NYC Job Loss Estimates Rise To 243,000 Through 2010

uptick in demand, Noah?

Sure, maybe the offers are coming in at 40-50 cents on the dollar, and not a nickle more.

Is anyone seriously bidding 50 cents on the dollar on a prime manhattan apartment?

Thats why I said very clearly: "I generally don't feel comfortable devoting a piece to topics like this until I see the pickup sustain itself for a minimum of 2-3 weeks; so lets just take this as a grain of salt. It is very likely that bids will still come in 15-20% below peak levels and price in near term 'downturn risk' that is perceived to be ahead of us."

Besides, these guys dont expect a deal for 50 cents on the dollar.

You don't have to bid 50 cents on the dollar people. Prices are already 50 cents on the dollar at 20 Pine. All you have to do is buy 80 units in the building! (See the post on Curbed)

Wow, anon must have taken a big swig of the haterade. I gotta think anyone who actually believes prime Manhattan will go down to 50% below market peaks is out of their mind. This is unprecedented, even in the 70's when garbage piled up on the street and over a million people left the city. 20% down, sure, 25% maybe, but let's be real people.

OT wrote: "I gotta think anyone who actually believes prime Manhattan will go down to 50% below market peaks is out of their mind. This is unprecedented, even in the 70's when garbage piled up on the street and over a million people left the city. 20% down, sure, 25% maybe, but let's be real people."

What I think you fail to take into account in your position is the outlandish gains that occurred. A 50% reduction puts prices back ONLY to the start of the insane bubble pricing.

To compare to the '70's is irrelevant and off point. The '70's bust was not a function of loose credit standards and unsustainable income levels.

The only question that makes the '70's relevant is if the City and NYS get into similar fiscal problems. IF that happens, forget 50% off and look to '70's pricing on NYC real estate.

Where did you get this insight from, OT? If you look at Manhattan RE valuations over the last 100 years, it shows continuous boom to bust cycles. And by 'bust' I mean sales of Park Ave and Fifth Ave apartments for pennies on the dollar since their owners where desperate to get out of the maintenance payments ... in the 1970s to give you just one example.

I don't think a decline of 50% in this environment is unreasonable.

Nice blog entry.
I had an almost verbatim debate just yesterday.
Anything to add?

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1: I think 2010 might be a good time to get into the Manhattan Real Estate market. Quite possibly the best time we will see in our lifetimes since the depression. I'm going to start saving up!
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2: I think you are right, only the opportunity may be more like 2009. My wife is a realtor, and she has quite a few buyers sitting on lots of cash. They are starting to get anxious as prices keep dropping. She has great relationship with many developers of new projects and they are getting desperate to get rid of their unsold units. She has been negotiating unbelievable deals.
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1: I guess it all depends on how bad the economy gets or if Obama can get this massive stimulus package going. Either way 2009/2010 will be a unique opportunity for those in a position to buy. I've sat on the sidelines for a long time so this is testament to the fact that there is a silver lining in a down economy.
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3: First, realtors have been naively bottom calling since 2006, and have been wrong all the way down.
Source: http://tinyurl.com/9qv2by
Source: http://tinyurl.com/8bosct

"Desperate builders" means an oversupply of units. That is bearish, not bullish. NYC supply has increased 50% in only 4 months. Supply/demand always prevails.
http://www.millersamuel.com/charts/gallery-view.php?ViewNode=1168399259Jmtnq&Record=12

"unbelievable deals" is relative. Relative to prices transacted during a profoundly different economic context. In reality, NYC prices have not even dropped 10% year-over-year. Has the collective supply/demand buying-power equation only changed 10% after the cataclysmic watershed of 2008 ? (Facts: Most of Wall St. evaporated in 2008, unemployment rising, credit market seizure, lower bonus pool, S&P500 down 40%, etc)
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In response to Lars, first of all, I don't see why a comparison to any decade within the past century is "irrelevant". Many of the same factors are at play (or will be), albeit with some new twists. Unemployment, decline in services, etc. Secondly, 70's pricing on real estate? Come on, you can't be serious. For the sake of comparison, I recently visited an apartment at a prime 5th Ave location that had been with the family since 1965. At the time, it was purchased for $35,000. I looked up the building in StreetEasy and saw that the same unit five floors down closed in October 2008 for $5,950,000. Do you really expect a 99% drop in prices? Get real.

