This is BEAR TERRITORY!! TREGNY report

ooooh yeah

Keep it coming. The apartment we just rented went from $3350 on Saturday to $3195 on Monday when we said we wanted it. We were going to offer that price.

No question rents are in serious decline. I just started thinking about a new place and I am actually shocked by the prices I've been seeing. I always had it in mind that I would wait until prices came down on sales and then buy a Classic 6, but with rents down like this I may rent one.

Rents are rising.

and so are selling prices!! BUY NOW OR BE PRICED OUT FOREVER!!!

Exactly, totally! And bonuses on Wall Street are rising, there are plans to hire tens of thousands of new people, fresh out of business school, with guaranteed salaries and bonuses of $10 million a year.

So many people, in fact, that they're building new office buildings all up and down the avenues, as far north as Yonkers, to accommodate them. There is great fear among city officials that the influx of the nouveaux riche will overwhelm the city's ability to absorb them, and they will wind up sleeping on cots under their desks. Which is leading to a new rezoning effort in the Lower East Side to make such double-functionality legal.

Imagine the lines at Christmas when all of these new investment bank employees line up to buy fruitcakes!

One bedrooms down 3.12% non-doorman, 4.67% doorman. Somewhat worrisome, but not quite sky-is-falling, 50% declines people have been shouting.

umm, tech_guy, have you heard a lot of people predicting 50% drops in monthly rents? i've never heard that predicted at all.

... and so it begins...

we all know where this is heading, and it's not up.

happyrenter: Its an indirect claim. I see that some properties at today's prices (even 3 months ago's prices) are justified by buy vs. rent analysis. People claim 50% decreases in purchase prices. I claim that that can't happen unless there's some combination of: lower rents, higher mortgage rates, lower tax benefits to owning, lower taxes overall (indirectly lowers the tax benefit to owning).

Some or most of that may happen. I don't have a crystal ball. But without any of that, prices won't be moving far.

" Still, our data sets show that vacancies continue to rise and are up by 7.5% this month,"

At this rate, will Rent Stabilization disappear? Believe Rent Stab disappears if vacancy rate exceeds 5%, but not sure how the 5% is measured.

"up by 7.5%" does not necessarily mean above 5% vacancy rate. "by" is the key word - vacancy might have gone from 1% to 1.075%. Or it might have gone from 10% to 10.75%. I have no idea what the baseline was.

tech_guy, come on. you know full well that the people who predict a 50% decline in purchase price disagree with you that today's prices are justified by today's rents. you can't have it both ways.

fitting facts to theories is the hallmark of slopping thinking. your theory is that real estate is appropriately priced and that prices will not decline significantly. any evidence to the contrary you either dismiss, minimize, or misinterpret. no one has been predicting a 50% decline in rents. Vacancy rates increasing by 7.5% in one month is very serious.

Theories should be based on facts, not vice-versa.

tech_guy: You're assuming that the ratio between the cost of buying and renting is roughly constant. That's probably true over time, but it can swing rather wildly in the near term. If rents fall 20%, a swing in the ratio from 20x to 12x means a 50%+ drop.

Eh, not good. We are seeing increasing use of landlord-provided incentives, so each of those price changes is probably actually a couple of points lower than the numbers provided.

If we look at the drop from fall of 2007 to Jan of 2008 as simply the result of the inclusion of Harlem %u2014 an area with lower rents %u2014 what we are seeing overall is that two-bedrooms are holding their value while smaller apartments like studios and one-beds are getting cheaper.

Interestingly, though, there's a lot of variation by neighborhood. Two-beds in Gramercy Park got hit in 2008, while prices for them in the Village rose.

The takeaway for renters, I think, is that it's easier to shop for bargains than it has been in some time -- just widen your choice of target neighborhoods.

ali r.
{downtown broker}

happyrenter: I never dismiss evidence to the contrary. In fact last time we chat directly, I suggested that we could very well both be right - you seem to only study the 3+ bedroom market, while I study the 1 bedroom market. While I suggest that you may be right and I don't have enough information to know one way or another, you completely dismiss everything I say on the market I do know.

West81st: I don't believe a swing in ratio from 20x to 12x will happen unless mortgage rates swing back up to levels they were at to create the 12x we saw 15 years ago. If rents drop 20%, I agree that purchase prices will drop 20%. If they overcorrect and drop 50%, I don't think it will last long as (assuming steady mortgage rates) it will become significantly cheaper to buy than rent.

"tech_guy, have you heard a lot of people predicting 50% drops in monthly rents? i've never heard that predicted at all."

Does he now predict that?! No one that I've ever seen here has predicted that. If that were to happen, property prices would have to fall to 1998 levels, which is below 1988 levels.

