What will be the percentage change in Manhattan coop and condo prices by end of 2010?

Back to 2004 levels, at least. In my mind, prices have to come back in line with incomes which haven't risen much over the last 7 years. But the price changes won't happen fast, and many people will just be forced to hold their apts. That's what happened in the 90s at least.

Up anywhere between 6%-10%.

You will see much bigger drops, in unoccupied new construction. They have the most flexibility, in lowering prices, in the short term. In fact, I'm sure some developers are considering major drops, as we speak. The first to drop price, will succeed and those who are much slower, will risk bankruptcy.

20-25% on average from peak. In real terms, given it will be 4-5 years later, thats more like 35-40%

-20% by 2010 (nominal terms)
so that makes it about 26% or so in real terms?

-20% by 2010 (nominal terms)
so that makes it about 26% or so in real terms?

By end of 2010, to regress to mean levels of appreciation, a 2 BR would need to fall from it's current $1,400/sq ft to closer to $1,000/sq ft. That's 28.5%. Corrections sometimes overshoot, so i'd say the downside is closer to 30-35% and a "best case" could be 15-20%. Either way, it's quite a haircut.

My crystal ball shows both Condos and Coops would drop 100% in Manhattan by 2010.

Real peak-to-trough drop of 30%. At least 20% by end of 2010, and will extend beyond then, similiar to the early 1990s crash, which was a multi-year event.

Dco makes a good point. As we've seen in much of the rest of the country already, builders are very motivated - particularly now - to sell off unoccupied new construction. Expect to see bargains here before you see it with occupied existing homes. Sellers who are living in their homes can generally be patient sellers - they can always put off upgrading. Builders have the banks to contend with.

If unoccupied new construction falls as much as some say, don't think that won't impact existing homes greatly. There's something called "relative value"...

Things are worse than even I expected. Manhattan will see AT LEAST 50% declines, perhaps up to 70%. This is insane.

I don't think we'll see significant price drops in new construction for a long time. There are a lot of new condos in Brooklyn and LIC that are now being rented and I expect this trend will continue. Developers and banks will hold for a few years and wil only unload once it's apparent that the turnaround they were hoping for is not going to materialize.

A few weeks ago Toll Brothers said they would dump their new construction at a loss just to get it off their hands. Maybe they'll sell the property to a management company like Rockrose and let them deal with renting it out. Maybe they'll cut prices 50% for immediate closing only. A homeowner has no choice but to stay put. A developer can declare a loss and move on. I expect to see new construction in Brooklyn pricing in the 200K range within a few months.

Whoops, sorry Manhattan. Down at least 30% from peak 2007. From $1400 psf to under $1000

Although I'm looking for prices to decline 20% by the end of 2010, I think there is a good chance that prices will continue to decline. Real estate turns slowly and tends to stay in motion once it starts moving. Valuation metrics would probably still look quite stretched even at a minus 20%.

Declines, yes, but I'd be shocked if prices IN MANHATTAN dropped below '03 prices even at their trough, and even that will take a long time. This is still Manhattan, o ye Doomsdayers, the most desirable, coveted little island in the world. This ain't the early 90s - interest rates are significantly lower than they were then, and the City is a MUCH, MUCH safer place than it used to be; all cities have undergone something of an urban renaissance that makes them far more attractive places to raise families than in decades past. Suburbs have lost a lot of their luster as the quintessential realization of the American dream, and high gas prices and endless traffic aren't going to rekindle that. And while i-bankers and Wall St. undoubtedly contributed significantly to the recent run-up in prices, they are not exclusively responsible for the meteoric rise in the last few years. There's a LOT of wealth out there not tethered to the market and Manhattan attracts it all.

Industries wax and wane (dot-com bubble, anyone?) but wealth is generated through a variety of means and people of means will always want to be here. This hit will hurt, no doubt, but 70% declines as some of you naysayers are predicting? I'd be absolutely, positively, shocked.

(and broke :)

"...Manhattan will see AT LEAST 50% declines, perhaps up to 70%..."

70%!!!! Really!!!!

This is SO great. This reminds me EXACTLY of 90'-91'. The world was ending. I made investments. The world didn't end. Then I made a LOT of money.

