Manhattan Bears: Beware What You Wish For
A: Know this, vultures eat dead things and it can't be that yummy! I just experienced my 3rd casualty of war yesterday, and 2nd lost deal in 2 weeks, as discovery during the diligence process revealed issues with the building that my buyer was about to buy into. And then it dawned on me. All the buyers that are eagerly awaiting this market to crash and trade down 50%, 60% or more, should beware what they wish for. The forces that come into play to take a market down that much, may make any buyer very wary of pulling the trigger. In today's market, you know my pyramid range of where price points seem to be trading, what would you do if your offer is accepted and you find out that the building has deteriorated financially because of the severe local slowdown? Its a catch 22 right? The slowdown is the reason why prices have traded down, yet the slowdown is also why some buildings are finding it harder to manage their finances. So which do you want?
Everybody wants an amazing deal, everybody wants to be a vulture buyer, and that is all fine and part of the natural order of markets. But be aware of what vultures chomp on - dead things!
I think its safe to say that in boom times, where prices are rising and maintenance increases are easier to absorb, buildings were able to more easily handle their internal finances. They were also able to secure HELOC's and refinance to take care of capital improvements and/or other issues that needed to be addressed. However in times like today, where prices have fallen to the first comfort zone, discoveries of big debt, maintenance increases, dwindling reserve funds, capital improvements, rising number of residents in arrears for maintenance payments, etc., the building may find itself in a bit of a pickle. And that puts the seller in a spot, because in the end it will all be discovered.
Not all buildings are mismanaged, and in fact, most buildings probably are in fairly good shape. But beware the effect of a local slowdown, as this can change at any time.
Here's the rub: buyers today are cautious enough without needing any further motivation to walk away from a deal! Yes, they may be happy with the price they got on the deal but how do they feel if they find out the building has taken a turn for the worse as a result of either mis-management or this severe slowdown? Will the buyer say its priced into the transaction terms? Or, will the buyer try to renegotiate or simply walk away?
The extent of the issue plays a big role here. If its only financial, you should ask why is there a hole and what funds were used for; if its capital improvements, well that likely had to be done anyway and improves the building. In this case, find out what was done and what the board plans to do to re-fill the hole? If its an assessment, how much is it in total and can the deal be salvaged by a concession? In situations like these, uncertainty is a deal killer!
Everybody wants a deal and the biggest bears on Manhattan real estate talk about a correction peak to trough that sees prices fall 50%-70% from their highs before all is set and done - via an overshoot to the downside. But let me tell you what forces make a market fall so severely:
a) rising unemployment
b) rising crime rates
c) huge service cuts to the city
d) deterioration in quality of life, or perceived deterioration in quality of life
e) families no longer wanting to raise their kids in the city
f) rising taxes to fill budget gaps - hitting affordability
g) much higher borrowing costs - hitting affordability
h) rising homelessness on streets
i) zombie condos, unfinished projects, empty retail stores
j) deteriorating building financials, rising number of arrears
etc..These are the things that make a market fall so sharply and are almost impossible to cover over. This entire list has not happened yet (and I hope it doesn't happen), but certainly these are things that could mark the end game of a crisis with its core on wall street. I was quite bearish for very real reasons 18 months ago, and now I am way less bearish than I was because the process started; but we still have a ways to go before a solid foundation can be built to sustain a recovery. Right now, I would update my 'muddled L' recovery to look more like a muted 'W' recovery with the final growth spurt a big question mark and more of a muddled stabilization for a while. It seems Keynesian stimulus will have its moment, although it will be temporary.
Nobody wishes the above noted forces on any city, and certainly not the one that this blogger lives in and loves so much. What I see right now is more and more buildings dealing with lower reserves, rising defaults of residents, lawsuits against developers, higher debt, and lower operating revenues as a side effect of his slowdown. Its showtime and now is when building management must come through for its shareholder/residents.
Its a trend worth watching, and nothing to get all excited about yet because its not a widespread problem. If anything, boards should be preparing for tough times ahead and hopefully started this process many months ago. Afterall, it will affect all owners of a building if finances were not managed properly. Buyers should come to expect that immaculate buildings with huge reserves and excellent management, will be harder to find as this cycle plays out. Will we get through this, yes! Is this expected, yes! Buyers want it all (low price, low rate, immaculate building, etc..) and sometimes its impossible to deliver. Something has to give and if you are a vulture buyer seeking a steal, be aware that the food may not be the best eats in town! PS, I have nothing wrong with vulture buyers!
