Market Hitting 1997 Levels

Streeteasy fan....Equity market sentiment is so bad. Investors are giving up and surrendering unconditionally. Down to 1997 levels. But it's happened before i think from 1961-1974. 13 years of going nowhere. The sooner we see capitulation the better. Once they throw in the towel than we can start fresh. Hang on people. Especially you stock investors. Although the pain is unbearable and you can't take it anymore remember that it's always darkest before dawn. HANG IN THERE!

maybe he problem is not the stock market, but the fact that the politicians will not allow housing prices to revert to mean (3x income).

Until the housing prices are allowed to correct, we cannot have a sustained recovery

Got substantially out of equities in 2000 near the peak, missing a lot of the 2000-2002 decline, the 2003-2007 growth, and the 2008/09 devastation. I'm feeling pretty good having earned around 8%/year on average since 1997.

It's always darkest just before it goes completly black.
Those who can't hang-on are getting/will get totally wiped-out.
Just a matter of how many it'll be...

Problem with 1961 to 1974 is that investing wasn't part of the American psyche. Today, after stock investing became part of the American psyche, a route to personal savings or great wealth or fantastic speculation, in everyone's 401K or on everyone's news radar, and then the horrible betrayal, there might be capitulation, but there won't be a rush back in. America's appetite for speculation has been destroyed for a generation and a half.

"America's appetite for speculation has been destroyed for a generation and a half."

i wouldn't bet on that

steveF - "The sooner we see capitulation the better." I couldn't agree more. I think that the biggest problem with all of these government handouts is they make businesses "hang on" a little longer hoping for some sort of government bailout. If the banks, AIG, and car companies knew the government wasn't going to get involved they would have bk'ed 12 months ago and we'd already be 12 months into cleaning up that mess. It would have been ugly (very ugly), but is today's situation much worse? People acted like a mostly bankrupt banking system would have caused mass homelessness, starvation, and mob rule in the US. Now it's a year later and they're going bankrupt anyway after we wasted trillions of dollars.

2 main reasons a quick capitulation would have been better. It wouldn't require my kids to pay for our mistakes. 2 The longer this takes the more homeowners will foreclose. They are eating through their savings and getting farther behind on their mortgages. A quick capitulation would have been much deeper but much shorter and for the average American much better.

Even today with 401ks, only about half of Americans are exposed to stocks. Agreed, capitulation needs to happen, the sooner the better.

NYC real estate at 1997 is really going to hurt. It will hurt all the more because the writing was on the wall and no one was paying attention.

National housing market is at 2003 levels, which was still well into the bubble.

We have some time to go on this...

"It's always darkest just before it goes completly black."

Only if you're looking at a negative.

i have heard a few analysts call for the government to lower mortgage rates (via fannie, freddie) in conjunction with the fed funds and other rates that are so low or non-existent. has anyone else heard this? and what effect do you think it would have on getting RE moving again if the mortgage rates were lower and prices still sliding?

mbz - NYC real estate at 1997 will not hurt most NYers. Only 1/3 own and many bought at pre 1997 prices. Falling prices are so good for our city. Let them fall. Imagine how great it would be if an artist could buy a decent studio is Brooklyn for $100,000.

When the guy who bought the guys art is broke, how is that going to work out? When the guy flips burgers and can't get a loan, where is he getting the $100k from?

That you think that "only" 1/3 of the city getting hit (and inferring that a sizable chunk have been holding their apartments for 11 years or more without a refinance from what were very high rates) and thats from the housing alone, and then 1/3 of city income is in the crapper, and the city is now beginning mass layoffs, etc....

If you think somehow the rest of the city will escape the damage, you are nuts.

i think i agree. a big asset for most of the wealthy people will be significantly lower but the rest of the city will be filled with people who don't have to pour almost everything they have into housing. do you know how many people in this city live over-extended? imagine all the extra money people would have to make this city even more alive than it already is. the housing will rise again when the economy of the city is thriving again...which will happen when the housing prices come down...i think.

I just want to make sure I'm thinking correctly about what it would mean for prices to drop to 1997 levels. This is very back of the envelope, but using the Case-Schiller index, the peak for the New York Metro area came in June 2006, when the index hit 215.83. (I realize the peak for Manhattan came later, and that Case Schiller is problematic for New York City apartments, but I wasn't familiar with another public report that would track house pricing data back that far.) In 1997, the index was relatively stable, with an average of 81.5. That would indicate a 62 percent drop from peak prices and a 56 percent drop from the December 2008 index.

Since my math abilities are awful, these numbers could be totally off the mark, but yikes. I guess that might make sense though as the Dow yesterday was down 50 percent from its peak.

"i think i agree. a big asset for most of the wealthy people will be significantly lower but the rest of the city will be filled with people who don't have to pour almost everything they have into housing."

Agreed.

Problem is they'll have even less... what good is a mortgage going from $5k to $3500 when your salary got cut in half.... or you have no job at all?

"When the guy who bought the guys art is broke, how is that going to work out? When the guy flips burgers and can't get a loan, where is he getting the $100k from?"

I think the issue is balance. The NYC economy had become something unbalanced, unsustainable. This was reflected in the absurd excesses and RE prices in particular. Sure, returning to something sustainable means people will lose jobs etc that were based on this bubble, but if those jobs were part of a manic amphetamine crazed economy, they were crazy jobs anyway. Society needs to restructure. No way around it.

Agreed, we need a rebalancing, but we're going to overshoot.

Teachers will be laid off. We'll have less cops and firemen. Key services will be shut down. Business that provided needed services but had to put up with increased rents will die off.

So, yes, some of this will be reversion to "normal". but there will be absolute destruction in the reversion.

balance - that is more what i was trying to say. the gap between the haves and have-nots became too wide.

yes, absolutely. But that still doesn't make it a good thing.

Cutting everyone's income in half doesn't help EITHER the high earners or the low earners.

Closing the gap by reducing income can not be considered a good thing.

Jazzman, I agree, this will be positive after a painful overshoot.

It will be painful, but it's the price we must pay. Some will pay for their bad mistakes, others of us will suffer from the bad mistakes of others. Regardless, a city with affordable housing is a much better long-term alternative. Remember how we use to scream for affordable housing -it's funny that now that we're getting it that so many are screaming for less affordable housing. Affordable housing will encourage new talent (talent that need not have a silver spoon) to come to the city.

Our unemployment rate will most likely reach 10%. That's a crazy number. Ultimately we will lose some talent that will move "back home." Over time though, our city will once again have organic growth. Real estate prices will become attractive again, firms will offer jobs again, college grads will chose NYC over other major cities again (because they will be able to afford reasonable living accommodations), and once again our city will prove to the world that we're resilient if nothing else. It's just going to take time.

"Remember how we use to scream for affordable housing -it's funny that now that we're getting it that so many are screaming for less affordable housing."

Problem is, housing is actually less affordable. The 20-30% or so decline in prices is less than the decline in incomes...

So things are actually relatively more expensive now...

nyc10022 - agreed - that's why I'm hoping things fall further.