Under whelmed inventories

You assume people who don't have to sell will put their places on the market. I lived in a prime UWS building for 6 years. The best line NEVER went on sale the entire 6 years. Lots of people buy and stay forever.

faclco... I've got a theory on this bubble.... instead of a normal functioning market where higher prices leads to higher inventories, the NYC RE bubble (and burbs) was marked by the decrease in inventory as prices went thru the roof (in an inflationary period) you'd hold on to the asset as long as possible, maybe buy two or three units? As noted, RE moves at a glacial pace, note that all hell didn't break until fall 08, so we're just 6 months into this... so go get a gin and tonic and just re-rent for the next 1-2-3 yrs... cause as sure as the sun comes up, NYC RE will crash :)

UWSer, we also haven't seen so many layoffs and markets dropped so much in many many years. Things are going to change.

falco:
listen to w67. be patient. Dial back here in one year. You will be pleased at the results.

It's only the first inning in New York RE, remember most still are living off lucrative severance packages....also another wave of job loses are coming in the next 18 months totaling 185,000 according to the State Controller Dinapoli......wait and see when they can't keep up with maintenance, mortgage and RE taxes!

falco, here's my theory. Whether we are in boom times or bust, there are many more bad-to-mediocre apartments out there than great spaces. Not everything can be on a high floor, southern exposure with a generous layout [feel free to insert your own wish list here]. The search for a 'perfect' apt. will always be a needle-in-a-haystack, whether inventory is 5,000 or 15,000.

Is there any historical data to show when prices catch up (or down in this case) to everything that is going on around them?

-"home prices are out of line with incomes"-Krugman
-equity markets are trading at 1997 levels
-layoffs are growing by the 100,000's
-NYC inventory hovers around 10K
-in Bergen County "btwn $600K and $1MM inventory is 21 months, 100 months for $2.5MM and up

Are sellers not adjusting price cuts quick enough or have buyer expectations of accelerated cuts becomes unreasonable?

So the dam never really breaks. Endless leaks, no breaks. Back to the needle in the hay stack search. What is good about this market is the sophistication with which an independent buyer can search and follow. This is the first down market that this is possible.

huh? you're not seeing inventory?

http://www.urbandigs.com/charts.html

have you looked at the 6 month chart?

w67th...please post something tangible..there is/was no bubble...see below chart...since 1970 the price per sq for condos/coops has returned about 8.6%. You have to look over the long term

condo/coop sq ft prices
1970 53 Diff Yrs
1989 332 279 19 10.1%
1999 400 347 29 7.2%
2001 650 250 31 8.4%
2007 1,120 1,067 37 8.6%

This chart shows the % gain from 1970-1989, 1989-1999 etc...
1970 53 Diff Yrs
1989 332 279 19 10.1%
1999 400 68 10 2.0%
2001 650 250 2 28.0%
2007 1,120 470 6 36.5%

falco,

your expectations are unrealistic. no one knows exactly where any market is going to wind up and these things take a long time to sort out--in fact, they never sort out. things are only going to be crystal clear in hindsight. prices are down, inventory is up, market conditions are horrendous. that's what we know. but if anyone tries to pinpoint exactly where prices are going that person is a fool.

is there anything that makes me think prices will soon stabilize or turn around? no. but do i know whether prices will decline 10, 20, 30, 40, 50, 60 or 70% from here? of course not.

"w67th...please post something tangible..there is/was no bubble...see below chart...since 1970 the price per sq for condos/coops has returned about 8.6%. You have to look over the long term"

Bad logic. First off, the normal RE return is near 0, or 2-3% in nominal terms.

In this case, we had years of regular returns, and then a tripling of median in just a few years (with no logic to support it).

That is a bubble.

Otherwise, what exactly do you think is popping?

If it wasn't a bubble, then Manhattan, being the fastest declining metro in the country now - is probably even worse off, as the decline would then be due to changes in fundamentals.

Either way, Manhattan RE is toast.

steve f, first, can you please provide a link to your source so we can evaluate it for ourselves?

but second, how does that demonstrate no bubble? if i am reading this correctly your data shows a price increase psf of over 60% in coops between 1999 and 2007--an 8 year period. this compares to a 2% for the entire ten years between 1989 and 1999. that looks like a classic bubble to me.

Falco - I agree there may be a lot of inventory but it's still unreasonably priced and the inventory doesn't seem to contain 'good' apartments. (speaking at the lower end of the market - although I know everyone on streeteasy seems to be in the $1M + range judging by the postings!)

