5 year projections

Flatish through 2010, with some increases, some decreases (maybe more marked decreases up to 10% for a couple of quarters but will quickly recover after inventory gets run down)

2010-2012 -- Sluggish appreciation (5-7%)

2012-2014 -- More robust appreciation (10-15%)

Note that inventory is now down to 6900 give or take... population is still 1.8 million

"Note that inventory is now down to 6900 give or take... population is still 1.8 million"

Average annual sales in Manhattan = 7,500 over the last 10 years. Add in new dev held back, listing not here, and you have a 1+ year inventory.

"More robust appreciation (10-15%)"

You will never see that happen again. Ever.

Inventory is down for the summer - lets see what happens after Labor Day. Here are my predictions:

2009 - Flat
2010 - Great until mid-June when city is hit by plague
2011 - recovering - prices spike in October with rumors of Euro crash
2012 - down - until election of President Paris Hilton when prices grow 200%
2013 - down 45%

october: ha ha!

will, 5 - 7% appreciation is not sluggish. It's way above average (historical average is 4%, equal to wage inflation). 10 - 15% is once a life time (sort of like dot-com stocks growing 150% a year - happened once, lots of people made money, but foolish to think it'll repeat)

I believe two possible scenarios could play out:

Scenario 1:
2009 - drop by 20 %
2010 - slight up tick (a.k.a fool's rally)
2011 - drop by 10 - 15 %
2012 - 2015 - flat
2015 onwards - 4% appreciation along with inflation

Scenario 2:
2009 - 2018 or so - flat to moderately down depending on year, region, etc

Hey airahcaz,

Just to let you know, I responded to your thread over at Zillow. Personally, I would expect flat to moderate depreciation.

Come on guys, give the poster a serious answer. Where is West81st?

Based on my experience in the Manhattan residential real estate market, I think anybody who really believes that they can project out 5(+) years is seriously deluding themseves.

But, nevertheless, what I see (at least for myself) is the following -

The value of Manhattan residential real estate will no doubt (and I think we're all in agreement here) trend downwards for sure over the next 24 months (we just disagree by how much/how little). But - and this is a very big BUT - that, in my mind, is due to the absurdly high heights it rose to in the recent market. In general, I think that prime Manhattan is still a very attractive as a 'destination,' and that people who have (serious) money will (to a greater or lesser extent) still want to own here - which is to say, it's not like this real estate market is equivalent in my mind to others such as those in the midwest. In all of tyhe US, NYC is still THE great destination (and, hopefully, will stay that way!).

Therefore, I do see opportunities in the next 12-24 months (specifically by this time next summer) for investors like myself, but only for very experienced, very clever, very informed investors who know what the hell they're doing and can afford to take the long view. As far as the general populace (say a married couple with a baby) who is just looking for a two bedroom joint in Manhattan on a modest (Manhattan-modest, that is) salary, I would not buy in the next twelve months (at the very least), no way, unless there was some kind of serious mitigating circumstance (though I can't imagine what that would be right now).

Dottie Herman recently predicted that prices will fall in Manhattan by 5%, which means that they will actually fall by at least 10%. I would take any predictions that go beyond 24 months with a very LARGE grain of salt.

3-5 years out IS the short-term. Unless you can tolerate substantial risk to investment in the next 5 years, you have no business buying today. If you know you can comfortably stay where you buy for 5-10 years, if you can handle even a 30% drop in value for a couple of years, then buying is okay for you. If RE investing is part of your overall portfolio, then I'd consider it medium risk in the next few years and diversify other investments accordingly.

Interesting thoughts on this thread. I guess I'll throw my hat in the ring.

First of all, I disagree with those that say Manhattan RE will never again appreciate like it had from, say, 2002-2007. It certainly can't appreciate like that long term. But I think there will always be cycles, and thus always short periods of boom and short periods of bust. I don't have data for the late 80's and I didn't live in NYC then, but weren't they similar to the recent years in terms of percent appreciation?