I do, however, easily see a 30% drop in rental prices over the next 2 years, depending on how the economy evolves. That, however, would be due mostly to new inventory coming on line as rentals instead of sales. There is currently a shortage of market-rate rentals in Manhattan.

"and so it begins"

lol, how many times has that been written on this board in the last year.

"People claim 50% decreases in purchase prices. I claim that that can't happen unless there's some combination of: lower rents, higher mortgage rates, lower tax benefits to owning, lower taxes overall (indirectly lowers the tax benefit to owning)."

Sure there can.... if apartments were 100% overpriced...

Folks were buying for WAY ABOVE the breakeven price because of anticipation of price appreciation. You don't need underlying factors to follow - thats why they call it a BUBBLE.

If that wasn't possible, we wouldn't have had the price appreciation in the first place. Ironic that few folks noticed when the ratios went WAAAY beyond reality, but then all of a sudden there is this need for these things to be in line as we snap back into reality (which is actually a bit hypocritical)

If anything, rents often rise as prices drop when folks shy away from buying.

"tech_guy: You're assuming that the ratio between the cost of buying and renting is roughly constant. That's probably true over time, but it can swing rather wildly in the near term. If rents fall 20%, a swing in the ratio from 20x to 12x means a 50%+ drop."

Bingo...

"because of anticipation of price appreciation."

Which is explicitly taken into account in imputed rent.

Ergo, as soon as they think prices will fall, they stop buying.

"how many times has that been written on this board in the last year"

Lots. Especially on all the recent threads that show we're back to 2006 prices.

nyc10022: up to your old tricks? The 10 words immediately preceding what you quoted from me are my arguments against what you said in "response". I know you're capable of ethical debating - try to keep the ethics up a bit more.

I am currently very actively looking for a rental. While I am seeing some deals and some room for negotiation, nowhere near he desperation on the part of landlords, nor the huge vacancies that I had been hoping for. Tough for me to compare to the last couple years, though because (1) I hadn't been in the market looking for 2 years and (2) the last time I was, the criteria were very different than now.

I do think it varies by neighborhood and even by building. It appears that buildings that have more vacancies for any reason are very aggressively slashing prices, not to take any chances.

Definitely seeing incentives - 1 month free rent is almost standard, some are offering 2 months, and I've even seen 3 months, which is absurd. Two problems there. First, it only works for the first year, and if you wan to stay longer, you effective rate goes up a lot, especially if the landlord knows you don't really want to move, since it's a pain. Second, the prices are still pretty high, so the free rent still doesn't make them cheap. The best apartment is a very large doorman two-bedroom in midtown, with a large convertible dining room, a big balcony and tons of closet space. Unfortunately, it's $6400, so even a month free rent doesn't make it "cheap" by any stretch.

One interesting tidbit - a broker that showed us a no-fee apartment recently said it's a no-fee market right now. He basically believes buyers in this market can almost always force sellers to pay the broker fee.

"nyc10022: up to your old tricks? The 10 words immediately preceding what you quoted from me are my arguments against what you said in "response". I know you're capable of ethical debating - try to keep the ethics up a bit more."

Techmonkey complaining about being misquoted? Now THAT is irony...

Of course, its also a crock of shit. What you said was just incorrect:
"People claim 50% decreases in purchase prices. I claim that that can't happen unless there's some combination of: lower rents, higher mortgage rates, lower rents, higher mortgage rates, lower tax benefits to owning, lower taxes overall (indirectly lowers the tax benefit to owning)."

Again, completely wrong, completely illogical. You can have none of those happen, and still see a dramatic drop in prices.

Simply wrong. Your quote, not mine.

"lower rents"

That will affect prices.

"higher mortgage rates"

That will affect prices, as will lower availability of credit, regardless of the price.

"lower tax benefits to owning"

That will affect prices - didn't tech_guy elsewhere argue that changing the tax benefit for ownership wouldn't affect prices?!

"lower taxes overall (indirectly lowers the tax benefit to owning)."

That won't - higher taxes overall will affect prices.

That said, it is also true that none of those things has to happen for prices to fall because the main factor - disposable incomes - isn't taken into account.

And what we are seeing in Manhattan is a total collapse in disposable incomes thanks to the Wall Street fiasco, a collapse in wealth thanks to the Lehman / stock market fiasco, and extremely tight underwriting standards, thanks to both, as well.

That is why property prices will collapse, after the denial - run-up in inventory - stage winds its way through the system.

Yes there will be blood in the streets..... just wait till the dollar collapses from running the printing presses day and night. Mortgage rates will spike!!!