If DOW goes back to 10K post election?

"Does RE follow along and start to pick up again if the DOW stabilizes around 9,500-10K?"

No. Manhattan real estate is not correlated to the stock market. As per Miller Samuel.

Curiously - we have barely broken the surface on the declines in NYC. It will not follow the stock market. We are losing jobs and revenues and nobody will be able to pay the current prices

at the rate it's going today, we may not have to wait til Post Election. then again, there's always tomorrow.

Miller Samuel is fine, my question is will the DOW rising instill confidence in people to start buying again.....forget about jobs lost in banking....still plenty of doctors and lawyers out there doing fine.

> No. Manhattan real estate is not correlated to the stock market. As per Miller Samuel.
80s real estate tank, it took 2 years after the stock market bottom for RE to bottom....

As for DOW, I don't think we're getting to 10k in November, but I wouldn't be surprised if in 6 months.
Could there be 7k before that... sure.... but I'm starting to feel like everyone already thinks the world is ending.

Hell, consumer confidence at all time low, housing biggest decline ever, and they are putting great depression photos on magazines. I think we've got our capitulation.

one more 10% rally and we are at 10K....that would go a long way to instill consumer confidence in NY....forget about everyone else :)

RE is certainly in a better situation if the Dow stabilizes around 9.5 to 10k, as compared to it going lower and not recovering for a while longer. A healthy stock market helps *everybody*, especially a city so heavily tied to financial services.

> one more 10% rally and we are at 10K....that would go a long way to instill consumer confidence in
> NY....forget about everyone else :)

It would give more confidence than current, which was just measured at worst ever. Better than nothing, sure. But keep in mind that 10,000 is still 30% off peak. And the job losses are actually intensifying.

So, I'm happy that we had it, absolutely. But we have a LONG way to go...

Remember, after 87 crash, the dow actually ended up for the year. And it still took TWO YEARS for re to bottom.

curiously, the Dow Industrial Avg is def. psychologically correlated to the manhattan re market. I think you are correct in your assumption about consumer confidence increasing with the stock market increasing. Buyers are waiting for the 'right time to buy" that means they have one eye glued to what they feel is an accurate measure of the economy "the Dow" s/b at least the S&P 500.

Just for the fun of it I regressed the annual condo/coop price per square foot for Manhattan (Miller Samuel) price % increase with the annual S&P 500 total % return.

It was actually a modestly negative correlation. -0.31.

That said, I don't think the correlation is overly stable over time and would be content to describe the correlation as being essentially zero.

I predicted what I call a "flatline" market -- basically unchanged pricing with low transaction volume -- before all this stock market mess, and I'm staying with my forecast.

ali r.
{downtown broker}

With all due respect, I think that would be a broker's dream market.

Price-to income-ratios, price-to-rent ratios are so out of wack in New York - plus the awful economic background - that I expect at least a 35% price haircut over the next couple of years. Even then, Manhattan could fall further.

Stocks and bonds, by contrast, are at firesale prices!

"will the DOW rising instill confidence in people to start buying again"

It's not a question of "confidence" - it's a question of prices vs. incomes and rents.

"forget about jobs lost in banking"

How, when they and related jobs account for 33% of NYC's income?

"still plenty of doctors and lawyers out there doing fine."

Doctors and lawyers don't make nearly enough money to afford Manhattan real estate today. The average NYC lawyer makes $90,000; the average doctor $300k. How can they afford $2.5 million apartments?

bankers have also made so much money the last 7 years that maybe now instead of buying a 3MM Apt....they will but one for 2MM

Actually Topper, a flat market with low volume is a bad market for the real estate industry, because agents make their money on volume.

ali r.
{downtown broker}

"bankers have also made so much money the last 7 years that maybe now instead of buying a 3MM Apt....they will but one for 2MM"

Absolutely - because they haven't bought any property over the past 7 years which is why they desperately need one or more in the near future. Because had they bought real estate over the past 7 years then prices would have risen, which they didn't.

What a ridiculous comment, curiously.

