Manhattan Real Estate: As Good As Gold

Huh?

Close eyes and keep repeating to yourself - "good as gold, good as gold." Do so for next two years, then open eyes.

Better yet, make it 20 years.

Manhattan real estate hasn't even begun to fall, though inventory is up about 50% from last year this time. You're far better off putting your money in the stock market as it approaches a low and will then rebound, than in what is likely to be the most moribund real-estate market in the history of this city.

If you can keep on making the payments on your $1 million mortgage and don't have to sell, that's fine. But all that new development out there aimed at a class of people who will never exist again will drive prices down as developers must sell. Else they'll convert them to rentals, which will drive prices down even further. In the next year you'll see a 20% decline in rents as vacancy rates will continue to go up, especially in luxury buildings in dodgy areas, like sandwiched between the project, as rents are short-term sensitive to vacancy rates.

I wouldn't buy a property in Manhattan for the next 10 years - that's how long the last downturn lasted.

Silly boy, Steven. You are right about one thing -- Manhattan real estate has not fallen, although the national bubble burst 3 years ago.

Has anyone noticed the carnage of the past week....if you can not extrapolate based on the wealth destruction that has taken place then you should buy in Manhattan...

Real Estate in the next 3 months will be the least of our worries

That's like saying I have an illiquid stock that hasn't traded in 3 months and therefore its value has been preserved. Keep dreaming.

"Manhattan real estate has not fallen"

No it hasn't. Yet. We're in Phase 1: Inventories Rising.

It's no use arguing with someone who thinks that all those investment banker and hedge fund jobs are still around or will be in the same form, when the investment banks have been taken over by commercial banks and hedge funds will see their leverage slashed. Your average other professional - doctor, lawyer, Indian chief - don't make enough to afford what's on the market at the price it's on the market, and most have likely lost 50% of their investments in the past year.

In 1998 a 2-bedroom 1-bathroom apartment in prime West Village went for $220,000. Before the crash, 10 years later, it would have sold for $1.4 million. That is a nearly sixfold increase in ten years. Not even Warren Buffett makes that kind of return, and owner-occupied residential real estate does not make a return. We won't fall to the 1998 price again - that would be disastrous - but that same unit would sell for $675,000 in 2003. We are headed there, or perhaps as low as $500,000, as real estate adjusts to incomes, which have collapsed.

I think the stock market is well oversold, and once confidence has been restored we'll recover recent losses and head back toward Dow 11,000. But it may be years before we see Dow 14,000 again.

Manhattan Real Estate is over. You are now officially a bag holder. Have fun with that.

"Given that the stock market has been crashing the last few weeks, those that have put their money into real estate here should feel pretty good about it."

A few years ago I saw people out west doing that after the tech bubble burst. The Fed deliberately held interest rates low in order to keep the housing market afloat.

Now we're paying the price.

Despite my recent stock market losses - avoidable had Lehman not been allowed to collapse - the best decision I ever made was not investing in Manhattan real estate during the feeding frenzy of recent years.

Like most, I've lost lots in the past few weeks, but I can still pay my bills and my rent on my cash flow. I can still pay my rent. There will be fire sales in new development condos very soon, but it still won't be time to buy. A lot of people are walking away from contracts, even more are trying to rent at prices that don't cover their expenses, and even more stand empty as inventories soar.

The stock market will return - it's highly liquid, as we see from the recent liquidation. Real estate is not, and if you have a mortgage and maintenance and no income to cover them, what are you going to do?

BTW Dow down ANOTHER 600 points we're now under 8,000... still think Manhattan Real estate will stick? YOU ARE DREAMING!

metalist...keep dreaming and do you research. RE is the last to fall and usually follows 6-8 months after market crashes. This is the perfect storm. Manhattan RE values will be at least 30% down and maybe lower with that 6-8 month time frame as more apts come on-line and sellers seeks to sell. With credit tight the buyer pool has become the smallest in history and foreign buyers have already become scarce. Anyone who purchased from 2003-2008 will be taking a pretty good hit if they try to sell in the next 6-8 month and as of now they are holding a severely depreciating asset.

Yes. This will all be better by next Tuesday.

metalist..right on..i agree....think about how much more money will be put into manhattan real estate after this global STOCK MADNESS...how many people are saying "man i can't take this volatility anymore! i need something more stable how about good old manhattan brick and mortar"

Its unbelievable that with the unprecedented destruction of global wealth that anyone would not think that Manhattan real estate is about to embark on a prolonged and substantial (>25%) decline in prices from today's levels. After the 1987 stock market crash, Manhattan Real Estate posted gains through most of 1988 before embarking on a 7/8 year downturn. This stock market crash is very different. It comes on the heels of large institutional insolvency and massive wealth destruction. The shit hit the fan before the shit hit the fan. If you believe in Manhattan real estate right now, you might as well buy a bridge in Alaska or trump how proud you are of the GOP party.

