New York will emerge strong through the financial crisis
Started by LICComment
over 17 years ago
Posts: 3610
Member since: Dec 2007
Discussion about
From a good article in the Atlantic: Lean times undoubtedly lie ahead for New York. But perhaps not as lean as you’d think—and certainly not as lean as those that many lesser financial outposts are likely to experience. Financial positions account for only about 8 percent of the New York area’s jobs, not too far off the national average of 5.5 percent. By contrast, they make up 28 percent of all... [more]
From a good article in the Atlantic:
Lean times undoubtedly lie ahead for New York. But perhaps not as lean as you’d think—and certainly not as lean as those that many lesser financial outposts are likely to experience. Financial positions account for only about 8 percent of the New York area’s jobs, not too far off the national average of 5.5 percent. By contrast, they make up 28 percent of all jobs in Bloomington-Normal, Illinois; 18 percent in Des Moines; 13 percent in Hartford; 10 percent in both Sioux Falls, South Dakota, and Charlotte, North Carolina. Omaha, Nebraska; Macon, Georgia; and Columbus, Ohio, all have a greater percentage of population working in the financial sector than New York does.
New York is much, much more than a financial center. It has been the nation’s largest city for roughly two centuries, and today sits in America’s largest metropolitan area, as the hub of the country’s largest mega-region. It is home to a diverse and innovative economy built around a broad range of creative industries, from media to design to arts and entertainment. It is home to high-tech companies like Bloomberg, and boasts a thriving Google outpost in its Chelsea neighborhood. Elizabeth Currid’s book, The Warhol Economy, provides detailed evidence of New York’s diversity. Currid measured the concentration of different types of jobs in New York relative to their incidence in the U.S. economy as a whole. By this measure, New York is more of a mecca for fashion designers, musicians, film directors, artists, and—yes—psychiatrists than for financial professionals.
Sadly and unjustly, the places likely to suffer most from the crash—especially in the long run—are the ones least associated with high finance. While the crisis may have begun in New York, it will likely find its fullest bloom in the interior of the country—in older, manufacturing regions whose heydays are long past and in newer, shallow-rooted Sun Belt communities whose recent booms have been fueled in part by real-estate speculation, overdevelopment, and fictitious housing wealth. These typically less affluent places are likely to become less wealthy still in the coming years, and will continue to struggle long after the mega-regional hubs and creative cities have put the crisis behind them.
http://www.theatlantic.com/doc/200903/meltdown-geography[less]
Response by pjc
over 17 years ago
Posts: 175
Member since: Dec 2008
I agree generally that NYC will not suffer the same fate as someplace like Ft. Meyers/Cape Coral FL, which have nothing going for them except warm temperatures. And we will not see population decline like Detroit. On the other hand NYC did lose population for several decades (went from 8 million in 1950 to 7 million in 1980 and then back up), and RE prices have tanked from time to time. So, yes, we will be OK for the long term, and anyone who thinks real estate values will drop 50-75% is delusional.
But NYC is not immune to short-term decline, obviously. Who knows if RE prices will go down 20%, 30% or even 40% over the next few years. That's the scary unknown - many owners / sellers could withstand a 20% drop, whereas a 40% drop could be catastrophic for a lot of people. This article does not concern itself about the next 3 years, its more about the next 3 decades.
Ignored comment.
Unhide
Response by Special_K
over 17 years ago
Posts: 638
Member since: Aug 2008
pjc, i agree that 75% is delusional. but why is 50% delusional? that would bring coop prices to about $550 sq ft and condo to about $650-700. i think that is where we are going.
Ignored comment.
Unhide
Response by pjc
over 17 years ago
Posts: 175
Member since: Dec 2008
Special_K - I think a drop of 40% would bring many renters into the market and stabilize the prices before it went to 50%. The only way we get to a 50%+ drop is if there is an even more serious (truly catastrophic) collapse of the economy and also a collapse in the attractiveness of NYC in general. As the Atlantic article points out, the latter is unlikely - that's why I think a 50%+ decline is possible in some areas of the country (or already happened), but not too likely in NYC. We are not Detroit, or Phoenix, or Cape Coral, FL. That's my guess anyway. Of course, we ARE a bit like San Francisco - I don't have the figures, but how bad have their prices dropped? I'd use SF as a barometer.
