Funny NY Times RE Article from 1988

"Those who don't know history are destined to repeat it."

Great post. Thanks.

A few months ago, I stumbled across a similar site that contained Manhattan RE headlines from the mid-1980s through the early to mid 1990s. It was an eye opener! The parallels between the two markets have their similarities. The script of the current downturn has yet to be written but given their similar ingredients, the conclusion has the potential of being in the same ballpark.

It's darn ugly out there in the domestic & foreign equity and credit markets. Credit bubble busts can be very dangerous and long lasting in their corrosive macro economic impacts. How long? The last NYC RE flush began bottoming six years after the peak in 1988 just in time of the beginning of the once in a lifetime dot.com bull market.

Thanks for the post.:)

Glad you guys dug it... I was a little afraid of being flamed.

But, yes, the parallels are freaky. I found most interesting that it wasn't written from the perspective of a hot market where everything is going up time frame, but from a "ok, some stuff has happened, but its not as bad as has been suggested" part of the chronology. It points out a pretty clear trend in the psychology of markets...

I love old real estate articles. how about this one:

http://query.nytimes.com/gst/fullpage.html?res=9C06E4DF143EF933A05757C0A96E958260&sec=&spon=&pagewanted=1

Good post, but don't forget interest rates were between 10-12% during that period of time. If we were facing those types of rates in the near future, I would be more bearish than dco.

In terms of rates, if commodity prices continue to fall and inflation is kept in check, the Fed may have some wiggle room on rates and we could see another cut in an attempt to improve liquidity and revive the a struggling housing market. This could have a positive (or at least have further stabilization) impact on Manhattan real estate. Urbandigs has a good post about this on his blog today, interesting stuff.

Not only that, but it took 6-7 years for the market to bottom - which would mean 2013-2014. Who has time to wait around that long? Perhaps it's time to leave Manhattan....

Here's a hoot: I bought in 1989. When I sold in 2007 the property had nearly quintupled in value. Know what's funnier? I bought in the Hamptons in 1999. 9 years later that property quintupled, too. WIth my NYC profits I just bought a new larger coop and have money left to renovate, AND pad my retirement account nicely. My point: it is all a question of time horizon. If I sold in 1991 I'd have lost 33% of the value of the coop. But I knew I had a 10+ year horizon. This is a volatile time. If you have short-term needs, there is NO debate. Rent. If you have a medium term perspective, it is a crap shoot. If you have a long term perspective, do whatever you want because the current market matters much less. Get too obsessed trying to market time your life when you have long term horizons? You generally lose and life passes you by.

And I don't want to give the wrong impression: I'm talking about reasonable relatively modest apartments and home. I'm not malraux at 15 CPW.

xposting this here - but in light of the thread about sideliners/foreigners -- wondering if these articles validate the sideliners, or does it change thinking or planning?

Thanks for the links to the interesting pieces!

kylewest - the apt you bought in 1989 -- how would you describe the neighborhood then and now:
desirable? 'on the way up'? on the edge/fringe? What were your expectations at the time of the neighborhood - did you buy thinking the neighborhood would appreciate? What were your motivations at the time? Thanks

When I bought in 1989 I bought in Chelsea because I liked the area just fine the way it was but knew it was likely to improve--there were no destabalizing forces around and lots of reasons it would get even better. It didnt' take a crystal ball to know that. Great transportation options, increasingly gay (ALWAYS a good sign for RE values), hip, a little gritty on the edges but safe relative to Manhattan neighborhoods. The 20% more I spent got me protected views of the ESB, great layout, solid handsome building, great light. In the end, those things, coupled with a neighborhood that is desireable (at least for lots of people even if I'm over it) proved totally worth it. I put no more than maybe $5,000 into the apartment in 18 years. And still, it sold within 6 weeks on the market for 4 times what I paid. Why did it sell even though it needed some rehad (bath, kitchen, floors were shot)? Location, views, light, layout and building quality. Will I ever quadruple a RE value again? Doubtful. I realize that. But even so, somehow I knew even back then not to get distracted with fancy countertops and to focus on location, layout, building and light and views. Those are the best insurance you can get for the value of your apt in a down market.

