This market is unsustainable....

People have been saying this for 20+ yrs.

Are you talking about a specific part of NYC or price range? In the long run, I think that the top 0.1% will keep pulling away from the middle class and that the prices of luxury apts will continue to go up.

Almost every 30-something couple I know in NYC makes well over $300k annually, that seems to be the minimum wage at this point. About 20,000 people make over $1m per yr as well.

I believe there are more rent controlled and rent stabilized buildings in Manhattan than coops and condos combined. Therefore Manhattan will never become a borough for the rich only.

I remember when first moving to Manhattan for work in the early 1980's that I could barely afford to rent an apt. in a half-way decent neighborhood. And I was able to do it with no help from anyone. Today, that is impossible. I feel for young people today who study and get good jobs but cannot live in Manhattan or Brooklyn without finding roommates or getting help from their parents.

As for buying an apt., without help from parents or grandparents, that is now impossible for most entry-level workers pretty much anywhere in NYC. We are the worse for it. The Manhattan I knew back then and the Manhattan of today are much different. Its small wonder that Brooklyn is so desirable for the young and its not just about cost. I look around Manhattan today and see an island full of old boring rich people.

Without some dramatic political or social upheaval, this trend will continue indefinitely. I wonder how things will look in another 30-40 years.

Devil's advocate...

New York is one of the most important and desirable cities in the world. The upper tail of the world's wealth distribution is large enough to both populate this city and afford NY real estate. Market prices are rational given the limited supply (Manhattan is an island) and the massive global demand.

Why believe that you should be able to purchase RE in the most expensive city in the world with just a decent wage? It is now a global capital; not the same as 15 - 20 years ago. Do you also believe that you should be able to purchase a Ferrari?

I am not an expert on global RE markets, but how is this different from all other capital cities like London, Hong Kong, etc?

Good question on global cities. I can tell you that the same phenomena exists in Chinese cities such as Beijing and Shanghai where home ownership is only available to the rich or with help from family. In China, home ownership exceeds 80% and married couples are expected to buy a home for their wives and future children. But these couples, even if both have good middle or professional class jobs, still cannot afford the down payments required to purchase a home without gifts from their relatives. I believe it is beyond the tipping point for any person or couple to earn enough for a down payment starting from scratch.

The state of much of the world today is that only with property can anyone buy property. This is not the American Dream that once existed.

NY_Houser, I am glad you are only playing the devil's advocate because your argument ignores the fact that many residents of Manhattan's finest neighborhoods can only afford their lavish homes because of their inherited wealth NOT because of their earned wages. NYC has been a global capital for over 200 years and remained affordable to the working and middle-class until recent decades. Do you really want to live in a city full of property-rich elites? Because that is what Manhattan is becoming.

There are a lot of W-2 wage earners who can afford an apartment in Manhattan. Buying is overrated anyway. MrKitty, why not rent? You will save a lot of money unless house appreciation heats up again.

I don't think any environment where rental prices are going down and sales prices are still going up is sustainable. A lot of what happens in the sales market will depend largely on 2 things: 1) what happens with interest rates and mortgage availability, and 2) whether the vacancy rate of 11% predicted by Ten-X actually occurs: https://therealdeal.com/2017/08/02/new-yorks-apartment-vacancy-rates-are-about-to-explode-report/

" I can't count how many garbage houses in areas that I know most would hate are going for ridiculous prices and they sit on the market for over 100 days and more naturally. "

I can't come up with a better sign that there is going to be a market correction than seeing the recent report that the median sale price in Red Hook was almost $2 million.

MrKitty, What is your annual household income and what are you looking for? You have to keep in mind that almost all big cities in the world are unaffordable and have been for a long time including in 2009/10 when western economic system was coming to an end. I remember even in mid nineties, most people on Wall Street with families commuted from suburbs as NYC was not affordable for the space they wanted.