In the end, buyers who want this market down much further should wonder how the forces that could do so may affect their willingness to live in this great city; and the building they decide to buy into. Beware what you wish for, because it may drive you to want to live elsewhere! I hope the powers that be know what they are doing to prepare for adverse scenarios, should it play out that way. In the end, the market will do what the market wants & needs to do to maintain equilibrium. Nothing I say here will change that.
Posted by OT
Tue May 19th, 2009 11:44 AM
Noah - how did your OH go this past weekend? Anything you can share?
Posted by Noah
Tue May 19th, 2009 11:49 AM
45 people, offer accepted
Posted by JKD
Tue May 19th, 2009 11:55 AM
I don't know Noah, Manhattan was a great place to live in 1997, I can say that with no doubt. I really don't see why the next time we see $300 psf on the UES for a 1 br it will be all Mad Max.
I see what you are saying and you are right to a certain extent. But so VERY much of the wealth out there is fake. It is on paper and nowhere else. Just because the value of that imaginary fantasy paper wealth evaporates, and it will, it doesn't mean the quality of life will suffer the same losses percentage-wise. Sure, there are some lean years to come following the orgy of fat years we have just experienced, but I don't think all the changes will be as drastic and unwelcomed as you think.
Oh, and by the way, anyone buying 50% off the peak and calling themselves a vulture is sadly mistaken. There will be a lot of blood in the streets for those buying that 1 br UES condo for $600 psf on the way down. Vulture? 'Roadkill' is more like it.
JKD
Posted by brklynbroker
Tue May 19th, 2009 11:58 AM
I just lost a deal in a brooklyn because the building is experiencing defaults from residents. Painful. It's hard enough to earn a living as a broker these days without having things like these to deal with too. That is why buyers have attorney's working for them! I would have walked too if it was me
Posted by Noah
Tue May 19th, 2009 12:03 PM
JKD - well, its because of where we came from. All the lost wealth, the rise in taxes, the city budget shortfalls, the blood in the streets..etc. It just has an effect on people.
What I noted there are risks, that are not currently all here today. So its just talk about what may be possible if this slowdown proves as severe as some think.
If it does, how will buyer confidence adjust?
I HOPE YOU ARE RIGHT because I love living here. but already I see more and more empty retail and rising homelessness. change like that takes time to hit home, but when it does, it sticks for a while. My biggest fear is to undo the improvements this city has seen over the past 15-20 years or so
Posted by JKD
Tue May 19th, 2009 12:15 PM
I feel for honest brokers out there working hard trying to get buyers and sellers together. But the sad truth is, every transaction taking place today is is a bust waiting to happen if it is not an all cash deal.
Prices are just too high. I am frankly surprised that any bank in the world is still offering mortgages in NYC (that can't be pawned off on the Feds).
It was a bubble, a fantasy. Not everyone has woken up from the dream yet, but for all intents and purposes, it is over. There is an echo effect in real estate due to the low price transparency and very strong psychological anchoring. But this will only last so long.
Every day is a good day to sell, in most cases the first bid is going to be the highest one your seller will ever see. Close as quickly as possible, before the buyer wakes up.
John
Posted by Teri
Tue May 19th, 2009 12:18 PM
Interesting post. Noah - when do you plan on looking to get back into the market for yourself? Is there a target ppsf you are looking for?
BTW, went to an open house over the weekend, the realtor said that they are probably no longer having open houses bc the traffic has been slow. And this was a desirable apt in a prime downtown location!
Posted by JKD
Tue May 19th, 2009 12:50 PM
"My biggest fear is to undo the improvements this city has seen over the past 15-20 years or so"
I'm afraid there is no way to avoid the budget disaster that is on the way. There will be service cutbacks and benefit cutbacks to city workers/retirees, it is inevitable.
There will be a cutback in the number of coffee shops (is this a bad thing?), clubs (how many bottles of 500% marked-up booze can you drink in a week?) and restaurants (how many $60 steaks can you eat in a week?). There were plenty of choices before the bubble and there will be plenty after.
Family life? Well, as far as I can tell you need to be a Rockefeller to support a family in Manhattan as it stands. If this changes, I'm sorry, but I do not shed too many tears for that. For those that stick around, the kindergarten wait lists will be shorter. For those that don't, the Museum of Natural History is just a train ride away.
