When the 50% price cuts arrive, there will be no buyers left

Wasn't sure if you were talking about stocks or RE from the title. ;-)

But, I agree. Folks expect all the sidelines buyers to jump in, not realizing

1) there aren't many
2) they're getting hit by the economic forces that everyone is, even though they don't own RE
3) folks LEAVING the market with every dip will outnumber them
4) most will be scared by the drops, and wait for quite some time to actually do anything.

No, I'm not arguing with myself - we have very similar userids... I agree 100%. Ditched my stocks, bonds, non USD at 25% loss. Everyone was saying that was a big mistake. Doesn't look like a bad decision now. Emotionally, I will find it difficult to go into a rental again, but unless I can honestly say we can survive 20 years of a downturn, might be good to go out now even or at a small loss.

That's why when you ask why people didn't jump in at the last crash, that's why - fear. Even when townhouses in "prime" Manhattan were selling at 500k.

"Wasn't sure if you were talking about stocks or RE from the title. ;-)"

Now THAT makes you stop and think!

well, do consider that we have our 50% price cuts on stock (and not from crazy highs) and we have fewer buyers than I can remember in the last 10 years.

What folks don't seem to understand is.... that is how buyers work.

Whatever folks who were waiting maybe not be any more likely to buy.
And those who were buyers are more likely to be sellers now.

and sideliners who waited for prices to go down find that the lower price doesn't help them now that their cash is depleted, etc.

"and sideliners who waited for prices to go down find that the lower price doesn't help them now that their cash is depleted, etc."

Exactly.

There will always be buyers! Back in the early 80's when interest rates were an astounding 18% we bought our first home. Granted housing prices had fallen tremendously. But banks were still lending at exorbitant rates and life still went on. People married,moved, had babies, wanted homes. In retrospect it was actually a good time to buy because when interest rates came down, housing prices rose and you could refinance or sell and trade up. So even the worst of times can be the best of times...for someone.

"and sideliners who waited for prices to go down find that the lower price doesn't help them now that their cash is depleted, etc."

double ditto.

Not only is cash possibly depleted, their income prospects are a lot more likely to be in doubt.

"Granted housing prices had fallen tremendously."

Therein lies the key. Prices are affected not only by interest rates, but by affordability in general. Increased property taxes and income taxes negatively affect prices. (Connecticut is more expensive than New York for that very reason.) Disposable incomes affect prices - and they have fallen precipitously. Inventory affects prices - and it's huge and growing. Competition affects prices - rentals, which are falling in price.

So - things will turn around. After the huge deflation to 2003 prices. If peak-to-trough is 50% (which I have long predicted) then we still have 35% to go from current prices.

I don't think you qualify as a bona fide sideline sitter unless you have enough money to buy a place in cash with little or no mortgage. Mortgage deduction aside you can't get financing without a ton of cash, not stocks, not mutual funds, not investments, not "unrealized property gains": cash (or treasuries or a couple of demand deposit accounts).

Right now the credit buyers (2002-2007) are abut to get blown away. Next up to be will be the "let's buy now this is a once-in-a-lifetime opportunity" players. They'll buy in '09-'10. Maybe take out 10-20% of the inventory. So towards the end of '10 they'll be enough empty apartments to choose from so that the people who cashed out and are sitting pretty can come in and pick through the wreckage. That is if the liquid sideline sitters decide to stay in NYC.

I don't mean to sound ghoulish but for anyone who saw this coming and planned accordingly, watching this mess unfold is tragic yet fascinating.

Here's the thing, having been through 20 years in this city, when times get bad quality of life and safety does become an issue. On the UWS there are more homeless people on the streets than I've seen for a long time. It's to your point on the "inevitable cuts in services"

LP1, I also suspect the city will turn failed condo projects into SRO's, just like they did in the 70's and 80's. Great move for a failed developer is to go into business managing abandoned/foreclosed developments for the city as halfway houses/SROs.

Now you gotta be careful you don't buy something that's going to be a crackhouse in 3 years. Or you buy into some project that management is giving up on, like the Oro, which according to a thread on this site isn't putting the heat on to full because the building is mostly empty. Is that luxury? That's more like the typical Brooklyn Bulls*&t.

