bears hoping for 30% price fall like early 90's, well...not going to happen

How did I know it was steveF?

"By 1989, New York City had roughly seven years worth of available inventory on the market, Miller said."

True - if you count co-op conversions, of which only 15% had to agree to the noneviction plan, so the inventory was fake.

"Unlike the seven years of inventory stockpiled then, the city has only 7.9 months of supply, Miller said."

Also untrue. There is over a 1-year supply of apartments on the market at historic absorption rates (8,500 per year - current inventory 9,000). Ergo that assumption only remotely holds water if we continue at the same absorption rates, which we're not. We're at about 1/3 that, meaning that it's a 3-year supply.

Then, there were permits issued through 2006 for 30,000 new units in Manhattan. Nowhere near all of them are currently finished or available.

Talking about deceptive. But it makes sense from Diane Ramirez, head of a major brokerage, and Jonathan Miller, who gets paid by Douglas Elliman to distort market figures.

My money is on streeteasy.

http://www.somersoft.com/forums/gallery/data/506/Do-not-feed-the-troll.jpg

steveF: I don't normally think of you as a troll, but quoting Diane Ramirez without even examining her cherry-picked statistics is a waste of everyone's time.

stevejhx...i thought i was on that long ignore list??
West81st....thx for the backdoor troll compliment....well then, focus on Miller...

"i thought i was on that long ignore list??"

You are, but this one I couldn't resist it was just so stupid.

see stevejhx..that makes no sense?.... so you are calling the article stupid? me stupid? J Miller stupid? the real deal stupid? greg heym stupid? douglas elliman stupid? the 7 month supply of inventory stupid vs the 7 years supply stupid?..let me guess the answer...hmmm...it's me right?..btw very eloquent steve.

"By 1989..." That was two years after the big 1987 stock market crash. steveF, what sort of demand profile do you anticipate following the big 2008 stock market crash, and what effect will that have on real estate inventory?

Also, if you were driving along just fine and your passenger told you that the car driving towards you in your lane will probably crash into you, would you anticipate any sort of problem, or just be satisfied that everything's going along so well?

"so you are calling the article stupid?"

Yes.

"me stupid?"

Uhm...

"J Miller stupid?"

Biased.

"the real deal stupid?"

Biased.

"greg heym stupid?"

Missed him.

"douglas elliman stupid?"

Dishonest.

"the 7 month supply of inventory stupid vs the 7 years supply stupid?"

Misleading.

"..let me guess the answer...hmmm...it's me right?"

Just what you rely on.

"..btw very eloquent steve."

Thank you.

also, contract signings are running at under 400/month, and there were permits issued for, I believe, over 20000 units in the first half of THIS year.

Latest calculation I saw on Manhattan was 16 months of inventory.

Also, the article seems to miss that prices in 2007 were a multiple of prices in the 90s. You're talking about unprecedented bubble.

You don't need end of the world to bring on significant discounts, you just need the bubble to pop. And that already happened...

Also, Miller Samuel is the source that noted a 12% decline through Q3.... and Q4 is where the mess starts.

> In 2007, by comparison, there were 25,281 new plans filed — nowhere near the mid-1980s peak of
> roughly 40,000.

Wow, I didn't realize we were that close to the all time peak. Subtract out the conversion plans, and add in where prices are, this article is actually making me think things are worse than I originally anticipated.

BTW, aren't these the same folks who told us "NYC is different, we have wall street money..."

Seems like they just moved on to the next rationalization.

Good stuff from Citi's housing analyst today:

Nearly 1 in 40 borowers is in foreclosure
Foreclosure re-sales account for 20% of existing home sales
15% or 6.2mm homeowners are currently underwater with a loan balance in excess of the value of their home
They expect an additional decline of 15% in home prices nationwide with risks to tht estimate largely skewed to the downside.

Thank God New York is not a part of the United States!

nyc10022, I'm (again) skeptical about the Q3 numbers. Streeteasy actually has an INCREASE through Q3 (here are the reports: http://docs.streeteasy.com/2008Q2_Report.pdf and http://docs.streeteasy.com/2008Q3_Report.pdf) which just underscores how these reports aren't all that reliable (don't know what else I'd suggest though, unfortunately). I think we will start to see a conclusive decline in Q4, though remains to be seen how much.

"contract signings are running at under 400/month"

My point exactly. 400 x 12 = 4,800, or one-half the historical average. Ergo at least a 2-year supply, not included how many NEW listings are coming online beyond the 400 being absorbed.

Ergo, a 3-year supply.

"Thank God New York is not a part of the United States!"

