BofA to Cut 10,000 Investment Banking Jobs

Yea this is the problem that people are trying to ignore. Once these deals close, there will be massive cuts. I think they said this deal will close 1Q 2009 right?

I think this quarter it will close, though I'm not sure.

10,000 jobs is massive - watch even more relocate to Charlotte, where it's cheaper & where BofA has a huge trading floor.

There is no denying now that Manhattan is about to enter its bleakest period since probably the 1970's. Bloomberg won't be able to balance the budget by increasing taxes this time - increase them on whom?

You were spot on in forecasting this, Steve. I believe that it is moves such as this, as well as the other layoffs that have occurred and will occur, that will lead to more desperation selling as we head into '09. We are already at 9200 units, and I suspect that number will crest above 9500 by March 1. We are in a perfect negative storm where more and more inventory is hitting the market at the exact time that people are unable to buy and unable to secure loans. In addition, when you consider that the entire structure of i-banks and i-banking has changed forever, you have to consider that there will be considerable pressure on prices for years to come.

I suspect, mh23, that inventory is much higher than the numbers indicate because of new development holding back inventory. But that's a backwards strategy since things are getting worse, not better, thanks to the idiots in charge. There's also the increasing inventory in market-rate rentals, condos for rent at prices where the new owners are trying to cover their costs (can't!), which compete directly with new-home purchases and don't require massive amounts of cash down which, thanks to the stock market, very few people have, and those of us who do (me) are hoarding it in case of a worse downturn, and won't be spending it on real estate until - again - it is cheaper to buy than to rent.

We're a long way from there, and honestly, if I rent for the rest of my life it won't bother me a bit.

Manhattan real estate was built on bubble after bubble - that's how investment banks made money, by inflating bubbles and bursting them. Asian currencies, dot.com, real estate, commodities, now gold, a (fake) store of value. Investment banks needed to do this because they didn't have a deposit base so they had to borrow money and lend it out again at higher rates, which meant taking on additional risk which they had to shunt off to others. Doing it with real estate, though, was very stupid, because it's highly illiquid.

You're looking at a minimum 50% peak-to-trough decline in prices. Anecdotal evidence on this board says we're already at 2006 prices. IMHO, 2003, here we come.

By March 1st, I say we are closer to 11,000 on my widget. The widget isnt perfect, so use for trends only. Likely there IS shadow inventory as Steve suggests, always has been though even during good times, and a few FSBO's and other smaller firms out there that I may be missing

UD, the shadow inventory has always been there, but there was no hurry to release it because developers were able to slowly add it to the market which was able to absorb it. Early on new developments sold out within weeks, then months, then a year, now with contract cancellations they will be going negative AND there is still a ton out there to be added over the next two to three years (probably less than planned for, but when you're already completely saturated, each addition is alot).

Check out the Rushmore. That is a development even I wouldn't have predicted would be offering five-year 5.875% financing, 3% of closing costs and doing so publicly, not during negotiations. I don't know what it means, but recently a bunch of the apartments in that development that had been listed as unavailable, some for quite some time, had their status changed to temporarily off the market.

yes exactly

"probably less than planned for, but when you're already completely saturated, each addition is alot"

I understand from a friend's father in the business that lots of new development planned for luxury condominiums are reconfiguring their floor plans as smaller, less luxurious rentals.

But inventory is inventory is inventory. And the more there is of it, the lower prices will go.

Steve, I'm sure the market could use less luxurious units more than the alternative, but I'm not so sure how much this market will even need those. When you think of the price that those developers paid in the last few years for the land, it's obvious that they'll try to convert many of these back to condos eventually. It will be interesting to see the next released NYC population projections.

"it's obvious that they'll try to convert many of these back to condos eventually."

Assuming the banks don't take them over, because yes, the vastly overpaid for the land. The worst ones are the land lease buildings - imagine, losing your entire investment when the lease expires!

If UD is right and inventory gets to the 11,000 - 12,000 level, at current absorption rate of 375 a month (4,500 a year), you're talking a 3-year supply, which is what I said there was. Anything over a 6-month supply is considered a buyer's market. Imagine when reality strikes home.

"There is no denying now that Manhattan is about to enter its bleakest period since probably the 1970's."

Okay, I deny it.

"Anything over a 6-month supply is considered a buyer's market."