Kylewest and jackstraw are the smartest two people on this site!

I remember Chelsea in the late 80s. I remember it being one of the few "middle" neighborhoods in Manhattan south of 96th. Not expensive (significantly cheaper than upper east and upper west) but not "shady". You could walk the streets and not feel that unsafe in most parts, but there was little exciting to it. If the scene had hit by that point, I missed it... it didn't look like much of a scene.

I remember a discussion with a friend back then along the lines of "if you didn't have much money but had to get a manhattan apartment you could fit your kids into, that would be the neighborhood".

One can't forget that some appreciation came from Manhattan demand increasing, and some came from neighborhoods changing from marginal (or whatever the hell you want to call it) to desirable. There isn't much room for that in Manhattan anymore...

I was just bad. I had logged on with a friend's ID because he is still an "Insider" and I forgot to log off. Jackstraw didn't say that last post--it was me forgetting to log out and re log in.

As for Chelsea and hipness of the late 80's and early 90's, it was a gay thing. It was where all the new bars were opening, dance clubs, cool restaurants on 8th. As straight couples and families moved into the apartment of men who died from AIDS in GV and property values went up in GV, the younger gay crowd started a migration into the warehouse district and quiet streets of Chelsea during those years. The migration north continues today as many young people can't afford Chelsea. Hell's Kitchen is next.

kylewest, I have been reading your posts for quite some time and always find them well researched, balanced, and educational. That said, you really should be ashamed of yourself. After stories of quintupling your investments and large amounts of cash stashed for retirement, you cannot afford the $10 a month streeteasy charges as an insider? What’s worse, you log on to another account to use the features that most of us pay for? How much do you think streeteasy saved you during your recent apartment? Did you not get value there?

I am in no way affiliated with streeteasy, but if I were, I would put a donkey next to your name when you post (at least temporarily)

Kylewest - Besides Hells Kitchen, what other areas do you think are next - Harlem, Bronx?

Harlem is moving up gradually. I think the Financial District will start to appreciate greatly in 2011-2012 as the WTC finally takes shape, and the economy goes into a stronger recovery mode. At some point, it will fully blend into Tribeca, somewhat similar to what happened with Cheslea and the West Village in recent times.

kylewest - 15 CPW aside, I'm with you. I invest for long term time horizons as well. I don't think I've held a property less than five yeras, and the majority I've owned have been held for more than ten (some MUCH longer!).

http://www.millersamuel.com/charts/gallery-view.php?ViewNode=1132752161iuzhS&Record=6

1988....a picture slays a thousand bears.........sorry bears but it's better to be informed....

kylewest...thanks for the posts, if possible can you provide a little more of your insight?...you say the migration is to hell's kitchen, how fast is this happening?? Thanks.

Hopefully kylewest knows that my post was tongue and cheek. I seem to have scared him off this thread.

As for Hell's Kitchen... I lived there in the mid 90's. That neighborhood hasn't been cheap or inexpensive for years. There are a number of folks in the finance industry that started moving in about 5 years ago...

Just working today, JuiceMan. I actually had an "insider" account until very recently when it lapsed while I was moving/changing banks & cards during the loan process, etc. And after buying I thought I wouldn't want the "inside" info any longer. But I was wrong, I'm hooked. I admit it. I'm a junky for this site. And you are totally right. I will just rejoin. See how easily little ethical lapses can happen? I'll do some sort of pennance this weekend.

SteveF. Re: Hells kitchen. You should go any night of the week (but especially weekends) to 9th Ave, 42nd up to the mid 50s, and you will see the tranformation for yourself. That japanese tofu dessert place is pretty cool.

thx hsw....appreciate the info....

Hells Kitchen is great. 9th ave is very diverse with some great pubs and restaurants. The only thing I don't like about it is the tourist spill over from Times Square. Prices are still somewhat cheaper than other prime areas of Manhattan and the area is only going to get better. This neighborhood has been "up and coming" for the last five years. It is almost there.

