NYC Real Estate Prices in the 90s

Here is a collection of NY Times articles about the housing market from the 80s and 90s:

http://njrereport.com/80sbubble.htm

newbuyer, perhaps your 60 year old friend isn't a market timer. If you bought any time in the past 40 years, you'd be up to today. Maybe interim years you'd be down, but if you can time every up and down, you'd be better than Warren Buffett. Long-term, yes, he's right. You may have a short-term situation where you'd find yourself better off to have bought two or so years later. You may even have an opportunity where you can use your down payment on NYC real estate or on pre-IPO Baidu, but those are luck circumstances.

I made that exact same point to him - i.e. that I agreed with his statement with the important stipulation that the person's time horizon is long enough. But he said no, that it was never a bad investment even if you had to sell within 3-5 years of buying. That sounds neither right nor logical to me, but I don't have any data to confirm.

It's ironic, that the only one that don't remember, are the Realtor's. HUH interesting....... "Now is the best time." or "Don't wait or you will be priced out" "Re is the best investment, you can ever make"...... I can go on and on......... Lets see how many we can come up with.

dco - I agree with you on this (although my coworker is certainly not a realtor), but would like to see data to confirm. Do you have any data, or can you point me to some? Thanks.

dco-

Don't paint with too broad a brush. As a buyer (only) broker, I welcomed the return to a balanced market. And now that the buyers are getting the upper hand, that bodes well for all except the sellers.

Check out MillerSamuel.com.

Click on the data tab.

You can choose Manhattan or specific neighborhoods.

Coops or Condos.

I prefer price per square foot but there are other ways to look at the data.

Data begins 1989.

The period 1989 to 1997 was not pretty.

Enjoy.

"Knowledge is power." Francis Bacon

newbuyer99- I do not posses such documentation, only to say that lived through it, and many people got hurt. Most of all, I remember many friends, not being able to sell when they wanted. My friends were at least the lucky ones, that were able to wait it out, for many years. I'm sure if you research it, on the net, you will find more then your share of info. Good luck.

Topper - thanks, very helpful.

Topper, thanks for the info. Excellent stuff!

I clearly recall the mid-90s when I searched for my first Manhattan apartment. A call to a realtor or two would produce long lists of inventory over the fax machine. Based on the comps I was doing at the time, I would say that it was not uncommon to see apts. (co-ops) offered anywhere between 30-40% below the 1988 peak prices. One would obviously negotiate from there. My area of concentration was the Upper East Side.

I'll pass along a detail I encountered at the time that may be of some interest. I found certain co-op buildings were having difficulty refinancing their mortgage loans. Perhaps the structure is different today but co-op building mortgages were commonly financed with interest only & 10 year maturity terms. As the downturn lasted for a few years, some of the refinancing fell during a very turbulent period for financial institutions plus the value of the collateral was on shaky grounds. Buildings which had a difficulty securing the new loan, were for the most unmarketable (unless the buyer was willing to pay cash) until the loan could be obtained. Back in those days, this was not an easy undertaking for the boards.

You bring up an interesting point, Serge.

Whenever I consider buying a coop rather than condo, I always ask how big the underlying mortgage is on the building and what my share of that would be. (Amazing how few brokers know the answer to this question - "I'll have to find out.") There are, of course, some coops with no underlying mortgage. But it is a risk factor. And that is key reason why most coop mortgages carry a higher interest rate than condos.

The question isn't really only how big is the mortgage and how much is mine. More relevant is what are the terms of financing. If it is a balloon mortgage that expires in a year and interest rates are currently 18%, I'd be worried. If it is interest only and principle need not be paid for another decade or more, that's quite another thing.

newbuyer99 - for fun you could look at old NYTimes from 1987/88 and compare them to 1993 or so - look at the RE section and the classifieds - there was no Internet marketing back then - find out if NYPubLibrary at 42nd & Fifth have those years, on microfilm and/or paper - it would be most interesting to just browse and follow your nose rather than do data seaches in a computer - I believe you will get the picture

i can tell you that i was looking in 1996 and a 1 bedroom prewar condo at part and 39th was selling for 175k.....today is 1 million....1 bedrooms in that year ..ie coops in murray hill were going for 120k and studios were 40 to 60k...I SHOULD HAVE BOUGHT....who would have known that it was the bottom!

I wonder what pricing will be like in Manhattan in 2018? Do you think there will be people that make the statement "I SHOULD HAVE BOUGHT"? I'm sure in 1996 people were saying that $175k for a pre war condo was crazy. I wonder if in 2018 after owning for 10 years, if you will be much better off than if you rented for 10 years?