Seconded!

don't forget that 130 contracts also got cancelled in September.

> just underscores how these reports aren't all that reliable (don't know what else I'd suggest
> though, unfortunately).

Agreed, they are an absolute mess. Which is a problem for anyone tracking.

> I think we will start to see a conclusive decline in Q4, though remains to be seen how much.

I agree.... although 9.4%, if correct, do you not consider that "conclusive"?

"30% price fall like early 90's, well...not going to happen"

Agree completely. 30% fall is pretty unlikely.

40% is much more likely. 50% not out of the realm of possibility. 30%? I guess its possible, but not likely to be that low.

Jake - where did you find the 130 of cancellations in Sept? Is that from Street Easy, or Urban Digs or some other source? Does this get published monthly?

we are prob down 15-18% right now

Yeah I have to weigh in with the usual bears. Prices already down over 15% before we have one real estate report spelling out the Q4 year over year declines. 30% seems way too optimistic, that is only 2004 pricing. Next year, with so many finance employees getting 'zeroed', taking their incomes to $100k from $500k, who will be able to get a loan...who will be able to pass a coop board? Momentum is the one great truth and we are out of the gates with a pretty well supported 15% decrease. Corrections end when few are defending the bull case. Early 1990s had three annual 10% declines, and that market wasn't near as fluffy (because interest rates never got so damn low), so yeah taking bets that 30% is too light seems smart. If the S&P don't hold 750 and actually goes to something like 600, I shutter to imagine what the knock on effect on NYC real estate is. That is a -60% kind of scenario... Which guess what only dials pricing back to 2000 or so level.

The S&P will be fine. The stock market will be rocky short-term but will recover nicely from this - there's too much money being pumped into the system right now, with more on the way. And that will make it very attractive to buy someplace when the time comes.

Which it will.

Most of this was unnecessary, of course, had they not let Lehman go under. (Idiots.) But the damage is done. I judge the economy by my business, which is going along nicely. The problems are in a) finance (with more to come); b) real estate (with plenty more to come); c) autos (which should be allowed to go bankrupt); and d) retail (Best Buy was empty 2 weeks ago on a Sunday afternoon).

OMG! That's most of the economy! I guess things do suck!

It depends what you mean by fine. I'm pretty sure its a good 10 year investment from here. However, I think it's impossible to know whether it bottoms at 7x or 10x peak earnings. This is what, 10x? Early 80s EPS were more depressed and we bottomed at 7x. I don't think it possible to rule out a 600 S&P. I mean I would buy the shit out of it there...maybe even at 700 I would buy the crap out of it. Its impossible to know the result of the unwind of leverage in the investor base, and the growth potential of the global economy in the near term with the banks as they are. "Fine"...depends what you mean by fine.

stevejhx - if you say they should not let Lehman go under, why should they let GM, F, Chrysler go under in what would result in a major credit event, with significant CDS side effects, huge supply chain disruptions, and likely 1MIL jobs lost when considering the chain of events tied to failures of these guys?

Im not questioning letting the autos die, they should because throwing good money into bad to delay the inevitable is useless. I disagree with your statement that they should have saved Lehman! WRONG!

Dick Fuld should have saved Lehman. They made AWFUL bets, awful buyouts, and played tough when it came to trying to raise capital, and his bluff was called! For fuld, either he gets the deal HE wants, or the feds save him. He was wrong and should have been more willing to take a less attractive deal with KDB, and raised capital that way. But he played his hand his way, and lost.

They wouldn't have let Lehman go under if Lehman mattered. We all lived. The S&P was going to puke down to 850 one way or another. Listen Fuld deserves all our sympathies. Haha not.

even saying that they should have saved Lehman shows the level of moral hazard that is out there. Fuld played tough with KDB because of one reason: he assumed he would be rescued like Bear, and that they would not have let them fail. That is moral hazard. Who knows how deep that goes into the decisions they made 3-4 quarters leading up to their failure, especially after Bear was rescued.

I mean come on now, these guys were incentivized to take on huge risks because they knew if they were big enough, they wouldnt be allowed to fail. Do you really think they didnt know this?

I had a conversation with an agent in my office about this a few days ago. She said, 'they should not have let Lehman go bankrupt', so I responded 'who is they'...she said, 'the govt'.

I said why? She said, because her son works there! So I asked about the others, what about Bear, WaMu, etc...she said yes those should have failed because they made the wrong trades and overleveraged themselves. WHAT THE HECK DID LEHMAN DO?

That really amazed me.

I don't believe in moral hazard.

