When does the Real Estate Bubble Burst?

[Edward]

FINANCIAL TIMES
Manhattan property bubble set to burst
By Alison Beard in New York
Published: October 14 2002 19:33 | Last Updated: October 14 2002 19:33

Two months ago, Benjamin Swinburne decided to get serious about buying his first Manhattan apartment. The research analyst went to several open houses and made an offer on a one-bedroom in the West Village.

Now his enthusiasm is fading. The shaky economy - and a dismal earnings outlook on Wall Street - have made large property purchases look risky.

"At a time when everyone's net worth is going down, it's a big investment . . . particularly since real estate - Manhattan real estate - is the only thing that hasn't," Mr Swinburne said.

His own industry could soon provide the catalyst for just such a dive, however. Wall Street firms have cut more than 60,000 jobs since the start of last year and are likely to slash bonuses significantly this year, according to recruiters.

That has translated into thousands more square feet of office space available to sublet, as well as a fall in demand for townhouses, co-ops and apartments. During this year investors have been supporting property values in Manhattan by shifting their money from stocks to hard assets. But Wall Street downsizing is taking a toll.

"Over the last decade or so we've talked about the diversified tenant base in Manhattan - the entertainment companies, the law firms. The reality, however, is that the financial services sector is really the key component," said Josh Kuriloff, executive vice-president of Cushman & Wakefield, the property services firm.

Office vacancy rates have held at 11 to 12 per cent, outperforming many other urban markets, but sublease space now accounts for more than 40 per cent of the inventory, he said.

Commercial rents have dropped from 10 to 15 per cent across the board. And building sales have slowed because buyers and sellers are finding it difficult to agree a price.

"I'm not painting a bleak picture," Mr Kuriloff said. "New York is poised to be an extremely healthy market in the next 24 months as the economy recovers because we've had no significant new construction."

Residential brokers say the same is true of their market. But they acknowledge significant softening over the last few months. Rental rates are down about 20 per cent overall, in part because of increased homebuying but also because the junior-level bankers who boost the numbers of available tenants were some of the first to be made redundant.

It is rare for homeowners to sell their main residences after losing jobs, but they may "get rid of the excess", selling vacation homes or downsizing to smaller condominiums, said Peter Marra, of William B May, a Manhattan brokerage.

Pamela Liebman of the Corcoran Group knows of two new listings from people who have lost jobs and of one potential buyer who was forced to drop out. "But it's not something that happens every day," she said.

Still, the prospect of slashed bonuses is deterring new buyers from accepting bull market asking prices. One client, who finally had his $900,000 (£576,000, €912,000) offer accepted for a one-bedroom apartment listed at $1.1m, decided to push for $850,000 instead. "He would have taken it three weeks ago, but now things are different," Mr Marra said.

The best performing segments of the residential market are the bottom and top tiers. Falling mortgage rates continue to draw first-time buyers to apartments priced below $750,000. And apartments worth $5m or more are selling well because the very wealthy are more insulated from economic and stock market swings.

But "we've seen a slowdown in the $1m-$3m market", Ms Liebman said. "People are waiting to see what will happen."

*
Find this article at:
http://news.ft.com/s01/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1033848987076&p=1012571727 162 *
*

[enzo]

Will this effect the lower end of the apt. market? I mean a few hundred grand to one of Corcoran's clients is chump change. A few hundred less a month would be very meaningful to the rest of us!

[fall guy]

I heard Ben Stein saying that the NYC real estate bubble will burst soon. What do you guys thinks

[BrooklynRider]

God, I hope so. I'm looking to buy in the next 2 - 3 years and I want options!

[Gulcrapek]

I hope so too, or else I'll have to live with my parents after I graduate college.

[Zoe]

It is a natural part of the real estate economic cycle for a drop. However the drop we will soon encounter will only last so long. You may want to look at some studies on NYC over the past 100 years; the appreciation in prices follows a very consistent curve. Figuring out that line is the key to purchasing here (or anywhere). Manhattan is unique in that it is a tiny island so land will always be at a premium. John Jacob Astor in an interview before he died on the Titanic was asked if he had to do it all over again, what would he do differently. His response was that he would invest every dollar into the Manhattan real estate market. To date he has yet to be proven wrong.

[fall guy]

I'm looking to buy in a few years also. So I hope it cools down soon.

[billyblancoNYC]

I wouldn't look for more than 10-15%, solely b/c of interest rate hikes, not b/c of the city.

[londonlawyer]

What real estate bubble? Ask Californians on Skyscraperpage.com for NY real estate options, and they'll find you millions of houses in Nassau and Bergen Counties and Brooklyn and Queens for $250,000. Housing in New York is really affordable!!!!

:wink: :wink: :wink: :wink: :wink: :wink: :wink: :wink: :wink: :wink:

[muscle1313]

Real Estate prices are insane. They keep going up. They have gone up for years. Mortgage rates are rising. When does this real estate rally end? It can't go up in a straight line forever.

[sfenn1117]

The tide is turning

[Derek2k3]

When the downturn occurs will the quality of design and new construction go down with it?

[BrooklynRider]

The dollar is tanking. It is valued nearly 40% lower than in 2001. 60% of US currency is held by foreign governments - especially the Chinese with whom we have a tense and, at times adversarial relationship. If those governments decide to divest of their dollars, the real estate market will not burst - it will come crashing down. Hurting primarily small investors, who will no longer be able to rent or lease space and units at a price that covers cost, let alone makes profit.

There was a great article in Newsweek on this most probable scenario.

[Deimos]

On the contrary, the real estate market has been a better investment over the course of time than even the S&P 500. A correction definitely should be expected in the short term, but if history repeats itself again, we'll look back 10 years from now and still see a net increase in value. All it will really mean is that people who buy places to sell them for a profit will have to hold onto their properties for a little longer.

I'd expect to see people buying their neighbors' apartments and knocking down the walls more (or expanding their houses) when the correction does occur. This will be less expensive than moving and help in the long run by hedging their total investment.

[NoyokA]

When the downturn occurs will the quality of design and new construction go down with it?

Definetly.

[TLOZ Link5]

When the downturn occurs will the quality of design and new construction go down with it?

Definitely. Think Roaring Twenties.

[nybboy]

Hold on, this may not be directly related to NY real estate, but either way we're dealing with money. I find it hard to believe that the dollar is only 40% of its value compared to 2001. That would only happen if we were in a serious depression, or a severe recession (which still may not still have happened). When those buisness articles are talking about value, it's always comparative. i.e. the dollar might be down 3% percent against the Yen, but is 5% up against the Euro. All of the industrialized countries own some part of each other's money. 60% is not a suprise, Brooklyn Rider. Plus, the Chinese peg their currency to the dollar, so if the dollar goes out, so does their Yuan(Chinese currency). If the leading economy in the world goes out, so does theirs. It is not in most modern countries' interest to divest their money away form the U.S. The main holder is actually Japan. Actually, we still owe Japan somewhere in the trillions of dollars, when they literally bailed the entire U.S. government and practically the country in the early 90's. we haven't paid any of it back yet. The Japanese didn't have a timeline for us to pay it back. Because we have such close relations with them. Remember, even though China is the fastest growing econonmy and is striving to be the first in everything. Japan is still the world's second largest economy with the most disposable income, more than the average American.

[nybboy]

Eco 101: High trade deficit (bad thing) + low interest rate (good thing) = dollar depreciating against other currencies.

[Eugenius]

Actually, with the dollar depreciating against foreign currencies, we can expect more foreign investors to come into the US market armed with overflowing wallets (similar to the way the Japanese did in the late 80's). That should, in fact, prop up property prices. Anecdotal evidence supports this conclusion, as a large number of European investors has been snapping up Manhattan real estate.

I don't think the real estate prices will collapse. Rather, we might see a slowdown in the rate of growth (perhaps something approaching inflation); however, without a recession or a marked decrease in the attractiveness of living in NY, I don't see the prices going down.

[alex ballard]

Will the bubble burst only hurt NY, or will all metro areas see some affects?


Do you see NY keeping it's desireablity through potential bubbles?

[NoyokA]

NYTIMES:

March 27, 2005
What Happens if It Bursts?
BY MAREK FUCHS

At cocktail parties these days, the chatter often involves a bit of bragging about real estate profits before it winds down to those famous last words: "The market might go down, but my area will maintain its value."

It's as if people think that an electromagnetic field of protection will shield a particular series of brownstones or cul-de-sacs from whatever might befall the market at large because of higher mortgage rates, mortgage defaults or an oversupply wrought by downsizing baby boomers.

Wishful thought, willful naïveté or irrational exuberance explain the extent of the conviction, according to many real estate appraisers, whose business it is to track sale prices and trends over time.

One has to look back only to the last time the real estate market's cabin pressure changed for the worse to see that every place loses value. In the late 1980's even areas as sought after as Greenwich, Conn., had go-go prices reversed. Controversies even raged about the number of "For Sale" signs staked into lawns, which some found gauche. A home built at 1 Round Hill Road, a showpiece address in the well-regarded back country section of town, stood unsold for months.

Although the most established enclaves of the most rarefied towns are not immune to market forces and psychology, the most intriguing areas to watch in downturns, said Jonathan J. Miller, the president of the Manhattan appraisal firm Miller Samuel, are those widely thought to have built and renovated themselves to a permanently new standing in the market. Frequently, Mr. Miller said, it is these areas that, despite the high expectations (or maybe because of them), are hit the hardest.

On the odd occasion, however, changes in an area will be so substantive that it will weather the downturn not with prices unscathed (a near impossibility, see: Greenwich) but with comparatively less pain.

Elliott D. Sclar, a professor of urban planning at Columbia University, said that the Upper West Side was at its low point in the 1960's and 70's, with single-room-occupancy hotels on many blocks, high crime and families moving out. Then came a sharp growth in restaurants, shops, renovation and co-op conversion in the 1980's - trends that some were convinced would prevent prices from plummeting, even when the stock market crashed in October 1987, limiting the cash flow of many prospective residents. The change did stick on the Upper West Side and prices held better than other areas, Mr. Miller said.

In the same era, the East Village was also thought to have gentrified its way to a new level of stability, but it experienced one of the sharpest price declines in Manhattan. According to co-op sales numbers prepared by Miller Samuel, prices in the East Village dropped more than 30 percent from 1987 to 1994. Though the East Village at the time was thought of as the latest, greatest frontier in Manhattan, Mr. Miller said the ensuing confidence overlooked important factors that could come into play during times of falling prices, like limited transportation.

Moreover, although there had been building and renovation, retail stores catering to the influx in new residents never caught up, as they had on the Upper West Side. When the gloss came off the real estate market toward the end of the 1980's, owners in the East Village suffered more than those in other neighborhoods.

But then came the upturn of the 1990's. Though there is still no Second Avenue subway, the East Village became one of Manhattan's hottest neighborhoods and with the increase in prices, the same old mantra returned: that the East Village finally had changed its stripes to the point that it could better weather a downturn.

This time, Mr. Miller said, such hopes might be realized. He points to the higher level of owner occupancy brought by the current wave of building and the increase in support services that followed. In order to test to how an urban neighborhood might perform in a down market, Mr. Miller said, one must look at whether essential services like supermarkets, dry cleaners and a choice in restaurants can be found within a several block radius of any given apartment. That wasn't the case in the East Village as the last flush market began to teeter. But now it more frequently is.

"If you are walking 15 blocks, those high prices get hard to justify," Mr. Miller said, when macro trends, like mortgage rates, turn against a market. "You need a certain base line to become a more stabilized community."

By this measure, Mr. Miller said, it is not the East Village but many Harlem neighborhoods that might be vulnerable in a downturn. Although residential prices have soared, commercial activity hasn't developed deep roots. "It's still early in the process there," he said, pointing to the long walks to pick up everything from greens to shined shoes. Likewise, he said, the far West 40's, where there has been a great deal of rental construction, reminds him of the far East 30's in the 1980's, where many rental buildings were built before the support services caught up.

Dr. Sclar of Columbia, who has a map of the proposed Second Avenue subway (circa 1955) in his office, said that transportation is a key to performance in bad markets and that because of that, he doesn't agree with Mr. Miller's forecasts. He said that because the subway still hasn't been built, the East Village may suffer again. And on the subject of Harlem, he also disagrees with Mr. Miller, pointing to the base line strength that good subway access brings.

Both Dr. Sclar and Charles Lockwood, the author of "Bricks and Brownstone" (Rizzoli International Publications, 2003), an architectural history of New York row houses, also point to the appealing housing stock in areas of Harlem like Strivers' Row. Demand for brownstones with space and elegant detail could help the area maintain its footing, they said.

The biggest risks, Dr. Sclar said, might be in changing areas in the industrialized margins of the city, like Red Hook and Williamsburg, Brooklyn. Brad Lander, the director of the Pratt Institute Center for Community and Environmental Development, said that fashionable areas where there was "fringe gentrification" were always harder hit, but that the influx of immigrants to the city in the past generation had pushed these patterns to Brooklyn and Queens. If prices come down in general, Mr. Lander said, buyers will be less willing to deal with the relative isolation, limited retail and school choice in a place like Williamsburg.

The hunches and guesswork involved in predicting which areas have changed enough to weather a downturn do not end at the city limits.

In Westchester, the heralding of the birth of White Plains as a legitimate small city have been a feature of several real estate runups. In the harsh light of a downturn, however, its limitations - like a traditional lack of life at night - come back to haunt it. But in the past several years, the development has reached a new level and given White Plains something it never had before: a skyline.

Marge Schneider, an executive vice president of Cappelli Enterprises, a developer of condominiums in the area, said her company has raised prices repeatedly because of demand and has also become partners with Donald Trump to sell apartments in the city. She said that White Plains will remain in good standing because the more than 2,000 luxury apartments in the center of town have put residents on the streets at night. Everything from big box retailers to restaurants and a new movie theater have opened, and teem with customers.

John Mason of Mason Appraisal Services in Yorktown said that the large number of corporations that have settled in and around the nearby Route 287 corridor speak well to the ability of White Plains to survive a bad environment for real estate.

But over all, he said, he is not confident in its prospects. Mr. Mason said that there is an inorganic element to a city built on the back of large development projects. He is more confident in the sustainability of progress in the northern city of Peekskill, which, unlike White Plains, has been settled by a burgeoning population of artists, taking advantage of available lofts and river views.

"The cultural beat in Peekskill far exceeds anything in White Plains and that could make a difference," he said.

In looking at communities outside Peekskill that sit along the Hudson, Mr. Mason said that there are often two narratives to a town's future: a rosy one you hear in good times and a more guarded one in bad; with this in mind, he said some of the river towns like Hastings and Tarrytown that have long anticipated redeveloping their waterfronts with recreation and retailing might lose hope under the umbrella of a bad market.

Though waterfront development has not materialized in areas of Westchester, the Midtown Direct train line that now links parts of New Jersey to Penn Station in Manhattan has changed communities from Maplewood to Madison. That change in transportation will keep demand much stronger than it otherwise would have been, said Jeffrey G. Otteau, president of the Otteau Appraisal Group in East Brunswick. The settling of so many corporate headquarters in the nearby Routes 78 and 287 corridor will also help. But ironically, he said, many of the fast-growing "exurbs," or outer suburbs, near the Jersey Shore may suffer. Their growth and rising prices are based on their easy commute to that north central corridor in New Jersey. There is no similar job source nearby to give the area its own base line.

When it comes to future prices, of course, all is speculation. And perhaps, just maybe, this will be the time when famous last words will come true and everything will be different. Gregory J. Heym, the chief economist at Brown Harris Stevens, is not sold on the inevitability of a downturn. He bases his confidence in the market on things like continuing low mortgage rates, high Wall Street bonuses and the tax benefits of home ownership.

"It is a new paradigm," he said.

[muscle1313]

NYTIMES:

When it comes to future prices, of course, all is speculation. And perhaps, just maybe, this will be the time when famous last words will come true and everything will be different. Gregory J. Heym, the chief economist at Brown Harris Stevens, is not sold on the inevitability of a downturn. He bases his confidence in the market on things like continuing low mortgage rates, high Wall Street bonuses and the tax benefits of home ownership.

"It is a new paradigm," he said.


Same thing was said about the stock market in 1999. New paradigm. I love the real estate boom, but nothing goes up in a straight line. I agree with the poster that said 10 years from now prices will be higher, but there have to be corrections along the way.

[REALESTATEGOLD]

I am an investor and I am banking on real estate in Arizona.
a) Affordability, I am buying houses at $75 to $85 per sq foot and dirt at $.50 to $1.00 per sq foot.
b) Job Growth, Pheonix is the #1 in job growth in US right now, major companies such as Intel and honeywell have moved here and many more are on the way. Construction is practically on FIRE.
c) Two of the largest universities in United states are in Arizona with over 70,000 students, phenoix is rated #5 in the nation for singles activities
d) Average income is $75000 per household and growing.
e) population Growth, Pheonix is the fifth largest city in US now and is estimated to grow to #3 by year 2020.
f) Californian are migrating to Arizona at a rate never seen before. 900 sq feet Condos in California are selling at an average price of $400,000. You can buy a masion with that in Pheonix.
g) Las vegas factor, prices have gone as high as in california and have been declining for the past 8 to 10 months. The only business is Casinos and pays minimum wage. Las Vegas no longer is a family destination. Families are moving to Pheonix.
h) Chineese currency floating in about 18 months. currently 1 to 8 ratio, it is estimated to be 4 to 1 ratio by then.
i) dollar losing ground and estimated to fall to 60% of its face value by 2006 against euro making real esate attractive to foriengers specially chineese once their currency floats.
J) Chineese moving to California, New York and Toranto, where they have already been established increasing the real estate values and guess where the californians and the Newyorkers will come to...ARIZONA.
K) Baby boomers and snowbirds....Need not to mention...Arizona is the choice for them. Already is.
Anyway, Don't let the bears scare you form the real estate market. IMHO Buy in Arizona and Hold for a couple of years. BUY AS MUCH AS YOU CAN AFFORD TO HOLD AND CASH IN BIG IN A FEW YEARS. GOOD LUCK.
PS. Look into these places: Buckeye, Surprise, Peoria, Casa Grande in Arizona.
YOU ARE WELCOME.

[alex ballard]

Ahhh....

The spam has come.


Yes, you forgot to add the wonderful water situation out there ;).

[REALESTATEGOLD]

There Is No Water Problem In Arizona. For Your Info, Arizona Just Sold 450,000,000 Cub Gal To Las Vegas.
I Take It You Have Never Been To Arizona.

[NoyokA]

I've been to Phoenix Arizona and its sprawling. Regardless this thread is about NYC real estate and although you have not made an offering, it still does not belong in this thread.

[REALESTATEGOLD]

This is not about NY vs AZ. NY is NY, there is nothing like it. As for investing,
I think timing is on the side of Arizona. That's all.
Plus, think about where you want to be when all those chinese move to NY. They've already taken over southern cal, Irvine, Mission Viejo, Cerritos and..............................You go to Cal state Irvine these days, that's all you see, chings.
AZ is 85% white and polite.

[Schadenfrau]

Wow, racism is totally cool in Arizona? That's it, I'm packing my bags today. Thanks, REALESTATEGOLD.

In all seriousness, today is the first day I've ever wanted to see someone banned from these boards.

[ryan]

J) Chineese moving to California, New York and Toranto, where they have already been established increasing the real estate values and guess where the californians and the Newyorkers will come to...ARIZONA.

I'm so naive that I actually took this to read something like "buy into Arizona now, before Chinese investors price you out..."

Any coincidence that blue states tend to be more expensive/desireable? Happy to pay a premium to stay away from this.

[Edward]

In all seriousness, today is the first day I've ever wanted to see someone banned from these boards.
Your wish is granted...

[macreator]

But as long as their is a large demand for real estate in New York City, especially in Manhattan, and there is a smaller supply won't the bubble never pop?

[TonyO]

NYSun
April 14, 2005 Edition

With Prices Set To Hit New Peaks, Smart Money May Cash Out
Commercial Real Estate

BY MICHAEL STOLER
URL: http://www.nysun.com/article/12232

Unfortunately, I don't have a crystal ball, nor do I often partake in gambling, but if I were a betting man, I would wager that 2005 will be a record year for sales of commercial property in New York City. According to the Capital Markets Group of Cushman & Wakefield, a record $14.9 billion in sales were reported in 2004, well over the prior record of $12 billion in 2001, which included deals for the World Trade Center and Rockefeller Center. Preliminary reports suggest that sales volume for the first quarter of 2005 was almost $9 billion.

