NYC RE Market Crashing

This is about the commercial market as opposed to the residential market.

There has often been a disconnect between the two markets.

That said, I think the residential market is in the early stages of joining the commercial market.

OMG this would be too good to be true. I'll get a 2 br instead of a jr 4. Bring it on

Don't get your hopes up. "Commercial real estate" includes residential rental developments like Archstone and Related. Anyone who thinks - as Topper and cccharley apparently do - that Manhattan real estate will remain unaffected, is drinking the Kool-Aid.

"Anyone who thinks - as Topper and cccharley apparently do - that Manhattan real estate will remain unaffected, is drinking the Kool-Aid"

ummm

I agree prices will come down but a %70 drop would coincide with a disintegration of quality of living that most people will not put up with. Downtown Detroit has probably seen a %70 drop and it has become a city of suburbs. Be careful what you wish for.

Steve- what are you talking about? Where did you get that I don't think prices are going down? I'm serious. I am not rich. I will be able to buy more for my money if prices go down 70 instead of 40. I think both Topper and I said that residential real estate will be hit hard. Reading comprehension please.

70% is just an outrageous number. The market will go down for sure, but nowhere near 70%. That is ridiculous.

Some apartments have already come down 30% (see conversation on price cuts and comps). I would never predict where the market would go--that's foolish--but from the absolute peak it is not at all inconceivable that the market could decline well over 50% before everything shakes out.

Thank you, cccharley. I was starting to wonder about my own writing skills!

I think Steve is geting a bit trigger happy!

Happyrenter - There is a GIANT difference between a few grossly overpriced apartments selling for 30% less than their ourageous offering prices and the entire RE market in NYC being down 30%.

waverly, you're right. the difference is tpyically about 6 months:)

i love these discussions. kgg hit it early. if there is a 70% drop..guns and canned goods will be nice to have on hand.

> waverly, you're right. the difference is tpyically about 6 months:)

LOL... and right on...

NYC and ubbatubba - I am not saying it won't be down 30% in 6 months at all. But that is a far cry from down 70%. That's all I am trying to say.

There are a lot of crazy numbers being thrown out there and I think it is important to keep some level of sanity as to what is real and possible and what is just outlandish.

I wouldn't call 70% "outlandish" anymore. The stock market is down nearly half, and wasn't particularly inflated to begin with.... Manhattan RE has been the bubble of all bubbles..

I don't want to nit-pick, but the stock market is 40% off, not 50% off. Those kinds of details do matter. That would be 25% more of a fall than we have experienced and I think that makes a difference. That's what I am trying to point out and what I think gets lost in the "excitement" of calling the downturn. It's important to remain objective and realistic with expectations and predictions.

Again, I am not saying "buy now or priced out forever", just that we should excercise a little restraint with the numbers.

> I don't want to nit-pick, but the stock market is 40% off, not 50% off.
> That would be 25% more of a fall than we have experienced

Dow 46% peak to trough (so far). And we've been just a few hundred points off that trough for a few days now...

> Those kinds of details do matter.

Ok, 66% then.

;-)

haha...fair enough!

Maybe I'll be proven wrong at some point, but I think 70% is a completely outlandish guess. Real estate here is due for a correction, but it is not at all volatile compared to stocks. Will it overcorrect? My guess is yes, but I just don't see how it would even come close to that figure, peak to trough. If it does, you'll have people snatching up apts without any mortgages in this city. Lots of them.

anon3 has been posting outlandish stuff on this board for a long time. He is one of those people that claimed he made 100% returns in the market and then recently admitted he lost all of his money. anon3 would have been better off locking up his capital in real estate, at least then he couldn't invest it.

> Real estate here is due for a correction, but it is not at all volatile compared to stocks.

Volatility is not the same think as total drop. A consistent, measured drop can be larger than a "volatile" drop with a lot of swings. I am using volatility in the traditional Wall Street sense.