Even with all the additional condos that have hit the market in recent years, the market is still mostly renters- virtually unchanged. As to condo and co-op market- that has changed over time. If you look at the bigger picture the audience is much more global in nature...and it's not international buyers with big wallets- it is also people from all around our nation buying here. What's more, look at other major cities from around the world, and Manhattan isn't all that expensive. Additionally, more than half of condo buyers are all cash and most co-op's are vettiing buyers so carefully, you typically can't purchase one if your finances are weak. Finally, those that earn solid incomes but can't afford prime Manhattan have been moving to neighborhoods outside of the prime areas- one of many reasons for gentrification. I bought in Northern Manhattan 10+ years ago and everyone thought I had lost my mind- now it's a hot neighborhood and there are mom and pop type of stores opening that are being lost downtown.

This is not like the Miami market pre-meltdown when buyers had down payments of 5% or less or negative amortization loans.

Are there places left in Manhattan that are affordable to young professionals just starting out? A few perhaps but these places will be gone in due time. Isn't that obvious for anyone who has followed this market for the past 20-30 years?

But let's face facts. Never mind their income, ask yourself how long it would take for a young married professional couple just starting out to save $200,000-300,000 for the down payment on the average coop or condo in Manhattan? And even if they could scrape together this money, how many coop boards would approve a buyer who could barely afford the purchase? Manhattan is a place to live increasingly for the elite only and I fear that the system is rigged to make sure it stays that way.

The flood of cheap money over the past decade has exacerbated the problem. Imho, when inflation hits , it will be like a wild fire with central banks scrambling to cotain it. Normally, RE prices tend to go
up during inflationary periods, but my guess is that ever increasing central bank rate hikes will hurt equity markets/wealth to an extent where prices will suffer. Dont forget, there is alot of leverage out there in RE, thats not a good thing when rates move up rapidly.

Ximon, Young professional in all major global cities have to save for 10-15 years for a down payment for a small apartment in a non-prime area (like York avenue etc). The case for a couple making $300-$350k in NYC wanting to buy a $1.1-2 mm apartment would not be any different. It took me 15 years of work to buy a nice apartment.

But 300, what's different is that over the last 20-30 years, wages have not even kept up with inflation let alone the cost of housing in this city. When I first started in the early 1980's, I took an entry-level civil service job but could still afford to rent a small walk-up studio at 83rd and Columbus. I agree that other global cities have the same problem but I feel this problem only gets worse over time, exacerbating the wealth gap and creating social problems that may never get fixed. As I said before, this is not the American Dream as we once knew it.

I can imagine what this borough will look like in another 30 years and I don't like what I see.

manhattan - nobody lives there anymore because it's too crowded!

An example of above inflation growth for lawyers (consultants and bankers are similar) and add to it increasing number of women in high paying professions and two income couples.

https://abovethelaw.com/2014/06/flashback-friday-associate-compensation-in-the-1990s-part-1/

2. Looking at the figures posted below, without adjusting for inflation, first-year salaries ranged from a low of $52,000 (Akin Gump, Dallas, 1993) to a high of $86,000 (Fish & Richardson, Boston, 1997; three cheers for IP work). Excluding Fish, the highest first-year salary listed below is $83,000 (Gibson and O’Melveny, Los Angeles, 1997). For reference, Cravath in New York paid a starting salary of $83,000 in 1993 and $85,000 in 1997, and its peer firms in New York offered comparable compensation (but not always exactly the same; we’ll take a closer look at the NYC market in a subsequent post).

3. If you adjust for inflation and convert these figures to 2014 dollars, you end up with the equivalents of $88,400 (Akin Gump, Dallas 1993); $127,280 (Fish & Richardson, Boston, 1997); $122,840 (Gibson and O’Melveny, Los Angeles, 1997); $136,950 (Cravath, New York, 1993); and $125,800 (Cravath, New York, 1997). If we now take $160,000 as the default starting salary for Biglaw in 2014, then entry-level associate compensation has improved significantly over the years, even accounting for inflation. (Let’s not discuss how much law school tuition rates and profits per partner have gone up since the 1990s; it will only upset our associate readers on this lovely summer day.)

I think law actually undermines your argument, 300. First-year associates now are expected to bill hundreds of hours more than they were 20 years ago. The days when one could bill 1700 hours a year and make partner are long gone. Compensation may be up, but compensation per hour sure isn't.

https://law.yale.edu/student-life/career-development/students/career-guides-advice/truth-about-billable-hour

We also have not seen a contraction in that market in a while. In the past there has been some economic event and then all of a sudden the next starting class of first year attorneys contracts by 50%. It was the same when I worked for Arthur Andersen. It's always an issue with partnerships: the first reaction of the partners is to cut hiring rather than reduce their own compensation.

