Holy Inventory Increation!!

what makes it even more impressive is that a lot of units are also being taken off the market--not sold, just pulled. some are being pulled permanently, some temporarily.

It hasn't even begun. It will take time for the psychology of sellers to accept the fact that their units will soon be worth 50% less than they paid for them. Cuomo is going after Merrill's bonuses, the entire world is changing around the financial sector, who were the only ones who could afford $15,000 a month in mortgage payments.

Latest news: more layoffs from Goldman and Morgan Stanley.

I was universally derided when I started posting a year ago about what would happen to property prices in Manhattan. Not so much now.

dmag: I love that word, i Have my own favorite for certain price chops.."holybatfuck" not in the dictionary yet, but will be.

Steve, you haven't been the only one to claim prices had to fall, and dramatically. Not to deride the accuracy of your NYC real estate prognostications, just saying.

patient, soon it will be tommorow, same bat channel, same bat time, same holybatfuck.

aboutready, it was pretty lonely a year ago when I started posting. People were claiming property prices up in 2008 by 10%.

Up up and away in my beautiful bubble....

Oh steve, woe is you! I don't think it's right to say sellers will have to accept the fact that their units will be worth 50% less than what they paid. I think you mean that only for people who paid peak prices. Are most of those people selling? I have no idea, and there's really no way to properly gauge that. Frankly, the increase in inventory is a good thing.

You're right, bjw.

steve, I think I had just exited when you started. i was fairly lonely also, and didn't have your fortitude.

Where are they now?

"it was pretty lonely a year ago when I started posting"

I was very lonely too when I started discussing this on UD in Fall 2007!

Yes indeed you were, UD. I read most of "The Idiot's Thread."

You know - Dow 11,000.

Wouldn't that be nice?! Then I'd be a sideliner again!

There are a couple of units I've been watching in the east fifties. They were off the market for a short while only to return AT A HIGHER PRICE !?! Wishful pricing, it seems to me.

"I don't think it's right to say sellers will have to accept the fact that their units will be worth 50% less than what they paid. I think you mean that only for people who paid peak prices"

Absolutely on the logic... but did you just infer that Steve's 50% down call is accurate?

> I was very lonely too when I started discussing this on UD in Fall 2007!

I got beaten up at school.

I mean curbed.

The hope now for sellers is Says Law. That is, supply creates its own demand. Wow! I can't believe I actually remember something from ECON 201.

California reported this week that exisitng home sales were up 84.9% y-o-y. This is largely a function of distressed foreclosure sales. Indeed, the news flash for Manhattan sellers is that for a property to be sold, and not to simply be listed for sale, you need both a buyer and a seller to agree on the price. Looks like buyers in California responded to the 40+% decline in prices. In fact, median prices were down 41.5% y-o-y.

At the right price the buyers will step in. If the sellers get serious about their intent to sell, the buyers will get serious too. In California, sellers managed to get over their disbelief, anger, and grief about falling prices (ok, the notice of default helped them along too!) and sellers moved on to acceptance. Sure enough transactions started to happen.

I am not sure Manhattan sellers, and realtors for that matter, have moved beyond the disbelief phase of the hierarchy. Make no mistake, if a seller is serious about selling they will have to move along the hierarchy just like they did in California.

1,169 lisitings in Manhattan dropped by more than 5% in the last 30 days and 453 listings dropped their price by more than 10% in the last 30 days. We are seeing some sellers move beyond the disbelief and anger phases. Again, make no mistake this is only the beginning.

As the Wall Street layoffs start to take effect & people can no longer afford outrageous monthlies, prices will drop like a stone. Short sales more than foreclosures in Manhattan, I think - plenty of them in Miami, as well.

jake: spot on. Its called "equilibrium"

Jake, while I'd like to share your enthusiasm, I believe there is another factor specific to California that makes a foreclosure sale much more likely... Mortgages in California are 'non-recourse' loans. That is, the only thing which backs the loan from the lender to the borrower is the property. Past forfeture of the property, the borrower is under no obligation to repay the loan. Thus, in California, when you can't pay, you drop the keys off at the bank. NY state borrowing laws are far different. There is personal liability for the loan amount. Thus, NY markets will not fall as quickly as California. The final 'clearing' price percentage fall may be the same, but it will take longer.

walter, that's why short sales are more likely in manhattan (as steve just mentioned).