So, more than 2,250 units in inventory in NYC is a buyer's market? I guess we have always been in a buyer's market then. When was the last time that inventory in NYC was under 2,000?

Waverly, usually sales are around 10,000 a year, last year was close to 14,000. At 10,000 sales per year, an inventory that flucuates between 4000 and 6500 seasonally would be about a six-month inventory. You can do the math for other sales/inventory levels. I'm not sure that anything over a six-month supply is truly a buyers' market, I think it depends on general economic conditions to some extent, but essentially the gist of the argument is correct. What's remarkable to me, as I posted earlier, is that despite abysmal conditions and a traditionally VERY slow time of year, inventory continues to increase.

aboutready - I do agree that this is more of a buyer's market and I think that the inventory is increasing primarily to the slowdown in transactions, while in Miami and Vegas the run-up in inventory was due to a slowdown in transactions and the dire need of owners to sell their properties before foreclosure + the dire need of flippers to unload their properties before foreclosure.

I also think that certain phrases get thrown around on SE with little regard to their accuracy. Inventory is rising and it will continue to rise, but it is also important to keep perspective on the situation as well. For instance, if the inventory goes to 10,000 instead of 11,000 and the transaction volume picks up due to lower prices to 500/per month than that 3 year inventory touted by Steve is actually more like 20 months...or almost 50% of what he is throwing around.

50% off is pretty far off for a prediction.

waverly, the actual 10-year historical average for sales in Manhattan is somewhere around 8,500, according to Miller Samuel. Last year was anomalous. This year we're headed toward half the 10-year historical average, but if you assume - as is reasonable - that the last 10 years had a higher number of units sold than normal (since prices skyrocketed), then you're looking at a very bear market.

So yes, in recent years when inventory was around 5,000 units, considering the lag time involved in getting co-ops to close, that is a reasonable inventory level.

You deny we're about to enter into a very severe downturn in Manhattan. Why?

"this is more of a buyer's market"

Understatement of the decade.

"I think that the inventory is increasing primarily to the slowdown in transactions"

And a violent increase in supply - new development, flippers, people who just need to sell.

"while in Miami and Vegas the run-up in inventory was due to a slowdown in transactions and the dire need of owners to sell their properties before foreclosure"

And all the investment bankers losing their jobs?

"+ the dire need of flippers to unload their properties before foreclosure."

And none of this new development is due to flippers?

waverly - Manhattan has a much lower turnover than Miami, and renting is much more common. Unlike Miami and Las Vegas, Manhattan has just lost the engine of its economy. That is a far worse prospect than what Miami and Las Vegas faced.

And then don't forget prime San Diego - also in a depression.

>>>> Unlike Miami and Las Vegas, Manhattan has just lost the engine of its economy. That is a far worse prospect than what Miami and Las Vegas faced.

yes, Vegas is not being devasted by this downturn. really.

It depends what you mean by severe downturn. Prices dropping into an affordable range does not mean NY is over. What if prices drop and people who were priced out flood into the units. Sucks for the developers who hoped to make a killing but good for the city, no? Or, these crappy new buildings go rental and rents drop. Good for the city, no? I own and am a landlord. None of what I see looks like hell. It loks like what it is, a correction. NYers are very well positioned to make the best of this. It just won't be the rich buying glass boxes at absurd prices.

Waverly, If you build 200% more units than you need, you've got an oversupply, not a contraction of demand. I'll buy Steve's 10-year average of 8500 units per year, I think the last 5 years have averaged closer to 10,000 but they clearly are part of the egregious upswing caused by the bubble. In June of '08 alone permits were issued for the construction of 20,000 units (Steve, correct me if I'm wrong, not that I doubt you would). These were a result of the 421a tax abatement program's restructuring, and to obtain the 421a abatement (which is critical for the vast majority of these developments due to their high costs), they need to be completed within a "reasonable" time, which I think the city defines as roughly three years. In 2006-June 2008 far more permits were issued for units, some of which have sold as pre-construction sales, but 10s of thousands haven't, and a good portion of those in contract won't actually close.

When many people signed their contracts (I was almost one of those people) they were told by their mortgage brokers that they would only need 10% down, they could get a 10% piggy-back HELOC, that the building had sold ___% of its units, that all was well in their purchasing world. I can't estimate how many condo and conversion units are still in the pipeline or completed and unsold, the listings are not very transparent, but it seems to be years worth, kind of like Miami. Go to www.lowermanhattan.info and take a look at the construction update page, it will blow your mind (unless you live there).

