The Improvement Was Progressive in Nature

NICE! like this article Noah.

As a prospective buyer looking for 2br to 3br uptown and following this market for over a year, we missed at least four chances to get a perfect apartment. We just got nervous and decided not to bid. Does this mean we are not prospective buyers?

I have not seen anything that compares to those apartments in the last few months. So for me, this post resonates. I am just hoping that the shadow market you talked about earlier has future inventory that is close to coming back onto the market. Do you see this happening?

"We just got nervous and decided not to bid. Does this mean we are not prospective buyers?"

ahaaaa! What a great question. NO, I do not think it means that. Do you think you were the only one to get scared when systemic collapse was still on the table, given what we just went through in 2008 and early 2009?

Its funny because right now it seems like the crisis is already forgotton. Amazing isnt it. I have buyers that did bid in early 2009, but they added future downside risk into their bids and never got hit. So, if a price point was actually seeing trades down 25%, they would bid as if that market was trading down 33%, in essence pricing in an additional 8% downside to come that didnt occur yet. Thats what happened a year ago. Only sellers that had to sell or were full of fear did so. Most others removed listings from the market.

Wait until you see the chart I have on listings removed from market, right after Lehman failed. Its quite telling!

Noah-
As a top producing broker at a major Manhattan firm, I have clients who are hitting themselves on the head for not being more aggressive w/ their bids/offers during the 1st and 2nd quarters of 2009...properties that they thought would still be on the market w/ "multiple price reductions" are in contract for more then they bid. On the listing side, I had properties that we're sitting on the market w/ no traffic/offers until Labor Day weekend then Dow 10,000 came...multiple offers, best and final, and biddings wars...The Psychological effect that "the worst is over" has hit the market...The million dollar question is, can the momentum from the end of 2009 (4th quarter) carry into 2010?

One variable you're not considering, Noah, is how the troubled new developments, zombie condos, etc. will affect the market in 2010 and beyond. How many will be taken over by lenders and return to the market with a firesale attitude? How many will go rental, will they saturate the rental market? etc. A lot depends, of course, of the attitude of lenders towards developers and their past due construction loans, but that also depends on the general economic environment and how much longer do they all continue to kick the can forward.

Mario M - well that is something that we have been dealing with for the past 18 months or so..In my eyes, the fear of shadow dev units yet to hit the market was more of a concern in early to mid 2008 looking ahead, given the circumstances back then.

what I will say is that most new devs closed and most units came to market. Not to say all did, but I would argue most did. If the shadow new dev inventory was 15,000 units 24 months ago, perhaps its 6,000 units today? Those numbers are hypothetical, just to make a point. And yes, of course there will be those new dev losers that have poor products that paid a huge price tag for land/consrtuction costs closer to peak levels. That always happens and there are always losers. Azure/Georgica in UES come to mind.

Some lenders are taking very tough stances on devs that are under 50% sold. Those guys must line up a preferred lender that restrict the buyers who buy in to that lender without chance to shop a rate around. Usually that rate is 1/4-3/8 higher than most competitive rates.

What I am more interested in, is the shadow market in total, new dev + speculative flippers/investors that always come back when a market takes a big hit and recovers + existing resale removed that is about to come back to market.

What is that market? How much comes back? Thats what I want to know

Hey Noah,

Happy New Year!

Do you ever cover the Williamsburg Scene and what's going on with all those Condo projects out there?

Is this an area of concern or opportunity in your mind?

Thanks,
Eastvill

Noah,

I am a potential buyer. I have decided to stay away from buying for now, since I think real estate in Manhattan is still largely overpriced and I don't want to buy some real estate property, the value of which is depreciating afterward.

Whatever the current market situation is, it's a snapshot of psychology at the moment. One other commenter says some clients are hitting their heads for not being more aggressive in recent months. This points to a perception that the trend had turned around in the Manhattan real estate market for good and they had missed their opportunity for a bargain.

