Housing Prices Far From Hitting Bottom: Whitney

I read the articles and listen to the financial "experts" but unfortunately Manhattan sellers are not listening. The prices on one bedrooms are not falling. They are still over $600 for a one bedroom.

"but unfortunately Manhattan sellers are not listening."

It will take time - it is an illiquid asset. Read the glut of one-bedrooms. Look at new inventory coming online. There is no money, there are no mortgages.

It just started in Manhattan 3 years later. We will catch up. This is summer, it's slow, sellers are in denial.

Then - wait till their jumbo ARMs reset. Won't that be fun!

Another point Whitney made was how bloated the cost structures of these financial institutions remain. It may take them several years to downsize to levels which reflect the current & foreseeable economic & regulatory environments. Whether it be at the state/city or private level, all I see is contraction in the headlines and financial reports. Real estate values and significant economic contractions have a habit of traveling in the same direction. Financial markets are liquid & quick to price revised fundamental outlooks but real estate can be a slow as molasses.

Patience is key as those who have the cash are in control and not the sellers, even tho some would have you believe otherwise.

Cheers!

Japan was the biggest real estate bubble of all time and Tokyo was viewed as having the most amazing real estate fundamentals possible. The Nikkei (stock market) peaked late-1989 and Tokyo land prices peaked late-1991. Even the biggest bubble pop of all time took 2 years to realize what the stock market was telling you was about to happen. Be patient. Biggest risk is buying too early. Anyone even looking for a bottom will buy too early.

Steve: When I have time, I read some of the posts here for a number of reasons, not the least of which is that I am in the market to purchase a home that I hope to spend the rest of my life in with my wife. I am waiting because I too see a decline in prices coming.

What I find disturbing is the glee that you seem to find in the potential precipitous decline of the real estate market. For better or worse, all of this involves people suffering. Why is this a source of joy for you? No numbers or statistics please. I agree (mostly) with your analysis. Are you really as soulless as you appear?

continuing to ride the fence (ouch!) I would point out once again that there is far more cash out there than some people are willing to consider -- not everyone has their home's equity representing their entire net worth - this thread just reminded me of why I had balked and run the opposite way from those Manhattan condos priced at $470K, $490K and $565K in 2002/03 - mortgages for me would have been ARMs

I usually don't feel the need to defend steve but in this case leasinglawyer you are way off base. People suffering because Manhattan apartment prices might fall. $700k for a one bedroom is robbery, not people suffering.

I enjoyed the interview, thanks for the link Whitney has been ahead of the curve, and correct, for most of this credit crisis. I would be reluctant to disagree with her housing projection. In Manhattan, we are probably in the final stages of seller denial. I would not be surprised to see prices starting to fall even harder and faster after Labor Day, and certainly after 1/1/09. After that, it will be a lengthy downturn in prices. Those with money will be in the driver's seat. For Leasinglawyer, I would suggest you be patient, but active, but don't even bother posting emails about Steve's attitude. Steve, to his credit, has been ahead of everyone else on this downturn, including me. However, I ignored his style and focused on the substance of his arguments. I am glad I did, as I recently sold an apartment that I am sure would sell for substantially less today would I have waited to put it on the market until today. Just focus on the content and less on being a boy scout. People who bought and own are adults who can take care of themselves. If they are so mentally weak as to allow Steve, or any other blogger, to get to them, they are beyond your help

I enjoyed the interview, thanks for the link Whitney has been ahead of the curve, and correct, for most of this credit crisis. I would be reluctant to disagree with her housing projection. In Manhattan, we are probably in the final stages of seller denial. I would not be surprised to see prices starting to fall even harder and faster after Labor Day, and certainly after 1/1/09. After that, it will be a lengthy downturn in prices. Those with money will be in the driver's seat. For Leasinglawyer, I would suggest you be patient, but active, but don't even bother posting emails about Steve's attitude. Steve, to his credit, has been ahead of everyone else on this downturn, including me. However, I ignored his style and focused on the substance of his arguments. I am glad I did, as I recently sold an apartment that I am sure would sell for substantially less today would I have waited to put it on the market until today. Just focus on the content and less on being a boy scout. People who bought and own are adults who can take care of themselves. If they are so mentally weak as to allow Steve, or any other blogger, to get to them, they are beyond your help

Julia: The families that lose their homes when their Jumbo ARM's reset won't be having fun!!! This is is not an abstract. This is a bad time and I find that the general tenor of many of these discussions and steve's "I told you so", values will drop 50% glee) disturbing. I will now retreat back into the shadows.