A number of industry leaders agree that we're in for another record-breaking year, including the managing director at Eastdil, Douglas Harmon, who has been responsible for the highest volume of sales of commercial and residential properties in New York over the past several years. "2005 is the first year that I can remember where almost every form of asset class is establishing new sales-per-square-foot records," Mr. Harmon said. "Today, investors from around the globe are targeting New York as their prime investment priority. Nothing is out of bounds for purchase: Retail is hot, land is hot, rentals, conversion, A and B buildings, vacant buildings, and industrial properties."

During the past three weeks, sales volume alone exceeded more than $3.5 billion. On April 1, a joint venture between Tishman Speyer Properties, the New York City Employees' Retirement System, and the Teachers' Retirement System agreed to pay $1.72 billion to MetLife for the 58-story, 2.8-million square-foot MetLife Building at 200 Park Ave. It was the highest price ever paid for a single building in America, exceeding the $1.4 billion purchase of the 1.4-million-square-foot General Motors Building at 767 Fifth Ave. by the Macklowe Organization. Sources involved in the negotiations over the MetLife Building said that they felt the insurance company could have fetched an additional $200 million for the signage rights on top of the tower, though they decided in the end not to sell. As reported in Commercial Mortgage Alert, Lehman Brothers is providing $1.2 billion in financing for the deal.

Scott Latham, executive director of the Capital Markets Group of Cushman & Wakefield, told me, "The risk of terrorism and insurance had no real effect on the sale of 200 Park Avenue." Many of the interested bidders reduced their offers due to the potentially high cost of terrorism insurance for the property.

***

Earlier in the week, MetLife entered into a contract to sell its 1.4-million square-foot former headquarters, One Madison Avenue, to SL Green Realty for $918 million. The property occupies an entire city block between Madison Avenue and Park Avenue South between 23rd and 24th streets. One Madison Avenue is comprised of the 1.2-million-square-foot South Tower, 96% of which is leased to Credit Suisse First Boston, and the 267,000-square-foot North Tower, which is zoned for residential and office use. A spokesman at SL Green said that another component of the transaction was the purchase of about 470,000 square feet of air rights, which he said will be used to construct a second tower on top of the North Tower for either office or residential use. As reported in Commercial Mortgage Alert, Credit Suisse First Boston will provide $815 million in debt financing, consisting of a $690-million, 15-year mortgage for the North Tower, and a $125 million loan for the South Tower to fund conversion of a portion of it into residential condominiums.

***

On April 1, Ofer Yardeni and Joel Seiden, principals of Stonehenge Partners, closed on the acquisition of The Pennmark, at 304-324 W. 34th St. and 305-319 W. 33rd St. A consortium of investors including CDP Capital-Real Estate Advisory, a subsidiary of Caisse de Depot et Placement du Quebec, paid approximately $240 million to a partnership of JD Carlisle and smaller investors, which developed the property in 2001. The Pennmark is a 33-story, 600,000-square-foot mixed-use building containing 333 luxury residential units and 300,000 square feet of commercial space. Tenants include a 13-screen Loews Cineplex, Landmark Education, Bank of America, and Central Parking Garage. The purchasers do not plan to convert the property into a residential condominium.

***

On April 6, a partnership of Yair Levy, Serge Hoyda, and Kent Swig closed a deal to buy The Sheffield, a 50-story, 845-unit market-rate rental apartment building at 323 W. 57th St. The 28-year-old mixed-use building has a 376-unit garage leased to Champion Parking and six floors of office space. The partnership paid $418 million to developer-owner Rose Associates. At a capitalization of almost $545 million, which includes funding for renovation costs, it is the largest deal ever for a single residential building in America. Acquisition financing was provided by CS First Boston. The new owners plan to convert the residential apartments into condominiums at prices averaging $1,100 per square foot.

On the same day, SL Green Realty and Morgan Stanley Real Estate Fund III LP agreed to sell a 265,000-square-foot Class B office building at 180 Madison Ave. to Sitt Asset Management for $92.9 million, or approximately $350 per square foot. The joint venture purchased the building in December 2000 for $41.2 million.

***

Last Friday, it was announced that Sloan Capital, a consortium of two Irish billionaires, agreed to pay approximately $79.5 million for the landmarked Rhinelander Mansion, a five story, 28,000-square-foot building at 867 Madison Ave. on the corner of 72nd Street. The seller is German fund operator TMW, which bought the property in 1997 for $36 million. It houses the Polo Ralph Lauren flagship store.

Also last week, Equity Office Properties formally announced that it had entered into an agreement to pay $505 million for a majority interest in the Verizon Building, a 41-story, 1.2-million-square-foot office tower at 1095 Avenue of the Americas. Equity Office will acquire 1.03 million square feet, or nearly 80% of the tower, including approximately 30,000 square feet of retail space, as well as the naming rights for the building. Verizon will retain ownership of approximately 200,000 square feet. As reported in my March 24 column, it is estimated that Equity will have to spend at least $200 million to renovate the tower.

***

A number of residential and commercial properties will come on the market during the second quarter. It is expected that New York Life Insurance Company will announce plans later this week to sell Manhattan House, a market-rate residential apartment building that occupies an entire city block between East 66th and East 67th streets and Second and Third avenues. The property is likely to fetch close to $600 million. Industry insiders believe that Metropolitan Life Insurance Company might be interested in selling Stuyvesant Town and Peter Cooper Village. A total of approximately 11,250 market rate apartments are in these complexes, which stretch from East 14th to East 23rd streets between First Avenue and Avenue C. The price could exceed $2 billion.

The president of The City Investment Fund, Thomas Lydon, said, "The demand and the scarcity of top investment properties will cause more sellers to take advantage of an exit at historically high prices. Some of the long-term family owners may decide it is the top of the market and will choose to exit selective properties."

Robert Ivanhoe, the chairman of the national real estate practice and cochairman of the national REIT practice at the law firm of Greenberg Traurig LP, said, "It is almost as if sellers feel that there is a momentary window of opportunity to achieve historic and once unattainable high prices, and if there was every going to be a time to sell, this is it."

The president of the Realty Board of New York, Stephen Spinola, said: "You can't get a better investment than in the City of New York. People are willing to invest in the city. I do not see a bubble in the market, perhaps a slowdown."

The threat of terrorism and the cost of insurance has had limited or no effect on investors' interest in purchasing properties in New York City. Nor has the significant increase in real estate taxes for commercial office buildings and rental apartment buildings. "Real estate taxes have increased by 63% in 2000 for office buildings," Mr. Spinola said. "The increase for residential apartment buildings has been 83% since 2000. There are limitations and we need some form of reduction in real estate taxes."

I agree with Mr. Ivanhoe when he says, "The lack of good alternative investments, weak stock and bond markets, improvement in the leasing market, the perceived safety of New York City real estate, and the sense that this may be the last hurrah for long-term interest rates being at historic lows have led to the insatiable demand, even at record pricing levels."

In New York, instead of the calm before the storm, Mr. Harmon asks, "Is this the absolute frenzy before the storm?"

I have to agree with Mr. Harmon, and with the thoughts of Mr. Ivanhoe. "The real question is for how long this window will stay open?" Mr. Ivanhoe said. "While many industry leaders have an opinion, no one really knows. So in the meantime, until something changes, fasten your seatbelts!"

Mr. Stoler is a television broadcaster and vice president of First American Title Insurance Company of New York. He can be reached at mstoler@nysun.com.

[TLOZ Link5]

Wow, racism is totally cool in Arizona? That's it, I'm packing my bags today. Thanks, REALESTATEGOLD.

In all seriousness, today is the first day I've ever wanted to see someone banned from these boards.

Agreed. Honestly, I was actually kind of sad to see TalB go. Almost, at least.

[alex ballard]

HOME STARTS FALL ALARMING 17.6%

By BRADEN KEIL
--------------------------------------------------------------------------------

Email Archives
Print Reprint



April 20, 2005 -- Construction of new homes in the U.S. plunged an unexpected 17.6 percent in March, the largest drop in more than 14 years and potentially a huge blow to the booming U.S. housing market.
The new Commerce Department figures also showed permits for future groundbreaking activity for both single-family and multi-family homes, an indicator of builder confidence, fell more than expected.

The 1.837 million-unit seasonally adjusted rate is down from an upwardly revised 2.229 million-unit pace in February, the Commerce Department said yesterday.

Prior to the release of the numbers, Wall Street analysts had forecast a much smaller slide of 4.8 percent in March.

Among the falling numbers, the sharpest drop of 29.3 percent came from the Midwest, followed by declines of 18 percent in the South, and 12.7 percent in the Western states. The Northeast, meanwhile, fell a relatively moderate 3.6 percent.

"This is a bit of a shocker," said David Seiders, chief economist for the National Association of Home Builders. "But I don't think this represents a fundamental downshift in the housing market. There were special factors behind it."

Those factors, according to shocked industry watchers, have included unusually wet weather in March, which caused a slowdown in construction activity in some parts of the country, and seasonal adjustment factors that had higher-than-normal activity in the previous two months of unseasonably mild weather in many parts of the country.



Other analysts believe the latest report could be signaling that the hot housing market has finally topped out — after four straight years of record sales figures — with declines expected in the months ahead as mortgage rates head even higher.

Merrill Lynch economist, Kathleen Bostjancic, noted that the drop in housing starts along with disappointing employment growth, retail sales and manufacturing, show a loss in momentum for the economy.

Analysts said all of these reports taken together implied the economy was losing some steam under the impact of higher interest rates and the recent surge in energy prices.

with Post Wires Services

I fouind it odd that the NE actually had stable rates while the "boom states" plunged. Is this the sign of NY/NE's strength in housing? Is this the beginning of a trend?


It seems our racist real estate broker has a problem...

Not that I take absolute joy in that:);).

[investor350]

I agree with Eugenius, I have no doubt that NYC will continue to be a favorable investment destination for overseas buyers with deep pockets and a stronger echange rate. I expect places such as Florida to experience a definite bubble within 18-24 months. Prices in Florida range at this time from $500.-$1,000 @sq. ft. Miami alone is purported to have 62,000 condo under construction at this time. As interest rates rise and tax rates are between 2.5-3% of purchase price as well as these properties have high maintenance one must also have deep pockets to close as well hold. When one whose intention does not come to fruition and prices drop and they cannot close this will be a major bust out. It will also be difficult to find a renter who will pay anyway near what that investor must have to cover their expenses sincetheir will be thousands of owners in the same sinking boat. NYC has had a resurgence in new construction and is a center for world commerce but in no way does it still have enough residential units to accommodate potential buyers who seek living in residences that have modern luxury features.

[asg]

Bubble still set to burst.

[TLOZ Link5]

Bubble still set to burst.

Ha ha. :D

[krulltime]

Boom builds for housing


By LORE CROGHAN
DAILY NEWS BUSINESS WRITER

It doesn't matter whether it's near the Empire State Building or Eastchester Bay in the Bronx. Wherever they build it, people will come.

The city's residential market has been going strong for so long - since a brief chill right after 9/11 - that buyers worry the bubble is about to burst, and their investments will lose value.

It hit record levels yet again in the first quarter of the year, with the average Manhattan apartment sale rising to $1.2 million, according to appraisal firm Miller Samuel.

But because of continuing low mortgage rates and a short supply of available apartments and houses, builders and brokers do not fear a market downturn this year.

"If people are thinking prices are going down, they're delusional," said developer Ran Korolik.

And he should know. At Lumiere, the condo project he's finishing at 350 W. 53rd St. near Ninth Avenue, he raised prices five times in the six weeks it took to sell 56 condos. He didn't even open a sales office. He started at $850 per square foot and ratcheted up to more than $1,000. That pushed the price of a two-bedroom apartment to $1.2 million.

The Bloomberg administration has sounded a rare note of pessimism about the residential market - by budgeting a drop in city tax revenue from residential sales and mortgages in the year starting July 1. The Office of Management and Budget bases its prediction in large part on a Mortgage Bankers Association forecast of a nationwide drop in mortgage refinancing and new-mortgage origination.

But experts said rates won't rise significantly and cause any slowdown until after January at the earliest.

And though the expected dip will lower tax revenues, they'll still be well above the levels for all but the last two years.

There is, however, one sign of moderation in the market. Among Manhattan's most expensive apartments, which cost more than $2 million, there's a slowdown in the pace of price increases, said Frederick Warburg Peters, president of brokerage Warburg Realty.

Last year, high-end sellers could charge 5% more than the last comparable sale and get their price - even if the prior deal was done only a week before, he said. This spring, they can get 1% more.

Still, bidding wars continue to occur. Broker Toni Haber of Prudential Douglas Elliman recently handled one for an apartment at W. 92nd St. and Riverside Drive that went for more than its asking price.

"There's a lot of frenzy, unless an apartment shows badly because it's really dark, or is in terrible shape, or if it's priced badly," she said.

New construction moves particularly fast. In five weeks, half the apartments at 250-unit 325 Fifth Ave. have been sold, and prices have been raised twice, said Steven Charno of Douglaston Development. So, available one-bedroom apartments now start at $800,000 instead of $660,000.

Developers Jeffrey Levine and Steven Fisch are just pouring the foundation of the 50-story skyscraper. The site's on the opposite corner of 33rd St. from the Empire State Building, in an untried nabe for condos - but buyers aren't deterred.

In three weeks, 20 of the 66 condos at Outlook Point Estates on Eastchester Bay in the Bronx have been sold, said project manager Sam Larca - from $525,000 two-bedroom units to a three-bedroom for $690,000.

"Every developer I see has a smile on his face," said Joshua Muss of Muss Development, who works in Brooklyn, Queens and Staten Island. Sales are moving swiftly at two new buildings at his Oceana complex on the boardwalk in Brighton Beach. A three-bedroom duplex at 125 Oceana Drive East sold for $2.7 million, the highest price to date among the 14 buildings in the gated community.

In the first week of marketing the apartments at Beacon Tower at 85 Adams St. in Dumbo, Corcoran broker Peter Noonan sold a penthouse for $2.4 million, or $1,344 per square foot - a record price for the Brooklyn neighborhood.

"I see no bubble in the real estate market," Noonan said.


Originally published on May 16, 2005

All contents © 2005 Daily News, L.P.

[krulltime]

Neighborhood Values
How vulnerable are you? A risk analysis.

By S.Jhoanna Robledo

No, we don’t have a crystal ball. And yes, real estate is a great investment in the long run. But in the interim, here’s what may happen to your home if—when?—the bubble pops. (For risk assessment ratings, 1 is the safest risk and 10 is the shakiest.)


The Financial District

http://newyorkmetro.com/nymetro/realestate/features/realestate2005/financialdistrict050516_125.jpg

We hate to be the bearer of bad news, especially for an area most everyone wants to champion, but if this economy goes south, the financial district’s residents may wish they’d shorted their properties. Yes, it has cobblestone streets, turn-of-the-century façades, impressive views, and great transit. But it remains stubbornly in need of services (even though, as brokers and buyers endlessly point out, FreshDirect does deliver there), and it’s mighty quiet after its pin-striped daytimers head home. As many brokers will say off the record, if you have to compromise on where to eat and shop, it’s fringe. And in downturns, fringe neighborhoods almost always see dizzying drops. Moreover, though the area has attracted families, brokers say much of the new building is aimed at entry-level buyers. If they lose their jobs (and people starting their careers are more vulnerable) or elevated interest rates make a mortgage less attractive, they may decide to sell or just stick to renting. In recent years, new construction and commercial-to-residential conversions have added hundreds of units to the area; with inventory at an all-time low right now, those apartments are being snapped up by buyers willing to compromise on location. But in a recession, the same money they’re sinking into a luxurious one-bedroom way downtown, say $600,000, could potentially buy a similarly appointed pad on the Upper East Side close to restaurants and Central Park. Residents could wind up ditching this area for their first-choice neighborhood, and buyers who could take their place may give it the brush-off as well.

Risk Factor: 8.0


Loftland: Soho, Tribeca, and The Flatiron District

http://newyorkmetro.com/nymetro/realestate/features/realestate2005/soho050516_125.gif

If you’re reading this in your downtown loft, you’re in luck: You own one of the most coveted properties in town, better protected from a downturn than almost any other. Take recent history as your guide: In the nineties, when Manhattan real estate reached a nadir, Soho and Tribeca lofts recovered way before the rest of the city, says Michael Martin of real-estate-appraisal firm Mitchell, Maxwell & Jackson. “The average sale price downtown turned the corner in 1994,” he says, “while it wasn’t until 1996 that the rest of the market began to rise.” The same thing happened after 9/11, says Corcoran’s Linda Gertler, who sold a $9 million loft right after the attacks to a celebrity couple who paid the full asking price. Of the areas with the highest concentration of lofts, the Flatiron district, with a pleasant mix of commerce and residential life plus lots of subway lines, is probably best shielded from a market dip. Tribeca’s solid, too, having been taken over by families so devoted to P.S. 234 that they won’t think about leaving till it’s time for junior high. (Corcoran’s MiMi Murphy notes that “they’re not buying for buzz or because celebrities love the area.”) The best of the newer conversions, in buildings like the Chelsea Mercantile and the Loft Residences at 116 Hudson, are unlikely to feel a downturn: “They’re so in demand, because they can’t be re-created,” explains Shaun Osher of the Newcastle Realty Group. Surprisingly, the grande dame of loftland, Soho, may feel more of a pinch, because its cachet has been eroded by the tourist mobs. Overall advice: Take cover, and wait for the worst to pass.

Risk Factor: 3.5


The Lower East Side and The East Village

http://newyorkmetro.com/nymetro/realestate/features/realestate2005/les050516_125.gif

The neighborhoods south of East 14th Street have changed a whole lot since the last downturn, but they retain one thing in common with their Rent-era past: youth. The buyers here are largely middle-income first-timers, just the crowd that could find itself defaulting en masse if interest rates spike. If that happens, those kids won’t be able to sell the $1 million condos in the new towers clustered around Houston Street for the $850 per square foot they paid. Moreover, trust-funded strivers have been flooding Alphabet City’s walk-ups—and then moving out just as fast. That transience brings instability. “NYU students will graduate, newlyweds will move when they have their first child, entry-level workers will get a job in California—which means more apartments on the market at any given time,” says Newcastle Realty’s Shaun Osher. One broker quietly admits that it’s “susceptible to being hit hardest if there is a recession,” Whole Foods notwithstanding. (The lack of subway access, long rationalized by residents trudging in from Avenue C, may become a factor again.) Two saving graces: One, its buyers are uncommonly passionate about the area, and are unlikely to flee to the Upper West Side or Soho. (Even if they get rich, they just move to the Carl Fischer building or the new Charles Gwathmey tower on Cooper Square.) And two, the neighborhood is still dense with rentals. That, Osher says, could allow future buyers to wait out the market’s lull in a floor-through overlooking Tompkins Square Park. A neighborhood filled with tenants may not be ideal, but it’s better than a ghost town of FOR SALE signs.

Risk Factor: 7.5


The West Village and The Meatpacking District

http://newyorkmetro.com/nymetro/realestate/features/realestate2005/westvillage050516_125.gif

Buzz may have helped build the far West Village, but an economic downturn will prove that it lives up to its hype. Though it’s now one of the most popular and expensive places to live, thanks in part to high-profile projects such as the Richard Meier towers, prices will slip but not slide, and may even hold steady. For starters, like the rest of the West Village, it’s got a healthy mix of housing stock (from gleaming new condos to loft conversions) and residents (singles to families, celebrities to old homesteaders). This combination keeps it insulated from a mass exodus and extreme price fluctuations. Plus, like residents of Park and Fifth Avenues, newcomers here have paid staggering sums. “When people make that kind of investment, especially when there are a lot of them, the area’s protected,” explains downtown expert Shaun Osher of the Newcastle Realty Group. For the most part, the entire Village is a safe bet, and historically, this has proven true. Residential prices here fell 10 percent—annoying but not deadly—in the early to mid-nineties, according to the appraisal firm Miller Samuel; they actually rose 5 percent, sometimes even more, after 9/11. As is usual in Manhattan, condos are generally safer than co-ops, but not much more, as West Village boards are known to be persnickety about finances. The chanciest investments may be studios and one-bedrooms, many of which house NYU students and recent graduates with overstretched budgets. Another worry? The million-dollar marquee studios, which two power brokers simply describe as “insane.”