However, why shouldn't I expect a depreciating Manhattan market over the next years? If the whole country, the other boroughs of New York, and NYC's suburbs revert to the historical norm of the median-price/median-household-income levels in the housing market, why are so many expecting (and apparently you are too) it won't happen for Manhattan? If it happens real estate prices in Manhattan still have to go a long way down before they are really bottoming.

rc

To: Rootless
That's what I've been thinking and why I still own nothing. However, I am unhappy not owning and for whatever reason - manhattan just isn't the same as the rest of the USA. It's just not. I don't know what to say on it other than it than the rationale of the rest of the USA doesn't apply here. I am basically giving up and am going to bid at ask if I find something I like because I have lost too many opportunities thinking people were bluffing and that if I stayed strong in my bid they'd come back to me when they had no other options and there was no real higher bid to the one I made. And well, it's not happening for me and I'd like to own. Ownership buildings in my opinion are run nicer, I'd like to know my neighbors without seeing a transition every year and I'd like the building kept really nice. In many of the rentals I've worked at, people who work there don't care, they see people come and go and the staff isn't as good. I think you'll find eventually that you have to adjust your viewpoint to manhattan and not the rest of the USA.

I suppose it's almost time to short the market again. When confidence returns on Main street, that's when Wall Street pulls the rug out from under people's feet. GOOG @600, DJIA @11k, and S&P 500 @1200 . . . . feeling a bit toppy.

Emma77 - It's not an issue of Manhattan not being "rational". There is very little that is rational about consumerism, in any zip code. Look at the ridiculous trinkets that folks buy at the check out line in Wal-Mart! The issue is affordability. The only reason they blew the top off the market in 2007 was that affordability was there - you could finance anything and your bank would structure it to fit your monthly income. It was affordable! Now, that leverage is gone. A monthly wage of X no longer has the flexibility it once had in terms of amounts of financing, so what do we have? Lots of liquidity (and sales) where financing is available, and, lo and behold, illiquidity and few sales (and continuing discounting) where there is limited (or no) financing. That break point is about $1.2 million.

Here's my prediction (for what its worth): (1) shadow new construction converts in large part to rentals; (2) older rental inventory gets pummeled by new competition (who wants to save $500/month to live with mice versus in a brand new bldg? Old rental product will have to discount to meet the market); (3) buyer demand tops off and slides because what we just saw was the proverbial last gasp (folks who were ready to buy in 2007 but waited; if sales upticks were across all price points, I might have a different opinion, but they were concentrated in the lower end, almost entirely); (4) older rental landlords start to seriously rethink the business of holding real estate for the next ten years just to pay property taxes (they were depreciated long long ago) & selling starts to make a lot of sense; (5) since buyer demand is not going to increase (this is a function of the credit markets & employment, not psychology, astrology or anything European), any uptick in supply will push prices down; (6) the high end can continue collapsing much much further; there is so much room for the high end to come down, it is not even funny. My guess is this all happens very slowly and over a long period of time, with little fits of optimism, mistakenly referred to as bottoms and periods of stabilization.

The punch bowl was securitization and in whatever form it comes back, we most definitely will not be spiking it with I/Os, negative amo loans, Option ARMs or any of the other loose underwriting practices that created the conditions under which Manhattan appreciated so quickly.

Emma77,

You sound like a real estate broker or an owner wanting to sell, who is posing as a buyer trying to convince me to "buy now or be priced out forever".

So what is so largely different about Manhattan in 2010 compared to Manhattan 10 years ago, when real estate prices were only about 40% of today's prices, that would justify such a big price difference between Manhattan and the other boroughs and the suburbs in contrast to 10 years ago?

The price-income-ratio was about 9, 8, 6.5, 6.5, 7, 8, 9, 11, 11.5, 12, 14, 14.5, 14.5, 14, and 14 in 1989, 1993, 1995, 1997, 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, and 2008, respectively. The numbers are coarse estimates calculated using the median price inferred from the Miller-Samuel chart and the median household income from the US-Census Bureau. The income data from 2009 are not out yet, but assuming about $75,000, the price-income ratio in Q4 2009 was about 11.5.

Prices were somewhat depressed in the mid 90s, probably. On the other hand, the real estate bubble had already started in 2000. So it's plausible to assume the historical average price-rent-ratio is about 7 to 8 for Manhattan. This is much higher than the national average of about 3 before the big real estate bubble. But this could be possible, if one takes the big renter population into account, which goes also into the denominator of the price-rent-ratio, whereas the buyer pool likely has a significant higher median household income than the whole population.

