NYC RE tanking HARD

"That Becky Quick bimbo has a BA in Bone Smuggling from Rutgers. She's eye candy for stock nerds."

TA, LMAO. Thanks, needed that to start the weekend, but if Becky Quick is eye candy than I don't like sweets.

Steve's prediction on Friday:

"If a plan is not passed by this weekend - and maybe by today - the Dow will be at 5,000 on Monday."

Since the plan wasn't passed by Friday or by this past weekend, you predicted the Dow would be at 5,000 on Monday. It is down, but not down 5,800 points.

Can you admit you were wrong on this prediction yet?

waverly, down 5800 or down 250, the market has no confidence. while politicians decide the fate of this economy, real people are losing life savings regardless.

Let's keep it simple and say market -50%, NYC real estate -50%....S&P = 800 or so, which would be 12x EPS, not crazy AT ALL. Real estate -50% is like 600 a square foot....2002 level, again not crazy at all...and basically admits that the Wall Street orgy and Greenspan cheap money was pure fluff from 2002 to 2006...as it was.

Streakeasy, I completely agree with you. This was simply a follow-up from Friday's discussion because Steve likes to predict extreme outcomes, but doesn't like to admit he is ever wrong. My point was to see if he would actually admit to being wrong, when all of his predictions are put out there in language that gives the impression that he is some sort of expert. If he is wrong about one prediction then it would make sense that he could also be wrong about others.

Just curious to see if he holds himself to the same standard that he holds everyone else here at Steeteasy to.....

what did you expect, his credentials are better served wrapping burritos at taco bell than dishing out investment advice. go easy on him.

I think Steve is a smart guy. I just think there is a lot of garbage that people spout here as "facts" that are "certain" to happen and there is just now way they can say that with any amount of certainty. There is so much that is unknown, yet predictions of declines are spoken about as if these individuals have some expertise that allows them to enlighten the rest of us.

The one thing that is sure is that the next 6-12 months are going to be painful for most people. How painful is up for discussion. OI do think a big piece of this unknown is mortgage rates. Different than in the 80's and 90's, mortgage rates have been so low for so long. If they increase to 10%, 12% or 15% then property values will be decimated. If the rates increase, but stay historically low (8% maybe / just a guess), and NYC contains some of the job losses I think the loss in RE value will be minimized. Peoples' salaries are not going to go from $200k a year to $100k a year in 6 months, so people will still have money to spend, especially if the rates for borrowing are low and the jobs situation is not catastrophic.

"Peoples' salaries are not going to go from $200k a year to $100k a year in 6 months"

not so sure that is true. Especially in finance or any related industry where there are significant ye bonuses. and it's certainly not true for all those who lost their jobs. and think about the effects that significant state/city budget cuts are going to have on the economy. typically in a downturn, the government should spend more to stimulate things. but that is just not the case here because they can't afford to do it.

as for an admission from steve, i wouldn't hold my breath. i bet he argues that the plan has effectively been reached and just needs a formal vote on approval. =)

Waverly gets it and Steve is smart. Clearly predictions are such from context. On the finance type front I can tell you. Base salaries (if you still have a job) remain $100-200k. But you were never buying a $2mm home on that salary, you were buying it on your $600k bonus, which is now $0-150k. And waverly, you hit the key issue, interest rates, which will clearly go up from here. When they cross 8%, the shit is going to hit the fan. Interest rates are the one thing that will determine if we are going down 25% or 50% or 70% as everyone is throwing around. If we get 12%+ like the early 80s then 70% is not crazy. If we get 8%, we should expect a 25-30% correct. Its all in the purchasing power.

Special K - I agree that total comp will be less, in some cases a whole lot less. I was speaking more for base salaries. If a married couple each makes $150k + bonus they are still going to be earning $300k on an annual basis. If rates are low and they have money saved they could realistically dive-in on an apartment in a good neighborhood that has just been reduced 15% or 20% (totally made-up numbers). That's one area that I think could help stabilize sections of the RE market. I have said all along, crappy apartments, in bad neighborhoods that are overpriced should sit on the market forever.

I also think it will be interesting to see if there will be a significant number of jobs created by the federal government in the energy sector as we look for ways to move forward independently. I also think that a good chunk of the financial service jobs will be pushed around the industry, mostly to hedge funds that will likely have to follow much stricter regulatory giudelines in the future. This could create new jobs for them in internal audit, compliance and operations. They may not be happy about it, but I think this has a very good chance of occurring. It won't be a million new jobs for hedge funds, but anything will help.

haha. more the sky is falling commentary...if you think nyc real estate in nice luxury buildings is going to go down 70%...i have a bridge to sell you guys...at 70% off!!

you guys are too too much.