"Absolutely on the logic... but did you just infer that Steve's 50% down call is accurate?"

What do you mean by "accurate"? I don't really know what will happen, though frankly I'd still be a bit surprised to see an average of 50% off closed sales prices across the board; when this discussion began in earnest (ie: fall '07, when UD started posting on this), I thought there could well be a more gradual decline and pretty steep drops in sales volume for a while (first part not really accurate, second is better). I don't like percentage calls because they're really too general and arbitrary to be of much use to a serious buyer. I mean, you don't just bid 50% of what the closing price was IF it sold in say, December 2007. It's more involved than that.

Actually, walterh7, your analysis is a bit off. California is a "title theory" state, meaning the lender holds title to the property and the borrower holds a deed-in-trust. New York is a "lien theory" state, meaning that the lender only holds a lien on the property, and the borrower holds title.

You are correct, though: there is no recourse in California.

Good point walterh7. But I think historically it has not really mattered. Mortgage servicers in states with recourse, in practice, very rarely go after the foreclosed borrower. Remember, the borrower is in default and very likely has limited additional rescources. But he is still living in the house. If you make the borrower angry the process gets real ugly starting with the diappearance of major appliances, plumbing fixtures and copper tubing and moving on to holes in the walls, frozen pipes, flooded basements and gas leaks. That's of course for single family homes. Coops and condos have different issues. But it has historically been much better to trade off recourse for a little cooperation in the foreclosure/resale process.

At present, we are covering new ground in foreclosures so all that may change. And I think in cases where the borrower is an investor who very well may have other assets, servicers will in the future seek to attach to those other assets. That may have significant implications for new development condo flippers in Manhattan.

Given the high percentage of co-ops in Manahattan many of which have more stringent down payment and income requirements than mortgage lenders I do not believe we will see many foreclosure sales in Manhattan. Most owners in distress due to job loss or declining incomes will still have enough equity and savings to warrant a sale even at a distressed price and avoid foreclosure. On the other hand, condo owners and condo flippers are more likely to face the default notices. But here too they may be able to rent out their units. This is death by 1,000 cuts as declining rents won't cover the mortgage, taxes, insurance and condo fees.

And that's the good news.

The bad news is that we all now work for the government, Chris Dodd is signing your paycheck and Nancy Pelosi and Gov. Patterson are deciding how much of that paycheck you get to keep.

You can't compare CA to NY. In California prices are down 40% because half the sold houses are foreclosures. Regular sellers cannot drastically lower their prices because then they will not be able to payback the loan. Banks, however, can. But banks are not selling apartments in Manhattan.

Right you are alpine292.

Or, uh, then again, maybe, and this is just another thought for consideration:

Maybe prices fell by 40% because they were too high by 40%.

Remember, while sellers set the asking price they do not set the clearing price. Buyers set the clearing price. Buyers do not care how the seller financed his purchase. It's useful information to know how leveraged the seller is but as a buyer I see a higher leveraged seller as a more motivated seller. My offer will reflect that fact. Only sellers who do not need to sell have the option of not "drastically reducing their prices". And given what is going on, fewer and fewer sellers have apartments on the market at this stage unless they need to sell.

It's also important to keep in mind that prices appreciated much more in CA than they did in Manhattan. So it is only natural that CA prices will fall more. And you can make an offer for whatever you want to. But if the asking price is $900,000, the seller owes $800,000, and you offer $700,000, your offer will never be accepted.

I had the fortune to sell my house in Sept 2008.It was 30% loss from what it was supposedly worth in 2007.I understand the seller's frustration in Manhattan,now being a buyer.The seller finally has to say to themselves,this is now the situation and grin and bear it.You will make it up on the other end when you buy,which is where I am today.The problem also is the real estate agents in Manhattan,they are basically clueless,if they started to price the units to sell then there would be an increase in sales.I have come up against some of the worst brokers which are at the top of the food chain.You ask them do they read the wall street paper,the times ,listen to msnbc etc. and they look at you and say it is only part of the story.I had one broker say you cannot look at streeteasy,acris etc to get a feel for your bid there is always a story with every seller!!Too bad sellers don't read the blogs

"Absolutely on the logic... but did you just infer that Steve's 50% down call is accurate?"

