Manhattan RE: The Sky Is Not Falling, People!

Christine,

I wholeheartedly agree with you. Manhattan has and is know to be a pure anomaly to the nations unfortunately depreciating real estate market. Also, I can never disagree with the phrase "get the most that you can for your money", that said I think it is a great time to buy right now, rather than rent; Especially with mortgage rates coming off their recent highs.

Ummm, I'll go on vacation without commenting.

I don't know where you found your deal Toes, but where I'm looking I cannot find anything that comes close to breaking even with renting. BTW I'm looking at UWS 1 bdrm condos. There are some UWS coops which can come pretty close to break even but condos don't even come close.

Noah,

I don't think you will be able to stay away from your website for more than a couple of hours.

In fact, I think that once you get off the plane in Europe, your Blackberry browser will be pointed to www.urbandigs.com

Go on vacation!!! Enjoy!!!

You should consider opportunity cost of the down payment in the calculation. Of course, Manhattan real estate prices and stock market appreciation are pretty highly correlated, which negates that a little bit... (if you don't see any appreciation, its unlikely your down payment would earn you much either)

So having so many kids that the current school system can't handle it and the city is not prepared (AND looking at budget cuts to boot) is a positive?

And can we please put to rest the "$4 gas is going to make it affordable to live in Manhattan over the suburbs" argument? PLEASE??

If $4 gas is a hardship for someone commuting 20 miles in 15-22 mpg car they can go out and get a 25-35 mpg car for a whole lot less than it would cost them to upgrade to a Manhattan apartment.

Besides, it is a lifestyle choice. I may hate places like Livingston, NJ but no one there is trading in a 2500-3500 sq. ft. house with 3-5 BR's, two cars and a fantastic school system (not to mention other over-the-top services the town offers) in order to move to Manhattan where the same $ probably wouldn't even afford them a 2BR/2BA and they would have to give up on a guaranteed spot in a good school and on the car.

(Full disclosure. I am an UWS resident and grew up in Riverdale and don't know NJ towns well, but spent time in a bunch of Livingston facilities lately for personal reasons. The facilities in their public middle school blew away my UES private high school.)

This post doesn't calculate the closing costs or the additional costs of maintaining/renovating the property. All and all, I agree with hsw9001 that the numbers at the current ask rates - 10% or even -20% (with a tax deduction calculated) are way over the costs of renting.

I'm a regular reader of this website. I have even read Christine's posts in the past.

Noah,

Your website is better than this. Even on Curbed or Streeteasy, it is generally only the dimmest of anonymous posters who would say something as absurd as "If you have the money, stop putting it in somebody else's pocket by renting.". That's the stuff of fly-by-night agents or mortgage brokers in Arizona, not particularly helpful nor backed by any substance in this current environment.

As someone who follows the market closely, I would also say it's at best irresponsible, at worst dangerous, advice. Christine has lost any credibility she may have had. Don't know if she was forced to do this by Corcoran, her new employer.

Noah, to keep the quality of your website high, I would suggest you read your contributors' pieces first to make sure they're of a quality suitable for your site. Corcoran can use Streeteasy and Curbed to blow smoke up people's asses. Urbandigs should not be an outlet for vapid broker spew.

Christine, I see your talking up your trade.

All the "finance people" have already sold their Hamptons house but now Lehman's trading at $4.75. Wall street bonuses drove this market up but now they're not gong to take it down? You cant have it both ways.

Wake up and find a chair before the music stops.

I don't know where you're getting the population statistics, but the most recent comprehensive study I've seen regarding NYC came out of Rudy's administration, and had a major caveat involving suburban flight by families.

In times of recessions, the household creation rate slows considerably, greatly changing the demand for new housing. Also, if you include the boroughs (even if you don't), there is still a lot of inventory that will not get absorbed easily, and this is before the completion of the layoffs and the end of the severance payments. I went to see the Starck property on E. 23rd Street, and three months later I'm still receiving calls from their office. This building started sales AGES ago. There is another large development scheduled to open in 2010 at 23rd and 2nd, and I'd bet there will be plenty of resales in the Starck building for it to compete with.

Williamsburg is NOT Manhattan, but eventually the downturn in emerging neighborhoods affects the entire market, and Curbed is reporting that one of the Toll Bros.' developments is offering the remaining one-third of its apartments on a lease to own basis. This is not a small developer, and this is UNHEARD of in this region.

I too am tired of the gas argument. This is the one metro region where gas prices don't really matter, because we have mass transit.

This recession is much different than the last, and the real estate reality is much different as well. In 2001 I bought what I considered to be an overpriced condo in Chelsea for $650 psf, I sold it too early in 2004 for $775 psf, two years later in 2006 it flipped for $1100 psf, and I lost track there. This for a run-of-the-mill resale with no doorman. That's a bubble.

Foreign buyers may help with a few mid-level sales, and more with higher-level sales, but this run-up was not much different than the rest of the urban areas (with the exception that those making the money off the mbs industry live here, and had that money. Now many of them don't have jobs).

"If you have the money, stop putting it in someone else's pocket by renting."

2006 called and wants its mantra back.

Christine does sound to be talking up her position. Wall Street is not paying out anywhere near where they have over the last 5 years. Mtg rates are still high for jumbo borrowers (Manhattan falls into this). And it makes much more sense to rent at the current prices, people are savy enough to do the math. Just 3 - 2 bedroom apts that are for sale on the UWS.. I don't think so.

I wouldn't put down "Toes"'s contributions at all. Her insight into what is going on in the market in the past has been informative. And I do believe that these arguments are being made in the trade. that said I don't find it all that convincing right now.

NY will always have a flux in the population and the price changes themselves act as the "flux capacitor". If it is too expensive then some will choose to live in WIlliamsburg as it becomes cheaper, or in Jersey City or Edgewater or Washington Heights. That those neighborhoods started gentrifying will not go away. they may be damaged in the near term but they probably won't again soon be what they were. And so more inventory HAS been added beyond what 421-A abatements have given us. Rezones on the far Westside and LES will do the same. So long as the prices remain high it will be possible to add inventory in this city (and it has been happening).