Risk Factor: 3.0


Gramercy Park, Murray Hill, and Midtown East

http://newyorkmetro.com/nymetro/realestate/features/realestate2005/chelsea050516_125.gif

Say what you will about this area—it’s boring, it’s achingly unhip—but if the market takes a dive, its residents may have the last laugh. Sutton Place attracts older, richer buyers (often Park Avenue overflow) who are generally unaffected by recessions, and co-op boards here are tough, so there aren’t many defaults. Ditto for Gramercy Park, especially for apartments with those magic keys to the private greenery. (Warburg’s Judith Thorn, who’s specialized in the area for fifteen years, says every apartment she’s sold and resold there has gone for a higher price, “no matter what’s going on.”) Eternal underdog Murray Hill is surprisingly steady because it’s still undervalued. Families, often a stabilizing force, have discovered the area, lured by good deals and the excellent P.S. 116, says Bellmarcj’s Julie Friedman. But beware: New developments in the area, and in Gramercy, have tried to push the price ceiling past $1,000 per square foot, and if you bought into one of them pre-construction to get in on the ground floor, take a hard look at what you have. Though most recent projects are well built, some are Trojan horses that one broker calls “tiny boxes with cheap finishes.” (One 1,100-square-foot unit built in 2002 has been sitting on the market for five months, its asking price cut from $1.29 million to scarcely over a million. Its owners will barely break even—and this in a sizzling market.) If you had to rationalize your purchase —“it’s a bad layout but it has a big terrace,” or “it’s small and dark but it’s got marble baths”—then get ready for a dousing.

Risk Factor: 4.0


Chelsea, Clinton, and Hell’s Kitchen

http://newyorkmetro.com/nymetro/realestate/features/realestate2005/chelsea050516_125.gif

In the mid-nineties, New York real estate’s unofficial Dark Ages, mortgage broker Paul Cole and his wife, Kelly, bought a one-bedroom in a full-service building in the West Thirties for $72,000. Its owners had paid more than $110,000 many years before but couldn’t afford to wait for prices to bounce back. And it’s likely that the Coles weren’t the only ones who found a fire sale: From 1989 to 1993, prices here fell a shocking 43 percent. But it was a different neighborhood then. The area’s no longer fringe, for which you can thank the gentrification gods (or demons) and even perhaps the glow of Time Warner Center, which bootstrapped prices in the West Fifties. Chelsea’s the most luxurious pocket, and the most stable. Even its heavily industrial western edge will likely ride out a recession: “It’s embraced by the river and is in the middle of an established market,” says veteran Elliman broker Leonard Steinberg. And with all types of housing, from tenements to townhouses, “that market’s exposed to a wider swath of owners,” says Jonathan Miller, president of Miller Samuel, an appraisal firm. In other words, the diversified portfolio of residents and businesses—restaurants and grocery stores, schools and churches, art and commerce, and a whole lot of committed gentrifiers who paid top dollar—add stability. The biggest question mark is the new “luxury” towers that have sprouted all over the West Forties, one with lovely views of the Port Authority Bus Terminal. Though they’re larded with condo goodies (gym, screening room), the area’s a long way from being established, which could mean a big dip.

Risk Factor: 6.0


Old Luxe: The Gold Coast

http://newyorkmetro.com/nymetro/realestate/features/realestate2005/oldluxe050516_125.gif

In 2004, the most expensive co-ops on Fifth and Park Avenues sold for $25 million apiece; on Central Park West, they topped out at $20 million, according to Stribling & Associates’ Luxury Residential Report. And you think you’re going to pick up a sweet bargain there next year? Guess again. Today’s Gold Coast buyers are wealthy enough to be virtually impervious to what happens in the market, barring something ugly and public—a tabloid divorce, a scandal, a TV-show cancellation. Many of these buildings, don’t forget, require applicants to have a staggering amount in liquid assets to pass the board, and “one of the upsides of co-op-board financial stringency is that people don’t run into as much trouble,” says Frederick Peters, president of Warburg Realty. (The Dakota, among others, is known for requiring an all-cash purchase—no mortgages allowed.) Besides, notes Gumley Haft Kleier’s Michelle Kleier, these buildings’ boards know perfectly well that they have extraordinary, coveted spaces, magnificently carved and shaped by architects like Rosario Candela or Emery Roth. These apartments so rarely hit the market that once they do, they almost always find a rich admirer all too willing to pony up. At worst, this market segment will pause for breath, as it did after 9/11, before going right back into its standard climb. Will anyone actually buy the 19,000-square-foot Duke-Semans Mansion at 1009 Fifth Avenue—one of the last grand private homes on the Park, just put on the market by the descendants of the family that built it in 1901—for $50 million, even with all this talk of a bubble? We wouldn’t be surprised.

Risk Factor: 1.5


Townhouses below 96th Street

http://newyorkmetro.com/nymetro/realestate/features/realestate2005/townhouses050516_125.gif

According to the Stribling Luxury Residential Report, the townhouse business has been phenomenal. Total sales increased in 2004 by 118.7 percent. (One 32-foot-wide house in the East Sixties sold for $9.5 million and was flipped the same day for $11.5 million.) Expect that ardor to cool off if the market nose-dives. It’s a niche business as it is, representing only about 1,000 properties, and these unique creatures often stay on the market for a long time. Of late, the market’s been propped up by nontraditional customers—foreign buyers, mostly—who, frustrated by the shortage of big co-ops or worried about board turndowns, bought houses instead, explains Stribling’s Kirk Henckels. It’s not so much that prices will free-fall if things go sour—they’ll simply grind to a halt, as owners stay put until business picks up. If you live in Greenwich Village, NYU has your back; the university’s demand is endless as it gobbles up townhouses like Pac-Man. Houses between Fifth and Madison are similarly protected, as are ones off Central Park West. And if your mansion’s in Murray Hill, where the undervalued brownstones haven’t peaked yet, you’re in the catbird seat. One spoiler: If the slump lasts and crime becomes an issue, expect a townhouse’s value to lose 25 to 50 percent more than a comparable apartment would. “No one wants to have vagrants sleeping on their doorsteps,” explains Jeffrey Jackson of appraisal firm Mitchell, Maxwell & Jackson. Still, a brownstone is never going to be a truly poor bet. “Even if things are bad, there’s always someone willing to step in and pay to live in one,” says townhouse broker Jed Garfield.

Risk Factor: 3.0


New Luxe

http://newyorkmetro.com/nymetro/realestate/features/realestate2005/newluxe050516_125.gif

The past two years have seen a parade of trophy penthouses hit the market, their prices escalating as sky-high as the apartments themselves: the $27 million penthouse at One Beacon Court, a.k.a. the new Bloomberg tower across from Bloomingdale’s; the $30 million duplex atop Trump Park Avenue; the $42 million raw space capping Time Warner. The mega-million sales generate tons of buzz, but will these apartments still be worth the same if the much-contemplated bubble pops? Probably not. The prices have run up too fast for properties that, unlike their prewar equivalents, are not a finite resource. “There’s a certain sexiness in owning a $20 million [new] property that may not be so sexy when the market falls,” says Jeff Jackson, of leading residential real-estate appraisal firm Mitchell, Maxwell & Jackson. Every new marquee building gets a marquee penthouse, and there’s a very limited pool of buyers for these things, all of whom can easily decide to buy something else, like a townhouse. There’s a mitigating factor, of course—they’re rich enough not to care about market downturns—and for now, they’re still shopping. Douglas Elliman dynamo Dolly Lenz says she recently sold a $25 million apartment to a client who “barely batted an eyelash.” When asked how he felt about such a commitment, he told her, “I just bought a $19 million painting. To buy a $25 million apartment is not such a big deal.” Then again, a Renoir will still be a Renoir no matter what; an overpriced Trump apartment is, well, that.

Risk Factor: 6.0


Upper East and West Side Family Apartments

http://newyorkmetro.com/nymetro/realestate/features/realestate2005/uppereast050516_125.jpg

If you’re looking for shelter in a real-estate storm, hide out in a classic six. In general, family-size apartments—essentially those with two or more bedrooms—on either side of Central Park are fairly bubble-proof simply because they’re so in demand. “The more square footage you have, the better, because space is rare,” says Corcoran’s Emilie O’Sullivan. During the nineties, when the market was in a tailspin, two- and three-bedroom co-ops and condos in these neighborhoods depreciated just like everything else, but managed to avoid crashing. Nowadays, as fewer couples desert the city when they have children, they’re powerfully in demand. “Good schools and families make an area more stable,” says Susan Abrams of Warburg Realty, and the Upper East and West Sides certainly have plenty of both—not that they were exactly rough turf to begin with. Still, some properties will hold value better than others. On the West Side, the prime pockets are the West Seventies and Eighties, and West End Avenue, Riverside Drive, and Central Park West; on the East, you can’t go wrong with Carnegie Hill, East End Avenue, or anything west of Lexington. Though for years prewars were universally considered better investments than postwars, that’s no longer the case, says appraiser Jeff Jackson. Today, better space wins out. If you live in a postwar three-bedroom with a gracious layout and drop-dead views off York Avenue, your property won’t depreciate as much as will a light-deprived maisonette with a claustrophobic plan off Madison. And a full-service high-rise with a gym and a concierge trumps one without the perks.

Risk Factor: 2.5


Entry-Level Apartments

http://newyorkmetro.com/nymetro/realestate/features/realestate2005/entrylevel050516_125.gif

You can blame everything on these little guys. “The small apartment has been the little engine that could,” says Frederick Peters, president of Warburg Realty. If the market tanks, though, expect the locomotive to stall. For starters, says Bellmarc Realty president Neil Binder, the low end is particularly vulnerable when there’s a downturn. (The average sales price for a studio dipped from $134,783 in 1993 to $108,830 in 1995.) Plus, entry-level apartments attract more first-time buyers who capitalize on low interest rates and claim a small piece of turf. To “shoehorn themselves into the best apartment they can afford,” Binder explains, many take on adjustable-rate mortgages. “But if there’s an earthquake in the economy”—and interest rates spike—“they’re putting themselves in a perilous position.” Agrees appraiser Jonathan Miller, “If you had to pick buyers who’d be more mortgage-rate sensitive, it’s them.” Besides, “jobs drive the values,” says fellow appraiser Jeff Jackson—and young people are more likely to get fired and sell off their single major asset. Get enough of them selling and there’ll be a glut; as it stands, studios and one-bedrooms already make up the lion’s share of the market. If you have a condo, you always have the option of renting it out, as many investors do, but this safety hatch only works if you can find tenants. “I know someone who got caught in the downswing in the 1990s, and she couldn’t rent her studio out because there were too many available,” says co-op lawyer Steve Wagner. “She finally had to sell it at a loss, because she had to go to California.”

Risk Factor: 8.0


Harlem

http://newyorkmetro.com/nymetro/realestate/features/realestate2005/harlem050516_125.gif

There are really two markets in Harlem—new condos and old houses—and they have radically different prospects. Of late, developers have swarmed over upper Manhattan’s vacant lots and parking garages, and most have found buyers. But that oh-so-alluring bang for your buck could quickly turn into a clunk if this market stalls. (We can already hear cackles from the anti-gentrification crowd.) No matter what a lot of new buyers say—“I’d rather be here than in the Village!”—many would’ve settled elsewhere if they could. Add the potential for oversupply (it’s said that a third of Manhattan’s residential construction is slated for Harlem), and you have a recipe for trouble. That said, West Harlem is better situated than its eastern counterpart, where Harlem master broker Willie Kathryn Suggs says the market “will just grind to a stop and go nowhere until the next run-up.” The northward march of Columbia University will also keep prices up nearby, adds Bellmarc’s Neil Binder. Better-located new stuff, in central Harlem from 125th Street down to the park, won’t be hit so hard either. As for the brownstone market, recent buyers can consider themselves wise. Though houses here have appreciated 100 percent in the past year, they still cost half what they would 40 blocks to the south, so a large-scale correction isn’t in the works. Once here, buyers tend to stay, keeping inventory low. Best bets: Those near Mount Morris Park and in Hamilton Heights (where one has topped $2 million) and on Strivers Row. The finest houses—25-footers, those with meticulous renovations—will do best. As for East Harlem . . . look out below.

Risk Factor: 6.0


Established Brooklyn

http://newyorkmetro.com/nymetro/realestate/features/realestate2005/brooklyn050516_125.gif

Yes, that much-discussed $20 million house for sale in Brooklyn Heights is an anomaly. But in the established markets of Brooklyn—for our purposes here, the Heights, Boerum Hill, Carroll Gardens, Cobble Hill, Park Slope, and Fort Greene—most owners are sitting on safe ground. There’s a reason, after all, that all of Brooklyn Heights is landmarked: a large stock of graceful, irreplaceable, coveted townhouses. Those facing the Promenade are the top prizes, of course. Park Slope isn’t quite as refined, but it’s utterly beloved by its families looking for a stroller-friendly vibe and good schools. It’s doubtful that these owners will cash out in a downturn. The Slope is also insulated because it’s multifaceted, with many ethnicities working in varied industries living in all sorts of apartments, from brownstones to new condos, says Peggy Aguayo of Aguayo & Huebener. Skeptics may wonder about the stability of newly prime Fort Greene, but the area’s poised to ride out a bumpy market. In fact, says Elliman broker Marilyn Donahue, it may actually be as steady as Brooklyn Heights, thanks to its superlative housing stock and refurbished Fort Greene Park. Prices here also haven’t peaked—a Queen Anne one-family with intact mahogany wainscoting and a dumbwaiter was recently listed for a relatively modest $1.099 million. Proceed with caution, though, if you’re abutting Bed-Stuy, which may be rockier terrain. Another caveat: Brokers and developers try to extend the boundaries of prime neighborhoods to spread out the buzz. If your house is at, say, the bottom of the Slope toward the Gowanus Canal, you’re less protected from a fall.

Risk Factor: 3.5


Edgy Brooklyn

http://newyorkmetro.com/nymetro/realestate/features/realestate2005/edgybrooklyn050516_125.gif

Two kinds of buyers choose the less bourgeois stretches of Brooklyn: the arty crowd in Williamsburg, Greenpoint, and (at the wealthy end) Dumbo; and the families that have made a go of areas like Bedford-Stuyvesant, Red Hook, and Crown Heights. Few will do great in a downturn, but the hipsters will be better off than the rest, who are likely to find themselves with no buyers to cover those renovation loans. That’s especially true in Bed-Stuy, with too few newcomers to offset stubborn crime and weak schools. Paying $750,000 for a house here puts you well into a danger zone. Crown Heights is better off, because of better subway access and proximity to Park Slope, but its houses still seem overvalued. A far stronger bet is Red Hook: Though there’s no subway and a huge housing project, it has the critical mass to handle a downturn. Water access, plans for Ikea and Fairway, and a continuing shortage of good properties suggest a real future. Williamsburg will remain a destination for those attracted to expensive vintage clothing and Thai food set to techno, and Greenpoint, next door, is a leafy family neighborhood with loads of owner-occupied three- and four-story townhouses that many brokers believe are still a little underpriced. The first casualties will be apartments around the Lorimer L stop, which lack the nightlife draw. Anyone overpaying for a condo in the Gretsch Building should watch out, given that 10,000 new apartments with waterfront views will be on the market in a few years. As for Dumbo, it’s small enough to keep demand high: “It’s there to stay,” says appraiser Jeffrey Jackson.

Risk Factor: 7.0


Queens: Long Island City and Jackson Heights

http://newyorkmetro.com/nymetro/realestate/features/realestate2005/queens050516_125.gif

Lots of potential, lots of speculation, not enough people—yet. This is the story in Long Island City. While the neighborhood is solidly an artists’ haven—anchored by P.S. 1 and whatever’s left of MoMA QNS—there’s still not a strong enough residential core to insulate the area from a market crash. “Lots of speculation has driven prices up, but it hasn’t evolved enough as a neighborhood,” says Jeffrey Jackson, co-founder of the Mitchell, Maxwell & Jackson appraisal firm. “Isolated” and “windy” is how even enthusiastic residents describe the place, which still lacks a major supermarket. (FreshDirect doesn’t deliver, even though its headquarters is here.) The only luxury high-rise co-op in “Queens West,” Citylights, may even face competition from the planned Olympic Village next door, and a 400-unit condo complex rising nearby. The views of Manhattan from all these new developments are unparalleled, and the ability to commute to Midtown East in fifteen minutes will keep it attractive to some. But first, Vernon Boulevard will need more than a few cute cafés and bars to draw actual residents—not just speculators—to the neighborhood. Jackson Heights, an entirely different beast, is still what one appraiser called a “vanilla neighborhood” without the hipster vitality of Astoria to the northwest. Corcoran’s Megan Hoffman likens it to Brooklyn Heights, suggesting that gardens, fireplaces, and historical designations there will keep it attractive—even though it’s twelve local stops from Grand Central.

Risk Factor: 5.0


The Suburbs

http://newyorkmetro.com/nymetro/realestate/features/realestate2005/suburbs050516_175.gif

If nothing else, life in the cul-de-sac is a fairly secure investment these days. Though home prices foundered in the crash of the late eighties (when the number of homes for sale in Nassau County increased by one-fourth in a single year), suburbanites have less to fear this time around. Greenwich, the de facto hedge-fund capital of the world, is teeming with ladder-climbers in an industry that barely existed fifteen years ago. They work and spend locally, and benefit from a tax structure that encourages ever-larger McMansions. Geographic moves are helping New Jersey and Long Island, too. “There’s been a shift westward of the central business districts in midtown,” says MM&J appraiser Jeffrey Jackson. That’s increased the appeal of Penn Station over Grand Central, which in turn favors New Jersey Transit and LIRR commutes. And as Long Island has witnessed double-digit percentage increases every year for the past three, MM&J’s Jean-Pierre Blaise says suburban homes are secured by something immeasurable: emotional value. You’re unlikely to cut and run “if you’re buying your primary residence to raise your two-point-five kids,” says Blaise. (Mortgage data suggest that Long Island’s single-family homes turn over every seven years, compared with four to five years for condos and co-ops.) Perhaps most fascinating is the urbanization of the ’burbs, as young buyers mimic a Real World existence in Metro-North country. “The ‘city living’ trend—we’re now seeing it in White Plains, in Norwalk, even Yonkers,” says Jackson. “There’s loft-building conversions in New Rochelle. These areas that were kind of blighted are being reborn.”

Risk Factor: 3.5


The Hamptons and The Catskills

http://newyorkmetro.com/nymetro/realestate/features/realestate2005/hamptons050516_125.gif

Here’s the bitter pill: When the “correction” comes, the second-home market will see it first. “If you’re on the financial ropes, the place you fight for is the place you live in,” says Paul Cole, a mortgage broker at Trachtman & Bach. (Statistics show that second-home buyers default more often than primary owners.) Ron Guichard, who’s been selling in the Catskills for more than two decades, says that “everything flattened from 1992 to 1997.” The area’s poised to feel some pain, but brokers voice the plaintive hope that it’ll be better this time. At least it’ll do better than the Hamptons, which is poised for a hard fall. The run-up has been dizzying—instant doublings in value, millions made by spec builders. (One developer bought a house for $2.2 million last year, tore it down immediately, and sold its unfinished replacement four months later for $5.9 million.) A negative turn in the city’s fortunes almost immediately translates into problems out here, confirms Lori Barbaria of Prudential Douglas Elliman Bridgehampton. And Hamptonites can’t just lease their places out to survive a bear market. (Who rents a second home year-round for $10,000 a month?) Owners, then, may be forced to sell. All the same, such nastiness may be rare south of the highway in Southampton and East Hampton, where many residents are rich enough to wait it out. Besides, says Barbaria, “there are always people who’ll buy in down markets. They’re like crows sitting on a fence—they wait, they’ve got cash, they swoop in and get a deal.” Unless, in a Glengarry Glen Ross moment, Shelley Levene just sold you eight units of Mountain View. Then you’re really stuck.

Risk Factor: 9.0


With Kate Pickert and Will Doig

Copyright © 2004 , New York Metro,

[alex ballard]

Do you guys think that the bubble burstign would be a good thing for NYC? Think about it for a second, all of the sudden, middle-class families can now afford many of the city's neighborhoods due to the fall in prices. This builds a soild base and helps to attract more companies seeking lower costs places to relocate. The cost of living index drops, making the city that much more desireable. This atracts families and immigrants to the city. And then, the frenzy starts all over again.


Do you see this happening>

[TomAuch]

Depends on how badly the bubble bursts. If prices go down enough, then some people who were priced out over the last 5-10 years may return, but if the bubble simply lets some air out and prices remain flat instead of dropping, then the status quo may prevail instead.