Ignored comment.
Unhide
Response by aboutready
over 17 years ago
Posts: 16354
Member since: Oct 2007
I agree with specialk. Those prices just get us back to 2000, before the creation of this artificial "debt-wealth" and the application of bizarre mortgage standards and products. If the market overshoots, or if unemployment hits and remains at over 9% for any extended period of time, I don't think it's inconceivable that we go lower.
Ignored comment.
Unhide
Response by pjc
over 17 years ago
Posts: 175
Member since: Dec 2008
I don't look at what were prices in 2000, or 2003 or whatever year. I look at what price level will make renters (like me) feel it makes sense to buy. People have taken a hit in their savings, their incomes, their job security, and their financing options. Prices have to fall to reflect that. Probably 30-40%. But once they get to that level, then the prices will stabilize.
UNLESS there are even further declines in savings, incomes, job security, etc., in which case prices will just keep on dropping and dropping to match those other declines, and your 50% figure might be right. In fact, under worst-case catastrophic scenario, even 75% drop is possible. I just don't think it will happen. Hope not. We would not recognize America at that point, with the level of misery, homelessness, unemployment. Anyone who is keeping their fingers crossed for 50%+ drops will not be happy if their hopes actually come true.
Ignored comment.
Unhide
Response by happyrenter
over 17 years ago
Posts: 2790
Member since: Oct 2008
pjc,
so it is reasonable to expect prices to drop 40% but 'delusional' to think they will drop 50%? you must be a lot better at calling the bottom of a market than i am. prices have already dropped 15% to 30% on deals that are actually happening--and those deals are few and far between. throwing around words like 'delusional' is just silly. use actual numbers to demonstrate why you think prices can't fall 50% or 60% or 70% or 80%. i know of a unit in contract right now at 41% off the peak comp in its line and 46% off its original asking price. we have tens if not hundreds of thousands of layoffs coming in the next year and many will be concentrated in the ranks of the upper income folks who buy prime real estate in manhattan. i think it is a lot more delusional to think the market will halt its decline at a 20% reduction than to think it will go to 80%. but the real delusion is thinking that you can predict with great certainty where things will end up. you can't.
Ignored comment.
Unhide
Response by aboutready
over 17 years ago
Posts: 16354
Member since: Oct 2007
pjc, I look at where prices were before underwriting standards changed. then you need to try to figure out how much increased supply, decreased employment and wealth, flawed population and househould creation statistics, a stronger dollar/global recession and fear will affect the numbers. i agree with you that a huge drop doesn't portend much that is pleasant (even if you're sitting on cash waiting to buy). many people benefitted from the over 100% increase, many will be hurt by the decline. many already have been in other markets. i'm heading out to cali for spring break in a few weeks. should be interesting.
Ignored comment.
Unhide
Response by aboutready
over 17 years ago
Posts: 16354
Member since: Oct 2007
pjc, san fran is not a valid comp. their wealth is not derived nearly as much from the financial sector. i like the atlantic as a publication, but i must say that this analysis is hugely flawed in that although a smaller number of new yorkers may be employed in finance here, a much larger percentage of total income is derived from those positions.
Ignored comment.
Unhide
Response by stevejhx
over 17 years ago
Posts: 12656
Member since: Feb 2008
According to JuiceMan, prices have thus far dropped only 4%.
"When we look at New York City, we look at a price-income ratio that historically has been four times income, versus three times nationwide," says Zelman, who now runs her own firm. At 7.7 today, that ratio is "significantly higher than normal" because prices have only started falling. "If you want simply to get back to the median, it would be a 46% correction," says Zelman.
She adds: "If I had to pick one market in the country with the most challenge and the most substantive rate of decline [ahead], it's New York City. It has the greatest number of job losses among the higher earners."
Ignored comment.