Oh, well. 2011 is right around the corner

What makes you all think you can sell your apartments now at a "small loss"? NYC10023 did you miss the report yesterday that sales volume is down 75% so far this quarter year over year? Demand for purchase of NYC apartments is clearly not there right now.

I don't know what I can sell my place for, unless I actually put it on the market. I am getting "small loss" based on taking what a few different realtors are saying and subtracting 30%.

I know I'm not under water because a place that is comparable to mine in many ways just sold for the size of my mortgage in 1 day. That is the only real "comp" I have from the last week.

> It's to your point on the "inevitable cuts in services"

Totally agreed.

Crime didn't disappear in this town through magic. Yes, end of crack helped, but wealth and a TON of cops also helped do the trick. When you cut those, you get increases. The last stats I saw showed increases in most of the major categories (including murder), and they were more than a coupe of percentage points. I'm not talking the 70s, but even regressing just a bit could mean a big jump.

Legalized abortion did more to end the crime wave than mandatory sentencing or increased police enforcement ever did.

Yes, we all read freakonomics.

But that doesn't account for the fact that NYC BY FAR outpaced the rest of the country in getting rid of crime...

If all we do is revert back to where crime used to be minus the "savings" other cities got, we're pretty screwed...

good thing there is nobody on Street Easy with the id "nyc10024" or else that would really drive me crazy!

"What makes you all think you can sell your apartments now at a "small loss"?"

It depends when he bought his apartment. If he bought it in 2004 or earlier, he can still break even or possibly make a tidy profit. If he bought after that, he is likely in the red. How much in the red depends on location, ammentities, etc. I own a house in northern NJ, and right now we are selling at 2004 prices. I'm keeping hope that we don't start seeing 2003 prices because I bought in 2005.

alpine,

here's the problem with your theory: in order to "break even or possibly make a tidy profit" you first have to find a buyer. sales volume is down 75%. we just have no idea how far prices have to fall to attract buyers back into the market.

I have no idea where real estate is going, my guess is down 75%, but I am also aware that what I think usually doesn't happen so easily. The last time the stock market was down by 45% in 2001 everyone went to real estate because interest rates were low and stocks were yielding nothing so real estate seemed like a smart idea. We might be entering the same situation again, people leaving stocks in droves with no where to put their cash to work. I highly doubt most people will stick their money under the mattress so they will chase yield. If real estate falls enough it will make sense for people to go ahead and buy real estate to rent it out. Rent is the floor to real estate prices. Since jobs are also being cut, one would assume that rental prices will fall, but again they didn't do that in 2001. So I think realistically Manhattan real estate will fall around 30% or around 2004 prices. If we talking about returning to affordability where the 'average' person that wants to own a home and can comfortably afford the payments then real estate probably needs to fall around 50%-70%.

>>>We might be entering the same situation again, people leaving stocks in droves with no where to put their cash to work. I highly doubt most people will stick their money under the mattress so they will chase yield.

2001 was different. People had gotten burnt in stocks, so they put money in real estate. People have been burned by BOTH, but real estate was thought to have caused this whole thing, so I think people will take the opposite approach. Also, interest rates were at record lows then; whatever the fed funds rate is, long-term interest rates are going to rise because there is a lot of demand (for credit/money) chasing little savings. Bottom line: people won't be yield hungry. Yield is going to be easy to get ..

The only argument I've heard that the market can hold just 50% down, is the psychological push that '50% off' will have. Also, I don't think its necessary to assume everyone will be down and out when we hit -50%. In 1996-1998 real estate was cheap on any metric and Wall Street was doing quite nicely. We can only hope for than again in the 2010-2011 time frame. It always feels "different this time" and the counterargument will be, this time Wall Street is down for good. The truth may be somewhere in the middle.

When we are down 50% there is always the intelligent equivalent of the Irish carpenter to come in and buy condos as rental properties. I wonder how all that absentee Battery Park and above the WFC ownership is doing trying to rent $700k studios for $3800 now.

