Any sideline buyers getting nervous?

Problem is, all this stuff to "help" the buyers who are screwed now will make sure that no one will want to give private loans in 2-3 years. So, the government might be the only lender, but they won't be lending for $2 mil apartments...

And the same people you mention are working hard to make sure that no one in this town has the money in the first place...

It seems we have more deflationary pressures now than inflationary ones. And, with the deep recession, that is unlikely to change in the near term. I'm not sure what you mean by "intentionally screwing the dollar" - dollar has gotten a lot stronger over the past few months. Given how weak the european economic outlook is right now, it probably makes sense to try to make sure it doesn't get too strong, but I doubt we're going back to $1.60/euro any time soon.

The government needed a stronger dollar when oil prices were so high. Now, not so much.

I have been actively looking for a 2 br 2ba 1550sf apt for some time. I have watched prices go from 1000pf to 1600pf and higher.. I am not worried in the least about anything the gov't does. Now is the time to put the screws to the greedy agents and homeowners who have been riding high since 2001.. Wait and watch prices cascade.. Job losses and declining bonuses for wall st, private equity, lawyers etc will hit the nyc housing mkt very hard.. The amount of wealth that has been lost is staggering, and now the marginal 10% down payment buyers are gone. I have no idea how far the correction will be, but its a certainty that you wont miss an upturn in prices in the next year or two.. Buyers be smart you have the power now! Wait and force the overextended homeowners to come to you.

More like "trying" to screw the dollar. Which isn't happening, but still could.

Ultimately, if inflation fears become the norm, lenders will begin charging obscene interest rates on dollar loans. What effect do you think that will have on real estate? It won't be good.

Not only that, but supply and demand still dictate pricing and rents in NYC. Even if inflation is going up, unless incomes keep pace there's no way that rents can follow (and therefore that sale prices can be expected to go up). Furthermore, if the inflation is felt in the form of commodity prices - i.e., oil - the effect on maintenance and common charges will be staggering. And landlords/owners will continue to bear the brunt of the inflation as long as vacancy rates remain high. The only way an "inflationary environment" benefits NYC is if suddenly we restore pre-crisis levels of employment and incomes shoot up dramatically.

I agree with all the points above, but the current clowns instill no confidence. What if they announce a 5 trillion stimulus next week?, if they really wanted to(and i really think they do) could they inflate their way out of this mess? Zimbabwee style?

Agree that there is absolutely no sign of any wage/price inflation. Commodities may be another issue next year, but as faustus says, still wouldn't increase real estate prices. Highly doubtful that NYC will reach the population growth predicted earlier, it's too expensive a city for that kind of growth without an expansionary employment environment, which we won't see for at least a couple of years in all likelihood. Also, people may very well delay moving away from home, leaving roommates, even having children in times of severe economic stress.

I think deflation and Great Depression-like spiral is the fear in the near future. Now I do think that once the deflation risk disappates, there can be an inflationary back lash. Then it's time to get lots of Au, preferably in a big piggy bank so you can swim in it like Uncle Scrooge.

Paulson, Bernanke and other clown are ALL on crack.
lowering the rates in the first place was what created the monstrous mess that we're in, in the first place.
now instead of doing the opposite, they're doing more of the same. They're talking about lowering the rate to less than 1%!! WHAT THE F.....

This will lead into ONE thing only (which is what happened to Japan for years), DEFLATION.

but (and this a big but), if lowering will attract buyers with good credit, to commit to long term plans such as 30yr or more, then be it.

we're all doomed, a SEVER DEPRESSION (yes you heard it right, DEPRESSION) is coming this way.

Patient Sideliner here, not getting one bit nervous. In a matter of months, sellers will be BEGGING US to buy their apartments. Once the crash settles in, it will take a long time before prices start heading up again. We sideliners will have plenty of time to pick and choose.

Otto - the other scenario is that people who don't HAVE TO sell just won't sell, and we're back to the vicious circle: no supply to a lot of demand, leading to higher prices, leading to higher rents, and so on till the next adventure.
Hey Waiter, are the "greedy owners" bad people because they bought their homes? And these baddies have the gall not to sell their homes to you at the prices you demand! Awful greedy monsters!

I was going to buy in '09, but between the evaporation of a portion of my down payment in the stock market and job insecurity, I'll be renting again.

