Reading Urbandigs' blog I came across a sample of appreciation for several UES apartments between 1995-2008. Of course, the apartments in the sample might have been somewhat cherry-picked and also renovations may have played a part in the staggering appreciation rates. On the other hand, the economy in 1995 wasn't nearly as bad as in 2009, and the credit market wasn't frozen, so I think we're even... [more]
Reading Urbandigs' blog I came across a sample of appreciation for several UES apartments between 1995-2008. Of course, the apartments in the sample might have been somewhat cherry-picked and also renovations may have played a part in the staggering appreciation rates. On the other hand, the economy in 1995 wasn't nearly as bad as in 2009, and the credit market wasn't frozen, so I think we're even in regard to that. Mortgage rates are the only variable I haven't considered. Anyway, I did ran the numbers for three of the apts. mentioned by Urbandigs through an inflation calculator and got the following results:
Example A: in 1994 sold for 240K and in 2008 sold for the wonderfully bubblicious price of 1,100,000. If it had merely kept up with inflation, it should have sold for 346K. Therefore, if our incoming bottom (2009? 2010? 2011?) were to come back to 1995 in real dollars, this apt. would have to fall over 68% percent to be priced fairly.
Example B: in 1995 sold for 630K and in 2008 sold for the wonderfully bubblicious price of 2,325,000. If it had merely kept up with inflation, it should have sold for 882K. Therefore, if our incoming bottom (2009? 2010? 2011?) were to come back to 1995 in real dollars, this apt. would have to fall over 62% percent to be priced fairly.
Example C: in 1995 sold for 297K and in 2008 sold for the wonderfully bubblicious price of 1,070,000. If it had merely kept up with inflation, it should have sold for 416K. Therefore, if our incoming bottom (2009? 2010? 2011?) were to come back to 1995 in real dollars, this apt. would have to fall over 61% percent to be priced fairly.
So... what do you guys think? Any factors that should keep this RE plunge from reaching down towards our 1995 RE bottom? When it's all said and done, will NYC RE assets have fallen 60% and simply kept up with inflation for the last 15 years? Or are there any factors that should make it less brutal? Or more brutal? Please note I've used the UES, so that you cannot argue the 'hood has improved dramatically since 1995.
alpine, steveF, petrfitz: please feel free to yawn and not reply.
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Response by happyrenter
about 17 years ago
Posts: 2790
Member since: Oct 2008
trompiloco,
i think it's even worse than you say. why? because inflation statistics over this period are significantly inflated. for a variety of reasons i think inflation has run around half a point lower over the past 15 years than official statistics report. if i'm right about that, things would have to fall further.
to make the analysis stick, i'd love to see what happened to rents over this period. my sense is that they did not appreciate anywhere near as much, and that they have already started to fall. without knowing the data on rents it is hard to say, but i would not be surprised if prices declined 60% or so. would not shock me at all.
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Response by nyc10022
about 17 years ago
Posts: 9868
Member since: Aug 2008
> alpine, steveF, petrfitz: please feel free to yawn and not reply.
lol
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Response by aboutready
about 17 years ago
Posts: 16354
Member since: Oct 2007
It's funny, before I bought the condo in Chelsea (2000, closed early 2001) I looked in both the Gotham and St. Tropez and rejected those buildings for a number of reasons. Later, when looking again (2006-07), I was shocked to find out by how much I had been priced out of those same buildings.
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Response by Trompiloco
about 17 years ago
Posts: 585
Member since: Jul 2008
BTW, mortgage rates in 1994-95 hovered between 7.5 and 8.5%. Unemployment around 5.5%. The difference between an 8% and a 5.5% rate in your mortgage is relatively substantial. In my first example, the apartment that increased in value from 240K in 1994 to 1.1M in 2008, if you put 20% down, you would pay the same amount in REAL dollars at 240K in 1994 with an 8% rate or 453K now with a 5.5% rate. That means a "fair" plunge in value for the apt. would be 59% from its 2008 sale price and not the 68% I said in my first post.
trompiloco,
i think it's even worse than you say. why? because inflation statistics over this period are significantly inflated. for a variety of reasons i think inflation has run around half a point lower over the past 15 years than official statistics report. if i'm right about that, things would have to fall further.
to make the analysis stick, i'd love to see what happened to rents over this period. my sense is that they did not appreciate anywhere near as much, and that they have already started to fall. without knowing the data on rents it is hard to say, but i would not be surprised if prices declined 60% or so. would not shock me at all.
> alpine, steveF, petrfitz: please feel free to yawn and not reply.
lol
It's funny, before I bought the condo in Chelsea (2000, closed early 2001) I looked in both the Gotham and St. Tropez and rejected those buildings for a number of reasons. Later, when looking again (2006-07), I was shocked to find out by how much I had been priced out of those same buildings.
BTW, mortgage rates in 1994-95 hovered between 7.5 and 8.5%. Unemployment around 5.5%. The difference between an 8% and a 5.5% rate in your mortgage is relatively substantial. In my first example, the apartment that increased in value from 240K in 1994 to 1.1M in 2008, if you put 20% down, you would pay the same amount in REAL dollars at 240K in 1994 with an 8% rate or 453K now with a 5.5% rate. That means a "fair" plunge in value for the apt. would be 59% from its 2008 sale price and not the 68% I said in my first post.
yawn