No, it won't happen. Manhattan will not suffer a 50% decline in prices.

On a positive note, if you look at the charts, contracts signed seem to be on the uptick...could signal some more activity

Sorry to be an optimist at a pessimists party but there are things that make Manhattan very attractive, even unique. Population estimates for the next 30 years have the country growing by another 100mm people to 400mm. 80 percent of people live in cities. Manhattan is projected to increase its population by 200,000 during that time. Old people (boomers) find the one story living (by virtue of elevators) to be attractive along with access to the best in health care and close proximity to everything else. The city is well governed, has good transportation, limited space in Manhattan itself, and the current environment is bringing new development to a screaching halt! These factors will work in favor of Manhattan over the longer term. I won't be foolish enough to predict where prices go in this particular downturn but Manhattan is a market that has global appeal due to its rank as a capital of finance, politics, arts, and entertainment. When a person "makes it" in a foreign country, they want an apartment in New York. Yes, its bad right now. Get ready to take adventage of it.

"Regular sellers cannot drastically lower their prices because then they will not be able to payback the loan."

Depends on how much they put down.

"keep in mind that prices appreciated much more in CA than they did in Manhattan."

Not true. Prices here up sevenfold in 10 years.

"Population estimates for the next 30 years"

30 years - you're right.

"Manhattan will not suffer a 50% decline in prices."

Yes it will. Just to equal today's (falling) rents will require a 50% decline in prices.

Or didn't you hear what the mayor said today about tax revenue?

dmag, imaging what that number would look like if so much new development wasn't changed from condo to rental or held back or cancelled outright.

The next shoe to drop will be all the 5-year option-ARM resets. This is where NYC starts to feel it. Some people with good credit and a home rising in value circa 2004 will find things are different 2009. Expect to see a lot of properties coming on the market this year and next. Lots of people refinanced or purchased with option ARMs back in the good 'ol days.

holybatfuck! Where are the mariachi players when we need them most. Stevie... if I wasn't so pressured to buy in 2006-2007, I would've backed u up back then :).

OJ (JM)... i'll take pittsburg and 50% decline (esp. the trophy CPW/5th Ave, $2,000psf units)...

Walterh7... it just takes longer in NYC to hit bottom, but I've seen it in 1991-1995... plenty of deals in $300psf range... even with inflation blah blah blah... headed to $500psf... no problem... competition works on the way up and also on the way down...

alpine292.. come on :) Pls tell me you didn't write that... its' called cash at closing... i.e. sellers brings in cash to payoff shortfall in mortgage... it happens all the time on car trades... usually the husband brings cash so the wife never knows how much he's covering to get that $999/month lease/payment on the new porsche.. :)

w67, if you held off buying in '06 you're a gladiator! That's a hell of a lot of pressure to stand up to. Going to parties and talking to people and not owning property? Must have felt like a schlemiel, schlamaze, hasenpfeffer incorporated...

They said prices couldn't fall in Miami, Las Vegas, California, Scottsdale, everywhere. There they had different sets of factors: California subprime; Miami, Las Vegas speculators.

What we have here is different: the demise of our principal industry. Plus per square foot property is more expensive here than anywhere. Who can afford $2 million for a 2-bedroom apartment that 10 years ago would have sold for $400,000?

prices are not up sevenfold in ten years. you think that apartments selling for 700k now sold for 100k in 1999? please back that up with an example.

as for this idea that a seller will 'never' accept 800k for an apartment if he hows 900k, that's just idiotic. happens all the time.

michele1045 "I had the fortune to sell my house in Sept 2008.It was 30% loss from what it was supposedly worth in 2007."

I assume you mean you did this in Manhattan? Do you really expect me or anyone else to believe this bullshit? And you quote WSL, NYT,MSNBC (effen joke) as your sources? Where are any stats that let alone prices are down 30% now let alone in Sept of 08.