Unhide
Response by patient09
over 17 years ago
Posts: 1571
Member since: Nov 2008
One of the big problems I have with this % off peak idea is that for specific buildings, nobody knows what peak was. Same building, same line, no diff in apts. One is for sale for about 4,5mm, owner says listing is 20% below peak and competitive currently. My friend lives 3 floors lower and he says the owner is "giving his apt away because he is listing it 40% below peak and market is not off that much. I tell my friend, you have no idea what peak was because nothing in your line traded during peak. He says, "yea, but I know what I could have sold it for". And thats the rub, most who didn't actually participate during the peak 18 months, can't justify what they claim. I have no idea what to think!. So, I simply think about price per sqft on a relative basis (street, floor, condition, etc..etc.), what I'm willing to pay, and shoot from the hip.
Ignored comment.
Unhide
Response by pjc
over 17 years ago
Posts: 175
Member since: Dec 2008
happyrenter - I don't claim to know anything, that's why I used the words "that's my guess anyway". I suppose that 50% is not delusional, but merely very unlikely.
I base my predictions / guesses largely on extrapolating from my own personal situation, which I think is a very, very typical situation: I have been on the sidelines for years, with a very decent salary, yet totally unable to afford a 1BR in the areas that I am interested in (prime Brooklyn). I kept wondering who the hell was able to buy at these obscene prices? (foreigners? people with rich parents?)
Then, things got worse -- the stock market tanked, my company announced salary freezes, the equity-component of my compensation dropped by 2/3, banks wanted more down payment, etc. In short, the finish line got even further away.
But if that finish line comes back to me by 40%, I will be in a very, very good position to buy. For example, if I wanted a place that sold for $600k in 2007, and now it's only $360k (down 40%)- I will be able to buy it!! I will not need to wait until it's $300k. So, my view of things is mostly based on extrapolating from my own situation which I think is an extremely typical situation. I can tell that this statement is going to be trashed, but whatever. I am talkig about my real world experience, not statistics. Once prices drop 40%, I will finally be able to buy and so will a lot of people.
Again, with the caveat that the economy could get much worse, but then we would be looking at an apocalypse, not a correction.
I agree generally that NYC will not suffer the same fate as someplace like Ft. Meyers/Cape Coral FL, which have nothing going for them except warm temperatures. And we will not see population decline like Detroit. On the other hand NYC did lose population for several decades (went from 8 million in 1950 to 7 million in 1980 and then back up), and RE prices have tanked from time to time. So, yes, we will be OK for the long term, and anyone who thinks real estate values will drop 50-75% is delusional.
But NYC is not immune to short-term decline, obviously. Who knows if RE prices will go down 20%, 30% or even 40% over the next few years. That's the scary unknown - many owners / sellers could withstand a 20% drop, whereas a 40% drop could be catastrophic for a lot of people. This article does not concern itself about the next 3 years, its more about the next 3 decades.
pjc, i agree that 75% is delusional. but why is 50% delusional? that would bring coop prices to about $550 sq ft and condo to about $650-700. i think that is where we are going.
Special_K - I think a drop of 40% would bring many renters into the market and stabilize the prices before it went to 50%. The only way we get to a 50%+ drop is if there is an even more serious (truly catastrophic) collapse of the economy and also a collapse in the attractiveness of NYC in general. As the Atlantic article points out, the latter is unlikely - that's why I think a 50%+ decline is possible in some areas of the country (or already happened), but not too likely in NYC. We are not Detroit, or Phoenix, or Cape Coral, FL. That's my guess anyway. Of course, we ARE a bit like San Francisco - I don't have the figures, but how bad have their prices dropped? I'd use SF as a barometer.
I agree with specialk. Those prices just get us back to 2000, before the creation of this artificial "debt-wealth" and the application of bizarre mortgage standards and products. If the market overshoots, or if unemployment hits and remains at over 9% for any extended period of time, I don't think it's inconceivable that we go lower.
I don't look at what were prices in 2000, or 2003 or whatever year. I look at what price level will make renters (like me) feel it makes sense to buy. People have taken a hit in their savings, their incomes, their job security, and their financing options. Prices have to fall to reflect that. Probably 30-40%. But once they get to that level, then the prices will stabilize.