Crime is really the biggest issue I'm sure you are concerned with. But this isn't a matter of what we want or don't want, it is going to go up. It is not a function of the real estate market going down, it is coincident at best. It is more about job losses and general economic deterioration, something that is happening in advance of the real estate downturn. And something that will continue independent of it.
Some argue (not me) that massive inflation will keep a bid under real estate prices while driving unemployment much higher. If this happened, we would see a dramatic affect on NYC crime rates and the general standard of living in NYC, all while real estate prices did not go down.
I am not trying to be a gadfly. I honestly believe that this real estate crash is a GOOD thing in the long term and I don't think anyone needs to be careful what they are wishing for.
John
Posted by Kevin
Tue May 19th, 2009 01:48 PM
I hear what you are saying Noah, to some extent.
But I think you are missing the fact that tenants will be much better able to pay their maintenance if they aren't being crushed by their mortgage.
a 750k mtg at 6% costs roughly $4500 a month. If you knock that down to a $500k mortgage, you are now only paying ~$3k month. Who is in a better position to pay their maintenance?
If there wasn't a bubble, these places wouldn't be dealing with these defaults. I am not too worried about Manhattan, there are still hordes of refugees in the outer boroughs and Hoboken/Jersey City that would love to move in if the price wasn't unreasonable.
-Kevin
Posted by lars
Tue May 19th, 2009 01:58 PM
Noah wrote:
"In the end, buyers who want this market down much further should wonder how the forces that could do so may affect their willingness to live in this great city"
Noah,
You surprise me with this statement. I thought you of all people understood the price adjustment affecting Manhattan real estate market (and the rest of the country as well) has nothing to do with WANT and all to do with FACTS.
Your comment suggests otherwise. No matter how much I may WANT prices to go up or down it is irrelevant. Fundamentals are driving this bus.
Posted by Noah
Tue May 19th, 2009 02:46 PM
lars - I dont think that statement overrides general macro fundamentals?
the point of the discussion, although its nice to spark some debate and liveliness here, is that with a severe economic slowdown more and more buildings will show deteriorating financials, as opposed to being in better shape than during boom times.
I lost two deals because of this in past 2 weeks. It doesnt matter that both deals represent this market down 20% - 25%, the buyers walked without considering a renegotiation. Its telling. I want to pass on this info to you guys.
Those who I talk to and I consider sharp bears who expect this market to fall 70%, must understand that what I noted above are the forces that likely would contribute to a market falling that severely, and in the end, they may choose not to live here if they get their 70% off with those circumstances.
I do not see 70% adjustment though.
Posted by gabrielle
Tue May 19th, 2009 02:55 PM
Hi Noah! I love your blog. I have been looking to buy since 2006. I am glad that I did not buy in the past when you had to make a decision on the spot and brokers were too busy to call you back. Realistically, what do you think price per square foot is going to look like in Manhattan in 6 months? In 1 year? Prices still seem high based on their listing prices. Thank you!
Posted by Mike
Tue May 19th, 2009 02:56 PM
Market price manipulation is the true CRIME this city needs to be mindful of. This place suffer from too many white collar criminals robbing working families of all hope of a sustainable future. In good times we methaphorically "hold the purse" and in bad times we drive the getaway car. This city is worthless without the working class who's back this city was built on. California, Florida, even Syracuse NY are looking awfully cheap right about now.
Posted by Noah
Tue May 19th, 2009 03:01 PM
I have been writing for almost 4 years now, prob over 1,100 posts. Its perfectly fine for you guys to disagree with me or a post I write. Im not perfect and not right all the time!
This is more of a sign of the times piece. I think buyers need to be cushioned that they should expect slightly more negative discoveries during diligence phase than during the boom times. Thats all. It should be expected.
Things like, dwindling reserves, rising defaults, loans coming due, etc.. should to an extent be expected if an economy experiences a severe slowdown and consumers feel big time pressure and a negative wealth effect. While its highly individualized, you have to expect some infestation even in the best buildings.
Its what the $$$ were used for, what is the plan going forward, how properly was the bldg managed up to that point, etc.. that mean everything. Uncertainty is a DEAL KILLER! Thats the point here.