Wall Street is down for good, it was massive fraud. There are no more traditional investment banks anymore the outrageous pay and bonuses will not be tolerated anymore Wall Street has been transformed.
Yes people got burnt by the dot boom so they lowered interest rates and created another phony economy by creating a housing boom which in itself created a ton of jobs. As long as you can keep this phony economy going this way it was great.By now we will have an economic collapse because all we did is borrow trillions of dollars, outsourse jobs and maunfaturing, blew all the money on consumption, we now can't pay the bills, all assets bubbles are now deflating due to reckless monetary policy, we now have to start saving to rebuild a real economy and actually rebuild our manufacturing base but there will be massive job losses in the meantime. Right now this massive fraud and deleveraging taking place is driving up the dollar so companies and hedge funds and the like can pay up their margin calls and bills. then the next collapse will be the dollar because of the massive debt we have....the world will not lend us anymore money!!!! So now where do you thing real estate prices are heading?

Wall Street down for good? I'll take the other side of that bet. Even if people who used to make $2mm now have to suffer the indignity of making $500,000...and even if there are many fewer of them then their used to be...I wouldn't count on it being out for good. Structured finance was not the whole of Wall Street, not at all. And in Wall Street, I include the whole buyside, mutual funds as well as hedge funds.

Do people realize that most of the people at Wall Street firms didn't securitize mortgages? Sure, leverage is going away, but even at lower leverage trading, M&A and research are reasonably profitable enterprises and if the big banks can't do it any longer boutiques will.

Exactly..........what I'm saying it will end up like GM once a powerhouse and now will be a shell of it's former self. The jobs left will not necessary be on the street anymore but spread out. Much of these jobs will also move to other financial centers around the globe.

Ink rents went down a lot in 2001. We moved because of rent cuts and lots of vacancies in my building where there was previously a waiting list. Many buildings offered free months too. Rents were still lower in 2003 and then began the rise. Rents have now been falling for the last few months. Let's hope this continues because they are historically high.

I guess we are on the same page. Frankly, a NYC where you can buy a nice place for 500-600 sqft with fewer douchbag bankers and a little more grittiness...I don't mind the sound of that at all. The GM comparison is a stretch though..because as a nation be have no inherent disadvantage in financial services the way we do in auto manufacturing. Also, Wall Street has no outdated plant and equipment or legacy pension liabilities.

>>>> lower leverage trading, M&A and research are reasonably profitable enterprises and if the big banks can't do it any longer boutiques will.

I completely agree. I expect M&A markets to be quite healthy over the next decade once volatilty goes away, private equity is going to do nicely since valuations are so low (obviously some existing investments might stall), and the financing markets for equity/debt raises will eventually recover and there is going to be a huge backlog of bueiness to do. I would look towards Wall Street in the mid-1990s as what it will go back to.

As long as rent ratios go to the mid 1990s as well that would be fine... And yes old school private equity can make a comeback, not the kind where you pay 11x EBITDA with leverage in home of coming public at 14x two years later. Deep value for cash type of private equity, for sure. If you think about it, the mid 1990s kind of kicked ass. People made good money and those with cash bought great apartments at a reasonable valuation.

The pool of buyers for the 3 to 6 million dollar properties will shrink dramatically as the Wall Street reorgnaization takes place. Not usre how this will map out, since there is strong demand for family size properties in the 500k to 1 million range in the city - both from people who live here and the burbs, so an equilibrium position should emerge where the 3 million guys end up closer to 1.5 to 2, and the availability of 3br apts improves close to a Million $ but remains competitive there

Yes - and a ton of existing private equity funds raised huge $$$ amount in 2006-2007 and have not done a deal in 2 years so they have capital to put to work. Once the volatility calms down - which it will eventually - there will be some good opportunities. Boutique banks are going to re-emerge ...

I resemble that comment Joe. If I can't buy a decent 3 bed for $1.5mm by 2010, I'll move to the burbs plain and simple. However, I don't think anyone moves back into the city from the burbs, except for the empty nesters and that's not 3 beds its 1 beds, 2 if they are wealthy enough.

LOL at fond reminiscences of the mid-90s. Yep, even I recognized that properties were cheap then. There was a line of 20 applicants for a 4-bedroom place that we rented for 2200/month but had NO buyers at 229k. But none of my peers had any money because we just graduated from college.

Its true about boutiques....I can remember undergrad recruiting. There was tens of them, then slowly but surely Bankers Trust bought them all, and then Deutsche bought them.