I'm an energy stock hedge fund analyst...trust me there is no job at some new wind or solar power company for me to pick up stakes and take. Conversely, your average investment banking junior can't learn my job easily.

There are sensible, two income families like you describe, but at the margin their are dopes who spent their whole $600k-$2.0mm income yearly on Hamptons rentals, trips, tuitions to Spence. The prices are driven by the marginal buyer, not the sensible buyer.

fresh off the alerts from streeteasy (20% discount from listing in may):
http://www.streeteasy.com/nyc/sale/230163-coop-235-west-70th-street-lincoln-square-new-york?email=true

235 w 70th street price history
STREETEASY HISTORY
05/07/2008
Listed with Corcoran at $899,000
07/08/2008
Price decreased to $849,000
07/22/2008
Price decreased to $799,000
08/01/2008
Price decreased to $745,000
08/02/2008
Price increased to $799,000
09/28/2008
Price decreased to $725,000

waverly, like your focusing on the interest rates (seemingly a simple observation, but one that hasn't really been explored here yet for whatever reason). Where they go seems pretty open to interpretation at the point, though I really don't see them staying at the historic lows they're at now either. Interest rates around 12% slamming values is a much better argument than "all finance jobs moving to Charlotte or DC slamming values" IMO.

waverly, i agree with you that for jobs where there is not a large discretionary year-end component, that salaries don't just fall by 30% yoy, even in a recession. and i also agree that there is a large "primarily salaried" workforce in nyc that should be able to survive this downturn. i'm definitely bearish in the near term, especially on nyc real estate, but what i think is lost on a lot of the "end of the world" guys is that recession we are looking at could see sequential GDP declines of low single digits. That's a lot of pain, especially for overpriced assets, but it is not the end of life as we know it.

Again "primarily salaried" people were not paying $2.6mm for a classic 6. And also, real estate down 30% like the mid 90s did not end the world then and would not end the world now. It's important to realize we have never had in history the kind of easy money in the credit system that we had from 2001-2006/7. Where we correct to is kind of impossible to figure.

Special K - Interesting point and I hope I remember it down the road to see what occurs with the GDP. I also agree that there will be pain in our future, I just don't know enough right now to predict how much and for how long. My crystal ball is broken.

I can tell you that any delay in job losses makes a big difference in the length and depth aof a recession from a practical staffing perspective (which is my business). Any delay or staggerring of layoffs helps a lot. It doesn't eliminate the pain, but whatever we can do to contain the damage added up over the course of the next 3-6 months will have a BIG impact on the economy/jobs 6-12 months ahead.

Thrinhald - You are a specialized individual, so the energy jobs I was thinking of were more low-mid level type jobs that would help a lot of people that got eliminated with the mergers. I know that doesn't help you out, but it would help the overall jobs situation in the country. Historically, government created jobs have always been extremely helpful in getting the US out of recessions. They aren't perfect, but again, could help contain the damage and help us move forward a little quicker.

thrinald - well said. the issue with our financial system, like the issue with our economy, and the issue with nyc real estate is at its core a simple one. it's one of confidence. in perhaps no industry is it as important as it is in finance. you lose confidence, you start a run on the bank or you stop trading with that bank or you stop lending overnight to it. the bank was relying on your confidence in them and leveraged up to a point where any significant drop in your confidence could cause them to go under. confidence that prices only went up led to many people being silly with real estate. i have no idea where things correct to, but my guess is that things will overshoot on the downside - because that's typically how every cycle ends and begins, with an extreme.

Waverly you may be right about these jobs.... issue is though that the finance department of a major company is usually not even that big, and staffed mostly with accountants. There may be a strategic planning job or two...But the function in general is outsourced to I banks! My best hope is to transition to trading wind and solar stocks vs. traditional oil & gas, which is imploding because guess what, commodities were driven up with borrowed money by speculators, as were stocks...It all comes back to debt!

> The prices are driven by the marginal buyer, not the sensible buyer.

One of the most intelligent things said lately...

Thanks for the compliment... I can add real estate to politics and finance on my blog.

http://rinaldis2cents.wordpress.com/

streakeasy....wow the price went from $899 to $725k,did you ever think that the price was too high to begin with . Prices are not falling on one bedrooms or large studios...they are going up.

