Several questions.

March 18 (Bloomberg) -- Bank of England policy makers voted unanimously to start printing as much as 75 billion pounds ($105 billion) in money to fight the recession as they made their final cut in the benchmark interest rate.

elena
(broker)

elena - so is your point that everybody will start to buy apartments because they are scared of inflation?

man!! brokers do find a way to link every piece of news to how it will make apartment prices go up :-)

eric,
even in good times not everybody were buying apartments.
I am looking at the trends here. My point is - welcome to the new epoch!
Inflation doesn't go well with price cuts.

elena
(broker)

Inflation goes well with price cuts if incomes aren't rising as well.

Stagflation goes great with price cuts. Prove that your inflation scenario is accompanied by real GDP growth (growing employment and incomes) and you have a great case for price rises. My take is that any exogenous inflation caused by rising money supply only goes to offsetting what otherwise is deflation from depreciation of real goods.

elena,
are you kidding me? hardly anyone working in teh finance industry is thinking of buying a property now - the only people getting bonus are also getting life threats ..
pay hikes in many other industries this year is expected to be close to zero

PLUS, apartments are about 40% overpriced copmared to renting.

do you REALLY think condo prices will go up in the next 2 - 3 years? i mean, REALLY?

eric: ignore barskaya. remember, typing class does not equal economics class.

Don't Count on Manhattan RE as an Inflation Hedge
Posted by Noah Rosenblatt on March 18, 2009 at 12.35 PM

http://www.urbandigs.com/2009/03/is_inflation_good_for_manhatta.html

I don't have cristal ball, eric

I remember one of my clients told me once that when he came to NY his rent for 1 Br was something like $300-400/month. Yes it was long time ago, but during his lifetime inflation (even without being double digit a year), took its toll on rental prices. So, people thinking of buying, maybe not immediately, but they thinking about buying. And BTW some properties, when priced right, have multiple offers, may be a hair under asked (cause everyone is entitled to a deal), but properties are being sold.

Now, regarding CONDOs, in case you didn't see today's Wall Street Journal -- Fannie just tightened its conditions for backing CONDO mortgages:

"...Just as a flood of new condominiums are scheduled to hit the housing
market this year, Fannie Mae has added restrictions making it more
difficult for developers to sell their units.
The government-backed mortgage-finance company stopped guaranteeing
mortgages in condo buildings where fewer than 70% of the units have been
sold, up from 51%. In addition, the company won't back loans for sales in
buildings where 15% of current owners are delinquent on association fees
or where more than 10% of units are owned by a single-entity.
The new policy became effective March 1, ... "

So prices may not go up, but if inflation hits they may not go down much either. I mean REALLY, do you have cristal ball?

elena
(broker)

barskaya: "So prices may not go up, but if inflation hits they may not go down much either. I mean REALLY, do you have cristal ball?"

I do not have a cristal ball. I do, however, have a crystal ball, and it's telling me that prices are going down much further.

Good luck peddling your nonsense to people who are even more brain dead than you are. I'm sure it will make you several hundreds of dollars this year.

Barskaya, I feel a bit embarassed for you. Your comments betray your utter ignorance of basic economic theory. Please, stop while you're ahead.

"Your comments betray your utter ignorance of basic economic theory"

Hence, she's a broker.

cherrywood, could you please present your knowledge in economics without touching anybody personally?

Let's say elaborating on your thesis: "Inflation goes well with price cuts if incomes aren't rising as well.", keeping in mind that latest RE price grows (or inflation in FIRE sector of our economy) and fact that people were able to borrow that much to support it were due not to the rising incomes, but to the structure of the loans. Or you can share your takes on "quantitative easing" and its correlation with inflation.

thank you

elena
(broker)

You're fired. Turn in your pom-poms to security in the basement.

Did some Corcoran exec send out a memo demanding the minions below him defend the industry on the message boards? There have been a lot more brokers on this board in recent weeks trying to talk the market up.

Sweetheart, The subject is your knowledge of economic theory, not mine. Nothing personal. BTW, may I recommend the Urban Digs post to which 10105 provided a link?

The subject is not me or you, cherrywood.