I shopped for small apartments in 1996-1997 and could tell if you could save hundreds of dollars a month before tax benefits vs renting that was a good deal...But I didn't have a pot to piss in and was planning to go to business school and feared the delinquent tenant in my condo...What a douche I was.

I got hired by a boutique which got swallowed up in all of this. Ironically, a decade later, more of us from the boutique are there than the bank that bought us.

Absolutely agree, Rhino. I have a quantitative background and we all spoke about scraping together that 40k to buy something, anything. None of us had rich parents to give us the downpayment.

Big banks suck as places to work...end of story. I worked at DB. The people who came from Alex Brown loved Alex Brown and hated DB. Layers of management is what gets you to the kind of bullshit consensus groupthink that got us in this mess. No one wanted to raise their hand and ask what would happened if US real estate fell 15% or more. Joke.

What if the normalization of Wall Street means Manhattan prices to Boston levels....Now thats a thought. Where do things trade on a square foot basis in nice neighborhoods of Boston? Doesn't have the same international appeal of course as New York but it might be a frame of reference.

The GM comparison is a stretch though..because as a nation be have no inherent disadvantage in financial services the way we do in auto manufacturing. Also, Wall Street has no outdated plant and equipment or legacy pension liabilities.

I was talking about symbolism. But now that I think about it sold the world junk and leverage and massive fraudulent securities that have even taken down a country like Iceland. I don't think the world will get fooled again that easily. Japan is now stepping up it's financial institutions and trying to become a world player.

"Even Iceland"...Was Iceland a stalwart or something? I think the disconnect here is that you are carrying on like Wall Street = real estate securitizations. These were departments among many many many. Seriously. Check it out.

nyc10023 what I love best is the people who got the down payment from their parents later taking bows for their savvy investment. Ya know, because its so risky to risk someone else's money when if anything goes wrong they can also cover your payments for a while.

Iceland is an unlikely player on the global financial stage. Iceland had, in a very short period of time, created an internationally active banking sector that was vast relative to the size of its very small economy. Most of the banking system’s assets and liabilities were denominated in foreign currencies like the Euro, the Dollar etc. Money was cheap, so banks, companies borrowed freely. So far so good, but what triggered the collapse? The answer - Lehman Brothers.

Lehman Brothers collapse and the subsequent bankruptcy meant that many money-market funds (funds that invest in short term commercial bonds) who had invested in Lehman's bonds lost money. This led to a loss of trust in the money markets and the interbank market froze. Iceland's Glitnir Bank was among the first casualties. Like fellow Icelandic banks Landsbanki and Kaupthing, Glitnir was solvent, but when foreign short-run credit lines closed, Glitnir had to request a short-term loan from the Central Bank of Iceland, which refused. The government forcibly nationalized the bank. This triggered a sovereign debt downgrade and a sharp further fall in the already depreciated krona. Short-run funding for Glitnir and Landsbanki evaporated. Iceland's currency markets shut down and the krona's value collapsed. The Central Bank tried to peg the value of the krona, but the attempt failed and the peg was abandoned in just a day.

All I'm saying is Wall Street was responsible for much of the collapse of the world Economy because they sold fraud!!!Let's agree to disagree!

Generally, the people I knew who got downpayments also had parents who were willing and able to make the monthly mortgage payments should they have moved cities, etc. In my early 20s, maybe I could have got the downpayment from parents (say 40k) but I was footloose, lived in 3 cities in 3 years, and didn't want the hassle of dealing with roommates, etc. even though it was absolutely break-even & even cheaper to own.

No regrets, would not have met my spouse, had my kids, etc. had I taken the route of owning.

McHale...I guess I don't call it "Wall Street". 90% of the people who work on "Wall Street" had nothing to do with this. You also seem one to exonerate the role of the individual borrower, the local banker, and the federal government in this matter. Soros' book 'The Credit Crisis of 2008' is a good one for context.

>>> no regrets, would not have met my spouse, had my kids, etc. had I taken the route of owningbu

Agreed - sometimes I kick myself for not buying when I moved here, but my life would have taken a totally different path. Even though I haven't moved cities, I have lived in London and San Fran for a few 3-4 month stints and lived in lots of different parts of NYC. I would never have met my husband or many of my friends if I'd bought when I first came here. You can't put a price on that stuff ..

