Shiller; Yale University "Home prices fall much further"

Your delusional and smoking some good stuff.

The consumer price index has risen 62% since Dec 1990. So increase that $250 K by the CPI and you get one-bedrooms at $405 K.

Alternatively, if the rent was $3,000 per month ($36,000 pa), an historical price/rent ratio of 12 would lead to a price of $432 K.

Sounds like reasonable price targets to me.

(Another point made by Shiller in his extensive historical studies is that real estate prices pretty much just keep up with inflation over the "long term." That said, they can still be fine investments "if" purchased at the right price as they can throw off substantial income/imputed rent - and that income rises with inflation.)

i'm also at least as bearish as shiller. hte economy will get way much more ugly than what we are imagining now.

add unfunded pensions everywhere - state level, city level, ... at every major state - and federally paid entitlements in red (medicare already, ss with shrinking surpluses that cannot be used for regular spending anymore)...

unless we paid all those liabilities printing money, i don't see how RE can stop going down (as it's a major taxed asset, through property taxes).

entitlements and pensions have nothing to do with the value of real estate.

lol, of course they have! through increase property taxes. if you have access to jstor, check out papers on real estate and property taxes that calculate the impact. there are several.

not sure. in a period of mass-deflation and nyc witnessing thousands of job cuts "each day"...then make no mistake about it 250K range for a 1 BR is adequate. Same way oil went from 150 to 50, don't think NYC can't get a 50-75% haircut in not only commercial but also residential real estate.

i've been keeping my powder dry and see how this runs out. renting a studio on 64th and madison for 1500 seems fine for me until i have a much clearer picture.

in the event nyc loses it's status quo as world financial capital, then i'd likely keep renting here and invest some place else.

and when i see keeping my powder dry it's in TIPS, inflation protected bonds in the event bernanke cuts down central park to print our way out of trouble...

I actually see people more bearish than I. Topper sounds like he has a reasonable guess that comes to a similar level with two approaches. Its also = the 2002 price level, before anyone accused real estate of being out of control...Just as Greenspan had started going nuts with lowering interest rates, but before it fed its way into real estate prices.

Counciler,

Do you like living on 64th and madison? Would you share pros v. cons? Are the street empty after 8PM? Food shopping on lex & 3rd? I like the area & am thinking of looking for a place there.

Thanks.

Yes, hahaha, we will see prices go back to the 90's - in other words prices equivalent to the after effects of the last housing bust ... not even factoring in inflation. Come on Counciler ... that just sounds absurd.

Topper at least has a realistic and semi substantiated point.

An arbitrary 50% discount ... good luck with that. Keep dreaming about your $250,000 1 bedroom in a decent area. And when that happens, please put me down for 4 of them. I'm done with this thread.

Lobo, way to drop in just to be a dickhead. That was enlightening.

"An arbitrary 50% discount ... good luck with that. "

An arbitrary 100%+ increase like we saw from 1998 to early 2008...good luck with that. Oh wait...

lobo probably bought in the last couple years and is just living in denial. Guess he should have done his research....

Anyone wwho thinks that 1 bedrooms are going to be $250k in Manhatan is delusional. They are not even selling for anywhere near that much in prime Broklyn!

counciler, you sound financially literate to me. congrats for your options, they make a lot of sense. alpine292, i wish you well, that includes wishing your net worth is not tied to RE in nyc.

Bought 7 years ago and live in midtown. 250,000 for a 1 bedroom in a semi decent location is just not realistic (granted it is my opinion). And yes, a 100% increase after falling significantly in the 80s and then sitting flat at that level for another 10 years despite inflation. I personally just don't think that it is realstic to go back that far. Unless this is really the next great depression. In which case real estate should be the least of our concerns.

Yes, lobo, "the next great depression" is a possibility. At this point, we just don't know how everything will play out.

All in all, I think the best way to look at real estate prices is in "inflation-adjusted" terms. As you may recall from Shiller's book he includes a U.S. housing "inflation-adjusted" price index stretching all the way back to 1900 with an index price that starts at 100.

The worst "real" price decline occured from 1907 to 1921. "Real" prices dropped from an index level of 109 to an index value of 60 in 1921. (That represents a pretty extraordinary real decline of 45%!)

For most of the century-plus "real" prices have typically moved in a plus/minus band of 10-points. And prices were relatively stable in "real" terms - certainly relative to stocks.

Then, from 2000 to 2006 prices skyrocketed from an index value of 110 to 198. Since then we've declined to about 154 - probably still way too high.

These are all national numbers - and estimates as I'm interpolating from the chart. Individual markets can be more volatile. I think Manhattan is particularly volatile. And its percentage rise from 2000 dwarfs the national numbers.