> What I find disturbing is the glee that you seem to find in the potential
> precipitous decline of the real estate market. For better or worse, all
> of this involves people suffering. Why is this a source of joy for you?

To be fair, you have to figure anyone who has been a bull for the last year or two got a lot of "glee" thrown in their face. Being proven right at the end of it - byy human nature - would cause a reaction like Steve's. I would not call it glee, more of an "I told you so."

"For better or worse, all of this involves people suffering. Why is this a source of joy for you?"

You seem only to look at the seller side of the transaction; on the buyer's side, it is extraordinary good news. All the people who were prudent and DIDN'T stretch to buy, who remained renters, who stayed put, who didn't take out dangerous financial instruments.

What about them? What about the single mother who can't afford these bloated prices, or is spending 50% of her income on a place to live? What about her?

I am looking at the owner's side. I am looking at the person who has lost his equity. I am looking at the family who has lost their home as a result of a re-set.

This is a bad time for all and no time for "I told you so".

The single mother would have taken your advice, rented and been much better off.

These are all simply my opinions, we do live in a capitalist society where only the strong survive so I could be way off base.

I predict homelessness, poverty and depression. Yippie! I was right!!!!!

leasing lawyer - Everybody on this board has been saying that the exotic products have not impacted New York and that Co-Op boards have ensured the financial stability of buyers.

Is that not true? Have people in NYC been excessively leveraged? Have they been using jumbo arms that are about to reset? Have they put down next to nothing after receiving "gifts" from their families?

"I am looking at the owner's side."

You need to look at both sides. At these current, bloated prices, inflation and incomes will take decades to make real estate affordable to the prudent, if prices stay flat. But inventory will accumulate too quickly to allow that to happen. Moreover, banks have stopped lending (did you notice?) which will cause prices to fall even more quickly.

It is a downward spiral, but an inevitable one.

"Have people in NYC been excessively leveraged?"

New development could finance at 0% to 10% down. 60% of all loans in Manhattan are jumbo ARMs that won't reset for another 3-5 years, but that now cannot be refinanced. Co-ops did not prevent ARM's, and many of them allowed 10% to 15% down.

So yes, Manhattan is leveraged.

""I am looking at the family who has lost their home as a result of a re-set.""

Perhaps that family ought to have purchased within its means rather than over-leveraging to buy a home it couldn't afford. Perhaps people should have taken the time to research and understand both the benefits AND risks of their mortgage products before signing on the dotted line.

Let's get some facts straight here.

Respectable, financially-sound coops would never allow 10-15% down. 20% is the bare minimum. Most coops that allow anything below 20% are very tiny (walkups) and, if so, then even a bank, with it's more relaxed standards in comparison to a coop board, would not grant a mortgage. So, you'd have to do an all-cash deal.

Coops also don't allow risky mortgages such as interst-only ARMs and reverse mortgages, and with the few coops that allow jumbo ARMs there's a lot of scrutiny paid to the liquidity position (stocks and cash only please) of the prospective buyer. We're talking about making sure the person has a healthy cash position of at least 36-48x their mortgage + maintenance, documented, and traceable within the tri-state area (so no foreign bank accounts), AFTER the purchase.

Income requirements are also evaluated based on BASE salary, the more consistent component of a buyer's salary for a 2-5 year period based on W2s. So, getting that phenomenal million dollar bonus doesn't enthrall a board.

Even with all of the new condos, the majority of Manhattan is still coop. This is why you'll see sticky prices.

manhattangood...then who are the people paying $700k for a one bedroom, if the coops don't allow risky mortgages, etc. these people will not be selling at a low price because they don't need the money. So does that mean coop prices will not drop and only condo units will drop in price.

"Perhaps that family ought to have purchased within its means rather than over-leveraging to buy a home it couldn't afford."

Bingo.

"Respectable, financially-sound coops would never allow 10-15% down."

Wrong. I lived in one that allowed 15% down (350 Bleecker in prime West Village) but they recently raised it.

"and, if so, then even a bank, with it's more relaxed standards in comparison to a coop board, would not grant a mortgage. So, you'd have to do an all-cash deal."

Pure nonsense, as per the above.

"Coops also don't allow risky mortgages such as interst-only ARMs"

Wrong. I own a co-op and have an interest-only ARM (which I pay as if it were an amortizing mortgage).