Like Eric Cartman, I think there's a couple scenarios. But I think for all the doom-and-gloom macro economic reasons, Wall Street, and psychology, I think this cycle will take longer to play out.

So scenario 1 might look something like this:
2009: 15% decline
2010: 10% further decline
2011-2012: flattish
2013-2014: 5% appreciation
2015-2020: 12-13% appreciation
Lather, rinse and repeat.

So scenario 2 (with higher inflation in the short term) might look something like this:
2009: 5% decline
2010-2014: flattish
2015: 5% appreciation
2016-2020: 12-13% appreciation
Lather, rinse and repeat.

Note that in both cases, the compounded annual rate for the entire cycle is 4-5%.

All this said, I totally agree with malraux that predicting this kind of thing is completely impossible. But it's fun anyway.

ok so, we are almost done with August, so let me start in September

September 08 will be down 0.925% on price and inventory will be down 1.1831%
October 08 will be down between 0.8 and 1.125% on price. Inventory will likely drop another 0.5% to 2.225%
in November, we'll actually have an increase in price due to trends in oil inventory as well as results of the election, for which I predict Obama and a Democratic Senate
in December, the sentiment will continue
in January, there will be a surprising 3.553% drop in average price due to a decline in Wall Street Comp
this will continue in February by another 2.392% drop
in March, sales will decline by 40% as most sellers will have seen the drops in January and February and pull inventory
by April, inventory will have declined by more than 75%, but foreign buyers from Portugal and the Channel Islands will come over and purchase condos, seeing a weakness in the market that is really no more than a dead cat bounde
in May, after those 6 people from Portugal and Channel Islands are exhausted, there will be little activity, other than a rich Russian oligarch who will buy a whole co-op on the Upper East for $250 for all of the apartments except for one little one on the 4th floor. This will skew average price up quite significantly,

uwcider - careful - with exact figures like that - people might think that you are serious!

What's a "dead cat bounde," uwcider? Is this something about which we should be concerned?

I, for one, am VERY concerned about the fearsome 'dead cat bounde.'

Look, just today, GDP was revised upward for the second quarter to 3.3%. Sales of new and existing homes reportedly are up nationwide. The stock market is ticking slowly back upward, and the price of oil is ticking back downward, with some minor interuptions. Jobless claims are down, and unemployment is still at historic lows, though it may rise a little bit more. Interest rates are up a little bit from a few months ago, they are also still at historic low points.

While sales of slowed down in Manhattan, reported prices are still going up and inventory is still going down. Yeah, I know about lagging statistics, etc, but these stats are based on the reality that the bears were speculating about 6 months ago.

As I have said in other posts, I realize that Wall Street has been badly hit and this will have an effect on the local market. It already has. Could be we're in for a sustained era of flatness, like 1950-1980, though not quite that long. Surprisingly, Eric Cartman and I aren't all that far apart, given that his best case scenario is pretty close to my worst case scenario.

6-10% appreciation until 2015. Funny how the've been talking bubble since at least 4 years ago. Human beings are so pathetically predictable.

http://www.millersamuel.com/research/gallery-view.php?ViewNode=1096034424rIMRe

for you joksters out there that's 6-10% per year until 2015.

SteveF - as discussed on other threads, it's pretty easy to spot a bubble (which is why everyone has been talking about it for years), but very, very difficult to predict when it will burst, or at least deflate. Yet all of them do sooner or later, at least in my experience, and understanding of economic history. If you disagree, please point to an asset class at some point in history that appreciated as quickly as Manhattan RE for several years and didn't either fall or stagnate after.

newbuyer...btw..you haven't been waiting to buy since 99 have you?.....if an asset appreciates quickly because of "real" demand than it is not a bubble. There is real demand here and limited supply so it drives up the price...simple...not Einsteinian stuff here....Bubbles are caused by speculation. There is minimal speculation in manhattan except for Hedge Funds managers rolling the dice. Most of the real estate here is supported by "real" demand.

steveF, are you making the case that the income in manhattan (which is what supports demand) doubled between 2002 and 2007?