And Chris, the worst period for NYC real estate was in the 30's. In 1940, The Beresford and The San Remo buildings were sold together for $25,000 over their mortgages. A single unit in the Beresford closed this past year for $18M.

I will concede that if we have a decade similar to the 30's, we will certainly see drops in excess of 50 or even 60%. But I have faith that this will not be the case. I, for one, cannot fathom 25% unemployment, but if this comes to bear, I don't suppose many of us will be spending time blogging or posting on these sites - we'll be too busy in line at soup kitchens and selling apples on the street

I've definitely noticed an uptick on buyer interests on various blogs and talking to various mortgage brokers who are giving out pre-approval letters.

I am lining up my open houses for the next few months and see if I can get a good 25%+ discount on already discounted prices.

I think the interest rate taking a nose dive is helping to push people to make some serious, although heavily discounted bids.

You can't compare $35k in 1965 to $5,950,000 today. Those are nominal dollars. You have to adjust for buying power (inflation).

A 50% drop is coming, but it will be in real dollars, not nominal dollars.

here is a inflation calculator http://www.westegg.com/inflation/

so base on this calculate 35k in 1965 will be $227,798.33 in 2007

i guess if you believe the 5.95mil prop will be 227k, wow if that is the case i'll be buying by the boat loads

Unless there is a Great Depression 2.0 or some major natural/ man made disaster in Manhattan, I think we are highly unlikely to see 50% drops in prime Manhattan. Let's be realistic people.

I do not think a 5 million property is going to go down to $227k. But I think it could very well go to $2.5 million.

That's not to say that a Great Depression isn't unrealistic. In fact, I think it's inevitable. The question is: when? I think the likelihood that we are entering a depression now is high. I think the likelihood of it being "the big one" is relatively low.

A great source for more information is The Big Picture blog:

http://www.ritholtz.com/blog/

In general, investment portfolios are off 40 %. Income in NYC could very well be off similiar amounts, if not more.

Therefore, with substantially decreased assets/income (not to mention fewer buyers because of unemployment)to purchase/afford housing it is not a reach by any means to expect real estate to follow suit in nominal terms (worse in real terms) with similiar declines of 40 to 50%.

Why wouldn't an intelligent buyer bid 50 cents today? He certainly can't be worried about losing the deal in a market with growing inventory, declinig prices and scant buy side competition.

Noah, I agree with your sentiments. I recently had a meeting with a friend who owns two restaurants that are doing extremely well and will do better as the place offers inexpensive fare, about buying a building with a restaurant space on the ground floor. We are just beginning our search now with an eye to pulling the trigger in the next 18 months or so, depending on how bad things get. There are buyers on the sidelines, but investment buyers who will not be lured to purchase until we feel that this thing has fully collapsed and we have multiple properties from motivated/desperate sellers to choose from.
Manhattan will survive, but it will be a very different city then the one we have seen for the past several years. It will be younger, grittier, and more interesting. It will be cheaper, but perhaps just as crowded. I don't know how the developers will dispose of the "family sized" apartments, but that will be interesting to see how things play out.
Manhattan has two things going for it:
1) Bloomberg is a business man with vision, so he is about as good as you can get in the office for this crisis.
2) Unlike the 70's, this time the Federal government will be willing to help Manhattan, and Bloomberg will do a great job eliciting those funds.

Thanks as always Noah for your fine and well reasoned analysis. While the message is truly beyond words - to bury our heads in the sand and act despite the writing on the wall is true folly.

mh23 -- I agree with most of your analysis and am hopeful for our vibrant city to survive stronger then before, but wish to counter your opinion of Michael Bloomberg. I don't see Bloomberg is the wizard many profess him to be.