Everything is relative. People could also ask, "Should I have bought stocks in 2008 instead of a Manhattan condo?" The key question, is where do you find the best relative values? Is Manhattan real estate cheap today? Or are U.S., international, or emerging market stocks cheap today?

That said, a home is not just an investment. It is also a place to live and a lifestyle. It can also be an important part of a broadly diversified portfolio of financial and real assets.

"Make the money sweat." Honore de Balzac

If you bought just about anything using leverage over the past 40 years you have done well (stocks, art, homes, cars, wine, etc.). That is why we now have a culture that considers it common sense that buying assets on leverage is the right course of action. I have no idea when this "trade" ends but some would say we are looking at it now. When it ends, it will be ugly (high interest rates, plummeting asset values). Manhattan apartments are in no way unique in my opinion - just another asset that has benefited from a good economy and an amazing increase in leverage.

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I had this conversation in an office in about 2003, with some of us saying, "naw, it's gonna pop" and one person saying, "I wonder if someday in the future we'll be looking back at today and saying remember when you could have bought an apartment ofr only a million?"

I also remember conversations naysaying the extent of gentrification in Manhattan. "Columbus Avenue in the 80s will NEVER be chic!" "There will ALWAYS be slummy areas!"

Time will tell - people who bought at the peak in 1988 would be more than whole today, and that '90s slump was very, very bad.

oops, I lost JuiceMan's quote: "I wonder what pricing will be like in Manhattan in 2018? Do you think there will be people that make the statement "I SHOULD HAVE BOUGHT"?"

Also, "I'm sure in 1996 people were saying that $175k for a pre war condo was crazy."

I didn't. I was eager to pay it. But I couldn't afford it, and my real estate was in negative equity territory.

So then i assume you are also massively invested in the stock market (since that math works even better than NYC real estate over a longer period of time)?

I too have only anecdotes, but here's a good one: I bought my first apartment-- a Chelsea alcove studio with a doorman nad Empire State building views -- in 1996 for $65,000.

My mom said she wouldn't help me with the 20% down payment (co-op) so I freelanced it! Needless to say, those days are long gone. If it helps any, money is cheaper now than it used to be, so just looking at prices doesn't tell the whole story.

However, on pricing, the couple I bought the studio from had paid around double that for it in the late 80s -- they had to sell, because they had a kid and outgrew the apartment.

What happened in general in the slump in Chelsea/the Village, which was the only area that I was watching, was that "A" buildings suffered less -- I'd say around 30% -- than "B" buildings (which this was, a doorman co-op, but not a fancy one.)

That time seemed much scarier than this one, not just because I'm in the real estate industry now. The stock market crash of 1987 felt like it would kill New York. The mini-crash of 1988 (which I was on Wall Street for) felt about like the economic turmoil now, but it had happened after the earth had caved in and we were all trying to recover.

Back to the housing effect, at that time you couldn't give away a studio, but one- and two-bedrooms suffered less. Looks like this time around the glut is starting in one-bedrooms.

I subsequently did a bathroom reno on the place I'd bought, and sold it for double what I paid for it. It's worth, I think, about $450K now.

So, "B" building Chelsea alcove studio with doorman and views -- approx. $130K in 1988, $65K in 1996, $130K in 1999, around $450K now. During that time I'd say the cost of money has slid from probably 10% in '88 to 8% when I bought in 1996 to around 6% now.

Hope that helps

ali r.
{downtown broker}

no, I'm not massively invested in the stock market, but if you had bought at the peak in '87 you'd be just fine now 21 years later - today, who knows?

Great write-up, Ali!

Do you think there's a predictable lag effect between an economic downturn and the downturn in NY real estate?

The "official" story to explain why prices crashed in 1990 is overbuilding in a rush to beat zoning changes. I'm sure that's a small contributing factor, but I think the biggest causes by far were on the demand side.

And here's my question to you (unanswered by anyone the couple of other times I've posted it on this board): does Manhattan have a powerful artificial force on pricing caused by the 2-year coop sublet rule? I sort of picture it as a finger in the dike, while the tide is rising on the other side. Collapse, not a little flooding, is the result.

Thanks to all for helpful info, anecdotes, etc. I moved to NYC in 1999 after graduating college, so don't have any personal recollections.

A couple highlights/thoughts from Miller Samuel (I ran all Manhattan condos and coops, median price):

1) The data for Manhattan seems to support the 30% -ish drops from peak prices that people mention on this list. That assumes 1989 was the peak, since the data doesn't go any further. If the peak was earlier, peak-to-trough drops must be higher.