I've owned homes on the Upper West Side for 20 years and am grateful for it. But I experienced the downturn in the early 90s which was not fun at all. It took me seven years to recover a total equity loss though I made a profit two years later. My all-in cost of my current home is about 40% less than comparable rent. That is because I bought 10 years ago. If I were to buy a comparable apartment today, I would likely pay a monthly cost 25% over comparable rent. Christine sounds like a newbie.

"Foreign buyers may help with a few mid-level sales, and more with higher-level sales, but this run-up was not much different than the rest of the urban areas (with the exception that those making the money off the mbs industry live here, and had that money. Now many of them don't have jobs)."

And Bernanke and Paulson have made every effort to add support to the bubble by socializing the losses which has the indirect effect of keeping most in the finacial industry employed. Without their criminal interference with the markets, a greater number of banks should have been imploding by now and more people should be losing their jobs.

Stick to the topic Jose, calling the fed and treasury interventions criminal is a bit aggressive.

Anon, you nailed it. Christine’s post is borderline irresponsible.

I agree with her.

"As someone who follows the market closely, I would also say it's at best irresponsible, at worst dangerous, advice. Christine has lost any credibility she may have had. Don't know if she was forced to do this by Corcoran, her new employer."-anon

Relax Mr. Righteous....Why would she even stay a broker if she didn't feel positive about Manhattan real estate? She is explaining her reasonings for her optimisim.

Steve

Q: "Why would she even stay a broker if she didn't feel positive about Manhattan real estate?"

A: The labor market is inelastic

like I said, Im not commenting!

If "rent = mortgage + maintainence + RE Tax" with
- 20% down
- 30 yr fixed (e.g NOT IO ARM)

then you should certainly buy.. However, Manhattan no NO WHERE near this. Not even close! Esp since many ppl might be assuming rents are going to remain this high

There maybe a few properties that meet this criteria but they would be quite rare indeed at this time.

Toes, Please chart a graph of rent vs "mortgage + maintainence + RE Tax" for the last 20 years to back up your claims..

I would 'guess' that such a graph went hyperbolic around 2002

Anon - "Noah, to keep the quality of your website high, I would suggest you read your contributors' pieces first to make sure they're of a quality suitable for your site. Corcoran can use Streeteasy and Curbed to blow smoke up people's asses. Urbandigs should not be an outlet for vapid broker spew."

I might not agree with Toes, but I will hear what she has to say. This is an open forum and readers are full capable of dissecting one author's opinion from another. We do not have a general theme other than to write what we feel like is going on.

We must also be very careful that one broker's take on a market, is likely indicative of their own personal business. Toes may not be seeing such distress in this market, and think that the media is overdoing things, and her buy side demand may in fact be strong. I'll listen to it, but I dont have to believe in it.

I advise my clients in my own way, just like Toes advises her clients in her own way. I've disagreed with her before and I have no problem stating that here.

But just because it doesnt fit into the 'negative sentiment' that I or Jeff has, doesn't mean Ill prevent it from publishing here.

No one broker can control this market's direction. Toes, wish I can see the look on your face when you see this thread!

With that all said, many many new development forums will be overly optimistic knowing that many brokers attend and listen to what they say very closely! its up to the individual to draw their own conclusions.

NYC is broke, NYS is broke, they both have to return taxes already paid by many of the ibs due to losses this year. MER, LEH and C may not pay much, of anything, in the way of taxes this year and next (and possibly further). The bankers who have been making outrageous amounts, their accountants and attorneys, their upscale retailers, also won't be paying as much in taxes.

NYC in a severe recession, with a severe shortfall in operating capital, is not a pretty place. I, for one, wouldn't touch this market right now for anything. Even IF the rent/buy ratio were better. I may be 50 when I re-enter the market, but 45 is too old to buy a potentially depreciating asset (even as shelter). Manhattan is not invulnerable.

For the record, my take is the following:

1)Supply/Demand is more greatly influenced by economic factors, affordability and confidence, not the number of new developments in the pipeline that are yet to come to market

2)To say we are near a bottom, is to say we corrected significantly thus far. Clearly, I do not agree.

3) fundamentals of NYC have some very serious near term challenges, mainly from wall street, the economy here and future budget issues that could ultimately affect quality of life

4)London & Paris markets have some serious challenges ahead

5) Wall street job cuts are those of very high incomes, and not administrative salaries. In addition, the wall street revenue model is broken and will not be the same for years. This is not a short term cycle. If a $350K+ salaried person loses their job, trust me, their $2M primary residence carrying costs will eventually be cumbersome; not to mention their quality of life they have become accustomed to

6) unique properties and those with rare features DO hold value much better than cookie cutter units and will not see as much of a correction unless the seller is outright desperate and must sell very quickly

7) foreigners are notoriously LATE to the party + the dollar trade is TRUMPED by confidence. Plus the dollar has rallied big time lately, so the weak dollar argument in general doesn't fly with me anymore at all and in fact may result in more supply from those foreigners that did buy in past few years with the notion of renting or splitting. These 2nd homes, probably will have to be sold.

8) moving to the city because oil & gas is up is ridiculous. Im surprised Andrew said this. Prices in the burbs outside Manhattan for the most part corrected way more than this market did to date. If anything, manhattan is way more expensive than our local radius.

Noah - fair enough, I did go too far when I suggested you preview your contributors' columns. Smells a little too much like censorship.

What I'm saying is simply that this post by Toes is so laughably transparent as tired broker blather that it's of limited value to anyone with even a fleeting sense of reality, let alone a knowledge of economics or the local real estate market. In this way, it demeans your site.

(Then again, maybe a role could be carved out for her as the Jack Handey of Urbandigs.)

Noah - fair enough, I did go too far when I suggested you preview your contributors' columns. Smells a little too much like censorship.

What I'm saying is simply that this post by Toes is so laughably transparent as tired broker blather that it's of limited value to anyone with even a fleeting sense of reality, let alone a knowledge of economics or the local real estate market. In this way, it demeans your site.