And I thought NYC1002 was Stevejhx bottom boy, I will have to re-think

80sMan.. you have no idea... my wife just got a private MD job (we effectively doubled our income over nite), 2nd baby delivered, living in a "rental" building and a NYC lifer with dreams of owning on CPW (near 67th street)... the pressure was tremendous... but apparently sometimes it's better to be lucky :)... I got oubid on a couple of 3bdrms(flex 3s).. looked at the wife and said... when my doorman is investing in Las Vegas real estate... something's up.... bought her a $70K tiffany ring intead... and said that's the best money I ever spent :)

Stevie... some people are in complete denial. $400K cap on WS total compensation for the next 5 years, complete deleveraging, worldwide economic instability (50MM people unemployed in China - no effect on political stability), 10-11% unemployment (with an add'l 10% underemployed/not looking due to dire job markets) =========> the net effect on NYC RE, 20% decrease.... I better put in a bid now or I'll have to move again LMAO... PEOPLE... read the f'n tea leaves.... it's all there

Yes they are, HR:

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

That's the closest information I know of to a Case-Shiller type analysis of Manhattan. Granted it's just one building, but the market tends to move together.

w67, things weren't that bad before the Lehman fiasco, but yes, now they are very bad. A friend of mine's company laid off 30% of its employees, and they're in low-end fashion (think WalMart). Luckily I'm still gainfully employed but have cut back a lot, just in case.

That said, there is a lot of money just starting to work its way into the system - all the Fed's programs didn't show up in the 4th quarter data, all the government stimulus isn't factored in yet. So it's quite possible that the reversal will be as fast as the decline.

Don't know.

Nice $7K per share.... that's gonna leave a mark....

Don't despair... I'll let you use my wi-fi to blog away if it gets too bad :), but intelligent people who can call a bubble at the top will do alright no matter what.

Have to disagree on the final point, a pig (debt) is a pig no matter how much lipstick and garter belts you put on it. This is a consumption/debt driven contraction of epic porportions, a trillion here a trillion there..... ain't gonna stoke demand for a long while... if I'm correct we just had a mini rally that just got killed.... plenty more road-kill to come.... FYI... dumped all my HRP two days ago when it rallied to $3.7... smelled terrible and had some time that day to watch the market... but will re-load when it smells better... :)

"Who can afford $2 million for a 2-bedroom apartment that 10 years ago would have sold for $400,000?"

Your numbers are complete garbage steve.

"as for this idea that a seller will 'never' accept 800k for an apartment if he hows 900k, that's just idiotic. happens all the time."

No it does not. Most sellers in this situation are not going to have $100k in the bank to make up the difference. And if they don't, they need to do a short sale, and banks are very relucatant and slow to do so.

alpine.... HAHHAHAAHHAHHAHA.... if you buy a $1MM home with $900K mortgage and don't have $100K on the side (12 months of monthlies) then you by definition are a flipper (not the swimming kind)... and will be sold in BKs... if you have $100K, then do BKs/Not BK analysis... then pony up $100K... thank you for playing and please step back to the end of the line :)

> It's also important to keep in mind that prices appreciated much more in CA than they did in
> Manhattan

Not true

> But banks are not selling apartments in Manhattan.

But 30% of California income didn't come from Wall Street. Ours did...

> Where are any stats that let alone prices are down 30% now let alone in Sept of 08.

Miller Samuel numbers - which the brokerages seem to follow - are off 20% from peak....

> And I thought NYC1002 was Stevejhx bottom boy, I will have to re-think

I can't say I'm surprised. With all the money being lost in Manhattan RE these days, we were definitely bound to see victims lashing out...

actually, sorry... the Miller Samuel numbers were December. Have not gotten a Jan update, but I can't imagine they went up... so, the 30% down might not be too far off.

Nyc1002 You make me laugh, you really do.

w67, unemployed people were being approved back in '06. All you needed was a bank statement, then you could claim you were "self employed". So mommy and daddy wire in $6,000 a month for 3 months and bingo! You qualify for a $400K mortgage. And they called that great land of hope and opportunity...Williamsburg.

p.s. are you sure your doorman isn't petrfitz?

for those interested in the similarities between the japanese housing market and the current state of ours (mainly NYC/Calif/FL) take a look at this link. http://www.financialsense.com/editorials/quinn/2009/0128.html
Its mean reversion, we just peaked in early 07. We may only be down 20% but I wouldn't expect a 50% decreaase automatically, although in time I think we may get there, but it may take a course of several years (i.e. 10-20% a year drops) to revert back down to "normalcy".