Despite eight years in office, his famous business acumen and vision has failed to positioned us for the downturn. His pet projects and misplaced priorities (see Yankee Stadium, Citi Field, the olympics and his failed run at (1) Presidency; (2) Vice Presidency; and (3) any other elected office other then the one he had) took valuable resources away from shoring up the accounts for the downturn many saw coming at least two years ago. As for federal funds, even as a Republican who gave a ton of money to Republican causes, he was unable to provide us with the fair share of Homeland Security funding we needed time and time again.

Thus and ironically, his policies and failed leadership when times were good will account for the decline of quality of life in New York due to cut in services when the times are turning bad. We need and can do better.

The more I think about it, there is a definite chance that NYC real estate will fall 50% from peak. Unemployment #s are reaching the worst since WWII.

http://money.cnn.com/2009/01/09/news/economy/pain_ahead/index.htm

The risk is that quality of life in NYC will plummet and along with it RE value.

I agree Brooklyn. Bloomberg seems to think that being mayor is a part time job and seems to spend the remainer of his time looking for a promotion (President) and traveling the world on his private jet. Business people do not always make good politicians. Corzine has been a complete disaster in New Jersey and I hope he is voted out of office.

Bloomberg is sending out the $400 property tax rebate checks at the SAME TIME he is raising property taxes by 7%. Huh? Why not just keep taxes the same and not mail any checks out?

i think everyone needs to take the Unemployment #s in context, yes no doubt its bad, but adjusting for population growth its the the worst since ww2.

baileybee wrote:
"i think everyone needs to take the Unemployment #s in context, yes no doubt its bad, but adjusting for population growth its the the worst since ww2."

Do you mean by keep in context the fact that the reported government numbers siginificantly UNDERSTATE (through birth/death model, etc adjustments) the country's unemployed by several percentage points at a minimum.

lars, sure gov does adjustments, but dont they do it every year?

so if you want to do comparison btw years, i suggest you take the raw numbers yourself and then compare it, if you want to take the headline numbers with adjustments, the adjustments are there every year.

population in 1945 was less than half its current size. i am not saying times are good, or this recession is not a bad one.

i find it funny how when times are good, people are saying "real estate price will never go down" and when times are bad "its the end of the world, great depression is upon us", its like chickens with their heads cut off.

media loves to take a number and create headline that are not as bad as the headlines make it out to be.

Please look at the bigger picture of price drops

1. You don't need a Depression for prices to go down 50%. Deleveraging can occur while unemployment is 8%. Asset moves up 500% can easily correct 50%

2. Comparatives of population growth, a larger city, amenities, etc have no context when prices start to accelerate on the downside. I lived thru the Hong Kong boom and bust. There is no land and more money in the banks than you can imagine. The rich are smart and stop buying. Prices went down 70% from the peak over 7 years. Also after a 500%+ type boom based on leverage and finance

3. History shows and boom and bust cycle does not play itself out in 1-2years. Thats unrealistic. To read more on this pick up Soro's book Alechmy of Finance"

4. Please be careful trying to be too smart to pick the bottom. Normally prices have severe move down, then drag lower in slower motion. When the public then gives up on real-estate it will be obvious, everyone will hate it. It will be sad to see those with money who can buy, ruin it and buy to early. You can be correct and loose money.

Thanks great blog

Iven - Enjoyed your comments, but you have one fact wrong. Manhattan real estate prices have hardly risen 500% during the most recent boom. In fact, by looking at Miller Samuel's data, the increase over the past 10 years is actually closer to 120%. While this is certainly spectacular and an aberration from the historical norm, it is nothing like the markets in Miami, LA, Vegas, etc. where prices increased closer to 250% during their boom years. I agree that perhaps it won't take a full on Depression to see a 50% price drop, but it will have to come pretty darn close.