Posted by Noah
Tue May 19th, 2009 03:02 PM
Lars - you know what I should have clarified. When I made the statement at the very end of the piece:
"In the end, buyers who want this market down much further should wonder how the forces that could do so may affect their willingness to live in this great city"
...I thought it was clear I meant the buyers who expect prices to fall 60% to 70% as I stated earlier in the piece. In this context, the statement was meant to explain that those forces play a big role in getting a market trading down 40% or 45% to start trading down 60% to 70%...thats when you cant give a property away. I believe early 90s, even though I was HS then, was a period that saw such illiquidity, but for varying reasons.
Posted by Mike
Tue May 19th, 2009 03:08 PM
@ Noah
Point taken. You can't have it both ways, sort of pick your poison at this point. Don't take offense and keep up the good work.
Posted by uwsider
Tue May 19th, 2009 03:24 PM
Regarding the issues that came up with the co-op.
Now that you are aware of the issues, in hindsight do you think they were issues that could have been 'spotted' or researched on-line before having to go to contract to find the issues?
Posted by Noah
Tue May 19th, 2009 03:28 PM
uwsider - no, because there is no place online that has this information.
perhaps the buyer could go to the management company, buy two years financials and request to see the board minutes, but the way its done here is that you get a offer accepted first, and then atty gets involved and runs diligence.
Posted by Donald
Tue May 19th, 2009 04:33 PM
Great post Noah. For those who want prices in NYC to decline by 50% or more, please take a look at the cites where this has already occurred and tell me if you want to live there: Detroit: Anyone want to live here? Phoenix: Anyone want to live in the kidnapping capital of the country? I didn't think so. Stockton, California: Anyone want to live in a city being patrolled by an armed militia? I also did not think so.
Posted by In Debt We Trust
Tue May 19th, 2009 04:57 PM
Noah, do you think NYC is headed for a return to the rent control/stabilization days?
Posted by Donald
Tue May 19th, 2009 04:59 PM
For the bears wishing for a 50% + decline in prices, here is a preview of what you can expect. ENJOY! http://www.nypost.com/seven/05192009/news/regionalnews/manhattan/violent_crime_wave_jolts_trendy_downtown_170010.htm
Posted by OT
Tue May 19th, 2009 05:19 PM
IDWT - there are currently 1.5 million rent regulated units in NYC (all 5 boros, includes rent stabilized & rent controlled). Not sure what you mean by return to.
Donald - saw that article and it is basically useless. It didn't give any clarification on data source, data range or methodology. More garbage reporting from the Post.
Noah - congrats on the successful OH this past weekend. Suckers rally or not, seems like there is definitely a pickup in activity, and I hope you benefit from that.
Posted by pia
Tue May 19th, 2009 05:20 PM
I lived through the 70's recession; actually I loved it as I was young and things were cheap. The late 80's--mid 90's one? I lived in the same apartment i had been living in, in the 70's--a large studio off Fifth in the 60's
Only ownership had changed and the new owners rented apartments to undesirables--I don't think anybody wants to live next to cheap hookers on one side and truly bad dealers on the other as it was a way of getting me out
I worked for SSI in the Bronx so I went from one depressing place to another. I would count the Olde English bottles on the street on the way to the subway at Lex & 60th. I stopped asking if kids had friends as the mothers would detail their days spent away from windows and drive by shootings. Kids played nintendo instead of doing "kid things."
My best friend's building on the UWS--a doctor's widow had her apartment "invaded" by crack dealers (it was a New York Magazine cover story) and they "took over" the building for awhile until the residents and the police got the dealers out. It was a building filled with young children, pregnant women and crack vials.
I don't think NY will return to those days. The buildings have become too good; the residents whether coop owner or rent stabilized too active. That is in established neighborhoods and buildings. I'm not sure what will happen in less established places
I sold my coop last fall and got out of Dodge. Though it will always have my heart I wanted to live like a person. Here I could afford a house and amenities. In Manhattan I lived like a perpetual grad student long after those days were over
I truly hope apartment prices don't fall much further and the stock market continues its march back. Only fools and people who have never had resources would wish for a repeat of the 70's or late 80's--mid 90's.
Posted by Noah
Tue May 19th, 2009 05:23 PM
pia - well said! Thanks for comment
Posted by cfranch
Tue May 19th, 2009 06:22 PM
Fundamentals may determine an asset's price in the long term but emotions often rule in the short term. Right now sellers emotions range from disbelief to fear. Too many are holding on to yesterday's prices. They will relent at some point and this market will find it's bottom. RE bears, myself included, just need to be patient. Too many of my ursine friends vilify the bulls(owners, brokers) when they offer up their green shoots. The longer they hold out the harder the fall.