80sman... no there were some limits.. you had to dress up as a mariachi player in front of the home you wanted to buy before they would approve you... and the credit officers smoked crack in their corner offices.... hmmm wonder if that had any effect on the RE bubble :)

just to clariy, what i am saying is we have not bottomed yet, house prices will still fall, it may just be over a longer period of time given the FEDs mandate to lower the mortgage rate and increase affordability. If home prices do eventually move higher its not going to be for reasons people may initially assume (demand/less supply/home price appreciation) its going to be b/c of inflation.

ruff,maybe before you sound like an a-hole you should ask,the house was on Long island

steve,

thanks for the evidence, very useful, but since it disproves your point i'm kind of surprised. at the earliest time period you show, apartments were trading for around 1300 per share. the peak in that building appears to have been late 2007 when apartments traded for 6500 per share. this is not an apples to apples comparison, however, because the latter number includes several combination apartments which traded for significantly more. but even so, this yields a 5 fold increase.

but you know full well that there are several reasons to believe that even this 5 fold increase is overstated. the west village had one of the sharpest increases in value over this period. it emerged (along with tribeca) as perhaps the premier neighborhood in the city over these years. so while you say the market tended to move in tandem, that doesn't mean that different neighborhoods and different apartments types didn't have somewhat different trajectories. from the beginning of 1998 to the end of 2007 my understanding is that an average of 3.5 fold increase is more accurate. even so, that's enormous and totally unsustainable growth--it means greater than 12% yearly growth. no need to inflate the numbers.

HR, the figures are there. Started at $944, peaked at $7,400 per share. I don't know where you got your figures from.

You're right in that there is a difference between types of units, but the comparison is accurate.

"the west village had one of the sharpest increases in value over this period."

Wrong. Unlike Tribeca, it was in 1998 already a prime neighborhood. I lived there, I know.

If you're talking about west of Hudson Street you might have a point, but this east of Hudson Street.

Your fuzzy math and twisting of the figures that are plainly posted is amusing.

steve,

you cannot compare one outier unit at the bottom with another outlier unit at the top when the two units are completely different. that's not how comps work and you know it. only one apartment in the building sold for under 1000 per share, and it is a studio. Only one apartment sold for over 7000 a share, and it is a combination two bedroom. i mean, it is just obvious: the exact same day that 4DE sold for 7400 per share, LDE sold for 5900 per share. Even on the day of the exact peak for that building the average was 6600--and again, for two combination units. if you insist on sticking with that one outlier at the bottom, then at least compare it to a similar apartment (another studio) at the top. the highest per share price ever paid for a studio was 5800, which would still only give you a 6x increase. they were different studios in different lines, unfortunately, so we have no way of making a good comp.

a much, much better way of doing it is just to average the sales prices per share from the trough period and the peak period. i did that and i got a 5x increase. as i said, given that the mix of apartments shifted toward combinations that still isn't quite apples to apples, but it is certainly closer than comparing one outlier studio sale to one outlier 2 bedroom sale and calling it a7 fold increase.

as for the west village, it was a great neighborhood in 1998 no doubt, but even between 2002 when i bought there and 2007 when i sold i saw an incredible change in the desirability of the neighborhood. the increase was much higher than the average in the city.

I'll give you a sixfold increase. Doesn't make much difference.

Chelsea changed in terms of desirability much more than the West Village.

It's a fair comparison for the city as a whole. Check out what happened in Harlem.

lol you'll give me a six fold increase when the math shows five? how generous. anyway, we simply disagree about the overall price run-up. but this has come up before. i have friends who owned over the same period i did all over the city, and they did not see a similar price appreciation--appreciation for sure, but not like what i got. but the appreciation doesn't really matter, what matters is how much an apartment should be worth now. it's value ten years ago is not relevant to that question, as i am sure you agree.