I believe in my view that the place was overpriced. I think a lot of units out there in the 900k-600k range are overpriced with too much expectation of either breaking even (with transactional costs and turnover friction priced in) or making a profit still. Those that bought from 2004-2007 are now seeing unrealistic scenarios and hence huge price drops.

julia - you say the same thing on virtually every post. i appreciate the notion that you have anxiety, but do you have definitive proof backing your claim? i for one, can't see how 1 bds and studios are going up in this environment. those are typically starter apartments and that segment is coming under a lot of pressure.

Julia - I am also curious. How much are you looking to spend on a 1 BR?

Streakeasy - that is a big price drop. I like that it has 2 bathrooms, but it is very small otherwise and that 900 aquare feet seems generous. I also think it needs work and it's not in an area that I love and the maintenbance is a touch high. For my taste, it was WAY overpriced at $899k.

Good find.

i was of course talking about a 70% drop from where we are now, not where we were 6 months ago a year ago, etc. i am focused on the possibility of buying sometime in the next year, not a year ago.

CUT TO: Cheetah779902, browsing web for New Jersey tanning salon coupons, Lexus lease deals, Century 21 career listings.

Wow, my 1.950,000 apt is now worth 1 mil. Could that be true?

Your apartment is worth what you could sell it for this coming weekend at auction. You might need a cash buyer with a long time horizon.

What I want to spend depends on the condition of the apartment. My total costs with closing and renovations would be %500k for a one bedroom on the upper west side in a pre-war bldg.

900 billion of wealth just got wiped out today (assuming no rally back half hour from the market close). Total buying power in NYC just got a little smaller.

julia - good luck, while I do think you will get it eventually, I think you may be waiting a couple years for that scenario

900 billion of wealth for 700 billion tax money... either way the public is paying for wall street's demise.

Do people understand that the asset backed market wouldn't be failing if people didn't buy homes they couldn't afford? This is Wall Street and Main Street. The real estate market fell at the same time floating rate mortgage rates rolled out. Why are people ignorant of the public's role in this mess. Denial and partisan bullshit.

Amity95 you're right...I just saw a new listing for a small studio on 27th street...$499,500. It closed in '05 for $222,500. I'm not nuts. The prices on $2m apartments might drop $150k but one bedrooms and studios keep going up.

Asks aren't sales...

And, to think, Perfitz called the top of the bubble in December!

Granted, he told everyone to BUY....

;-)

so a studio asking $499k,500 will drop to $222,500.

Studios for $225k? I don't think thats much of a stretch for 2009...

It might in 2 years...Or it might sell tomorrow for $375k. We won't know till we know. I wouldn't bet it sells in the $400s. It sounds mis-priced. There is a price today, there is a price at the eventual bottom, whatever that bottom may be. Real estate is a sticky market.

honestly that's how much studios are worth.

They are worth what someone will pay, and we won't know if it's worth $499k until it's sold.

Wall Street Woes May Cut New York State Revenue by $3.5 Billion

By Michael Quint
Sept. 29 (Bloomberg) -- New York may lose as much as $3.5 billion of tax revenue because of losses on Wall Street, according to state comptroller Thomas DiNapoli.
DiNapoli in a statement said 40,000 jobs in the securities industry may be eliminated, up from an earlier estimate of 25,000. Each securities job lost may result in as many as three jobs that disappear elsewhere, the comptroller's office said.
DiNapoli's statement came after the U.S. House of Representatives voted against a financial-rescue plan intended to restore confidence in the banking system.
``The volatility in the markets is creating difficulty in predicting budget revenues and today's vote in Washington will only increase that volatility,'' DiNapoli said. In the past, about 20 percent of the state's tax revenue came from workers and companies in the financial sector.
September collections showed personal income taxes were flat, while sales, business and other taxes fell $154 million compared with a year ago. DiNapoli on Sept. 18 said business taxes through August were $167 million less than projected, and
$366 million less than last year.
Governor David Paterson called a meeting of legislative leaders for Oct. 3 to consider the states' options. Last month, the state estimated this year's budget was in balance, and it faced a $5.4 billion deficit for the year beginning April 1.

"Do people understand that the asset backed market wouldn't be failing if people didn't buy homes they couldn't afford? "

Predatory lending! You have people barely competent to understand what an ARM is being steamrolled by lenders. So really, it's the lenders as much as the clueless public. The lenders at least should have understood the mortgages. Same thing in other credit areas. There is more to blow up, I am afraid. What makes me most afraid is that it seem nobody knows how much TNT is out there.