(Then again, maybe a role could be carved out for her as the Jack Handey of Urbandigs.)

ha

Everyone who doesn't own property in NYC loves to talk about the impending doom. I have been talking about prime areas in Manhattan being relatively steady since I started writing for this blog. I haven't yet been wrong. Some of you have been shouting about an impending crash for years. A friend of mine bet me dinner in August 2007 that prices would be down in Manhattan in August 2008. He laughed at me that I said that prices would be level to up. Let's just say dinner is on him.

Here is my rent vs buy comparison: $520K co-op apartment, 20% down, $416K mortgage at 5.875%, %700 maintenance. The person renting the apartment from the past owner was paying $2,900 and with some minor upgrades that I plan to make, it is a $3,000/month apartment. My payments on a 30 year fixed mortgage plus my maintenance will be $3,200. After the 85% TD for the mortgage and 50% TD for the maintenance, at a 40% tax bracket, my net costs are approx $2,300.

If I had put that $52K contract deposit into the stock market 3 months ago, where would I be right now? So I am really not worried about opportunity cost when I plan to live in this apt for 3-5 years & a "safe" investment gets you like 3% interest right now. If I were renting that would be $3000 * 36 = $108,000 in rent and no tax deductions. Not only that, but real estate is a good hedge against inflation.

When I bought a studio in 2003, my friends said that I was crazy. That I should wait for the market to come down. Thank god I only listened to myself. I made over $150K on that studio, used the money to buy an alcove studio, and traded that alcove studio up to a one bedroom. In the interim, I made enough money to buy a 2 family townhouse in Bed Stuy, renovate it and rent it out.

So I think my opinion is knowledgeable enough to be featured on this blog, and if you don't like it, don't read my posts!

Christine...please keep writing exactly what you think! This world and all markets are made of diverging opinions and I for one appreciate them. I personally hate to be in the consensus....which I think is very negative right now. Unfortunately, I am with the consensus right now as I think the potential failures of Lehman, Wamu and other big banks are events that may shake the very foundations of the economy. NYC probably can't hide. I would argue that what you heard at the conference was definitely guys talking their book and must be taken with big grains of salt. I actually had a meeting with one of the speakers from the conference (who will remain nameless) a couple of weeks ago who said their phone was ringing off the hook with owners looking for more equity to save their multi-family housing investments.....not condos or coops it's true, but things are not good in NYC commercial real estate and anyone who says otherwise is being disengenuous. On the residential side I am very cautious on prices and continue to believe that there will be great bargains to be had in the boroughs and Harlem.

well said Jeff! Christine your posts are ALWAYS WELCOME here!

You know I love ya babe!

To clarify for anonymous from 11:07: For my 2 bed 2 bath prewar west 80s doorman customer (who also wants maintenance lower than $1,200/month), out of the 400 apartments new to the market in the last 2 weeks mentioned on street easy, only THREE of them fit her price range and other criteria. I wasn't saying that there were only three apartments total for her. There are about 12. I was saying that just because 400 new apts hit the market, it doesn't mean that the sky is falling. It depends what you are looking for.

HSW9001 & uwsider: you are correct, you can't put 10% down on a condo with a 30 year fixed and be close to a break even.

However, if you look for value, i.e. a townhouse in an up and coming area being rented for below market value that needs renovations, you might be able to put down 20%, take out a 10% HELOC, renovate, and break even (but you need fabulous credit). There are always opportunity costs but I don't see a better place to put my money. I am not a stock market guru, real estate is my life. I know real estate so that's where I choose to put my money. If you can make more in the stock market, more power to you!

Toes..

you said:

"A friend of mine bet me dinner in August 2007 that prices would be down in Manhattan in August 2008. He laughed at me that I said that prices would be level to up. Let's just say dinner is on him."

This reminds me of the Seinfeld episode where a guy uses a loosing bet to get a date with a hot chick!

prices are down. They just have not filtered through to the reports yet. Wait until 4Q 2008, and you will likely see when compared year over year. We still have upward skews from delayed high end new dev closings. Count in tons of 1,200+/sft new dev closings, and sure, the market reports will appear rosier.

Im on record for 4Q report, released in JAN, to show the year over year drop.

wait...a broker, an owner of a real estate brokerage, and two real estate developers are bullish on real estate? shocking....you could not have picked a more biased panel

Christine - it's great that you bought and renovated a brownstone and now work for Corcoran. Seriously, though, that doesn't make your commentary any less simplistic and seemingly agenda-driven. I really value this site, so when I read standard broker babble, I was very surprised. Nice touch quoting your new boss, too.

Look, I'm sure you will continue to post, and I and others will continue to call it as we see it (incl the bullshit) and respond accordingly.

Btw, curious to know what metric and source you guys used to measure prices from 8/07 to 8/08 for your bet.

The Real Deal's coverage of their own forum says:

"A panel of real estate experts agrees that the real estate market will remain weak until the financial industry returns to surer footing."

"I don't think we are near the bottom. First the financial institutions need to stabilize," said Robert Knakel, chairman of Massey Knakel Realty.

"The rising dollar will hurt residential sales in New York," Corcoran said...

Toes - how on EARTH did you come up with: "We are near the bottom." Were you at the same forum, or were you watching the tape from 2005? Seriously, were you there? And if so, were you awake?

My god, the title of the article is "Market Not Bottomed Out, Panelists Say"

Here's the link to the Real Deal article:

http://ny.therealdeal.com/articles/market-not-bottomed-out-panelists-say

FED & TREASURY engineering takeover of LEHMAN!

breaking news

Anon, you're behind the times. Barbara Corcoran sold the company years ago. She has nothing to do with the Corcoran group anymore.

You think my posts are "agenda driven." Do you think I am somehow making a windfall off of urban digs? I write because I enjoy writing & because Noah and Jeff are generally bearish. Don't you think a blog about Manhattan real estate could occasionally use the opinion of someone who thinks the Manhattan market will remain fairly level?

I am not making bullish claims about Harlem or the boroughs. Prices there are down & too much product was built, so there will be a continued slide.

I think someone writing some of these lovely comments is upset because he didn't or couldn't buy in Manhattan. He's seen some of his friends make money and he's hoping that people who bought will lose their shirts so that he wont feel as bad...