Honestly, if you REALLY think that a standard, well located 1 bedroom that now costs $600,000 will be selling for $180,000 in the next year (or so), then you should just shoot yourself in the head right now.

There's a trend developing: a co-op in MANHATTAN that was $650K is now $700K. On the other hand, a co-op that was $3M is now $2M. In other words, what's perceived, or is, "affordable" goes up in price without becoming "unaffordable".
Malraux, do you notice this?

stakan...you've nailed it. Studios and one bedrooms are going up in price and the upper end is coming down, somewhat. This is a crazy real estate market (manhattan only) to figure out.

I went to see places in Manhattan Valley (from w 100 to w 110). All three were mobbed and got offers on the spot. Range: $600K to $950K. Also, I'm seeing a run on HDFC buildings with income cap tied to the price. Meaning that a couple with income of $500k/year can buy a 2-br, 1-bath place for $750K, with low maint.

stakan:

A very worthwhile observation. It's not one big market in reality, it's a bunch of bifurcated markets based on size and pricepoint. Each meta-market has its own internal logic and gravity. But of course, they're all affected by the same outside forces, just in different ways, and to greater or lesser extents, at different timepoints.

People always need somewhere to live, and some will indeed want to downgrade from two beds to one, from fancyschmancy new builds to reasonable already existing units, and some to rentals. The problem here is that the number of people available and willing to buy the fancyschmancy new builds from those wishing to downgrade will also reduce.

It has been my experience that two bedrooms really hold sway in a tough Manhattan, though (assuming good location, etc.).

I am sure, that SOMEWHERE in Manhattan, a 70% drop in possible. But it would have to be in an area where 1.) location is terrbly questionable to begin with; and 2.) the place was also egregiously overpriced to begin with. Like, say, a cramped one bedroom fifth floor walkup tenement apartment in Spanish Harlem with an asking price of $600,000. But in the reality of decent Manhattan apartments in solid locations, 70% ain't happening. Vulture investors would swoop in and fight with each other before the price got that low. And believe me, the vultures are beginning to circle just now....

malraux,
on the contrary, I'm seeing a "cramped one bedroom fifth floor walkup tenement apartment in Spanish Harlem with an asking price of $600,000" flying off the shelves. That was exactly my point. Manhattan is Manhattan, and Spanish Harlem is a walking distance from the fancyschamncy. Manhattan Valley is practically sold out. My point is, in MANHATTAN whatever is in the price range of $600k (s1-br) to
$850K (2-br) has seen the price being steady at worst and increasing at best.
Probably because, besides the need, there's still a large appreciation potential.

Difficult to say what the prices will be in 2010 but people that know me have heard for at least 2 years that 2010 would be the earliest I would suggest looking at the NYC market. From those price levels, one would obviously bid lower and be patient. There is absolutely no rush to get involved in this over invested market if one can comfortably rent given the ugly macro fundamentals.

Folks, we have an unprecedented credit bubble bust whose consequences are yet to be fully factored into the broad economy, not even close If one looks at the market prices of SLG & VNO (REITs with NYC commercial RE concentration) their values have fallen off a cliff since their peaks in the 1Q, 2007. The stock market is a liquid beast and far more efficient at reflecting values than residential which can be painfully slow to do the same.

those that were built and marketed to Wall St. money (i.e. new construction studios and 1-beds in Willy-B, LIC, and the Financial District) HAVE to be expected to take a significant hit.

A trickle-down effect seems inevitable on much of the rest of the market.

But, barring a complete credit cessation, I'd be SHOCKED if we saw enormous declines in any area of the market outside of those marketed directly to the Wall St. guys.

Then again, I've long since established that I don't really know what I'm talking about.

hi stakan:

I'll have to trust you on this one. I don't follow one bedroom units as assiduously as two bedrooms, but the one beds I've been following in nice, but not overly fancy areas (Murray Hill, for instance) have been seeing slow-ish sales, and price reductions of 5%-10% between initial ask and final close price.

As to your assertion that "...Probably because, besides the need, there's still a large appreciation potential..." I don't really agree right now that there's a 'large appreciation potential,' in almost anything (exceptions like 15 CPW and its ilk aside). But hey, we can disagree.

Malraux,
the appreciation I'm talking about will not be in the millions (!) but a $250K tax-free appreciation for a family is a tidy profit/downpayment for an upgrade. Don't you agree?
About 15 CPW: it was meant to be a silly flipping playground for silly money. It's not part of my reasoning.