3 jobs for every 1 job lost in securities. Will RE inventory build 3x faster than predicted?

It is the lenders as much as the clueless public...my point was the clueless public is acting like this was a purely Wall Street construct, as are the politicians. It's simply not PC to pin even a small part of the blame on the clueless public. And the other fact is that wealthy pay most of the taxes, so the middle class person who claims this bailout is coming from them is really not correct, not in percentage terms or in absolute terms.

julia, I'd guess we're this close to banks embargoing studios, and refusing to lend for them under any circumstance. In the early 90s, studios were 40-50K. Believe it.

alanhart - I am unfamiliar with that phrase "banks embargoing studios". What does that mean and can you expand on the explanation of the situation/circumstances?

There were $35k walk up studios on the Upper East side as late as 1996. I looked at one. The rent buy analysis was...rent for $900 or buy and pay $450 after tax benefits assuming 20% down. Yeah, so why shouldn't rent double (or less) and the cost of purchasing go up more than a factor of 10x? Buy away!

".my point was the clueless public is acting like this was a purely Wall Street construct"

The absolute amount lost on mortgages is far lower than what is at risk due to Wall Street financial constructs. In that regard, it is a Wall Street manufactured crisis. If they had not leveraged these insane bets, we wouldn't be in this position. But it's silly to go into class warfare that will impoverish everyone, most terribly the poor.

waverly -- embargo is my word choice. I don't know the official one.

My understanding:
Banks were reluctant to lend for the apartment size of last resort, that people would be most likely to walk away from, and potential buyers would be much more likely to pay a bit more for a 1BR, and finally that in a weak RE market the studio occupants would be tilted toward young people with little work experience, thus first to be jettisoned in a downsizing.

Studio Owners Struggle to Find Buyers
By NICK RAVO
Published: November 21, 1993

http://query.nytimes.com/gst/fullpage.html?res=9F0CE2D61F3CF932A15752C1A965958260&sec=&spon=&partner=permalink&exprod=permalink

alanhart - thanks for getting back. That is interesting. I don't think we are quite at the point where studios will be $50k, even though the psyche of most is hurting quite a bit today. I am more of a middle-of-the-roader in my predictions (both up and down). I hope that we can find a way to stabilize and contain the damage, because that will buy some time to sort the mess out and start a recovery.

Thanks again for the insight on studios in the early 90's.

Where is Steve? Is he going to man-up and admit that his prediction on what would happen to the markets was wrong by (more than) a factor of 5?

no

Do you think Steve really thought the market would get cut in half in a day? Is he really an idiot given the bailout didn't pass and it was the worst day in the market since 1987? You're the idiot. Wrong by a factor of five? What kind of statement is that?

I do know that that is what Steve stated, restated and then refused to admit that he misspoke. For a person who allows others zero wiggle-room in their analysis, grammar and statements I think it only fair to hold him to the same standard he holds others to.

He can consider free therapy and maybe it will help him get along better.

Kudos to Steve
He nailed it
Dow down to 5000....
don't open the paper tomorrow
he will get it right in overnight trading

buy gold

or Fire Island.........

Seriously, does Steve has such low self-esteem that he can't even face up to the face that his prediction on the equity market was off by a factor of 5?

Why the hell should anyone listen to anything he has to say? If he can be off by a factor of five on the quity market, imagine how wrong he can be on the real estate market...

"Why the hell should anyone listen to anything he has to say? If he can be off by a factor of five on the quity market, imagine how wrong he can be on the real estate market..."

He exaggerates when passionate. But often his analysis has real value. The 30% numbers are heard in various places. His 50% is perhaps high, but who knows? Definitely not crazy.

This isn't the Great Depression 2. It is a variation of "That Seventies Show." It is going to be a bumpy ride for a few years with a lot of ups and downs. Mostly sluggish growth with inflation in some sectors. Different than the 70s but with similar effects on day to day life. The next bubble: Ask T. Boone Pickens.

Manhattan RE prices are in for an adjustment, but wealth will always gravitate here and the downturn will be shallower and shorter than the bears predict. But the boom times are over, and it may be a while before we see them again. I see some drops the next three quarters and a stronger recovery as Obama and energy technology take the lead in 2009 and 2010. Probably some great buying opportunities through next Spring.

CUT TO: JerkStore store still unable to afford nyc real estate in 5 years upset on his bet that it would tank 70%...and still collecting unemployment...btw you may want to meetup with streakeasy...you guys seem to have a lot in common!