Bottom line: I'm going to hold with my $432 K number for a 700 square foot one-bedroom. (12 times $36,000 annual rent) Works out to about $617 per square foot. BTW, even at that price, Manhattan real estate would have substantially beaten inflation during the period - so I don't really consider it to be an overly low figure.

Topper,

$432K for a 700SF one bedroom is already around the corner, will be there in no time. 617PSF is happening right now, first in less desired locations / buildings, but we have not even seen the real drop yet.

$250K for a great one bedroom might still sound fantastic to me, so I would say $350K for more ordinary one bedrooms, in one year's time.

alex23:

Alas, I wish $432 K for a 700 square foot one-bedroom was, indeed, "already around the corner." That may be the case for some low-end, fringe areas, but not Manhattan in general.

Check out Miller Samuel's Data Tab for 3Q2008 Manhattan Coop/Condo one-bedroom price per square foot:

http://www.millersamuel.com/data/

They're showing $1,014 per square foot.

That is an "average." I generally find the properties I like are closer to $1,350 per square foot. But I've keyed my ramblings on "average" properties.

Happy hunting!

so what is the strategy? rent for a year, re-up somewhere else where you can get incentives, rinse and repeat?

Topper:

Could you venture a guess on PPSF condo prices?

Thnx

Sounds OK to me.

Don't know that you have to "re-up somewhere else..." if you like where you are. Your landlord probably wants to keep you right where you are if you're a good tenant.

And I make sure that I am a very good tenant in as many ways as possible. He has always responded accordingly. Win-win.

Remember, landlords are people too!

Landlords aren't people, they are corporations

Hi, dwell.

I was crystal-balling a sort of generic coop/condo one-bedroom.

Condos do typically sell at a premium to coops (although not always) as they typically represent newer construction. In addition, unlike most coops they do not have an underlying mortgage on the property so there is less leverage...and thus lower maintenance.

Bottom line: I think we could see one-bedroom prices in the area of $700-750 per square foot for condos - but probably not until the end of 2010. This is going to take a long time to play out.

airbourne,

That may, indeed, often be the case. I'm in a small building owned by a hardworking, thirty-something investor who already has a nine-to-five(+) job and just wants a piece of the American dream. Good for him!

"1 BR=250K, 2BR=500K."

Not that low, but 2-bedroom $700k - quite possible.

This is such a different thread from what I was reading when I first discovered streeteasy a year ago.

Refreshing.

There's already 2BRs available for 700K when they were asking 795K.

I had an accepted offer of 700K for a 2BR, 2BA condo with private balcony, elevator & 24 hour doorman at 31st & 8th Ave. (What killed it for me was that the building didn't allow washer/dryers in units.)

If you don't require private outdoor space, a doorman, washer/dryers or especially the 2nd bathroom, you can probably get a 2BR for even less.

"I'm done with this thread."

Guess not. Next time don't try to act too cool for the discussion when you are rapidly refreshing the thread.

"And yes, a 100% increase after falling significantly in the 80s and then sitting flat at that level for another 10 years despite inflation."

Prices fell significantly in the eighties because guess what...there was a bubble. Now magnify that bubble 3x and you see what is happening today. And if the 100% increase is justified, then why are prices rapidly declining today? Guess they weren't so...uh...justified now where they. Take a look at the case-shiller inflation adjusted charts buddy, you'll see the price increases were totally out of whack with inflation starting in 1998.

And while 1BR may not fall to 250k...don't forget that prices do tend to overshoot to the low after bubbles burst...as it did in the eighties. People were picking up studios for five digits then.

"An arbitrary 100%+ increase like we saw from 1998 to early 2008"

Try a 700% increase from 1998 to 2008. That is the approximate figure.

Steve, where do you get the 700% figure? That would mean something that sold for $200/sqft in 1998 would now sell for 6x that or $1200/sqft.

I get the data from here:

http://350bleecker.com/policy/sales.html

jgr, sorry. I did jump in with a bit of a jerkish tone. And I did say that I was done but then I saw the conversation developing with a bit more logic. I have never been a real estate bull but I have also not been one of those people that thinks that the world is going to come to an end.

You've got the people that think that real estate will never go down in this city (granted fewer of them now) and you've got the people that think they will be picking-up an apartment for nothing (more of them now). Both drive me crazy - granted I should not get myself worked up about it either.

I just don't think that decent 1 bedrooms going for less than the cheapest studios on the market is realistic - even in a horrible market.

Let's also not forget that while there was a less pronounced bubble in the 80's we were also overcompensating for inflation and had 13% interest rates, vs. now, where we have some of the lowest interest rates in history.