"if you say they should not let Lehman go under, why should they let GM, F, Chrysler go under in what would result in a major credit event, with significant CDS side effects, huge supply chain disruptions, and likely 1MIL jobs lost when considering the chain of events tied to failures of these guys?"

No. When an industrial company goes bankrupt it's allowed to restructure. When a bank goes bankrupt, it is liquidated immediately. That's the difference.

Then, there are finance arms of the auto company - Ditech, GMAC, etc. They don't have to be part of the bankruptcy. They are separate operating companies. They can be guaranteed under current programs.

Finally, the problem with the US auto industry is that it's overstaffed and overpaid, with too many dealerships. If you don't allow that to be corrected through bankruptcy, any money you pour into the companies will be pissed away - we'll be right back where we started from in 10 years time.

ok I see your point. So what is the problem with a bank being liquidated if it was managed horribly, took way too much risk, and overleveraged itself in an attempt to make big money that didnt work?

Why not let this investment bank fail and be liquidated? Is this not capitalism? Why was it such a big mistake to let them fail? Certainly the problems we face are NOT because of Lehmans failing. Sure, stocks and cds issuers got hurt, but that went off rather smoothly and stocks are falling for a multitude of other reasons:

a) margin calls
b) hf redemptions
c) hf tax loss selling by oct 31st

I know Lehmans failure sent credit indicators wild, and that hurt the process of deleveraging, but why should we the taxpayer save Lehman? Its over now, and it seems we areback to the same fundamental problems we faced before lehman failed

maraman,
1st page of the streeteasy 3rd q report.

http://docs.streeteasy.com/2008Q3_Report.pdf

Stevejhx,one thing I really agree with you on from previous threads is that CNBC has gone a little nuts. They carried the 100 pt. drop after the Obama speech after it went back up about 200 pts. All sorts of "doom will spread" stories.

You don't believe in moral hazard? That's like not believing in water, it is such an obvious phenomenon. If you mean to say that you think that the government should act to save banks despite the moral hazard, that's a reasonable (albeit debatable) point. But to say that you don't believe moral hazard exists is simply to deny reality.

Yeah I agree with happyrenter. Denying moral hazard is ridiculous. Any time compensation schemes are one-sided to risk taking, you have moral hazard. I mean to watched what happened with the moral hazard of the implied warranty of Fannie Freddie and deny it exists? Come on, that is foolish.

I think moral hazard is more complicated than that. I think it's true for a few, but generally most people do not want to rely on a bailout of assistance. The majority of people working for these companies did not engage in excessive risk; few people understood it and if management chose not to participate the institution got creamed. A simplistic understanding of moral hazard holds every one of those employees responsible, from the lowly tech guy to the top CEO. I don't think people competing in that economy understood the danger they were in. It doesn't let them off the hook, but moral hazard is not simple and straightforward.

stevejhx
1 day ago
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How did I know it was steveF?

funny, if we did a statistical study on threads created, you'd probably be #1 at around 10%.

I agree with everybody who thinks that 30% is too low to get back into the market. We backed out of two contracts in the past year, then were sideliners, and now are very hesitant to get back in the market for at least a year or two. We are no longer going to open houses, and only sporadically (as opposed to obsessively) read Streeteasy and other real estate sites. Part of it is that the properties that we do see coming on the market are not very attractive to us, and are still way overpriced. Perhaps if better properties came on the market and the prices dropped drastically (like 50% or so) we might come back. We may be in the minority, but that's our story....

"Why not let this investment bank fail and be liquidated?"

The government can take it over and unwind it, guarantee bad assets, etc., then that will work. But in bankruptcy court the unwind isn't orderly, and confidence is lost. Once confidence is lost in the banking system, it collapses of its own weight.

"You don't believe in moral hazard?"

To be specific, I believe "moral hazard" to be a priori, not a posteriori - you would need to shield an investor from the risk before it occurs for their to be a "moral hazard"; if you do it a posteriori, there was never an assumption that the risk would be redeemed.

"it is such an obvious phenomenon."

Only if the guarantee is explicit or quasi-explicit, like in Freddie Mac and Fannie Mae.

"if we did a statistical study on threads created"

Do one - you'll be disappointed.

Stevejhx, moral hazard is by definition a priori. I don't think anyone was arguing it exists a posteriori, but thanks for the Latin refresher.

Was hanging with some hedge fund friends this weekend... they seem to all share the belief that we'll get past crunch crisis, and we'll get back to buying things and such, but the killer is going to be... inflation. We have deflation right now, but once the dust settles there, with all the money being pumped everywhere, we'll probably see some, and folks may very well flee the dollar at that point.

