Hisses, not pops

Thanks for the thread type3.

To the folks who wonder why housing prices in NYC have not slumped in parallel with the stock market, this should be required reading.
Falling sales? Check (though one should wait for 3Q and 4Q data) Rising inventory? Check (a couple of threads on this already). The question is, when will we see price reductions (not if), and how long (and deep) the slump will be. People have tossed numbers in the 30%-50% range. I guess we'll know in a few months. It would be crazy to buy now.

It's more of a steady PPPPFFFFFFFFFFFTTTT...

We have already seen sales decline - and this is, indeed, a good leading indicator of prices. I've done a fair amount of statistical analysis related to the link between sales and prices. Alas, from that work I expect that the Manhattan decline will be long and drawnout. We won't see a bottom for "at least" two years. Tough to be patient - but prudent.

Wait until prices have flatlined for a good year.

I agree with all of this - if you are a buyer, wait, unless you see a place you completely love and can be in for a long time - not 5 years but 10 - AND can get a seller willing to negotiate.

I personally think the bottom will take a good 4 years to hit (look at what happened in the early 90s. The stock market crashed in 1987, prices started decling at the end of 1988, and fell until 1993, although the biggest drops were 1989, 1990, 1991, and 1992). Nationally it looks like we are 18 months from the bottom on housing prices, and the slump began more than 2 years ago. So the real bottom may not be until 2011-2012. It's all about pyschology - there are always little peaks and troughs - once there is good evidence of a 10% decline citywide (which I think there will be shortly) some people will soar in, thinking this is the opportunity to buy, thinking prices won't fall any further. So it'll stabilize a bit, but once the 10% discount buyers are gone, it will fall further, and so forth.

Nobody knows how far prices will fall exactly. But claims of 30%-50% are not crazy: it would bring prices more in line with rents (especially when you factor in a likely 10%-15% fall in rents as well) and close to 2003 levels. Given the shakeout on Wall Street AND the credit issues right now, it would be hard to argue that fundamentals are better than they were in 2003, given that this was well past the time when NYC was considered a dangerous city. I do think one fundamental has changed - the desire for people with families to live in cities - which is why I think 3 BRs will see the smallest price reductions.

I asked Marcel Proust what's going on and he said that there shalt be a period of fewer sales, junior realtors seeking employment in other fields of endeavor, and an altered state of suspension in which one's sense of time and place are so disoriented one is not sure where and when one is. You have to keep reading the book, and it's 3,500 pages long, not 300 pages.

One thing that I wonder about is how the price of renting will be affected. If there are these people who would have normally been considering buying who are not going to buy for the next year or two, perhaps they will now consider upgrading their NYC rental?

This could fuel a bit of a run on rentals and actually drive the prices for rentals higher. Wouldn't this also lead to a change in the 12X Rent formula that is tossed around so much?

I am not suggetsing there will be no pain in the RE market. I am just wondering if the price for rentals could, in fact, go up, with less people buying. As long as the apartments are over $2,000/month the landlords can charge whatever they can get.

Thoughts on this?

Waverly, I agree. I don't have anything to back this with, but I have read (somewhere) that rents often increase in declining RE markets. I expect that the same thing would hold here. I wonder though, if as many parents of college students in the city will be willing to subsidize their children's housing given market conditions. In my area, that could knock out a substantial number of renters.

lowery, I used to have a button that said "MARCEL PROUST IS A YENTA" . . . how does that alter your market analysis?

I think to be in the spirit, you need to always use his full name: Valentin Louis Georges Eugène Marcel Proust

alanhart and type3secretion, let me get back to you on these questions after I've regained some time here.................

Waverly, my guess is that rents will stay flat or fall. There will certainly be people delaying purchases who will rent longer. But that will be more than offset by increases in supply from new development combined with out-migration from people losing jobs. Not to mention that household formation declines in a recession. This means that new college grads live with their parents longer, roommates in a rental don't get their own place, etc. Plus incomes are going down for those who stay employed.

Tenthstreet - those are good points. I do think that there will be a segment that says, "Hey, I was going to buy, but now I'll go out and get a nicer rental instead."

Also, the vacancy rate for rentals is much lower than in the 80's or early 90's so this piece of the market should react differently now. Please correct me if I am wrong on the vacancy numbers. I feel like it was 5-6% then and is more like 1-2% now, but should increase a bit with new developments trying to rent out unsold units.

New construction that can't be sold will be rented out. More supply is on the way.

Topper - I agree, but is it enough to move the vacancy rate for rentals to 4% or 5%? I can't fathom the number of rentals in NYC. What could it be...300,000?

If it's not, there should still be marketability for rentals.

waverly, I'm pretty sure rent stabilization goes bye-bye (at least for prewar buildings) when the city-wide rental vacancy rate hits 5%, so I don't think it did.

alanhart - there is also a larger population here now than in 1985 or 1995. That should have some affect as well.

Please note that I am not arguing there will be no downturn. I am just trying to sort out what impact the rental market may or may not have on the situation. My theory, and it is truly nothing scientific, is that the rental market will not be hit nearly as hard as people are saying here on this board for several of these reasons. I could be totally wrong, which is why I threw it out there to see what other people think.

"New construction that can't be sold will be rented out. More supply is on the way."

You can bet if that (continues to) happen the capital pool for these projects will dry up even further. No bank likes to see a property that is worth $50MM as a condo but worth $30MM as a rental, go rental. Condo prices escalated so quickly that it was one of the few types of new development where you could turn a decent profit. Take away that profit (the condo sales) and these projects are money pits. Now granted if you have your own financing and don't have to rely on banks, you are much better suited. But to think that all these nondos will be OK and that life will march on the same is pretty erroneous.

I think part of the bailout plan should involve repeated tasings of that midget Krugman in the region of his midget body that purportedly houses his testacles. This could be done over several hours, days, weeks, even months. Afterward, we could feed him to stray animals such as ravenous dingoes in southeastern Australia.

totallyanonymous, please, stop holding back, tell us how you really feel.

does totallyanonymous work in Guantanamo?

The increased rental supply will put pressure on rental prices downwards, which affects sales by changing the price-to-rent ratio.

> alanhart - there is also a larger population here now than in 1985 or 1995. That should have some
> affect as well.

But the increase in prices was waaaaaay more than the increase in population, so that isn't going to help much....

larger population but also more supply of nice neighborhoods ... not just in manhattan, but brooklyn, etc. in early 1990s there weren't many nice neighbhorhoods to pick from, now you have basically all of manhattan, much of brooklyn and queens, etc.

Absolutely, kspeak.

15-20 years ago, Brooklyn had Park Slope and Brooklyn Heights for yuppies (and they were smaller than they are now, the PS definition has expanded). And that was basically it. To white collar manhattanites, there was no Cobble Hill, Boerum Hill, DUMBO, Williamsburg, Fort Green, etc, etc, and DEFINITELY no Greenpoint, Bushwick, Bed Stuy, etc. Hell, even to most artsy types would barely be hitting those neighborhoods. Hell, even WB 10 years ago was maybe a couple blocks around the Bedford L, now its probably 10x or 20x the area. Hell, 20 years ago, it took a LOT of work to get a white person to cross first ave.

Even in Manhattan, most of downtown was not on part with upper east (nor was upper west). And you barely were ok going to 96 on the east side, and 90th on the west, and now the borders have blown past.

So, the "effective area" of "prime" NYC has been expanded up the wazoo. That can't be discounted.