But are you saying that RE can't go down as much as the stock market?

Historically, we have seem 50% RE drops in markets. And, we are starting from unprecendeted bubble...

If real eatate pricing goes back to '03 we will all be better off (except,of course the people who bought after '03)

(or all the people who didn't buy in the bubble but got screwed because of the bubble pop... which is like half of the US)

Not saying it can't go down as much. I don't think it will, but what's happened in the market has certainly opened up the floodgates for some people to get away with saying some stuff that's pretty out there, in my opinion.

For everyone who argues about future home pricing, there is an index which you trade and take a view. The RPX Index (Radar Logic) tracks 25 cities (like Case Schiller, which is 20 cities) and has composite and individual city indices. New York peaked on 6/28/07 at 310.0 and is currently trade 268.0 (-13.8%). The Dec '09 and Dec '10 contract are at 233.0 (26.5% peak to trough). Fairly liquid markets with 4% bid/ask.

no way real estate falls 70% from peak in nyc. that's just silly, full stop. 40-50% we can talk about. I do believe it will over correct on the downside. Certainly there may be a few apts here and there that are down 70% from their original asks or even a top tick sale print, but no way the entire mkt falls that much. anon3, i'll bet you any amount of money you want that it won't happen. we can find a lawyer to draw up agreements and put money in escrow. just let me know.

WOW, have we come far..

Remember the days where bulls said up, and bears said down?
Then it became bears down, bulls "soft landing".
Hell, just a few months back, it was bears 15% down, with a couple getting to 25-30 bulls a few percentage points.
Then I was amazed when lots of folks were talking 30%.

Now, have we really come to discussing 70% vs. 40-50%?

I remember when 50% was the crazy, insane outlandish number...

NYC re up 5% YOY in Dec 09

nyc, i actually am thinking 30%-35% from peak. but peak is a difficult thing to measure. if you add in the ridiculous 15CPW/Plaza average pricing numbers from 1Q (chock full of other new condo construction), then that average price was already inflated. then i'm probably closer to a 50% move down in average pricing from that level. if we were to have a Case Schiller type of more accurate measure for NYC apts (and not single family homes), my guess is that true like for like averages decrease by around 30-35%.

I think I'm in your boat. I thought 20% a few months back, but I didn't realize the entire world was getting its ass kicked this bad.

Amazing how much things have changed in just a few months.

nyc10022, I remember those days well, as they were only about 7-8 month ago. I remember getting flamed by bulls and bears alike for calling for a 50% decline. Even the bears called me an a**hole. I never did it again, I was ridiculed so bad for that one post. What a change in psyche.

dmag, nyc10022...i think you were bashed not for suggesting a fall in real estate but for the hysterical scenarios you attach to a fall in real estate. no one is sitting around wringing their hands over the stock market and saying no one should ever invest in the stock market because it's taking a beating at the moment. people are discussing other asset classes and time frames and reasonable alternatives to the current environment. what you term a "bear" is probably someone like me who has invested for years in real estate and is fine with riding the waves. that does not mean i expect everyone to do the same. i invest in real estate on a global scale and have made spectacular gains and suffered spectacular losses and hedge everything with good old cash savings and also investing in the market. it's the old saying: you pays your money and you takes your chances.

why not just ride the waves and enjoy? you will be dead in a coffin someday.

Special K, what kind of odds you want to give me for a 70% peak-to-trough decline in Manhattan RE? I don't think it's likely to happen, but don't think it's completely outlandish either. From $1200psf to $360psf, which is where it was in the 90s.