OT, in 1995 I bought a small two bedroom in Gramercy for $105K, last year similar units in the building were going for $990K. The NYC housing boom has really been going since about 1986, with a pause or two, with a huge increase 1990/2000ish to start the whole "boom" off.

baileybee, the adjustments have changed significantly over the last 10 or so. It was during the Clinton administration that discouraged workers were removed from the U3 unemployment figures. Also, underemployment has increased and changed tremendously over the years. We now have 8 million people employed part time due to economic reasons, a 70-something % increase over two years. This is astronomical, and pretty much unheard of.

I meant the boom has been going since 1996 or so, not 1986 or so. Wow, that was some mistake, just shows you what a decade can do.

And a huge increase 1999/2000, not 1990. I need to start drinking again.

If prices drop 30-50% and a $3million apartment becomes $1.5-2million, won't the $3-4,000 monthly charges remain just as high? Do monthly maintenance fees and RE taxes ever adjust down?

Brenda - Congrats on the deal of the century, but your comment is purely anecdote. I expect what you are leaving out is that you purchased the apartment in dire condition and your current comps are fully renovated.

In any case, you can do the math yourself using the numbers from Miller Samuel (going back to 1989).

http://millersamuel.com/charts/gallery-view.php?ViewNode=1208449530UATUX&Record=3

For the time period you specify, median sales price in Q1 '95 was $340K, and the peak of the market in Q2 '06 was $810K. The numbers are for coops only and are adjusted for inflation. That is an increase of 138% or about 12% annually on average. Again, I agree that this is very high and a historical aberration. But at present, we are about 100% ahead of 1995 numbers, which comes to a more sobering increase of approximately 8% annually.

I made the point only to compare with markets like Miami, LV, etc. that saw much larger gains in a much shorter time period. Simply put, I don't think we will see the pullback in our market that was seen in these areas because we simply didn't go as far as fast (among other reasons).

RWZ - I have sat on several coop boards and here is the deal. The 3 largest expenses for a coop are mortgage payments, RE taxes, and payroll (not too different from my own top 3!). If the mortgage expires and another one does not need to be taken for capital improvements, then the maintenance could conceivably decrease (but unlikely). RE taxes are already assessed on artificially low valuations of the building, so it is unlikely these costs will go down. As for payroll, that is up to the building. Will a doorman building get rid of its doormen or porters? Unlikely. Will the doormen unions offer concessions? Possibly, but not terribly likely either. Typically, the only time you see maintenance go down significantly is when a major tenant signs a lease on building property.

OT, all I know is in 1995 it was relatively easy to find a two bedroom below 96th street for under $200K. May not have been the median price, but not unheard of. In 1999 was relatively easy to find a two bedroom for $550K, by 2000 difficult to find much under $550K, and by 2007 a different story altogether. Maybe anecdotal, but I looked at hundreds of apartments (I think I'm a frustrated broker at heart), in 1995-96, 1999-2000, 2003-04, and 2007. Only in the two/small three bedroom range.

I did $12K worth of renovations. Was not a gut job in the slightest.

Another anecdotal data point:

In 1999, a studios @ 56th and 1st was ~130k. In 2004, it was sold for 430k.

This whole will the market go up 20%-50% and/or down 20%-50% is tired. Please just end it.

Lets all take the fake crystal ball out of our pockets and just let the market run its course.

Mike - I agree, we are all speculating and playing pretend analyst. I've been on this site frequently over the past year because I like Noah's analysis and just grew tired of all the renters posting ridiculous doom/gloom garbage. I picked this thread to make my counter-stand. Sorry to bend everyone's ear.

Sorry I can't get in on the prediction making everyone, but my crystal ball was recalled by the manufacturer. It was made in China and had dangerous amounts of lead paint. Oh well.

Thanks OT - I agree, and outside of one a year predictions, I usually don't put predictions of where we may be in the discussions.

As its happening and as I see it, Ill report what I see. I just want to make this market more transparent

mike-

I don't think what you're reading here is fake crystal ball stuff.

I think this is quite straightforward macroeconomic analysis, something more brokers would be well advised to bone up on going forward.