When some event occurs (who knows what it will be: War with North Korea? A new terrorist attack? Some large stock market correction?) the resultant impact on Real Estate will only be exacerbated by the effect of having high dollar new hires reduced.

Whether this is good or bad for Manhattan is immaterial to whether prices go up or down.

Since the computer revolution, internet, and mobile, distribution channels have significantly strengthened and resulted in increasing domestic income inequality. If you are a W2 owner without equity in your company, you are already on the wrong side going forward, because a very large % of owners in Manhattan are not owners due to high income as much as they are due to distributions and, mainly, liquidity events. I know several $30m+ NW individuals and their incomes are often not that much (usually under $1m/yr), in fact, they spend a lot of time and money trying to reduce their W2 incomes.

Overall, NYC is cheap relative to other global capitals. Additionally, there are now 220,000+ people worth $30m and up and 13 million individuals with over $1m in NW (excluding their primary residence).

If you want to own in a global capital city going forward, odds are high that you will either need to own equity in a company (skin-in-the-game), bring in multimillion $ sales from partners that you control and can take with you when you leave the firm, or have incredibly high-level technical skills. It should be noted that all of the high NW individuals I know are risk-takers and live a very lumpy financial life that most people cannot tolerate psychologically.

In summary, the world is sorting itself into two buckets geographically:

1- Owners in global capitals
2- The rest everywhere else

I don't think this trend is reversing unless the internet (free distribution channel) is shut down.

Ali, For the purpose of affordability, per hour compensation does not matter.

30, If there is a recession, all assets will go down not just nyc real estate. Biggest correction in nyc real estate will be ultra luxury condos at 3k plus sq ft.

I wasn't sure which thread to put this in:
https://therealdeal.com/2017/10/20/manhattan-i-sales-havent-been-this-bad-since-the-year-lehman-collapsed/
Investment sales volume down almost 50% - often a precursor to a market correction.

I agree with anonymous that global cities will outpace other cites for investment dollars. City-States such as New York, London, and Hong Kong are more immune to their local economies than non-global capitals. Look at London. In spite of the fear of Brexit, London real estate prices continue to increase. Today, high net worth "global citizens" don't just own property in one major city but in two or even three. Major trends for the future global economy include increasing global mobility, dual citizenships and flexible political boundaries.

Ximon, NYC was vastly different in the 1980s. Everyone from anywhere else thought you were insane to live here. I don't think you can compare the appetite for Manhattan real estate in 1985 to today.

Adding on to 30s comment, foreclosures are at their highest point since 2009

https://therealdeal.com/2017/10/06/nyc-foreclosures-at-highest-level-since-2009-report/

300, hourly compensation can affect affordability under the "time is money" principle...
as just one example, if you're billing four hundred more hours a year (roughly 8 hours a week), you're working another 15-20 hours a week. What if you have a kid or kids? Unless they're old enough to roam the streets, coverage for the extra time you're working could conceivably be another $20K per year in childcare costs. That alone wipes out a good chunk of the longitudinal $25K-$35K compensation increase at Cravath.

Chasing, I remember Manhattan in the 1980's differently than you although I agree things have changed - for better and worse. I remember 1980's Manhattan with much sentimentality. There were problems with crime and crumbling infrastructure but it was also incredibly exciting with quirky little neighborhoods, unique shops and diverse people.

But my bigger point is that, for whatever reason, too many people - especially the young and middle class - are now shut out of the Manhattan experience. Manhattan is cleaner, safer, and more desirable to tourists than in the 80's but its also more expensive, more exclusionary and, at least in my opinion, far less fun.

Much of what made Manhattan a desirable place to be 30, 40 years ago no longer exists in Manhattan. You can't beat it for convenience, but other than that? Too crowded, mostly with tourists.

I can say that Manhattan is much nicer than 20 years back for families. In 1995, I was advised not to go beyond 2nd avenue in the east village after dark. Meat packing had drugs on the street and hookers. Washington Square Park was just getting cleaned up but drugs were freely available. I would not even mention Times Square.