[microserf]

I agree with Eugenius, I have no doubt that NYC will continue to be a favorable investment destination for overseas buyers with deep pockets and a stronger echange rate. I expect places such as Florida to experience a definite bubble within 18-24 months. Prices in Florida range at this time from $500.-$1,000 @sq. ft. Miami alone is purported to have 62,000 condo under construction at this time. As interest rates rise and tax rates are between 2.5-3% of purchase price as well as these properties have high maintenance one must also have deep pockets to close as well hold. When one whose intention does not come to fruition and prices drop and they cannot close this will be a major bust out. It will also be difficult to find a renter who will pay anyway near what that investor must have to cover their expenses sincetheir will be thousands of owners in the same sinking boat. NYC has had a resurgence in new construction and is a center for world commerce but in no way does it still have enough residential units to accommodate potential buyers who seek living in residences that have modern luxury features.

OH HAPPY DAY when the bubble bursts here in Florida. We'll be cracking the champagne, and rubbing our hands in glee for the serendipitous event. To us, the Savings & Loan scandals of the late 80's/early 90's were a cash flow generating event for which we thought we'd never see again. Guess it took about 20 yrs to forget, but WE do NOT forget. I want to see foreclosures, bankruptcies and carpetbagging opportunities for pennies on the dollar. DEFAULT! DEFAULT! DEFAULT! I expect just before October 2005 (when the new more strict bankruptcy laws take into effect) a flurry of Chapter 7 filing activity.. the banks will then tumble on down like a row of dominos, and properties will be flailing about at firesale prices in order to recover the capital. May be a blip, may be a bluster, but as always w. chaos, is opportunity.

Here are some very interesting facts about banrkuptcy: http://www.firstam.com/faf/html/cust/jm-bankfacts.html

[krulltime]

An Iron Bubble: Housing Market Isn’t Deflating


by Michael Calderone

Russian-born finance billionaire Leonard Blavatnik isn’t used to being rejected.

So when the board at 927 Fifth Avenue told him that he couldn’t buy Mary Tyler Moore’s 5,740-square-foot prewar co-op on the eighth floor, even with $18.5 million in hand, it must have smarted.

Soon insult was added to injury, when the board of Central Park West’s San Remo co-op board told Mr. Blavatnik that he couldn’t buy and combine three units into a massive aerie overlooking the park.

It’s just one way the real-estate market in Manhattan is different from the rest of the country. Elsewhere, who would turn away an investor with money to burn?

These days, though, the real-estate talk in Manhattan is the same as everywhere else: It’s all about the Real-Estate Bubble.

The chatter reached a summit when, on May 25, The New York Times ran a front-page news story about the bubble, followed two days later by Op-Ed columnist Paul Krugman’s gloomy economic forecast. The Princeton professor jumped right into the current real-estate fray, the "final, feverish stages of a speculative bubble."

As in many other "bubble" articles, Mr. Krugman focused primarily on nationwide housing statistics.

But what plays in Peoria, Miami or Syracuse may not play here. And when it comes to watching real estate, there are only three factors to consider: location, location and location.

That, at any rate, is the story the Manhattan real-estate world is eager to tell.

They say the tendency of co-op boards—a major force in the Manhattan market as nowhere else in the country—to weed out speculative investors is a major factor. So, too, are the city’s low crime rate; steady increases in population and immigration; and mounting construction costs. These factors, they say—and not the kind of speculative distance from real value—are what have been driving Manhattan’s real-estate values to dizzying heights. And while it won’t last forever, neither, they say, will it come crashing down on our heads like it did in the late 1980’s.


The Co-op Board

One study, conducted in September 2004 by Business 360, an economic-research firm regularly hired to issue assessments for corporations and investors, confirmed something New Yorkers have long believed: that Manhattan real estate operates on a fundamentally different economy from the industry in the rest of the country.

Training its focus on Manhattan, the study found that over 80 percent of co-ops in the United States are located in New York; what’s more, co-op apartments make up about 80 percent of New York’s residential real-estate market.

"One thing that makes the New York market different is co-op boards," said Frederick Peters, president of Warburg Realty Partnership. "There’s built-in protection in the co-op market against the kind of panic selling which is one of the byproducts of a bursting bubble."

Co-op boards don’t like financial "adventurers"; prospective buyers’ long-term financial security is as important as their bank balance at the time of purchase.

And the boards like it even less when investors come in to rent out or "flip" apartments—meaning they have no plans to occupy the place themselves, only to turn around and resell the place at a higher price than they paid themselves.

"The situation in New York is different in the sense that we don’t have the rampant speculation, the property-flipping," said Jonathan Miller, president and chief executive of Miller Samuel, a real-estate appraisal and consulting firm. "It pales in comparison to what is going on nationally."

Unlike in other hot markets, New Yorkers are primarily buying property for personal ownership rather than to turn a quick profit.

In the heavily investor-driven South Florida market, which has been a major focus of recent coverage, Mr. Miller believes that roughly 60 to 70 percent of sales are speculative purchases.

"I know Miami is a highly speculative market," said Pamela Liebman, president and C.E.O. of the Corcoran Group. "This is not Miami. This is people who want to be here. It’s not a flipper mentality in New York."

Indeed, in Manhattan, investors represent less than a quarter of apartment buyers, and most homeowners will ride the ebbs and flows of the market from the safety of their living room.

"People feel secure; they’re willing to invest their money," said Michele Kleier, president of Gumley Haft Kleier. "You’re buying something that, worse comes to worst, you’re going to live in."

The activism of New York’s co-op boards is one reason the Manhattan real-estate market seems to correlate so poorly to the stock market.

"[T]here has always been a propensity to correlate the housing market to the stock market, and they’re fundamentally different," said Mr. Miller.

For one thing, real-estate transactions take significantly longer than stock transactions. Co-op boards present difficulties regardless of capital that no stockbroker would present. And devalued stocks cannot provide a roof and four walls in the event of an economic downturn.

"Real estate has intrinsic value," said Mr. Peters. "Unlike tech stocks, there is always a there there."

But the more speculative the purchases—the greater the proportion of investing in real estate to actual home buying—the more the resemblance holds up.

"Up until 2000, it was the conventional wisdom that real estate followed the market," said Mr. Peters. "Real estate really is functioning as a separate asset class which doesn’t parallel the stock market."

In the past few years, many records have been shattered, especially in the high-end market, with Rupert Murdoch’s $44 million purchase of Laurance Rockefeller’s penthouse triplex at 834 Fifth Avenue being just the latest example.

But high demand—as long as it’s coupled with a limited inventory— can create a hot market without inflating a bubble.

Indeed, one of the downsides of this booming market has been the response time granted to potential buyers, who are forced into bidding over the asking prices, in many instances without time for careful consideration. There is some speculation that this could lead to an increase in shoot-from-the-hip stock-market-style speculation in real estate.

"In a normal market, it takes four to five months to sell an apartment in New York City," said Jacky Teplitzky, executive vice president at Prudential Douglas Elliman. "In the first quarter, it used to take 24 hours. Or 48 hours."

"It’s not just buying a few shares in G.E.—for the vast majority of us, it’s the most significant investment you are going to make in a lifetime. Now more than ever, in this turbo-charged market, people believe they have to bid instantly," said Sylvia Shapiro, author of The New York Co-op Bible.

But even then, the feverish sell-offs that characterize a stock-market crash seem unlikely.

"It’s an asset that takes, at a minimum, 60 to 90 days to trade," Ms. Liebman said. "The cycle of selling it doesn’t lend itself even to be spoken of as a bubble. You don’t have thousands of houses crowding the market because, one night, someone said the market crashed."


I Am an Island

Full-scale housing busts have occurred here before. But the bust of the late 1980’s happened under very different circumstances.

That crash was catalyzed by excessive condominium conversions during the Koch years. When the stock market dropped by a quarter (over 500 points) in October 1987, the supply of condominiums far outweighed the demand.

In today’s market, however, there is still a constrained supply.

"One of the factors that stimulates the market is supply and demand," said Daniel Douglas of the Corcoran Group. "Nobody told me about Manhattan getting enlarged. It’s a limited landmass. There’s a limit to the amount of things you can do."

Donald Trump’s theory is a bit different.

"That was driven by tax deductions," he said of the 80’s real-estate bubble. "This is driven by a market which is much safer. The late 80’s was driven by tax deals, and when they ended the tax deals rather abruptly, the market came to a screeching halt. The government actually made a big mistake, because it took down a lot of banks—a lot of people went down the tubes."

But he agrees with everyone else on at least one important factor that separates Manhattan from the rest of the nation: water.

"It’s a small little island surrounded by water," he said. "Anything on this island is going to become more and more valuable over time. In other places, you have stretches of land that go thousands of miles. Here, you have just a very small little island."

Unlike the housing market in Omaha, Neb., expansion must be vertical rather than horizontal. There are some areas slated for redevelopment—former factories becoming shabby-chic artists’ lofts—but Manhattan doesn’t offer developers miles of untapped land to build a few thousand McMansions.

"I think New York is a very unique marketplace," said Ms. Liebman. "We like to think of it as the capital of the world. It is an island. And it does not suffer from overdevelopment. We feel the demand in Manhattan is very strong and is still far outweighing the supply, which is causing the market to have a 23 percent increase in prices this year. Our company has had a record-setting sales month in March, April and now in May. All this talk of the bubble is purely fueled by the press."

But how long can the party really last? Will inventory always be in such short supply in Manhattan?

Some point to the fact that, last year, 25,208 new residential units were approved for construction granted—the most in over 30 years. Just 10 years earlier, only 4,010 were permitted. This is one area where there could be a substantial glut of new residences in the next few years, with the downtown condominium market viewed by some in the industry as a place to watch closely.

"There might be some concern down the road just because [downtown] has been the focus of development over the last five years," said Mr. Miller.

Indeed, most industry insiders agree that boutique condos, costing upwards of $2 million to $3 million, could be in jeopardy if supply begins to outweigh demand.

Recently, there has been property flipping in several new luxury-condominium developments (where savvy investors purchased sponsor units from floor plans), but that marks the exception rather than the rule.

"Because there is less financial scrutiny, [condo] buyers may have financial issues down the line," said Ms. Shapiro. "Co-ops are definitely better-protected than condos."


Slowdown Imminent

"There is no bubble! What has happened is, the incredible price escalation is a result of property being tremendously undervalued for a long period of time," said Leonard Steinberg of Prudential Douglas Elliman, a luxury property broker.

O.K., that might sound a bit crazy. But the Business 360 study concluded that the price of housing—still recovering from the early 1990’s decline—is indeed undervalued. The authors of the report predict that prices will rise about 10 percent per year through 2007, followed by a 5 to 8 percent annual gain through 2010.

There’s no question about it: That’s a slow-down.

"The experience we are currently having is a decrease in the rate of increase. The reason that leads to price reductions [is that] sellers invariably price ahead of the marketplace," said Mr. Peters.

While brokers may have obvious reasons to dismiss the rumors of an impending housing bust, many are willing to admit that the market has slowed down, which is admittedly not such a bad thing. Continuous double-digit gains, quarter after quarter, are a strong indicator that prices are inflated, and the market could then drop significantly. And although the percentage gain may drop a few points, it must be noted that there is still a net gain: Prices may rise, albeit not as quickly as in the previous quarter.

Another broker agrees that a slight slowdown isn’t the end of the world and should be expected in any market—but that, in such a case, properties would not be losing any value, only increasing in value at a slower rate.

"The market has slowed down, but what said has it slowed down from?" said Mr. Steinberg. "Has it slowed from a Ferrari to a Mercedes? Yes. It’s still going pretty quickly, it’s still going pretty actively, but it cannot be at full-throttle acceleration forever."



COPYRIGHT © 2005 THE NEW YORK OBSERVER

[Weehawken webcam]

"If you're paying more than 1 1/4%, you're paying too much!"


so long as there are "suicide notes," excuse me, I meant "freedom loans," for the marginal buyer to get into the market, the market will continue to go up. Alas, when those floating rate loans start floating up (as they have been doing the past 12 months, and may well continue to do) then the overstretched buyers who know that "real estate never goes down" and "you have to live somewhere" may be forced to return their condo keys to the bank. Oh well.

[Ninjahedge]

"If you're paying more than 1 1/4%, you're paying too much!"


so long as there are "suicide notes," excuse me, I meant "freedom loans," for the marginal buyer to get into the market, the market will continue to go up. Alas, when those floating rate loans start floating up (as they have been doing the past 12 months, and may well continue to do) then the overstretched buyers who know that "real estate never goes down" and "you have to live somewhere" may be forced to return their condo keys to the bank. Oh well.

Foreclosure rates have been climbing, but I do not think interests rates will grow too dramatically for risk of placing us all in jeopardy......

They will, however, rise back to a self sustainable balaned rate. I just hope that there is enough damping on this that the banks do not swing it past that point in their efforts to balance any self-imagined financial burden....

[investor350]

NY Times (8/21) discusses approximately 4,000 new condos on the Eastside. At least 10,000 additional units are in the planning and/or construction stages about within the city. It appears that astute developers as well as financial institutions don't seem to feel that there is a bubble about to burst in NYC?

What are your thoughts on this?

[lofter1]

As if they really know.

The game is to get in, build and sell before the bubble bursts -- which it will. It always has.

This is like asking those financial wizards on Wall Street in 1989 and 2000 if they thought the bubble was going to burst. No one had a clue -- and investors / advisors were caught completely by surprise.

[londonlawyer]

Prices are definitely overinflated, but NYC still has a desparate housing shortage and needs more units. The same holds true for rentals. Every rental tower fills up quickly -- even if it's expensive and ugly -- like 2 Gold Street.

[pianoman11686]

Londonlawyer: Have you heard that 2 Gold Street is planning a second tower next door? I've seen two renderings, one of which might be even worse than the original. I shudder when I think of which option they'll choose.

Back to the Orion and the bubble talk: As interest rates have gone up, the bubble has already started to burst. Or, as others like to put it, the froth is starting to evaporate. So-called secondary markets like Denver are already seeing significant devaluation in real estate. Australia, which functions similarly to the United States in real estate, is already a year into its nationwide real estate decline. And the prices there went up even more than in the US. I read an interesting article about it in the Times a while ago. If I can find it, I'll post it.

New York's bubble-bursting, if it truly happens, will be much later, and much less severe, than the majority of other markets. It's not only because New York is so desireable, but also because of the shortage. We built about 25,000 units last year, which seemed like a whole lot more than usual. It was the most since the early 70's. But analysts are saying New York has to continue on that path for at least the next ten years to accommodate new residents. I don't see prices going down (okay, maybe a little) anytime soon. The best method of determining which markets and sub-markets will retain the greatest value is by looking at well-established, "traditionally wealthy" neighborhoods. These would be the best of New York's suburbs, places like Park Avenue, Upper West Side, and Tribeca. Downtown and newer residential neighborhoods like the Far West Side (attention Orion buyers!) are more likely to experience a bigger devaluation. But then again, that's what I've heard from the people who are supposed to know about these things. And what do they know? - I dunno. http://www.wirednewyork.com/forum/images/icons/icon7.gif

[investor350]

thank you for your replies;)

[BrooklynRider]

Define "bubble burst". For some it might mean prices do not rise 50% a year. For others, it might mean prices actually decline.

[zabi]

NY Times had an interesting article today about betting on the housing bubble and a long article on Sunday interviewing Yale Professor of Economics Robert Schiller (the Casandra of the Internet bubble and now the housing bubble). Although I agree with much of Pianoman's comments, I don't share all of them. Interest rates are lower now than last year (the 10-Year Treasury is at 4.25 today, last year it was closer to 5%) and there are indications that the price of oil may soften the economy thereby keeping interest rates low in the near term. Your analogy to Australia and the U.K. is similarly misplaced. Both markets cooled off in 2005 (Australia actually cooled off in 2004) but according to the June Economist both Australia and England reflect no downturn in prices (just slower price appreciation and some parts of Western Australia even show significant price gains recently). More importantly, the central banks in both countries increased interest rates over the past two years without causing housing prices to crash (interest rates are actually coming back down in England) . I think the bottom line is that the US housing market will follow interest rates and because interest rates globally are at historic lows with few catalysts for them to increase significantly in the near term, housing will stay stable and trade sideways. There are also signs that rental rates are rising (especially in NYC) which will provide further support to housing prices. That being said, I agree that there is an enormous amount of speculation with real estate today by novice investors who cannot appreciate the risks or costs involved in real estate investing. I would recommend everyone read the August 19th, 2005 NYTimes article on the fallacy that real estate is a good long-term investment. In the end, though, I still think the Orion, at the price per foot offered and the world class amenities provided, is a good bet for a place to live/invest.

P.S. Barron's this week had a great cartoon about Mr. Housing Bubble. I hope this posts.

http://online.barrons.com/public/resources/images/b-wallstreet_illo08192005144632.jpg

[asg]

Don’t draw conclusions from comparison of real estate market performance to the stock market - definitely apples to oranges here with a completely different set of variables in effect. This long-term study (below) uses a much more relevant index by comparing real estate prices to personal income gains – you may be surprised by their conclusion.

Also, the Manhattan real estate market shouldn’t be compared directly to other markets because it simply behaves differently – not to say its immune from cycles, though. Remember that 70% of New Yorkers rent while about the same number of Americans own.



http://www.millersamuel.com/pdf-tank/1096034424rIMRe.pdf

This review extends back some 25 years and gives an historical perspective on valuations of both condos and co-ops.

Using economic data on personal income and interest rates, along with real estate prices, Business360 examined the market on a range of core metrics including price to personal income and affordability. The research company concludes that the Manhattan mass-market is not overvalued and that valuations today are at the low end of historical norms

Business360 point out that since the early 1980s, Manhattan real estate prices have lagged personal income gains and that had real estate prices kept pace with personal income increases, real estate prices would be over double current levels. Further, the decline in interest rates over this period now makes real estate much more affordable.

[Ninjahedge]

ASG, the only thing I would ask is what are they using as the standards for income evaluation? Are they usina a mean or some sort of weighted average.

Salaries for the upper eschelon, especially in areas liek real estate development, have soared recently, and the salary comparison might not be entirely accurate.

NYC does not follow the rules, like you said, and when the place and its surrounding areas get too expensive for all the service people to live there, you will see a shift in the ammount of available income that is present for the buyers.

(When you can't get people to work for minimum wage because they cant find an apartment with a commute that is cheap enough to afford, a McBurger might cost you a wee bit more)

I think that NYC is at an advantage in one thing though, availability. SO many people wanted to live here that there is a HUGE demand for a limited supply.

Hopefully a decline in the demand will still not leave areas in a vaccume.

[ZippyTheChimp]

New York in Building Boom of Historic Scale

BY DAVID LOMBINO - Staff Reporter of the Sun
December 30, 2005
URL: http://www.nysun.com/article/25157

Buoyed by low interest rates and a decline in crime, New York City is in the midst of a historic construction boom on par only with the real estate rush that defined the early 1960s and the late 1920s, eras that gave birth to iconic city structures such as the Met Life Building and the Chrysler Building.

The trend is visible in city data and confirmed by the construction cranes planted at sites across the five boroughs. Mayor Bloomberg, who is being sworn in for a second term Sunday, will be able to count the widespread development as a key part of his legacy, analysts said.

The number of permits issued for new private residential building units issued citywide in 2005 is on pace to hit nearly 28,000, surpassing last year's total by more than 10% and more than five times the amount issued a decade ago, according to the city's Department of Buildings. Some city officials say that all told, the final tally of new residential units may reach as high as 35,000 this year. In 1999 there were 12,421 new units and in 2000 there were 15,050.

At this rate, the buildings department is set to issue more permits in 2005 for all types of construction citywide than at any time in its history, according to one buildings official, although the department can track data only since 1992.

The deputy mayor for development, Daniel Doctoroff, told The New York Sun yesterday, "I think we are in the midst of, arguably, the greatest building boom in probably the period since World War II. It's important to note that it touches every sector of the economy and it's also, I think, in its very early stages."

While some complain that many of the new units are luxury condominiums for rich Manhattanites, administration officials and real estate analysts insist that the construction is booming across all five boroughs.

The executive director of the city's Planning Commission, Richard Barth, said: "It has been an incredible year housing-wise in the city. What is unique is in the past it has been driven primarily by housing in Manhattan. But in the past few years, it has been across the city - Brooklyn, Queens, and the Bronx."