I totally agree with both Steve and Topper on this thread. Things are and will continue to come down but enjoy the wait if you are expecting to find a decent 1 bedroom for 250,000. And, if you are living in your standard NY apartment and paying $3,000 a month in rent ($36,000 a year) and you wait 2 years ($72,000) for your 500,000 apartment to come down to 300,000 and you are planning to put 20% down, then you have saved $40,000 on your down payment while you have spent $72,000 on rent (and that's if it actually makes it down to 300,000). I realize that this is an overly simplistic way to look at it but I'm just trying to make a point here.

And I will try not to make crass comments anymore, I'll admit that it was uncalled for.

And, if you are living in your standard NY apartment and paying $3,000 a month in rent ($36,000 a year) and you wait 2 years ($72,000) for your 500,000 apartment to come down to 300,000 and you are planning to put 20% down, then you have saved $40,000 on your down payment while you have spent $72,000 on rent (and that's if it actually makes it down to 300,000). I realize that this is an overly simplistic way to look at it but I'm just trying to make a point here.

I think you make a very good point!

Hi Topper,
Just wanted a crystal ballpark idea. Condos I'm looking at range from $1,300 to $2,000 psf, so 2010 sounds right. Thank you.

get the data from here:
http://350bleecker.com/policy/sales.html

Steve,
The 350 Blk prices are solid evidence of pre & post bubble. Thank you for posting it.

432K for a 700-sq-ft 1brm is not going back very far in history - that's what, 2003?
No one has a crystal ball, and looking for exact duplicates of past patterns is dangerous, but prior to that 432K price, prices had been climbing at a healthy clip for a few years, so it's not like we'd be regressing to the last trough-bottom; more like erasing the gains of 2004-2007. But..... who knows?

2002-2003 prices have a lot of appeal. Perhaps the simplest and best (Occum's Razor) of them that is exactly when things began to get stupid. By stupid, I mean cyclically inflected rather than secularly justified. We have seen it in crude oil. $35-40 bucks a barrel in 2003. In stocks, 2002 levels approximated 1997 again, before it got stupid. I don't think its ever smart to expect the price to shoot through that level... I am not saying it cannot, I am saying its not the best bet to make.

2002-2003 price levels have alot of appeal if NY was to retain it's home as world's financial capital. However this may not be the case. We currently have a massive "deflationary" environment where the cost of everything (outside agric in large) is rapidly declining.

Compound the effects of massive layoffs, retail defaults, commercial real estate defaults and increased crime rates here in Manhattan I re-int my earlier predictions.

I think it's fair to say that we are not looking at a picture of 'severe recession' but rather depression. Also this depression will be much different as we are not like japan, a creditor nation but rather the worlds largest debtor nation in history.

In 2009 we will likely see a substantial decline in the u.s. dollar, which will drive prices of energy/food higher in 2010. That amounted with huge job losses across NY will set back our standard of living by 50%. If our standard of living declines by 50% so will the value of Manhattan real estate. For the believers who feel foreigners will flood the market and pick up consumption the argument is ill-based. Foreign consumption will decline as UK/US enter depression and the rest of the world, including emerging markets have 3-4 years of severe recession. Foreigners will likely look at other markets for investment as NY loses it's status quo of financial capital and begins to rebuild from scratch. The big money in 10 years will be made in Asia, and that's where the money will channel to then.
NY will still be a wonderful place to live, but certainly not a place to invest. Cleaning up our debt may take as long as it took to accumulate (20+years).

After the depression we will slowly regain footing in a decade long era of 1-2% GDP. It's the transition which worries me most. How will Americans react when our standard of living declines, and those of emerging markets accelerate? We will be the ones who will need to produce, while those that produced will consume.

With this note, i say wait it out. NY, both residential and commercial real estate will rapidly deteriorate next year as unemployment continues to spike -domino effect-. Fed policy cannot fight this battle and the further it goes in fighting the battle the larger our risk of a massive 'default' which would impair foreign investment forever.

@ dwell, i enjoy living on 64th and madison although i know (speaking to retail store managers) the shops there don't. Consumers aren't buying and i'd expect Madison avenue stores to close one by one in 2009-2010. It's a great location because of the park, close proximity to downtown and friendly people (very international). However, alot of the restaurants you have to go lex/3rd in the 70's.

@ 1500 rent is fair.

"your 500,000 apartment to come down to 300,000"

You forgot the $200,000 loss of principal in that equation. I believe that's almost 6 years' free rent.

dwell, that is the only reliable source of co-op data that go back that far. They confirm Urbandigs' statement that we've already fallen 15% - 20% from peak. Compare 4G offered for $1.14 million versus 2P's sale for $1.3 million. Less money for a far better apartment.

2003, here we come.

2002-2003 levels could rapidly occur by q2 of 2009. the question is then what is we face a severe downtown in the real economy crippled with mounting unemployment+consumer debt???

counciler, NYC will be entering its recession just as the rest of the country exits its. It will be deeper and longer here, and more long-lasting as we've lost our version of textiles.