I don't have such criticisms of the government. I do worry that we're going to get stuck with very high inflation for a very long time once we weather this storm though; so I keep saving in hopes that prices will eventually fall enough for me to buy.

If by "sideline buyer" you mean someone who could have bought in the past few years but decided not to and someone who still has the ability to make a purchase, these people have nothing to worry about. The longer they wait, the more inventory grows, already more than 12,000 listings in Manhattan. The number of buyers is shrinking quickly as the stock market crash and the collapse of the Investment Banking business model wipe out a significant pool of potential buyers. Seller panic in '09. Even then I don't know if I would buy. I don't like dealing with people who are panicking.

I put the "sideline buyers are waiting to jump in" theory in the same category as "buy now or be priced out forever", "Wall Street/Hedge Fund workers will save the real estate market", "foreigners will save the real estate market".

Osiris, people who don't have to sell almost NEVER sell in a down market. It just so happens that the people who need to sell is up about 30% from 6 months ago, and climbing daily. Based on the unfortunate wave of layoffs that I heard about on Friday (about 3 people I know of from various banks were laid off Thursday, all high earners), I would guess that, unfortunately, more will need to sell. And I don't see where the demand will come from, especially at these levels. This market has so far to fall its scary, I just hope that people that need to sell get out ok.

dmag2020 is so right, unless u r truly an insider, I am. You may not really understand the impending devastation from WS layoffs. They continue unabatted, usually without headlines. dmag may or may have been referring to JPM on thurs and fri. The "quietly" dumped a bunch of high earners that had come over from BSC 6 months. UD wrote a compelling piece several weeks ago about the psychology of sellers and the stages they go thru before dropping prices. Well fast forward to the guy who got laid off. They have their own stages to go through, (too many glasses of wine to describe tonight). But their final capitulation needs to work its way thru the stages as well. For those who think the market is messy, wait till spring of '09. I predicted that in a post a few months ago, and will stick to it.

dmag, you have remorse for the sellers? NEVER.
I mean don't get me wrong, I'm sorry they have to sell for 30/40% less than what they paid for, but c'mon. These are the same people who created the mess. It's like asking somebody who invested in wesellcrap.com back in '98 why they did, and the answer is something like 'well, it sounded like a good investment!' BullS***.

in order to stabilize the market we have to have casualties, that is when you become greedy in a fearful situation and take advantage.

There is nothing inflationary about what is occurring today. Asset prices are collapsing and nearly $15-$20 trillion of household net worth has disappeared through housing and share price equity alone. The notion that the Federal reserve expanding its balance sheet is inflationary in isolation is akin to the parable of six people feeling different parts of the elephant. $2 trillion of BS expansion hasn't even offset the credit disappearance of the "Shadow banking system" (asset backed) that has collapsed over 85% since 07. Never mind the credit that has come out of the system from the $1 trillion of losses from the real banking system. Besides the basic math, a willingness to take the $$$ FROM the fed and circulate it through the economy is required before any inflation can even be considered. We aren't even close to that point.

i_want - While it looks like it was irresponsible to pay 06 and 07 prices for apartments in NY, people were brainwashed by the mantra that real estate can't go down in NY, that rents would only keep going up, etc. In many cases these are people with families that were doing what they thought was best for their family. They weren't buying 6 apartments to try earn a fortune. Many of these people will face serious economic hardship going forward. I don't think it is generally healthy to wish ill fate on honest, good people.

agreed dmag, as i said, I too am sorry for anyone who's lost his/her job, I really am. the thing is, most of the industry was (and still is) driven by LOTS of greed as repackage of mortgages 5/10 fold created the mess.
I also agree with you that they were brainwashed by f'ing brokers mostly (again greed).

First of all, let's make sure that we understand our economics glossary.

Disinflation - slowing inflation. prices increasing at a slower rate - most people commonly mistake this for deflation (as everyone is stating above) we are currently experiencing disinflation and it is far less severe than deflation.

deflation - negative inflation. Prices literally going down. This is what happened during the depression. it is what led and will lead to 30% unemployment. In other words, 1 in 3 of the people on this thread probably will not have a job so buying a home will be the least of your concerns,

Anyhow, the government's misuse of monetary policy to try and overcompensate for fear of another depression (90's, 80's 70's ...) has without fail brought us inflation time and time again.

i_want_to_buy_in_09, Japan never experienced deflation (do you understand what deflation is?). Japan experienced stagflation. slowly rising prices with stagnant growth.