It reminds me of the dot come bubble in SF - it takes awhile for reality to set in. People we're still thinking they would make millions at the start-up they worked for right up to the time they showed up for work and the doors were padlocked.

The reality hasn't set in here with the sellers or brokers. Case in point the listing on the home page for a 500 sq ft Jr 1 for $529K 'motivate seller!' Listing at over $1000/sq ft is not motivated.

Give it another 3- 6months - we'll get hit the last, hardest and it will last the longest. LA, Miami etc will be on the upswing before we hit the bottom here.

"Falco - I agree there may be a lot of inventory but it's still unreasonably priced and the inventory doesn't seem to contain 'good' apartments. (speaking at the lower end of the market - although I know everyone on streeteasy seems to be in the $1M + range judging by the postings!)"

Consider that that might just be what's out there. You could sell a pile of poop in the bubble for a million. Its not like a ton of stuff was being renovated and reconstructed by individual owners.

Fact is, probably a lot of the inventory around town IS crap. A bubble crash doesn't really change that, it just makes makes it cheaper.

happy...I'm saying if you look longterm then the last 8 years large price increases are making up for the slow 90s. When price appreciation was only 2%. So if you look over the 37 year period prices are 8.6%. Most of the link is from miller samuel. the 1970s data I think I got from realtytimes, I'll find it.

I think the point is that they are overpriced crap, so I agree the bubble crash wouldn't change that but I would be more willing to buy the crap and renovate etc, if it was priced like the crap it is.

steve,
the only thing your data shows is a dramatic upswing in real estate appreciation over the last 8 years. on its own, this neither confirms nor disproves the existence of a bubble, but it certainly doesn't 'prove' that there hasn't been one. it may be the case that some of the massive price increase of the past eight years was to make up for the previous ten. but why should we assume that all of it did?

I'm not looking at the same stuff as falco but what I see on the market now vs. a year ago isn't much different except prices are lower.

1) Most apartments are basically the same (cookie cutter).
2) I'd guess people with nicer apartments are somewhat more apt to stay put vs. someone living in crap.
3) Nobody thinks their crap stinks and they expect prices comparable to the nice apartments hence crap stays in inventory longer (until sellers notice the stench).

"large price increases are making up for the slow 90s. When price appreciation was only 2%."

Except thats just about the historical long term return from RE. It wasn't "slow", it was normal.

Going up 300% in a few years was absolutely a bubble. That it has now popped basically proves the case.

"I'm not looking at the same stuff as falco but what I see on the market now vs. a year ago isn't much different except prices are lower."

Thats the point I'm making. A crash isn't going to improve the apartments all of a sudden... just make them cheaper. You think everybody renovated in November?

> 1) Most apartments are basically the same (cookie cutter).

Welcome to NYC! ;-)

> 2) I'd guess people with nicer apartments are somewhat more apt to stay put vs. someone living in
> crap.

Or you're assuming the folks who stay are in any better apartments...

> 3) Nobody thinks their crap stinks and they expect prices comparable to the nice apartments hence
> crap stays in inventory longer (until sellers notice the stench)."

Well, thats real estate in a nutshell for you...

wait--you people now expect the crash to improve the housing stock? talk about magical thinking, ie expecting the universe to conform to your wishes. it doesn't work that way. same apartments, lower prices.

happyrenter - no we're waiting for the crap to be priced in line with it's level of suckery.

steveF... look, I'm just going by my prior experience when I picked up residential RE in NYC for $300psf (1994-1997) and commercial for $250-$300psf (in 1991-1994)... laid off the RE needle from 1997-2001 (education, got married, traveled the world, have babies etc) and just when I thought a meltdown would occur after 9/11... all hell broke loose and I kept playing catch up... mind you, my wife and I were on solid financial footing and would income kept doubling for awhile..... but I could never justify buying versus renting (especially after NYC hit $1000psf), when I went to $1,500psf, wife and I (luckily lost a major bidding war) that was in 2005/6... so here we are on SE.. looking at 10K + inventory and almost no sales and financial market (bread and butter) of NYC melting faster than the polar ice caps..... and just my hunch... me thinkz there is a bubble.... I'm just one opinion, but I also didn't buy in 06'... and maybe if I did, I could've sold and made $500K in 1 1/2 yr.. not so bad... but that's a lot of risk to take for $500K (15x leverage).... :(

