Even Forbes Says: Manhattan prices are headed down baby down .....

Just saw it.

I feel terrible for those that will lose/lost their job. But, the real estate prices in the last 5-6 years were insane and it was meant to happen.

Forbes is looking at reality and not the sugar coating one reads about all too often.

If one thinks about it, every aspect that propelled Manhattan RE prices has totally reversed. One can go down the list and I can't find exceptions. The financial problems & related aftershocks will continue for quite sometime. I don't think anyone has seen a financial storm of this magnitude and the full impacts are yet to be fully understood.

I also feel for the folks & their families that have lost their jobs. I've been there and its very tough experience.

look at my other post. shiller saw it coming a while ago. smartest economist around. forget about samuelson!!! efficient markets .... yeah right!

Greatest increase in time-on-market in the West Village. I wasn't expecting that.

Neither was Spunky.

"I feel terrible for those that will lose/lost their job. But, the real estate prices in the last 5-6 years were insane and it was meant to happen."

Ditto.

Just you wait, in the long term, spunky's 5 shares of C and 7 shares of MER are going to entitle him to move into one of the Citi branches that are about to close.

While I appreciate Forbes' suggestion that after inventory piles up, prices should drop, it's worth pointing out that the data that the article reports on pretty much only confirms the former -- that inventory is piling up.

If anything, that says to me that sellers are currently digging in their heels, and not dropping prices just to close transactions. In my experience of the Manhattan market, prices are not dropping dramatically to keep volume steady; rather, volume has slowed dramatically as sellers attempt to hold the line on pricing.

ali r.
{downtown broker}

Ali,

Having lived through the earlier NYC RE downturn of 88 - 96, I can confirm that that it was a long, slow, gradual drop, probably due to loss aversion psychology. Many (most) sellers will try to wait out the downturn as long as possible, and those who can't -- job loss/relocation/divorce/need to downsize/upsize -- are the ones that sell at market clearing/distress prices.

ali: How hard do you push if a client says he/she wants to sell, but is reluctant to drop the price or consider lower offers?

Seems to me that developers generally cannot afford to wait. The carrying costs of an unoccupied apartment have got to be onerous - particularly today.

Those living in their apartments can afford to wait - for a while. But since they cannot sell, they cannot buy in new developments either - which just increases the pressure on developers to drop prices.

A slow motion train wreck in process.

Any news on price droppings from new condos in the UES such as Brompton and Lucida?

KISS and West 81st:

At this point, I think there are two futures --

1) the case that I believe, which at this point is probably a bull case, which is that pricing holds flattish for a couple years and many potential buyers dislike that, so they sit on the sidelines and there are relatively few transactions

OR

2) the case that someone else in my office believes, which is the bear case, which is essentially a repeat of 88-96 (which I also lived through, though as a civilian, and not as an agent)

At this point, with every serious buyer and seller, I run through both cases, ask THEM which future scenario they believe will take place, and then work from there.

Hubby and I are personally both selling and buying (which has everything to do with needing additional space and nothing to do with market timing) and for my own purposes selling I priced *slightly* -- and by that I mean less than 5% -- off comps, and then waited to see if offers I liked came in (they did).

That would generally be what I would advise sellers who believe in case #1 to do. Honestly, sellers who believe in case #2 are probably not going to hire me, they're going to hire one of my competitors.

ali r.
[downtown broker}

Front Porch...
I don't think there can be an exact repeat of '88-96 because during those years, the 1Br/2Br market in Manhattan was hot. People with kids were still settling in the suburbs. This past boom market was characterized by the $1 Million family apartment, which in a blink became the $2 Million family apartment, which in another blink became the $3 Million apartment, then all of sudden, morphed into the $5 Million apartment. At the same time, designer strollers were everywhere, moms carrying $2,000 Prada bags emerged, Manhattan private schooling boomed, the $3,000 kid birthday party became the standard, $1,200 toddler classes sprouted up everywhere, philanthropy was everyone's new hobby, the SUV was parked for $900/month and taken out every Friday at 1:00pm, loaded up with the $70,000/year nanny, to pick up the kids and shoot out on the L.I.E. to the $2.5 Million summer/weekend getaway. It was astonishing to me the sheer number of families that were able to sustain this lifestyle! The unraveling of this overindulged family lifestyle, in my opinion, will have the most impact on NYC this time around, and will have an unfortunate impact on innocent people and institutions who simply serviced this overindulged crowd...hairstylists, parking attendants, private school teachers and administrators, tutors, massage therapists, nannies, housekeepers, charities, churches and synagogues, boutiques, restaurants, the list goes on and on!