Stats dont show it.

I know anecdotally I know several people who want to move in, and I see larger number of people wearing "i love NY" t-shirts, but emperically, income has not doubled. hence, price should not.

Yes, eric_cartman is correct. I would like a $12 million apt in Manhattan, but cannot afford a $12 million apt. Thus, since the type of apt we want is in the $12 million range in Manhattan, we will probably move to another city where we can get the same apt for something closer to $2-3 million.

why is price tied ONLY to resident's income?? I'll bet that half the apts in manhattan have no mortgage against them. manhattan is a prestige place. people with money own here becuse it makes them feel important and special. These people from around the US and overseas have money to burn so they put it here.

Inflation adjusted I would predict a 10-25% price decrease over the next 5 years.

"Human beings are so pathetically predictable."

Isn't that how we get the bubbles in the first place?

SteveF, call it what you will - bubble or real demand. Please show me and the rest of this board an asset class at some point in history that appreciated like Manhattan real estate in the last few years, and didn't then either decline in value or stagnate for a meaningful period of time.

Now I know the NYC RE market is in really bad shape. After reading all the post, it struck me, the most telling sign was not the predictions. It's what was not said by the "Bulls" that speaks volumes.

Typical Bull >> "Manhattan RE. is unique and can never fall". AH. Finally people are beginning to realize that the market is falling. In fact, these post's actually acknowledge, by almost everyone, the market will continue to deteriorate.

My prediction remain between 30-40%. When is a much harder target, my best estimate next 18-24 months.

"Typical Bull >> "Manhattan RE. is unique and can never fall"."

This is quite the exaggeration - I don't think anyone with much credibility has ever really said this on this board. You may have inferred that, but it's certainly never been a popular belief anyway.

"I, for one, am VERY concerned about the fearsome 'dead cat bounde"

- Dead cats can, in fact, take off in leaps and boundes. But only 8 more times!

bjw2103: "Manhattan RE. is unique and can never fall"." This is quite the exaggeration - I don't think anyone with much credibility has ever really said this on this board. You may have inferred that.

In fact, ppl say that about NYC real estate all the time. People said the same thing to me several years ago in Miami - "It can't go down; not HERE! This is Miami! EVERYONE on the planet wants to live here! The Sun! The Beaches! The new demand from Immigrants! The Weather! It can NEVER go down!". Now, it's down about 35%, on it's way to 50% (or maybe more). And, I've seen ppl in dull little northeast cities like Philly say the same thing - "It can't go down".

For those who actually study these sort of things: Real estate is a mean-reverting market with respect to rate of increase. OVer the past 60 yrs or so, that mean return has been about 3-4% over inflation, or around 7% or so. The returns over the past few years were 2X that. So yes, the market very clearly will do what it has ALWAYS done: revert to the mean.

Admiral: "OVer the past 60 yrs or so, that mean return has been about 3-4% over inflation, or around 7% or so."

You better get ready to quote a whole lot of sources because many people on here would challenge the "fact" that real estate has historically appreciated in real terms. Oh, and I am not one of them...

"My prediction remain between 30-40%. When is a much harder target, my best estimate next 18-24 months."

I basically agree with the time-line. Buyer's market (read "declining market") for at least 12-18 months, maybe as long as 2-3 years. I disagree on the extent of the decline. Personally, I don't think we'll see anything close to a 30% decline. 15-20% at most, in nominal terms.

But let's say that we did in fact see a 30% decline. The decline doesn't necessarily imply that housing would become more affordable. The general assumption on this board has been 8.5% 30-year fixed 20/80 jumbo, give-or-take. Well, were we to see a 30% decline (especially an abrupt one), there is absolutely no way banks would be willing to lend money at 8.5% here. Cause and effect could be debated: mortgage rates going up (as they are) causes the RE market to go down or a declining market requires higher rates to justify the banks' risk. Point is, we just won't see a combination of 8.5% jumbo rates and a market which is 30% off its highs. Rates could very easily be in the 12-14% range, and mortgages will be a lot more difficult to obtain than they are today.