Why are you people even engaging them?

canny, your wrong early 90s was a result of massive oversupply....see miller samuel charts...think about all the money being redeemed...has to go somewhere and people are disgusted with equities....

"Yes. This will all be better by next Tuesday."

Yeah, and by next Wednesday I'm sure we'll see World Peace...Thursday, the polar ice caps will stop melting... and by Friday... who knows....

Friday...thats when Jesus gets here

Friday? Really?

Good - I've definitely got some serious question for that m@therf*cker!

Maybe he will give us all free iPhones...

Maybe Jesus can get a haircut like we all have.

"All those redemptions" are liquidated losses.

> "Manhattan real estate has not fallen"

Since when is 12% down "not fallen". And that doesn't even include panic time. I'm willing to bet when we look back at now, we're 20% down...

Did you say free "iphones?!?"

Damn, I won't convert to save my soul, but I would convert for a free iphone!

>In the medium and long run, Manhattan real estate is as good as gold!<

NYC commercial has been a disaster judging from the price performance of two NYSE traded REITs, VLO & SLG. They tracked residential up in lock step fashion and I wouldn't bet on their price action being wrong on the way down.

Heck, gold is only up around 10% above the 1980 peak. Just thing if Manhattan RE were to be valued in a similar fashion. I don't think even the loudest bears are predicting that large of a blood bath. :)

I would hate to have to sell an apt. in this environment unless it was something VERY, VERY special. Even then, best of luck to the seller.

"metalist..right on..i agree....think about how much more money will be put into manhattan real estate after this global STOCK MADNESS...how many people are saying "man i can't take this volatility anymore! i need something more stable how about good old manhattan brick and mortar""

Yeah, just like the late 80s...

"I won't convert to save my soul"

malraux, that statement implies a huge assumption on your part.

" ya I'm out of this crazy equity market!! That was the worst week of my life! never again!"..."well what are you going to do with your money now?".."I'm investing in something illiquid and stable, where not every Joe Sixpack can get into, nyc real estate"

nyc10022...how many times do I have to tell you...the early 90s was massive oversupply...3 years in a row had 25,000 new units entering the market...5X the normal supply entering the market...got it..it's not brain surgery here...like stevejhx will try to spin it into..

Weeellll.....,

If you believe in the power of JESUS! and want to follow JESUS! and sit at the right hand of GODALMIGHTY! than you'd better REPENT AND SIN NO MORE! otherwise you will be sure to BURN IN HELL! with all the nonbelievers, heathen, and fornicators. So, as a charter member of the old testament tribe, I would have to fulfill my destiny and be BORN AGAIN!

But I'd rather just get a new iphone, I guess.....

The "power of Jesus" does exist, just not as people construe it. Read Carl Jung.

That said, an iPhone wouldn't be too bad, if they had Blackberry service.

malraux, "charter member"? How old are you? 5769?

iPhones suck for texting which seriously cramps my ability to communicate with House pages

"metalist..right on..i agree....think about how much more money will be put into manhattan real estate after this global STOCK MADNESS...how many people are saying "man i can't take this volatility anymore! i need something more stable how about good old manhattan brick and mortar""

This sounds like the ultimate bag holder strategy "I just lost 50% of my equity in the stock market, let me pull it out now and dump whatever I have left into NYC real estate which is set for an even bigger fall." Anyone doing that should save themselves some time and pick which window they want to jump from now...

Then again, if you jump next Friday, Jesus may break your fall....

metalist and steveF still spewing nonsense = we are definitely not at bottom.

once these ostriches pluck their heads out of the ground, freak out and stop posting such blasphemy, then we can start thinking that the bottom is approaching.

remember, this was the behavior during the DotBust days.... it was only when the perma Internet bulls stopped preaching when markets finally started the long process of putting in an inflection point.

and please- don't even compare Gold to Manhattan real estate in the current environment. that comparison is tremendously flawed in so many ways i don't even know where to begin (nor do i want to spend the time and effort to invalidate such a ludicrous comparison in today's economic climate).

metalist and steveF still spewing nonsense = we are definitely not at bottom.

once these ostriches pluck their heads out of the ground, freak out and stop posting such blasphemy, then we can start thinking that the bottom is approaching.

remember, this was the behavior during the DotBust days.... it was only when the perma Internet bulls stopped preaching when markets finally started the long process of putting in an inflection point.

and please- don't even compare Gold to Manhattan real estate in the current environment. that comparison is tremendously flawed in so many ways i don't even know where to begin (nor do i want to spend the time and effort to invalidate such a ludicrous comparison in today's economic climate).