"Income requirements are also evaluated based on BASE salary, the more consistent component of a buyer's salary for a 2-5 year period based on W2s. So, getting that phenomenal million dollar bonus doesn't enthrall a board."

Bullshit. Increases in median property prices in Manhattan are directly correlated to Wall Street bonuses. There was a recent NY Times article discussed precisely that:

http://www.nytimes.com/2008/07/13/realestate/13cover.html?scp=3&sq=rich%20bonuses&st=cse

"Even with all of the new condos, the majority of Manhattan is still coop. This is why you'll see sticky prices."

Co-ops are in direct competition with condos. Where goes the price of one, goes the price of the other. If there is no income, no leverage, then no one will buy. If no one will buy, inventories will rise, prices will fall.

manhattangood, next time get real with your posts, provide some documentation rather than just anecdotal nonsense.

"Income requirements are also evaluated based on BASE salary, the more consistent component of a buyer's salary for a 2-5 year period based on W2s. So, getting that phenomenal million dollar bonus doesn't enthrall a board."

Actually, I have to agree with this. Most boards I know of do NOT consider bonuses in their decisions. While they have certainly made it easier for buyers to pay their mortgage comfortably (and thus contribute to price increases), I think manhattangood's point here is pretty accurate. Base salary is what counts.

"Wrong. I own a co-op and have an interest-only ARM (which I pay as if it were an amortizing mortgage)."

stevejhx, I assume this is your Fire Island property. This may happen in isolated co-ops in Manhattan, but I think most people here would agree Manhattan boards are a bit stingier.

"manhattangood, next time get real with your posts, provide some documentation rather than just anecdotal nonsense."

Can we dispense with the patronizing attitude, por favor?

"then who are the people paying $700k for a one bedroom, if the coops don't allow risky mortgages, etc"
To me a risky mortgage is anything other than fixed. ARMs can be done but you have to have a huge amount of cash just sitting around in your money market/pa no further out than Connecticut. The boards I've dealt with are that difficult. Your income debt ratio had also better be extremely low. So you have to prove that you can afford your place today and 5 years from now.

"these people will not be selling at a low price because they don't need the money"
I agree that it's easy to sniff out the desparation. Just look at the price. If it's low, the seller's not just cashing out but wants the place to move fast.

It's just a guessing game on when the money runs out for some. This isn't to say that a condo owner won't have a financial position to hold on to an apartment for 10 years without working and a coop owner always does.

Some people don't like coops and having to deal with all of the financial scrutiny, the interview, etc. so condos have gained in popularity. I don't know if one can substitute for the other just because of people's preferences. Condos also allow more financing leeway but even this is changing.

"Bullshit. Increases in median property prices in Manhattan are directly correlated to Wall Street bonuses. There was a recent NY Times article discussed precisely that:

http://www.nytimes.com/2008/07/13/realestate/13cover.html?scp=3&sq=rich%20bonuses&st=cse"

I just had to comments on the above rant by the infamous stevehak. If anything, the article proves one of my points in underscoring how coop boards are rejecting people because you can have a huge ass bonus and still not pass their sniff test. This just reinforces what should be obvious: coop boards are a pain in the ass (yes) but they make sure that you can have a crapload of money to continue payments on your purchase. The article contends on bonus monies:

"And even those who continue to get bonuses are finding that banks and co-ops will not let them count all that money as part of their income, because unlike a salary, it can fluctuate wildly. "

Manhattangood:

after all the shenanigans that banks have involved themselves in...lending to people who clearly could not afford the loan...allowing all manner of ridiculous appraisals...etc. You actually believe that somehow Manhattan was a sole area of probity and the majority of home owners are in places they can afford...please stop it.

If allegedly sophisticated bankers at Bear Stearns, Citigroup, Merril Lynch etc can do stupid things you can rest assured that the island of Manhattan is overflowing with people and co-op boards who made the same dumb decisions.

"If anything, the article proves one of my points in underscoring how coop boards are rejecting people because you can have a huge ass bonus and still not pass their sniff test."

Yup - NOW, not before. That's the whole point of the article.

"coop boards are a pain in the ass (yes)"

agreed.

"but they make sure that you can have a crapload of money to continue payments on your purchase."

Not always. Else all those co-ops wouldn't have gone bankrupt in the 80's, would they?