The good news is that it is not so easy for families to just pick up and leave the city, so perhaps many families will stay and simply cut back on their spending. This might make it challenging for some overpriced boutiques to survive, but there probably won't be a mass exit for the Triboro, GWB or LIE anytime soon, which means that prices may actually hold up much better than they did in the early 90s. Who knows?????

"The good news is that it is not so easy for families to just pick up and leave the city, so perhaps many families will stay and simply cut back on their spending."

Why is leaving so difficult?

Mrsblogs: All of those families are not going to continue living at the same level they have enjoyed over the last five-ten years. It is going to become increasingly impossible for them to sustain what you rightly identify as an overindulged lifestyle. But I have a hard time believing that those families will cut out most of the extras (hair blowouts, private school, expensive restaurants, vacations, garage and car, etc.) so that they can maintain their apartment. Many people would rather maintain a modestly indulgent lifestyle in the suburbs rather than stick it out in Manhattan where they might have a roof over their heads, but little else to make them, ahem, happy. I'm not saying that everyone with a three+y year-old child will leave NYC, but many will decide that they still want some creature comforts in addition to an acceptable living space. I can't tell you how many families I know who have justified staying in the city into the preschool / grade school years so that they husbands (yes, most of them ARE husbands in these scenarios) have a shorter / easier commute home. If there is no job to commute to, there is less need to stay in the city.

"which means that prices may actually hold up much better than they did in the early 90s."

everything you mention regarding overindulgence points to it being much worse this time around. IMHO, it's clearly going to much worse this time around. i mean, take a step back and look at the big picture. was there a $700bn bail out? Did gargantuan 100 yr old institutions drop like flies in the early 90s? Did the government have to spend hundreds of billions nationalizing companies? Was there a once a century financial crisis in early 1990s? Was the city ever as dependent on foreign money and wall street as it is today? Oh, and what wealth potential buyers had is rapidly dissipating as the global equity markets have all retrenched from their peak by about 30%. And as for foreign buyers, guess what, they are in a recession that promises to be about the same as ours - oh, and the Euro is just plummeting, which erodes their purchasing power.

For crying out loud, NY triple tax free muni money market funds are yielding 6%! And trust me, its not because things are good and they decide to pay more. Buffett said it perfectly - even with the bailout package we are in for a lot of pain.

We are in the midst of a prolonged recession. At first, everyone thought CA was the epicenter with all the bogus subprime loans in SoCal. But now we know that the real epicenter was new york city and all the financial institutions that participated in the orgy and that are now paying hundreds of billions in the form of write downs.

After all this, how can anyone think it will be better than the early 90s?

"An economic stall in Europe means fewer individual Europeans with the scratch to pick up multimillion-dollar apartments in New York. Besides, with the market softening, why would they pay full price?"

But it's already half off for Europeans. Clearly, this author doesn't know anything and we should all ignore. Prices never fall in Manhattan! And forget the Europeans, the Russians will save us!

oh yeah, and don't forget - VOTERS will save Manhattan too.

The Euro peaked at almost $1.60. It's trading at $1.38 today.

The Pound peaked at almost $2.11. It's trading at $1.76 today.

Special K--

In 1990, I decided to move to Manhattan, leaving my then-under-market $500 a month Park Slope floor-through (the landlady liked me).

I was sick of the starter-neighborhood Slope, which had a rapist prowling the local subway stop, so many car break-ins that the rich residents organized private security patrols, and a population of crack addicts who left vials on my doorstep.

I decided to move in to a fringe neighborhood, 26th and 6th, and the real estate agent I found in the New York Times did not want to show then 24-year-old me an apartment in such a lousy neighborhood, especially since there was a thriving drug trade in the parking lot.

I liked the area, though, and thought about buying, but didn't till years later, because interest rates were so high.