The bottom of housing? You have got to be kidding.

The bottom of the stock market? Coming close - interbank loan guaranties are the next step, which will stop the relentless slide until a more permanent solution can be found. Why they don't announce it today is beyond me.

Calm will return and we will in the short-term recover what has been lost in the past two weeks. Then, when nobody can pay their bills or their taxes, they can just say, "Ask Hank Paulson. He's the one who let Lehman fail."

The first to rise will be China, if only because the government will cause it to rise.

This is getting stupid. I thought DOW 8000 was a farce. This is crazy.

steve, I know you are long China, but I would be doing a bit of cash preservation if I were you. You are not chasing your mistakes are you?

"...malraux, "charter member"? How old are you? 5769?..."

Hey, man, I'm a direct descendant of Moses! ;-)

"I would be doing a bit of cash preservation if I were you"

Already done, and doing more.

"Chasing mistakes"? We only know our mistakes in hindsight. This I don't think is a mistake. The Chinese government has already launched a specific plan to reflate its stock market.

To put it in context, the Dow is down over 40% from its year-ago high; Brazil is down 50%. It is not right that a developing country's stock market should fall as much as the US market. The fall there should have been much steeper. There is no more risk now in developing countries than there is in developed countries. Just look at Iceland.

"Manhattan Real Estate: As good as Gelt" (You know, those little chocolate coins you get on Hanukkah)

> nyc10022...how many times do I have to tell you...the early 90s was massive oversupply...3 years in
> a row had 25,000 new units entering the market...5X the normal supply entering the market...got
> it..it's not brain surgery here...like stevejhx will try to spin it into..

Same number of times I told you that the majority of the inventory was co-op conversion... making much of it meaningless addition (just turned renters into buyers, it didn't make inventory available).

"I wouldn't buy a property in Manhattan for the next 10 years - that's how long the last downturn lasted"

Okay, can people get this straight for once. Prices did not DECLINE for 10 years straight during the last real estate boom, they declined for about years (from 1989-1993), although most of the major declines were over by 1992. In 1994, prices began to increase again, they just didn't regain their 1988 highs until 1998. So it took 10 years to fully rebound, but this doesn't mean somebody should have waited until 1998 to buy, when prices began to increase again in 1994.

Not saying the past is indicative of the future - who knows - but we need to be accurate when referring to the past ...

I am actually walking out ahead in this mess

Collecting $8200 in rent from my recent property purchases (4years ago, 1 year ago)
$3200 RENT
$5000 RENT

$2400 $5700 in Mortgage/RE tax/CC charges = $8200

Even out, but I get about $30,000 tax return at the end of the year.
Interest on 20% down ($14,000/year @ 4% CD), still netting about $16,000/year and the renter has been paying my mortgage for the past few years.

I would've invested my $350k on the stock market if I didn't purchase the RE. It would beworth about $180k as of today.

type $8100 in mortgage/RE/CC but evening it out to the rent.

ba294, let us hope for your sake that you can continue to rent the apartments.

rents are going to plummet. based on credit spreads and a few other indicators, it looks to me like NYC will have 12% unemployment within 24 months (my national estimate is 9%).

Steve,
Yes that is one thing that concerns me. I currently have 1.3 year left on the 1st apt and 1.5 years on the 2nd apt. At this rate, not looking to raise when the renewal comes but keep the same rent.

You'll be lucky if you can keep the rent the same. A vacant apartment or a negative cash flow will drain you faster than any stock market fall.

Which is why, with real estate investing, you always need to have more than enough income to cover your costs.

NYC will not have 12% unemployment anytime soon. People should just stop that talk. Things are not good, but what's going on in the stock market right now is temporary. Of course it didn't need to happen, but in a sense - my losses apart - it is good that things are unwinding so quickly. There is talk of another short-sale ban. PLEASE DON'T! Just reinstate the uptick rule.

In my opinion, once the credit issue is resolved, the stock market will recover relatively quickly. I believe the average figure is 40% of its loss in 6 weeks. We have already been in a bear market for a year. This feels like the bottom collapsing under us, which is a good sign.

But not for Manhattan real estate. There there is no hope. If you bought property here from from 2003 until recently, and you have to sell, you may be in for a big shock.

I have more than enough to cover 3 times the mortgage. You are absolutely right, if one can't carry the mortgage without the rental income, then they are force to take a loss on the RE and fire sale it.

I am waiting for the DOW to go just under 8000 and jumping all in.
Morgan dropped quite a bit today, I personally think it's a good buy since Mitsubishi is on the wagon and Morgan is currently on the hiring spree.

dow went under 8k twice already...

