware of, unusual or not.

"I am baffled by those now deciding to buy into most of these new condos"

You can you that again.

It is funny that when asked for evidence that the Manhattan market is strong, the only buildings the bulls can cite are 15 CPW and the Plaza. Do you realize how AWFUL the statistics are going to look when 15 CPW and the Plaza are removed form them? Check out Urban Digs. Noah did a great post about this the other day.. The 2009 data is going to look really ugly!!

"Sales are down nearly 50% on co-ops, and high 20s on condos."

Unfortunately for bargain hunters so are new listings.

No they're not. Listings are the same as they've been for months, hovering around 8,000:

Sales in Manhattan
We found 7,854 listings
Median price: $1,250,000 Median size: 1,162 ft² Median price per ft²: $1,155

I only track GV, so I have nothing to say about other areas. But for properties in prime doormen buildings between $800K and $1.5MM in Central and West Village, there have been pitifully few new listings since January. In late March and April there was a temporary spike upward, but May-July have seen nothing more than a trickle of new listings. And FWIW, there is no indication that most of these new sellers aren't still reaching for the sky. See, for example, new listings at 2 Fifth Ave or other lower Fifth Ave listings, the Brevoort and Brevoort East, 1 Fifth Ave. Prices remain as high as they have ever been even if some listings sit around forever unsold. On the other hand, many of the properties do sell. One bedrooms at 2 Fifth continue to break records. It is very hard to make sense of the market and make predictions when you see this.

New listings steve, not inventory. The only way inventory can stay flat while sales slow is for new listings to slow at the same time.

http://www.urbandigs.com/charts3.html

Even then JuiceMan, you are mistaken. Click on the 6-month button: barring a spike that occurred in May, probably due to the opening of 1 new building, the trend has been approximately the same.

Then, given that summer is a slow season for listings, any small decrease is probably normal.

Its getting harder and harder by the minute for bulls to rationalize.

Per today's NYTimes.... finance folks make up 25-30% of buyers, and what they can afford has pretty much been HALVED "overnight" (NYTimes words).

They can only borrow against 1/3 of their anticipated bonuses, down from 100%. Add in the estimate from a wall street compensation tracking firm that bonuses will be down 30-40%. So, lets say 65% of prior year's bonus, and then you can only use 1/3, so you're talking a hair over 20%. Imagine that? Most of Wall Street's buying power cut by THREE QUARTERS.

And these are just for the folks who will still have jobs.

Wow, I just looked at that chart (Urban Digs).

Clearly, the fun is only beginning!

The presence of foreign money is a hugely bearish element to the equation. In almost any market crash the foreign money always come in last and eventually takes the biggest beating. In fact, astute market observers use growth in foreign investment as an excellent contrarian indicator (Asian Financial Crisis, Latin American crisis...the list goes on and on). And when foreign money leaves it all leaves at the same time. European economies are in the process of falling apart (they are about 8-12 months behind the US). Not only will foreign money dry up but it will reverse as foreigners fall all over themselves to sell. Unclear exactly what the catalyst will be but it will come.

Well put. Remember the Japanese before the last crash?

I didn't say it wasn't normal, what I said is if sales are decreasing and inventory stays flat, then new listings are coming to the market at about the same pace as sales, specifically in the last 6 weeks. People keep talking about slowing sales but if listings are slowing as well, we will stay flat. If listings start to increase at a greater rate than sales, then we will see further price pressure.

Urban digs has the answer.... contracts are being signed at about half the rate new listings are coming to market.. the link is posted on another thread, or go direct to urbandigs.com

JuiceMan, thank you for that in-depth explanation of the obvious.

Perhaps you believe that guy who worked on the Obama election team, since that credential makes even a real-estate developer unassailable.

steve, the only reason why it was in-depth was because you didn't understand it. If you knew the difference between inventory and new listings, I wouldn’t have had to spell it out for you.

Nice point about Obama (out of context again). Perhaps you believe that even though the median price in Manhattan is $1100 psft that the entire island is 2x to buy vs. rent?

Out of context? Really? Let me put it in full context:

"So what you are saying is that a CEO of a major real estate investment firm and part of the Obama election team lied to millions of investors all over the world. Get over yourself steve. I believe him."

http://www.streeteasy.com/nyc/talk/discussion/4066-cnbc-story-this-morning

New listings in and of themselves mean nothing. Inventory is what matters.

"the entire island is 2x to buy vs. rent?"

Did you just agree with me on that point?

http://www.streeteasy.com/nyc/talk/discussion/4209-rent-ratio-heat-maps

"Actually steve, I'm mistaken. I thought the yellow buildings were sales, but those represent the rentals. I understand what you are saying."

Maybe not.

1) the statement was in reference to how much he was paying for property in Miami, nothing more. Get a grip.

2) No.

3) When I said I undertsand what you are saying, that meant I understand what you are saying. That map doesn't have every sale on it, but there are properties out there at 2x.

"New listings in and of themselves mean nothing. Inventory is what matters."

Now I know why I ignored you for the past few weeks. What a stupid statement.

It was plainly a stupid comment. "and part of the Obama election team lied."

Gee, do you think?

No what?

Some are below 24x annual rent, but that's the prevailing rate.

"New listings in and of themselves mean nothing. Inventory is what matters."

Absolutely true. New listings need to be compared to something - absorption rate, for instance, aka the ratio to sales. New listings are highly volatile, as one large building can skew the whole thing, and developers deliberately hold back listings so as not to appear to flood the market.

So it's not a "stupid statement." It's a true one.

"It was plainly a stupid comment"

I don't think it was but if it was, who cares? Why do you feel it neccessary to bring it up again? Does it make you feel better? Does it help your ego? Should I go back and re-post all of the stupid things you have said? Why would I, I could give two shits what you think.

steve, I've made an attempt at being civil with you but this conversation is a prime example of how much of a douchebag you are.