UD 2009 Predictions

Great stuff, urbandigs - thanks for posting. Do you really see the Fed keeping rates this low through '09? I did not expect them to be held there for quite that long, but as more bad news comes out, who knows?

yes I do. I think they will remove the credit facilities before hiking rates. Usually they dont hike rates until unemployment starts to show signs of stabilizing, and that is a lagging macro indicator at 6.7% now. many economists predict UE to rise to 9-10% before all is set and done. Most of this will come out in 2009. I think closer to 10%, however U3 is not the best gauge for overall employment picture, U6 is and thats at like 12.5% or so now.

UD, I was looking into buying SRS as a hedge for my real estate holdings. But as you and others have noted, it's not a good hedge. Better to go short IYR?

My prediction:

Consumer spending to reach 50-60% of 2008 levels.

Deflationary pressures will cause up to 15% of commercial tenants in Manhattan to default on their leases or sublease them for a moderate loss

The US will take in yet more foreign investment at amazingly good terms as emerging economies default and as even some huge, yet to be named European bank defers dividends on their debt.

People will visit open houses just to mock the sellers.

rufus will unfortunately suffer a major stroke after eating all those chicago hot dogs.

Williamsburg will fold back into Manhattan, that area around the Forward building to become the new cooler than cool, hotter than hot, $1000/month alcove studio part of town.

Nyc will fail to produce anywhere near the tax revenues it's projecting. Bloomberg will sell some of his golf clubs to cover the deficit.

People will predict a recovery in Q2, Q3, Q4... 2010...

julia will keep up the passive aggressive thing

As usual, I agree with almost all of it (though I did skim some sections). I think that this quarter will be the worst for GDP, judging by my business, which stopped dead in its tracks in December, forcing me to add Italian to my list of languages to translate (don't like it as it takes me somewhat longer since I don't do too much of it). But money is money.

I do think the stock market will end next year around 11,000 Dow, back to the pre-Lehman levels. There is just too much money in the system and coming into the system to keep the economy slow for long. It takes time to recover from a heart attack, however, and that's what Lehman was. (And the stupidest policy decision in decades.)

The Fed has a very powerful weapon to counter deflation, and that is printing money. It's not really printing money right now, it's liquifying. The difference being that for all the money it is lending out on the credit side, it is taking on debits in the form of selling treasuries. That is, it is funding its liquification. It has the ability simply to create money Latin American style by depositing it with banks without the offsetting debit - don't fund the deposits, merely create them out of thin air.

Let's hope it doesn't get that far.

nyc - I own only a 100 srs from around 57 on this latest selloff, but I think it may go down a bit more if the fed buys up mortgages, agency debts, and treasuries to push rates down further. I think that plays into this equation. However, I mainly hold it because of the steep selloff and the exposure to commercial. I dont play IYR so not too confident discussing it. I mostly play eev, fxp, dxd, mzz, skf, srs, sds, etc..

stevejhx, don't worry, if you know Spanish (and presumably French?), Italian is mostly a cakewalk! Off-topic question, but where are the companies you're translating for? As you surely know, Spanish can be so different from one country to the next.

I am really unsure about DOW 11k at this point. Impossible to predict, but I think it'll be slower than that, unfortunately. That would be a 25% increase YoY. Hope you're right though.

urbandigs, don't you think unemployment will hit that 9-10% rate sometime next year (by the end of the first half maybe)? I think companies are very quickly realizing they won't be able to afford keeping people after the New Year. Of course, this is pretty highly dependent on the outing of other Madoff-like schemes and what happens in Detroit.

urbandigs, don't you think unemployment will hit that 9-10% rate sometime next year (by the end of the first half maybe)?

Not by first half, maybe by years end. Maybe we are at 8% by first half for U3

bjw, I translate Spanish from all over the world. I lived in Spain and have worked in most Latin American countries. Argentine can be difficult, but since I speak Portuguese and can read Italian, it's decipherable. I just stopped Italian since I'm so fast at Spanish and Portuguese, and while Italian is easy to read in the newspaper or to watch on TV, their laws and accounting are very different, which is the issue.

I don't do French.

I did study it, just don't do it.

Great job as always, UD.

I love this part.... I've been saying same (but not as well) for a while..

"First off, when reading the new articles (trust me, there will be plenty of them now that downturn started) that come out calling for a bottom in Manhattan RE market, ask yourself if that same source discussed in advance the current downturn we are in now; chances are they never saw it coming. To defend a bottom or to call for a recovery based on assumptions that have not occurred yet, is quite silly. If they didn't see it coming to begin with, how can you rationalize a recovery with no fundamentals to back you up? There will be a time for a recovery, but for now, lets KEEP IT REAL! "

Hey, noah, I get the point about your 25-40% decline projections given the range or product.