Does anyone have the price data? My sense is 2004 pricing would be about -30% vs the peak. What would 2003 pricing be, about -45%? The scary part is what would -70% be, 2000? I agree that -70% would require a deterioration in the quality of life. However, with many retail stores closing, we are undoubtedly looking at higher crime as unemployment and a 40% decrease in NYC tax rolls (less for social programs) generates double whammy. I am sure by the time I want to buy here, my wife will finally agree to move to the burbs based on the crime blotter. The problem with quality of life arguments is that although there was more crime here in the 80s, it was still was not modern day Detroit... It was just earthier and many people obviously still liked it. All this said, it would be hard to imagine Manhattan coops trading at $400 a square foot.

newbuyer99: 3.5% odds and I'll give you a 20 year term to find out if you win the bet.

ummm. Yeah. eah, You enjoy those waves of spectacular losses. What with your spectacular wealth you can afford to. Those of us with a mere couple of million in the bank prefer buy not at ridiculously high prices. Now I am buying in Miami and soon in the Hamptons, and finally in the city. But now I will be able to pick up all three homes at the cost of just one soon. And as for the hysterical scenarios, please just refer to all of the families that are being foreclosed on, and please extrapolate that to new york city.

70% huh? So the place I sold at the top in July of 07 at 1.3 will go for 390k? less than half of the 795 i paid in 2003?

nah, and if it does, have fun living here.

Devi good example. I think it probably just goes back to the $795, -40%

"Special K, what kind of odds you want to give me for a 70% peak-to-trough decline in Manhattan RE? I don't think it's likely to happen, but don't think it's completely outlandish either. From $1200psf to $360psf, which is where it was in the 90s. "

No odds, straight up bet. Under 70% I win. 70% and over, you win. Why would I want to give up economics when someone makes a claim for 70%? If you want to do straight up, let me know and I'll exchange contact information. But please, only if you are serious.

Special K, is crazy to expect a straight up bet on 70%. How low a decrease would you bet on? To bet on more than 40% even money just seems like a bad risk/reward. Anyone have any idea what the biggest decline was? Presumably it was the early 1970s. My father in law put in a $35k bid on a $55k ask in 1972. The broker almost refused. The bid was hit.

Rhino86, couldn't agree with you more. it would be crazy to take the opposite side of that bet. why do you think i would be willing to bet everything i have that doesn't happen? you think its nuts because you are rationale. anon3 makes a silly claim with so much conviction, i want to see if he will put his money where his mouth is.

"I think it probably just goes back to the $795, -40%"

that I could see.

I would propose now some number-crunching, with the goal that somebody in this forum can refine it further by way of real world data instead of mere speculation. The problem I find when we talk about 40% down vs. 70% down is that those percentages are relative to the current (or, rather, the peak) prices of the apts., whereas when somebody screams: "But they went up 150%", they are referring to percentages relative to their prices in 2000. I mean, a 100% discount relative to peak would mean a price of (drum roll!) zero.

So, if we decide that the bubble-effect should be completely erased, the apartments in NYC should have appreciated only to keep up with inflation. If an apt. was worth 100 in 2000 and inflation has been 3% per year up to 2008, that apt. should be worth 126.68; If the inflation has been 4% per year, the apt. should cost 136.86.

Meanwhile, in the real world, apts. in NYC appreciated at an average of like 10% or 15% per year between 2000 and 2007 (I'm just being very general here) If the apt. that cost 100 in 2000 appreciated at a steady and regular rate of 10% per year through 2007 (and didn't bulge between 2007 and 2008), it would cost 194.87 now. At 12% steady appreciation it should be 221.00 and at 15% be 266.00.

So in the first case scenario, that the fair inflation-adjusted appreciation should have been only 3% per year, to completely erase the effects of the bubble, the apt. at real world 15% app. would have to fall by 53%. If the real world-appreciation was "only" 12%, the apt. would have to fall by 43% and if it was a measly 10% then it would need to fall 35%. Meanwhile, if the fair inflation-adjusted appreciation should have been higher, 4% per year, to completely erase the effects of the bubble, the apt. at real world 15% appreciation would have to fall by 49%. If the real world-appreciation was "only" 12%, the apt. would have to fall by 38% and if it was a paltry and sad 10% then it would need to fall 30%.

