If it hasn't come down, what could possibly make it?!

GG, I am, in fact, looking in Manhattan, and in some of the more prime areas. Still maybe the same price range as you, however, as I'm looking for a 1 bedroom.

Hey, juiceman and tenemental - I always think a tour of The Bronx's infamous staircases would be a great documentary - those scarey narrow things that take you from one avenue to the next where the cliff is too steep to put a road on. They're always cluttered with garbage, which adds to the sense of apocalypse yesterday. About the outdoor cookery I mentioned - I saw that an "African restaurant" on either Third or Morris Avenue -- the inside was empty one day as I walked by, and on the sidewalk a large charcoal or gas burner was being readied. But it's all getting very weird with the changes going on -- at the basketball courts on the Harlem side of the Third Avenue Bridge I recently a bunch of white boys playing basketball. It took me a while to realize I was doing a double-take. After all, what's the big deal, right?

Ok, dmag -- fair enough. You're watching upper-end one-beds in Manhattan and not seeing much change, while I'm watching houses in the boros and seeing modest drops.

We seem to be talking about two different things, but really we're not. We're talking about a down cycle that is going to affect some neighborhoods and not others.

I think that is *the* interesting question here. Who's going to get hit, and who isn't?

A lot of the discussion on this board is confined to a question so broad as to be meaningless, ie is NYC real estate going to drop?

The market is dropping for certain product types in certain areas. What does that include, and what does that leave out? It would be interesting to hear from people who are doing broad-based searches in various parts of the city -- they may have a better idea of what's going on than anybody else.

And then there is a deeper question -- might falling prices in a marginal neighborhood in Brooklyn affect a high-end district on the Upper West Side?

It seems to me the answer could go either way. Either there is no effect, or the effect might be a slow-moving "wave" that takes years to make itself felt on the streets north of Lincoln Center. Maybe it will be so slow as to never be felt in any practical way.

But remeber, the wave DID work in reverse: rising prices started uptown and gradually spread out to envelope the marginal nabes in Brooklyn and the other boros.

Markets are interesting, aren't they?

Interesting, yes. Frustrating? Even more so. I am pretty good at reading trends in markets and acting correctly on them, and this is one that has got me. I am starting to believe that even as the dollar strengthens and foreign interest begins to dissipate, the local demand engine might kick in and take its place. It is as though the "perfect storm" existed to keep prime Manhattan real estate from coming down while it destroyed the rest of the country. We've side stepped a devaluation here (in prime markets). Its unbelievable, but I think that it is one thing to be wrong, and another thing to be able to recognize it and correct the wrong by taking proper action. Was hoping someone on here could shed some light as to what I may be missing, but I'm not seeing it. Please, someone, what is the catalyst that will bring us down at this point? I see nothing but an improving Wall Street environment that will pay to stay competitive with its bonuses, Wall Street guys that are prudent and have been saving and can weather a year of lower bonuses, and money on the sidelines (amongst it, mine) that is waiting to buy at levels below $1,000/ft. Will a slow bonus season bring in less demand? Absolutely. Will that bring down the market? A slow summer hasn't, and no one seems desperate to sell. Are these seller going to throw the towel in come January? Any thoughts?

dmag2020, Manhattan just saw a 40% drop YoY last quarter in sales transactions.

The demand curve fell, but due to the illiquid nature of the market, sellers haven't re-adjusted prices and as a result, prices have not come down. The market hasn't adjusted yet to the sharp drop in demand and prices are out of equilibrium, even assuming an inelastic or near vertical supply curve.

This is typical behavior in an illiquid market. The moment you confirm a significant drop in transaction volume due to demand destruction, you can anticipate the "standoff period" afterwhich follows the price reductions to match the significant drop in demand.

This is exactly what happened around the nation (or for that matter, any other illiquid market when demand drops significantly). First, the sales transactions dropped dramatically, but the housing cheerleaders still clamored about how prices had remained 'stable'. It was only after a full year since the New Home Sales transactions numbers had been dropping did prices start tumbling.

I'm not trying to explain the cause of all this. I'm just telling you what happened, 40% drop in sales transactions YoY, and what will surely follow given some appropriate 'digestion time' in this illiquid Manhattan market. This same process has been repeated many, many times over in many other local real estate markets and even as a national market.

In this sense, Manhattan is not different, because it cannot escape the laws of basic market dynamics and supply/demand.

dmag2020 - for what it's worth, I had the following conversation yesterday. I'd be curious to know where you're looking. You seem to have a slightly different view of what's going on.

[as posted on another thread, in response to another post]

Just got back from brunch with a friend who's a long-time broker at Elliman. She has no incentive to talk things down, obviously, but told me that studios and 1-bedrooms are in a world of hurt right now and that there's such a glut that folks are looking for adjacent 1BRs as a cheaper alternative to buying 2/3 BRs.