Anyhow, we will more than likely experience stagflation before we experience deflation - and you should be happy because that way we will have to stand by and watch a prolonged recession instead of a 15 year depression... yes, prices would be much lower than they are currently (for everything from homes to bread) but none of you will be able to buy it because you won't have jobs.

Anyhow, let's not hope for deflation because you'll get more than a cheap apartment in return.

to answer bugelrex's questions, yes, we will experience some strong inflation as a result of all of this, but housing prices only go up when incomes adjust upward as well. That won't be happening anytime soon. However, in 2 - 3 years we will see significant inflation and then you will see interest rates go up and housing prices will stay flat for 7 - 10 years.

50% price cuts ... not very likely (a $500,000 1 bedroom apartment in a good location going for $250,000 - let's be realistic, that's less than the cheapest studio on the market). missing an opportunity to buy... not very likely either. Anyhow, I do think that it wouldn't hurt to wait until next summer to buy, unless you find something that you really like right now. prices may have a little room to come down but right now you have the inventory. Prices may not go up very quickly but eventually the inventory will be lower and you will not have the wide selection that you have now. When you are buying a home as opposed to an investment (which it sounds like you are) then you want to have choice. When you are trying to flip something then it can actually be a piece of crap that you are just trying to fix up and sell and then you don't need inventory to choose from (those people are screwed for another 7 - 10 years so if you are one of them then don't even wait to buy ... put your money in stock, which actually benefits from some nice strong inflation).

lobo,

Great comments, one thing that concerns me is that people have yet to be "throw up SICK" about houses. There are still alot of people (average Joe) who think lower rates and stopping foreclosure can force the house prices back up. Don't forget the "emotional wife factor" who fears of being priced out also...

Its this false assumption that could cause a bear market rally in house prices which could trap many sideline buyers

lobo, we're both correct to some extent. see this from Bank of Japan about the issue (great article):

http://www.boj.or.jp/en/type/press/koen/ko0304d.htm

we're on the same boat (maybe not). but I want the prices to fall so I can get in.

agreed bugerlex. I wouldn't be too concerned about a bear market rally. I would be more concerned of lower inventory with stagnant prices (in 2 - 3 years). Right now (and probably through most of next year) there are so many great apartments to choose from. That is the true benefit of a market with excess inventory. A few years ago you had to pay through the nose for crap. Now you can get the view that you wanted and the renovated apartment for a slightly better price in the location that you wanted (within reason, it's still NY/Manhattan you'll never have the 3,000 square ft apt overlooking the park unless you have big $$). But more importantly, these places are actually on the market and the price is negotiable...

When inflation does kick-in, prices may not shoot up but interest rates will and inventory will be lower. So while the list price is not up, in 2 - 3 years carrying costs will be up and as a result so will rents. The real reason that housing is immune to inflation is not because of its rise in value (as most people believe) it's because when interest rates and rents rise, your carrying costs remain the fairly stable (not including tax and maintenance). 8 or 9% interest rates are not unthinkable in the not too distant future. That's and extra $1,000 per month on a $650,000 mortgage. So, during strong inflationary periods you can live in your dream home and sit back and watch the others pay obscenely hight rent or take out loans at significantly higher rates.

Again, no immediate fear. The effects of loose monetary policy and government injections take a few years to work their way through the system. But it is coming for us in the not too distant future.

rents may take a small dip now but they will rise in the mid-term. so will prices. and it will take a few more years for incomes to follow.

I wouldn't sit on the sidelines and wait for 50% discounts. I would look for your dream apartment. Engage in some heavy negotiating with the owner and take advantage of the currently ridiculously low rates that are not here to stay. By the way, prices are down (or at least the list prices are extremely flexible) - being on the sidelines doesn't help because everyone is going to pretend that they are inflexible until you put in an offer. ask the broker of a new development if he is willing to lower his price before you take a plan home and they will say no. Take the plan home and come back with a contract and a check for 15% less and you may very likely have a deal.