No, Manhattan real estate has nothing to do with the Dow. Manhattan real estate is in the early stages of a multi-year decline in value (see SteveJHX'x earlier posts for a fuller explanation). I didn't like today's rally, and needless to say, I didn't add to any positions on a 10% up move. Right now I am in a good position. I have a large enough position in enough names that, should this market run-up to 10k plus by December, I am out with a nice profit. If it goes back down and tests 8k again, I have plenty of dry powder to add to some of my positions, and start building some more. The time to start building in order to give yourself the best hedge was 3-4 weeks ago. As a value investor, I am looking 5 years out. That being said, with volatility like this, if I get a 20% return in two or three months, I take it and rebuild. These upside runs are probably bear market rallies, which is fine. If it is the start of something major, that's fine too.

Certainly, Ali. My impression, though, is that volume is typically much better in flat markets than in tumbling markets. Good luck! You sound like a very knowledgeable and decent broker.

>one more 10% rally and we are at 10K....that would go a long way to instill consumer confidence in NY....forget about everyone else :)<

But for how long? The DOW was at 9300 seven trading days ago. These markets are moving at unprecedented speeds and it's difficult to get any sense of direction. All that can be said at this time is that we're in a 1500-2000 point trading rage with 8K being the low, for now.

Keep in mind the DOW is only representative of 30 mega-cap companies a few of which are defensive in nature and are less sensitive to a poor economy. These guys are basically around 90% of my portfolio. :)

Sorry Stevejhx to dissapoint....

curiously, let me ask you this. if the market rallies another 10% up tommorrow would you go out and buy a $1.5mm 2 bed apartment that costs well over $1,000/sq foot? and two days ago you wouldn't touch that apartment?? i suppose one more big move up to 10k, and suddenly Merrill/Lehman/Bear will come back from the grave. and no banks will cut any more people and in fact will rehire everyone they fired. and surely bonuses will be reinstated. and banks will no longer need over 20% down for condos and coops will let the champagne flow for ibankers looking for board approval. and no doc subprime interest only teaser rate loans will flood the street...

come on. this is just a silly post. it never ceases to amaze me how one big day up or down and its either armageddon or nirvana.

"The time to start building in order to give yourself the best hedge was 3-4 weeks ago."

Perhaps. Or it might be in 6 months. The market is too volatile to know for sure.

But real estate - being illiquid - is much easier to predict, and the tea leaves are there for all to see: 50% decline.

Ali - I actually really enjoyed your posts but now you really sound like every other broker - you really think there will be no decline in prices- awe come on - you have got to be kidding me? Even Big Law is hurting - no business

Ali - I actually really enjoyed your posts but now you really sound like every other broker - you really think there will be no decline in prices- awe come on - you have got to be kidding me? Even Big Law is hurting - no business

"That being said, with volatility like this, if I get a 20% return in two or three months, I take it and rebuild. These upside runs are probably bear market rallies, which is fine."

i don't think you are alone in your thinking. which is why every major rally in this market has been a liquidity opportunity for longs to get out or shorts to reset. i agree with your overall investment strategy but don't think we have reached the bottom - not even close. having said that, i agree that things are too cheap now not to buy anything. but this is going to be a protracted recession.

The big law firms derived a lot of their income advising on M&A - a dead market. And IPO's - a dead market.

Don't expect much to come from there.

curiously, I'm not at all "disappointed." Merely, it's a silly comment.

"basically unchanged pricing with low transaction volume"

Ergo, ever-increasing inventories. Which, Ali, you postulate will not affect prices.

Pray tell, how is that possible, as fundamental economic theory states that when supplies increase, prices must fall. Are you postulating that Manhattan real estate is exempt from the laws of economics?

Then, there's the matter of price - since, as is known, the ranks of investment bankers are being thinned, bonuses are being slashed, and these were the very people whose bonuses supposedly kept the market here afloat while it collapsed throughout the country, how is it possible that the opposite is not true?

Also, can you explain how the discrepancy between market-rate rentals - whose prices are falling - and purchase prices (about 100% more expensive to buy than to rent) will not affect purchase prices?

Finally, what about all this new inventory coming online, lots of it in marginal areas with no access to public transportation. As I was driving up to the Lexus dealership on 55th Street today, I couldn't help but notice the dozens of new buildings under construction with exorbitant asking prices, tell me how it is possible that prices will not fall when this new construction competes with:

Sales in Manhattan
We found 8,985 listings
Median price: $1,200,000 Median size: 1,150 ft² Median price per ft²: $1,143

Which is, in historical terms, over a 1-year supply of units, and in current turnover terms perhaps as much as a 2-year supply of units?

I have consistently held that there will be a 3-year supply of apartments on the market - 20,000 units at today's uptake level - if prices do not fall precipitously. I seem to have been correct.