Reverting to the mean would mean another 30 to 40% drop in the price-rent-ratio from Q4 2009 over the next years. This doesn't mean necessarily prices will drop by another 30 to 40% as well. It also depends on how the nominal household incomes develop. An increase in the incomes decreases the price-income-ratio also. On the other hand, prices tend to overshoot to the other side after burst bubbles. So, a price-income-ratio of about 6 or so at the bottom will be possible as well, with implications for the real estate prices. How household income will develop over the next years is another factor of uncertainty.

Anyway, the Manhattan market still seems to be quite overpriced at the current price-income-ratio. As long as this ratio hasn't reverted back to historically normal values, buying in the Manhattan market at the current time could be a big, big mistake.

rc

Rootless suits you. I am not posing as a real estate agent. I work in tech. I'm not trying to convince you of anything. I don't know you nor care what you do personally with regard to real estate or anything else. I am simply stating that in my personal experience from 1 year ago to now - it is difficult to strike a deal with sellers and the discounts aren't as deep and that places I liked sold. Get over yourself or add egotistical to your moniker.

Emma77,

You didn't need to know me or care what I do personally, if you wanted to lobby for a certain special interest here, since this is all public here. I only said how is sounded. Perhaps, it's just your way of rationalizing the current situation, your frustration with it, and your decision to buy into a highly overpriced market. I spoke my mind, you apparently have felt offended by it and, in return, you feel the need to judge my character (although you don't know me as you said 2 sentences before?). Are we even now?

Anyway, I have made my argument regarding the prices in the current Manhattan real estate market, using the price-income-ratio as a metric.

rc

Easy folks, let's stay civil and on-topic.

Where's Noah? Really interested in his Williamsburg opinion as I see this as the Local poster-child for the bubble (a la Miami, Phoenix)

EVB

sorry EVILLBOY - very busy...not familiar with Williamsburgh market...sorry!

I'm just wary. The real estate market is a highly competitive market with a shrinking pie to be shared among many brokers that are out there. A sober analysis putting current real estate prices in Manhattan in a historical context using an objective method with actual data from the past may not be as welcome to some.

rc

Eastvillboy,

I would say, Williamsburg is similarly as or even more overpriced than Manhattan. An estimated medium household income of about $32,000 for Williamsburg in 2009 and a median home price of about $550,000 put the price-income-ratio at around 17. For all Brooklyn, the price-income-ratio is about 10-11. For comparison, it was about 6.5-7.5 in 2000.

rc

Emma77,
I've been a reader here for the past year and a half. I'm also in IT and don't have the in depth understanding of macros that most here do. However, I do have common sense. It strikes me how often the price / income ratio is used to rationalize the thought that Mahnattan RE is overpriced and will decline to some "mean" in the future.

Quoting from the Wikipedia page for Manhattan:

"Manhattan's daytime population swells to 2.87 million, with commuters adding a net 1.34 million people to the population. This commuter influx of 1.46 million workers coming into Manhattan was the largest of any other county or city in the country, and was more than triple the 480,000 commuters who headed into second-ranked Washington, D.C.[139][140]"

In other words, 1/2 of those earning an income in Manhattan do not live here.

-so just once, I'd like someone who makes the P/I argument to explain why RE prices should revert to the mean when half its income earners are in the burbs, as if there should be no premium for living on the island.

If your decision not to buy in Q1 last year was influenced by all those making the post Lehman P/I argument then (as I'm sure it has other sideline buyers), they did you a disservice. I personally don't understand the all the complex forces in motion enough right now to predict further reflation as many predict- or a double dip as others do, but I'm highly skeptical of any predictions that depend on flawed arguments.

NYC Joe,

The price-income-ratio for Manhattan that I used to make my argument regarding reverting back to the mean, was calculated using the median house prices in Manhattan and the median household income of the residents of Manhattan. The income of commuters into Manhattan isn't included in the calculation at all. The flaw you perceive doesn't exist in my calculation and conclusions, which I draw from it.

People might be more willing to stretch to live in Manhattan, but this doesn't eliminate the fact, that everyone, whether more or less wealthy, has to be able to afford his/her dwelling, in which he/she lives. As Fred has pointed it out. Affordability is the key issue here. I don't see how a price-income-ratio of 11-12, like it is currently, could be sustainable over the long-term regarding affordability. I suspect the premium for living in Manhattan, compared to the other boroughs and the suburbs, is rather expressed through a trade off between price and square foot size for the same type of apartment/house.

rc

NYC Joe - Suggestion #1: don't cite Wickedpedia as a source (at least publicly) & Suggestion #2: revisit your understanding of how median income is calculated. Here's a big hint: it's based on residency. Now, if we were comparing median corporate earnings with residential real estate, then your observations would hold water, but then that would really be a silly comparison.