Her take on buying 2/3 BRs is that it's holding up pretty well (some softness) and said in general May/June/July were busier than Feb/Mar/Apr but that she fears that the overall slowness will continue for some time.

Her take on 1BR/studios was that the glut is only going to get worse with new condos and flippers.

But what the hell does she know? She's only a real estate broker. Should we believe a real estate broker who is being honest about a down market to a friend? Or should we believe SteveF, who just invested in a condo with declining equity value?

As for me, I do work on Wall Street, and I can tell you that banks are paralyzed by balance sheets with lockjaw. I don't think the deterioration of credit card receivables, withdrawn home equity loans will help much either. But hey, I just see what's happening everyday.

My friend (Elliman broker) had been pretty pushy in the past about buying. Today she said, and I quote, "Makes sense to rent right now. Save some $$. This market's not going anywhere fast."

"I sold my studio because everyone said prices are falling and I better put it on the market. Well I did and it sold quickly and now I cannot find a one bedroom because no one is willing to reduce their price so I'm going to have to move into a one bedroom rental, not what I wanted. Everyone talks about prices falling well they are not!!!"

Julia - am I missing something? My question is if you think the market is going down, why would you sell a studio only to immediately roll that money back into a potentially larger and more expensive 1 bd room apartment?? that's like selling all your Cisco stock in march 2000 and then a week later putting those proceeds (plus some margin borrowing) into Yahoo stock... the whole point of selling at the peak is to rent for a year or two (or whatever) and then buy later once apartments have dropped in price! personally, i think if you had little tax leakage on your sale, i think it was a good decision (on a risk/reward basis) to sell now.

Dmag, I agree that the predicted fall in Manhattan housing prices is taking longer than many thought. But I do think the 2008 bonus season (mostly in Jan/Feb 2009) will be the catalyst you described, as urbandigs has described in a great post on the subject in January:

http://www.urbandigs.com/2008/01/bonuses_its_2009_that_will_hur.html

I think this is still accurate. 2007 bonuses were flat on the prior year due to a record first half of 2007 and a wait-and-see mode on the part of banks. Since then, there's been plenty of headcount reduction (particularly if you include Bear Stearns) and I'm sure there are rounds left to come. Wall Street revenues are down sharply and there is no sign of this abating in the second half of 2008. As the WSJ reported today, most economists expected the second half to be better than the first, but in fact it will be just the opposite. Consumer spending will likely slow, jobs will continue to go the wrong direction, etc. Credit will not appear for a while as new balance sheet problems are discovered on a daily basis. All of this will be bad for Wall Street of course. As headcount declines and total pay retreats in Q1 '09, expect prices to finally fall in Manhattan around Q2 2009.

Until then, things will go sideways. Some promising edge areas have already seen declines. Developers with built inventory will be cautious about price cuts or mask them by picking up closing costs, etc., especially if their construction loans are not yet due. Many sellers will pull their units from the market or hold the line on their 2007 numbers (hence the huge volume decline we've already seen). But the reduction in the supply of money in Manhattan combined with fear will send prices down -- it would have to.

Special K good post. Most of what's available is pure unadulterated crapolla. One Bedroom glut give me a freaking break. Where's the glut in crappy buildings, in crappy neighborhoods, with crappy layouts and crappy views. That's where the glut is.

dmag2020: I, like you, am frustrated and unable to understand this market, direction, all the factors, timing, etc. The obvious point that "what goes up must come down" has been made by many on this thread. I will just add that it usually happens just when everyone gives up on it happening.

I worked at a tech-focused ibank during the dotcom boom and bust. By early 2000, rational investors who refused to buy the hype for years were starting to capitulate, basically saying "if the boom has lasted this long, maybe it really is a new paradigm, and a company with no revenue and no real business model really can be worth billions". Of course, everyone knows what happened later in 2000 and into 2001.

Obviously NYC RE is different than tech stocks, each with their own complexities and nuances, but the dynamics of boom and bust are generally consistent. No one knows what's going to happen for sure, but I am renting and watching the market precisely because I think it's much likelier to stagnate or go down in the next 1-3 years than go up.

Well said, newbuyer. Plus, I'll add in that the stock market usually moved much quicker because you can buy and sell in a few minutes. Relative to stocks, RE has incredible intertia.

"Wait a minute, if anyone's responsible for their destructive influence, it's the brokers and hyper-bulls who have been chanting "buy now or be priced out forever" until recently. They might be the ones who encouraged Julia to buy a studio apartment that she never really wanted in the first place. (she's said as much, here)"

BINGO...

Newbuyer, good points. Thanks.