Steve - your original statement was, "There is no denying now that Manhattan is about to enter its bleakest period since probably the 1970's."

I absolutely deny this. I certainly think we are headed for a downturn. I think we have been in a downtrun for a year and that seemed to be supported from yesterday's report. I also firmly believe that NYC will be able to get through this rough time. It appears that there is a possiblity (barring any large occurrences) the economy will hit bottom in mid-2009. The first quarter after a bottom is typically flat (the stabilization period) and the next quarter should show a small move forward. I am not suggesting that everything is fine, that we won't have problems or that this recovery will be somewhat between an L and a V shaped recovery (any idea on what letter/shaoe that would be?)

But, I think perspective is important and NYC is so different today than it was in the 1970s (filth, crime, city was almost bankrupt, infrastructure problems, far worse local economy even with all of the banking jobs that will be lost, tourism at a low, people actually leaving the city versus the consistent growth still happening today, weak political leadership, and on and on and on) that I believe we will get through this and be okay. Budgets were a mess before any problems hit NYC in the 70's and our budgets have been strong (Bloomberg was smart enough to squirrel away a decent amount of money for a rainy day and it is pouring now), so at least this is happening at a time when we are on our feet and relatively strong versus being already weak financially and not having a whole lot going for us otherwise.

Show me how many thousands of the apartments for sale are from flippers in NYC? Not all of the jobs lost are from people who live in NYC, people who own in NYC or people who will be forced to sell the apartments they own in NYC.

I don't disagree with the basic premise of much of what you have said. I just think that you are glossing over an awful lot of important details and declaring an absolute certain extremely conclusion that is not justified by the data.

Sorry....that should say, "I don't disagree with the basic premise of much of what you have said. I just think that you are glossing over an awful lot of important details and declaring an absolute certain extreme conclusion that is not justified by the data."

Not typing well today while doing 3 other things at the same time.

"Steve - your original statement was, "There is no denying now that Manhattan is about to enter its bleakest period since probably the 1970's.

But, I think perspective is important and NYC is so different today than it was in the 1970s (filth, crime, city was almost bankrupt, infrastructure problems, far worse local economy even with all of the banking jobs that will be lost, tourism at a low, people actually leaving the city versus the consistent growth still happening today, weak political leadership, and on and on and on) that I believe we will get through this and be okay. Budgets were a mess before any problems hit NYC in the 70's and our budgets have been strong (Bloomberg was smart enough to squirrel away a decent amount of money for a rainy day and it is pouring now), so at least this is happening at a time when we are on our feet and relatively strong versus being already weak financially and not having a whole lot going for us otherwise. "

Your logic is off, and the paragraph is 100% meaningless in this context.

If you prove completely that things will be better off than the 70s, it doesn't at all demonstrate that it won't be the worst period SINCE the 70s.

I'm pretty much ready to say OF COURSE it won't be the 70s. But, will it be the worst period since then.... possibly. I'm sure we'll be getting into 90s territory. 80s... perhaps.

You deny we're about to enter into a very severe downturn in Manhattan. Why?

this is why...

http://www.millersamuel.com/charts/gallery-view.php?ViewNode=1132752161iuzhS&Record=6

Now that! is increased inventory! combine that with 2,200 murders and the 90-91 recession and apt prices dropped 30%, until all that inventory was absorbed. The credit crunch beginning in July 07 stifled new development.

Waverly your dealing with emotionaly, frustrated, bitter bear wannabee homeowners...they say anger cause irrationality, well here is where you will see it.

NYC - Like I said, NYC of 2007/2008 is far different than the NYC of 1970's as a starting point for this downturn. I appreciate your differing viewpoint, but I still disagree with Steve's statement, his logic and ultimately his prediction.

"There is no denying now that Manhattan is about to enter its bleakest period since probably the 1970's."

I agree that a lot has changed since the 1970's, but a lot changed from the 1940's to the 1970's, as well. In Manhattan we rely too much - 33% - on a single industry that, as it happens, isn't even based here anymore: Wells Fargo is based in San Francisco, Bank of America in Charlotte. That leaves JPMorgan, which it seems they're cutting WaMu staff instead of Chase staff, which is a positive. How long Citigroup lasts in its current form, however, is in doubt.