Let's take an "average" apartment in Manhattan, price of 1MM and CC + RE taxes of $1,300/month. Monthly carrying costs today would be about 7,450/month. But were the rates to jump to 12.5, for example, a 30% decline does very little for the buyer. His new monthly carrying costs (on a 700,000 price) would be about 7,280/month. On top of that, in the next couple of years that little difference will be eaten away by the increases in CC anyway.

Of course, one can refinance when/if rates drop back to single digits, but you have to be able to buy first. And if your income stays roughly the same for the next year or two, you will not necessarily be able to buy "more home" for your money.

By the way, this is in no way an arguement that it makes no difference whether you buy now or later because your monthly payment will be roughly the same. Everybody's situation and expectations from homeownership and/or renting are different. I am just saying that people shouldn't expect being able to buy a much "bigger" or "cheaper" place after a 30% decline.

""Typical Bull >> "Manhattan RE. is unique and can never fall"."
This is quite the exaggeration - I don't think anyone with much credibility has ever really said this on this board. You may have inferred that, but it's certainly never been a popular belief anyway."

It has absolutely been said, many times. As for credibility, I'm not sure any of us anonynmous posters on a message board can really play up the "credibility" card.

BGaria - very good point about the possible/likely interest rate increases. One of the few possibly compelling arguments I hear to buy now is to lock in relatively low interest rates.

You're also right about individual circumstances, refinancing, etc. If you assume that significant downpayments are here to stay (which is not certain, of course, but very possible), then there are many younger people, myself included, for whom the downpayment is a bigger problem than qualifying for a mortgage, from an affordability standpoint.

Also, precisely because of the ability to pay off mortgage or refi, I would still be likelier to buy that $1MM apartment if it drops to $700K, even if the monthly costs are around the same because interest rates went up (assuming I can afford it, of course).

"One of the few possibly compelling arguments I hear to buy now is to lock in relatively low interest rates."

I am not sure that's an argument to buy now. Yes, you are getting low rates, but you are paying more than you would in the near future. You are getting a deal on the mortgage rate, but you are definitely not getting a deal on the mortgage amount.

"Also, precisely because of the ability to pay off mortgage or refi, I would still be likelier to buy that $1MM apartment if it drops to $700K, even if the monthly costs are around the same because interest rates went up (assuming I can afford it, of course)."

Yes, that's the intuitive way to "play" it. The thing is, it still very much depends on what exactly you are looking for when buying a home and how long your time horizon is. In the example above, should you buy the place for 700k in 2 years, you will still be paying substantially more than what it would cost to rent a similar unit. And you would still need to put down a substantial amount (albeit only 165k-or-so vs. 200k now). Refinancing is not free either, and there are no guarantees that you would be able to refi, let alone that you will be able to refi shortly after the purchase... A host of other factors come into play but they have been discussed ad nauseum on this board, so I won't go into them. I am sure you understand them too.

I just find it interesting that almost everybody is talking about nominal price projections for the next couple of years but hardly anyone makes a call on where jumbos are going to be in a couple of years. Seems that most people on this board are not cash buyers (although many seem to be putting down more than 20%). But if you need any kind of mortgage, for any amount, you have to pay attention to interest rates too, not just nominal prices...

I was in agreement to all those that said there would be a significant price drop in 2007 particularly at the end of that year. I am also in agreement to all those that forcasted a crash for 2008. Now I agree with those that call for a significant decrease in 2009.

BGaria, "I just find it interesting that almost everybody is talking about nominal price projections for the next couple of years but hardly anyone makes a call on where jumbos are going to be in a couple of years."