I agree that 2009 is a possibility, but I think that by then rents will be so low that it still might not make sense to buy.

Counciler, I think the "Crash Proof" scenario is well and good, but I am not sure why it means some other city steals our mantle. Britains is no longer the seat of the British Empire but London is still an expensive place to live. I think less than 2002-2003 is predicated on higher interest rates... Then you have 2002-2003 adjusted for higher cost of carry, therefore much lower. Question for you, do you have all your money in gold? It makes me laugh sometimes when people read me the doomsday, end of fiat money script and then have 5% of their assets in gold rather than 95%.

PS: "I think it's fair to say that we are not looking at a picture of 'severe recession' but rather depression." Ok, so 95% gold, -95% US equities is the recommended allocation? You got me, I'll buy some China, at these levels and with the technicals perking up.

I think it's fair to say that q1 of 09 is a good indication of where things go.

Steve, as I noted, it is an overly simplistic view to prove a point but principal is not the same as a down payment. You have to come up with hard cash for your down payment - just like rent.

If you buy within your means and can afford to hold on to your place then your 200,000 loss is only on paper. I realize that there are plenty of other things to factor in (some in the interest of buying vs. renting such as interest deductions) but if you are buying a place as a home and can afford to carry it for the long term then you probably don't need to worry - and yes, you dump a lot into rent that you will never get back. Plus, if you get stuck having to hold it ... once inflation finally kicks-in... then you are going to be renting it to someone once interest rates get higher and they will be paying your mortgage for you. In 7 years rates will very likely be higher, as will rents.

I'm not trying to get into an overly complex argument. I'm just saying that you can also make simplistic argument to buy vs. rent - just like so many people can make a simple argument to rent vs. buy.

I'm not an investor so I don't care either way. I plan to keep my current place once I choose to buy a second place. I live in a home. I put money in other places that I call my investments.

Rhino, Gold is the next oil or real estate.
everyone is saying to buy it now.
Talk to me in 3 years.

I told people that they were crazy when they were talking about $200 oil when it was at 147!!! a barrel.

If anything, i would be scooping up stocks right now if you can hold them for 3 - 4 years.

Cisco is at $14 ...
P&G - $59 ...

If the government had chosen not to over inject money into the economy then I too would be afraid of a depression. Instead, I am now afraid that we will be faced with a drawn out recession followed by very strong inflation.

@rhino. holding inflation protected international bonds. i also hold some gold and a few other commodities i have picked up in recent weeks. deflation or inflation gold should have a solid 2009 performance.

i wouldnt say gold is a bubble. if there is a bubble it's still NY real estate and u.s. govt tbills.

additionally many attractive places in the world for international investors. NY may retain a financial center but not capital.

I still stand firm that in 2 years we will see 250K one bedrooms and 500K for 2 bedrooms. Doorman buildings, etc.

@ steve, not true. We will have a Depression emerge end of 2009. Q4 of 2009 you will see the characteristics as unemployment numbers continue to increase.

CNBC and all the other Wall street analysts are delusional, if you are buy stocks buy ones with tons of cash on the balance sheets. Make sure they are international.

My biggest short position in 2009 is various commercial real estate firms (not going to use names).
G'luck.

1998 was the the last time I could easily find a doorman 250k 1-bedroom co-op/condo in a nice building on the UWS. I think the economy was better then and there was a real sense of optimism. The Internet! Investment banking! Biglaw raising salaries to over 100k for 1st years! I remember being increasingly horrified when I saw a 1 bed going from 300k to 350k, then ultimately 1m (!) The only thing that will keep prices from going back to early 90s will be inertia of owners. If they have a job that supports that mortgage, and they don't want to move somewhere else...

Trouble is, I don't see any saviors for the U.S. economy right now. As a whole, Americans are dumber, shorter, fatter, unhealthier, less frugal and less educated than their First World counterparts. And you may not believe this, but the educated middle class of the 2nd World/3rd World have gone global and yes, they're smarter, more educated, healthier and possibly less dysfunctional than Americans. So we're f**cked.

Lobo you are wrong about gold. Its not oil at $147. Its oil at $100 on the way down from $147. It may hold here, or it may not. If we have decided NYC real estate = America, then yes, if America is waning, then t-bill rates should shoot up, mortgage rates should shoot up into the double digits, and then price to rent ratios of 6-8x should prevail, and you can get your $250k one bed. Inertia of owners won't matter because by 2010, only the desperate ones will even have their places on the market. Again for the umpteenth time, the marginal buyer (and seller) set the price. I'm sorry but its a bit suspect at 6.7% unemployment that people are so sure this is the Great Depression, rather than the 18 month recession of 1981-1982... And again, the British Empire passed but what did it mean in the end to British lifestyles and prices of apartments in London. So what if NYC becomes "a" capital of the world rather than "the" capital of the world. Are London, Hong Kong, and Tokyo cheap? What are we left with, real estate in NY is getting cut to a 1/2 or 1/3rd of peak value depending on what happens to interest rates vis a vis confidence in the US treasury.