2) It took 7-8 years for prices to come back to their 1989 levels. That's a long time, very painful for anyone that has to sell in that time, and probably pretty frustrating for anyone who "overpaid" in 1989, even if they have a long-term view.

3) Prices in 2007 are approximately 3-4x their 1989 levels (depending on type of apartment). That's 6-7.5% unlevered annualized returns. Obviously not bad, but also not astronomical. By comparison, doing the same with 1994 prices (picking an arbitrary point in the middle of the downturn), the returns are approximately 11-14%. In other words, "I think I should've bought in 1994" is a whole lot more compelling than "I think I should've bought in 1989".

To JuiceMan's point, I think the "$xxx is crazy for ABC apartment" is only part of people's hesitance to buy now. Manhattan prices have always been "crazy" by any objective standard, and will probably always be crazy. Those that refuse to buy for that reason should move, and most do. The bigger hesitance comes from "ABC apartment has appreciated by 300% in the last 7 years, and that smells like a bubble to me". That argument held in 1989, and it holds now, but most certainly didn't hold in 1996, which is why lowery says he was eager to pay it.

Of course, the problem is that it also held in 2003, and 2004, and 2005. Much easier to smell a bubble than to predict where/when/how it will end. But that's why we all have such fun discussions here.

newbuyer99, I think the peak was earlier than 1989 -- I think it was 1988 -- though I can't swear to it. I will ask one of the old hands in my office.

Still, I think we saw peak-to-trough drops on the order of 40%-50% in some cases.

If it takes seven years for pricing to come back, that sets up a new, non-financial test for buyers: "could you stay in this apartment for seven years if you HAD to?"

alanhart, I think there is a predictable lag, because I think what happens (and this idea is partly based on something that Jon Miller said to me a couple of years ago, so I wonder if he still thinks it now) is that the unemployment rate drives the market. It takes some time after a job loss for a certain percentage of people to realize they won't find new jobs immediately, and pull their horns in.

Also, remember Manhattan is not quite in sync with the rest of the country. We are starting to see certain markets nationwide calling a bottom, and I think no one wants to say that about Manhattan just now -- seems like the popular cases are that we bump along flat for at least a couple of years, or that we really really tank in the next couple.

Co-ops IMHO actually are quite stabilizing to the market. If you had to put 20% -30% equity into your apartment, and prove you had some financial reserves, it's a long time before you're underwater. The other thing is that boards are pretty responsive, and if the market starts to dive they'll make a lot of "exceptions" to those sublet rules in a hurry.

ali r.
{downtown broker}

"The "official" story to explain why prices crashed in 1990 is overbuilding in a rush to beat zoning changes. I'm sure that's a small contributing factor, but I think the biggest causes by far were on the demand side."

This time around supply may play a role as well, though admitedly most people have been focused on demand waning. This will be thanks in part to expiration of 421a tax abatement on July 1st. So builders rushed to get permits and break ground on new projects before the expiration of those breaks. In fact, it was so big of an impact that multi-family starts in nyc actually caused nationwide permits/starts to far exceed wall street estimates:

" July 17 (Bloomberg) -- U.S. housing starts unexpectedly
surged the most in more than two years in June because of a
change in New York City's building code that overshadowed a slide
in single-family home construction."

By my rough back of the envelope math, in June alone, builders broke ground or applied for over 20,000 multi-family units in new york city. That is A LOT of inventory to come online in the next 9-24 months!

The biggest factor driving the increase was fairly straightforward.. a lot more income (30% of it from WalL Street). its pretty obvious what has happened to that factor...

I think its fairly clear that "credit crisis / Wall Street bubble pop" will be the "official" story a few years from now...

"If it takes seven years for pricing to come back, that sets up a new, non-financial test for buyers: "could you stay in this apartment for seven years if you HAD to?"

Ali - I couldn't agree with you more. However, I don't think there is anything new here. This is precisely the difference between long-term buyers and people who believe it "always" makes sense to buy (whom I think of as flippers, although I know that definition has been debated here).

Further, I'd expand on your statement in the following ways:

1) I think it's longer than 7%, because with transaction costs and time-value of money, you really need the apartment to come back well above your purchase price, not just to it

2) I think it should be "do I want to", rather than "could I if I had to". If the answer to "do I want to" is no, then you should only buy if you expect significant price appreciation, or it's much cheaper than renting, or you have some other specific reason. Why? Transaction costs again. Say you buy a $1.2MM apartment and sell it in 3 years because you outgrow it. At least 10% transaction costs on the way in and out is $120K - that's a lot of money and will eat up more than half of your profit if the apartment appreciates 5%/year to $1.4MM over your 3-year ownership time.

sorry, 7 years, not 7% in (1)