Might that not be an argument for nominal prices declining even further? If the reason prices go down is less affordability because of layoffs and lower bonuses? I may be misreading, but it seems as though there is no consensus on exactly which factors may cause prices to decrease. Some call out four or five factors, including sentiment/psychology. Inventory can be measured, but the effects on inventory of employment, intererst rates, sentiment/psychology, FX rates, etc., are still subjectives. I still don't see any dramatic inventory swells, nor foreclosures, nor bankrupt new developments. And I am most definitely not a "bull."

"Might that not be an argument for nominal prices declining even further?"

If rates go up, that will undeniably hurt the real estate market. That's not what I was getting at though. More than a few people on here have the following reasoning: right now it costs twice more to own than to buy, but when prices go down 50%, renting will be equivalent to owning; therefore I will wait 2 years and buy a home for the same monthly payment as my rent. Eureka!

Well, that's just not the case. That arguement is ridiculous on many levels, but its biggest flaw is not taking into account where interest rates are going to be in a couple of years. From a buyer's perspective, it would not be that big a deal that prices go down 50%, if mortgage rates are in the high teens, for example. Housing would be just as "unaffordable" then as it is now, if not more so.

If the economy (both the NYC economy and the national econonmy) indeed is in such dire shape that it would knock down the RE market 50%, it's silly to hope the market will plummet and borrowing costs will not increase. It's basically equivalent to hoping that borrowing rates will be near historical lows in the midst of an "unprecedented financial crisis" which has not end in sight.

"I may be misreading, but it seems as though there is no consensus on exactly which factors may cause prices to decrease."

Oh, I think it's pretty clear which factors may cause a decline. You listed most of them, and there is a consensus on them. There is no consensus on the extent of the decline, how long before we "bottom out", what happens after we "bottom out".

Again though, it's mindboggling that people spend all this time talking about the foreigners buying less, about the negative sentiment/psychology in the market etc, but hardly anyone mentions mortgage rates and/or the availablity of money (aka liquidity) in a couple of years. Nominal prices only give you half the picture, you can't make a financial decision today by trying to forcast only the decline of the market.

BG - "it's mindboggling that people spend all this time talking about the foreigners buying less, about the negative sentiment/psychology in the market etc, but hardly anyone mentions mortgage rates and/or the availablity of money (aka liquidity) in a couple of years."

Yes, I agree. I also think the inventory of Manhattan coops and condos is so low that a 25% or 30% increase in inventory is not so significant. At this point, though, inventory is apparently lower than earlier this year, though it could be because listings were pulled in the summer, or listings will come onto market after Labor Day to "time."

I too have thought that hoping for BOTH historically cheap mortgage money AND significant price declines at the same time is unrealistic. About the price/rent question, I think it's hard to say just what the multiple of annual rent a coop's or condo's price represents, because in the bigger USA RE picture economists talk about those multiples in re: houses. However, I think it's possible to rent a good studio apt for $30,000 a year and buy a comparable CO-OP unit for around $400K, i.e. 13-1/3x. Rents are declining at this instant, but over time they are certain to increase. I hear people referring to 5-7 years as long term investment horizon. I think of 5-7 years as very short-term when it comes to RE. That's how whacked out people have become in this boom - it never occurs to them that they may be locked in for 12 years, or that their family may live in the same place for 20 years.

I wouldn't rule out the possibility of a full-fledged crash in this city, but so far I don't see any signs of it happening. The signs of it happening would be a much higher inventory, and aggressive advertising of desperate sellers, especially new developments with Crazy Eddie prices and "buy one, get a second unit free." The affordability gap is no joke, though. Most New Yorkers make under $60,000 a year. What do most apartments in New York cost?

While interest rates are relevant, for people with a 5-7 year time horizon, having loans with a lower principal amount and a higher rate would be much preferable to higher principal with a lower rate (assuming equivalent monthly payments) because they'd owe less on the back end when they sell.