We lag behind the rest of the country in the economic downturn - it's just beginning here. Miami did not lose its primary industry, neither did Las Vegas, neither did Los Angeles, neither did San Diego. Yet in all those places property prices have collapsed and are still collapsing.

"Show me how many thousands of the apartments for sale are from flippers in NYC?"

It doesn't matter. That there are flippers is apparent in the listings. Unfortunately, there's not "flipper" box to press that I can come up with a number. What matters is the absorption rate versus the inventory rate, and the rate of increase / decrease in both. It is obvious just from the numbers that absorption has all but dried up (pardon the pun!) and new inventory is coming online apace. Regardless of the reasons - and ours are materially worse than the rest of the country's - it indicates a severe drop in prices.

Oh, steveF - what a crock!

I have already posted the explanation of those 1980's figures which include ALL CO-OP CONVERSIONS during the time, regardless of whether they were actually for sale or not.

'Much of the boom was due to apartment buildings being converted into co-ops, Miller said. "We had a tremendous surge in conversions in the 1980s."'

http://www.millersamuel.com/press/view.php?V=1225986178vMGak

and elsewhere.

For a noneviction plan, only 15% of residents had to agree to purchase, meaning up to 85% of that inventory was listed as "for sale" when, in fact, it wasn't.

Steve - I liked the pun actually. I agree that prices will come down. I disagree with statements of NYC's complete and utter economic demise. You are right that the financial services industry is lagging in the downturn department, as they always do. But they also ramp back up much quicker than any other area once they stabilize. We are still in the decline phase so everything looks (and mostly is) bad right now. The banks will alomost certainly lay off more people than they need to and will start hiring people before you know it. Barclays just laid off a bunch of people and they are hiring. Remember that there is a certain amount of natural churn in the job market that gets sucked-up in the layoffs which contributes to the overswing in the jobs pendulum. The financial services industry is not dead. It sounds really catchy when you or anyone else post it, but it just isn't true. It has always been a fluid industry and it will strengthen again, albeit differently than the last few years and that's not necessarily a bad thing.

The absorption rate will improve in time, as the prices lower and the credit market is loosened. Again, the situation is not happening in a vacuum. It is fluid and will change back and forth. The highs are never really as high as you think they are and the lows are also not as tragic as you think they are.

"disagree with statements of NYC's complete and utter economic demise."

I don't thinks I said that.

"But they also ramp back up much quicker than any other area once they stabilize."

Therein lies the problem - they DID, but won't. It is a complete change in business model. Commercial banks (which they all are now) are regulated entirely differently, and not by the SEC. Leverage - which caused this boom - will be reduced to 10x from 40x. Securitizations will change - banks will be required to hold a portion of securitized assets on their books.

"The financial services industry is not dead."

No. Just changed.

"The absorption rate will improve in time, as the prices lower and the credit market is loosened."

When carrying costs are below market rents, but they remain twice market rents.

"The highs are never really as high as you think they are and the lows are also not as tragic as you think they are."

The opposite seems to be true right now.

This may be of interest on the layoff front, though not all is ny based: http://www.cnbc.com/id/28014195

The longest post-war recession lasted 16 months. We are in month 12, with a liquidity crisis the likes of which hasn't been seen since the depression, massive solvency issues, unemployment likely to hit 10% sooner rather than later, the city and state having to refund huge amounts of estimated taxes paid by the financial industry with little hope of collecting much in the next couple of years, massive reductions in money collected via transfer taxes, homelessness rising at a record pace.

I am not bitter. I would like to own, and have in the past, but renting really isn't that bad (and is seeming positively lovely at this point). I lived in Manhattan in the late '80s, it was ugly, and I'm seeing signs it may return. Of course, we could be just another bubble away from delayed consequences, who knows.

The industry will change and that's okay. I am not worried about banks and investment firms figuring out how to make money. They are very good at that. You assume that becasue it is different it will struggle and I disagree. In fact, becasue it is different it could be even better, since the gains would be real versus the fluff of the last few years.

"The opposite seems to be true right now." That is exactly my point. It isn't the opposite, but it seems/feels like it.

"When carrying costs are below market rents, but they remain twice market rents." I sort of agree with this. 24x rent is insane, but I also think 12x rent is not accurate for today either. I think, as a very broad generalization that I am too busy (or lazy) to get into, that 16-18x rent is probably more accurate when everything is taken into account.