Mr. Barth noted that the city has gained more than 160,000 residents since 2000, bringing its total to more than 8.2 million, a record high. He also cited low interest rates, a healthy economy, improving quality of life, and a decreasing crime rate as factors contributing to the building boom.

Mr. Barth said the trend in housing growth is likely to continue due to zoning changes enacted and infrastructure investments made by the city in the last few years. He named the changes to the Williamsburg/Greenpoint section of Brooklyn, downtown Brooklyn, and the Hudson Yards area on the West Side of Manhattan as examples.

Mr. Doctoroff listed a series of highly touted future projects he hopes will make headway in 2006, including the westward extension of the no. 7 subway line, $9.9 billion of new construction near ground zero in Lower Manhattan, a mega-mall at the site of the Bronx Terminal Market, $5 billion to $6 billion worth of development projects in Flushing, commercial development in downtown Brooklyn, and new stadiums for the Yankees and the Mets. He said he hoped the 22-acre Atlantic Yards project slated for Brooklyn, which includes a basketball arena for the Nets and more than a dozen office and residential towers, would break ground before the end of 2006.

Many of the projects cited by Mr. Doctoroff and supported publicly by Mayor Bloomberg have angered local residents, who among other complaints, feel the administration's strategy favors big developers over the desires of the local neighborhoods.

But Mr. Doctoroff said the city's aggressive development strategy, along with a strong economy, is behind the housing boom.

"The economy is providing a favorable wind behind our backs. It's an approach to growth that is giving confidence to people who are willing to make an investment. The administration's approach is for the public sector to set the table, to create the conditions that enable the private sector to do what it does best," he said.

More than half of this year's residential construction activity in Manhattan was clustered south of 14th Street, according to the president of a real estate publishing and information company, Yale Robbins.

"You have to go back to the early 1960s to see the last time there was really substantially higher numbers than we are seeing today," Mr. Robbins said.

But Mr. Robbins said the housing boom is not limited to Manhattan, or the neighborhoods below 96th Street that Mr. Robbins terms "the luxury housing market."

"The biggest change in these numbers is the projection of tens of thousands of units in the outer boroughs. The prices have reached the point where the market justified building substantial new, unsubsidized apartments in the outer boroughs," Mr. Robbins said.

A senior fellow at the Manhattan Institute who specializes in development, Julia Vitullo-Martin, said that the size of the current building boom is probably rivaled only by the early 1960s, when zoning changes were enacted that spurred developers to build to avoid stricter rules, and 1928, at the peak of the Roaring 20s.

"The vulnerable, more fragile areas in the outer boroughs that haven't seen investment in decades are now getting it," Ms. Vitullo-Martin said, noting Bushwick, East New York, and parts of the Bronx. "The term 'inner city' sounds old-fashioned. We don't even have that idea in New York anymore."

Ms. Vitullo-Martin added: "Manhattanization is usually a pejorative term, but I regard it as a good term because it means investment and vitality and density, and that's good."

In November, the New York Building Congress, a construction and real estate trade group, predicted that construction spending in New York City would reach a record $18.4 billion in 2005. Yesterday, the president of that organization, Richard Anderson, put that number in context. "In terms of dollar volume, the next year and beyond will be the largest in the history of the city of New York," Mr. Anderson said. "In terms of actual number of square feet being built, it's hard to compare, but it is certainly way up there."

Mr. Anderson added that the building boom has put upward pricing pressure on some commodities, like concrete and steel. "There is escalation involved, but we are not sure how much. When you have a very high demand, and the supply of certain things are limited, the cost will go up," he said. "So far, there are enough cranes to go around."

[TonyO]

http://www.nysun.com/edition/2005-12-30_large.jpg

[MrSpice]

http://www.iht.com/articles/2006/01/09/business/bxshake.php

[kliq6]

Bubble bursts tommorow

[kliq6]

Bubble is not going to burst, just deflat a bit and then pick up, 2007 recession is possible but Soros and his motives of saying this have to be questioned

[ZippyTheChimp]

Spotting Glut, Mayor Deflates Condo Cushion

By: Matthew Schuerman
Date: 3/6/2006

Real-estate developers love Michael Bloomberg. He’s one of them, after all: It was he who finally built a huge skyscraper in the languishing pit that for so many years was the former Alex-ander’s department-store site. His ambitions to host the 2012 Summer Olympics may have gone unrealized, but in the effort he made the West Side safe for big-budget developers. And though he never laid a paw on the federal-funds rate, he oversaw an unprecedented boom in the city’s market that seemed to make everyone, including his city’s treasury, awfully rich. Not to mention: skyscrapers in Brooklyn?

So when he recently—and rather suddenly— inserted a big pin into the oxygen-deprived real-estate bubble, developers shuddered.

“The real-estate market is slowing down dramatically, and we’re going to have a real problem down the road,” he said in a weekly WABC radio interview a little over a month ago. “If people who want to sell their houses have to wait a longer time before someone comes along and buys it, it would be a miracle if prices didn’t start to go down.”

Reuters swiftly picked up the pronouncement and carried it as an item, which resounded rather predictably within a certain real-estate-market echo chamber.

But that was only the beginning. On Feb. 23, in the market-leveraged precincts of a Harlem co-op apartment building, Mr. Bloomberg announced the establishment of a task force to overhaul a Lindsay-era program (the term of art is the 421a program) established back when there was little hope of attracting new construction in the city.

In recent years, hundreds—if not thousands—of market-rate condominiums have sprouted up across the city on the public’s dollar under the program. It had been a Band-Aid, really, and Mr. Bloomberg was ripping it off.

And then, just this week, on Feb. 28, he traveled down to Washington, D.C., and exhorted a lobbying group called the National Low-Income Housing Coalition to stick it to the (real) Republicans and “reject the proposed short-sighted cuts to H.U.D.’s budget.”

He had talked a lot about the affordability crisis during his campaign, after all. Had he suddenly become a housing activist?

Showdown on Wooster Street

On Wooster Street in Soho, Douglass Street in Boerum Hill, West 23rd Street in Chelsea, these tax abatements were exploiting, if not fueling, the city’s condo boom.

The way Mr. Bloomberg introduced the changes was innocuous enough. “Because our population is growing, demand for housing has outstripped the supply, and for many New Yorkers, incomes are not keeping pace with increasing rents,” he said. “The problem before us is no longer abandonment but affordability.”

In a follow-up interview, Rafael Cestero, deputy commissioner of development for the city’s Department of Housing Preservation and Development, made it clear that the Mayor had no intention of gutting the program in a top-to-bottom rehab, and also that he was not trying to cool down the housing market by tightening loopholes on new construction.

“Our belief is that the 421a program has been successful in stimulating housing starts and that we do not want to undo that,” Mr. Cestero told The Observer. “If we go too far, we will have a destructive effect on the housing market. We right now have about a 3 percent vacancy rate, and we need to maintain the right balance.”

But anybody who understands how ingrained the abatement program has become in the lives of developers knows how heated, and important, that task force’s doings will be in the coming months.

When the 421a abatement program began in 1971, it reduced property taxes on new multifamily construction—rental or condo—anywhere in the city, so desperate was Mayor John Lindsay to get anybody to build anything anywhere. By the mid-1980’s, Mayor Ed Koch excluded central Manhattan—south of 96th Street to Houston on the West Side and 14th Street on the East Side—from automatic abatements unless the developer agreed to provide housing for low-income families as well. But as gentrification has advanced, housing advocates—and, according to one source, the Mayor’s budget aides—believe that those old boundaries make a mockery of the old program. Subsidized housing in Soho? The Lower East Side? Wall Street?

“When it came along in the dog days of the 70’s, it made some sense to give tax breaks for residential development,” said Brad Lander, director of the Pratt Institute Center for Community and Environmental Development. “Now it has become a $300 million tax giveaway for luxury housing.”

One of the recently certified buildings in the 421a program—195 Bowery, at the foot of Spring Street—offers a pretty good example of what the abatements have subsidized. There, the developers added 11 stories on top of an existing five-story building to create a hybrid commercial-residential tower. The condos on top have high ceilings (10 1¼2 feet), good views (of the Empire State Building), and a balcony or terrace for every unit. It’s due to open in May, and all but one of the units have sold—at prices averaging $800 a square foot. (The duplex penthouse is still available, if you have $3.995 million to spare.)

Charles Blaichman, one of the developers of the building, said that it’s difficult to build a condo even at that price, given the high land prices, and that Mr. Bloomberg should be ready for a construction slowdown if he acts too rashly. “I think that between recording taxes and other fees developers pay to the city, the 421a does not make that much difference to the city—and if it was eliminated, it would hurt the city,” he said. “A few years down the road, perhaps you could change the boundaries, but this area, it was not as active as it is now. I still think that it is on the edge.”

The wariness to change is apparent even in independent voices, like that of Preston Niblack, the deputy director of the Independent Budget Office. “This is deeply imbedded in the housing market now,” he told The Observer. “When you start talking about making changes, it makes people nervous about the overall housing market.”

In other words, will we go back to the 1970’s?

The task force, which includes advocates (Mr. Lander) as well as developers (Jeff Blau, president of the Related Companies), is supposed to figure out how to shape the abatements to apply only to buildings that would not get built without them, rather than icing projects that could stand on their own. In so doing—by expanding the area where abatements come only if low-income housing is provided—the reforms are also supposed to stimulate more affordable housing.

Developer v. Developer

Developers will not just be fighting housing advocates, though. They will also be fighting one another. Rental developers, which include some pretty big names, argue that they are getting shortchanged because as long as they are receiving 421a rent abatements, they’re required to keep rent increases within the 2 to 4 percent determined each year by the Rent Guidelines Board.

“I would argue that rentals are at an equilibrium, while condos are out of control,” said Jed Walentas, a principal of Two Trees Management, which has lately moved into rentals from condo conversions. “The property you are going to develop is not owned by the developer; it is owned by someone who is looking to sell the parcel, and they are looking at pricing from a condo perspective. They’ll look and say, ‘The guy can build 100,000 square feet here and get $1,000 a square foot. What can you afford to buy that land for?’ Condos are so far ahead of rentals. The economics for a rental just don’t work.”

The new 421a units are rent-stabilized even if they come onto the market above $2,000 a month, a point at which older units would normally be deregulated. Two Gold Street, Rockrose’s 51-story bet on the Battery, starts at $2,200 for a one-bedroom, even as it saved $5 million on taxes last year because of the abatement, according to city Department of Finance records online. But even at that price, luxury rentals deserve city subsidies, Rockrose president K. Thomas Elghanayan argued.

“Today’s market rent will be tomorrow’s below-market rent,” Mr. Elghanayan told The Observer. “That’s what’s happened in the past. We built 421a’s in the past and rented them for $1,000, and now those are below market value. Having rent-regulated apartments is extremely important for the future.”

Though only to an extent: The rent regulation will wear off once the abatement does.

The program, which has underwritten 110,000 units since 1971, has spurred its own set of dynamics, some of them vicious cycles. Developers know that they can sell condos with abatements for $20 to $50 a square foot more, but landowners know that too and raise the prices of their empty lots. Furthermore, the abatements shift the tax burden from buyers of new condos to residents of older apartments.

The 421a program, which accounts for about one-third of all new construction, explains a lot about all the recent condo activity in Brooklyn and Queens. A 100 percent tax exemption on the new construction lasts for 11 years in the boroughs, with four years at a reduced rate. In Manhattan, the full exemption lasts only two years, and the taxes are slowly phased in over the next eight. And an extra 10 years of tax breaks are added in Manhattan and the boroughs if the project includes affordable housing.

While outer-borough development is arguably beneficial to the city, the big question is whether the 421a abatements are stimulating it or simply benefiting from the hard work of rehabbers and long-time residents to spruce up their own neighborhoods.

An Observer analysis of the 4,002 buildings certified for abatements by the Department of Housing Preservation and Development since 1987 shows that an overwhelming number of the subsidized buildings—3,244—were approved once the real-estate market had become quite healthy, in January 1999, and a majority—2,381—came in the past two years alone, in the post–Sept. 11 recovery.

Just a small portion were located in up-and-coming or already arrived neighborhoods that will undoubtedly be the focus of any redrawing of program boundaries: the Lower East Side, Soho, Tribeca, the financial district, the East Village, Chelsea, Dumbo, Cobble Hill, Boerum Hill, Carroll Gardens, Park Slope, Brooklyn Heights, downtown Brooklyn, Fort Greene and Williamsburg. Of those 209 addresses, all but 25 were certified since January 1999, and all but 79 in the last two years. Far from trailblazing, it looks as if the 421a program is merely gilting a well-traveled road.

Ultimately, it is the city treasury that suffers when housing values outside the Manhattan exclusion zone increase, since it means that more and more tax revenue is being forfeited. In 2003, the Independent Budget Office reported that 421a accounted for $130 million in forgone taxes. In fiscal 2005, the number was $323 million. And while some of that amount has stimulated affordable housing, the I.B.O. found that only 7 percent of the units built under the program over the past 20 years were affordable to low- and moderate-income families.

But developers argue that what may look like low-risk neighborhoods carry tremendous perils, and they indicate that they will defend the existing boundary as if it were the Maginot Line, giving in only at Tribeca.

“We’re agreeing with the city that the program ought to be looked at,” said Steven Spinola, the president of the Real Estate Board of New York. “Tribeca probably makes sense. But Brooklyn, lower Manhattan? The city is talking about the need to have more housing in those areas. I’m a little bit concerned about starting to see prices for land go up as high as they are. If we want to see housing in lower Manhattan, I’m not sure we want to end 421a down there.”

Which brings us to another second-term priority: fighting with Larry Silverstein at Ground Zero. All along, however, he has argued that the housing market is stronger in lower Manhattan than is the office market, and that is why residential should go down there.

What if Mr. Bloomberg refused to subsidize Mr. Silverstein, only to subsidize a condo developer?

copyright © 2005 the new york observer, L.P.

[Gregory Tenenbaum]

Real Estate prices are insane. They keep going up. They have gone up for years. Mortgage rates are rising. When does this real estate rally end? It can't go up in a straight line forever.

They keep going up because idiots keep buying at ridiculous prices.

Do you know how much land there is in the US? A lot.

If you want to OWN a home, buy a small piece of land somewhere in upstate NY for about 10K and buy "Build Your Own House" at Barnes and Noble. Build one. It's not hard you know, but it will take time.

If you want to LIVE in NYC, then rent. These retards buying up property have such big mortgages that they dont know how to jump over them. They need cashflow to keep the banks at bay. Do a deal with them.

Whatever you do, dont listen to any agents, they will tell you anything to get their commission on a sale.

[NativeForestHiller]

There certainly is a lot of barren land to build in the U.S. and some dumps that have no architectural merit. If developers want to build, I urge them to STOP knocking down historic buildings that were built with such precision, intricate beauty, expensive materials, craftsmanship, & form. As I said before, buildings aren't built that way anymore. Either work with an existing historic structure, build on an empty plot of land, or on the site of a lackluster structure that the consensus of New Yorkers agree upon. STOP DESTROYING OUR ARCHITECTURAL GEMS & WONDERS!!!

[MrSpice]

They keep going up because idiots keep buying at ridiculous prices.

I think most people that buy housing today do it because they need a place to live, not because they are idiots. Do you always give those kinds of simplistic answers to complex questions? Idiots don't make enough money to buy anything in Manhattan

[Gregory Tenenbaum]

Sure, you need a place to live, we all do.

Ever heard about the doctrine of exclusive possession in a lease?

If you can lease cheaper than you can buy, why not do that, putting the extra money aside in other investments.

What, you don't think there can ever ever be a property bubble that bursts? Keep listening to the agents, property marketeers, and anyone else who tells you that "Son, Your Property is Worth THAT Much, Because I said so".

It's only worth what some sucker is prepared to pay for it.

[jenz65]

Sure, you need a place to live, we all do.

Ever heard about the doctrine of exclusive possession in a lease?

If you can lease cheaper than you can buy, why not do that, putting the extra money aside in other investments.

What, you don't think there can ever ever be a property bubble that bursts? Keep listening to the agents, property marketeers, and anyone else who tells you that "Son, Your Property is Worth THAT Much, Because I said so".

It's only worth what some sucker is prepared to pay for it.

The reason real estate is increasing in Gravesend is because the
Sephardic Jewish folk are moving across the McDonald Ave. train
tracks by Ave.S, Ave.T etc.

[arbitrage]

As prices go ever higher ($1.2mm mean price in Manhattan?) more and more people are getting priced out... all the measures of affordability are way overstretched.

If/when there is a correction/stagnation/slowdown... will it affect all market segments equally?

I was thinking that the mid-end properties might see the most impact (highest beta) from downmoves in the market. Just a theory of course... so please share if you have more insight than me (easy ... :o ).

Am in the process of moving back to New York after some time away. Most recently have been living in London.
An interesting figure in the papers recently -- roughly 55%-65% of buyers of property over 2 million pounds (3.5 million US dollars) were foreign. Initially many were Russian, and now the enormous wealth creation in India and China is bringing more buyers in this space.

Does that effect carryover to New York? Has it always been around? Is it intensifying? Does the highest end property move with the wealth creation around the world -- inexorably upwards because the 'rich are getting richer'?

Mortgages might not matter to many of these buyers. I was fortunate enough to live in a very nice building in London (Trevor Square - near Harrod's) and 80% of residents were Middle Eastern/Russian... doubtful that they were on a mortgage.

So... that's my theory... low end stays bid due to value, high end stays bid to 'rich getting richer'... mid end I think slows/has already slowed a bit... but doesn't implode unless 10yr/30yr US Treasury bond yields move above 6%.

Thoughts?

[Peteynyc1]

I dont think we will get much burstage here in NYC. Florida is another story.... I was driving around the Sarasota area recently, land of overly inflated prices. They have seen prices drop dramatically in the past quarter, but the majority of people down there can afford to hold out through long sales cycles. The result, as I enjoyed my bike ride, was seeing about every 4th house on the market. It was unreal! We looked at places for my mom who unfortunately has a love for looking at water and everything starts in the millions, in a place where years ago waterfront was like 100K. Retarded.

[pianoman11686]

How low will it go?

From unrealistic sellers to climbing inventory, what's next in the post-boom era

By Tom Acitelli and Stuart W. Elliott

The housing market is cooling in New York. It's also leveling off and going sideways. And ebbing. In fact, the market may be simmering, swooning, and trending downward as well. But it could simply be normalizing, too. It depends on whom you ask or read. Or overhear on the sidewalk.

The Real Deal this month examined changing market conditions from a number of vantages, including the growing amount of properties sitting on the market, hiring by brokerages, and how agents are dealing with sellers still hanging on to the boom market of early 2005.

The results were often surprising. Townhouse inventory, for example, in the last year has increased faster than condo inventory, unusual given the amount of condo construction in the city. Co-op inventory is growing modestly by comparison. And the still-high price of apartments is allowing brokerages to keep expanding even as the market cools, which some view as a tactical mistake. Read on for more.

Chart: More apartments sit unsold in Manhattan (http://therealdeal.net/pdf/Unsold.pdf)

***

Inventory spikes, but not for all housing types

Manhattan apartment listings spike for condos and townhouses; co-ops less hard hit

By Vanessa Londono

The numbers don't lie. Inventory in Manhattan is up.

Figures recorded by appraisal firm Miller Samuel show 7,348 housing units on the market for April, down only slightly from the 7,439 units for March of this year.

Over a 60 percent increase in Manhattan listings from last year is a pretty accurate portrayal of which way the market is heading.

But listings aren't necessarily rising across the board for all housing types. The number of condos on the market is climbing rapidly, while co-op inventory has remained much more flat in comparison.

The figures show how prominent a role new condo development may play in any further downturns in the Manhattan market, a definite possibility given more interest rate rises or too much high-end housing supply.

At the same time, the fact that co-op supply isn't dramatically increasing at the same rate as condos may comfort some market watchers.

From March to April, while condo inventory increased 5.8 percent, co-op inventory actually fell by 6.9 percent, according to Miller Samuel.

Over the past year, from April to April, Manhattan condo inventory climbed by 70 percent, while co-op inventory grew at around half that pace, rising 37 percent. There were more than 3,100 condos on the market in April and nearly 3,700 co-ops (see charts).

"Condos are the preferred form of development," said Jonathan Miller, president and CEO of Miller Samuel. "While the housing stock is three-to-one co-ops over condos, the push of new development is bringing units in a large quantity, and the total available number of condos to co-ops is catching up."

