WaMu Fails...Manhattan Real Estate Poll
A: No surprise here folks that the biggest US thrift has now failed. I have been discussing WaMu's problems for almost a year now. For fun, please take a moment and vote on where you think Manhattan real estate is headed, via a poll designed by my friend/colleague/fellow blogger Peter Comitini, who works at Corcoran.
Please take a moment to vote on where you see Manhattan real estate TWO YEARS FROM now. Peter asked me to put this on the site in an attempt to get a larger pool of votes, so we can try to gauge general perception. Thanks.
With this Washington Mutual failure, I am a bit concerned over mass consumer confidence now of our banking system. Main street is notoriously LATE to waking up to reality, and even though the blogosphere has got this credit crisis RIGHT for the past 12 months or so, and tried in every way to warn people about the likely events to come, I am sure there will be plenty of people that still will be surprised at this news. It is not suprising at all, rather, expected. Wachovia is probably the next big one to go, although their highly troubled portfolio doesn't kick-in until next year and into 2010, with their toxic option arm portfolio. I seriously worry about more bank runs as bank after bank after investment bank fail.
Only two weeks ago, I stated:
"For those out there keeping their head in the sand, or choosing to view the bright side because doom & gloom ain't their cup of tea, it's time you wake up to the reality that this is the worst credit crisis since the great depression! More bailouts to come and the next Big 3 in my view are WaMu, Merrill, and Wachovia."Well, Merill & WaMu now do not exist anymore in their previous forms. Wachovia is the last one left of the Big 3 I worried about. That does NOT mean its over, rather, expect many more small bank failures to come and bailouts to expand to other troubled sectors; mainly auto's & airlines.
Crazy times. Markets set to drop big time on the open.
Posted by chris
Fri Sep 26th, 2008 07:49 AM
Right on. I don't want to engage in schadenfreude but I am chuckling at an earlier post on this blog, with the very perceptive title 'the sky is not falling, people'
Posted by mh23
Fri Sep 26th, 2008 08:00 AM
The bottom line is that the same perfect storm that lead to an increase in Manhattan real estate had now morphed into a perfect storm to erode value in Manhattan real estate. I would say that over the next several years prices will fall 35-45% in nominal price. I have become more bearish based upon the fact that investment banks, and their bonuses, are gone forever. There may be an emerging industry that will replicate the same levels of wealth at some point in the future, but what and when I have no idea.
For any prospective buyers with cash and a desire to buy something that they plan on using for several years, the coming 12-24 months will bring great opportunities. As we can see by increasing inventory, there are now many units coming to market that "need to sell", as opposed to what we saw in the past year when listings came to market because sellers wanted to cash out at a high prices. Many people from the i-banks and related industries will have to sell units in Manhattan and the Hamptons, this will appreciable accelerate the decline in prices that we are already starting to see.
Posted by Noah
Fri Sep 26th, 2008 08:24 AM
yes the recent surge in inventory is worrisome, surrounding the events of the past 3-4 weeks.
Chris - Yea, Christine's article on The Sky is Not Falling, was a bit untimely and taken to the extreme. She does not claim to be a macro economist, and that article was really her take on the new dev forum she attended, as well as what she sees on the front lines in her own business.
She got some hits for that post, but she has earned her spot to write here on UD. I think readers know by now, the views that Jeff & I have via our writings.
Posted by chris
Fri Sep 26th, 2008 08:28 AM
Totally agree with mh23. My own estimate for the average Manhattan price drop was 40% over the next 2 years - mainly based on a return to the long term average of the affordability index. However, I expect the price drop for marginal areas such as Brooklyn, Harlem, Bronx to be even steeper. If the biggest real estate bubble in history has failed to turn Harlem into a Beverly Hills, NOTHING will ...
Posted by Rob
Fri Sep 26th, 2008 08:53 AM
The current housing prices are just not justified by the current employment and financial climates.
The fair value is a 2-3%, inflation adjusted, annual increase starting in 2001. This would mean that a studio that cost $300K in 2001 should cost approximately 350K-375K today. Not $500K+.
Anything above that is a pure consequence of the cheap credit bubble.
Posted by Dave
Fri Sep 26th, 2008 09:41 AM
You can't look at inflation adjustment in isolation, what about replacement cost? The cost to bring new developments have risen much faster than 2-3%, Noah, do you have figures to back me up on this? I agree there is froth out there in the market, but the simple fact of demographics remain. The population in Manhattan is rising, the quality of life has risen dramatically, the cost to commute and live in the suburbs (a trade off for some to living in Manhattan or outer-boroughs) is increasing as well. Do I agree that the underlying fundamentals had the real estate market in the city over-priced, yes, but a 35-45% drop in price, peak to trough seems a bit extreme in my opinion.
Posted by Nobi
Fri Sep 26th, 2008 09:46 AM
Any opinion on Citigroup? What is Vikram up to?
Seems very quiet over there. Are they just strong enough to weather the storm but too weak to buy anything and therefore very quiet?
Have we heard opinions on the increase in inventory? How high can the inventory go?
Posted by anonymous
Fri Sep 26th, 2008 09:51 AM
Posting the poll on your site likely skews the results. You have done much to enlighten your audience (and many thanks for that), and you attract people with like views.
Posted by Noah
Fri Sep 26th, 2008 09:52 AM
Dave - steel prices, cement prices, and general commodity inflation has def risen above 2-3% for the builders. No data to back up though.
As far as your argument, I dont really buy the "quality of life has risen dramatically" line because we are about to face a serious budget crisis that could reverse that trend.
In addition the cost of commuting line doesnt really fly with me either, as I dont think that really plays into as a major force in the buy decision. Manhattan re has a premium attached, and it is much more expensive to live here, so saving commuting costs or $4/gas, is a low level argument to me.
Population is rising in Manhattan, but with carnage on wall street and coming budget issues, expected trends may very well be altered lower.
Posted by Noah
Fri Sep 26th, 2008 09:54 AM
Nobi - I dont know, very weird right. I think there has been a stealth bailout of Citi as they certainly qualify as TOO BIG TOO FAIL! But clearly they have issues and clearly, their problems are being argued in the creation of any rescue plan by Treasury, so that Citi is better off in the end, or at least, so they dont fail, which would cause a serious global event.
Posted by Noah
Fri Sep 26th, 2008 09:56 AM
anon - yes, very true. Oh well, I was asked to participate by Peter, and agreed. I guess that side effect comes with the territory. Thanks!