Parts of Europe, on the other hand, in an effort to curb inflation late last year/early this year, may have created themselves their own mini depression.

i_want_to_buy_in_09, I agree that assets were deflated in Japan (just as they were in the US during the 70's) - but that is exactly what stagflation is. Negative growth with slowly inflating (over the mid-term) prices). Like I just said in the post above (which I was probably witting at the same time as you), it's all about inventory and rates. There is not need to be in a hurry...as with Japan, this will drag on for a while.

But prices will not suddenly plunge 50% - declining housing prices take a while to come down. Yes, it's easy for the person that bought there home in 1999 to sell it for half of the listing price but the guy that bought in 2006 with 10% down can't really afford to cut his price 50%, he can't even afford to cut it 20%. That's why you'll be waiting on the sideline for a long time.

Also, a 50% decline (assuming there were one) doesn't mean that you would get 50% off of any apartment. It is an average price decline. Top end luxury gets hit (2 - 5 million ... NY area) and the low end (150,000 - 300,000) - nice neighborhoods in the 500,000 - 1.5 million range would not see the same huge declines.

Anyhow, off for the rest of Saturday. Enjoy your evening.

bulgerex, I share your fear. There is definitely a risk that those of us that have been saving could get wiped out by Zimbabwe-style inflation (while those who irresponsibly got into debt will see their "real" debt load shrink considerably.

I generally agree with lobo that we're likely 2-3 years from significant inflation, but the accelerating pace of "efforts" by the feds worries me. In other words, what if your $5 trillion dollar stimulus in Q1 is followed by a $50 trillion stimulus in Q2? $500 trillion stimulus in Q3? Numbers start to sound Zimbabwe-like yet? I don't think this is going to happen, but the completely nonchalant attitude towards hundreds of billions (which would've been unimaginable 12 months ago), prevents me from feeling at all certain that it won't.

I actually don't think RE is a bad hedge against hyperinflation, assuming the rent vs. buy math makes sense, which it still mostly doesn't in NYC.

Actually, Lobo, your economic vocabulary lesson is only partially correct. Inflation and deflation refer to two concepts, prices, or as economists are more likely to use the terms, money supply. Credit is one form of money supply, and has pumped untold amounts over the last 12 or so years into this economy. Deleveraging, the tightening of consumer and commercial credit, and the devaluation of assets have contributed to potentially massive money supply deflation. The Fed is frantically trying to counteract this with easy and easier sources of money. For the next few months, at least, prices aren't really the issue. Next year, more so.

I think the decline in prices will happen more quickly in Manhattan, partially because we entered the decline at the height of the economic turmoil, and partly because members of the primary driving force of prices, Wall Street, are losing employment in such large numbers. Remember, only a certain percentage of those in high-paying careers have made it to the top. Others are making far less (although a lot by most people's standards) and are buying the studios, one and two bedrooms, at more "moderate" prices. Quite a few of those will need to be sold as well.

newbuyer99 - so far, most of the 4 or so trillion that has been committed by the Fed has been in the form of loans. There are, obviously, no guarantees that we will get all of that back, but assuming everything doesn't go bust (and we're pretty much all doomed under that scenario) we'll get a large percentage back. I think we should take a deep breath and expect a stimulus package in the $1 trillion range to be spent over 2009-10. I don't like it, but with consumer spending contracting and unemployment heading up so rapidly (I read three economists this week who say that 10% is increasingly likely), I don't see any alternative. Let's just hope it doesn't get any worse, and that the appetite for US debt doesn't disappear.

Hi aboutready, anything can inflate and deflate but when used in the broader sense "inflation" or "deflation" with no context means and increase in general prices (typically consumer prices) or a decrease in general prices (generally consumer prices). In modern economics it almost always is treaded as above. Deflationary pressures are something different. For example, a decrease in the money supply is deflationary because it could ultimately lead to deflation but doesn't mean that we are experiencing deflation.

The other thing for everyone to remember is that with oil and other commodities in a free fall, it may give some people an artificial sense of deflation, but until the consumer based/products companies start selling soap for less than they did last year, then true deflation does not exist. How does that happen, people are so poor because of the crappy economy that they cut back spending significantly ... to the point that even the soap makers need to cut their prices to create demand. Then those soap makers are not making as much money as before so they fire a few more people. Then those people add to the poor people that can no longer afford soap so they cut prices again... etc. etc. . Then we enter deflationary spiral that people would refer to as deflation. Finally we get to 30% unemployment where no one can afford any soap and then the government needs to come along and inject massive amounts of money into infrastructure so that we can end the downward spiral (FDR). The hope is usually that the government can intervene before we enter true deflation so that we are not faced with this situation.

