BULL vs BEAR Debate at Real Estate Connect NYC
A: In case you guys couldn't make the conference, InmanNews has you covered with these excerpts from the bull vs bear debate yesterday.
NOAH ROSENBLATT --->
"There are a lot of tentacles in this credit crisis," and the fallout has the potential to reach pension plans and other financial sectors, said Noah Rosenblatt, founder of the UrbanDigs.com blog and a real estate agent for Halstead."We know we had a debt problem. Stupid things were going on. Wall Street took advantage of it like they always do. It's a demon and we're paying the price for it. It's going to make the housing recession worse," Rosenblatt said.
But a recession also presents an opportunity, he said, and a chance to correct a market that had moved so fast for so long. It definitely is going to take time, he said, as the prolonged period of lax lending standards will not be mended in the short term.
"This is a necessary but good thing for us to go through. We should go through this and accept it. This has to happen," he said. "We need this downturn."
BARRY RITHOLTZ --->
The five stages of grief, which you might learn about in a college psychology class, are very telling about the discussions over the slumping housing market, said Barry Ritholtz, chief market strategist of Ritholtz Research and CEO and director of equity research for Fusion IQ.The first stage, he said, is denial. At first, when the housing market began to slow, some analysts and experts said it would be short lived.
At the next stage, there was an admission that there was a housing problem but a denial that it was impacting the overall economy.
That digressed to talk of the housing market downturn's slight impact on the economy that was relatively contained, followed by claims that there were impacts to the economy but they were already accounted for in stock prices, Ritholtz said.
The next stages of grief, he said, are depression and acceptance. The National Association of Realtors trade group shares some blame for releasing "sunny forecasts," he said, that he believes did not accurately reflect the spiraling market.
Wall Street's system for packaging and selling mortgage risk as securities is in need of an overhaul, as "nobody really knows how to value them," he said, and it will be a "painful process" when Wall Street fully recognizes and purges the problems.
PROFESSOR NOURIEL ROUBINI --->
Nouriel Roubini, professor of economics at New York University's Stern School of Business, is calling it the worst housing recession since the days of the Great Depression. Roubini said he believes that a U.S. economic recession began in late 2007 and "is going to be much more severe" than economic recessions earlier this decade and in the early 1990s, with credit problems spreading across the financial system and impacting all forms of home loans, commercial real estate loans and even auto loans, among other forms of financing."What we're worried about today is a systemic financial crisis. This is a severe, massive problem. It's going to take years to adjust," said Roubini. Home prices have already fallen 15 percent to 20 percent in some areas from their peaks during the latest housing boom, with housing starts tumbling 40 percent and sales sliding about 50 percent, he said.
If prices fall 30 percent from the peak, that would represent about $6 trillion in lost value and millions of homeowners with negative equity, he said.
DOTTIE HERMAN --->
Dottie Herman, president and CEO for Manhattan-based brokerage company Prudential Douglas Elliman, said that mortgage interest rates were at about 19 percent when she entered the real estate business, though properties were still bought and sold even during those times."Do I think we're going to go through some painful times? Yes." The credit crisis is a problem that will touch everyone -- and it is not just isolated to the real estate market, she said.
The housing downturn may serve to make housing more affordable for buyers who are in the market, and has provided an ample selection of properties on the market. There are lessons in the downturn, Herman said, about loose lending practices and consumer education about home loans. Consumers are ultimately "responsible for what they're purchasing," she said, and "some people gamble."
I felt like it was a great panel, humorous with timely comic relief to counter the negative tone of topics covered, that accurately broke down why we are in this mess and how the cycle will likely play out.
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Comments (9)
Bearishness always gets the press. But supply and demand sets prices. Rents continue to rise. Inventory drops. Even if (by no means proven) demand drops 20 percent next year due to credit and Wall Street employment issues, if supply is down 30 percent, prices will likely rise. Lower prices do not induce people to sell.
Good luck with timing the market.
Posted by Buyer | January 10, 2008 8:02 PM
Buyer - this was a national bull vs bear debate. This was not about the Manhattan marketplace. The purpose of the panel was to talk about whats going on in the country, the overall economy, the housing recession and the credit crisis.
So, when you read the excerpts above, please put them into the context of the discussion at the conference.
Posted by Noah | January 10, 2008 9:32 PM
Also, everyone needs to remember that the construction patterns in NYC GREATLY lag the rest of the country. It takes a tremendous amount of time to build in the city (especially if you do not have as of right building, such as the Solow properties on the East side). BUT, it is my understanding (from people in the real estate arena) that every bit of property available, and I understand that the development is quite impressive) was bought. Some of that will become rental, and thankfully so, but most is still slated for condo.
There are a lot of properties on the market now, and a lot more coming over the next two years (many without tax abatements).