So, Ali, if you can please justify your opinion based on the foregoing premises I'd appreciate it - it would help me differentiate between what seems likely to happen in Manhattan, and what someone whose income depends on what happens in Manhattan "feels."

That said, since we're talking about the Dow - I do think in 6 months time you will see a rally, and within 9 months we'll hover around the 11,000 - 12,000 range again. Right back where we were before the (stupid) collapse of Lehman. Won't change real estate, though.

> bankers have also made so much money the last 7 years that maybe now instead of buying a 3MM
> Apt....they will but one for 2MM

Not quite. SEVERAL years of bonuses were in stock they couldn't sell. Which is at best down 50%, worst case worthless.

Its also not how homan nature works. When you think the market is going up, you'll stretch to buy the best apartment you can. When you have half the money and thinks look bad, you'll go for the cheapest. Meaning $1 mil instead of $3mil.... for those who still have jobs.

> but this is going to be a protracted recession.

Which, by past history, does not necessarily mean mean a protracted bear market. The dow generally beats the economy up by 6-9 months.

"come on. this is just a silly post. it never ceases to amaze me how one big day up or down and its either armageddon or nirvana."

I agree with this, too.

It is funny how we're still 600 points below where we were just a week ago, and we're acting like its a bubble again.

I, like probably many of you, enjoy watching Fast Money on CNBC. For me it is mostly entertainment, I used to drink at the same bar as Tim Seymour, who is a nice enough guy, but I would never take investment advice from him. However, there is one guest that they often have who I have a great deal respect for named Carter Worth, who works for Oppenheimer. He called a bottom to this market the day before the last 10% up day. While I have no idea if we are at a bottom, I will however tell you that Carter Worth thinks so gave me more confidence than I already had buying on the dips.
The main thing is to be active, but patient. Why would anyone buy on a day when the market shoots up 10%, when we know that at some point in the next week or two the same equities will be available for a cheaper price. If we are within a range of say 8200-9300, that would be awesome. However, it is still too early for me to say that that is the case. Carter Worth knows a lot more about how the market's trading cycles work than I do, and he thinks we have bottomed. What that tells me, as an investor, is that it is a great time to continue to add to positions and to start some new ones. Right now, I have been lazy researching on some new companies, but I know that, should we dip to around 8k again, I will be adding to many that I have already started. AA,DD,DOW,CAT,MSFT,V,PFE,LLY,BAC,MHP,NWL,FCX,FDX

I agree with you on the overall, well said... *but*, I've studied it for quite some time and I'm in the do it with the index approach. Stock picking isn't shown to work any better in down markets than up. ETFs have made it even easier to combine the approaches, so lots of IVV, VTI, EFA, EEF, etc.

A lot of banks have stopped selling the stock picking thing, too, but they've moved on to sectors. Outside of doing it for diversification (having some oil ETF, maybe some RE), I think thats just an excuse for them to churn, too.

If you want to be extra courageous, look into some SSO (double long S&P).

I can't disagree with you, although I would stay away from commodities entirely, as well as currency trades. At this point, I am having fun building my own portfolio.

I agree with you on commodities... I actually sold a bunch of my oil. Not at peak, after, but before the real dropping begun.... I wasn't suggesting one buy it, I just meant use that as the vehicle if/when you choose to buy it..

I did do some UUP action, though. But mainly as a hedge, It made a nice profit, but it was relatively small % of portfolio.

"Tim Seymour"

mh23, yet again I'm on your side - anything he says to do, I do the opposite.

"Carter Worth"

also, of the chartologists I've seen, he tends to be the most accurate.

That said, I don't know that we won't test the bottom one more time, but I will be putting more money into the market, and I remain 2x long China. It's been painful & I'm still down, but it did go up 40% today. You need balls for an investment like that.

And as I'll post in another thread - credit is back. I got my first solicitation for a HELOC today for about 2 months. Granted, they used to offer me $75,000 no questions asked & this time it's just $50,000 (which I'm not taking out) but it is an indication that anybody who has a credit score of more than 800 can get credit.

"The big law firms derived a lot of their income advising on M&A - a dead market."

Not true, Stevejhx. Aren't U.S. banks gearing up for some very big and prominent mergers? Could retail, technology, energy and media be gearing up for mergers, too? Maybe global mergers? Also, financial advisors are busy with restructurings, lawyers are busy with everything from litigation to bankruptcies. There's lots of complex finance and legal work to be done in Manhattan right now - and lots of talented (well-paid) Manhattan professionals (who need housing) to do it.