While condos and co-ops make up the bulk of the market, Manhattan's third most prevalent type of for-sale housing -- townhouses -- presents worrying signs when one examines the rise in inventory over the past year.

From April 2005 to April 2006, townhouse inventory spiked nearly 98 percent, from 276 to 546 total listings.

Overall, Miller pointed out that, to some degree, the inventory trend up is normal. In anticipation of the spring market, listings have a seasonal pattern of swelling.

At the end of the second and third quarters, spring fever will have passed and market watchers will be able to see how spring, typically the busiest time of year, played out, Miller said.

"The third quarter is where we'll get a better idea of where the market is going," Miller said.

The increase in supply means prices will likely continue to stay flat or decline, trends borne out by a recent market report from Halstead Property (see Imagine if condos always outsold co-ops).

"New listings have begun to rise over the last few months," said chief economist for Halstead Property Gregory Heym. "For us, it shows the market isn't where it was a year ago when the increasing demand and shrinking supply made prices jump.

"Now, instead growing at 25 percent, it is more in the range of 5 to 10," he said. "It's a rate of growth that everyone is more comfortable with."

The neighborhood with the most housing units on the market as of April was the Upper East Side, with 1,656 listings, followed by the Upper West Side with 1,400, Tribeca with 640 listings, and Chelsea with 600, according to Miller Samuel (see chart (http://therealdeal.net/pdf/NabeListings.pdf)).

Copyright © 2003-2005 The Real Deal.

[pianoman11686]

Brokers manage seller expectations

Brokers say it's time to manage expectations as market dips; not all sellers agree

By Philana Patterson

The moment of truth is coming sooner for New York real estate sellers, and sometimes it's not pretty. Real estate agents are increasingly finding that sellers who hoped to make a killing on their properties need to inject their visions of profits with a dose of reality when they price their apartments, or go through the time-consuming process of marking them down.

That doesn't mean that you'll find a Brooklyn brownstone or a Soho loft in the bargain basement, but many sellers may be disappointed to find that their property probably won't attract the bidding wars -- or even competing bids -- of years past.

"Appropriately priced units are very much in demand," said Jorden Tepper, managing director at Manhattan Lofts. "Overpriced properties are clearly taking a little longer to sell."

It seems the balance has shifted, some brokers say.

"At the end of the day, the market is being made by the buyer, not by the seller," says Jacky Teplitzky, executive vice president at Prudential Douglas Elliman. "A year ago it was a different story, but now it is more equal between sellers and buyers."

The culprits are easy to find. Inventory and interest rates are both up, and the buyers out there in the marketplace are simply taking their time as they sift through the available properties and face paying significantly more in interest than they would have if they had bought a year ago.

The shift means making adjustments to the game plan and early on establishing a rapport with sellers to enable agents to put their strategy into action.

"One of the first things we teach [our agents] is to not let the listing get stale -- that's the last thing you want to do in the market right now," Tepper said.


The key to pricing a property correctly -- and if necessary, making the price reduction process go smoothly -- is educating the seller about the market, agents say.

"You need to sit down and establish a relationship with the seller. They have to see that the market is in flux at the moment." says Eileen Richter, associate broker at the Park Slope office of Brown Harris Stevens. "One thing I tell them when the market gets a little soft is that I want them to be aware of the price I will take them to."

For some agents, convincing sellers that it's time to reduce a price -- or that they shouldn't ask for as much as they want in the first place -- means confronting them with the cold, hard facts. If a seller really wants to sell his property, they'll typically understand the wisdom of taking a more aggressive approach, said Pierre Moran, an agent with DJK Residential.

"I ask them: 'you hired me to do what?'" Moran said. "I can be Mr. Nice Guy, but you didn't hire me to be Mr. Nice Guy."

Moran is currently marketing one of just a handful of townhouses in Battery Park City -- the original asking price for the four-bedroom, 2,800-square-foot home: $3 million. Moran says original price was set by the owner against his recommendation, but it was what the seller wanted.

"I prepared the guy up front as much as I could," Moran said. If a seller insists on a particular price, the agent says he said he's willing to try, and if it doesn't work, "we can adjust it."

After two months with very little action, Moran reduced the price on the Battery Park townhouse to $2.75 million.

"Will it sell for $2.6, $2.5? We'll see," Moran said.

Showing sellers more comparable sales in the area or in a building, in the case of condos and co-ops, is even more important than usual, brokers and agents say. It also means monitoring activity at open houses more closely, getting detailed feedback about the property from potential buyers, as well as agents, who attend and evaluating their own listings more closely.

For example, on a day when Prudential Douglas Elliman holds several open houses for brokers in a neighborhood, the company places an agent in each property to gather feedback from attendees. It also has agents visit each property and note the differences, such as layout, the amount of light that the apartment gets and the overall condition to make sure that it's priced right compared to other listings, Teplitzky explained. Brokers who have shown the apartment are called to get feedback about the listing and all of that information is conveyed to the seller about every two weeks.


Other strategies used when reducing prices are labeling the listings as "priced to sale," or "just reduced."

A year ago, when the market was hot, properties were getting snapped up so fast that opinions didn't matter as much. Now it's different.

Sellers "request and demand more feedback in a slower market," said Fillmore Real Estate president and CEO John Reinhardt. "They want to know what every single person thought."

Deciding when to take action varies.

"We don't want a listing to get stale," Reinhardt said. He says his rule of thumb is to consider adjusting the price if there's been little or no action in 30 days. For some agents, it's two weeks and others might give a listing a little more than a month.

How prices are set and reduced are just as important as timing, brokers and agents say.

If an apartment was priced at $850,000, reducing it by just $10,000 in an effort to attract more attention would probably be a waste of time, Teplitzky says. "I will not reduce it to $840,000 or $830,000. In my opinion, you are not going to get new buyers. If you reduce it in drops, it becomes a stale listing."

Instead, she says she would probably take a listing that hadn't gotten offers at $849,000 and reduce it to $799,000.


When sellers ask for last year's prices

Some sellers have accepted that the housing market is no longer red hot, and others haven't, brokers and agents say.

"You have people who think they should sell at last year's prices," said Eileen Richter, associate broker at the Park Slope office of Brown Harris Stevens.

Jorden Tepper, managing director at Manhattan Lofts, agrees.

"Sellers have been unfazed in a lot of cases," Tepper said. "They believe sales will remain strong no matter what the environment is."

Some agents feed that perception by telling sellers that they'll get more for a property than is realistic just to get a listing, Richter says.

"I am not a pie-in-the-sky broker," Richter said.

And some sellers are sticking to their guns on a high price because they want to make sure that if there is a negotiation that they'll have enough room to negotiate a price that they'll feel good about.

Sellers who have accepted that the tone of the market has changed are becoming more demanding customers -- requesting more data on comparable sales and updates on the sales strategy.

In Brooklyn, the number of listings on multiple listing services has increased substantially, says Fillmore Real Estate president John Reinhardt. The increased number isn't solely a function of the increase in inventory, he said. Instead, more sellers are requesting that their homes be put on the services so that more people will see their listing. When the market was hot, many sellers didn't request the extra listing, he said.

"They weren't nervous about the market so they didn't care [about being listed]," Reinhardt said. "Now, they want to get as much exposure as they can up front."

Copyright © 2003-2005 The Real Deal.

[pianoman11686]

Property market cools, even if broker job market doesn't

Brokerages still growing despite slowing market; still-high prices allow firms to stay big

By Vanessa Londono

Buoyed by higher sales prices over the last few years, brokerages have been able to keep and to add to their broker ranks. But as prices flatten out and inventory rises, questions have cropped up about whether bigger brokerages can keep hiring -- and keep the brokers they have now happy.

An analysis from The Real Deal last month (Top Residential Brokerages, May 2006) showed that all but two of the biggest 10 residential brokerages in Manhattan added agents between May 2005 and May 2006.

At the same time, unsold apartments are piling up. The number of Manhattan apartment listings increased 16 percent from the fourth quarter of 2005 through the first quarter of this year, according to appraiser Miller Samuel, and listings spiked 60 percent from the first quarter of 2005.

Some say brokerages still trying to grow while the market cools are asking for trouble.

"You attract brokers by offering certain services and the bar gets higher and higher," said Paul Purcell, a former Douglas Elliman president and now partner in the real estate consultancy Braddock + Purcell. "What happens when the market changes? Can you continue to feed the monster you've created?"

Brokerage heads insist that despite rising inventory, new and existing brokers can find sales with satisfying commissions.

Century 21 Kevin B. Brown & Associates recently took on three agents, two of whom are new to the real estate industry. In April alone, Citi Habitats, a firm with more than 7,000 agents in 16 offices across the city, hired 56 new agents. And Kevin Kurland, president of Kurland Realty, hired 15 people in April and May combined, adding at least 10 desks to the brokerage's Chelsea office that currently houses 30 agents.

"I need agents and I love the fact that they are coming fresh," said Century 21's chairman Kevin Brown.

Even with an increase in agents competing for a smaller share of the business, Brown says he'll keep hiring. While it might seem counterintuitive to add agents as the market recedes, there may be a good reason why it's not foolish: prices remain high.

Firms can, indeed, afford to hire fresh talent when more and more sales in Manhattan have a $1 million-plus price tag, according to Jeffrey Jackson, chairman of Mitchell, Maxwell and Jackson.

"Brokerage firms can add more agents because they are using less people to do the same work and bring in the same amount of revenue," Jackson said. "It takes fewer people and less desk space to sell the same amount. When it would take five agents each selling a $1 million apartment, now it takes four agents who are selling at $1.25 million and the same revenue is coming in."

In the first quarter of 2005, Manhattan apartment listings were on the market an average of less than 100 days, according to Miller Samuel. The lack of supply caused rapid price growth, a trend that has ebbed in the current market. It now takes 138 days to sell an apartment. As a result, not every broker is pulling down commissions on $1-millionplus sales. Far from it, in fact.

The income of the sort of buyer who can afford this average sale price is a bigger factor than any inventory numbers, says Jackson. "It takes the same amount of work to sell a $2 million apartment as it does for a $500,000 apartment," he said, "but the commission is four times as great." As long as people continue to make more money -- for example, if Wall Street bonuses stay high -- Jackson doesn't see prices going down.

But a recent report by Halstead Property shows the median sales price for Manhattan apartments declining. From March through April, the price went down to $722,500, a 3.9 percent drop.

Still, the optimism remains, however cautious.

"We are not in any way alarmed," Brown said. "Our sales are increasing, not in the same rate from a year ago, but they are still increasing."

In the past 20 years, Brown said he has seen listing inventory as high as 8,000 units. "As a rule of thumb," he said, "a healthy marketplace is 6,000 to 6,500 units. Right now, we are [higher]. But it's not an overabundance of units when you consider all the new development properties."

Copyright © 2003-2005 The Real Deal.

[pianoman11686]

Any adjective works, as long as it's not "strong"

Current conditions in market invite many descriptions, few of them positive

The media can't resist. After breathlessly chronicling for the past few years the rise in the housing market, both in New York and nationwide, the media has now switched its tune markedly, trading awe in the face of red-hot real estate numbers for cautious candor now that the market is undoubtedly cooling.

Like the chicken and the egg, some may argue which came first -- the worsening market or the media coverage about the worsening market. Undeniably, though, the two feed off each other. Here's some choice nuggets.


"There are limits to how high is up"
Many Americans who planned on real estate as their path to wealth are beginning to find that there are limits to how high up can be.

Blame market forces. As higher interest rates dampen demand in cities and suburbs that only a year ago were battlegrounds for fierce bidding wars among numerous buyers, sellers are grudgingly lowering their prices to drum up interest.

A house at 57 Marina Boulevard in San Rafael, across the bay from San Francisco, was originally listed at $1.45 million. The owner recently dropped the price to $949,000 when a competing house on the same street lowered its price to $959,000, from $989,000. County records show that 57 Marina Boulevard was sold in February for $700,000. The owner, Dan Marr, is unlikely to lose money even at the lower price, though he may not make as much as he had hoped. "I don't want to talk about it," he said.

What is happening in Marin County is being repeated in cities and suburbs across the United States. Nearly a year after the sales of homes peaked, buyers are wresting control from sellers in many areas as inventories of unsold homes have grown, in some markets doubling. The New York Times, May 9, 2006

"Secret worries of real estate professionals"
If the secret worries of real estate professionals are any indication, home prices could be heading for a swoon.

When Brad Inman of Inman News, which tracks the real estate industry and is widely read by industry insiders, recently gave real estate agents the opportunity to blog about market conditions, they almost uniformly described them as bad -- and getting worse.

"Normally, brokers and agents tend to sugarcoat the news; they don't want to affect consumer confidence," says Inman. "By letting them post anonymously, we gave them a way to really share their thoughts."

Most responded with tales of high inventories, slow sales, and languishing prices. CNN/Money, April 18, 2006

"So far, job growth is cooperating"
"Our experience says prices do not go down when there's job creation in the local economy," said Lawrence Yun, senior economist for the National Association of Realtors. "In local markets where they are flat on jobs, they could see prices decline. But we're projecting 2.3 million new jobs this year. The job market is providing a buffer. It's a counter force to rising rates."

So far job growth is cooperating. The economy created 590,000 new jobs in the first quarter, according to the Labor Department -- an annual rate just under 2.4 million. The unemployment rate is seen holding steady at 4.7 percent.

Yun's group is calling for prices of existing homes -- which account for about three-quarters of all homes sold -- to rise 6.4 percent this year while new home prices gain 2.3 percent -- even as sales decline. CNN/Money.com, May 3, 2006

"...but not crashing."
The housing boom has ended.

But that doesn't mean a real estate bust. In most markets across the country, home sales continue at a brisk pace. And in some metro areas, prices are rising even as fewer houses are selling.

"It's not like we're seeing this market go from red-hot to icy cold," says Mark Vitner, senior economist with Wachovia Corp. "It's still pretty good when you look at the total number of sales."

The numbers show housing sales in many markets have slipped from the hot pace of the past few years. Those record years were driven by rock-bottom mortgage interest rates, easy credit, increasing investor interest in real estate and population increases. But rates have risen, credit is tightening and investors in some areas are getting cold feet. MSNBC, May 15, 2006

"Watch your language"
Luxury is out. Old-World Elegance is in.

As the city's real estate market slows, even the want ads must work harder.

Brokers [in New York] are freshening up their verbiage and pumping up the volume in newspaper and Internet ads. Luxury is one of the words they've dropped from their lexicon.

"It's so overused that it has lost any sense of meaning," said Neil Binder, a principal at Bellmarc, a residential brokerage.

Instead, ads say Old World Elegance -- which is supposed to make you feel "like you're royalty," Binder said.

What brokers want, above all, is your attention -- and they have just a few lines to get it. Every word is fraught with meaning. "The ad itself doesn't sell you the apartment -- it's there to get you to call, so we can build a relationship and see apartments together," Binder said. "Its purpose is to get you to make an appointment." The New York Daily News, May 7, 2006

"Relying on wishful thinking"
The current boom has spawned one new myth of its own: Hot markets will glide to a soft landing.

The National Association of Realtors and the National Association of Home Builders argue that housing is simply returning to "balance" and that prices across the country will resume "normal" increases of 4 percent to 6 percent this year and next.

"It's a good sign to see home sales holding close to the level of a strong rebound in the month before," said David Lereah, the NAR's chief economist, in a statement accompanying the latest data. "This is additional evidence that we're experiencing a soft landing."

But the housing bulls are relying on wishful thinking. The total inventory of homes for sale, new and existing, stands at a staggering 3.8 million units, 70 percent higher than in 1999. The modest price increases they are predicting would make today's houses more unaffordable, adding to the already huge supply of unsold units and forcing an even more severe adjustment in the future. Fortune, May 4, 2006

"America is more dependent on housing"
The economy in America is more dependent on housing than it has been in a half-century, as the sector fuels consumer spending and has accounted for nearly three-quarters of the nation's job growth in the past five years.

As a result, economists worry that the housing slowdown that began late last year could hurt the broader economy more than past real estate downturns, although other parts of the economy appear to be accelerating. The Washington Post, April 6, 2006

"What would it take to make things really go off the rails?"
This won't be a crash, but a soft landing for the real estate market, it appears. But that made us wonder: What would it take to make things really go off the rails?

We talked to a number of experts about hypothetical events that could send the U.S. real estate market into a skid, from highly unlikely scenarios such as a military confrontation with China, to the types of predicaments we have faced in recent years, like natural disasters and terrorist attacks. Turns out, there are lots of ways to hit the housing market. Forbes, March 17, 2006

Compiled by Tom Acitelli and Mikhail Boguslavsky

Copyright © 2003-2005 The Real Deal.

[pianoman11686]

June 4, 2006

Rentals Are Strong, and the Rich Keep Buying

By STEPHANIE ROSENBLOOM

THE smoke may have cleared from the last of the Memorial Day barbecues, but two months into the second quarter, many New Yorkers are still hazy about the state of the local real estate market.

Real estate professionals say that many people have the money and desire to buy, but they are waiting on the sidelines, feeling skittish about the economy and confused by housing reports that take the temperature of the nation rather than of individual markets.

Some concerns may be well-founded. Inventory — the number of properties on the market — in Manhattan is up 67 percent for May 2006 over May 2005, according to Jonathan J. Miller, president of the Miller Samuel appraisal firm. Co-op inventory is up 53 percent and condominium inventory is up 87 percent, he said, adding that the condo figure is mainly attributable to new development.

Also, apartments are staying on the market longer. In the first quarter, the average was 138 days, according to Miller Samuel. It is now approaching 150 days, Mr. Miller estimated, adding that he thinks that a lot of the inventory is overpriced.

On the other hand, high-end multimillion-dollar properties are selling well. Pamela Liebman, the president and chief executive of the Corcoran Group, predicted there will be records this year on the number of sales above $20 million. Mr. Miller said he was struck by the number of transactions so far this year that are above $5 million, which he attributes mainly to residual Wall Street bonus money.

Additionally, sales have been stronger since the end of 2005.

"We took a real shellacking through January," said Neil Binder, a principal at Bellmarc Realty. "Now things are moving along O.K. From January on, there's been a considerable degree of constancy."

So far this quarter, which began on April 1, those most affected by the market are the people who are first-time home buyers or those just barely able to afford to buy. Because of rising mortgage rates, these would-be buyers (the kind who made up a good part of buyers in the real estate frenzy of the past few years) are often now renting instead.

"There's been a tremendous surge in people signing leases," Mr. Miller said. "Landlords, especially in new buildings, are ratcheting up rates and reducing enticements almost as fast."

The upturn in the rental market makes sense, he said, because mortgage rates and rental demand correlate almost directly.

Unlike other markets, New York has always been somewhat insulated because of the range of buyers it attracts, from foreigners looking for pieds-à-terre to the superrich to artists and dancers with songs in their hearts and little cash in their pockets. Of course, if too many people become so fearful of a slowdown that they stop buying, they could create a self-fulfilling prophecy.

"The biggest unknown is what's going to happen with inflation," said Gregory Heym, the chief economist for Halstead Property and Brown Harris Stevens, adding that when it comes to interest rates, it is not so much the amount that they go up, but what an increase symbolizes. "As they creep toward 7 percent, it has an effect on the psyche of both buyers and sellers," he said.

Mr. Binder of Bellmarc Realty pointed out that interest rates have not increased precipitously. "You can still get an excellent rate," he said. "I remember when interest rates were 16 percent and we were doing a hell of a business."

The wild card right now, he said, is new construction, which developers seek to sell at a premium. (Mr. Binder estimates that premium to be 15 to 25 percent over resales.) "A lot of this new construction stuff is going to have a daunting time," he said, adding that new condominiums can make resales look comparatively affordable.

Several new luxury condominiums are selling well, though as Ms. Liebman said, some "have taken off like crazy" while others "are floundering." Basically, sales are inconsistent and properties that lack the essential combination of location, amenities and attractive price will not sell.

Signs of scaling back seem to be manifesting themselves more in second homes and vacation rentals than in primary residences, according to Mr. Binder. "That's were the line is being drawn," he said.

At a 48-unit development in the Berkshires, in Massachusetts, where he owns a condo, he said there has not been a sale all year. "I'm trying to sell a place," he said. "I've owned it for 20 years and I'm going to own it for another 10, whether I want to or not."

Marketers are spending more money now than in years past in an attempt to capture the attention of buyers who continue to exhibit zero tolerance for overpriced properties. Some sellers, however, have yet to come to terms with that.