So what in the above bio is the same now? Park Slope is so safe it's practically a byword for safe; 26th and 6th is now home to big, safe, luxury apartments; even the subway is generally safe. Drugs are nowhere near the scourge on this city that they used to be. I don't generally wear high heels at night, but it's not out of fear that I'm going to get mugged and will need to be able to run, it's more that I'm getting older and my knee hurts!

People don't even necessarily find real estate in the Times anymore. And oh yes, mortgage rates are at under 7%, and probably falling.

I agree that the amount of global interdependence is an X-factor, but given the above, how can you NOT think it will be better than the early 90s? Historically, Wall Street loses 25% of its employees in a down cycle, and we may be seeing that again, but this city has a long way to fall before we hit 1990-era quality of life.

ali r.
{downtown broker}

front_porch, thanks for posting. I enjoy your unbiased point of view.

I will be better than the early 90s, for sure. But if it was 10x better and it goes to 8x better, and there is less income for all buyers, you're still talking about a very substantial decline...

You don't need 1992 prices to have serious problems. 2002 would be a major move.

mrsblogs/kas242: I don't think it matters all that much, in the short term, how quickly Sherman McCoy and other Ex-Masters-Of-The-Universe become sellers. What matters is that they aren't around as BUYERS.

Consider the listing below:
http://www.streeteasy.com/nyc/sale/346038-coop-90-riverside-drive-upper-west-side-new-york

It was listed less than a month ago, at $2.195MM. Today, Elliman cut it for the second time, to $1.895MM. That puts the asking price within a few percentage points of darker, lower-floor comps from February 2005 and March 2006 (two separate sales of apartment 11F, which was also in estate condition).

Why the quick cuts? The sellers aren't over-leveraged CDO traders. They are an older couple who have already moved out and moved on. They raised a family at 90 RSD; now they are done with it. While they would have liked $2.2MM to play with or leave to heirs, most of whatever they get will be profit, and they're mature enough not to dwell on missed opportunities. I have no idea what the lowest acceptable bid might be, but there's no particular reason to think $1.895MM is any firmer than $1.995MM, or $2.195MM. They have a good broker who knows the market and the building. What are they going to do - wait five months until the exclusive expires and hope Corcoran can get a price Elliman couldn't?

This, I think, is how the bubble deflates in the prosperous, stable, civilized world of UWS co-ops: the same kinds of people who have always sold will sell; but without a mob of Sherman McCoys jostling for the right to buy a wreck with good bones and gut it, prices will return to levels that relatively normal salaries can sustain.

Ali, I agree that the city has prospered in the past 15 years. How could it not given the boom times we've had here. I'm certainly not arguing that the city itself is worse than it was. But guess what - it's a lot more expensive to buy now than it was back then as well. The question is not whether 26th/6th is a better neighborhood than it was back then. The question is whether 26th/6th real estate prices are overpriced now.

You want some religion, take a look at affordability indexes for greater new york area.

West 81st, the broker in my office who makes the bear case shares your reasoning -- everyone who bought before 2006 can let prices float down for awhile before they suffer.

And JuiceMan, I know I'm biased, but it's not actually about prices. I would probably make more money in a skidding prices/higher transaction volume scenario than in a flat pricing/lower transaction volume scenario.

and certainly, as a homeowner who wants to trade up, that would be easier in a severe bear case too -- I've got a job, I've got cash, if prices crash I can buy more cheaply! But I just don't see it happening.

ali r.
{downtown broker}

> everyone who bought before 2006 can let prices float down for awhile before they suffer.

Not quite. Definitely not "everyone". There are already recorded sales at loss from 2005 prices. Well documented on this board...

That's the EddieWilson I remember! Seriously though, I wouldn't say that's "well documented," and I've followed the comps thread West81st started pretty closely, as well as the UWS 3/2 for $1.25m thread. There are almost certainly properties that have sold below their 2005 sales price (and this may well have happened during the "boom" in certain spots as well), but that ain't no trend. At least not yet.