One big difference between NYC and the other world cities is the easy availability of weapons here. While there is street crime in London, it doesn't rise to armed robberies, etc. NYC doesn't have the draconian law enforcement capabilities of HK gov't or the cultural protection against violent crime that TKY has.

@ rhino-dead on we'll see real estate prices 1/3rd of 2007 levels. Oil was a bubble, but seems fair priced at current levels.

Nothing is cheap here at 2008 levels, still alot of deleveraging aspects ahead. I would expect massive credit card and commericial real estate writedowns over the next 18 months.

Maybe look at South Africa or Brazil for real estate opportunities. 250K is fair value for a doorman on UES or UWS, or most other areas in NY, just be patient. We have to wait for the jobs reports of March, April, May and that's when realtors will conclude "prices are far too high". This and banks will continue to have very strict lending standards the next 5 years.
we may not have a low in NYC real estate until 2012. With that said, alot more pain ahead...

Fair enough, but it didn't have those things in the 1980s and it was still viewed as a capital city of the world. If NY hasn't plunged into the social abyss by 2010, I will probably make the bet that it won't, especially if the price level is what I expect it to be. The winning play seems to consistently be betting against "it's different this time". Betting against permenantly high oil prices, forever rising NY real estates, decoupling world economy/emerging market equity. Nothing is ever different. I guess unless this is the Rome of the falling Roman Empire haha. Even London survived the air raids.

Doorman building for $250k? HA! Anyting for that price will be in a 5th floor walk up with a view of an airshaft. Seriously counciler, are you high?

@counciler - I am not agreeing 1/3rd will be the level...I am agreeing that if we get double digit mortgage rate 1/3rd is very likely. It would be foolish to call it so. We have plenty of things in a 1/3rd....oil, natural gas, and chinese stocks come to mind quickly.

He's not high at all. If you said $40 oil at $150 that was also high (pun intented). Why is NYC so sacrosanct to people. Get the eff over it. $250k is still a lot of money and 1998 is only ten years ago. Get some perspective. Read a book.

"Rhino, Gold is the next oil or real estate.
everyone is saying to buy it now"

If thats true, the likely bet is the other way.

Whatever "everyone" says to do, the opposite generally is true. Thats how markets work.

Both U.S. and UK will have depression end q4 2009. China really needs to start more internal stimulus and get consumer model working and "quickly"....

The problem we have with NY is the entire city is pretty much built on credit, it's probably the largest and most leveraged city in the world. If the house of cards comes down it's going to come down hard. Remember, some experts argue most U.S. banks are "bankrupt"-insolvent.

With that said, the u.s. gov't will likely nationalize all u.s. banks over the coming years and then be able to set wage/compensation limits. As wage price deflation occurs and wall street reorganizes the days of the big bonuses and mult-million dollar paychecks will be history. you'll see far more regulation, and strict risk controls. As people come back to ny, after the city has been near "paralyzed" by the upcoming depression NY real estate prices will reflect real wages.

The only reason i'm optimistic and won't say 175k-200K price level for 1 BR's is because I still think there may be foreign support (asia, maybe europe) as time progresses.

All in all, NY, much like Vegas a giant Casino where the house of cards are unraveling even as Bernanke tries to put out out the fire of of Central Park with a squirt gun.

There are walk-up doorman buildings too :)

"This is such a different thread from what I was reading when I first discovered streeteasy a year ago."

I find it exactly the same as streeteasy a year ago. A bunch of people patting themselves on the back for ridiculous theories about where we'll be a year from now. People ridiculing anyone who has a moderate outlook on our future.

lobo, keep fighting the good fight.

Listen nyc10022, if "everyone" was saying buy gold, it would be at a new high. Period. And just to help people along, its not an effing bubble as it rolls over, its a bubble as it rises. Ya know, a BUBBLE being BLOWN UP. Stop calling things 20-30% off their highs bubbles. Also, its not so easy to just do the opposite. Oil was a bubble over $70, and it doubled. Manhattan was a bubble after 2003, and it doubled (more?).

@ alpine, just wait and be patient. If i told oil would have gone to 45 in July you would have laughed at me also.

@rhino, your clear, eventually u.s. will have to raise interest rates dramatically to entice foreigners to purchase t-bills. without foreign support, billions each day our entire system collapses over night.
Remember we are the "largest debtor nation in the history of the world".

As soon as the deleverage is done watch people run for exits and you'll see the bursting of the last and final bubble.

nyc 1022 - that was exactly my point if it wasn't clear. gold is a commodity. it's not the demand for jewelry that drove up the price.