Look Rockrose has 110% buyback guaranty (should buyer decides to sell its condo after 5 years the sponsor will buy it back at 110% of the purchase price. What do you think, cherrywood, does Rockrose counts on inflation or not?

elena
(broker)

What is "cristal ball"? lol.

Yes, sherrywood, and thank you for recommendation. "Don't Count on Manhattan RE as an Inflation Hedge" Posted by Noah

-- And what would you count on as an Inflation Hedge in present economic situation?
How many people in US lived under situation when they could have bought an apartment yesterday and can only afford a 10-pack of cigarettes today?

FRS trying to pump money into system to prevent deflation but incurs inflation. Now, I am sure FRS has enough power to get rid of excessive money if they have to; the only problem is a log (approx. 6-12 months) between monetary policy implementation and its effect. So if big inflation happens it would be most likely short jump. But how would it affect real estate prices?
Prices will adjust down depending on the hood and its segment (rich can wait longer, but not forever, especially when many jobs lost).
How inflation would affect future defaults? Problems with ARM-mortgages are present, though it is temporary went away. Inflation = rising interest rates = new wave of defaults. Let’s say buyers refinance under lower fixed rate, and inflation hits = big hole in bank’s balance sheets = future problems with banks.
I wouldn’t be surprised if FED are trying to stop prices from falling (cause usually UP-cycle starts with residential investment, and new construction is a big part of economic grows, unless of cause you planning to invent new bubble), but what will come out of it nobody knows.

So, back to the topic -- how can inflation affect RE Prices?

elena

elena

Holding all else constant, inflation increases the nominal price of all assets. Unfortunately, manhattan real estate is facing a perfect storm of deflationary forces (lower rents, lower buyer income/assets/job security, increasing inventory given job losses and new builds coming to market, stricter financing requirements, breaking of the bubble mentality that prices only go up, less disposable income from higher taxes, etc.). I expect manhattan RE prices and wages to continue to deflate... while prices for most other assets rise... making manhattan RE an especially bad investment on a relative basis. Look at where cap rates have gone on real estate investments. Residential has a long way to fall to catch up.

Then there is the pesky fact that current sale prices are far out of line with rents. How long do you think that this premium will last in an environment of rising inventory and increased conversion to rentals? Really ugly.

But then again, maybe the foreigners will save us? Or the martians?

>>What is "cristal ball"? lol.<<

I prefer a dom ball myself...

Squid--I just had to log in--your response actually made me laugh out loud--

Elena:

DO NOT LISTEN TO THE FOOLS HERE.

You are a genius. A god among boys. You are, clearly, 100% correct. The ONLY smart move now is to buy real estate. Soon enough, everyone on streeteasy will flock to you to sell them homes. You'll be so busy that you'll be able to raise your rate to 7, 8, 9, even 10% commission.

But, between you and I, here's my suggestion: before the buying frenzy starts, you need to go out and buy yourself a nice little piece of Manhattan. Don't just let us freeride off your sage advice. Get that Classic 8 now that prices are artificially low. Now, you may already own an apartment, or a Classic 8 may be a bit pricy, but this is the time to do it! Get an interest only loan if you can (I'm sure you know a good lender), take out a 40 year mortgage, 50 year mortgage, WHATEVER YOU NEED TO DO. Buy it NOW because once the floodgates are opened, that brilliant investment of yours will be worth 2x, 3, even 4x more than what you paid for it!!!!!!!! This is a once in a LIFETIME opportunity!! Reap some of the benefits yourself before it's too late!!!

As for myself, I wish I could buy another apartment right now. Unfortunately, I just got fired, my 401(k) is worth $87 and my condos in Williamsburg and FiDi are $600,000 underwater.

> WASHINGTON – The House is scheduled to vote today on a bill that would levy a 90 percent tax on bonuses paid to employees with family incomes above $250,000 at companies that have received at least $5 billion in government bailout money.

I'd think this is a lot more relevant to New York real estate prices than the possibility of nationwide inflation.

barskaya:
"cherrywood, could you please present your knowledge in economics without touching anybody personally?"

Yes, please. No touching! Even over cyber space... Especially the type of touching that is done... you know... errr... personally!