I am looking at a property in central harlem. The owners bought it for about 260k in 2003 and now are asking low 900k It has been in the market for several months. I like it a lot, but it will be just my vacation home, as I live now overseas. I'll rent it to a family member the rest of the year. I am paying cash and I don't have much more than that in liquid assets, and I am suffering the stock downturn.I don't expect to need to sell in the short term. How much do you suggest I offer? Some prices in Harlem have been lowered quite a bit, for example: http://realestate.nytimes.com/sales/detail/25-NY57D7C5/WEST-123RD-ST-&-LENOX-AVENUE-NY-10027

Other question: Do you expect de-gentrification in Harlem? I think that this area is an interesting topic, because it grew more than any other areas, and, while it's in Manhattan, it is still marginal and could see crime rise if the economy goes further down...

mimi, did i miss something? it says asking 595k not low 900k

The listing I sent is not the apt I want to buy, it was just an example....the one I want to buy is not far from there...

Maybe unbiased was the wrong word front_porch, logical would be better. In any case, I enjoy your posts.

"There are almost certainly properties that have sold below their 2005 sales price (and this may well have happened during the "boom" in certain spots as well), but that ain't no trend. At least not yet."

Exactly bjw2103, and there are many more that sold for 10% above 2007 comps and that ain't a trend either. EW, you would make a good politician, you get something in your head and stay on point. How about trying a broader view? Can you do it?

so you want advice on how much you should bid on an apartment that we have no idea whatsoever about???
ok... bid $850k!

mimi, my suggestion would be to wait a year. I think that will give you an opportunity to see the impact on the economy & RE prices from the current economic problems. Call me silly, but I think it's a good idea to hold on to liquid assets at this point in time.

As to safety of Harlem, it depends on how seriously NYC/State cut their budgets and which services require sacrifice. There are serious expenditure cuts coming, of that their should be little doubt.

I believe that you if you're patient, you will find a nice apt. in Manhattan in that price range. This is the first time that Harlem will undergo a serious economic downturn after an extensive price run-up. I suspect there is quite a bit of nervous real estate there so be careful.

Special,
since the thread had some talk about going back to some historical prices, etc, I was wondering what will be the situation of Harlem in general, which has grew something like 350% in the last 5 years. Should I think 2003 prices? 2005? I have my doubts showing interest in this boards about a specific listing, because there might be people interested in the place reading it (including the owners) I can tell you the place is very nice and kinda pricey. I was giving a little bit of the price history, location, etc., and wondering what kind of discount does the people in the board is logical in Harlem under the circumstances. And also I was wondering about degentrification in the area.

forget 850, bid 450.

mimi, i'm not trying to be difficult but you know that it's impossible to answer a question like that unless you have the specifics. even if you shared the link here, most of us would really need to see the place to give fair advice. but if i don't even know how big it is, views, street, walk-up or not, bed rooms, bath rooms, recent renovations, sunlight, floor, etc, how can i possibly give you any kind of advice on how much to bid?? you're $900k could already be a good deal or it could be fantastically overpriced.

mimi, if you haven't done so, visit the area at night as often as possible and get familiar with as many aspects of the neighborhood as possible. Some of these areas are totally different when the sun goes down. If possible, it's a good idea for your spouse to visit with you..... my wife would not go for it. BTW, I am familiar with certain parts of Harlem.

There was an article about this in the NY Times in the past couple of months back. People bought in areas they considered fine but realized that things were very different after sun-down.

mimi - also looking at harlem - i have similar questions. my thoughts

1) i think bloomberg running for a 3rd term is a good thing for harlem - he seems committed to keeping police force intact (i do think there will be some cuts but he stated explicitly that he understands that police, parks, etc. need to be maintained - also he is committed to 125th street rezoning/development

2) i have done some research on "de-gentrification" during downturns (of hoboken, east village, etc. during late 1980s/early 1990s) .. from what i understand, it slows down but does not stop. that being said, it shows you what a slow process gentrification is. it takes 15-20 years. harlem is 8 years in ..

3) i personally feel safe in the neigborhood at night. i wouldn't walk there at 4 am, but 9-10 pm felt fine to me

4) clearly a condo-glut up there ... although, seeing as most are alreay built, this is long-term cause for gentrification ... they'll become rentals

5) price to rent ratios out of whack. really cheap to rent there, cheaper than buying.

In summary - I think near-term Harlem will fall hard in the near-term, more so than the rest of Manhattan. I think it is 10 years away right now.