"We're starting to see a little more realistic pricing, but it still has a long way to go," Mr. Miller said, adding that sellers were buoyed by the spring market and are more likely to adjust prices this summer. "I think that's where you're going to see more accurate pricing," he said.

Like some other real estate companies, Corcoran enjoyed a strong spring, and it also reported the most gross sales volume in its history during March. But the number of transactions dropped 6 percent from April 2005 to April 2006.

While some people do not think the economy is as healthy as others have painted it, Mr. Heym is optimistic that New York's economy will grow, that schools will continue to improve and that the crime rate will further decline.

"There's still such a strong desire for homeownership in this country," he said. "People want to own something tangible that doesn't disappear overnight. Like Enron stock."

Copyright 2006 The New York Times Company

[bigkdc]

It is hard for me to see the real estate bubble bursting (in the classic sense of the word) when interest rates are still amazingly low on a historical basis. Yes they are up from 2003 levels but they are really low when compared to the craziness of the late 80s.

So long as rates are low, real estate will be a decent place to put equity.

In addition, Manhattan is a very unique market so it is important to ignore macro/nationwide issues that the media likes to raise.

[MikeW]

True, but with inflation up, how long can interest rates stay low?


It is hard for me to see the real estate bubble bursting (in the classic sense of the word) when interest rates are still amazingly low on a historical basis. Yes they are up from 2003 levels but they are really low when compared to the craziness of the late 80s.

So long as rates are low, real estate will be a decent place to put equity.

In addition, Manhattan is a very unique market so it is important to ignore macro/nationwide issues that the media likes to raise.

[pianoman11686]

http://money.cnn.com/2006/06/13/real_estate/Harvard_study_housing_slow_growth/index.htm?cnn=yes

Housing boom 2.0

Harvard study says there may be bumps along the way, but that the long-term health of the housing market is intact.

By Les Christie, CNNMoney.com staff writer

June 13, 2006: 3:18 PM EDT

NEW YORK (CNNMoney.com) - The housing market is entering a down cycle, according to a report from Harvard's Joint Center for Housing Studies, but is unlikely to undergo a severe reversal.

The market may face risks as interest rates rise, decreasing affordability and expanding inventories, according to the study, but the market will suffer only a modest downturn unless the broader economy collapses and jobs dry up.

"There may be tough times ahead," says Nicholas Retsinas, director of the Joint Center for Housing Studies at Harvard, "but housing will emerge stronger than ever."

Demographic changes and population expansion will help keep home demand - and prices - healthy. The number of homes needed to meet demand in the next 10 years will likely exceed the 18.1 million units built from 1995 to 2004.

Several factors are at work.

Booming household growth. The nation will add 1.37 million new households this year. Part of this is natural population increase but this has also been bolstered by foreign migrants.

Graying boomers. As boomers have aged and prospered, they have begun to buy vacation or second homes in increasing numbers. This trend will widen as they near retirement.

Changing household composition. Social and cultural changes add to the number of households. There are more single-person households than in the past. Fewer adult children live with their parents; they establish their own homes. Increases in divorce rates result in the division of multi-person households into smaller ones. Family sizes have shrunk; a community may have about the same population but more households.

Minority gains. Ownership among formerly under-represented minorities has increased. Black and Latin home ownership has always trailed that of whites but the past 10 years has seen minorities making great progress.

Downplaying the risks
The Harvard researchers downplay the risk in mortgages with adjustable rates and easy downpayment requirements. Those loans introduce uncertainty, some worry: if interest rates rise, owners could find themselves with much higher monthly payments and that could result in a big jump in foreclosures and forced sales, adding to home inventory and hurting prices.

The Harvard researchers don't expect that to happen, though. Most owners with risky loans have already seen their home values grow substantially. "Having significant home equity is the best protection against foreclosure because homeowners can sell at a profit if they cannot cover their mortgage payments."

Home equity accounted for a healthy 56 percent of the total value of primary residences in 2004, the most recent equity data available, according to the study. Ninety-four percent of homeowners had equity of 10 percent or more and 87 percent had equity of 20 percent or more. Only three percent of homeowners had equity stakes of less than five percent.

Even if home prices fall in the next few years, the drops are unlikely to erase all the equity of the great majority of homeowners, the Harvard researchers predict. And the interest rate declines that usually accompany such price drops would enable many borrowers to refinance their homes at favorable terms. All this should help prevent large price drops.

Government influence
Government regulations, by limiting supply, also make it unlikely that housing prices will fall greatly. Land use restrictions, zoning laws and building codes make building housing difficult and expensive.

As Lawrence Yun, managing director of quantitative research for the National Association of Realtors, points out, in general, places with expensive housing are often the hardest places to build.

"Builders tell me that getting paper work through in places like Atlanta, Indianapolis or Dallas is a fairly easy process. In other places, such as San Francisco, it's a horrifying experience," he says.

"In many areas," says Retsinas, "we see such an anti-development bias. And the trend is to more restrictions, not less, even though markets are softening."

The study's bottom line is that the U.S. economy is sound and that any softening in housing markets should firm up before long. As Retsinas says, however, it's a big country; a lot of different areas have their own characteristics and it's hard to generalize.

"Long term fundamentals are still positive," he says, "but some areas may be more susceptible to a slide."

© 2006 Cable News Network LP, LLLP. A Time Warner Company ALL RIGHTS RESERVED.

[bigkdc]

True, but with inflation up, how long can interest rates stay low?

On a historical basis we have a long way to go before getting to an interest rate level where people aren't going to buy. The other thing going on in NYC in the high end residential market is that many of the buyers are interest rate insensitive. The average person buying a $2MM+ apartment isn't as sensitive to slight increases in interest rates (in fact they may not be sensitive at all) as someone buying something where the real comparison is renting. There is not much of a rental market for properties that would normally sell for $2MM+.

[pianoman11686]

July 2006

At the top end, it's not quite as bad

But in the rest of Manhattan's residential market, things could be better

By Tom Acitelli

http://www.therealdeal.net//issues/JULY_2006/images/1151621385.jpg
(Source: Halstead Property)

The Manhattan housing market passed the mid-year mark with a mix of good and bad news, depending on your vantage. The luxury market, for one, seems to be fairing slightly better than the market as a whole.

"What's happening is the upper end is seeing activity I would expect it to see this time of year," said Jonathan Miller, CEO of appraisal firm Miller Samuel, citing the aftershocks of the record Wall Street bonus season earlier this year. "But the remainder of the market is flat."

Several luxury sales in the last couple of months have set the tone for the higher end of the market -- and have defied the woes of the rest of the market.

Fifteen Central Park West, the new ultra-luxury project along the park, set a North American condo record last month when it passed $1.2 billion in sales, and a condo in 1200 Fifth Avenue in East Harlem hit the market in June for $19.5 million. If it commands close to this asking price, the condo at 101st Street will set an above-96th Street sales record for Manhattan. (Even Red Hook, a few years ago an industrial outpost, set a home sales record in June, when a townhouse in the Brooklyn neighborhood sold for $1.06 million.)

Sales numbers and asking prices like these have driven luxury brokers to say they expect to see around the same number of eight-figure deals in Manhattan this year as last year when 2006 is all said and done.

Still, the average apartment sales price for all of Manhattan continued to slide from April through May just as it did from March into April. The boom is over, in other words, but don't tell those dealing at the higher-end. The last, lingering effects of the record Wall Street bonus season still reverberate, brokers say, and luxury customers don't really sweat the recent mortgage rate hikes.

"That end of the market isn't really affected by the sort of nerves at the lower end of the market," said Sabrina Kleier, a vice president at boutique brokerage Gumley Haft Kleier. "There are always people out there who want that perfect apartment. There seems to be more deals in double-digits this year than I've seen in other years already."

The latest comprehensive numbers on the luxury market show it stronger against the market generally. The average sales price for luxury apartments in Manhattan jumped nearly 10 percent from the fourth quarter of 2005 through the first quarter of this year to $4,547,201, according to appraisal firm Miller Samuel, which defines the luxury market as the top 10 percent of all apartment sales. That's a bit higher that the 9.6 percent increase seen for the market as a whole, with the average price rising to $1,300,928 in the first quarter.

Perhaps more importantly, the volume of luxury sales, too, picked up from the end of 2005 to April, increasing 27.4 percent to 200 sales during the first quarter in Manhattan, though second quarter numbers coming out at the beginning of July will tell whether this trend holds.

Back in the overall market, a May report from brokerage Halstead Property showed the average price of all Manhattan apartments slipping from $1,236,287 in April to $1,149,211 in May -- a 7 percent decline month over month. The average sales price had already slid 6.8 percent from March to April.

This marked the first time in more than a year that the average sales price has declined two consecutive months. Maybe these spring woes for the overall market are leaving even luxury buyers a tad more skittish now, despite the relative health of the higher-end.

"Location matters now more than ever before [to luxury buyers]," said Leonard Steinberg, a Prudential Douglas Elliman executive vice president who specializes in the Downtown luxury market.

"And buyers seem less likely to take on the risks of 'emerging' neighborhoods, unless they offer something in the price to justify the risk," he said.

Copyright © 2003-2005 The Real Deal.

[pianoman11686]

July 2006

Down doesn't mean out for Manhattan housing numbers

Prices have rebounded a bit since last fall's slump. So why worry?

By Vanessa Londono

The housing boom may, indeed, be over, but the residential sales market in Manhattan isn't necessarily moving down.

Sales prices, instead, are almost at the level they were before the market dropped last fall.

Following the big 13 percent drop in the average apartment sales price between the second and third quarters of 2005, prices have risen a combined 12.9 percent, according to statistics from Prudential Douglas Elliman and appraisal firm Miller Samuel.

The average price during the second quarter of 2005, before the market first headed south, was $1,317,528. It then dropped to $1,149,813. But, then, at the end of the first quarter of this year, the price was back up to $1,300,928.

In the two quarters since the big drop, in fact, there has been a rise of 3.3 percent and 9.6 percent in each quarter, respectively. The 9.6 percent increase seen in the first quarter was largely a result of record Wall Street bonus money.

It remains to be seen if the rise in prices means the market is now due for a bigger fall, more horizontal growth, or movement upward. The sideways movement "is not necessarily a new thing, but the trick is how long will the sideways movement last," said Miller Samuel CEO Jonathan Miller.

The horizontal movement has happened before. In 2003, the residential market moved sideways as prices remained flat in spite of the rising inventory, Miller said. He said if mortgage rates continue to rise as expected, demand will cool further. But as long as the rates rise gradually during a sound economy, the market isn't due for a big decline.

"Economic conditions are pretty good," Miller said, "so there don't appear to be signs of a sharp correction."

Prices are steady in part because sellers aren't selling unless they get high prices like the ones seen during the boom times.

"Sellers aren't going to sell unless they get their price but fewer buyers are willing to pay their price, so prices are holding but the number of transactions is falling," Miller said.

If expectations of higher mortgage rates ring true, there will likely be a weakening in prices. In certain markets, prices will see no appreciation or a modest trend down, said Miller.

Copyright © 2003-2005 The Real Deal.

[pianoman11686]

From http://cityrealty.com/new_developments:

Report on Manhattan apartment sales in the second quarter 12-JUL-06

The median price for Manhattan apartments reached a new high $755,000 in the second quarter of 2006 as demand remained strong in a report prepared by Gregory Heym, the chief economist of Halstead Property LLC.
The data was provided by ValuExchange TM, a database that contains the transactions of all Terra Holdings company and the report is based on 2,655 sales.

The report found that the average price declined to $1,212,453, a five percent decline from the second quarter last year, reflecting more sales of smaller apartments in new developments.

Cooperative apartment prices, it continued, averaged $1,257,571 in the second quarter, a new record and 7 percent higher than a year ago. Two bed-room co-op had an average price of $1,562,758, a 23 percent increase over the same period last year, while four-bedroom and larger cooperatives had an average sales price in the second quarter of 2006 of $5,875,424, down considerably from $7,365,740 in the same quarter last year.

The average price for condominiums fell sharply, according to the Heym study. The average last year was $1,416,920. This year the figure was $1,172,972 as there was “glut of closings of small apartments in new developers, many of which were located outside o the more established condo markets. Like co-ops, condos with four or more bedrooms declined sharply in the second quarter.

The average price per square foot for new construction and conversions bell to $1,083 from $1,294 a year ago, but the average price per square foot for loft apartments of $1,005 was 7 percent higher than the same quarter last year.

The average price per square foot for townhouses was $1,266 in the second quarter of 2006, down 3 percent from the same period last year.

On the East Side, which includes the Upper East Side and Midtown East, the Halstead report found that two-bedroom apartment prices averaged $1,922,110 on the East Side in the second quarter, 36 percent higher than the comparable period last year. Average prices of studios climbed 11 percent to $376,288, while one-bedroom units climbed 15 percent to $669,511 and four-bedroom apartments declined 23 percent to $5,326,258.

New listings on the East Side declined 20 percent from the second quarter last year, led by a 24 percent decline in three-bedroom apartments.

On the West Side, two-bedroom apartments had an average price of $1,558,808 in the second quarter, up 20 percent from the same quarter in 2005. The average price for studio units climbed 4 percent to $391,296, 6 percent for one-bedrooms to $689,670 and fell 13 percent for apartments of four-bedrooms or more to $4,350,707.

The West Side, according to the Halstead report, witnessed a 3 percent increase in new listings in the second quarter as compared to the same period last year, while the downtown market saw the number of new listings decline in the same period by 4 percent.

Downtown studio apartments sold for an average of $415,660 in the second quarter, 19 percent higher than the previous year.

A report prepared by Jonathan Miller for Prudential Douglas Elliman Manhattan Market Overview last week had somewhat similar results. It found that the average price per square foot rose 11.6 percent to a record of $1,083 in the second quarter as compared to $970 in the same period last year and that the median sale price rose 13.5 percent to $880,000.

The average price was a record $1,386,193, up from the $1,317,528 in last year’s second quarter, the Miller report maintained, adding however, that unsold units were at their highest level since 1999 and sales were down almost 15 percent.

[kz1000ps]

Nationwide, the effects of ARMs is starting to show. There's a good interactive graphic on NYT's site

http://www.nytimes.com/2006/07/23/business/23mortgage.html?ex=1311307200&en=e8fca1b3003366e5&ei=5088&partner=rssnyt&emc=rss


Re-refinancing, and Putting Off Mortgage Pain


By VIKAS BAJAJ and RON NIXON
Published: July 23, 2006

It is the latest twist in the gravity-defying world of the high housing prices and exotic low-rate mortgages: As monthly payments on adjustable-rate mortgages are starting to balloon, many Americans have found a way to put off the day of reckoning.

They are refinancing with new adjustable-rate mortgages that keep monthly payments low — for now, that is, though their payments will likely rise even higher in the future.

“Some people would say I am a little crazy,” acknowledged R. Lance Perry, 42, of Danville, Calif., one of the new breed of people refinancing their mortgages. But faced with a sharp increase in his monthly payments and a need to take cash out of his home, he refinanced earlier this year to keep his payments the same.

By the time the rate goes up, he figures, his income will have increased enough to cover the higher payments, he will have refinanced again or he will have moved.

Like Mr. Perry, millions of Americans have turned to adjustable-rate mortgages, or A.R.M.’s, in recent years to afford a home as prices soared.

Typically set at artificially low rates in the first years of the loan, these mortgages are then reset at the prevailing interest rates. For borrowers, the bet was that interest rates would remain low.

Now, the first big wave of the mortgage boom is cresting as more than $400 billion worth of adjustable-rate mortgages, or about 5 percent of all outstanding mortgage debt, will readjust this year for the first time, according to Loan Performance, a research firm. Next year, another $1 trillion in loans will readjust.

When that happens, for instance, a typical borrower with a $200,000 A.R.M. could see his monthly payments increase nearly 25 percent when the A.R.M. adjusts from 4.5 percent to 6.5 percent. In total dollars, that is an increase from $1,013 a month to $1,254.

Yet instead of paying more now, many borrowers are refinancing into their second or third adjustable-rate mortgage, loan data indicate and industry experts confirm.

So far, the number of borrowers refinancing this way is relatively small — several hundred thousand in the estimate of the credit ratings firm Fitch Ratings — but mortgage industry officials and analysts expect the numbers will surge next year. In doing so, these borrowers are pushing out any eventual shock of higher payments by another two or three years, if not longer.

“They get another two- or three-year hybrid with a low introductory rate to keep payments down,” said Frank E. Nothaft, a vice president and chief economist at Freddie Mac, the mortgage buyer. “They’re trying to put it off forever, which is O.K. as long as interest rates are low. But when they start to spike, then it’s going to be more problematic.”

For now, this mini-refinancing boom is assuaging fears that rising interest rates and higher monthly payments would drive some borrowers into foreclosure or force them to scale back sharply on other spending. As a result, consumer spending may hold up better than some economists had thought.

But the refinancing also represents a doubling-down on a bet that housing prices will continue to rise on the West and East Coasts and in other hot markets. If the value of the home falls closer to the amount of the loan, that could curb the ability to refinance, and may prompt the homeowner to either invest more in the home or to sell it.

Still, borrowers like Mr. Perry say the loans make sense because in a few years they plan to move to another home, earn more or refinance again, often using the same assumptions they made when they took out their earlier loans.

With his new loan, his third adjustable-rate mortgage, Mr. Perry, a former technology project manager, cashed about $200,000 out of his home’s equity and is investing it into his four-year-old financial planning business. “I could have sold my house and made my family move,” said Mr. Perry, 42, who lives with his wife and a 3-year-old son in Danville, about 20 miles east of Oakland. “But I didn’t do that. I said, ‘Look, I want to start a new business,’ and this product allowed me to do that.”

He said he was taking on more risk than many of his clients would be willing to because he believes his business will continue to grow. After spending 15 years in the technology industry, which put him on the road constantly, Mr. Perry said that being self-employed allowed him to spend more time with his family, which he also expects to grow. As far as the house, he said: “I am not going to be here for 30 years. Why is it important to have a fixed mortgage?”

That sentiment resonates nationally, and especially in California.

Even as mortgage applications over all are falling because of slowing home sales and rising rates, adjustable-rate mortgages made up about 30 percent of all loans in May, down only slightly from 34.2 percent in May 2005, according to the Mortgage Bankers Association of America. In the San Francisco Bay area, adjustable mortgages of the kind Mr. Perry borrowed make up 49 percent of all refinance loans so far this year, according to Loan Performance.

Though they have been around for decades, the use of adjustable-rate mortgages has soared in the last several years, helping fuel the housing boom by letting people borrow more than they might have been able to. For buyers who do not intend to stay in their homes for long, they can cost a lot less than 30-year, fixed-rate mortgages.

Adjustable loans come in many forms. Most have low and fixed teaser rates initially. Many, like interest-only or “option” A.R.M.’s, also let borrowers pay only the interest portion of the debt or even less than that. After the introductory period ends, lenders require bigger payments and ratchet up interest rates. And rates have been rising as the Federal Reserve continues a campaign to make credit more expensive.

The national average rate on a five-year adjustable-rate loan was 6.28 percent in June, up from 5.02 percent in early 2005, according to Freddie Mac. The average rate on 30-year fixed loans increased to 6.68 percent from 5.63 percent.

For businesses involved in financing real estate, adjustable loans and the refinancing they generate assure a steady stream of transactions. The beneficiaries include mortgage brokers, appraisers, banks, mortgage companies and Wall Street, where home loans are increasingly bundled and sold as securities.

Industry officials say that adjustable-rate mortgages cater to borrowers’ changing tastes and strategies. With interest rates still near historical lows and lifestyles that are more transient, many borrowers view the standard 30-year, fixed-rate mortgage as an anachronism.

Borrowers no longer “ask me what is the quickest way I can pay off my mortgage,” said Jack Williams, the president of the California Association of Mortgage Brokers and a broker in Orange County. “I haven’t heard people say that for 15 years.”

Many home buyers, however, say they have used adjustable-rate mortgages to manage their finances in the short run with the expectation of going to a fixed-rate loan.

Maribel Chino and her fiancé, Felix Burgos, refinanced the option A.R.M. on their town house in Brooklyn four months ago with a fixed-rate mortgage with a 7 percent rate after seeing the levy on a prior adjustable loan climb past 6 percent from an initial rate of 4.25 percent.

The $800 increase in the couple’s mortgage payment, now $3,100 a month, has forced them to budget more carefully, but they believe that the $8,000 to $12,000 a year they saved in payments for the first three years they owned their home made the A.R.M. worth it.