"And even those who continue to get bonuses are finding that banks and co-ops will not let them count all that money as part of their income, because unlike a salary, it can fluctuate wildly. "

verb tense: "are finding" "will not let"

NOT: "were finding" "did not let."

Your rebuttal is disingenuous.

"You actually believe that somehow Manhattan was a sole area of probity and the majority of home owners are in places they can afford...please stop it."

i'll give you the benefit of the doubt that you're from here but by the way you speak of the "allegedly sophisicated bankers at...", you're not and you're not in the financial industry either. hence, the disenchantment with Manhattan and Wall Street, i bet...

appraisals were doctored in other areas of the country so do i think that's possible with comps in manhattan? no everything's i plain sight and streeteasy.com is everyday proof of that so we can't go around selling apartment 3A for more than the PH in the same building in the same year, right?

new developments in other parts of the country were self-financing to get around bank standards and is this pervasive in manhattan? no

Can people overstretch and overreach in Manhattan? of course...that's NOT what i'm contending. however, are there checks and balances here? Yes, it's in the form of coop boards who exist to make sure that you DO get rejected. they've nothing to gain unlike a broker or a loan officer or an appraiser when a sale goes through. they're usually made up of unappreciated, usually nasty people, who want a sense of power and derive it from nosing through strangers' financials.

and if you (or anyone else on this board) is waiting for the culmination of "dumb decisions" by coop boards and Manhattan property owners, then you all ought to be debating on defaults not by individuals but by buildings.

flmd, the whole story of Manhattan real estate reminds me of 13 year-olds at summer camp. Everyone is saying they are getting laid and one feels she/he is left out so out of desperation and fear they sleep with some totally inappropriate person and it is a tragedy but a lesson learned in life (or maybe not). It would have been wiser for them ignore their peers and follow their instincts and wait until the time is right. Nothing makes normally rational people behave irrationally like fear and greed.

steve, you're a foul idiot. you just corrected the grammar of the author of the article that you posted from the NYT.

"steve, you're a foul idiot."

Thank you.

"you just corrected the grammar of the author of the article that you posted from the NYT."

No I didn't. You said, "Income requirements are also evaluated based on BASE salary, the more consistent component of a buyer's salary for a 2-5 year period based on W2s. So, getting that phenomenal million dollar bonus doesn't enthrall a board."

The article said, ""And even those who continue to get bonuses are finding that banks and co-ops will not let them count all that money as part of their income, because unlike a salary, it can fluctuate wildly."

The clear implication is that they at one time did (and they did - see the correlation of bonuses to prices).

If I'm a "foul idiot" because you say that an article speaking in the present tense refers to what happened in the past (as you did) and it clearly does not and I expose you for it, then so be it: I'm a foul idiot.

"it's in the form of coop boards who exist to make sure that you DO get rejected."

Some do, some don't.

"they've nothing to gain unlike a broker or a loan officer or an appraiser when a sale goes through."

Wrong. If the share price is driven up in their building, their apartments are worth more. So they absolutely, positively have an incentive to jack up prices.

"they're usually made up of unappreciated, usually nasty people, who want a sense of power and derive it from nosing through strangers' financials."

It is hard to appreciate such a person.

manhattangood: I work in the fianncial services industry in Manhattan amd I and my colleagues are shocked at the stupidity of the management at places like Bear sterns, Citi etc. Everyone thought they were smart enough to have sold off all those toxic mortgage bonds to some hedge or pension fund in Taiwan. The fact that they kept them on their books to contaminate our entire financial system is crazy. Now that we realize the depths of their foolishness there is no way I believe that some co-op boards have managed to side step the mortgage crisis.

You say things like checks and balances like they mean something...didn't the securtization process of mortgage bonds have checks and balances...weren't the ratng agencies and the federal reserve supposed to be protecting the financial integrity of the system...they did a great job

as to your reply as to what co-op boards would have to gain...I don't know maybe the little fact that their own properties would go up dramatically in value

Manhattangood: I am not disenchanted with Manhattan. I live here. I am extrememly disappointed in my colleagues however. Their greed has brought our banking system to the brink. If the Fed had not taken on what are clearly extralegal measures to save Bear Sterns(and by happenstance JP Morgan Chase) lord knows where we would be.

Since when do coop boards determine the sales price?

steve, you first say
"Bullshit. Increases in median property prices in Manhattan are directly correlated to Wall Street bonuses. "

now you're saying
"If the share price is driven up in their building, their apartments are worth more. So they absolutely, positively have an incentive to jack up prices."