The numbers used are very ball park estimates, but if somebody has all the data of "official" inflation (if that can be trusted!) and year to year Real Estate appreciation in NYC, they can fill in the blanks better and be very fair in what they hope for using this model.

Otherwise, let's just bare our teeth and scream: IT'LL GO DOWN 70% YEAH! BURN, BURN, BABY!

Trompiloco what the trouble is, is that is it inflation we should care about or growth in real incomes. The yelling and screaming is fun... I don't think anyone believes they really "know". I think however, that through the discussion we come to the conclusion that 40% off the top is really quite attainable... A level that three months ago would have been thought impossible.

dmag - you're so defensive. life is really not that serious. where in my post did i say you should buy now? where did i suggest that spectacular losses are a a good thing. i was disclosing that i have been on both ends of the equation and can speak from experience. losses hurt but rarely do they cripple you unlesds you bet the farm. as far as waves of foreclosures, i do not see that going on in NYC. maybe it will and when it does it will become relevant but at the monet it isn't.

What about marginal areas, like Harlem, that went up up 300% since 2003? Somebody that bought for 300.000 is asking 900k. Looks like prices there can't go back to 2003-4.

A place like Harlem certainly falls harder in the down. Whether it can go down 70% who knows. Was $900k ever really a realistic asking price. I am not close enough to the market up there.

Rhino, inflation (whether we believe in the numbers or not) is the gauge that everything is going up. Real Estate shouldn't be exempt from that. Y'know, milk or bread are just as essential. I coincide with you that 40% is attainable and more than that is perfectly possible, too. As to real incomes, you know the Bush doctrine: the top 2% do great, the rest get f**ked. So there has been real growth in incomes for some people since 2000, strong growth. But, many of those, as it pertains to NYC, are now facing real financial trouble.

There is real growth in the value of scarce resources above inflation...namely in some things that are excluded from inflation, such as energy. I think real estate is the same. I think it can do better than inflation over time. Think about it. Middle management execs could afford a better lifestyle in the past than now. Yes, it has a lot to do with the regression and dispersion we have experienced with this asshole in office. Ironically economies and societies do well when more people make money and pay taxes. What we have in the US now is a death spiral. Concentration of wealth and social programs to treat the symptom not the cause... But we need it because it's too far out of whack.

> no one is sitting around wringing their hands over the stock market and saying no one should ever
> invest in the stock market because it's taking a beating at the moment.

Difference is... stock market wasn't in a bubble state... and stock market has shown historical positive returns over the long run. And, stock market already took its licks.

If RE did that, I'd be more apt to suggest it as an investment.

But, instead, you have probably the biggest bubble ever in an asset class that has a near 0 real return over time.

Baseball cards might also be taking a beating at the moment, but that doesn't necessarily make it a good investment either...

> why not just ride the waves and enjoy? you will be dead in a coffin someday.

I'll ride the waves that are taking me to where I want to go... not the ones drowning me.

Beanie babies can fluctuate like stocks, too... doesn't make 'em a good investment.

nyc10022 - you can't possibly be saying that the stock market doesn't go into bubble states?

Also, how do you know the waves you're riding are the waves taking where you want to go? When I purchased real estate in NYC years ago I had NO clue to amount of cash it would put in my pocket. The reality is, in most cases, it is only in retrospect that you realise you made a grat investment. Other than that, it is pretty much slow and steady saving that builds a fortune. There is NO way you know what will happen tomorrow in this economy. Not even the biggest and best financial minds have a clue what's around the corner.

Eah, why open your mouth if you are going to say nothing? You make it sound like you think there is no use thinking for yourself, ever. Shut up.

what do you mean rhino? i was responding to nyc10022.

instead of being a child point out what part you disagree with. i am curious. do you think it is easy to call markets? do you really think most people who purchased real estate in the early 90s did so because they knew a huge bubble would come years later? of course they didn't. seriously. tell me what you so violently disagree with? or are you just an agressive asshole? if so, that's fine too.