NYC Joe,

In contrast to Fred, I don't have any problems with citing wikipedia. Wikipedia entries are as good as their content is based on research using verifiable sources. It's not worse than citing from any other encyclopedia. Rather better.

rc

Fred,
I had made the Wikipedia reference just to illustrate a disparity, not as a hard verified fact; I doubt the approximate ratio I stated is highly controversial. If it is, please correct me and I'll post an apology.

I'd like to point out that I'm not making an argument here. I'm saying that the argument made by RC as stated is flawed as stated- in my opinion. The same argument was made here frequently a year ago to support a 50-60% decline from peak, often in a "you're a fool if you do not heed" kind of way. Emma77 isn't the first one here in recent weeks to mention frustration that the deals to be had were early last year when complete armageddon was predicted.

Ok, so median income is based on residency- does that mean that Manhattan household income will always track predictably with RE prices over time? In theory, yes but Manhattan isn't exactly a coal miners town, or Silicon Valley- where the majority of incomes are generated the same way. Because of its diversity of industry and culture, I think near term trends are more relevant. As RC showed, P/I steadily rose since the mid 90s. Maybe it was mostly due to easy credit. It's oversimplifying things to say that now that easy credit is gone, the trend will completely invert.

NYC Joe,

So, why is my argument flawed? Your reasoning why it was allegedly flawed was founded on a wrong assumption about how the price-income-ratio was calculated.

If someone said last year, prices will retract by 50 to 60% from peak values in Manhattan, it's still to early to say this expectation has been falsified.

I consider a decrease of the price-income-ratio by 30 to 50% from here over a period of several years as quite possible and also as likely. It doesn't mean prices themselves have to retract as much to get back to a historical normal value of the price-income-ratio. This could happen through a combination of both price decrease and increase in the median household income. The nominal median household income grew in Manhattan by about 7% from 2007 to 2008. For instance, assuming this rate during the next years as well, a decrease in median home prices from the current value by about 20% over the next five years would be sufficient to revert the price-income-ratio back to about 6.5 to 7.5, like it was in the 90s.

rc

I did understand how the PI ratio was calculated, or at least that it was based on residency, specifically in Manhattan- and so I disagree that my assumption was wrong. I meant to point out that the whole idea of afford-ability has a psychological/discretionary component as well as what a creditor thinks someone can afford, and it probably applies differently for a house in the burbs than it does for a condo in Manhattan.

I will admit though that my reasons for skepticism of your prediction for 30 to 50% declines are vague- but that's because I think it's possible to correctly know that the factors affecting long term Manhattan RE prices are many and complex, even if I can't identify all of them. To use an analogy, you could say that global warming doesn't exist because parts of the country are experiencing record low temperatures- likewise, the metric is straightforward and logical but it oversimplifies the phenomenon, ignoring many possible causes and effects. I don't need to understand the science to be skeptical of that argument and maybe bet against it.

I don't take any issue with predictions being made, in fact I think they make good thought provoking discussion. The reason I originally responded is that you had used subjective terms like "overpriced" and "justified" (as relates to price). Since this is a public forum as Fred points out, things should be kept objective. After all, there's little doubt that at least some of the buyers currently complaining about lack of quality product were likely influenced by predictions made by known pundits and blog forums like this one.

NYC Joe - I actually think you are a little smoke and mirrors, but that's OK too. You want to shift the focus from the affordability issue to global warming? Be my guest but it will be a one sided discussion.

The burden is on you to provide a rationale for why affordability doesn't matter in Manhattan - not the other way around. If buyers can't afford the real estate, what makes you think that prices will somehow magically ignore that over time? Did you miss all the retail discounting over X-mas?