Anyway, given that the government (as they should be) are typically more scared of deflation than inflation, they over index on cutting rates and injecting money into the economy so that over the longer term it creates inflation (unfortunately economists don't really have things down to a science since their tools are completely out of date and you don't even know that you are in a recession until months/quarters after the recession hits). By the time that the figure out that they have injected sufficient money it is already too late and inflation has already kicked in. That's why some would argue for the need for a more stable monetary policy. which, in fairness, Bernanke was trying to do when this all began (remember people on wall street yelling at him for not delivering larger rate cuts in the beginning??) - but, since Greenspan cut the crap out of rates just a few years before and then drove them up like crazy right afterwards, it had a delayed impact on the economy (an overly simplistic explanation for a very complex topic but it's for explanation purposes only).

Lastly, my reason for giving the following example: "Top end luxury gets hit (2 - 5 million ... NY area) and the low end (150,000 - 300,000) - nice neighborhoods in the 500,000 - 1.5 million range would not see the same huge declines."

was not to say that wall street people were not buying studios and 1 bedrooms/2bendrooms but this is also the category that falls in your average NY home buyers range. In most cases people that didn't get in totally over their heads. in the past it has been this average/entry level price point that has held up the best.

If you are buying a home in the 150,000 - 300,000 range then you are at the bottom of the food chain and probably have no/little savings - your prime foreclosure target. Then you have the people buying homes for over 5 million (that's why i ended there at the top range - these are people that have so much money that they are not typically impacted by economic downturns the way that us average citizens are because if you have $400 million now, you won't be broke even if you have half of that next year). Then you have the 2 - 5 million these are the spend happy bonus babies that took a 500,000 - 1 million bonus to buy a 3 - 5 million apartment. Unfortunately these are typically wall street people (because they are the ones that make these kinds of bonuses). People who's base salaries can be as low as $150,000 without their bonus. so...try carrying a 3 million mortgage with a $150,000 salary. These are the people that are most desperate right now.

Point being, if you bought a 600,000 apartment and you make 150,000 per year (base salary) it would be tough but you could probably still carry your apartment and not be forced to sell. Plus, you have all of the other people that were making between 100,000 - 400,000 per year buying these places that were not depending on their bonuses. Also most first time home buyers fall in into this category ... anyhow, not trying to claim that it is immune to price chops but it is not the price range where you will be finding the best deals (certainly not 50% chops). And, I presume that most of the people that are on this board are buying in that range. If not, then you really should not need to be asking advice on a board like this.

Anyhow, my point was that in 2 - 3 years we will likely face inflation. rents will rise because interest rates will rise (because we do not have stable monetary policy in this country). Owners will raise their rents because of higher interest rates and rents will keep up with the inflation rate (as they always do), housing prices may remain flat but at least people that bought before inflation kicked in will not get caught paying the rental bill. back to the main problem ... your home is not an investment, it is your home. You are not supposed to move every 3 years unless you are forced to (job transfer etc.). If you plan to buy a home within your means and hold on to it you should not have a problem. Hey, if you bought a house that you could afford and then prices are flat or slightly below where you bought it ... then you will be able to rent it out (since you could afford it and won't be forced to sell) rent to own calculations are off right now but they won't be for long. anyhow, as much as people say that they aren't buying homes as an investment .... that's still the general mentality out there. running rent to own calculations are a perfect example of that mentality being alive and well. When you are buying a home none of that is relevant.

Well, anyway, these are just my opinions. But my opinion is that you are dreaming if you think that you are really going to get a $600,000 apartment for 300,000 next year (I use the actual numbers because I don't think that some people are really taking the time to think about what 50% really means - the number gets thrown around like it's a sale at macy's).

Have a nice day everyone ... and please, stop wishing for deflation.