My prediction is under 8000 with -400 on monday. Time to pour in.

Well, I see 1-bed rents down 3-4% YOY as of Sep. in the TREGNY report. Your tenants ought to be asking you for a 5% cut.

I think your problem is you are levered on two assets with declining prices of indeterminate magnitude and length.

> Morgan dropped quite a bit today, I personally think it's a good buy since Mitsubishi is on the wagon and Morgan is currently on the hiring spree.

You're crazy. Bear Stearns and Lehman aren't enough example what a run on the bank can to do even an otherwise strong institution? Hedge funds are pulling their prime brokerage balances as we speak.

Wow so many predictions and so litte fact. Stocks will rebound as soon as we flush out all of the sellers, and the influx of capital that is going to be flushed through the banking system takes hold. Manhattan real estate will fall and also recover because that is what history has shown us and all we can go by is the past, period the end. How much, how far, what time frame NOBODY knows except if you want to use the facts from the past occurances.If you bought with scared money watch out.If your time horizon is 7-10 years on stock or real esate I feel you will be fine but a srtong stomach will help.

crescent22,
Declining prices does not affect me since they are rental units. If I decide to sell even at 800psf, I still come out ahead few hundred thousands.

Even if my 2br condos are worth 100 psf, rentals continue to pay my mortgage and 16k/year into my pockets. In 25years, when the mortgage is paid off by my tenants, I'll add it to my retirement fund :)

I timed my 1st unit in terms of purchasing and rentint it out at the right price. I paid 860psf on my 2nd unit 2br apt (new development, midtown west, 10 year tax abated) a year ago. Rent is little less than my payments but still coming out ahead after the tax return.

should be writing down a budget paln

> My prediction is under 8000 with -400 on monday. Time to pour in.

Looks like there are a *lot* of buyers fighting any further declines... and, if there is good news this weekend, look out for a violent jump

> Declining prices does not affect me since they are rental units.

But if prices decline 50%, rents probably see some downside as well. Either way, you're still talking about a significant loss in a levered asset.

yes, either way i lose % of the decline and rent to reflect it. But at least locked for 1.5 years on both properties.

I saw the bump on the market. Morgan jumped 30% from my posting...should've, could've would've right?
I'll wait til monday and hopefully I can get in on that day.

Gee whiz. I agree with Stevejhx on everything but Manhattan real estate!

We probably are in for a fall, but OP is right about the longer term.

Funny, I agree with Stevejhx about real estate and about nothing else. P/E? Not just liquidity, but insolvency. Have fun.

I think the current precipitous selling in the stock market has to come to a bottom soon. In my opinion the current problem has more to do with market uncertainty than anything else.

Yet there are still major FUNDAMENTAL issues with how stocks are moving and the credit markets. This second, far more concerning issue, wealth destruction through derivatives and false price increases, is what scares me. It is also what I feel will lead to a substantial decline in Manhattan real estate.

I am a trader for a hedge fund and was heavily short equities before the current decline and lucked out with the current market crash. Of all the people I know who work on Wall Street all of them are bearish on the Manhattan real estate market. This concerns me not because I trust their investment opinion but because they and others like them represented a large amount of buyers in NYC. The unique situation that I fear we may find ourselves in has very little to do with where to put our money (real estate or equities), and far more to do with the loss of wealth.

crescent22
2 days ago
ignore this person
report abuse Well, I see 1-bed rents down 3-4% YOY as of Sep. in the TREGNY report. Your tenants ought to be asking you for a 5% cut.

I think your problem is you are levered on two assets with declining prices of indeterminate magnitude and length.

> Morgan dropped quite a bit today, I personally think it's a good buy since Mitsubishi is on the wagon and Morgan is currently on the hiring spree.

You're crazy. Bear Stearns and Lehman aren't enough example what a run on the bank can to do even an otherwise strong institution? Hedge funds are pulling their prime brokerage balances as we speak.

Morgan at $16+
I went all in on MS on Friday and it should be enough to buy 1t of gold :)
Still think it's a bargain at $16-17

Dow up 962 points. As I said in a previous post, things change very, very quickly these days.

I agree Will!
I went pretty much all in on the stock market late Friday...now i have enough to retire :)

maybe not...almost forgot about the capital gain taxes fack!

pure genius

good as gold -- hmmm --- $2k an oz.! NOT --

I forgot about this thread. Aaahhh... when was that, late 2008??

Makes you laugh... Thanks for reposting.

"Given that the stock market has been crashing the last few weeks, those that have put their money into real estate here should feel pretty good about it.

Things have held up. With inventory going up,and more layoffs on Wall Street likely, things could take a dip but it will be short and shallow."

hee, hee...