>>>I remember 1980's Manhattan with much sentimentality. There were problems with crime and crumbling infrastructure but it was also incredibly exciting with quirky little neighborhoods, unique shops and diverse people.<<<

I remember 80's Manhattan as well. And I would far rather my hometown be safe, with good infrastructure than 'exciting', 'quirky', dirty, and crime-ridden. If I want those things I'll visit Detroit.

Well said squid. Reduced crime has increased Manhattan’s attractiveness significantly to the detriment of suburbs like Greenwich. Now if property taxes do not keep rising...

The problem is that what made Manhattan safer and cleaner also made it incredibly more expensive and far more boring. The East Village is a good example. The area surrounding Tomkins Sq. Park used to be one of the most exciting places to hang out - both day and night.

Sorry but if you want safe and clean, move to the suburbs. With apologies to some of you, all those strollers that suddenly invaded Manhattan sidewalks and subway platforms in the 80's and 90's represent to me too many yuppie couples trying to have their cake and eat it too. But I bet many of them think as I do that things have swung too far and they also miss the city they they were gentrifying. Compare the Soho of the 1980's with the Soho of today and then tell me which one you prefer.

Here's an example to show my point. According to the NY Times, the average tenured professor at Columbia earns approx. $200,000 per year. Based on a rule of thumb of 2.5x, that professor can afford to buy a home for no more than $500,000. Looking at StreetEasy data for Morningside Heights, the neighborhood has a median sales price of $680,000 and there are only 4 apts. listed for $500,000 or less. Wanna use a 3.0x multiple? That shows 8 listings.

Add some consulting income and income from the spouse, you get $300k. Typically apt level is now 3.5 times due to low interest rates. Gets you $1mm. That is assuming you are not getting subsidized housing from Columbia. Tompkins square is much better in my opinion now. For old memories I watch movies like Serpico.

OK, 300. Lets use your scenario. Now the couple would be probably looking at a two bedroom apt. for $1,000,000. And if starting from scratch, how long would it take this couple to save $250-300,000 for the down payment? Look, my only point is that even in relatively cheap neighborhoods, Manhattan is far less affordable than 20 years ago and I think that is a great shame for the reasons I have already stated.

People used to move to cities because they desired to be culturally stimulated and intellectually/professionally challenged. But choosing life in Manhattan today seems purely a financial decision available only to the homogeneous elite that can afford the price. We are the lesser for it. Not much more I want to add on the subject.

I wonder what would happen to apartment values if mortgage interest rates returned to historical norms (say 6 to 8 percent) and the federal government eliminated the mortgage interest and local property tax deductions. And if rents start going down due to increased supply coming to market over the next few years?

I agree that the co-op and condo market seems unsustainable, with crappy studios going for half a million dollars. I always wonder how someone who is successful enough to afford 500k would be happy living in one of those studios.

One factor is that people are willing to pay lots of money to not have to participate in the NYC rental market. Being a market-rate renter in NYC is an extraordinarily raw deal.

>>The East Village is a good example. The area surrounding Tomkins Sq. Park used to be one of the most exciting places to hang out - both day and night.<<
If by 'exciting' you mean having to step over junkies passed out with needles stuck in their arms every couple of blocks (and often lying face-down in your crappy rental's stairwell), then yeah, TP was certainly the it place to hang out.

>>Compare the Soho of the 1980's with the Soho of today and then tell me which one you prefer.<<
Hmm... let's see... drug dealers and junkies and puddles of vomit and garbage-littered streets... Yeah I think I'll go with the 80's version.

>>Sorry but if you want safe and clean, move to the suburbs.<<
Why? Why is it not ok for the city to be clean and safe? Who wants dirty and dangerous?? Seriously, who?

"I always wonder how someone who is successful enough to afford 500k would be happy living in one of those studios."

No one has ever been happy with New York real estate for the price they have to spend. The 500k apartment is going to come out in the high 2,000s or low 3,000 per month, depending on CCs/taxes/amortization. It's not like they are going to be able to rent a palace for that amount either. Yet the market supports those rents without speculation.

Ximon, I agree with you. I have lived in Manhattan for decades, and every year friends, often double-income families, have left because they feel like they're not getting a good quality-of-life here. If I think about that over time, it feels like the number of them is increasing every year. My friends in San Francisco/Silicon Valley say that the problem is even worse there.