The only way for 1 bedroom dorrmen apartments to be $250k is if there is a DRASTIC decline in the quality of life in the city. Is it possible for a 1 bedroom in Manhattan to be $250k? Yes. But I guarantee that you will not want the apartment should it reach that price point. Kind of like Detroit. Dozens of houses for only $1. Bt nobody wants them!

> Listen nyc10022, if "everyone" was saying buy gold, it would be at a new high. Period.

Inherently incorrect. Period.

How so? What is "everyone" then? Everyone isn't even everyone on this post in terms of being bullish on gold. Hell I haven't even said I am bullish gold. There is actually a pretty rich inflation/deflation debate going on out there, relevant to gold and other commodities, so its certainly not "everyone". "Whatever "everyone" says to do, the opposite generally is true. Thats how markets work." - This statement is remedial and useless. How exactly do you determine "everyone"? Everyone liked real estate in 2004 and they were right until 2007. Everyone liked Chinese stocks and they were right until fall 2007.

Councilor,
Thank you for the info re: 64th & thank you in general for sharing your insights & opinions. Hope you don't mind, but have some questions for you:

Question 1: What do you mean by this?
"As soon as the deleverage is done watch people run for exits and you'll see the bursting of the last and final bubble."

Qu 2: I own some multifamily brownstones in a desirable Manhattan neighborhood. Should I sell them?

Thanks.

If Councilor is right, you should sell everything and buy gold and TIPS. He isn't the author of his scenario per se. What you need to decide is whether or not his scenario is what you believe.

Nobody is right. The future isn't written yet. If you think Councilor *may* be right, by *some* gold and TIPS. Anybody who puts all their assets into anything so narrow is begging for trouble.

We are all familiar with your "prediction is futile" world view. Its as simple as if dwell finds the bear case more compelling, she should sell her brownstones. Dwell, read Crash Proof. Schiff is one of the original authors of Councilor's world view.

@rhino/tech guy===not encouraging allocations to any "one" asset class. keep some powder dry, but stay diversified in your savings (currencies). With that said everyone should have 15% of his/her portfolio in gold. Mine personally is 30% going into 2009.

i'm not sure on Prof. Schiff, i think he misses the point that before we move into the inflation scenario we will have a deflationary collapse. He completely missed this point. It's not until we see people running for the exit...-tbills-that we will have his scenario.

global central banks will go to 0% across the board next year, and with that deflation/inflation we will see some movement in commodities.

@dwell When i say deleverage it's forced liquidation of assets. per se if you had investments in foreign assets you have/or have been forced to sell those. That liquidation returns your investment back into dollars from the foreign asset/base currency. This will continue until the Dow hits or cracks a lower level. We may see the dollar back at 1.20-1.25, but before the end of 2009 i would not be surprised if we hit 1.75 and see gold at 1,450 an oz.

if you don't need the money, or have brownstones as "investments" on leverage yes i would suggest putting them on the market. home prices will fall further, no argument about it.

@alpine, 250K for 1 br is in line based the assumption of the next 12 months we see stag-deflation. lower wages, lower retail prices, lower oil prices, lower everything as Unemployment compounds and supply outshoots demand.

the most troubling part of this scenario is thus there could be an event triggered that greatly declines our standard of living where we would have 'national' inflation because of our currency ala a spike in oil/agriculture if there comes a devaluation of our currency. China will suffer also being largest net holder. The China story is in line, and they will emerge before us, but they also have serious troubles ahead.

I just want to point out to everyone that a recession and a depression are two very different things (granted there is no clear definition of what a depression is). The most common definition is a 10% decline in real GDP!!

In the 1970's (73 - 75) we only saw a 4.9% decrease in in real GDP. And that was the worst decline in recent history.

Let's move back to the depression days: from 1929 - 1933 we saw a 33%!! decline in real GDP.

A depression is typically fueled by a severe deflationary spiral and it is shortly followed by 30% unemployment. I keep pointing this out because people very lightly throw around the word depression and deflation. The truth is that few people that are alive today can actually understand what that really means.

If anything, western Europe is headed for a depression. When we were freaking out and rapidly cutting interest rates they were still raising them. If anything we need to worry about inflation. The amount of money that we have essentially printed is crazy.

Anyhow, Rhino ... my point about gold is that it is a commodity. the price did not rise because so many people actually wanted to consume gold metal (supply and demand), it is because people bought a bunch of paper. As soon as the stock market bottoms (which I think that it is very near) then watch what will happen to gold. People will sell the paper that they bought.

@ lobo...gov't statistics...we've been in recession since december of 2007 and Paulson/bernanke earlier this year "everything just fine, we expect a recovery in 2nd half of 2008".
if you add in unemployment of illegal immigrants (which there alot of) i think we currently have 7.5% ue now. before the end of this crisis I would be surprised to see 12-15% UE on an optimistic note.