What do you see it doing to the medians? Do I assume you're thinking the middle of that, 30-35%?

I realize stevejhx that someone asked you a question about your occupation, but please, have some restraint. What you translate isn't relevant to this discussion, and even though one person (perhaps some more) are interested in this stuff, have some restraint - please realize it isn't relevant and just don't respond, or if you need to, try a new discussion topic. Please. And for bjw, a related request applies to you.

yea I liked that part too. Thx!

Hmm, good question, not sure. That seems about right as likely possibility based on the state of the economy right now

Thanks for the update.

You know, I'm not surprised that there is an honest/smart exception in the broker world. What I am surprised about is... that you are the only one I've ever known. And I've known a lot of brokers.

UD, you think there are any others like you? Or were you the only one that escaped the brainwashing?

ha, thanks for kind words. There are others, but Im not sure they view the world as 'a trade', like I kind of do. I know a bunch of very good brokers, and I know a heck of a lot more bad ones. Sometimes I love this industry, and a lot of the times I really really hate it

Quick question Noah. To follow the KISS method, I was considering simply waiting until I see the first year-on-year increase in price to begin my search. I figure this will not happen until 2010 if not 2011. Given real estate is such a slow market to adjust, is this fair enough?

could be later, who knows...but if thats your method, prob closer to 2011...hard to see a downturn only last 2 years max...

If you see a YOY increase, then that means you missed the bottom. Why would you want to pass up the opportunity to buy at the lowest price possible? That is not too smart.

> If you see a YOY increase, then that means you missed the bottom.

No it doesn't.... (not if the bottom is ahead of you....)

> Why would you want to pass up the opportunity to buy at the lowest price possible? That is not too > smart.

Thats a lot of people you're now calling dumb...

alpine you are making a common mistake. picking a bottom is silly. once you see upward momentum, you take a lot of the risk out of the equation. also, from a present value of investment standpoint, the recovery usually accelerates from there. also the economy is usually better by then. analogy, buying in 1997 was easier than buying in 1992. also, and this might be over your head, you are making the very flawed assumption that there is a way to pick the bottom before seeing the upward turn. guess what, there isn't. its impossible to know that your bottom is the bottom until later, and by later you might see you were wrong. missing the first 10-15% of a recovery is well worthwile, especially if it means the economic environment of 1997 vs. 1993-1994.

Rhino, a couple thoughts:

1) Obviously I don't have any more of a crystal ball than anyone else here, but I would be very surprised to see a year-over-year price increase in the data in 2011. Looking back at the L-shape in the 90's, my understanding of the data was that the first time you could confidently see an increase was in 1994 or so, 5 years after the decline started. That would put us in 2013-2014. Plus, I would argue the current local/global economic downturn is worse for Manhattan than the 90s, and will be tougher to climb out of. And finally, I am not as well-versed on the 80s, but I get the impression that the bubble that's bursting now was bigger. So I won't be shocked if the first noticeable and reliable uptick is past 2014.

2) I think your logic of not buying until you see an uptick is sound from an investment standpoint (because timing the bottom precisely is very difficult, and you'd rather be a bit too late than who-knows-how-much too early.) Are you purely buying for investment? Or for personal/lifestyle reasons? For my family, we want to own, have a 7-10 year time horizon, and will likely buy in 2010 or even in 2009 (if we get a great deal). It makes so much sense for not-financial reasons, that I don't mind taking a bit of a hit financially - within reason, of course, which is why I didn't buy in 2007 or 2008.

But once the media starts reporting on any YOY increases, that is going to bring a lot of new buiyers into the market and you will have more competititon. But when prices are still falling, you have absolutely no competition.

Not too sure when that's going to be. The media LOVES bad news, and a good fall especially, like MJ, OJ, Baby Kaylee, Iraq, whatever. Even more so with real estate because none of the journalists can afford these places anyway and they are characteristic schadenfreuders.

They are going to be milking this high-flying Manhattan goes bust story for a long, long time.

"But once the media starts reporting on any YOY increases, that is going to bring a lot of new buiyers into the market"

Careful, you dont know how much pain people experienced by then, where we are, what the world is like, what quality of life is like, how people perceive quality of life, etc.. at that future time. You just cant make assumptions like this, so far ahead. I dont even like to look 12 months ahead. I like to look 3-6 months max, because after that who the heck knows! You never know when the world around you might change and ruin a good trade or investment idea in your head from before.