As for above discussion of up and coming neighborhoods: I think it is the wrong question in this rocky and unpredictable market. Why take such a wild gamble by guessing what 'hood is going to improve? In the 1980's 1/2 of Manhattan sucked and was crime ridden so when the crack wars ended and crime was coming down, virtually all areas were improving and it was hard to guess wrong. No area in the past 20 years in Manhattan has really declined. But today is different and most all areas are more stable in Manh without seismic shifts likely to occur soon.

Profit in any market is made by exploiting inefficiencies in MBA talk. One such "inefficiency" may be identifying low RE values that are about to go up in a neighborhood on the rise. But in this climate, I would focus on different inefficiencies to exploit--I think the rising-neighborhood model is baked in Manhattan for the most part. If I were looking in this very uncertain economic climate with chaos in the credit arena, I would (and did) instead seek out undervalued properties in otherwise excellent, stable areas and buildings that are the least affected by downturns. Such as:

(1) Estate sales offer some bargains since anything made on the property is a windfall to the estate while carrying the property is a drain--result: flexible sellers open to negotiation on apartments that are typically beat up and need work. You get to buy the place for a discount, put the money saved into renovations with a taste level you choose. Much better than paying premium for someone else's Home Depot kitchen reno that you hate. The better your financial picture, the more excited an estate will be to sell to you since the sale can likely go through without hitches. Have a credit score of 750+, putting 40% down, have substantial assets and will surely be approved for mortgage or can even waive the mortgage contingency? Estate sellers will LOVE you.

Also great buys: apartments of owners who already moved out. They no doubt own or rent another place already and carrying the empty coop/condo is likely killing them financially. These are often couples with kids who busted out of the too-small apt, who were relocated, who got married and moved in with new spouse, etc. Tip offs: look for apts without furniture or that are staged (no pictures on walls or personal effects in photos--at open house look in closets and see if there are any clothes). If the place is already on the market 30+ days or has undergone a price reduction, these people are freaking out! You have the negotiating advantage.

Use these opportunities to get yourself into a neighborhood and building you might not have been able to otherwise. This reduces risk overall in a market that is going to be quite rocky for a while.

I say these things only to people who are going to LIVE in the apt. and can afford to have the value slip in the shortrun. If you aren't that, you're on your own and I have no advice other than to rent. I didn't and wouldn't be rushing to live in a neighborhood I don't like simply because it may get better. Too much risk and life is too short to be unhappy everyday you come home.

"I say these things only to people who are going to LIVE in the apt. and can afford to have the value slip in the shortrun. If you aren't that, you're on your own and I have no advice other than to rent. I didn't and wouldn't be rushing to live in a neighborhood I don't like simply because it may get better. Too much risk and life is too short to be unhappy everyday you come home."

Really well put. It really gets back to a) what you can afford, and b) what you actually like. The latter is much more subjective than the former, which some forget. This is why I didn't go for Harlem or anything around 2nd Ave - they may be cheaper, but I'm not going to sit there relatively unhappily, waiting for the area to meet my expectations before my eyes. It sounds trite to say, but it's easy to forget that you need that combination of affordability and enjoyability (and being truly honest with yourself about BOTH these things, especially in this kind of market) when buying a home.

> http://www.millersamuel.com/charts/gallery-view.php?ViewNode=1132752161iuzhS&Record=6
> 1988....a picture slays a thousand bears.........sorry bears but it's better to be informed....
Chart entitled "co-op and condo units entering manhattan residential market"

What this misses is that in the 80s, money lived in the upper east side, and to a lesser degree the upper west and a handful of other hoods. The boundaries of where the "same" folks who lived south of 96th street lived then would be living would not include much of Brooklyn, Queens, etc. There were no luxury condos on flatbush ave, or, hell, west 99th street, for that matter.

So, its not just a question of new apartments entering the region, its the region expanding and now more apartments competing for the same dollars. The effective area has been greatly increased...