Happyrenter.... my wife enjoys a meal much more when it costs $3.00 from a street vendor in Thahiti... then when we get a $300 bill from PerSe :).... home ownership feels great when you know it's totally affordable and you know you don't have to worry about a mortgage... that's the goal right? to pay it off ASAP? My parents don't have a mortgage on their 2 homes, no car loans and one credit card between them... which I gave my mom in case of emergencies... old school :) ... .She keeps charging up crap from the Time Warner Center.... mostly clothes for my kids... .It's like I've got a permanent shopping nanny :(

Well let me rephrase...
I do see things that are way better than crappy, they just are priced above my head. In fact, to my untrained eye it has the appearence of an inverted prymid. Lets consider two bedroom RE. A search from 500-1m reveals little choice. Each 500k (random incriment) reveals greater inventory numbers and, needless to say, swankier RE. First, do you agree and, if so, what effect in what time frame do we precieve?

"wait--you people now expect the crash to improve the housing stock? talk about magical thinking, ie expecting the universe to conform to your wishes. it doesn't work that way. same apartments, lower prices."

Actually, once we start bottoming, it will help improve the stock. It doesn't happen right away, but went from a place where folks got bidding wars on crap to a market in which you have to compete to sell anything. Renovations can easily be part of that. Not right away, but perhaps next year...

I did some searches: Manhattan, 2+ or 3+ BR, 0-1M, 1M-1.5M, 1.5M-2M and 2M-2.5

By subtracting the 3+BR number from the 2+ BR number I get a reasonably accurate 2BR number.
0 - 1M - 1130
1M - 1.5M - 956
1.5M - 2M - 874
2M - 2.5M - 477

I think I'm in with the middle group on the board, I expect prices to come down slowly overall but I wouldn't be greatly surprised to see a slow Spring that leads to some larger drops.

that doesn't improve the stock, nyc10022. housing stock is the sum total of housing units in an area. that isn't going to change except, of course, that fewer new units will be built in a beat market.

falcao - agreed - generally there is a direct correlation between priciness and swankiness. However I don't think it's unreasonable to want to get a good apartment in the $400-500K range. I'd wait and see -one things for certain the market is not going to go up anytime soon. Personally I've stopped looking until I see some serious price adjustments. I'm looking in the same price range as you.

It'll be intereting since there are so many factors that will affect the NYC RE market. I'm wondering when all these foreign buyers start walking away from their properties like they are in Dubai. There won't be an influx of new foreign buyers anytime soon - as the dollar is rising and their economic outlook in some places is worse than ours.

In addition, purchases are requiring more cash as jumbo (hard to get) and super jumbo (gone)are no longer attractive options. So someone purchasing a $800K coop would need almost $400K in cash to qualify for a conforming loan or come up with an all cash offer; and I think that most people are hanging onto their cash right now - so I expect that may drive prices down as they will need to be in-line with affordability - so maybe in 6 mos it won't be priced above your head. Let's hope they drop down to the next tier!!

Miller Samuel provides a convenient chart of inflation adjusted median prices broken out by coop/condo from 1989 through present. http://millersamuel.com/charts/gallery-view.php?ViewNode=1208449530UATUX&Record=3 In this period, Q2 95 was the absolute low (for coops). Don't know if you were around for the early 90's in NYC, but they pretty much sucked. Many of my friends were mugged, harrassed, etc. going in/out of the city (I grew up in Westchester, just north of NYC). I couldn't imagine anyone in their right mind wanting to live here.

Fast forward to 2000. The city is the safest large city in the country, thousands of jobs are being created, and they are paying good money. Simply put, the city became a great place to live and people paid a premium to be here. Now if the jobs and money go away, so do the fundamentals for a strong RE market, but I don't think you can compare 1995 NYC to 2009 NYC and expect the market to revert back to 1995 numbers as a historical mean. I would suggest that 2000 numbers are more indicative of a historical average and reverting there from current valuations would be a closer to 25% drop. As for condos, the number is closer to 35%.

Also interesting to note that for Manhattan co-ops, on an inflation adjusted (real dollars) basis, there was absolutely no change in price from 1989 to 1999. I think the market spent several years making up for this lack of movement. It explains why, following the worst terrorist attack on US soil, Manhattan RE prices marched aggressively forward - simply put, properties were very cheap relative to incomes and the appeal of the City.

I would agree that there was a bubble that built starting in about 2005/06, but don't think it was as large as some on this board make it out to be. We will probably overshoot on the way down, but if you need a home this year, and are looking in desirable neighborhoods, I wouldn't expect much more than a 20% discount off peak. Where we ultimately end up depends on many factors and is anyone's guess.