What's scary is a go getter friend recently told me that he plans on having at least $10mm in the bank before he turns 40, as it's impossible to raise kids in the city otherwise. If you think about the fact that pre-K, pre-school costs as much as collegue tuition in the city ... it's a bit scary.

NYC is certainly nicer now with the bike lanes, and much cleaner and safer. However, I don't think most people want it to become Monaco where everything becomes extremely expensive.

JR, Need and want are very different. One could say that my minimum standard to live in the city is 2000 sq ft apartment which will cost $120k per year to rent. Two kids in private school: $100k per year. Full time nanny $60k per year. Car $15k per year. Vacation home $70k per year. Almost $400k post-tax already. None of them is a requirement. It is just a desire. Public schools are far better in NYC than they used to be. One does not need two homes and car in NYC. The same person is likely to want a $3-5mm estate in Greenwich, private schools and three cars including one for the nanny. It is not much cheaper.

Any suggestions on which public schools are worthwhile? I've heard the schools in BPC are pretty good. But I also hear that public school quality in the city varies dramatically ...

JR1 - the school situation in the city varies dramatically from school to school and grade to grade (many people say that middle school is the Achilles heel for the NYC public school system - I don't know whether that's fair) . That complexity is one of the reasons why a lot of people opt for private schools.

Regarding the original statement in this thread, I am also skeptical of the market continuing to rise (and in other threads, some people have discussed the particular weakness in the luxury market, which I personally believe is moving towards a drop), but I think it is worth noting that the real estate market for people working in NYC is massive when factoring in commuters. The rail system allows for people to choose to live in an enormous number of towns while still working in NYC. If people don't want to deal with the NYC prices, then can explore a lot of alternatives.

TeamM, the problem again is the worsening of "good jobs" makes it harder to commute. Medicine and other formerly pleasant/rewarding professions aren't what they used to be, but for ease, let's go back to the law example again. Let's say you're billing 2100. That's 42 hours a week, to produce that you are probably working 60 hours a week, at least. So 10-8 M-F, with another ten hours on the weekend that you can (hopefully) telecommute. If you live an hour and a half away from your job, you're up at six-thirty, spend an hour and a half with your kids in the morning (maybe less if you try to run/work out), shower and get your notes and get dressed, and then you're home at 9:15 at night, after the kids are in bed, and you haven't had dinner yet. However, since you moved SO FAR AWAY you get to be in a nice, inexpensive town like Westport, where the median home price is $1.5MM.

Young people move to Bushwick for excitement.

Four apartments have changed hands in my building in the last couple of years. Three of those went to young couples, and they all had financing provided by Bank of Dad for at least the down payment if not the entire purchase price.

Made me feel so old fashioned, my parents got me a washer and dryer when I bought my first place.

Flarf, I have indeed seen parents gifting the down payment to their young children and it will continue. Rich have to pass on wealth at some point of time.

Just have a juicy downpayment and make sure you aren't a AMERICANT, Racist boards wont let you in

"I remember 80's Manhattan as well. And I would far rather my hometown be safe, with good infrastructure than 'exciting', 'quirky', dirty, and crime-ridden"
You are entitled to that opinion but I feel exactly the opposite. I lived in the Village/Chelsea for 34 years and towards the end no longer felt the need to pay the premium to live there because of most of the reasons that I wanted to live there were gone. At this point I am considering moving out of Manhattan because most of the reasons I have wanted to live here have disappeared.

Moving to Bushwick?

I saw some article a few months ago which said at that time there were 23 studios for rent in Bushwick and 20 of them were over $2,000 a month. For a studio in Bushwick? GFOH.

Back in the mid 80's, my better half and I were earning about 40/45k combined. We were able to buy into a brand new doorman building/1br condo for about 170k in the flatiron district. So about 4x's our annual salary. That kind of math is a fantasy now. Of course back then, there were prostitutes around Park ave at night and some parts of the neighborhood were a bit seedy.

It does seem like prices are maxed out for the time being--at least until people start making higher salaries. There has been a massive run up in prices over the 8 years, and I think will plateau for a while. At least I don't see how they can keep going up at the same rate, since incomes have not increased significantly.