Here's a good place to start: can you tell us what the debt service & equity requirement is for a $2 million unit today and what could it have been in 2006? I don't think a discussion about the low end is meaningful because one can get an agency loan pretty easily today (assuming you are still employed). The issue is the lion's share of Manhattan real estate which now is well above the agency upper limits for financing. The point is, affordability gets really think as you move up the price point which means those prices are very susceptible to discounting. How that impacts the low end is the big question at this point? If the middle high starts repricing downward, my contention is that a ho-hum $1.2 million 2 bed is going to feel it.

My two cents here: FRED is an idiot, a frustrated person, who is priced out and prays that the market goes down the toilet so he can afford a studio in Inwood.

I HAVE NEWS FOR YOU: IT.WILL.NOT.HAPPEN.

Well, I guess I struck a chord for the Anti-Fred contingency out there....You must be a frustrated seller is mu guess.

RC, interesting comments, but in my opinion the Price to Income ratio is flawed and you should be using (Price * Mortgage Interest Rate) to Income (I believe Fred touched upon this earlier). If you plugged in the prevailing mortgage interest rate at the time into your P/I ratio, what would the new ratio look like? It may be that Manhattan is still over priced even after factoring in rates but I'm curious what the numbers would look like.

Fred, I think your point about financing at the upper end is interesting. I have no idea what kind of rate one would get when applying for $2ml of financing or how that rate changes as the notional value rises. I think it's possible though that financing in the upper end could ease, allowing even those very expensive places to become relatively more affordable as this recovery continues.

Rootless, imho, the price-income-ratio cannot be used for a world capital like Manhattan. It might be helpful for Detroit but not here. One of my condos I bought was from a retiring couple who owned 3 homes. Another was from an Argetina businessman using it as a pied a terre for his manhattan business. Another was from a wealthy Russian couple looking to upgrade their vacation home. This is why you cannot tie the income to price. So many outside influences contribute to the higher than income prices. I didn't even get into those wealthy individuals living in the US, who just want the prestige/convenience of owning in Manhattan. Price to income for manhattan is seriously flawed.

Have been noticing Street Easy trending up, as in more listings have come to market and also there have been more price cuts. On the same note, contracts are definitely still being signed looks like. Here's my issue - I would like to move to the burbs. I can afford to stay, but I rather not have a city dwelling and a hamptons dwelling. I rather just have 1 - less headache, less money obvs. I can afford to keep everything as is which is why I'm not sure what to do. If I couldn't afford to, the decision would be made for me. I really don't want to sell at a deep discount for a 1400 sq. ft. 2 bed 2 bath on the Upper East that I renovated last year. I think I would have to take a discount still right now and that while it may have improved a little bit I don't believe for whatever reason that I'll get lots of traffic or that I'll want to strike a deal at what the market is. And honestly, because things change so fast, I really don't know what the market is. But I can tell you after reading everything - I don't want to sell for less than 1.2, but I just don't believe that the market will get me that. By the time I pay flip tax and the real estate agent, I break even at 1.2. I don't know if I'm making sense, but for me, my sentiment as a potential seller is that I should wait another 2 years to get 1.2 - I don't think I'll really get it today even though reading some of the people who post here say that you can't get anything for under 1.2. I think there's alot on the upper east under 1.2 - that's why I'm worried and not sure what to do.

SteveF,

You can't just completely dismiss something because manhattan's market has outside influences. You're argument may hold water, but you would need to quantify what percentage of active buyers/sellers are non-residents. If it is not too high, then the affordability concerns should serve as some sort of indicator of a price ceiling.

I am not a frustrated seller - I am just an owner who enjoys his apt and I just do not like your comments because you never offer anything constructive to any conversation....

you are the biggest bear even when the market goes up....In fact, there is no point posting any comments because we know from the start what you are going to write....

Fred, I'm sorry my analogy was lost on you, here's what it meant:

global warming, manhattan RE prices: complex dynnamics, difficult to describe cause and effect, therefore one should be skeptical of arguments that use a single metric to rationalize long term effects.

I can assure you I don't wish to discuss global warming here, I just thought it was a good device for explaining my skepticism of the rationale that P/I trends alone will cause the market to correct down 30-40%.

SteveF explained my point better than I could. To Anon's point I would not completely dismiss the P/I argument, maybe it will go on to prove true in the long run. I just think making bets that it will result in a complete price reversion (or advising others to do so) is not a good idea. I will once again point out that P/I trends were used here in Q1 2009 to argue that anyone who bought at that time would face immediate depreciation before the end of the year. For at least that period, they were dead wrong about it.