What, you don't think that guy who closed in May for $25.8M will succeed in his current efforts to flip the unit for $80M.

You're a REAL Debbie-downer, dude. We don't need your kind.

:)

I'm seeing Hell's Kitchen co-op walk-ups being scooped up as well as Manhattan Valley elevator co-ops.

"Complete credit cessation"

- What we are witnessing in the market with Lehman and AIG is exactly that. All credit (Auto Loans, Credit Crads, HELOC's, Mortgages, etc) will be severly curtailed to a point that we havent witnessed in a long time

Then again, there will not be huge declines unless people start to sell....and this only will happen if they are pressured meaning it spreading to Main Street and ultamately Main Street...

Based on the early numbers out of the Products and Tech companies this becomes more likely by the day...

Hopefully if we are going to go there we get there sooner than later and let this all wash out...

Worse then most people even imagine. It's incomes people. With wallstreet being chopped off at the knees, who is going to buy all those new construction developments. Please just use common sense and puy your bias aside.

In order to have a market you need supply and demand. Strip out demand and you have increase in supply. Now add more supply and even less demand and you have a crash.

garelj,

The sellers do not dictate the prices, the buyers do.

The following will be forced to sell:
-Once new developments
-new buyers who got laid off or no bonus
-foreigners who need to sell their investment properties because UK and Europe is heading into recession, Russians who have lost 50% in the stock market

These guys will drag the market down, combined with the fact that alot of potential buyers have lost a lot of money this past weekend.

Malraux, would be interested to hear what your real-estate strategy was back on '90.

Anybody notice major price drops in the past few days?

DCO - you're completely right on a general level, but you have to consider the much-maligned but nonethless legitimate 'this is Manhattan, and Manhattan is different' argument.

The DESIRE (if not the means) to reside in Manhattan is real, not inextricably tied to the state of the real estate market, and will not abate at any time in the near future (barring a chemical attack, or something of that ilk.) That is the primary difference between Manhattan and most of the rest of the country, and the flaw with your exaggerated assertion that demand will be 'stripped out'. Many areas in the country (LV? Miami? Others?) that saw a tremendous increase in value in the first half of the decade experienced a concomitant decrease when teaser loan rates started expiring in 2006. This is because when the supply of eager investors who had artificially built up demand dropped out of the game, there really was no one left to sell to. The last party left holding the hot potato preferred to walk away rather than pay for a mortgage that was higherthan the value of his ever decreasing-in-price home, foreclosures skyrocketed, and values plummeted.

That didn't happen here for a very solid reason: while the amount of MONEY available for purchase increased artificially during the easy-credit days, the DEMAND itself didn't. Everybody wanted to be in Manhattan before credit became widely available, and everyone continued to want to when money was available, and everyone still wants to be here now, even if they don't have the means to do so. The fact that money is now not available obviously hurts things significantly, but not to the extent that it would elsewhere. Because the demand is still here even if the means are not, and will continue to be here when the credit situation stabilizes. Even if credit evaporates altogether, there will STILL be people of means who have the ability and desire to swoop in and buy at basement prices, while similarly depressed properties in West Bumblef**k, California will continue to sit untouched.

This is a crucial, crucial factor to keep in mind. Will it stave off a decline altogether? Absolutely not. But does it inure Manhattan from the steepness of the decline the rest of the country has experienced, and likely will continue to experience? I would give that a resounding yes.

On a separate note, foreclosures in Manhattan are virtually non-existent relative to other big cities, and there's a very logical explanation for that as well. First and foremost, some 75 - 80% of the housing stock here are co-ops, not condos. Co-ops NEVER relaxed their criteria for purchasers no matter how lax the banks got. So, someone who was able to finance and buy a $500,000 McMansion in Iowa with a Liar's Loan would not have been able to buy a studio for half that price in Manhattan, because the board wouldn't let him if he didn't qualify, even if he secured the financing. In addition, co-ops' almost universal aversion to investors kept the speculators out, insuring that the increased demand that caused prices to skyrocket came from real buyers who want to live here, and who will presumably continue to want to live here even in tough times, unlike investors in other areas who flee when the bubble pops. Finally, with condos, which don't have the inherent anti-bubble 'controls' that co-ops have vis-a-vis prospective buyers have another one - they tend to be built in the best neighborhoods at the highest prices. For the most part, only solvent, financially qualified buyers could buy them anyway.