Urbandigs is saying that even after it bottoms, it doesn't explode off the bottom. See it in the data first. It is the opposite of now. Even with everything that has happened, sellers can probably blow out their apartments at 80% of peak before the Q4 data comes out in January.

"But once the media starts reporting on any YOY increases, that is going to bring a lot of new buiyers into the market and you will have more competititon. But when prices are still falling, you have absolutely no competition."

You're assuming folks are actually on top of watching the market.

They aren't.

Hell, look how far behind you are... we've been declining for months, and you're still denying we declined at all.

RE markets don't turn on a dime, they take a long tim to turn around. No danger of missing anything here...

RE markets don't turn on a dime, they take a long tim to turn around. No danger of missing anything here...

So you through away years on renting while waiting. Just doesn't make sense.

I meant throw!

Perhaps, but would you prefer throwing away 20-30% of your equity instead?

And it's not just a 20-30% loss. If you put down 10% and lose 30% of the equity in your home, you just suffered a 300% loss. Leverage will kill you in a down-market.

Yeah, exactly where is the logic that adding a couple hundred bucks to your monthly cost for a year somehow makes up for losing a few hundred thousand dollars.

This denial requires an awful lot of bad math.

hotproperty:

You seem not to understand what happens to payments you make when you own, rather than rent. Whether you rent or own, you make large payments that do nothing to increase your equity. If you own, interest on your mortgage and maintenance/taxes don't increase your equity. In many cases, those amounts (even accounting for a mortgage interest deduction) exceed an equivalent rental, so that you're "throwing away" more money owning than you do renting.

And, of course, there are further costs to owning, such as the opportunity cost of your down payment (and, some would argue, declining values in this market).

what about opportunity cost of not owning as well. But then you need to take into account tax incentive of owning, but the property tax in essence increases overall carrying charges and that takes away from the total tax savings.

To rent a large JR4 1BR, say around 900-1000 sft, in drmn building, you can prob do it in upper 2's and low 3's now.

http://www.streeteasy.com/nyc/rental/396435-condo-245-east-93rd-street-yorkville-new-york

Look at this for 2,900.

To BUY similar layout from what appears to be higher floor would be in high 700s and low 800s likely. This one is asking 875,000

http://www.streeteasy.com/nyc/sale/370031-condo-245-east-93rd-street-yorkville-new-york

If I bought this for 800,000 today, 20% down, 640,000 Jumbo loan if I can get it, say at 6%, not sure of jumbo conforming rates now...with current maint + prop tax it would cost me

- 4,817 per month
- about $30,000 in closing costs to purchase this home (equal to about 10 months rent at 2900)

So, you need to afford just under 5,000/mth to buy it, or you can rent similar unit prob on lower floor for 2900, or maybe even less if you negotiate. Remember, we assume 75K lower to buy the place in the example above. The prop tax to own the place is about $6,000 a year, and that will likely rise with Bloombergs property tax hike plans. You can deduct this at the end of the day, so you pay 6,000 in prop taxes to save about 2,000 or so later on in taxes paid to uncle sam; mortgage payment is 3837/mth so you can deduct prob around 3500 or so a month from this on interest deductions.

The premium to own, even with tax benefits later on, when asset is depreciating is costly

JohnDoe - ha, saw your comment after I hit POST for mine above. Must have been writing in at same time.

Yes, UD, how dare you share knowledge simultaneously. You should be ashamed!

;-)

on predictions... even though I am more bearish than most... I have a feeling that the GM bk (almost a given - at least the delay will make it less of a jolt, but it will still be major jolt) and a default by major municipalities (ala San Diego) will make me adjust my predictions in 2009 downwards. And I believe if the above happen within a compressed time frame (say within 9 months of each other) even Alpine292 will list his home in Jersey.

ub - you have to be very careful when comparing rent/buy (or anything else) in 245 East 93rd. We looked in that building, and a relative lives a block away. Apartments that face 2nd avenue are basically unlivable because of the subway construction noise. Apartments that face the courtyard can barely hear the noise, if at all.

Even if both apartments face 2nd, I think the discount to rent due to the noise would be much larger (since both renting and noise are short-term, while buying is ostensibly long-term).

I agree with your general point, and am still finding a meaningful premium to buy in most cases, but just wanted to point out the specifics of that building that may impact comparisons and calculations.

ud, I meant.

very true. I sold 2M July 2006 before construction started. I had a terrace on 2nd ave, 2nd floor, facing east.