Actually, Lobo, those calculations become more and more relevant the closer you are to retirment. Many people have spent a decade or so of prime owning years unable (now necessarily unwilling, but unable) to buy a home. Of course they would welcome a decline in home prices. That's not truly deflation if the prices were artificially raised in the first place, few would argue they weren't. My argument is that the wealth created from around 2001 on was largely ephemeral, thus so were the increase in asset prices. If the ephemeral wealth disappears, the asset prices must follow. Real estate is illiquid, so it doesn't move at the same pace as other assets, such as the DJIA, but move it does and move it will. And why should people have mortgages that are "tough" when renting isn't? Use the extra cash for savings. In a year or so, think again about buying when the rent/buy decision makes more sense. For many people (as those close to retiring now would likely tell you) their home represents a MAJOR chunk of their retirement income. It's not just a place to live for most.

Many, many economists use money supply as the definition of deflation/inflation. The CPI, and it's relatives, measure prices, and have come to represent "inflation" in the common language.

Aboutready, I think that we mostly agree. I am not arguing that prices were not generally inflated. I am just saying that they don't act like most investments (actually I hate to use that word when I am talking about a home). I can understand/relate to your situation. I am just saying that rent/own can adjust both ways. Rents rising or housing prices declining. In this case I think that we will see them meet at the half way point. Historically we have seen the government do everything in their power to avoid deflation (or the next depression). I've believed that inflation is basically stealing from people on fixed incomes to support the rest of the economy.

net-net, homes don't act like the stock market because they are not an investment. The stock market can double and then come crashing down 50% the following year. Homes don't work the same way. They can adjust downward but rents will also adjust upward (especially if we are faced with inflation). I've said it already, I don't think that you (or anyone) needs to be in a huge rush to buy but it's also wishful thinking to wait for 50% declines. Just don't wait too long (2 -3 years)for 50% declines and get caught with high rents and high interest rates. Again, I said that we will not see prices increase for 7 -10 years but we will see inventory coming back in down, higher interest rates and higher rents.

I think we do mostly agree. I don't think purchasing real estate for short-term speculation is in any way wise. I do think that it pays to spend some time thinking about when to purchase one of the more important assets in your life. One may need to move for many reason, job, divorce, children, schools. Most people shouldn't just buy and assume that they will be able to remain there for 10 years. The likelihood of remaining should figure into one's calcuations, but buying at extremely elevated prices, or when the total costs are a stretch, just doesn't make sense when rentals are so much cheaper. I know people who lost almost everything when they had to sell short in the late eighties, and a couple of them will never buy again.

Homes shouldn't act like the stock market, but that's where you and I disagree. So many people bought into the bubble, not just speculation but overextension, that the stress of the downward forces have caused accelerated declines in home prices. Absent a bubble you are right. Look at California and Florida, the home prices there PREceded the stock market declines, and in many areas are at or close to the percentage decline of the stock market. Home there did work that way, and I personally think they will here too.

As to interest rates, I agree they are worrisome, and I've read some very intelligent reasoning on both sides of the issue (infectious greed has a link to an interesting opinion by Morgan Stanley (I know, I know, don't groan) on the issue. Obviously prime could rise to a certain extent, if the credit market thaws, with little or no impact on mortgage rates as they haven't been acting in tandem for quite some time. We may see a different money-supply market evolve, where interest rates are much more product specific, which seems to be where the Fed is trying to head now. Tough to predict. I hope to pay all or almost all cash in about three-four years, so my picture is a little different.

aboutready, cash is always king. if you are holding it to buy a home then you can wait as long as you want. Not everyone has the same luxury though. Most people are looking to put 20 or maybe 30% down.

FL and CA are very different markets from NY. Yes, we have the wall street meltdown affecting us here, which presents its own problems, but we didn't have huge chunks of people buying places sight-unseen for 0% down hoping to flip the contract after or just before a building was completed. I do agree that the run-up in housing prices that we've experienced is like nothing that we have ever seen before but we had also not really seen any significant increases since the late 80's either. Also, part of what drove prices down in the eighties were the obscenely high interest rates 10 -15%.

Anyhow, I wish you the best and I do hope that you find the right apartment at the right price.

bugelrex, not at all. The only asset classes that are appreciating in value (buying power) are the USD and Japanese Yen.