All of the above contribute both to a check against a significant decline after a bubble pop and a significant decrease in the number of foreclosures per capita here, another huge factor in keeping the market strong.

All true, but it was this exact DESIRE that pushed prices so high. Miami didn't have the desire, but it didn't have the prices either...

Miami also didn't have a Wall Street to fuel the boom with cash. And now thats been decimated...

The decimation of Wall Street will undoubtedly lead to a decline - of that I have no doubt. But I do think it's important to bear in mind - especially with doomsdayers on here predicting as much as 70% (!!) declines - that it's not the I-Bankers alone who pushed up this market, and theirs is nowhere close to the only source of wealth for prospective buyers. And on top of that, again, irrespective of the availability or unavailability of money, or the perceived likelihood of a run-up in prices or the opposite, there will ALWAYS be desire to live and own here. That doesn't change irrespective of the state of the market, and is not a factor to be dismissed.

Boss77:

Here's what I observed regarding strategy in 1990.

First off, I have to admit that I did buy a few properties prior to the crash/correction at or near highs. But it was the first time I had significant expendable money, and I had four basic options -
cash, stocks, art, or real estate. It was as obvious in 1987/88, as it is now, that something had to eventually give, and that the market would take a beating - it felt like the last days of the Roman Empire. I chose real estate, because I had a VERY long timeline, and knew that when the market tanked I would still be able to rent the first places I bought for enough to cover my monthly costs and provide me with a positive monthly cash flow. So I bought two properties pre-crash that I thought would fit the bill, and kept the rest in cash.

After the inevitable crash, it became a simple waiting game. If experience has taught me anything through repetition, it is this: 1.) The financial markets rapidly retract; 2.) then the art market manages to hit new highs as if nothing happened and goes on for 6-18, after which IT crashes; and then finally 3.) the real estate market goes down last, hard and fast. From my perspective, we've begun to hit point 1.), but not point 2.) yet. When I see people puking out work by Koons, Hirst, Murakami, and Prince onto the secondary market, and the Sotheby's/Christie's/Phillips Contemporary Part 1 Evening sales flounder badly selling less than 70% of their works, then I'll know we've hit point 2.). That's when I'll be REALLY ready myself for the real estate downtick. But real estate won't go down BEFORE the art market - it always goes down AFTER the art market tanks. And based on these results that happened as Lehman was going down over the past two days (http://www.nytimes.com/2008/09/17/arts/design/17auct.html?_r=1&oref=slogin), we're nowhere near 2.) yet.

After the art market crashed in about 1990/91, the housing market was rally down hardest around 1993. Then it was just an obvious buying opportunity.

This is just a simple waiting game that demands patience and tenacity from an investor.

Interesting malraux. Thanks for that. Art is no where on my mind so I wouldn't have thought to look at that market at all.

I agree with 2004 levels. But it will be condos that fall more (closing a historically huge current difference) because buyers depend on higher % of financing.

1 beds are stabilizing because they had never gone up since 2004. The high end is catching down. And why are people dreaming that rates aren't going up? The banks with find a level to lend and that level will be higher. As of now, they are frozen, so you have no real "marks" on real estate.

Malraux is right about patience. And momentum acutally suggests the safety is to wait for the new uptick in 2011...Because the upside you miss eliminates the risk of continued downdrift. Like stock for that matter. Psychology is consistent.

"legitimate 'this is Manhattan, and Manhattan is different' argument."

And you call yourself "SomewhoKnows"?

"1 beds are stabilizing because they had never gone up since 2004."

You must have a 1-bedroom for sale.

stevejhx..you keep talking the talk but nothing in manhattan real estate has changed.

You're bashing the wrong dude, Steve. I never claimed 'that 1-beds are stabilizing because they had never gone up since 2004.' Of course they have.

And if you've bothered to read anything I wrote, you'll note that I have said over and over in many forums that it seems obvious that Manhattan prices will decline now. No one sensible denies that. But if you think that delegitimizes the 'Manhattan is different' argument, then you haven't been paying attention over the past two years, when the rest of the country swooned while Manhattan continued to rise. It's clearly our turn now, but if you think we're gonna suffer like Miami and Vegas, you underestimate the extent and impact of the unique Manhattan appeal and demand.