Noah - Come back and start posting soon. (Okay -take your vacation and then start posting.) This "we are near the bottom" line is pretty funny considering Lehman. Also noting the uptick in inventory - my guess it that it will continue to grow for the next month or so.

Christine: You're discounting too much from the rental side. Which is sad, because I think you'll still come out ahead if you do consider everything.

Looking at the 10% deposit as the only lost opportunity cost is clearly wrong. 20% down payment, plus closing costs, plus renovation costs. 3% short term rates are also a bad comparison - if you won't sell for 5 years, look at a 5 year investment. 5% CDs are more reasonable, but I think 5 years in the stock market is a better sense.

Look at it this way: if the stock market hasn't recovered 5 years from now, there will *certainly* be depreciation in real estate, so you shouldn't use riskiness there as a pro-buying argument.

30% of the purchase price earning 8% (stock market long term) returns about 1k/month, which goes a long way towards bridging your rent vs. buy monthly difference.

Anon, I'd LOVE to meet you in person sometime so we can hash this out. Larry Silverman said that he thinks that we are near the bottom. Robert Knackel & a few of the other panelists said that they only know the commercial markets, not the residential markets. Some of the panelists said that in the short term, there is more pain to come but the long term fundamentals of Manhattan are strong. A few of the panelists said that 2009 could be tough but no one was predicting doom and gloom. Most of them were talking about commercial real estate. The title of my post was "The Sky is Not Falling." The title wasn't "Manhattan real estate to rise in value by 10% in the next 6 months!" That is not what I am saying at all! Maybe next year you should attend the forum yourself so you can formulate your own opinion?

I simply do not see how we can be calling a 'bottom' when there has been no appreciable correction to speak of. Premature, by as much as a year, I'd say.

wow. regretting that purchase of the needs-to-be-renovated townhome in the dodgy area just a little Toes? LOL It's not timing the market it's time in the market. Maybe your grandchildren will benefit...

this is all good stuff...Toes, while I disagree with some of statements in the post, alot has to do with what you heard and relayed from the conference.

I think people mis-interpreted the discussion to be overly bullish. They miss some of the good stuff like:

"If you have the money, stop putting it in someone else's pocket by renting. Buy something you love. Buy something that makes you happy. Find a seller that needs to sell and make an offer that you will be comfortable with even if the market comes down a little bit. Buy something because you need the tax deduction"

Timing the market is very tough and alot more goes into the BUY decision than simply 6-12 month outlook. After all, someone may be faced with a major rental spike at lease expiration and have the money to buy, and need the tax deduction, and found a good deal that they bid comfortably on.

Don't take anything personally Toes! The fact that your post generated such a response tells me your voice was listened to. Whether they agree with it is an individual decision.

There is nothing wrong with some non-bearish content on this site. Keep writing what you see out there, and let people speak their minds; thats why this site is here!

BYE ALL!! So LEHMAN wont be around when I get back after all! What a world.

Love this blog.

But..... having sold my condo (in ONE day, with 20 "best and highests") last September, I am waiting for a BUYER'S market before looking around for my next purchase.

Signed,

Happy Renter with tons 'o cash in bank

Anon, where in my post do I say that the panelists said that we are AT the bottom. I never said that. Read the post again. NEAR the bottom and AT the bottom are two different things. While we are on this discussion, how far away do YOU think the bottom is? I'd love to hear your predictions. Do you think Manhattan real estate is going down 10%, 20%, what? Maybe we should make a little wager? Or do you wish to remain anonymous?

Steve, I hear what you're saying. Closing costs when buying in a co-op are like $2,500 + $1,800 attorney fees - not as high as condo closing costs.

If I were to invest in stocks, I would have to spend a significant amount of time doing research on the market. Since I live and breathe real estate, I would also consider the opportunity cost of my time. My time is better spent helping people buy, sell, and rent apartments because that is my passion. Of course I do have some money in the stock market, but I think it is wise to diversify your portfolio by also owning real estate.

A lot of Urban Digs readers are very concerned with the investment value of real estate - I get it. There are other reasons people buy apartments (i.e. they are tired of paying rent, they have a sense of pride in home ownership, they need the tax deduction, etc). If you consider a discussion of topics like that "broker babble," so be it.

Ms. Toes,
Last time I checked, Harlem was part of Manhattan and counting all areas of the island, prices have dropped since August 2007 and I bet will continue to drop.

On a side note, your suggestion that some of the posts are from somehow who is jealous because he/she couldn't or didn't buy in Manhattan is a bit immature.

Ahh - you got me! I have not been following Barbara's comings and goings. And no, I have no problem with people making $ (have done so myself), but nice try.

I am simply responding to your post, which I would call (and others have essentially called, in different words) a typical broker fluff piece. Because this website is better than that. And you probably are too. That's all.

Ahh - you got me! I have not been following Barbara's comings and goings. And no, I have no problem with people making $ (have done so myself), but nice try.

I am simply responding to your post, which I would call (and others have essentially called, in different words) a typical broker fluff piece. Because this website is better than that. And you probably are too. That's all.

Come on, Anon, I want to hear your predictions for the market! Where is Manhattan going?

Nope, I'm not including Harlem.

Btw Christine - I'm still wondering what metric (and source) you used to measure market prices for your bet. Very very curious.

Down, Christine. What, that wasn't clear?

So, what metric did you guys use?

Here are the stats you requested:

2nd quarter 2008 (4/1/08-6/30-08) vs 2nd quarter 2007 (04/01/07-6/30/07) Manhattan Marketwide statistics:

Average sales price (ASP) Q2 2008 - $1,675,000
ASP Q2 2007 - $1,315,000

Yes, closings at the Plaza and 15 CPW skewed the average, so lets also look at the median:

Median sales price Q2 2008 - $975K
Median sales Q2 2007 - $860K

So market is up summer 2008 vs summer 2007 - both average and median sales price.

3rd quarter 2007 was at $1,414,000 ASP and $895K median. When 3rd quarter 08 is published, I will post those numbers also.