I doubt that desirable Manhattan real estate will drop much in value (if at all). Like I said yesterday, NOW is the time to lowball a decent-sized pre-war apartment in an established neighborhood in an established building with an all cash offer (no financing contingencies) submitted directly to the listing agent. Unfortunately, with the DOW up 900 points, that window of opportunity may have just been shut, because now that pre-war owner is thinking, "hmmm, maybe I don't have to reduce the price afterall." Time will tell, but I think you underestimate this magical city, Stevejhx, and all of the true New Yorkers who would love the opportunity to live in a pre-war building with some real history.

Having said all that - I can totally see the more speculative condo housing built on the outskirts of the prime neighborhoods tanking in value, or morphing into rentals, but then again, the asking prices were a joke to begin with and determined at a time when everyone had luxury living on the brain. In addition, the classic 7 combos (now 14 rooms+) in well-established buildings will also have a tough time selling at their exorbitant prices because people simply don't want/can't afford that opulent lifestyle anymore. People will come to learn that those apartments are worth more broken apart than combined together. Perhaps same is true for townhouses?

Markets aren't "dead", Steve, they're just changing. Some of us think it's for the better!

"....and I remain 2x long China...You need balls for an investment like that."-True that, but if you have the huevos, keep going in more on the dips.
"If you want to be extra courageous, look into some SSO (double long S&P)."-Doesn't require too much courage, especially if you've been buying with the S&P below 880. Short it if you want to be bold.

What a crock. I know for a fact that big law is hurting - mrs blogs - are your family members partners at big law? If not perhaps you just don't understand or don't know. It is pathetically slow. Very few people have money for all cash offers right now on overpriced RE since they just lost 40% of it in the market. I'll take my chance on the market tanking than risk my money on an overpriced bubble.

mrsblogs, this "magical city" saw real estate values appreciate for a variety of reasons over the past several years.
-Cheap mortgages that were easy to get
-Booming local economy
-Record Wall Street Bonuses year in and year out
-Multiple streams of demand (foreigners attracted due to their strong currency, wealthy baby boomers, people buying apartments for their kids in expectation of appreciation)

Manhattan is a market, just like anywhere else, and it is subject to changes in the fundamentals.
All of these factors have seriously eroded over the past ten months and they will continue to do so for several years. A one day move in the DOW has nothing whatsoever to do with real estate prices.

>I doubt that desirable Manhattan real estate will drop much in value (if at all)<

I would very much like to take the other side of this.

Out of curiositt, what exactly would be defined as desirable? Certain of the areas that are desirable today were not only a few years ago. Things can change during an economic tsunami of this magnitude and global reach.

The economic landscape of NYC is rapidly changing & what will it look like in 2,3 or 4 years is a large unknown at this time. Take a look at the projected 4 year fiscal deficit of the State and that should be indicative that the NY economy is in for serious adjustments and none of them are short term in their duration.

The Japanese stock market (world's second largest economy) plunges to a 26 year low yesterday so perhaps the celebrations are a little premature. Sure, the DJI rose 889 points today but the market is below levels it reached just this past week. Sorry to rain on the parade but the enormous volatility of the global equity, credit, currency and derivatives markets don't exactly spell "confidence".

Right now, there is so little demand/liquidity available to purchase Manhattan real estate, that it would be virtually impossible to truly determine how bad things are, until we start to get a string of forced sales, which are coming. Sellers can posture if they have the time or the money to sit on their unit for several hundred days before lowering their price. However, for those who need to sell, and who don't have the time or money to wait, they may need to drop their price 30% or more to get a deal done fast. That's why the numbers that are being used today are really not helpful. Let's watch inventory and the velocity (or lack thereof) of deals. That gives the clearest picture as to where we stand.

"Aren't U.S. banks gearing up for some very big and prominent mergers?"

Actually, no, because that's one of the major things I work on, and nada for several months.

"Also, financial advisors are busy with restructurings."

Financial advisors have nothing to do with restructuring. Sorry.

"lawyers are busy with everything from litigation to bankruptcies."

Lawyers are always busy with litigation. Personal bankruptcy is not a high paying field; corporate bankruptcies = Lehman, and actually the accountants make more money on that.