Fast forward to 2009-09. Tens of thousands of jobs are being destroyed and are not coming back. This will lead to the city becoming a less desirable place to live as the city will be forced to cut back on services, including police.

Some of your assumptions are off:
- 1995 was actually not so bad. Now 1990 that was different...
- real estate is sticky, it lags the general economy. That is why it starts going up more steeply in the late 90s. Likewise as the city started to decline economically, real estate is trailing it.
- post 9/11 was special. The Fed artificially lowered interest rates to try to give the economy a soft landing. This is when the real asset bubble began to inflate.

OTNY,

dude, if you are going to base your argument on data that you provide, at least interpret that data properly. between the year 2000, which you consider a good starting point for a bottom in this bear market, and the peak, we had an inflation adjusted increase in median coop prices from 400k to 700k. if coop prices were to revert to 00, that would be a decline of 43% from peak to trough.

for condos, we have had an inflation-adjusted increase in median prices from 650k to 1.25 million from 00 to the peak. again, if we were to revert to 00 prices that would be a decline of 48%. given that 43% and 48% declines would be required to get back to the pricing level you see as appropriate (and again, this is inflation-adjusted. if we don't adjust for inflation the declines in both coops and condos would have to be over 50%) why do you then say that 25% and 35% are the biggest declines to accept?

learn how to read a chart before you start using it to back up an argument.

Yeah. That too. And as long as we are interpreting charts, where does this one tell you where Manhattan real estate is heading?

http://www.urbandigs.com/2009/02/correlation_or_causation.html

Malthus - you are correct. However desirability typically lags the circumstances, as you allude to in your second bullet. Things were really bad in 1990-93, so those memories were still raw in people's minds as they considered where to raise a family, put down roots, etc in 1995. Things started changing markedly starting around 1995, but it took the market several years to respond to this. Also, I don't think you can attribute the jump in real estate prices following 9/11 only to interest rates (although to be sure they played a major part).

My only point is that people talk about how prices triple/quadrupled, etc. and the data doesn't bear this out. Median price for co-ops on an inflation-adjusted basis went from $400K in Q1 ' 89 to $680K in Q4 '08, an increase of 95% over 20 years. If we look at CAGR, that comes out to roughly 3% increase per year over the same time period.

Now if people don't have jobs/money, they obviously can't afford to be here. Put for those that remain employed and have the resources, NYC is still a very desirable destination.

>>>> My only point is that people talk about how prices triple/quadrupled, etc. and the data doesn't bear this out. Median price for co-ops on an inflation-adjusted basis went from $400K in Q1 ' 89 to $680K in Q4 '08, an increase of 95% over 20 years. If we look at CAGR, that comes out to roughly 3% increase per year over the same time period.

Inflation-adjusted is the key here ... real estate, over the long-term, rarely does better than inflation. Adjusted for inflation, that's more like 7%.

Second, 1989 was near the bubble in terms of prices. You are picking almost the top of one bubble to another, and then saying "prices only went up 7% per year" - but real estate was almost as overvalued in 1989 as it is now (as witnessed by the fact that prices fell for another 5 years after 1989, and did not reach their 1988 peaks until 1999). Similarily, prices are falling again.

HR - median co-op price adjusted for inflation in Q4 '08 is approximately $680K. A 25% hair cut gives us $510K which brings us back to back to Q2 '01 numbers. So I was off by 2 quarters. And I am aware of the limitations of real dollars vs. nominal on the current discussion - just food for thought.

This wasn't meant to be particularly scientific, more of a broad stroke, but I appreciate you pointing out the inaccuracy. The fact that you and so many others are on here stumping for massive declines only illustrates my point further though - people want to buy property in Manhattan. It's still a great place to live. Can't imagine you would be spending any time reading & posting here otherwise.

Hope you eventually find something you like at a price you like, and I know you are happy renting and sitting on cash during this period - I know I would be!

kspeak - I picked 1989 because that's as far back as the data on MS goes - if you can point me to data that goes back further, I would love to see it. And I never said we are not sitting on a peak and won't go down; I just don't see the doom/gloom scenario that some others are predicting. One man's opinion.

Another interesting thing to note is that average apartment size went up 15% from 1997 to 2008 (data range that is available). This means that the median price growth over the same time will equate to a smaller growth in PPSF.

http://millersamuel.com/charts/gallery-view.php?ViewNode=1223166802VXwqC&Record=16