If you want to know what's fake, I'll tell you, the prices on residential real estate--apartment prices--are fake. The prices are from a bygone era, an era of Ponzi schemes and fake mortgages.

So to call serious analysis fake is really way beyond the pale.

It's fine to discuss current trends and macroeconomic analysis. I think it's interesting and informative to view one's crystal ball- IF the views presented are not overly subjective. After all, that's what most of us come here for. As exemplefied by Noah, one's credibility grows in direct proportion to the accuracy of their crystal ball.

It's just that lately that most of the postings here seem to reflect sentiment and (wishful) speculation more than objective analysis. As in politics you can use statistics to argue any point of view- if you choose the ones that favor yours. In that regard I applaud OT for coming out to refute some of the faulty analysis that has been made recently.

It costs nothing to speculate; if you're wrong you allow your prediction to be conveniently forgotten. If you're right, you come out and say 'I told you so!' to everyone (not referring to the UD articles because they're archived here with the Author's name and date).

As a someone currently trying to sell it pains me, but I cannot argue the with the FACTS:

* Deals have been happening 15-25% off peak
* The market is still very illiquid
* The market is apparently trending downward
* Buyer confidence is currently very low

ALL other factors: unemployment stats, credit availability, economy, city budget concerns, macro trends, etc. are INDICATORS, and should be identified as such. Citing the ones you like, in order to state exactly where a market will be, when it will be, and for how long is dubious, if not cynical- just a mirror image of the ridiculous bullish speculation we saw only a few years ago.

Seller - are you a broker or trying to sell your own place? If the latter, any insight on your experience would be much appreciated. There was an open house in my building this wknd and I popped my head in out of curiosity. It was packed. That doesn't say anything about whether there will be any offers or if the seller will get a good price, but I see it as a positive sign. If NYC unemployment does not exceed 8%, I see a bottom at 15% below peak for co-ops and 25% for condo/new development. Ultra-luxury that was trading above 4000 per foot probably has further to fall as well. Most of the people I know still want to live in Manhattan provided they still have a job.

Seller - excellent comment. I believe very much in trying to keep discussions here unbiased, and objective.

I think your comment is valuable information and I for one, enjoy coming back to check here and see something like this pop up.

Since I do write alot of the stuff here, let me ask you. How would you like content enhanced, added to, or tweaked?

Although I try my best to keep bias and emotion out of the discussions, sometimes I cant. It just comes out sometimes. Even when you think you can contain yourself, sometimes it shows up and by then the discussion is already written and to mess with it is to ruin the impulse of the thought at that given time.

Anyway, would love your feedback. Thanks and good luck with your place.

Noah,

It is hard to keep sentiment out sometimes, especially if one has been living and/or working in the arena. This (the market, but really the economy generally) kind of reminds me of Watergate. I always wondered why my mother and aunt would watch what I felt were such boring proceedings, and they were fixated!! It was something totally beyond their frame of reference, and although repellant on some levels they were fascinated nonetheless.

The economy is like that for me. I certainly find no joy (although I wouldn't mind being able to afford an apartment, but that assumes we remain employed, mortgages are available, interest rates don't implode, etc.) in this economy, but it is utterly compelling in a watching a train wreck kind of way.

Seller, it only takes one buyer. People ARE out, some ARE buying. Good luck.

OT- put my 1BR in the financial district on the market in May after having moved out to rent, setting my asking at 5% below peak (which had occurred FSBO in 11/07 for same cookie cutter 1 floor below mine). Was doing it FSBO until September, when I listed with a broker that lives and owns in the same building. At that time we dropped asking to 8% below peak. In early Oct., dropped it again to 10%. Shortly after that drop we had an offer at 15% below peak. I was inclined to accept it but my broker had talked me out of it, arguing that the buyer was not worth the opportunity risk with 80% financing. As it turns out, with hindsight there was no risk because there were no other offers since.