If we see increasing supply, higher interest rates, and elimination of property tax and mortgage interest deductions, then things will really get interesting.

Although salaries aren't going up, the number of UHNWIs (NW>$30m) is going up and that seems to be becoming more and more of the market, particularly the >$3m market.

Anonbk, That is an interesting observation given that the largest oversupply is in ultra luxury >$5mm and >$2500 per sq ft. I do not think oversupply in that segment gets absorbed quickly despite top 0.1% getting richer. Under $2k per square ft new development is still undersupplied in prime manhattan.

300 - when you say that <$2000k per square ft new development is undersupplied, what are you basing that on (particularly from a demand perspective)? I would think that resale v. new development would largely be fungible in this space, and it seems like there are plenty of homes available in Manhattan for under $2000k per square ft.

TeamM, Many buyers will pay a 10-20% premium for new development vs resales which were built more than 10 years back - newer finishes, better quality of construction, more to today's life style and taste etc. Average condo resale more than 10 year old is in $1500-1800 per sq ft (barring a few buildings like 15 CPW) in prime Manhattan. The demand of resales in that price range is still strong as the supply is limited. There are new developments on the West Side highway (1 West End) and Yorkville etc which are close to $2000 per sq ft but they are not prime Manhattan.

Btw, There is very little decent renovated product available in Manhattan in more than 2000 sq ft condos with 3+ beds 2.5+ Baths at less than $1500 per sq ft. There is a demand for it. The same for 1500 sq ft finished condos with 2 bed 2 bath at low 2mm. If you post some examples, it would be great for discussion.

@300_mercer

I don't mean to say that every year the prices will automatically go up. I'm not talking about timing the supply cycles on a monthly or 1-2 yr basis, but about the long-term multi-year/multi-decade trend.

Currently, the >$5m supply is a lot to absorb, and clearly developers got ahead of themselves. If you plot $/sq ft though from 1990-2030, I think the overall trend will be up, and I think the rate will be faster than the baseline inflation rate of 2-3%.

Also, would say that even at $3m+, a lot of purchases are cash (can't find link but I remember reading it is somewhere btwn 33-50% or so, I think on Jonathon Miller's site). Only about 20,000 people in Manhattan make over $1m per yr, so if you are buying on a housing income to salary basis, that is not a massive market.

Makes sense. I did see the Jonathan Miller report. It is in the chart section on his website.

Anonbk, Your main point is well taken that salaried people are not the only people buying apartments in Manhattan. There are many start-ups, business owners, investors, and trust funds etc.

Yes, 300. What you say is very germaine. One of the biggest changes in the resi market over the last 20-30 years is the addition of many new types of investors. Its no longer just the HNW owner-users who are buying Manhattan apt. because the city is cleaner and safer but also investors (many foreign) looking for rental income and appreciation or as pied a terres. And after 2008 many hedge funds starting buying resi in large blocks all over the US. I also remember the many blocks of unsold coop shares that transferred during the 1980's as well as after 2008.

I think this trend may have started back in the 1980's when it became trendy to buy townhouses to use as office space and to buy? Resi is now an asset class all to itself which helps explain the strong price appreciation trends we have witnessed.

Does anyone know of studies that show 20-30 year trends in owner-occupancy or time-on-market? I suspect investors as a % of owners is much higher and that resi as an asset class is much more liquid.

" I also remember the many blocks of unsold coop shares that transferred during the 1980's as well as after 2008"
There was a big change in 1986 when the tax laws changed so that non-professionals could no longer write off passive losses on this type of investment against their ordinary income. It all but killed the market for mom and pop investors buying unsold shares which had a negative carry.

30, were those the days of the real estate limited partnerships that funneled millions to joint-ventures buying commercial and multi-family properties? I remember jokes about doctors who knew nothing about real estate and lost a lot of money as a result.

MrKitty - you think this is unsustainable, just wait until the estate tax gets repealed! What a joke! And carried interest still remains, as does preferential rates for investment income (0 to 23.8% max for capital gains and dividends). Does that make you feel happy??

Next will be CRISPER Cas9 and the the dystopian bifurcation of the human species. The wealthy will pay $1mm or more for genetic improvements to their human germline.

where are we with market trends/predictions now that it is 2018? how's the market looking with higher interest rates?