If you would like any of these reports emailed to you so you can see them for yourself, please let me know.

be VERY wary when the anomolies of HIGH END NEW DEVS come OUT of these stats!

The media will be all over the headline that Manhattan just fell off a cliff, and buy side confidence will likely fall significantly in terms of demand and bids.

What goes IN eventually comes OUT!

I totally agree with you Noah... Really, the stats should show the numbers both ways: with the Plaza/15 CPW and without the Plaza/15 CPW. I know I saw an analysis done somewhere.. Will have to dig it up before the 4th Q 08 / 1st Q 09 stats come out. However, the resales in those properties may keep the #s pretty high through at least the end of this year! Some people who closed at $2M resold for $5M, etc, so it will be interesting to see how the numbers are affected.

This article is incorrect. All of the fundamentals that led to the appreciation we enjoyed from 2002-2007 have seriously eroded.

1) Cheap mortgages that were easy to get. (Obviously this is no longer the case, and it is unlikely that inexpensive jumbo loans with 10% down will be back again for many years).

2) Record Wall Street bonuses. (Bonuses this year will be anemic at best, and they will remain so for the next few years, at least).

3) Booming local economy. (Wall Street has laid off tens of thousands of workers that will not be rehired for years. In addition, those who have not been laid off will lack the job security to purchase real estate in a declining market).

4) Multiple Streams of Demand. (Foreign buyers, which I believe was mostly hype in transactions below 3 million, are down and will continue to go down. Parents buying units for their children with the expectation of dramatic appreciation will stop. What little speculation there was will also cease)

5) Low inventory. (Inventory is relatively high and getting higher. By Q1 2009 there will be over 8300 units for sale, by the end of 09, that number could crest over 9000).

6) High quality of life. (As the city's tax revenues diminish, services will be cut and quality of life will erode, making Manhattan less attractive for families and retiring baby-boomers).

Prices will be down 10% by this time next year, and they will fall by around 25-30% from peak to trough.

There are supposively few forecdlosures in Manhattan, yet, one of the buildings I am considering buying in (Trump Place) is full of foreclosures.

"And can we please put to rest the "$4 gas is going to make it affordable to live in Manhattan over the suburbs" argument? PLEASE??"

Yes, I do think that argument, while coinvicing, holds no wieght. First off, gas is no longer $4 a gallon. Second, at the current gas prices, nobody is going to move from the burbs to the city so they don't have to drive. I think you would need gas to be at least $6 a gallon for that to happen, which is why so many peole in Europe live in cities; gas there is much more than here.

And any savings you have by dumping the car will be wiped out when you factor in the cost of private school for your kids. I have relatives in top notch suburban schools and they will NEVER send their kids to a NYC public school. Most of them are doctors and they want their kids to have the same educational opportunities as they did, and sending them to a failing high school with a 50% graduation rate is not a road to success.

mh23 - yes, if you look at my comment at 2:08 in response to the post, we are pretty much in agreement. I think the article was more in response to the tone of the new dev conference, the foreclosure article, and what she sees right now in her own business; and less on what macro/credit fundamentals are building at the core

Donald - so agreed. Very surprising that Andrew would state that. He is a sharp guy, so I just am very surprised by such corny reasoning

Sorry, but I think this is the worst piece on UD that I have ever read. Now don't get me wrong, I respect this site and read it almost daily. But Ms. Toes' post sounds as if it was written by Lawrence Yun or any other of the NAR clowns. How can you say the fundamentals for the NYC housing market are strong ON THE VERY SAME DAY Lehman Brothers collapsed? How can you make such a statement when tomorrow, the FDIC will inevitably seize another bank (as Friday is national bank failure day). And there was recenlty a piece on the Real Deal about Manhattan apartments being sold for LESS than their original purchase price. If this was 2 years ago, you would have NEVER read such an article. NEVER. Instead, you would be reading about people making boat loads of money in real estate.

"A friend of mine bet me dinner in August 2007 that prices would be down in Manhattan in August 2008. He laughed at me that I said that prices would be level to up. Let's just say dinner is on him."

And why are you saying that? Because the quarterly reports are showing price gains? if I was your firend, you would be paying for the dinner:

Unthinkable Happens: Manhattan Apartment Prices Fall

http://www.nysun.com/business/unthinkable-happens-manhattan-apartment-prices/84900/

Donald - everyone has their opinion. Keep in mind this site has 4 voices: me, Jeff, Toes & now Mortgageman.

I allow each to post as they please. Yes, this article comes off fluffy, with broker babble type of statements. But keep in mind the article was written by Christine in response to the new dev conference she attended, and the recent foreclosure article in the times.

As I said in the above comment, I think the article focuses on 3 things:

1) what she took from the new dev conference
2) what she took from the foreclosure article
3) what she sees in her own individual business

I do not think it focuses on the forces converging at the core, and how these forces are likely to come together and ultimately affect our market in the near future. Not to diss Toes, I respect her opinion even when I disagree, but many many brokers and people in general just do not understand the environment we are in; even with all the failures. The Lehman news pretty much assures 50% of employees will be AXED and is very telling of todays very tough environment.

I have a much different view of the near term for our market, and I dont attend new dev conferences because in my opinion they are sales pitches to brokers and others with interests in this real estate industry. They are not conferences that educate about what is really going on, and most panelists probably choose to see the bright side no matter how dark it is out there.

So many people have their head in the sand, its outright scary. When I talk to very successful agents in my office, they have no clue what is happening other than that stocks are down, and will rebound soon, because that is what stocks do; go up & down. They dont GET IT!

However, Christine has earned the right to publish her feelings, and all UD readers have the right to agree or disagree. Nobody expects anyone to buy simply because of a 'sky is not falling' article. But the article does seem to put the YUN like spin on everything.

For example: "...with the 421-a expiring & the difficulty getting financing on large projects, there's not much new development in the pipeline. So the supply that hugely exceeded demand in places like Miami and Las Vegas is just not going to happen here"

Fact is, credit deflation, no secondary mortgage market, bad bets and toxic balance sheets is why you cant get financing and to conclude that supply will be tight as a positive, misses the point rather badly. This is a big negative and its way more about buy side demand, rather than supply. When demand goes, supply will inevitably rise. Not the other way around.