I mean that just conceding that life in unpredictable serves no purpose here, or in life for that matter. You do your best based on sound assumptions. For instance, I read an article from 1993. Women bought a studio for $175k. Her payments were about $1700 for an apartment that would cost $1000 to rent. That is simply dumb... Doing ridiculous things is not as unavoidable as you try to make it out to be. nyc10022 was saying stocks were not near as big a bubble as real estate and have corrected more...Its a reasonable statement. Eah, just because you bought and made money, doesn't mean you understand what you did. I don't know what will happened tomorrow, but I know after being cut in half I am willing to hold more stock than 2 years ago that's for shit sure.

Eah, just because you bought and made money, doesn't mean you understand what you did Um, was that not exactly my point?

Eah, some people choose to think. It's clear you think that thinking is futile. My point is what is the point of you being on this board if you don't want to think and discuss risk/reward vis a vis future outcomes? Why not just enjoy not thinking and run along?

No, Rhino, thinking is not futile. But if you must argue like a child, that's fine. But timing most markets is fairly futile. that's why the conventional wisdom has always been to build wealthy in a slow steady way. Which is where the thinking comes in. I didn't know I would make a lot of money in real estate very quickly. I intended to buy one property a year and maybe by the time I was 50 or 60 have them paid off. The market shifted and suddenly they were making money. That's my point for being on a real estate board. I have invested my entire adult life in the asset class and made.lost/moved sideways over the years. Check out my other posts, I always advise people to lowball or give advice on locating areas where I have found value.. I always participate in renovation questions. I love real estate. Questions is, why are you here? Sounds like you think it is a miserable asset class.

Special K, no odds is a silly bet. I was not the guy predicting the 70% drop, just saying it was possible.

You, on the other hand, said "no way" was it happening, in pretty strong terms. If you're so sure, you ought to offer me pretty good odds. Since you're not offering ANY odds, that means you're not sure at all.

BTW, here's a seller who bought a new condo in Hell's Kitchen for 810K in 2004 and is now asking 845K for it. He chopped it down 15.5% in one go, so he must be in pain. Regardless, he'll lose a good chunk of money when all is said and done. And Hell's Kitchen has plenty more Duane Reade's than LIC. Up and coming, Condo, blah, blah, blah.
445 West 54th Street #1E in Clinton

Condos are hosed. First because people used a ton more leverage, so competition for apartments was much more intense than from coops...more buyers who could qualify. Also, has anyone heard that banks will no longer lend for a new development unless its 50% sold? So in this market they have to try to find cash buyers for 50% in the units.

> nyc10022 - you can't possibly be saying that the stock market doesn't go into bubble states?

No, simply saying that we didn't have much of a stock market bubble this time. Meaning that all other things being equal, RE would likely fall more because it was in bubble state, and stock was not...

> There is NO way you know what will happen tomorrow in this economy. Not even the biggest and best
> financial minds have a clue what's around the corner.

True... but that doesn't mean you can't spot the obvious RE trends...

"You, on the other hand, said "no way" was it happening, in pretty strong terms. If you're so sure, you ought to offer me pretty good odds. Since you're not offering ANY odds, that means you're not sure at all."

My offer to bet was with anon, since he keeps posting 70% declines. He's done this many times. I'm giving him the opportunity to put his money where his mouth is. I agree, you didn't say 70% but I also didn't offer you the bet. If you think it's much less likely than him that we'll reach 70%, then we're probably more in agreement than disagreement.

Yeah, I think we are more in agreement. I also think there's a huge range of possibilities because of so many moving pieces. I will be surprised but not shocked if prices stagnate rather than falling meaningfully. I will likewise be surprised but not shocked if they fall 70% from peak.

Anyway, no bet. I figured it was worth a try if you wanted to give me very favorable odds.