Posted by The Harlemite
Tue May 19th, 2009 06:54 PM
Noah, the force that will drive down the prices from 40% off the peak to 50% off (or more) is the extra risk of default from your neighbors. Not only default on their mortgages, as a foreclosure next door will hurt your comps, but also a default on the maintenance.
As you and others are starting to realize you can no longer see a $1,500/month maintenance and assume that amount will stay constant. Buyers will need to price in the fact that their maintenance may actually be $3K or $4K for a while until defaulting buyers are evicted and new tenants who will have a lower cost basis move in. This added risk will force apartment buyers to offer less.
Eventually we will see investors jumping back into the market. We won't be able to sell 11,000 units one at a time so we'll need investors to buy all 10 units in one building. But these buyers won't come in until monthly mortgage and maintenance expenses are near projected rental income.
I predict we come off 50% from the top. (But that only puts us back to about 2002 prices meaning lots of people won't be underwater and NYC won't revert back to the 70s.)
Posted by joedavis
Tue May 19th, 2009 07:03 PM
Noah
I am very sorry you lost the sale.
Inventory is going down, so your return to optimism is well founded.
However, prices need to go down quite a bit further as you yourself were proclaiming for all the reasons you were listing. Nothing substantial has changed there.
This will happen and the buyer who will do it will be the one you are guiding. Thx for steering the vultures. A well placed piece of meat will always do it.
As to the impact, it will be interesting to see the distribution of NYC's income in 1997, 2003, and 2008 from different sources.
I suspect that the large losses of Wall Street and Legal jobs will have a larger impact given the city tax rate, than will the reduction in income from property taxes -- recall that property taxes are probably lower in NYC than in the burbs, and the income tax is supposed to offset that.
Posted by HD
Tue May 19th, 2009 07:13 PM
Since I'm Noah's buyer who bailed yesterday, I figured I could chime in!
We are in an unusual position---very cheap rent in a great place, so the plunge to buy has been long in the planning/dreaming (looking for 2.5 years). It seems that all the stars aligned this month: interest rates are very low and we found something we liked in our price range. All too good to be true...until our attorney did her diligence and found a multitude of problems. Maybe we could have gambled, maybe we could have renegotiated a big price break, but the whole situation just wreaked of trouble (for all the reasons Noah mentions above, and more).
We've been on the sidelines for a long time and it seems that it is worth waiting longer. I can't believe every co-op in NYC is in financial dire straights because the economy as a whole is a mess. Of course, I might be wrong!
Along with the other posters, this post does seem contradictory to your usual skeptical self!
Thanks, Noah, for the post.
Posted by lars
Tue May 19th, 2009 07:17 PM
Noah,
I was just keeping you honest :-).
The major point of your piece, which I took to be, price of coop/condo is only one piece of the puzzle and overlook the financial condition of the underlying building at buyer's peril, was SPOT ON and EXCELLENT advice, as always.
Posted by jeff
Tue May 19th, 2009 08:50 PM
Noah, great piece and great discussion. I love the way you underscore the fact that people psychologically want to be vulture buyers, but when they see what's crawling around in the dead meat, they often lose their appetite. This is the natural way of things in the psychology of markets. People don't just rush in, buy foreclosures and get rich. Oh if it only worked that way, we would all be rich and not just on paper. Declining prices beget declining prices, just as rising prices beget rising prices and there are real world issues that drive both. I continue to contend that apathy towards real estate will characterize the true bottom of the market and the best buying opportunity from a timing standpoint (and financial return standpoint). Of course if you need new shelter, you can afford to be early.....but be prepared to hold your nose and your property for a while. Unfortunately, by the time we hit a solid bottom...our Urban Digs audience may have shrunk to nothing.
Posted by dave
Tue May 19th, 2009 09:49 PM
A little late to this, but isn't it time to back off of the speculative nature of owner-occupancy and focus more on the consumption value?
We have enough liquidity and credit to be able to afford the purchase an apartment similar to our current rental. Still, after factoring in the mortgage tax deduction, maintenance and property taxes, it still doesn't make sense to buy; the annual cost of renting is still much lower than the annual cost of owning would be. Until prices drop to the point where the difference is much smaller, we'll be here waiting patiently.
It may be the case that prices never drop that far. If so, then I'm better off renting and investing my funds somewhere other than in the NY housing market.