The banking system in the UK, EU and non-member EU countries are in far worse shape than ours. They have substantial assets relative to their own GDP combined with significant exposure former eastern block countries whose economies are in a world of hurt. In addition, plunging commodity prices across the board and slow US consumer demand in a huge plus for our balance of trade which places further upward pressure on the USD, not to mention the billions that are being liquidated in foreign investments and converted to the US currency.

The rapid plunge in oil prices and commodities across the board is also placing severe pressure on the economies and banking systems of the Middle East, Russia and certain Latin American counties. Not exactly good news for USD bears.

The leverage the caused the boom in emerging markets, their liquidity and commodities continues to unwind bringing asset prices to multi-year lows. It is as though the liquidity boom (mainly fueled by the use of excessive leverage & Yen carry trade) has totally reversed and price levels are in the process of settling as though none of it ever happened.

BTW, I agree with all your concerns. The gov has gone wild and manipulating markets in a way that is unprecedented in modern history. There will be unforeseen long term effect from all these debt financed actions which I suspect we'll be discussing for years to come.

BTW, IMO Manhattan RE is not a good hedge given sad current economic trends which have been discussed here many times. If there are any doubts at to the validity of investing in a pocket of air space in the City, check out three year price charts of SL Green Realty (SLG) & Vornado Realty Trust (VNO). Both are substantial holders of prime Manhattan & NYC commercial RE and actively traded on the New York Stock Exchange. Both have been nothing short of disasters assuming one has been long their equities.

aboutready - whether there is any other choice is a political discussion that I don't think we need to get into.

The arguments about everyone else being in worse shape than us are flawed. We consume more than we produce, have for a long time, and all of the government stimulus is intended to enable us to continue to do so for as long as possible. There are countries that produce more than they consume, such as China, whose position is therefore more sustainable than ours.

If more stimulus in the next 2 years is in the $1 trillion range, I hate it, but don't expect it to trigger any catastrophic consequences in the near term. My worry, based on the the nonchalance with which hundreds of billions are being committed, is that large numbers have lost all meaning to lawmakers - i.e. $1 trillion or $50 trillion sound equally absurd. I hope that's not the case, but am just not certain.

If I see more signs that the stimulus amounts are accelerating, I will start putting more $$ in commodities, gold, and TIPS. Not yet, though.

If you guys are getting pissed about the government intervention, then you do not want to know what we will be seeing under Obama. If you do, here is a sneak preview:

1. Foreclosure moratoriums
2. Bankruptcy judges reducing mortgages
3. Downpayment assistance from the government
4. And so MUCH more...

Most sideline buyers will NEVER buy. They are just people with a dollar and a dream waiting for the price of a 2 bedroom apartment to cost just as much as a 4 bedroom house in the midwest.

The US has not been a manufacturing economy for years. And that's not necessarily a bad thing. We do have to get our spending and credit/savings habits under control but there is nothing wrong with not being a producing nation. The two things are independent.

Yes, Americans should live within their means but we have moved beyond producing junk in factories.

People need to understand that the old fashioned concept of importing and exporting manufactured good is no way to measure an economy anymore.

Look at the back of an iphone "designed by apple in California, assembled in China". A bunch of highly paid engineers and designers in California get paid to create/design a phone that then gets produced in China for a fraction of the sale price and then it is shipped around the world to be sold and those profits come back to the US to support more white colalr jobs.

Much like procter & gamble produces products all over the world but ultimately the profits are sent back to the US at the end of every year. So, the important thing to focus on is not keeping outdated factories afloat, it is to invest in education and our infrastructure so that we can continue to build on the service and ideas economy that we have created.

China is just trying to do what we did in the late 1800's/early 1900's. And rightfully so. But to say that they are in a much more sustainable situation is incorrect. Who do you think buys all of the things that they produce? And consumption is lower because there is not the amount of average wealth to consume on a large scale. What do you think happens to all of the Chinese factory workers when Europeans and Americans start consuming half of what they did before.

Anyhow, agreed, we need to learn how to live within our means but we also need to learn how to move beyond this antiquated manufacturing economy and focus on the things that will help us keep our competitive edge.