Woah! As I was reading, I was like, "this can't be Noah?!" lol! nice. got me there. good one.

;]

birds say we are teetering closely to you know what

COMMENT SECURITY CODE --> "nyc"

Do not forget to type this CODE in people! I just found 6 comments in the junk folder, likely because the code was not entered. Its an automated system. I had a feeling to check, and I want ALL responses to be up here for all to see and respond to.

Thanks!

I would definitely not be buying in this market. Prices peaked earlier this year, and are now just starting to trend downwards.

As much as I think investing in real estate is a good long term investment strategy, buying at the top simply doesn't make sense.

Chistine Toes is a real estate agent- of course she wants people to keep buying! Taking her advice on whether or not to buy would be a huge mistake.

I think we need some defining of "short term" for the purposes of UrbanDigs. The panelists at the new dev conference said that we are in for some pain in the short term, but long term, Manhattan will be fine. To me, the short term is a year to 18 months. I'm not sure what it means to the panelists. I don't think 2009 is looking so hot, either. I think a lot of you misinterpreted my post to be overly bullish and I will leave it at that.

Donald, of course some segments of the market are down from their highs! The article you cited lists like 3 apartments that are selling below their closing prices from a few months earlier. You can't close on something now that you went into contract on 6 months ago and expect to sell it at a profit.

"Among the apartments selling for a loss is a unit at 80 John St., in the financial district, which recently sold for $590,000, much lower than the $720,000 selling price in January. At 515 West End Ave., on the Upper West Side, an apartment recently sold for $2.1 million — $50,000 less than its 2005 purchase price. There are also apartments currently on the market that are listed for below their previous purchase prices: A three-bedroom condominium at 166 Duane St. in TriBeCa — the wealthiest ZIP code in America, according to Forbes magazine — is on the market for $4.495 million, well below the $4.7 million paid for the unit in April."

For the apt selling $50K below its sale price in 2005, I'd have to look that specific unit up. For all you know, they renovated to their own tastes and no one liked the renovations, so they actually decreased the value of their property. Or, they totally overpaid for it. But the other apartments just closed. Sounds like they were bought by speculators/investors who thought they were going to make a quick buck. Everyone knows that that's not happening any more.

Ms Toes is most certainly entitled to post her comments here. As others have observed, I find the quality of her posts below par, uninformed and misleading. Not what I am used to on UD. But that is just my opinion, and not more than that. Would I ever hire her as my broker? Most definitely NOT.

Anon has been really quiet since I posted the metrics. At least mh23 has come up with a prediction!

I do a lot of sales in the entry level market, where I would say prices are already down about 5% and I wouldn't be surprised if they came down another 5% in the short term (a year to 18 months). Sales volume is definitely down. But I think Manhattan is a good long term hold. I tell my customers to only buy if they are planning to hold the property for 5 years (or live there for 3 years and sublet for 2). I've always told buyers this, it's not something new that I've just started doing.

No, I'm not regretting my townhouse purchase at all. It's making a little bit of money for me and one day I will move into it. And yes, I'm planning on keeping it for many years. My parents could have bought a multi-family on 9th st and Ave A in the mid-70s for $30K. They thought whomever bought it was crazy. It's probably worth $10M now.

Christine, it seems as though your non-bearish post has caused quite a stir. It is indeed difficult to be the lone bull (or at least optimist) in a room full of bears, especially with the continuous flood of gloom and doom news in the market. Anybody in the stock market today that is bullish got their head handed back to them on a platter. I think its safe to say that the sense of complacency in Manhattan real estate has erroded - there appears to be a healthy dose of fear in the market. I feel your post was sound and gutsy...better than half the stock market crap reports u read. At the end of the day, whether or not your glass is half full/empty depends on what your own personal situation. Will manhattan prices come off? Probably yes. Will they collapse - I think not.

Christine - you wonder why I didn't bother responding to your metrics?

Because they're a joke. Even the MEDIAN is skewed by more high-end sales, ESPECIALLY if the rest of the market suffers massively declining sales volume, which it did.

This point has been made on this website and many others for the past six months at least.

This is, "like", basic math.

So, the reason I didn't respond is because I saw your metrics and frankly just laughed.

I also responded earlier to your question about what I think will happen to the Manhattan market - "Down". Percentages I don't know, but the direction is down.

Beyond that, there's just not much else substance in your comments to even respond to.

Larry Silverman? Robert Knackel?

When people question your credibility, do not make mistakes in the names of two of the industry's most important leaders.

The comment about rent exceeding maintence/CC+RET+mtg is a joke, unless the purchase price is below $600K.

Toes, Jon Miller posted data adjusted for sales at 15 CPW and the Plaza. With those units removed, the numbers were obviously down, but not as dramatically as you might think. At the risk of incurring even more wrath from the board's resident whiz-kid, Anon, the median figures in a reasonably sized sample will give you a reliable comparison point. While the high end (and low end) sales will "skew" the numbers, they won't to the degree that they do the average. And let's face it, there have always been outliers, even before 15 CPW and the Plaza.

As a Manhattan home-owner, I sleep well at night knowing that I paid a reasonable price for my apt in a very desirable pre-war building on the UWS, and made sensible, cost-effective renovations. I plan to be there at least another 2 years, for a total of close to 4 years. I don't think it'll make me a billionaire, but that was never my intent, and frankly my down payment would have lost 25% to date in the S&P index fund that it was headed to otherwise.

So the point is, live and let live. Those that study the markets and make intelligent investment decisions, will, over time come out ahead, regardless of the ups & downs the market will inevitably bring. Those that have a passion for real estate and spend hours each day reading the analysis, spend their Sundays at open houses, and make intelligent decisions will, over time, come out ahead. More than one way to skin a cat...

NYC.

From a recent home seller to Christine:

1. Tax deductions are a joke, so little they are compared to actual interest amount, real estate tax and many other fees and school taxes. Let's say, on your 500,000 co-op you would end up paying extra 750,000 in cash in interest rate and other taxes and fees, from which you only get about 15% of tax deductions. This is a huge joke - it was your cash, after all.