Trying to time markets is a tricky business, even in an asset class as inefficient as residential real estate. Look at the Case-Shiller index for the NY MSA around the time of the 1987 market crash: 25% appreciation in 87, 15% in 88, then at least five consecutive years of non-positive returns. If you consider inflation over that time, that's five years of declining real returns corresponding to an event that was relatively small and short-lived compared to what is going on today. I am certain that in 1989 or 90, there was a chorus telling people to buy now or miss the train forever.
I sincerely appreciate the "cut through the usual broker crap" perspective presented here, but the emphasis on investment value over consumption value still smells like a broker come-on to me.
Posted by WestSideMan
Tue May 19th, 2009 09:52 PM
Noah - good post as usual. I have to admit I am in the vulture camp, and I agree that there is the "be careful what you wish for" comment. That said, prices got so ridiculous in recent years that people who would be considered well off in 98% of the rest of the country couldn't buy a decent-sized place in a nice neighborhood. Now that the marvelous securitization machine has broken down and real jobs / real salaries count, prices need to adjust to come back in line with the fundamentals that the 99% of us who weren't structuring ABS live by. I agree with you that all of the above factors (rising unemployment, crime, etc) might make the city less appealing to live in, but given that many of these gains were underwritten by Wall Street profits that proved ephemeral, I wonder if we aren't just going back to a less bubblelicious time - a "new normal". I happen to be an optimist and think this will not be like the 1970's, but rather the mid-late 1990's...
Posted by mjiam
Tue May 19th, 2009 11:42 PM
I'm unclear which points on your list haven't happened yet...As fas as I see, you can check each one off, but hold judgment on severity for another few years. This is fait accompli, the game HAS changed and all these factors will conspire to put an extended down cycle into NYC and NYC real estate for a few years (hopefully only a few). Unemployment is rising, taxes will be going up, and up a lot- think 60% marginal tax rates in 2011 for $200k+ earners. Quality of life will decline in this city..Accept that it may not revert to 70's depravity, but it will be evident to every resident and visitor for a long while..
Posted by Noah
Wed May 20th, 2009 06:28 AM
wow, this discussion really did trigger some response both here and on streeteasy. Im glad it caused a reaction, and started people talking, but I also learned that my writings can be interpreted in various ways.
The purpose of this post, a daily thought in my head triggers most posts here, was:
1) to describe that more buildings are finding themselves seeing weakening financial stability as this severe economic slowdown hits our local economy. Buyers should be at least aware of this trend as I lost 2 deals in 2 weeks after atty read board minutes and issues discovered - a nice piece of real time information I thought to pass on to you guys
and...
2) that the biggest bears on manhattan re see this market falling 60-70% peak to trough. Well, if that happens, and a $2M pad sells for 600K, the socio-economic forces AT THAT TIME is probably what will drive a market already down 40% or 50%, to start trading down 60% or 70%. Its hard for local housing markets in general to trade down 70%, but yet some bear see this here via an overshoot to the downside that is common in boom/bust cycles.
Well if that happens, I think some of the forces I noted above would occur (and that is not good) to make that happen.
This post was not a bottom call. This post was not a bullish call for sustainable recovery. This post was not a call for a 70% drop. This post does not call a 50% buyer a vulture buyer, although I can see that interpretation easily from rereading the piece (media does need good titles to catch the eye!). In this case, when I said the term VULTURE BUYER, it really was meant to the biggest bears that see this market falling 60% to 70% peak to trough, and my point was that the eats at that time may not be too yummy!
But I can see how its interpreted differently.
Posted by mh23
Wed May 20th, 2009 08:03 AM
Noah, no need for an explanation, your post was very clear. Essentially, if prices due fall 70% from their peak, that reduction will most certainly reflect all of the negative realities you list in your post (how could it not with such a drain on tax revenues and flight from the city by the wealthy who won't want to live in a hell-hole).
My sense is that we are on the path (early on, to be sure) toward seeing a reduction in the stellar quality of life we have all enjoyed for the past several years. This will lead to those families who can leaving the city, making Manhattan more affordable, more gritty, more oriented toward the young, the poor, the "artistic" and the eccentric. This will be both good and bad, but it will certainly be a different product than the one for sale in 2005.