Steve, a question totally off the subject for you as well. Is your business cyclical throughout the year or primarily steady (ie. end of the year always slow / beginning of year always busy)?

My business is very steady from March through October. November - March vary widely. Last year January - March was my best ever. This November I was okay. December - had a good job yesterday, waiting on two possible jobs now. So not too bad, though people are being a little more cost-conscious.

aboutready - unemployment is not likely to hit 10% sooner than later. That is another wild statement that has zero factual evidence backing it up.

If you listen to Goldman's analysts you need to take thing with a grain of salt. They also said oil was going to go to $350 a barrel and have been heavily shorting the market, so try to keep prespective of things. I do think 8% is a real number and how much above or below that should tell us a whole lot about where we are and where we are headed. 10% is so extreme that a lot would have to happen for that to occur and NYC has absolutely not slipped back to the 1980's quality of life, so please come back off the ledge.

SteveF still doesn't get it....

Besides the fact that the conversion "inventory" didn't really change inventory (just the status of certain inventory), he actually thinks that permits this year will affect inventory this year (on the other thread).

Unfortunately, we're screwed there too...

today's AMNY:
"The New York City Building Congress, a construction industry trade group, predicts the city will add 35,700 housing units through new construction this year. That’s the highest total since the mid-1960s, said Richard T. Anderson, the group’s president. “Twelve years ago the entire city of New York built about 4,000 units per year and just the last three years it’s been about 30,000 a year,” he said."

> NYC - Like I said, NYC of 2007/2008 is far different than the NYC of 1970's as a starting point for > this downturn.

Yes, it could be worse this time, given we started from a higher high. The mistake folks keep making is, you don't need to go to the 1970s or 1980s or even the 90s to get 2000 prices, which would be a 50% decline...

Its not going to be the 70s. But, prices were at an all time high in 2007, an unprecedented bubble, so the decline in values could actually be much bigger.

NYC - I was not speaking about RE prices. I was talking about the overall state of NYC and the NYC economy.

Then back to the original mistake.

This was the initial quote - "There is no denying now that Manhattan is about to enter its bleakest period since probably the 1970's." - and no one has given any decent evidence to the contrary yet, only that it won't BE the 1970's, which is irrelevant.

Not saying there aren't good counter-arguments, but no one has made an intelligent one yet...

Personally, I think we're going through the biggest crisis by far since then, and Wall Street will be pushed back signficantly. Now, my estimation is that while salaries won't go back to 80s level, the whiplash from the decline will actually cause more damage. So even if we only go to lets say 1995 salaries, the cuts themselves will cause more damage, given the city already promised WAAAAY too much and 2007 incomes were built into prices and everything else.

I think the overcorrection and the aftershock will be more painful than the actual crisis itself.

No, waverly, the NYC/NYS economy is much worse now: until the 1960s, we had a much broader base of industry (City and State alike), and the 1970s NYC economic crisis was caused by many Fortune 500 HQs decamping for other places; that in turn brought filth, crime, arson and abandonment -- not the other way around. Your belief that clean streets today will protect against any amount of downturn defies logic.

Boston Bloomberg's greatest failure, among many (like Pataki's, among many, at the State level) was zero effort at broadening the economic base, which had become basically FIRE and tourism (plus many others that are fading or trickling away to other places: publishing, advertising, retailing). Taxpayer-funded stadiums really don't cut it.

On the other hand, the 1970s had its bright spots for NY industry, especially in creative fields like fashion and entertainment. Also on that hand, we don't currently have federal policies (housing & transportation) sucking money away to the shiny new suburbs of the City. Suburbia around here is no longer perceived as a walk in the park. But the money continues to get sucked away to Southern and Western states, especially those with lots of military bases & defense contracting. That helps places like Charlotte offer low-cost, low-tax business environments.

Waverly - if you use the U6 figures, which many people think are far more accurate, we're already well over 10%. Un(under)employment today is NOT the same as it was in the 70s and 80s. Do some research.

Also, don't forget that the US needs to actually add jobs in order to prevent further unemployment. If you got rid of the ridiculous B/L adjustment that has been erroneously adding huge numbers of jobs for months, the unemployment figure would look much more bleak. Not only are companies laying off, but job creation is nowhere close to matching population growth, which I'm sure the young adults graduating from high school and higher education could tell us.