If I saved this cash (1,250.000), even minus income tax on it, I would still have much much more through a simple CD accumulation.

I love watching Suzi Orman show, and she gives pretty good advice against considering this tax deduction without serious scrutiny.

May be, of course, NYC is different?

2. I doubt if you can rent 500,000 something co-op for 3000 dollars? A friend I visit in Chelsea rents one-bedroom which costs about 450,000 for 2000 dollars... Plus many co-ops do not allow rentals, at least, for a year or two. So you are losing money unless you are staying in this apartment.

3. People who can afford 500,000 apartment in Manhattan do not look at their 50 dollar bill for a full tank a week - this is a really sad argument, simple propaganda.

4. Closing costs are much higher, at least about 10,000, without many other fees taken into account (unless you are a broker yourself, and know how to avoid lots of payments we ordinary people have to pay).

5. Your interest rate is misleading - actual rate would be above 6%, with best credit, with all fees it would be now around 6.30% for a 30-year fixed. The amount you end up paying to your bank in the first few years is almost purely interest, and it is way more in cash compared to whatever you might lose in the stock market or through rental.

6. It is exactly this kind of thinking - get credit and mortgages to make huge profit - which has been promoted by banks and the government that themselves borrowed from China to lend you this money, and now only simple taxpayers without NYC apartments that are going to bring some sanity to the system that would collapse a long time ago (so-called "market will fix everything system"). Where is this free market now? I agree with those who said that the best way to go would be to let market really fix it - including propaganda driven mortgage market. Such a joke about home ownership - no one really owns a home unless he paid it off in cash, 100%.

7. I think, put it simply - you can afford it. Probably much more than 20% down payment. New York is a separate world altogether, I agree with you. Here people mostly live off the rest of the country (their retirement income accounts are parked in the stock market, etc.). If the rest of Americans would stop living on credit, New York financial sector, with its real estate, would collapse. And even foreigners would not be able to save it.

Good for you - go ahead and buy your apartment! Good luck, and let's hope that "socialist" methods of saving the Wall Street in NYC and around the world would work this time again to save the "free market".

Ha-ha-ha...
Max

The smart money on Wall Street currently believe that there is another 12 months to the credit/subprime crisis.

Toes says that in her mind - short term = "12-18 months".

So as someone who works in Wall Street, I would say she is in the ballpark. The fact that almost everyone is so bearish due to lehman should indicate that a contrarion view could very well be correct. i.e. market bottoms are impossible to predict and the popular sentiment will always be wrong.

Why is nobody willing to quantify the expected decline? Based on a reversion to the affordability index, the mean Manhattan real estate property should decline 25%-30%. I am willing to bet my reputation that this will be achieved within 18 months. Maybe not a 'collapse' but 'serious money' nevertheless. My predication for coops is -40% during the next 18 months - mainly because foreigners can't buy those properties.

I will be glad to discuss this again in 18 months.

In response to resident super-bear, Chris, I don't see how a 40% decrease in coops is possible. First of all, while Manhattan has had a good run over the past decade, it is nothing compared to the upswing we saw in SoCal and Florida through 2006. While these regions saw massive declines over the past 2 years, and arguably have further to go before stabilizing, they are in areas where there are few natural boundaries to development. I think a 10-15% correction is probably more likely. Fact is, new condo applications went down 60% year on year, and the co-op inventory continues to shrink due to people continuing to combine 2, 3 and even 4 apartments to accomodate growing families. 2009 bonus season is expected to be down 20% year on year, but that still puts it on par with the bonus season for 2006 which will inject a healthy burst of cash into NY'ers accounts. Add to that an expected net inflow of 200,000 new residents to NY by 2011 and the numbers simply don't support a 40% drop. I am not sure which affordability index you are referring to, but any such index used for other cities or suburbs probably doesn't apply here (assuming it is some variant of the median income to median house price ratio). One of the primary reasons for this is the distortion caused by the 1,000,000+ rent regulated apartments, which jack up free market rents and subsequently home prices, and also cause an unnatural dip in median income. Unless rent stabilization is fully repealed, or there is another attack, or there is tremendous fiscal mismanagement of the City, or there is a tremendous run-up in crime, the city will come through this fine. I think over the next 3 years, prices will remain flat to up 5% and we will see positive gains beginning in 2012.

I find it amusing to talk to friends, most of whom work in finance, that have been calling for a bottom since 2003 - they may finally be right, but they have blown huge sums on rent and been frustrated by the yearly move to dodge the 10% rent increase imposed by their landlords. My mortgage stays the same, year after year after year.

I'm not a believer in the crash scenario (40% drop or more), but this post is a little blithe and sunny on the other end. "We're near the bottom." Really?

No one claims that all real estate activity in NYC has ground to a halt - or that it ever will - but to repeat the nonsense of "buy now or risk being priced out forever," is just plain, bad advice in my view given current reality. Christine seems to have gotten a great deal on her new place, but she was either overpaying in rent or got a deal no one else in Manhattan seems able to find. Yeah, of course, if you can buy the apartment you want for less than the cost of renting it, buy it. But who's staring at a deal like that? Not me or anyone I know.

If you can get a deal as great as Christine's, by all means BUY NOW! But if current asking prices are going to make you a slave to your mortgage, I think there's plenty of reasons to take a chance on waiting. Just my 2 cents.

Christine - Great post. I bought a 3-bed in the Village last year, and gosh darn it, the value of this item is not down maybe up 5 percent from purchase (based on Streeteasy comparibles). Glad I got mine when it was available. And yes, I work in finance. Good to see some variation in the point of view in this site.

The way i see it, there is always a buyer, always a seller and always a renter. So read the papers, listen to the news, ponder the different web blogs, but at the end of the day, just conduct your business, work with your network, and real estate in Manhattan will be just fine.

The sky is NOT FALLING, PEOPLE!! ALL IS WELL!!! AAALLLLLL IIIS WEEELLLLLLLL!!!!!!!!!!!!!!!

This Lehman, Merrill stuff - pfft. They're not even petty cash in this city.