Stevejhx: I don't have anything for sale...Nor do I really know whether 1 beds are stabilizing...but if they are relative to larger units it may be because they haven't appreciated much since 2004.

Julia: You really think nothing has changed? There is data to show 6-7% sequential declines in the recent month of August. Nothing is transacting (which is a change in itself). No one really knows the future, but to deny Manhattan can fall a lot is just being ignorant of history and frankly ignorant of what's in the paper every day this week and for months.

Julia, actually quite a bit has changed in Manhattan real estate. Have prices dropped? Some evidence suggests they have, but it is fuzzy at best. However, the volume of closed sales has declined dramatically yoy while inventory has risen. These closings were sales that were initiated during the first half of the year when wall street unemployment was rising and the near-term outlook was not good. Now it is outright grim. You would be silly not to expect the trend to continue and cause pricing corrections.

Malraux: Very interesting theory that we get a financial downturn first, followed by a crash of the art market, and then finally real estate declines. I'm particularly interested in the art part of this equation in light of the shifts in the art market over the last ten years. It's a different -- and much larger and more wealthy -- world than the late 1980s and early 1990s. It's much more international (not just the Japanese as we had in the 1980s). Now we get Russians, South Americans, and much more of a European presence in the sales rooms. It was with good reason that Hirst's auction was held in London. Yes, he is British, but London is also perceived as the financial and geographical middle ground for the majority of the art market (i.e. non-American buyers). I have no doubt the art market will have a downturn, but I don't know if it's tied into the financial and real estate markets in New York in quite the same way as it was 15-20 years ago. You also now have multiple, deeper art markets: a contagious, dangerous thirst for all things contemporary; growing Chinese and Indian markets; a slowly developing awareness of South American art. I think the only area that has perhaps really suffered is Old Master work. Anyhow, the art market was by and large based in NY in the 80s and 90s; it's not exactly the case now.

So kas242 what you are saying is "it's different this time"? I think the influence of the stock market on the hedge fund industry on the art market is pretty clear. And you may find that the stress on the American consumer will influence wealth destruction in emerging market economies that supply raw materials. What is a general rule in tough times is that the correlation between markets collapses to 1. Out of assets, in to cash, because the banking system is collapsing. How long and how low is the same question that can be applied to everything... The answer of course may vary in each case.

Thrinald: My point is that the art market was extremely tied to NY in 1980s/90s. It's now a wider, and less NY-centered market -- just like lots of other markets that now work on global terms. No doubt there will certainly be less art $ trading hands everywhere, not only in NY. I just don't think we should be looking at the Sotheby's and Christie's list of lots sold to time when NY real estate will start to see its own declines. IMO, both art and RE will head south simultaneously this time around.

Malraux,

As others have stated, I think you have a rather interesting theory of the order of different markets' "crashes". I never really thought about the art market in respect to the financial and real estate markets, but here in Manhattan it seems to make sense to do so.

Thanks for sharing your thoughts.

Malraux,

Thank you for the very interesting theory and analysis. Question, when you invested in real-estate back then, was it similar to your investing scheme now - i.e., very high end (over $2MM) in particular locations with great floorplans?

In the current under $2MM market, I am prepared for a 30% drop over the next 2 years. Little more, little less perhaps. In someone who purchased a one-bedroom in 1989 saw its value drop 30% by 1991. Of course, if they had bought for the longterm that didn't matter at all and they could have eventually tripled or quadrupled their money. Then, as now, people with less than a minimum of a 5-year horizon (personally I'm more comfortable with 10 years) have no business buying into this market in the immediate future. None at all. NONE.

kas242:

Your arguments regarding globalization of the art market are fine in theory, but (in my opinion) not quite correct in their end summation . If one goes back two decades (as, sadly, I can, as I was there), the late 1980's art world carried the exact same notion of globalization through the increased presence of the Japanese (and other Asian buyers) in the Impressionist, Post-War, and Contemporary markets. There was an absolute assurance that even if the American AND the entire Euro-centric buyers crashed out, Asian globalization would save or keep the art market afloat. In the year from April of 1989 through March of 1990, the Japanese were responsible for the purchase of a little over $670,000,000 at auction. Two years later, that number was just under $12,000,000. I would add in addition that, contrary to popular opinion, the reality of new Chinese, Indian, and Middle Eastern buyers is not quite what is being represented to you - the reality is that there is a very slim amount of uber-wealthy people from those environs who are, yes, putting there 'big toe' in the art market, so to speak. But they are not a large, nor proven group, of serious collectors who will be able (or willing) in any significant way to keep the art market afloat. This argument for the "globalization" of the art market as a stop gap to its obvious forthcoming correction/crash/whatever you want to call it is specious. As to the decentralization of the art market that you mention, I would have to say that it's now NY/London paradigm, but NY is still the center, and so will suffer all the harder for it when the day of reckoning eventually comes.

Boss77:

Well, I wouldn't say everything I have invested in is 'very high end,' per se, as you put it. But my tendency is to be very specific about location, size, layout, views, light, amenities, etc., as I know from experience what happens to work well for me (and me alone, of course) over the long term as a residential investment property. But it is true that in the end, this strategy has definitely skewed my 'investing scheme' (as you put it!) towards the higher end of the market, no doubt, simply because of the demands I make on an investment property before I'll pull the trigger.

Malraux,

Thank you again. If only I had your resources - ha!

funny thread.

New construction - down 30 or so percent. Esp in fringe areas like FiDi and Harlem. Idiot pricing for small spaces. No one uses a theater room or a pool. Glass is so August.

Prime co-ops - maybe flat. Maybe even up a bit from here.

46% peak to trough.

so many delusional individuals on this board i can´t even comment. 70-80% from peak to low. S&P will be good indicator.

"steveF
about 5 months ago
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Up anywhere between 6%-10%."

Jesus mother of Mary does it get any funnier than this?

Yes, perfitz called up 15%.

Though that "prime will be flat" comment from just not is pretty funny, too.

nyc - I am changing flat to up 5-10 one year from now. Just to make your day!! :)

I Say down 20% from current levels, depends on what happens with mortgage rates in the next 2 years

So around 35% down total? 20% down then another 20% down...

$350 psf --- What do we win if we guess correctly?

"The DESIRE (if not the means) to reside in Manhattan is real, not inextricably tied to the state of the real estate market, and will not abate at any time in the near future (barring a chemical attack, or something of that ilk.)"

How do you know? How do you know what this market will look like after 2010 and local job losses hit its peak here? How do you know what end result of budget gaps will bring with it? How do you know what world will be like in two years when we start to see unintended consequences of policy actions? How do you know how residents living in Manhattan will perceive the quality of life in 2 years? How do you know?

Anyone predicting anything more than 6 months out, in this time of uncertainty, has very little fundamentals to back up their argument, unless the argument is for more pressure. Come on now. At least let us agree that this crisis is the most severe since the 30s, its deflation and a deleveraging process, its going to last years not quarters, and we dont know what the world will look like after the damage is fully done. These are same arguments made a year ago saying Manhattan was immune.

we are down 20-25% right now generally. High end is down more.

oops, I just realized this thread was from 5 months ago, or NOV or so I guess. Ha. Sorry. Thought it was new. Still, things have changed big time since Lehman failed here.

"How do you know? How do you know what this market will look like after 2010 and local job losses hit its peak here? How do you know what end result of budget gaps will bring with it? How do you know what world will be like in two years when we start to see unintended consequences of policy actions? How do you know how residents living in Manhattan will perceive the quality of life in 2 years? How do you know?

Anyone predicting anything more than 6 months out, in this time of uncertainty, has very little fundamentals to back up their argument, unless the argument is for more pressure. Come on now. At least let us agree that this crisis is the most severe since the 30s, its deflation and a deleveraging process, its going to last years not quarters, and we dont know what the world will look like after the damage is fully done. These are same arguments made a year ago saying Manhattan was immune."

Well said, UD.

We haven't even begun to see the effects of the budget shortfalls. Reductions in services. Increases crime. Those are going to have an effect.

And, if/when we do recover, what Wall Street is remains to be seen...

"These are same arguments made a year ago saying Manhattan was immune."

It is always funny how the folks who didn't see the decline coming at all were the first to call bottom.