Personally? I am going to rent up there for a year when my current lease expires, test out the neghborhood, look to buy in 2009 at the earliest, but probaly 2010. One thing I think is this: prices may not come down THAT much, but they won't go up either.

> from what i understand, it slows down but does not stop

From what I remember, it absolutely stops and reverses.

I remember the 80s, and neighborhoods got worse, not better. Look up "block-busting". About as big a counter to "gentrification" as I've ever seen.

In the long history, consider that Williamsburg was nice before it went to crap to be gentrified, and that Harlem was built for rich white folks.

They're called cycles, and for some reason each time one peaks, folks thing cycles no longer exist.

mimi do NOT invest your money there especially if u r not liquid otherwise. U will lose 50% in the next 10 years GUARANTEED. if u really want to go there just rent but DO NOT LOCK YOUR CASH in what is/will be a depreciating asset

I think the Manhattan real estate market is going to be just fine. Maybe some drop off at the end of the year and beginning of next year (10-12% max) but come next Spring things will start to move up again.

We may have a strange, difficult few months, but I for one am looking forward to a new spirit, a new optimism, once President Obama takes office.

Look forward to rising Manhattan real estate prices again by June of 2009.

Some great buying opportunities at the end of this year, the 1st and into 2Q next year.

It is certainly possible that a 10+ year run-up in real estate will be offset by a 6 month slump but I don't think history would support that prediction.

mimi -- i have looked in harlem and UWS for some time. The brokers in Harlem are finally starting to respond and call you instead of the other way around. Still most are not willing to discount.
I am familiar with the 595k listing you put up. If I recall correctly the owner was on Apprentice. They have tried to sell it for a long time at various prices -- $1.4 m to $995k and are now trying an auction strategy.
I have run into this a few times -- they will advert aggressively at an obviously low price and then give each prospect a very short deadline to make offers. In the previous case (a building on 116th) they called the top bidders and told them to increase their bids or go best and final offer -- telling you what the top current bid was and asking you to beat it by 10k minimum or give your final answer.
In that case the place was advertised at 1.2 and they managed to sell it at 1.45 (i checked later and it was true). I went through a similar experience on 112th street.
So, if you are pretty clear on the max you are willing to pay for a place this strategy is OK, else it is frustrating.
Now, this particular apartment is ratehr poorly finished as well -- aesthetics are pleasing, but every single closet door is poorly hinged and uses cheap sliders that will not last. The kitchen cabinetry is reasonably attractive but again doors are poorly aligned and drawers are sticky. Yes, these can be fixed, but make you wonder about the things that are less obvious.
Also, for a building with no facilities, a monthly maintenance of $1100 or so is crazy. They have also had their 421 application pending for over 2 years and the current taxes are $1470 a month.
So, I am not sure this is one to get into a bidding war over.
Most of the other realtors/brokers for new developments (Kalahari, Graceline to name 2) who are calling me are still not ending up reducing the price more than 50k or so from $1.2 -1.3 million, even with written offers.
As others have pointed out, Harlem is and will have a major glut of apartments and at the very least these developers will start offering cut rate financing or they will not unload these properties.

I am waiting for the lemmings. ........
The current interest rates/price combination is not attractive, and will lead to declines -- not sure if they will bein the 20, 50 or 70% range as various people here are speculating.

I think the downside comes more quickly than in the past. Sites like this are the reason. Information will spread quickly. Some sellers may dig in their heels but there will always be those (someone else mentioned the right examples - divorces, unemployment, relocation) who need to sell. Those transactions will happen, be recorded and the new reality will take hold quickly, and it will spread like wildfire on sites like these. We may see the bottom in 18 months rather than the three years it took last time. That's just my guess.

PS: Special K is right. This isn't like the 90s, this is like the 70s, when my father in law offered $35k for a $55k asking price on Park Avenue and the seller hit the offer. This isn't a joke. We're looking at 40% down. Your sample $1.2mm 2 bed is going to $700k. And forget about armies on mid level investment bankers and hedge fund analysts who can afford $3mm family apartments...they are gone for a long time and so is the $2.0-2.5mm mortgage they took out.

nyc10022 I don't think people are calling for 1992 prices...I think they are calling for a more severe peak to trough decline then we saw in the 1990s. Whoever thinks rates will fall is crazy! As someone said, money funds are yielding 6%, banks have no money. Rates are going to high single digits as a first stop..and that says NOTHING about how much more difficult is it going to become to get a mortgage at all. Strict appraisals, lower loan to values, and higher income requirements.

