Home Prices Seem Far From Bottom

The article actually mentions the rent ratio being 15x, not 12x. And if you look at the graphic, that is where NYC seems to be right now.

No - it says that Miami is 15x. Look at the New York line - it's historically below Miami's, which is at 15x.

The same data were published by Fortune Magazine.

It's difficult to say exactly where price to rent ratios should be in Manhattan. I am not sure NYC will remain below the nation in price-to-rent ratios forever, for the simple reason that people want to stay here with families, etc.

To me, the most interesting part of this chart is that "price-to-rent" ratios peaked around 2005. However, we know that condo/coop prices continued to go up. We also know rents have increased but this is really difficult to quantify, because it's hard to know what market rents are if you've been renting one place for years. What this chart suggests also is that RENTS have spiked even more dramtically than condo/coop prices.

It's a perfectly fair assumption to say rents will fall back to 2005 levels, if not lower, given the Wall Street shakeout that has occured. If this happens, this would put the P/E (at current prices) well over 20 (if it was around 18x in 2005, and condo/coop prices have increased since then, the P/E now has to be higher if rents fall to those levels).

The chart includes the NY metropolitan area, which has seen significant declines outside of Manhattan already, especially in places like Suffolk. Manhattan began to spike in 2003 - later than elsewhere because it took time for the Wall Street Whiz Kids to bonus themselves to the moon after selling all these worthless products.

We have very far to fall here in Manhattan. Look at the asking prices. Who can afford that? Let's say you're a general practitioner making $300,000-$400,000 a year. You can still barely afford a 1-bedroom apartment in a new development condominium. These apartments were built for a class of person who will never exist again.

Never again. We will NEVER return to the situation that caused this - asset bubble after asset bubble after asset bubble. Greenspan is going down in history as the most incompetent Fed chief ever. I say Volcker will be Obama's Treasury Secretary, Krugman the next Fed chief.

There will always be bubbles - history has shown this, over and over again. But I do agree with you that the unparalled explosion of asset values - first stocks in the late 1990s, then houses, etc. - will not happen for quite a while.

Also agree that new construction will get hammered. I have a friend who spent something like $800k in one of those ugly glass towers on the LES - and I mean way over there, almost against the FDR. I think that at best he sells that place for like $500k in 2 years, at best, but likely much lower. But the other thing I'll say is you could have taken that $800k, go up the Upper West side in the 90s, and buy a 2 bedroom in a prewar non doorman building. That's something the general practioner you were talking about could afford. I think the latter will fall too but not as much as the former.

kspeak, I agree. I was talking to a friend of mine who a year ago sold a house in Broward County for $780,000. A similar one is now on the market for $440,000.

You will see that in marginal neighborhoods in Manhattan. And the prices will not rise back to the $780,000 level for years.

Which is why I prefer stocks. Yes I lost a lot (as has everyone) but they do bounce back, and they don't eat up cash flow which, if you're out of a job, can lead to bankruptcy. Look for a lot of bankrupt investment bankers in the near future.