Short story, Manhattan isn't just competing with Manhattan anymore

nyc.....what??...I don't know what your talkin about but I do know that you are a perfect example of living in denial. Ya know, people who make up stuff to believe what they want to believe.....

"I don't know what your talkin about but I do know that you are a perfect example of living in denial. Ya know, people who make up stuff to believe what they want to believe....."

Yes, it is definitely not good to be living in denial.

"steveF
about 6 hours ago
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Manhattan will experience 6-10% normal historical appreciation for the next 1-2 years before the sideliners jump in and combine that with the fed liquidity injection and it's off to the races....I luv owning Manhattan property! it's like buying a great stock without all the gut wrenching ups and downs....."

Thinking that 6-10% appreciation is "normal" and that the Manhattan market is "without all the gut wrenching ups and downs.....", if not denial, would to me infer a recent transplant to the city...

Too many people still don't consider the tighter credit market and its affect on prices in the near-term. All those places that were purchased with 10% down. No more. Now you need buyers with 20% minimum by most lenders. Borderline debt/earnings ratio? Forget it--buy a cheaper place the lenders say now. This isn't 2005 any more. The environment has changed as anyone knows who has recently applied for a loan. This constriction alone will make it hard for prices to appreciate 6-10% this year or next. There isn't yet a new equilibrium set to incorporate this change in lending into prices. It is coming though. It isn't the End of Days (despite what Palin's church says), but a sober reasoned acknowledgement of this situation serves one well in this market.

"Will I ever quadruple a RE value again? Doubtful."

Actually, you probably will. Your property increased 4X but it was over 19 yrs! If you do the math, that's a 7.5% annual return, which is only slightly higher than the historical norm. So, you did well, but not spectacularly. The same amount invested in a diversified portfolio of equities and fixed income would likely have done far better than 7.5%.

"The same amount invested in a diversified portfolio of equities and fixed income would likely have done far better than 7.5%."

Maybe, but you can't live in a diversified portfolio. I'll take a 7.5% annual return plus 19 years of tax benefit over 19 years of rent any day. Wouldn't you?

Here's the thing. I couldn't have put that money for the apt 19 years ago in stocks. That was my "where I live money". If the apt value went down, then all apts in NYC would have been going down. I basically bought into the market to assure myself that I could always have a place I could afford in NYC to own. If I invested that money in stocks and rented, there was no guarantee at all that the stock market would move in tandem with RE and that when I was ready to buy I could just take that stock money and use it for a down payment. If the RE and stock market got out of sync, I would be screwed. Part of my own peace-of-mind, and conservative planning for my future when I was younger was to nail down the living conditions part of my life. After that, I focused more on nailing down my weekend home and secondarily other investment savings. Now, with a primary residence squared away and a weekend place done, everything is pretty much being invested for retirement in a very diversified way. I live with ridiculously low debt as well since I only buy things I have saved for and not on credit (cars, clothes, furniture, vacations).

So yeah, in theory you can compare my RE money to what it would do in the market, but on the other hand what RE values do and where rents go affects me almost not at all because I plugged into the market early in my professional life.

thanks nyc10022 for sharing it! kylewest, the issue now (full disclosure: i'm a renter) is that by buying now at these prices all my rent would go into maintenance and taxes... so really, that's included in my actual rent (rent stabilized, got lucky!). in my case, i'd through money away by buying. the money i save at least have a chance to beat inflation. by the way, i shorted RE and financials during the last 1 1/2 years, so ... more than 100% and wasn't tough to achieve. going long stocks is not hte only possibility in terms of investing (speculating in my case, i would admit)

I'm not into speculating--I have very low risk tolerance. I'm one of those people who wants to cross the finish line but not necessary kill myself to be the first one there.

If you rent now, I wouldn't think you would be buying unless you found a property that was a real bargain such as I've discussed above.

Is this what people believe: jackstraw: increasingly gay (ALWAYS a good sign for RE values)

thanks for popping this up, I had forgotten about it.

Its sort of puts a lot of the "the sky isn't falling" logic these days into perspective...