Regarding Noah's comment: "what I will say is that most new devs closed and most units came to market. Not to say all did, but I would argue most did. If the shadow new dev inventory was 15,000 units 24 months ago, perhaps its 6,000 units today?"

The above numbers do not make sense to me. They imply that 9000 units of "shadow" inventory closed in the last 24 months. This is too large a proportion of the condo sales in the last 24 months. This is especially true as the 9000 figure is too low as it does not include buildings that have been completed in the last 24 months. On the other hand, some units were converted to rentals.

Anecdotally (based on the buildings I have follow), there is still a lot of shadow inventory.

Henry - please dont forget to look at the sentence right after I stated that:

"Those numbers are hypothetical, just to make a point."

the numbers were made up, just to give an example of the point I was making that imho, most new dev sales closed and the shadow inventory of yet to be released units, is not nearly as drastic as it was say 2 years ago, at the height of euphoria with no adjustment yet to take place.

AA,

I see your point, why you want to scale the price-income-ratio with the mortgage interest rate to get a more accurate picture. The interest rate influences the ability to take on new mortgage debt. But then, consequentially, the ratio should also be scaled with the debt load already accumulated by the households, since already existing debt load and interest on it has to be paid of from existing income. Therefore, it strongly influences the ability to take on new debt to finance real estate.

I don't have any local data. Integrated over the whole country, the household debt load was about twice as high in the year 2009 compared to the year 2000, whereas 30 year fixed mortgages rates were about 7-8% and 5.5% in 2000 and present, respectively (just ignoring the more exotic mortgage instruments of the expansion phase of the bubble, which are more restricted now). If I use these integrated data, the P/I-ratio*(interest rate)*debt-load-ratio(2009/2000) the new index value is about 8*8*1=64 for 2000 and 11.5*5.5*2=126.5 for present.

Ergo, the newly constructed price*interest*debt-load/income-ratio is 64 and 126.5 for 2000 and for present day, respectively. I actually see this an improved index compared to the price/income-ratio by itself. It's a metric for house prices, which gives a bit more comprehensive picture by including debt in the index that measures affordability of real estate for the households.

Since the new index is about twice as high currently, compared to the year 2000, it also implies a retracement of about 50% over the next years. Again, this retracement to historically normal values could play out though a combinations of the different factors in the index. By a decrease in the house prices themselves, by growth in the household incomes, by a purge of the household debt load, and by decreasing interest rates (although interest rates will be rather increasing in the coming months, probably, counteracting the retracement somewhat.

Anyway, also the newly constructed index doesn't give me any reason to be less optimistic about the development of the real estate prices in Manhattan over the next years.

If my text looks crooked somewhat, it's the drugs in my brain. My laptop screen and the letters on it are already floating and have become more three dimensional. My keyboard has taken on a strange shape. It's the Zolpidem I have taken. This stuff plays this kind of tricks with the mind. Good night.

rc

Noah,

Understood. I think it is a pretty big claim that most of the shadow inventory has come to market, and I would like to understand how you reach this conclusion (especially given the sales rates experienced in the last 24 months).

Where do you think the shadow inventory figure stands (noting that 6,000 units is a lot relative to the sales rate)? What data exists?

I appreciate the debate in this thread. Thanks to all participants.

As a NYC resident, some of the points made here struck a chord with me.

In particular, I agree with whoever said that the "NYC" premium could be expressed as a factor of space given up for a preferred location.

My decision to live in Manhattan was made predominantly on price and convenience. In 2004, I was able to find a Junior 4 for under 600k in a luxury building requiring 25% down. To buy a well-appointed home on Long Island at that time would have cost me approximately twice that, and would have been impossible due to the down-payment required and the higher mortgage costs, taxes, etc.

In addition, living in Manhattan saves me at least 2 hours a day in commuting time over that home, saves me quite a bit in various costs since I would need to pay commuting expenses, I would need to have at least 1 automobile with all of the related expenses, etc.

There are certainly a large number of variables that affect the decisionmaking process, and not all parts of Manhattan are the same. So yes it's fair to include the foreign and luxury buyers when considering certain neighborhoods (e.g. UES, UN vicinity, etc.) but probably not others (Hells Kitchen, etc.).