"NOW is the time to lowball a decent-sized pre-war apartment in an established neighborhood in an established building with an all cash offer (no financing contingencies) submitted directly to the listing agent."

Show me the one you're bidding on, and what cash you're putting down with most people having lost about 50% of their net worth in the past year.

"with the DOW up 900 point"

Yup. A one-day blip does in fact make a long-term trend.

"I think you underestimate this magical city, Stevejhx,"

Actually, no, I was born here and remember it from the 60's through the present.

"and all of the true New Yorkers who would love the opportunity to live in a pre-war building with some real history"

I'd rather live in a new building, as I do, renting at half the price of buying.

"Markets aren't "dead", Steve, they're just changing."

Yes. They're collapsing. I agree: "it's for the better!"

Yet again, I find myself agreeing with my erstwhile nemesis, mh23!

To close, no one doubts that people want to live in Manhattan. The question is, at what cost? The same cost as renting, which is 50% cheaper, and that spread is growing as market rents fluctuate more quickly than the illiquid sales market.

"True that, but if you have the huevos, keep going in more on the dips."

I plan to.

>Aren't U.S. banks gearing up for some very big and prominent mergers?<

There were rumors (speculation) today with regard to a few of NY largest financial institutions but the human cost involved with any of these mergers would be very substantial & detrimental to the City's already weak employment picture. There will be additional mergers as the financial services industry is forced to consolidate to compete and slash costs but such moves would hardly be considered additive to the NY economy.

"True that, but if you have the huevos, keep going in more on the dips."
"I plan to."
I am a China bull medium term as well, but think the HSI will see 10-11K in the short term and am now inclined to wait until I see this to add to positions.

posting under this discussion too, as i am very curious:

after all this discussion, i am still not clear on why a massive correction is bad for the city. i am heavily invested in real estate, from an investment perspective, and still do not care if rents drop or if prices crash. i agree there will be people who will find themselves screwed due to a job relocation that forces a sale or a job loss and they had no savings. but for the most part, who is going to get whacked? either you rent and will continue renting and possibly rent a better place for less money - a good scenario - or you're a renter who will buy at a lower price - again, a good deal, or you're an owner who will sit tight. not a bad deal. just because you can't flip real estate for absurd sums does not mean we're all screwed and it's rape and pillage time. what am i missing?

Only bad for RE broker fees = lower price, lower fees. I think a good old correction is needed -just like it's needed in an overpriced market like 2000

exactly. which is why it always makes me wonder why clearly engaged and very smart people peck each other to death on these boards when, in reality, only the margins are going to be hurt. some of us might wish to make a fortune overnight and some might wish to see people just bashed financial - why i do not know - but the reality is not that many will actually feel it in their day to day lives.

> only the margins are going to be hurt.
Don't agree. The margins get whacked, but then there is ripple.

Don't forget lower tax collections. Also, capital losses for investors, which will make serious waves. Also, more bankruptcies and fire sales, which are generally not very efficient.

> but the reality is not that many will actually feel it in their day to day lives.

Not sure if you remember the late 80s. EVERYONE felt it. It was "we can have cops, or pick up garbage, but not both". Unless you somehow manage to not ride a subway or walk the streets or have any use for the government, there is an impact.

Impact and impact that makes people wince are very different. We will have to watch it play out but my gut is still that only the margins will get hurt and that the ripple will be more contained than you suggest. In the 80 there was a serious crack issue that cannot be discounted and much less of a global economy.

So much for the lawyers...

http://www.crainsnewyork.com/apps/pbcs.dll/article?AID=/20081030/FREE/810309985/1051/newsletter11

"In the meantime, its 400 or so soon-to-be jobless lawyers are facing a saturated legal market. More than 250 New York lawyers have been set adrift from their firms this year, according to a recent Crain’s tally, among them partners from Cadwalader Wickersham & Taft, Thacher Proffitt & Wood, and DLA Piper."

stevejhx --

"Also, financial advisors are busy with restructurings."

Financial advisors have nothing to do with restructuring. Sorry."

Actually, there is a whole universe of financial advisors that are busy with corporate restructurings. They are both turnaround and investment bankers and they are very busy... Same with bankruptcy lawyers -

Every dog has it's day -- this is the part of the cycle for restructuring...and it looks to be a good run...

indeed

I almost pity whoever listened to steve and the naysayers on this thread.