As to condos, has anyone seen anecdotal or other evidence of foreigners walking away from their contracts? The Real Deal has already suggested it is happening. I would suspect that it's already happening in full force, but wondered which buildings are most affected.

where's the RD article you reference?

Any anecdotes of foreigners forced into renting and then forced into price chopping and then forced into suing their nonpaying tenant?

http://ny.therealdeal.com/articles/foreign-apartment-buyers-grow-scarce

More of an expectation by lenders. It certainly makes sense.

individually-owned investment properties (i.e. unoccupied by the seller) are the best places for price negotiation.

And truly, the old "go silent" tactic will truly create some seller anxiety and softness.

Wall Street Banks Bracing For a Big Round of Layoffs
Topics:Banking
Sectors:Financial Services | Banks
Companies:JPMorgan Chase and Co | Lehman Brothers Holdings Inc | Morgan Stanley | Goldman Sachs Group Inc | Bank of America Corp | Merrill Lynch & Co Inc
By Charlie Gasparino, On-Air Editor | 04 Nov 2008 | 02:02 PM ET
Text Size

The big broker-banks are preparing to lay off as much as 15 percent of their workforce as the economic slowdown continues to pound Wall Street, CNBC has learned.
CNBC.com

As the remaining investment banking companies look to clean up the damage from the credit crisis, thousands of employees will pay the price through pink slips that could come before the end of the year, senior sources on Wall Street said.

Some of the biggest hits will come at Merrill Lynch [MER 19.99 1.05 (+5.54%) ], where 10,000 employees could be jettisoned as a result of the merger with Bank of America [BAC 24.53 0.92 (+3.9%) ].

Barclay's [BCS 12.68 1.17 (+10.17%) ] purchase of Lehman Brothers' [LEHMQ 0.064 --- UNCH (0) ] investment banking unit also will mean layoffs, while lack of merger and acquisitions and initial public offerings is hitting Morgan Stanley [MS 18.90 0.90 (+5%) ] hard. Morgan could lay off 15 percent of its work force.

Even the more stable companies, including Goldman Sachs [GS 95.00 5.91 (+6.63%) ] and JPMorgan Chase [JPM 42.17 1.44 (+3.53%) ] will get hit. Goldman is looking at at least 10 percent and maybe 15 percent of its workforce, with similar numbers likely at JPMorgan.
© 2008 CNBC.com

hey McFly, multiple choice, you are:
a) stevejhx
b) EddieWilson
c) nyc10022
d) dco

convicted - you seem to be so intimately familiar with the regulars. Who are you, pray tell?

I'm a recent regular, but I burn my posting name every couple days. Sometimes it is just fun, for instance, I even created SueECho a week ago to mimic ESueCho who irritates SteveJXH in order that I could just irritate SteveJXH as well.

Nevertheless, this is just fun, unlike McHale, whoever else he actually is, I don't have an agenda other than, well, to have fun - some people call that being a troll and I won't argue.

Nope I'm new here maybe a month. I watched this house of cards get built up over the years. Actually I used to work for Prime Computer back in the 80's and we got wiped out by Wall Street's junk bonds for no other reason than pure greed and leverage while the filthy pigs on Wall street got rich. We were a 2 billion dollar a year in sales of high tech computer equipment with 16,000 employess and we collapsed under the debt load. Mike Milken's junk bonds at Drexyl and corporate raiders did us in. BTW my inheritance with my brothers in real estate in Astoria was worth about 3 million two years ago.....guess what it's worth now? :)

I too have no agenda other than to inform people of the coming sunami created by Wall Street's house of cards. I could have sold out a couple of years ago but I run a small business and employ people who depend on me for a living. I never thought the property was worth those insane numbers so frankly my dear I don't give a shit.....I always lived within my means with no debt and made my money thru blood and sweat not greed.

McHale, are you father to petrfitz?

He too can't spell and is always pretending that everyone else is greedy when he's no different.