Overall, as an "ordinary" working person with a fairly decent professional job, living with similar folk in my building, I detect a LOT of financial pressure on my cohort. I don't see much pricing power for prices to increase, at least in the kinds of properties that target purchasers such as myself.

Those properties tailored to the NYC people still making big bucks (finance, hedge funds, etc.) probably have higher pricing power (Apts near Park Avenue or down on Wall Street, perhaps).

Rootless - Thanks for the post, this is very interesting. It would be interesting to figure out a way to express the higher dwn pmt requirements today and/or the negative carry on equity but those may muddle the otherwise very eloquent index.

Anti-Fred / DJ Joe - You're both all emotion in addition to slightly incoherent, but you do keep it interesting.....thanks!

Henry - great question and Im trying to figure it out. Lost of variables at play in calculating shadow inventory? Not just new devs but what about existing listings that never sold and were taken off market to only later relist. That should count too. Ah, but how do you cont it? Clearly a listing 2 years off market is prob not coming back and shouldnt be counted after a certain period of time. This is what we are building now, and is very complex as you can imagine.

Our backend analytics right now have shadow inventory at 11,103 units! That may change prior to launch as we finish our work.

Noah,

Interesting and admittedly very difficult to get hard numbers.

Do you have an estimate for just the new devs? (I tend to think of it that way... though I see why you include the delisted property as well.)

unfortunately no, but I spoke to Jon Miller today and I could have sworn that he mentioned Manhattan still had 22,000 shadow new dev units...I must say, that seems very high to me!

I would have thought it to be closer to 6,000-8,000 left or so. Maybe 22,000 two years ago. But, no, I dont have that yet but we are trying to figure out how to get it. My data feed is REBNY broker sharing system, so if listings are not shared or released, it gets difficult to track

Wow. Huge number! I agree. It seems high.

Thanks for the information!

Fred,

You are thanking me for calling you an idiot!

Boy! You truly are an idiot!

Someone objected that the price-income-ratio (or the extended one, including interest rate and debt load index) wasn't usable for Manhattan, because of wealthy non-residents buying property in Manhattan. Their incomes weren't included in the index.

These were the ones who were supposed to make Manhattan so different to the rest of the country, so that there wasn't a price drop to be expected for Manhattan in the first hand, right?

I see this objection to have merits only, if two conditions are fulfilled together.

1. Outside buyers represent a significant fraction within the buyer pool

and

2. The fraction of outside buyers has significantly changed compared to the reference period 10 years ago. (Actually, it really would only matter for the question, whether prices will adjust downward, in the case of an increased fraction).

If condition 2 is fulfilled, but not condition 1, the distortion of the ratio will only be small. Even though there are more outside buyers than in other places, I suspect, most buyers are residents of Manhattan or intend to live in Manhattan, but I could err.

If condition 1 is fulfilled, but not condition 2, than it is implicitly taken into account, since it will have the same effect on the index of the current period and on the index of the reference period, to which the current period is compared. Besides the high renter population, this could be one of the causes why the historically normal price-income-ratio may be 7-8 for Manhattan, but not 3-4, which is the average national value. For that reason, we can't compare the Manhattan value to the Detroit value or the national average value to draw conclusions regarding the price development to likely be expected. But we still can compare the current Manhattan value to the Manhattan value of the reference period.

Of course, not knowing for sure all these factors brings uncertainty in the assessment. Well, we will see in three to five years, whether my optimism regarding prices of real estate in Manhattan was false.

rc

It may be useful to use some kind of percentile system in the price/income ratio. Most of the buyers probably fall within the top percentiles of the income distribution. Because Manhattan incomes are probabably skewed right (more outliers in the high income range), something like price to income based on the top 20%, and price to income based on 20 - 40%, etc., could give a better guage of price relative to the actual buyer pool.

That being said, I would guess that the high income outliers have fallen in both quantity and amount of income during the last few years, notwithstanding the recent rebound.

Dear Friend,
It’s a fact: if you want your website to make you money, generate leads or get subscribers you have to advertise in order to drive traffic to it. Of course this is true for any business, but it is absolutely essential for online business.

www.onlineuniversalwork.com

I have not seen anything that compares to those apartments in the last few months. So for me, this post resonates. I am just hoping that the shadow market you talked about earlier has future inventory that is close to coming back onto the market. Do you see this happening?