There has been a modest but steady stream of buyers viewing the apartment. Many have said they like it but since none save the aforementioned have made an offer I haven't been able to determine what the curve is and whether I'm priced ahead of it or not. Interestingly, many of them ask to be contacted if another buyer makes an offer.

Since continuing to pay carrying costs on an empty apartment is not helping my current financial well being, I'm considering accepting an all-cash offer from a Hong Kong buyer at 25% off peak if it materializes. My broker, who told me of the buyer over this past weekend, says it's more likely than not that the offer will be real (though he believes it's too low).

Noah- thanks for asking. I think your content and its presentation is already great. I suppose it would be nice though if it were possible to link the posting threads associated with your articles to the 'Talk Real Estate' section so that new posts made to any article appear first. Content-wise, there are flip sides to buyer concerns in the current market. Extremely relevant but completely un-discussed right now is opportunity risk: how should I as a seller should evaluate a prospective buyer's risk of being denied financing at closing, and how should I value it into the offer?

Seller wrote:
"There has been a modest but steady stream of buyers viewing the apartment. Many have said they like it but since none save the aforementioned have made an offer I haven't been able to determine what the curve is and whether I'm priced ahead of it or not."

Seems pretty obvious to me, for the current market conditions, you are behind the curve as you have received no offers.

Other lesson to be learned from your post: the old tried and true adage, usually your first offer is your best offer.

Seller - "I suppose it would be nice though if it were possible to link the posting threads associated with your articles to the 'Talk Real Estate' section so that new posts made to any article appear first."

Can you explain more? Are you suggesting to add a TALK REAL ESTATE link to new discussions OR somehow find relevant TALK REAL ESTATE topics, and have those show up beneath all new posts based on relevance?

The latter seems very intriguing. Thanks

lars: last month I marketed the apartment FSBO for 2 weeks per an arrangement with my broker. I dropped the ask to 15% below peak during that time to determine whether there would be a change in interest. My asking price was a full 12% below the next lowest ask for a close comp in the building. 7 buyers came to see it, none made an offer. You quickly conclude it's "obvious" that the only reason an interested buyer does not make an offer on a property is because they think the the asking price is too high, as if all buyers are prepared to make an offer on the spot and assume asking prices are non-negotiable.

I think there's more reason believe that people who plan to buy window-shop while economic forces are still very much in flux; they don't feel comfortable making an offer at ANY price, but want to be ready to pounce when things become a little more predictable. An illiquid market by definition is one where price movements do not generate activity.

Noah- yes, something like the latter. My thought was something like I've seen on other sites (though I can't remember which at the moment):

When you create an article, a discussion thread with the article's title would automatically appear in the 'Talk Real Estate' section. The article itself would only have a link to the discussion thread rather than the posts as you have it now. Then, at the visitor's choice, discussion threads could be grouped by article, newest article first- or just as a list of posts independent of article, newest to oldest. That way it's possible to see new posts to old articles , as some users prefer- or only posts for a particular topic.

Just my thoughts

Seller,

In your comment, you overlook my caveat, "for the current market conditions".

If you are prepared to hold, and believe the market will stabilize in the near future, then you may be properly priced.

Nevertheless, for the current market conditions, if you are not getting any offers (and you are getting decent traffic) you are, by definition, priced too high. That is what the market is telling you. There is no question there is a price at which your apartment will sell today. You just may not find that clearing price acceptable and that is your prerogative.

Every apartment has a clearing price, even in today's market. There are buyers and there are sales even in this market, so the only thing holding back your sale is price.

That is not to say the market will not change in the future (be it tomorrow or next year) suggesting a different clearing price.

Not meant to be argumentative, just my view of market dynamics.

Everyone is expecting recession getting over soon. I have a very close friend, who graduated from Harvard. Worked for ML for over 8 years, recently he’s been “right sized” too, despite of his outstanding performance and the increasing revenue he generated. OMG, now the banking industry is badly hurt, how long it would take for those financial background guys like him get back to the job market. Banking jobs are not there as much as before as easily seen on http://www.joboutlets.com and other job sites in the region