Posted by Brenda | January 10, 2008 9:56 PM
The mantra of every real estate bull is "[your city here] is different..." Miami was different. Las Vegas was different. Boston was different. Why is is so hard to believe that NYC will someday be "was different"?
Look, if prices are falling in the commuter areas (including Brooklyn and Queens, not to mention all of Jersey, Connecticut and Westchester Co.) why is it so hard to believe that might just have a negative impact on NYC RE?
I dont see how rents will continue to out pace inflation - for one rents usually suffer downward pressure from income growth. If my rent goes up but my salary doesnt, its too easy for me to move to another unit more in my budget. (conversely this is why income stagnation/loss leads to pressured sellers- its not as easy to move out of your condo.) Further, there is a ton of in-development inventory that will go rental. As the housing market softens and people cannot sell for their price, they will rent to stem the blood loss- increasing rental inventories.
Furthermore, while I agree that NYC is a very desireable place to live, and all RE is local- credit is national. If access to jumbo mortgages dries up- say shitsureishimasu to demand in the 1+M market.
Posted by drtomaso | January 11, 2008 3:33 AM
Prices are not falling in "all of New Jersey" as you comment, drtomaso. The Hoboken market and downtown Jersey City are both quite healthy. If you look at the numbers, 2007 was a better year for real estate in Hoboken than 2008. Take a look at www.hobokenrealestatenews.com if you are itnerested.
There are other cities like Seattle, Portland, Charlotte NC which are also doing well. Many financial experts point out that since the junk loans are no longer being written, there will be an end to the credit problem. Banks continuing to loan to buyers with good credit and cash to put down as a downpayment even in the jumbo market.
Posted by Lori Turoff | January 12, 2008 8:24 AM
Note to self, never use the word "all".
Anyway, I dont know about Hoboken, but I live in JC, and prices are definitely flat to falling. Trulia seems to confirm this with a -2.0% YoY change in the quarterly median price. I know thats not the most academic of sources, but it seems inline with Case-shiller for the NY metro area.
According to S&P's Case-Shiller indices, of the four cities you mention as doing "well", Charlotte and Seatle did the best, coming in at 4.7% yoy appreciation. To put it in perspective, my high interest online savings account returned 5.40% over the same period, with 0 risk. You can currently obtain CDs, with 0 risk, at an APR in the range of 4-5.05%. And you generally dont have to pay a commission of 6% to buy a CD, nor property taxes.
The credit problem is not limited to just "junk loans" previously written- it is about a mountain of leveraged derivatives that no one knows how to accurately price leading to extreme risk aversion. We are in round one- when the crisis is still about "subprime loans"- its already expanding to "prime" and next is "commercial".
Further, the fact that lending standards are returning to normal does not bode well for prices- the prices we have now in the NYC area are a function of artificial demand created by ahistorically inflated access to credit via a relaxation of lending standards, across the board- not just in subprime lending.
Posted by drtomaso | January 13, 2008 6:52 AM
Jersey City is a very large city with a very different demographic than Hoboken. For the comparison to be more realistic, you'd have to limit your analysis to downtown Jersey City - Paulus Hook, Newport, Exchange Place and maybe Van Vorst and Hamilton Park areas. Otherwise, the Journal Square area and beyond are going to skew the results downwards.
Posted by Lori Turoff | January 13, 2008 4:22 PM
So basically, this applies country-wide. If we knock out all the areas where prices are going down, then real estate is just peachy.
The reverse argument is equally true of course. The Case-Shiller indicies define the NYC metro area to cover a broad range outside of Manhattan- Hudson and Bergen Co's in NJ, Westchester in NY, even areas of Ct. Might it be the Manhattan has been skewing the Shiller numbers upwards? That some of the surrounding areas are experiencing real depreciation that is masked by Manhattan's contribution?
That in itself may not be a positive for Manhattan (and Hoboken) prices- buyers can obtain more for their money in the surrounding areas where prices have depreciated slightly, which places further downward pressure on prices.
Posted by drtomaso | January 14, 2008 1:40 AM
The bears are obviously winning right now. I believe Merrill Lynch is correct about the arrival of recession in the United States. The housing downturn is negatively impacting property sales in second home communities in Florida. This is also slowing sales in NC mountain resorts that depend on Florida buyers.
Still the downturn in prices and building of inventories is starting to attract second home buyers from Florida looking for cool temperatures in our mountains. Also the dramatic decline in the dollar combined with weakness in American real estate markets are beginning to interest some bargain hunting European investors.
Ron Holland, Broker/Realtor with Wolf's Crossing Realty. See www.ronaldholland.com Ron markets resale mountain and ski resort properties in NC in Wolf Laurel and The Preserve at Wolf Laurel.
Posted by Ron Holland | February 13, 2008 9:42 AM