Let's see, the current administration has ordered the GSEs to buy up huge amounts of dubious mortgages, expanded conforming limits to enable more borrowers to avoid mortgage insurance and put down less than 20% at more favorable terms, many states have already issued temporary foreclosures moratoriums, the government is manipulating interest rates so that more people will be able to "afford" new mortgages, and helicopter ben has expressed great concern that those with less than stellar credit can not get loans, something he thinks should be remedied. They have also imposed their mortgage modification plans on certain banks receiving funds, most notably Citi. Most serious economists I've read are anxiously awaiting the end of this administration and the beginning of the next.

Sorry, newbuyer, hope I limited the political to only the areas directly affecting real estate prices. BTW, I totally agree with your take on the everybody else in doing worse than us. Many of them have more honest reporting measurements, it will be very interesting to see the revisions that are made to this year's numbers. Certain commodities may be interesting regardless, agriculture looks to be in the tank now, with huge wheat surpluses, etc., but agricultural commodities can change faster than you can blink sometimes, and I wouldn't be surprised if there was some money to be made there. I think the worry regarding extreme overspending can be tempered by the fact that the world's appetite for our debt is not limitless. Will we print until we run out of ink? Let's hope not.

Newbuyer- your posts here generally make sense but I couldn't disagree with you more about those countries in better position vis a vis the US. Many presumed similar to you, that the fallout from the US housing and banking mess would render us weaker than EU, UK or even China and the emerging economies. For all those who bought commodities and all non-USD currencies and emerging market stocks when the Fed cut rates in August '07 thinking that the baton had been passed, how's your portfolio look? US consumer, like it or not, still holds the cards. As I recently read, US Net worth is 15x China's GDP! China's holdings of US Gov't securities is less than 2% of US Household net worth! And US treasuries are WAY underowned on the HH balance sheet, which would make sense since it's the best performing asset class of the last 5 and 10 years. For those who bash the US, and our bankrupt ways, go ahead and buy Russia and China ETF's, and buy oil- (Hey Putin- how's your economy look?) thinking again that supply and demand don't matter. Let's assess in mid 2009...

As to NYC RE, my building that most UES residents would know, hasn't had more than 6-8 unit vacancies in the 3 years I've been here. Today, we're in the low 20's and I can only assume going higher

$1MM cash today == $4MM credit 1 year ago. Cash is king. We'll see how '09 goes. Sideliners with more than a dollar and a dream should
1)put their home purchase allocation money in Treasuries. You're so far ahead of the game that you don't need excess return to be in a good position.
2)Wait until spring '09 to see what the fallout is from the Wall Street bonus crash. Bonus payments happen in Jan-Feb, bonus bouncing begins in Mar-May.
3)Volume has dried up in the real estate market. With so few houses selling and so many people leaving the field of qualified buyers the real deal sideliners gain more and more power. Remember, it's not whether or not your dollar is beating inflation right now, it's whether or not you have a dollar.
4)Don't loan to companies (e.g. money-markets funds, corporate bonds, etc...) default risk is too high and you do not need the excess return: bulls and bears make money. Pigs get slaughtered.

lobo - you and I are generally in agreement. I was using "produce" in a much broader sense, including engineering, inventions, service, financial work, etc., not just manufacturing - as long as someone is willing to pay for it. Using any metrics, we have still been consuming a lot more than we "produce", driven by credit and paper "wealth" from the housing bubble.

aj202 - US consumers hold the cards as long as either (a) someone is willing to lend to them or (b) they start producing enough to justify their consumption again. (a) is unsustainable in the long run. (b) requires time, work, and pain to get to.

The US is in the driver's seat precisely because the dollar is the standard world currency. But I think if we abuse that position too much, we risk a challenge to that system. First they'll demand higher and higher interest rates to lend to us. Then they'll stop doing it altogether. Then, when we start printing money (which by that point we'll have no choice but to do), they'll sell their dollar reserves, and hold their reserves in something else. To be fair, all just conjecture by a layman.

Anyway, I am done discussing that aspect of this thread. It's getting way too political, and I swore I would stay away from discussing politics on this board. If others refute my statements above, so be it.

aj202, I agree with you about commodity bubble and even Euro bubble - I certainly wasn't dreaming of putting money in either 6 or even 3 months ago. But that was before the commodity crash, dollar rally, and the massive inflationary actions and signals by the US government. Just because a strategy was wrong 6 months ago doesn't mean it's wrong now, when so much has changed.