Think back to the 70s.... it wasn't just the disease that hurt, it was the medicine that hurt, too. Raising interest rates to super-high levels...

"I don't think anyone was arguing it exists a posteriori"

Actually, they do, and you did. Here's the line we were discussing: "Even saying that they should have saved Lehman shows the level of moral hazard that is out there."

That implies that saving Lehman involved an a posteriori moral hazard. That is what all the chatter on CNBC is about: the moral hazard of a bailout. As long as there is no explicit a prior guaranty, there is no moral hazard.

i dont buy that. Fuld said right to congress that he didnt expect the fed/treasury to let his firm fail

"but the killer is going to be... inflation"

Not. Rents and owners' equivalent rents make up 41% of the CPI. They are falling dramatically, not to rise again to past levels for years. Other asset bubbles will be greatly restricted by the cut off of credit - no more 40x leverage.

You will see the new administration target the money supply like Volcker did, not interest rates like the now-and-forever discredited Alan Greenspan. Targeting money supply eliminates interest-rate certainty, which changes the perception of risk.

steve, seeing you disagree... just makes me think I'm more correct.
;-)

also, note that I said post the deflation we're going through. The majority of the country already had its declines.

"Fuld said right to congress that he didnt expect the fed/treasury to let his firm fail"

And therein lies his mistake.

"just makes me think I'm more correct."

Good for you!

Steve, that is the clear moral hazard. Fuld expected to be bailed out because Bear was bailed out. Ergo he behaved in an economically damaging way, and his behavior, in part based on the moral hazard, led to job losses, disruption, etc. etc. You may believe that moral hazard plays a smaller roll than some others believe, but as an a priori it seems pretty obvious.

"Fuld expected to be bailed out because Bear was bailed out."

That is not moral hazard. He expected to be bailed out AFTER Bear was bailed out. He incurred the risk BEFORE Bear was bailed out. For it to be moral hazard, he would have had to expect to be bailed out when he was taking on the risk, which he has made no indication that he did. In fact, he does not seem to have understood that there was a risk when he was assuming it.

That's not moral hazard. That's stupidity.

steve, if bear hadn't been bailed out it might have been lehman/boa instead of merrill/boa. he refused to consider any options, to dilute the lehman "brand," largely because he felt that the worst that would happen is that they would be bailed out like bear.

BofA always wanted Merrill, from when I worked for BofA 20 years ago. The fit was natural. As soon as they realized they didn't "need" Lehman b/c they got what they wanted, why bother?

Fuld was an ass. But not as regards BofA. It was everything before that.

The moral hazard with Fuld was years ago... "if I take big risks and they pay off, I make a ton o money, 10x what I would otherwise. With the one in 100 chance things go bad, I get nothing.... though the 1 in 100 might be 1 in 1000 if the government steps in".

Why are we still talking about whether or not Fuld's behavior reflected moral hazard. It clearly did. He was a rich man swinging for the fence with a government bailout in the back of his mind....He is the definition of moral hazard. The fact that every bank share of a company who needs to sell an asset to the US Govt isn't going to zero is moral hazard. If you need to sell an asset at a fake price, that is the definition of bankruptcy. Sweden just took the banks and IPOed them again later. This whole thing is a joke. But the problem is the banks have already shown if left to their own incentive structure they will bankrupt themselves... And its once think for the US govt to force a preferred equity investment on them, but it would be another to declare them bankrupt before it happens.

btw, back to the original point...

is this going to be one of those "dow 11k, no way!" threads??

;-)

You have it completely backward with Lehman. The possibility of gov't involvement a la Bear HURT Fuld's ability to sell Lehman for anything other than a nominal amount, b/c the potential buyers were waiting for the gov't to backstop their potential losses. How exactly would he have been helped by a Bear-like deal? Lehman executives were paid overwhelmingly in restricted stock & options. Whether $0 a share or $2, he was going to lose hundreds of millions, either way. The KDB thing was a farce - they never had the authority from the Korean gov't to purchase LEH no matter what the price. As history showed, Barclays and Nomura were the real buyers, and they held out for gov't backstop, rather than enter serious negotiations short of that.
You can argue that letting LEH go was good or bad, but where the gov't has unequivocally failed is in their inconsistency - I don't care what excuse Paulson/Bernanke dream up, their is no way you can justify Bear/AIG and simultaneously say that LEH had to go. Fannie and Freddie are a totally different story b/c of their gov't charters

mmmmm....yeahhhhhh

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Ps CHOP CHOP

oh my lord... rotfl.