> nyc10022 I don't think people are calling for 1992 prices...

I get that... I'm just making the point that its not quite relevant for folks to say "well, its not going to get as bad as the late 80s". We only need a bit more crime and dirt to add to the reduced long term expectations to slip pretty bit...

Sorry nyc10022. I think we agree but I may have misunderstood you. Or I may have addressed a response to you that was meant for someone else. Let me be clear... For whatever little it's worth, I don't expect 1992 prices. I do expect a correction from the top as severe at the 1992 trough. I agree with nyc10022 in that a little crime and a little dirt can go a long way. However, I do think Bloomberg will manage the city better. Also people like to say interest rates are not as high as the 1990s. I don't think that matters, because mortgages are 4x as high because purchase prices are 5x as high. I'm listening for all the reasons while real estate won't correct severely. I generally think people looking for a value retracement to anywhere from 2002 to 2004 levels are correct. Banks have no money, and the average Wall Street punk making $600k-$1.0mm a year is now either unemployed or "struggling" with an income in the $200-400k range all in.

Yes, I think we agree... its not going to be 1992 in actuality, but the lessons and trends should look familar...

20%-30% for sure. But you have to give it 3-6 months. Just look at the city financial numbers that they posted. It is not an if, it is a when. Those that say otherwise are clearing delusional. Facts are facts.

Sure it will time time. It took three years last time to bottom. I think maybe this time it will happen more quickly because of all the information available to people. If 2009 is as bad as 2008 in the financial markets, and we are looking at an S&P in the 700-800 range by December 2009, I think you have prices down 30% by Q1 2010. They are already down 10%.

Dow is already down 25-30% off not much of a peak. I don't think we need it to go much lower to see the same, if not more, decline in RE, which was off an incredible peak and fuled by an industry that is now in shambles.

RE Values are determined "in a general way" by the most basic laws of supply and demand. I read on these chat boards all kinds of wild estimates as to the value of real estate in 3mos.,6mos. etc.. For starters...NO ONE KNOWS. Here's what we do know, credit tightening from financial institutions is the new norm, trading up is greatly diminished by the direction of the market, those chubby euro filled wallets are drying up, employment in the apple's high paid financial sector has, and will continue to shrink. Who's left? My apartment purchased in 1986 for 330,000 reached its high water mark in late 2007 with an apartment in my line on a lower floor closing for 1.2 Million. My apartment could easily end up being valued at half that amount if this crisis does not show signs of resolve in 18 months. Real estate has NO INTRINSIC VALUE! What is it worth?... What will you pay?
If you realy think your going to need to get out of your home soon, put it on the market NOW!!! Price it to sell and take your little lumps now. Tomorrow those lumps are going to be bigger.If you dont have to sell, hunker down...it's going to be a long one.
If you want to buy...Welcome to the Filene's version of the manhattan real estate. Theres alot of crap out there but if you patiently wade through it long enough your probably going to score a prize! Remeber when folks where bidding apartments up wildly? The reverse is now in effect. How low is it going to go? Well, how bad do you think the current crisis is? In 1975 I was in High School on the UES, every month someone or two would disapear from the hood, moving to the burbs, transfered father, family business disaster etc. People really didn't want to live here. There was lots of crime and poor civic services. What were going to get now is a dirty city with greatly reduced services. The crime I'll bet is not going to be a factor, people leaving is.
You all might be very suprised how low it goes. You also might be very suprised on how much you'll hesitate once you see the transformation the city undergoes. Sure, the Disneyfacation of manhattan was great for real estate values...wait to you see what the shittification does. Remember it took some time to Disnefy this town...It will take some time to shit it up...but shit it up, we will...I promise.
P.S. Out with Bloomberg! Don't let the Pols. scare you! Term limits are there for a reason. We got lots of bright people in this town. Bloomy's time was over! Don't forget it was Bloomy at the helm as this town sailed into this shit storm.