Quite a vascillation there...

I'd love it for someone to find on a public database like streeteasy.com a building whose pricing has been away from the going market prices in square foot. Be fair. It has to be a comparable by neighborhood. The only immediate exception is 15 CPW. That place has the luxury of putting any price tag on its units. Prices are not determined by coop boards in individual buildings.

"Since when do coop boards determine the sales price?"

Often co-ops will deny a sale because they don't think the price is high enough. I know someone that happened to.

steve, you first say "Bullshit. Increases in median property prices in Manhattan are directly correlated to Wall Street bonuses. " now you're saying "If the share price is driven up in their building, their apartments are worth more. So they absolutely, positively have an incentive to jack up prices."

What in god's name does the one have to do with the other?

Quite a vascillation there...

flmd has a good point. in particular, from 2002 through 2007, the growth in all the fixed income businesses at the big houses was at a breakneck pace, and oversight and controls got sloppier and sloppier, as rates were so low that it was raining money (in fees) in buckets. people who think that business cycles come and go, and so equlibrium is going to be reached in due time, and it's no big deal, don't grasp what an unprecedented period of massive liquidity we've just come through. this suggests to me that this won't be an ordinary correction, and i don't think people understand how much easy money inflated the nominal prices of the real estate that was purchased during that period. the liquidity has dried up, but the price correction, at least in manhattan, is on a delay, and still hasn't incorporated the future difficulty of getting a mortgage at a low rate.

What I'm reading here is I should stay in my studio (coop) and wait for a year before I look for a one bedroom. I hope everyone is right and that prices don't go up.

flmd, back in the 90's UBS and Solomon Brothers were selling 7 and 10 year S&P volatility at 20 thinking they were going to make a killing. When realized volatility hit 35 Solomon went under and UBS almost did as well. The brokers who sold the vols at 20 were already paid and out of the door before the blow-up hit. Don't tell me how Wall Street is so smart and disciplined. It's the wild west, especially at the big banks. Citigroup is almost out of business. We won't know the answer until October.

80sMan: everyone knew those bonds were toxic...they just did not know how long they had until the party was over. Their greed and jealosy (everyone is chasing Goldman) caused them to take on crazy leverage. That doesn't mean they're not smart (remember they are the ones who think of new ways to seaparate main Street from their money)...jusy incredibly greedy.

In fact they are so smart...they are going to get the taxpayers to bear the brunt of all the losses while they run off with the profits. There may be some regulatory fines (the auction rate issue is a debacle) but the fines will be a very small percentage of the profits that were made.

By the way, it is common knowledge on the street that the Fed does not want Lehamn, Citi, Chase or Wells fargo to go out of business. They will violate any and every law to make sure it does not occur. Of course, it may still happen, but that will be after all of our tax dollars go tosaving them

flmd, the traders who sold vol at 20 marked their books with vol at 18 even though they knew it was really over 30. The loss is shifted from salesperson to trader to bank to shareholder to taxpayer. Nothing ever changes.

steve makes tons of mistakes and misleading comments on this board. You really can't trust anything he says. It is amazing how he can be so mistaken and so patronizing and rude at the same time. He obviously has very poor social skills.

LICC, is that the best you can come up with? A baseless personal insult?

BTW

Steve " Else all those co-ops wouldn't have gone bankrupt in the 80's, would they?"

Just curious Steve, how many co-ops filed in the 80's? Oh, none, really?

The first Manhattan co-op to file - EVER was a co-op in Washington Heights in about 1991 or 1992. Look it up, Dude

80sman: which is why I am certain that there are a fair number of co-op boards that have allowed interest only mortgages and have taken less than 20% downpayment.

hrdnitlr - "people who think that business cycles come and go, and so equlibrium is going to be reached in due time, and it's no big deal, don't grasp what an unprecedented period of massive liquidity we've just come through. this suggests to me that this won't be an ordinary correction,"

How do you see this liquidity sea change affecting things other than the real estate market? I am hearing rumors of businesses paying their vendors and subcontractors more slowly, and I also heard that a major employer (not a financial house) in NYC has a hiring freeze. When you say this will not be an ordinary correction, do you mean the inflated real estate prices, or something more global, i.e., small businesses closing, increase in unemployment, etc.?? thx

Wait, steve made a completely incorrect statement again? Shocking . . .

Time, Inc. has a hiring freeze... I can tell you that. I'm sure there are (many) others...