Lobo, everything moves on supply and demand definitionally. In this case, supply and demand for money that isn't fiat. PS: Stock is paper too and calling the stock market bottom on a chat board is silly.

Councilor, I agree...I think gold suffered on the deleveraging, and is likely to reverse to higher new highs...and sooner or later (probably sooner), people are going to get fed up with US government debt. I can't decide how much I am willing to bet on it, however, since I am likely to spend in dollars. But you raise a good point, if the dollar devalues I will still need to buy food and fuel, competing for same in a global market. Maybe I do consider 15%+ in gold. And as soon and I can confirm some kind of technical bottom in the TBT I am all over it.

Can people (alpine), stop pretending we need the Joker lighting GCT on fire to see double digit interest rates driving down real estate 60% from the peak...its silly. When studios were selling for $175k in 1998, it would have seemed silly to say they'd go for $70k in four years but they did...and we didn't have a credit bubble that had driven them to not $175k but $600k. People just don't have the incomes to justify the last 10 yrs increase. A great deal of it (50-70% of the peak value) was fake. Like the stock market, like oil, like everything. Get over it. Leverage was more operative in NYC real estate than everything else and si ways to Sunday.

counciler. I do not disagree with the unemployment stats. Illegals certainly increase the number.

Your 12% figure is not that far off from where we were in the 80's. 33% unemployment is quite different. In other words, one in every 3 people that would be posting on this board would be unemployed.

A deflation/depression scenario makes a $250,000 (to Rhino's earlier point) irrelevant because no one will be able to afford it. So it's not really a good deal. It's just adjusted to incomes (downward) - so no one is really getting a deal. That's what a depression is all about.

it's like the old saying: "A recession is when my neighbor loses his job. A depression is when I lose my job."

Anyhow, I personally feel that we are headed for one of the worst recessions that we have seen in a very long time but I do not think that we are going to see the next depression. I also do not believe that we will see $250,000 apartments "in good locations". Both of these points are based on my opinion so there is really no point in continuing to argue it.

What I think that we will experience is "stagflation" not stag-deflation (which i have never even heard until you mentioned it above). Stagflation is stagnant growth with moderate inflation. Prices rising modestly.

Stag-deflation I would assume is essentially a depression. Falling prices and a downward spiral of unemployment fuels by the falling prices. There is nothing stagnant about that. It leads to negative growth ... massive job losses and huge declines in GDP. Not impossible. Just two very different things.

Anyhow, it will be interesting to see how everything plays out. I just hope, for all of our sakes, that it does not end in a depression.

Thanks Rhino & councilor, appreciate your input. Of course, I wouldn't make this decision based on an inet chat board, but I hear you. We can't predict the future & history usually doesn't repeat in the exact same manner. But, in general, I see the writing on the wall.

Family members bought these blds about 40 yrs ago & I inherited them. Mtgs are relatively low & my tax basis is very low. Cap gains, taxes & transaction costs would eat 50% of my profit. Then, what to do with sale proceeds? To me, most investments today feel like gambling casinos. Feels like there's no safe haven any where in the world.
Again, thank you for your input.

councilor: I personally think gold is the mother of all bubbles. It had value back when it was used to back major currencies, but now that's not true. The price hasn't collapsed to represent that reality. I take my inflation-hedging advice from Warren Buffett, who similarly thinks gold is a bad investment, and that stocks are the best long term inflation hedge.

Rhino, thanks, I am well aware of the fact that the stock is paper. and oil and gold have become that as well. So, my point being that oil and gold prices are no longer based on supply and demand for the actual resource, it is based on supply and demand for the paper that it is supposedly backs. Therefore, it is more driven by psychology that the fact that people are lining up around the corner to buy gas because we have shortages!!!

So, the stock market, just like gold and oil can have very sudden swings in prices. They are commodities. People now buy them with the sole purpose of making a profit and they will suddenly sell them if they feel that it is a losing bet or if they can make more money somewhere else. simple psychology. Hence, my prediction that people will rush back to stocks in the coming year. People will dump the paper that they have bought "gold" and buy paper that will give them better returns (stock!).

I don't know where the lesson on paper came from but maybe I was not clear.

Anyhow, a home, on the other hand, is not a commodity. Therefore, a sudden 50% decrease in housing prices is less realistic. Unfortunately, a bunch of people started trading homes like paper as well. But it is still not the same as oil or gold. Plenty of people still live in homes. And even if they just bought it as investment, they are still stuck with a physical home.

my point: when everyone says buy stocks, it's probably a bad idea to buy stocks. when everyone says buy a home, it is probably a bad idea to buy a home. when everyone is saying to buy gold (and just watch Bloomberg for 10 minutes and see 3 commercials telling you to buy gold) then it is probably not a good idea to be buying gold. People could flee in a year, or they could flee tomorrow... Either way, I don't want to own gold and find out the hard way. Right now, your safest bet (if you are not in the position to take on much risk) is a 12 month CD - at least you are guaranteed a return of some kind - up to 4% in some cases.