UNLESS there are even further declines in savings, incomes, job security, etc., in which case prices will just keep on dropping and dropping to match those other declines, and your 50% figure might be right. In fact, under worst-case catastrophic scenario, even 75% drop is possible. I just don't think it will happen. Hope not. We would not recognize America at that point, with the level of misery, homelessness, unemployment. Anyone who is keeping their fingers crossed for 50%+ drops will not be happy if their hopes actually come true.
pjc,
so it is reasonable to expect prices to drop 40% but 'delusional' to think they will drop 50%? you must be a lot better at calling the bottom of a market than i am. prices have already dropped 15% to 30% on deals that are actually happening--and those deals are few and far between. throwing around words like 'delusional' is just silly. use actual numbers to demonstrate why you think prices can't fall 50% or 60% or 70% or 80%. i know of a unit in contract right now at 41% off the peak comp in its line and 46% off its original asking price. we have tens if not hundreds of thousands of layoffs coming in the next year and many will be concentrated in the ranks of the upper income folks who buy prime real estate in manhattan. i think it is a lot more delusional to think the market will halt its decline at a 20% reduction than to think it will go to 80%. but the real delusion is thinking that you can predict with great certainty where things will end up. you can't.
pjc, I look at where prices were before underwriting standards changed. then you need to try to figure out how much increased supply, decreased employment and wealth, flawed population and househould creation statistics, a stronger dollar/global recession and fear will affect the numbers. i agree with you that a huge drop doesn't portend much that is pleasant (even if you're sitting on cash waiting to buy). many people benefitted from the over 100% increase, many will be hurt by the decline. many already have been in other markets. i'm heading out to cali for spring break in a few weeks. should be interesting.
pjc, san fran is not a valid comp. their wealth is not derived nearly as much from the financial sector. i like the atlantic as a publication, but i must say that this analysis is hugely flawed in that although a smaller number of new yorkers may be employed in finance here, a much larger percentage of total income is derived from those positions.
According to JuiceMan, prices have thus far dropped only 4%.
http://www.streeteasy.com/nyc/talk/discussion/8688-barrons-manhattan-market-will-drop-another-30
"When we look at New York City, we look at a price-income ratio that historically has been four times income, versus three times nationwide," says Zelman, who now runs her own firm. At 7.7 today, that ratio is "significantly higher than normal" because prices have only started falling. "If you want simply to get back to the median, it would be a 46% correction," says Zelman.
She adds: "If I had to pick one market in the country with the most challenge and the most substantive rate of decline [ahead], it's New York City. It has the greatest number of job losses among the higher earners."
One of the big problems I have with this % off peak idea is that for specific buildings, nobody knows what peak was. Same building, same line, no diff in apts. One is for sale for about 4,5mm, owner says listing is 20% below peak and competitive currently. My friend lives 3 floors lower and he says the owner is "giving his apt away because he is listing it 40% below peak and market is not off that much. I tell my friend, you have no idea what peak was because nothing in your line traded during peak. He says, "yea, but I know what I could have sold it for". And thats the rub, most who didn't actually participate during the peak 18 months, can't justify what they claim. I have no idea what to think!. So, I simply think about price per sqft on a relative basis (street, floor, condition, etc..etc.), what I'm willing to pay, and shoot from the hip.
happyrenter - I don't claim to know anything, that's why I used the words "that's my guess anyway". I suppose that 50% is not delusional, but merely very unlikely.
I base my predictions / guesses largely on extrapolating from my own personal situation, which I think is a very, very typical situation: I have been on the sidelines for years, with a very decent salary, yet totally unable to afford a 1BR in the areas that I am interested in (prime Brooklyn). I kept wondering who the hell was able to buy at these obscene prices? (foreigners? people with rich parents?)
Then, things got worse -- the stock market tanked, my company announced salary freezes, the equity-component of my compensation dropped by 2/3, banks wanted more down payment, etc. In short, the finish line got even further away.
But if that finish line comes back to me by 40%, I will be in a very, very good position to buy. For example, if I wanted a place that sold for $600k in 2007, and now it's only $360k (down 40%)- I will be able to buy it!! I will not need to wait until it's $300k. So, my view of things is mostly based on extrapolating from my own situation which I think is an extremely typical situation. I can tell that this statement is going to be trashed, but whatever. I am talkig about my real world experience, not statistics. Once prices drop 40%, I will finally be able to buy and so will a lot of people.
Again, with the caveat that the economy could get much worse, but then we would be looking at an apocalypse, not a correction.