Posted by jason
Wed May 20th, 2009 08:46 AM
did someone say inventory is going down??? do they know how many units are being held back at this point. yikes
Posted by iven
Wed May 20th, 2009 08:54 AM
Prices down 50% does NOT equal disaster. I have seen many cities such as Tokyo, Singapore, Hong Kong which also had large prices rises over 10yrs and afterwords declined 50-75%. You are taking the froth off the market. If people are priced out of NYC then lifestyle also deteriorates as things will turn into a utopian elite city.
Problems occur and wash themselves out. The problem with us in America is we wish for there to be no problems. Boom and bust is normal and likely the bust doesnt take things away 100%, its just a correction.
Posted by Thisson
Wed May 20th, 2009 11:05 AM
NYC real residential estate is still completely overpriced.
Modest 2-bedroom, 2-bathroom apartments are over $1mm. That's still way too expensive for the regular working professionals who typically live in these units.
We are in deflation. Finance/banking jobs paying $300k+ have been eliminated. Law firms are laying off 10% - 45% of their associates (these are jobs that were paying $200k+), and cutting salaries 10-20% for the survivors. Non-equity partners and counsel are being forced out.
In other words, the jobs that provided the structural support for previous bids are being eliminated.
Even if you have a stable job, you have to factor in the likelihood of increased maintenance, increased taxes (on everything), elimination of mortgage deductibility, etc.
I predict another 50% decline from *here*. At $500k, those 2-bedroom units are a value-buy. If I had a way to be writing puts on these units, I would do it!
Posted by Former Seller
Wed May 20th, 2009 11:20 AM
Noah, I remember expressing a closely related sentiment on this topic back in Feb. ('DIC Q4 2008 Headlines')
"I'll be the first to agree that it makes sense for housing prices to be in line with median incomes- but if you want a steep, precipitous decline because you embrace this point of view, be careful what you wish for. We're already seeing small businesses and restaurants closing all over the city. It won't be so nice to live in your trophy apartment if you have to worry about getting mugged- on the way to a subway station much further away because service was cut to the closest one. Or if your employer's retail division can't generate enough revenue to keep jobs on the payroll- leading to yours eventually."
This is the kind of discussion I've been hoping to see on UD for a while now, many great comments. I especially like seeing accounts of those like pia, that have been around much longer than myself.
I'm late to the discussion here, but:
lars- "I thought you of all people understood the price adjustment affecting Manhattan real estate market (and the rest of the country as well) has nothing to do with WANT and all to do with FACTS."
Ultimately this may be true but if we saw nothing on UD but RE stastics, macro analysis and dry discussion, I think most (but not all) of us would lose interest eventually. Buyer and seller sentiment is very relevant here, and it's nice to see that it's been mature for an unmoderated blog. I feel much more informed when I can see a cross section of buyer, broker and seller opinions. I can judge for myself whether they make sense or are emotionally charged. As Noah has indicated in recent topics both sides of the market (not just sellers) can rationalize prices and trends emotionally- to their detriment.
My opinion is that the rate of unemployment in NYC will be the number one metric that RE prices will track to; if it reverses, or at least levels off it will have a large buffering effect regardless of macros / credit. If it continues rising we'll see prices go down at the same rate and some degree of deterioration to follow. Just my opinion.
Posted by Noah
Wed May 20th, 2009 11:56 AM
I remember FormerSeller! Great to keep seeing your comments here, and its nice to see that expanding the content covered is what you guys want.
UD 2.0 involves expanding it even further, but that will be later in year.
Posted by Thisson
Wed May 20th, 2009 12:12 PM
I think all these factors are going to converge in a new economic reality where almost everyone makes less and almost everything costs less.
I don't think NYC needs to approach crack/den prices for it to be a nice, affordable place to live.
The cost of everything has been bid up with the easy money and I see prices collapsing in the near future. Deflation is coming.
When 2-bedroom, 2-bathroom apartments are priced at $600k or less we'll be where we need to be.
Posted by Former Seller
Wed May 20th, 2009 12:57 PM
Thisson, why does a 2BR have to be priced at $600k or less for everything to be where it 'needs' to be? Why not throw in parking, storage and a private garden plot? Seems rather arbitrary.
It assumes that prices won't be 'right' until every qualified buyer is able to afford a comfortable space with enough trimmings to keep them from commuting from the burbs instead- on their current income. We may have recently experienced a bubble caused by an influx of fake wealth and now the rules have changed- but that doesn't mean demand will drop in the same proportions. I doubt that's ever been true in Manhattan at any point in the past.