The Lehman and Bear collapses will hurt the city's economy. I question how much of an effect the ML sale will have. For one thing, a majority of ML's staff are brokers and their support staff in regional offices. Even in the tri-state area, a majority of ML's staff is in the mega-campus at Hopewell, NJ. In addition, a majority of their NYC employees no doubt live in NJ, LI, Westchester or CT. I would wager the net number of ML employees actually living in NY is probably under 3000. Many of them will keep their jobs under BofA, and those that don't will eventually be reabsorbed in the labor pool. The Lehman crisis, on the other hand, will probably have a more severe impact as it is significantly NY based.

After every good crash, there is always a good article or two to point back to and say "my, what kool-aid were THEY drinking".

Ladies and gentlemen, we have found that article.

The timing and idiocy are absolutely perfect.

My prediction:PAIN

-Clubber Lang

Christine-

Are you still as bullish on the RE market today as you were on the 11th? Please advise.

My prediction (for what it's worth) 2003 prices (which were around $700 psf for a resale condo). Also, a long period after bottom with no appreciation (unless the bastards can sneak in another bubble, seems unlikely but who knows). That's the key. You don't really have to worry about missing the bottom this time, because it's going to hang around like an ugly cloud.

Of course the sky isn't falling. The Europeans will save us...no wait...the Russians...no...the Chinese...no, how about the South Americans? Canadians? Aussies? Crap. We're toast.

NYC will always be NYC. It will not drop 30%. But on the the hand, Do i really want to pay millions of dollar and yet the damn Housing project next block is 200 per month rent. I just find it funny how the city architecture this. All Housing project should be privatize period.. it nurtures criminals and brings down the neighborhood. you wonder why ppl got get to the end of the bus...yeah yeah politically incorrect, but it's the fact.

All cities that are also financial hubs, like NYC, have traditionally had very high housing prices not only because of fundamental supply issues, but also because of high mean incomes. Why are the incomes very high? Because of sky high financial business income. The wealthy can afford to bid prices upward to their fiscal limits. In NYC, although Wall Street jobs represent a small percentage of all jobs in the city, they represent a whopping 30+% of all income generated in the city.

The degree to which Wall Street is flush with cash will greatly affect Manhattan real estate values, especially on the upper end of the market, but will also have a "trickle down" effect in all parts of the market. The reason Manhattan prices have heretofore not seen declines similar to other areas of the country reflects the fact that Wall Street has so far been able to sustain the illusion of solvency...until now.

Just because supply is limited does not mean prices will stay sky high. If housing is substantially overpriced compared to the means of the population, then it can still fall quite a bit.

I'm coming late to this chain, but Toes' post really caught my attention. I'll start by saying that real estate data are murky at best, and Manhattan real estate data are probably less believable than those in other parts of the country. So I would take any data reported on the NYC market with a large dose of salt.

Regarding Toes' math above, I think the numbers are misleading: the rate she quotes is, if anecdotal evidence is to be believed, is off by as much as 1%-1.5%; in addition, the example she chose is for a conforming-rate mortgage, which very few Manhattan properties qualify for (even with the temporary increase in Fran and Fred's loan limits); I think Toes' opportunity cost number is way too low, in a world where equity is expecting mid- to high-teens ROEs; and finally, rental rates are falling and the likelihood of receiving $3,000 in rental income for an apartment selling for $520,000 is minimal. Make the necessary adjustments (I relented and used the mortgage rate to reflect the opportunity cost, instead of an ROE of 12%-15%) and you are talking about being underwater to the tune of at least $1,500 a month.

The bottom line is that there is a MASSIVE disconnect between Manhattan rental yields and the cost to own, and another MASSIVE disconnect between incomes and prices. In fact, the disconnect in Toes' example is substantially less than I have observed. I routinely see ads in the NY Times real estate section where sellers are offering to rent their properties for approximately half of the buyer's cost to own. The most egregious example was for Vikram Gandhi's townhouse on the UES, which was offered for sale late last year at $20 million, and approximately 3 months later was offered for rent at $60,000 per month. Do the math: the rental yield reflects a sale price of approximately $8 million, or a disconnect of 60%.

To all this, add the fact that Bear and Lehman employees lost huge amounts of wealth, and that even the remaining banks' stocks (and therefore, investment bankers' wealth) have been hammered. Wall Street bonuses will be down sharply this year, and a much larger portion than normal will be paid in stock. The person who thinks the overall reduction will be only 20% is not being realistic.

To the person who talks of hedge fund types rescuing the market: the market is buzzing with rumors of hedge fund blowups coming. The recent ban on short selling will only accelerate the demise of some large funds. So, sorry but no support there.

The huge uncertainty that Wall Street employees are facing will act as a brake on purchasing (as a Wall Streeter myself, I can tell you that the mood on the trading floors is pretty bleak). People are cutting back on spending (one colleague told me he and his wife took the subway to their anniversary dinner to save cab fare). Don't expect the mood to improve soon. Investment banks are going through a painful reduction in the amount of debt they carry. Lower debt (or leverage) means lower profits, so there isn't going to be a recovery to the profitability (and bonuses) of the last few years until the banks figure out the next wave of innovation and the taxpaying public's memory has dimmed.

The foreign buyers who will allegedly bail us out will not materialize, because most foreign markets are faring worse than our own. Add the strengthening dollar, and foreigners will get even more scarce (and who knows, someone may actually point out to these incredibly unsophisticated foreigners that they can play the currency markets without also playing in real estate).

The supply equation is one that I confess I don't have a good handle on (see my earlier point about the quality of data on the NYC real estate market). All I know is that I see a lot of construction happening, and new buildings being advertised (all of which seem to be super-luxury), to believe that inventory is declining. And while I think foreclosures will spike dramatically in the coming 6-12 months as Wall Street layoffs and compensation declines make themselves felt, I don't have a good feel for how many units foreclosures will add to the inventory. I am confident in saying that inventory will increase substantially.

So, I say to those of you who own: either stop worrying about the fact that your investment will drop 30%-50% from peak (that's not a typo), or sell now while the Toes of the world will still give you a decent bid for your severely overpriced property.