There is a reason people didn't used to try to own until they were older/more settled. I have younger sibling and I find it funny how many of their friends own/want to own in their mid-twenties.

>>> one to exonerate the role of the individual borrower, the local banker, and the federal government in this matter.

exactly. wall street played a role, but so did the government - not just lack of regulation but PRESSURE on Fannie/Freddie to buy subprime mortgages in the late 1990s - and individual greed.

Yeah, there's definitely a generational difference. My youngest sibling (born early 80s) has had absolutely no desire to leave our hometown and is more into nesting than I ever was at that age. I relished the thought that I could pack up and go somewhere else with ease. Gen whatever early 80s, late 70s is definitely is a product of the "divorce" generation - they seem to be more touchy-feely, into nesting.

All these points are fair...But I also know people in their 40s who made good money, lived in Manhattan and sat out the 1990s during their late 30s because they never could conserve enough for a down payment...and that's just piss poor decision making. It didn't become a 'must buy' in your 20s until this thing got out of control after 2002. Reality is all the players in this drama just make this recession worse by not allowing 2002 to be a real recession. Part of that was encouraging no-doc no-down payment purchases by 24 year old with no money and no professional history. The banks drove the cultural shift because it had never been a choice for someone in their 20s before...or most in their 20s.

Rhino....you know what I'm trying to say!
Of course it was greed on all levels, I had friends who lived off their ATM in their house, HELOC's equity etc.... now they are sucking wind. It was Goldman who also pushed hard for deregulation and lobbied both the Clinton and Bush administrations to modernize the banking system and let commercial and investment banks do business and deregulate side bets that were put into place after the 1907 band 1929 crashes, the community reinvestment act etc.... but we all know it led to legalized gambling! US. government pulled the biggest accounting scam ever by spending $trillion subsidizing housing in off-balance sheet financing with Fannie/Freddie, just like Enron! Instead of helping the working class, our government destroyed their lives. Home foreclosed, no savings left, just more debt for our kids. Thanks Uncle Sam.

Looks like you're a '95 like me so we're the same age. I also know a lot of people who lived in Manhattan and elsewhere through the 90s who were about 5-10 years older than me and never bought... until say, 03. I thought then, that was silly.

2003 was just on the edge in my view. The math worked pretty well then but rents were also low. It was close. That's why prices are probably going back to that level. I could have purchased something small in 2003...But I would have just sold it to buy something bigger perhaps in 2006, which now looks as though it would have been a disaster.

McHale...the irony is they didn't make housing more affordable, they made it more expensive with cheaper money. People bought what they couldn't afford and now are hosed. Classic pump and dump.

McHale - I do somewhat agree with you about what the government did to working class families.

I have always said this: interest and amortization schedules and the like are a fairly sophisticated concept. It's different than the idiot who makes $30k a year who buys a flatscreen TV for $7k on his credit card, where the debt involved is somewhat obvious and purchase is clearly frivlous.

Most American were taught their whole lives that buying a home is the path to financial independence. The concept of ARM and interest only mortages and the like is probably hard to understand for somebody who is not sophisticated in this way. I am sure it never occured to many people they were being irresponsible; many probably thought they were being responsible by becoming a homeowner. Frankly, I know MBAs from Harvard and Wharton who were surprised by the amount of their student loan payments ... and we assumed working class people without college degrees to know what they were in for.

The issue is complex and the borrowers have to take some reponsibility, but there is no doubt they were misled.

I love smart blondes........ :)

"Yes - and a ton of existing private equity funds raised huge $$$ amount in 2006-2007 and have not done a deal in 2 years so they have capital to put to work"

I agree that "Wall Street" will eventually rebound, but private equity firms will take a bigger hit than the statement above implies. Most firms that raised big funds have also been doing very big, and very expensive deals. Firms with big funds but minimal participation in the over-paying orgy are very much the exception.

Plus, they are forced to write much bigger equity checks due to lack of financing, and probably will be for a while. That will put a damper on returns.

A friend who does prime brokerage tells me that 90% of hedge funds have major losses and and shitting their pants watching major redemptions...