And for me. I'm not too concerned about the price of my "home" I don't intend to sell it and if we do enter a depression, well, at least I have a home that I can afford to carry for 2 years with no income - a roof over my head and plenty of cash in the bank.

Dwell, given your situation, I would not sell. I assume that you are renting these places out and profiting form the rent anyway. Why would you consider selling now? People who bought last year and do not intend to live in them for the next 10 years may want to reconsider but your case is very different.

My opinion.

Agree with lobo that gold isn't the safe bet. It may turn out to be genius in 12 months, but you could also see your investment cut in half. Very risky short term play.

Buy CDs, buy money markets, buy treasuries (a few months ago...), buy investment grade bonds from corporations you trust. There are a lot of way to get decent safe returns that are going to do just fine in a deflationary environment.

Thank you, lobo. Don't think I will sell. Just considering my options. There's a lot of bad news.
A few months ago, I wanted to buy an apt. Now, I contemplated getting out of RE all together. Interesting times.

@ dwell, better to pay taxes on a profit than have to deduct a loss..(not guessing there is one as purchased decades back).

as mentioned earlier, we will have a "deflationary collapse", followed by a devaluation of the dollar and then 'national' inflation. Standard of living will vastly decline as a portion of one's income will be 'back to basics'. Food and energy. The excess, wealth illusion we enjoyed being able to pertain our u.s. dollar as global reserve-thus making us capable of borrowing trillions from the world, in my guess will magnify the depression. Yes you are correct, this is a once in a 100 years experience.

2009 won't be the emergence the depression, it will be looked at as the Very Great U.S. Depression. A system that's built on credit is of little substance, once the credit quickly contracts our standard of living will collapse. this will be the stage more evident in q1 of 2009. Collapse of the Real U.S. economy.

Obama will have to face the facts, how he will explain the situation to the public must be sensitive and understanding. He will have a very difficult 2 years ahead as we will deal with the largest financial crisis in u.s. history.

I stand by earlier assumptions. 250K=1BR/Doorman 500K=2BR/2Bath/Doorman. Be patient and enjoy the action. Keep some powder dry and keep some solid investments. Even in severe deflationary environment I would rather hold gold than u.s. dollars, nobody knows when or if we could wake up one morning from a long holiday weekend to learn that our U.S. credit rating as been downgraded from AAA to lesser extent. Stay smart, stay hedged, and stay in good health!

Counciler, I am trying to probability weight your scenario for myself... Riddle me this, are you really saying buy gold or are you more so saying, short treasuries. It feels to me like the latter...and it looks to me on the chart like the latter is more overbought than the former is oversold. I'd like to do a little of each. I'd like another bite at gold in the $750 range but TBT I could buy right now.

@rhino, i have a feeling some people are making larger fortunes off the rain and clouds than the our old days of sun. be patient on the TBT, see market reaction after the 50BPS cut Tuesday and look for the 'language' of quant. easing.

Don't follow your weather analogy...

Lobo - is that short for lobotomy? Are you 28? Is this your first bear market? Let me give you some perspective:

In March 2001, when the NASDAQ was 5,000 and started coming apart at the seems, I suggested it could go as low as 3,000, since that would represent reversion to historical means. People just like you HOWLED at how crazy i was. The NASDAQ went to 1,000. Couldn't happen, eh? Note that this would be the equivalent of today's $1M 1BR going to $200K.

In 1991, when Japan entered a deflationary spiral, I said property there could fall 50%. Again, guys like you said I was nuts. It fell 80%.

The last time we saw economic times like this, my grandfather was a young man. You have NO IDEA how bad things can get. $250K for a 700 sq ft 1BR? Heck yeah it can happen...

"U.S. credit rating as been downgraded from AAA to lesser extent."

counciler,
What will be the effect of this?

hotproperty what you should consider is not $3,000 per month but the rent - all carrying costs you pay when buying a house, including maintenance, insurance, interest and taxes. then, after all, you could end up being renting almost for free thanks to high carrying costs.

"How exactly do you determine "everyone"? Everyone liked real estate in 2004 and they were right until 2007. Everyone liked Chinese stocks and they were right until fall 2007. "

"until"

Ironic... you just named 2 bubbles.

Its not ironic at all... Its to illustrate to you that flippantly saying "everyone" can be a long hard road, in those cases, for three years or more.

I didn't say everyone... was simply responding to a post that did.