“It was good to start with,” Ms. Chino said. Mr. Burgos added: “Now we are paying 20 to 25 percent more, but we are comfortable.”

The ability to refinance with additional adjustable-rate mortgages diminishes when housing values fail to keep up with the rise in the household’s debt. So far, use of A.R.M.’s tends to be concentrated on the East and West Coasts, where housing markets have remained relatively robust. And even as interest rates rise, consumer default and delinquency rates have remained low.

“Before you see a distress sign, you have to have distress,” said Susan M. Wachter, a professor of real estate and finance at the Wharton School of the University of Pennsylvania. “And the distress will be higher unemployment and declining home values.”

Stress, however, is starting to build in some regions and among certain borrowers.

Midwestern states have seen a rise in foreclosures and defaults because of job losses in automobile and other manufacturing industries. In the South, the aftermath of last year’s hurricanes is still rippling through family finances.

Yet these regions do not have as heavy a concentration of adjustable loans as the East and West Coasts do, which suggests that an economic downturn may be far more devastating in coastal markets.

California, which has 14 percent of the country’s housing stock, leads the nation with 21 percent of homes purchased with adjustable-rate mortgages, and 44 percent of California borrowers have refinanced with option-A.R.M. loans so far this year, according to Loan Performance. Other markets where those loans are popular include Arizona, Nevada, Florida, Virginia, and Washington, D.C.

Another group that draws concern are borrowers with subprime credit, a group that has been a growth market for many mortgage companies.

About 6.28 percent of all outstanding subprime, adjustable mortgages were in foreclosure or delinquent for more than three months during the first three months of this year, up from 5.23 percent in the same period a year ago, according to the Mortgage Bankers Association.

While those numbers are still lower than they were at the start of the decade, economists say there is reason for concern. An analysis by Fannie Mae, the mortgage buyer, of subprime adjustable loans issued from March 2003 to March 2004 that have adjusted showed that 16 percent of subprime borrowers have defaulted or are late in making monthly payments; another 14 percent have not yet refinanced. About 70 percent have refinanced.

The fate of subprime borrowers, industry experts and economists say, will be closely tied to home values and the job market. If they make more money and the value of their homes continues to appreciate, they will be able to refinance and make higher monthly payments.

If home prices fall or stagnate, homeowners will have less collateral against which they can borrow, said Grant Bailey, a director in Fitch Ratings’ residential mortgage-backed securities group.

“They kick the can out two years,” he said, “and everything works fine as long as there is pretty decent home price appreciation.”

Copyright 2006 The New York Times Company

[lofter1]

... a typical borrower with a $200,000 A.R.M. could see his monthly payments increase nearly 25 percent when the A.R.M. adjusts from 4.5 percent to 6.5 percent. In total dollars, that is an increase from $1,013 a month to $1,254.

Yet instead of paying more now, many borrowers are refinancing into their second or third adjustable-rate mortgage, loan data indicate and industry experts confirm.

So far, the number of borrowers refinancing this way is relatively small — several hundred thousand in the estimate of the credit ratings firm Fitch Ratings — but mortgage industry officials and analysts expect the numbers will surge next year.

So, in a few more years there will be LOTS of properties going up for sale as these costs force people out.

Some choice areas in California show that OVER 50% of recent home purchases have been done with ARMs.

Save your pennies, kids -- there will soon be deals galore (if the bigger shit doesn't hit the fan before then).

[kz1000ps]

So, in a few more years there will be LOTS of properties going up for sale as these costs force people out.

It's already happening in some areas. This is from the Boston Globe, dated June, 27th

http://www.boston.com/realestate/news/articles/2006/06/27/mass_home_prices_drop_4_as_sales_fall/?p1=MEWell_Pos2


The anemic housing market sparked a doubling last month in foreclosure notices filed by mortgage lenders, to 1,613 filings in the state's Land Court, an indication that more homeowners with adjustable-rate mortgages are having difficulty paying rising monthly payments, according to ForeclosuresMass.com, which tracks the filings.

Many are also accruing little equity or losing what little they may have acquired.

Interest rates on five-year adjustable-rate mortgages have increased more than one-half percentage point this year, to 6.32 percent, according to Freddie Mac, the national mortgage backer.

"The levels we are tracking outdistance our earlier predictions," said Jeremy Shapiro, the president of ForeclosuresMass.com.

In the year ended May 31, there were 13,565 Land Court filings, a 40 percent increase over the 9,688 filed over the same period last year, the firm said. The most foreclosures filed in a year were 17,000 In 1991.

[kz1000ps]

Well, here's more proof that the s***'s hitting the fan already. This is from today's Boston Globe

http://img70.imageshack.us/img70/8871/11538259758025yi7.jpg (http://imageshack.us)

Full Article:
http://www.boston.com/business/articles/2006/07/25/foreclosure_filings_in_mass_jump_66/

[Deimos]

Of course the cold-hearted capitalist in me sees this information as a great time to buy an investment property on Cape Cod, and rent it out.


Well, here's more proof that the s***'s hitting the fan already. This is from today's Boston Globe

http://img70.imageshack.us/img70/8871/11538259758025yi7.jpg (http://imageshack.us)

Full Article:
http://www.boston.com/business/articles/2006/07/25/foreclosure_filings_in_mass_jump_66/

[lofter1]

Housing Slows, Taking Big Toll on the Economy

NY TIMES (http://www.nytimes.com/2006/07/29/business/29housing.html?_r=1&ref=business&oref=slogin)
By VIKAS BAJAJ and DAVID LEONHARDT
July 29, 2006

The housing industry — which largely carried the American economy through the tribulations of the 2000 stock-market crash, a recession and climbing oil prices — has lost its vigor in recent months and now has begun to bog down the broader economy, which slowed to a modest 2.5 percent growth rate this spring.

That was a sharp comedown from the 5.6 percent growth rate of the first quarter, the Commerce Department reported yesterday, caused in part by the third consecutive quarterly decline in spending on houses and apartment buildings, after several years of rapid growth.

“It hasn’t slowed down a little bit — it has slowed down a lot,” said Doug McCraw, a developer who has scrapped his plans for a 205-unit condominium tower in a neighborhood just north of downtown Fort Lauderdale, Fla. “Anybody who did not have a shovel in the dirt has chosen to wait till the market settles.”

The housing slowdown is perhaps the clearest effect of the Federal Reserve’s two-year campaign of raising interest rates in a bid to tap the brakes on the economy and reduce inflation. That campaign has been largely successful, with the decline happening gradually while other parts of the economy, mainly the corporate sector, pick up much of the slack.

“Housing is going from being far and away the most important contributor to growth to being a measurable drag, and it’s happening gracefully so far,” said Mark Zandi, chief economist of Moody’s Economy.com, a research company. “But there’s now a growing and measurable risk that things don’t go according to plan.”

The biggest risk, economists say, is that the optimism that fed the real-estate boom will reverse dramatically. The number of homes for sale has surged in recent months, particularly in once-hot markets, like the Northeast, Florida, California and parts of the Southwest. As builders delay land acquisition and construction it could reduce employment and spending in the coming months.

More broadly, just as rising housing prices during the boom added to Americans’ sense of wealth and well-being — encouraging them to spend more on a variety of goods and services — the reverse could dampen sentiment and lead consumers to pull back on their purchases.

While the fate of housing prices has received far more attention recently than real estate’s role as an engine of job growth, the sector has also become one of the country’s most important industries. Residential construction and all the activity that swirls around it — mortgage lending, renovations and the like — account for roughly 16 percent of the economy, making it the largest single sector, slightly bigger than health care.

For much of the last five years, housing — along with health care — was also one of the only reliable generators of jobs. From the start of 2001, when the Fed began cutting its benchmark rate to steady a faltering economy, until early last year, the housing sector added 1.1 million jobs.

The rest of economy lost 1.2 million jobs over the same period, according to an analysis by Moody’s Economy.com.

Housing continued its rapid growth last year, and other industries began hiring in far greater numbers than they had been, creating the healthiest national job market since 2000. In the last few months, though, three pillars of the housing sector — homebuilders, mortgage lenders and real-estate agencies — have stopped adding to their payrolls, and overall job growth in housing has begun to slow.

In South Florida and Las Vegas, where contractors until recently complained that they could not find enough workers to begin work on many projects, developers are scrubbing plans for new condominiums because they cannot sell enough units to get construction financing.

Mr. McCraw, the developer in Fort Lauderdale, said slowing condo sales and a 35 percent jump in the cost of construction materials like steel, copper and concrete convinced him to shelve his project. He is now considering building office space, where demand remains strong, or simply waiting for two years.

In Las Vegas, cranes are still busily at work on new casino projects but dozens of gleaming condominium towers that were slated to sprout up a few miles from the Strip are not likely to be joining the city’s neon-bedecked skyline soon. John Restrepo, a real estate consultant in the city, estimates that only about 7 percent of the 60,000 condominium units that were announced and under construction as of the first quarter of the year are actually being built today.

Among the high-profile projects that were scrapped is Las Ramblas, an 11-building, $3 billion condominium and hotel complex being developed by the Related Companies and Centra Properties and had investors like the actor George Clooney.

“The period of irrational exuberance we saw in ’04 and ’05 and the gold rush fever has gone away,” Mr. Restrepo said.

The Commerce Department said yesterday that housing investment fell at an annual rate of 6.3 percent last quarter, after dropping less than 1 percent in each of the two previous quarters. It grew at roughly 9 percent a year during the previous three years.

Still, building activity for single-family homes, condos, hotels and casinos in Las Vegas is vibrant enough that construction workers are not struggling to find work, said George Vaughn, a business manager for a local of the Laborer’s International Union of North America, which represents almost 5,000 workers in Las Vegas. “The boom is still on,” he said.

The situation is somewhat different elsewhere. An official at the International Union of Bricklayers and Allied Craftworkers said housing work was more difficult to find, but most of its members had been able to find work on commercial building sites.

“If something were to happen with both markets, that would affect us — and everybody for that matter,” said Robert A. Fozio, director of the union’s Northern Ohio district.

On average, real-estate jobs pay somewhat less — about 7 percent less a year on average — than those in other parts of the economy. But real estate has also been one of the only industries creating good jobs for workers without college degrees in recent years, especially in construction and contracting work.

At Hovnanian Enterprises, one of the nation’s largest homebuilders, executives are renegotiating the company’s options to purchase land for future developments, in an effort to delay some transactions and reduce the purchase price on other parcels of land. In April, it forfeited $5.6 million in deposits on property near West Palm Beach, Fla., and Minneapolis, because it was not ready to build in the area.

“It doesn’t make sense to own the land and have it sit there,” said J. Larry Sorsby, the company’s chief financial officer and an executive vice president.
Orders for Hovnanian’s homes fell by 18 percent in the three months ended April 30 and cancellation of existing orders by homebuyers rose to 32 percent from 21 percent a year ago. The company, whose earnings jumped 34 percent to a record last year, is expecting a mere 3.4 percent profit increase this fiscal year.

Mr. Sorsby said the company had not resorted to layoffs, but it had been asking sub-contractors to lower labor costs — with some success.

Going forward, many economists say, the biggest question is whether the orderly real-estate slowdown the Fed has engineered thus far will continue.

“Outside the threat of surging energy prices,’’ Mr. Zandi said, “the most significant threat to the expansion is that the housing correction turns into a housing crash.”

The fact that mortgage rates remain low by historical standards offers one reason to doubt that a crash will happen. The average rate on a 30-year conventional mortgage was 6.8 percent last week, up from 5.7 percent a year earlier, according to the Fed.

On the other hand, the boom of recent years has pushed housing prices out of reach for many families along the coasts. Already, some homeowners have resorted to creative loans, like interest-only mortgages, to afford a house, and even modest increases in mortgage rates have the potential to cause a significant drop in demand for new houses.

In either case, housing seems unlikely to continue being the economic powerhouse it was over the last five years.

“Housing is just not going to be what it has been,” said Edward Yardeni, chief investment strategist at Oak Associates, a money management firm. “It could go back to being a significant but relatively small contributor to economic growth.”

Jeremy W. Peters contributed reporting for this article.

Copyright 2006 The New York Times Company

[lofter1]

Taking the Measure of the Market

NY TIMES (http://www.nytimes.com/2006/07/30/realestate/30lizo.html?ref=realestate)
In The Region | Long Island
By VALERIE COTSALAS
July 30, 2006

In what may be a “rude awakening,” as one real estate agent put it, the number of Long Island homes being put up for sale, combined with those sitting on the market, is climbing skyward, according to a report from the Multiple Listing Service of Long Island last month.

Simultaneously, the prices paid for homes are still increasing, but at a much slower rate than last year, and the number of closed sales has fallen in many Long Island areas compared with June of last year, the listing service reported.

At midyear, there were 75 percent more homes on the market in Nassau County and 65 percent more in Suffolk County than a year earlier. Although median sale prices were 6.6 percent higher in Suffolk County and 6.4 percent in Nassau, median contract prices, which are more current, fell in Nassau last month.

Brokers report far fewer buyers in recent months. They also say sellers have not yet caught up with the trend by curbing their asking prices.

http://graphics10.nytimes.com/images/2006/07/28/realestate/30lizo.L.jpg

Bethany Marten, a Baldwin-based broker who represents buyers on Long Island and in Queens, said that the number of buyers she has seen has dropped 50 percent. But home prices have not dropped from their highs.

“The affordability level is going out the window,” she said. In addition, more homeowners with adjustable-rate or interest-only mortgages are trying to refinance their homes with fixed-rate mortgages as their payments begin to rise, said Ms. Marten, who is also a mortgage broker.

Many of the “option” adjustable-rate mortgages that were popular with cash-poor buyers when home values were rising rapidly are no longer available, according to Robert Campbell, a professor of real estate financing at Hofstra University.

Those loans had extremely low interest rates for a short period — perhaps three years — then bounced up to higher rates when the period expired. For homeowners who used that kind of financing in recent years, higher payments are coming due. “Owners of the houses are seeing those options expire and the debt-service payments are headed up by a lot, by a huge amount in some cases,” Professor Campbell said. “That makes it more tempting to sell.”

Georgianna Velardi, a broker at Century 21 Petrey Real Estate in Long Beach, said she had recently seen more sellers looking for a way out of high mortgage payments.

A couple in their late 30’s came in to price their three-bedroom ranch. The interest rate on their mortgage had risen to 9.5 percent, from 3.5 percent three years ago. They didn’t have the equity or good credit to qualify for refinancing at a lower rate. To make matters worse, on July 1 the City of Long Beach raised property taxes 25 percent. “They needed to get out because they were so overwhelmed,” Ms. Velardi said.

In the area of Nassau that includes Bethpage and Farmingdale and northeastern parts of the Towns of Hempstead and Oyster Bay, the Multiple Listing service reported that 94.4 percent more homes on the market than there were in June of last year. The median price there increased only 3.1 percent, to $447,000.

Kari Testa, a broker with ReMax Home Town in Bethpage, said that rising taxes and sudden increases in monthly payments from “fancy mortgages” were two reasons that the market was flooded with homes.

But while monthly reports from the Multiple Listing Service in the spring seemed to leave no doubt that Long Island’s market has stopped soaring, the numbers now show uneven performance in many areas.

For example, the median price of properties that sold last month in the area that includes the Town of North Hempstead and the northern portion of the Town of Oyster Bay was up 10.8 percent, to $695,000, compared with June 2005. But in May, the median price for the same area declined 4.3 percent from May 2005.

Christopher Armstrong, president of the Multiple Listing Service and the owner of Century 21 Princeton Properties in Suffolk, said closing prices in June reflected market conditions up to three months earlier, when the deals were made.

“When you look at closing prices, you’re looking at the history,” Mr. Armstrong said. “If you look at contract prices, it gives you a more general barometer of the market.”

If so, those numbers indicate more intense pressure on prices. Median contract prices for June dropped 1.6 percent, to $485,000, in Nassau and rose 2 percent, to $408,000, in Suffolk compared with June of last year.

More affordable areas, mostly in Suffolk County, saw greater increases in median prices. In the area that includes the Town of Brookhaven south of the Long Island Expressway and most of the eastern portion of the Town of Islip, the median sale price rose 11 percent. But there were 53 percent more homes on the market and 10 percent fewer sales there.

All four towns on the East End of Long Island showed significant declines in homes sold and uneven changes in median prices.

The median price for the first six months of 2006 in Riverhead, a town that is spending hundreds of millions of dollars on downtown revitalization efforts and new development, was $418,700, which is 24.2 percent higher than a year earlier, according to data from Suffolk Research Service Inc., a firm that tracks East End real estate transactions. But Riverhead also experienced the sharpest drop in home sales, 28.2 percent.

The other three East End towns, where second homes make up a big chunk of the market, hardly fared better: sales were down 19 percent in Southold, 18.9 percent in East Hampton and 14.3 percent in Southampton.

Buyers have been more conservative in recent months and are taking their time, according to Htun Han, a partner in the Hamptons Realty Group in East Hampton.

“They feel they can pick and choose what they want,” Mr. Han said, “erroneously thinking that owners are getting desperate and will take whatever they offer.” This has led to rising inventory, he said.

“For someone who is really ready to buy, now is the best time,” he added. “Inventory is high and prices have stabilized somewhat.”

But back in the primary-home markets of western Suffolk and Nassau, Ms. Marten, the buyer’s broker, said she expected to see even more homes sitting on the market longer, and more foreclosures. “It’s not going to bottom out immediately,” Ms. Marten said. “We’re going to see, I believe, what we saw in 1988: a flattening, a gradual downturn and then down and down until it hits bottom.”

On the other hand, Professor Campbell of Hofstra said he did not expect to see double-digit decreases in percent change of median prices over a string of quarters, or huge numbers of defaults and foreclosures. Instead, there will be “a soft market and a gentle decline in prices over the next year at least, possibly much longer than that.”

Copyright 2006 The New York Times Company

[lofter1]

Read Between All Those For-Sale Signs

http://graphics10.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif


NY TIMES (http://www.nytimes.com/2006/08/27/weekinreview/27leonhardt.html?_r=1&ref=weekinreview&oref=slogin)
Week in Review
By DAVID LEONHARDT and VIKAS BAJAJ
August 27, 2006


Ideas & Trends

REAL bubbles pop. They are fully formed one moment and gone the next. Financial bubbles rarely meet with such a definitive end, which has always been the biggest problem with the metaphor. They let out their air in unpredictable bursts, and it’s usually impossible to figure out whether they have finished deflating or are just starting to.


Still, the latest housing numbers seem like they could be a turning point. A real estate crash might not be the most likely outcome, but it certainly seems legitimate to think about what one would look like.


The number of building permits being issued is falling at a rate usually seen only in recessions. In July, 11 percent fewer existing homes were sold than were sold a year earlier; 22 percent fewer new houses were sold. After the new-house data was released last week, Capital Economics, a consulting firm, wrote an e-mail message to its clients that began, “New day, same depressing housing market story.”


The fate of the housing market will influence whether the economy will merely slow over the next year, as the Federal Reserve forecasts, or fall into a recession for the first time since early 2001. Lehman Brothers, the investment bank, said Friday that “for-sale” signs had replaced gas-price signs as the most important indicator of potential trouble.


The collapse of most bubbles does not have a single obvious starting point, like a bad corporate earnings report or an interest-rate rise. Instead, the psychology of buyers and sellers shifts, slowly at first and then sometimes in a cascade.


“It’s always mystified people about why these things turn,” said Robert J. Shiller, a Yale economist and author of “Irrational Exuberance,” a history of speculation. “People want something concrete.”


There seem to be three major paths that housing could follow over the next year: a soft landing, the start of a long slump, or a crash. A soft landing is the one predicted — and preferred — by most economists on Wall Street and at the Fed. A long slump is what many past real estate booms turned into. A crash is the outcome that a small group of analysts say is the only possible ending for the biggest housing boom of all.


Their prediction looks better than it did a few weeks ago, but even they aren’t sure whether this is the beginning of the end or another false turning point. “The funny thing about bubbles,” Mr. Shiller said, “is that you never know when they’re over.”


For a crash to happen, prices would have to decline significantly in some once-hot markets. So far, as sales have slowed and the number of houses on the market has soared, many owners have chosen to sit tight. If they were instead to decide that selling later would be even worse than selling now, this could change quickly.


The doomsayers’ strongest argument may be that too few families can afford prices in some metropolitan areas. In Las Vegas, Los Angeles and Miami, prices have almost doubled since 2003, and they have risen about 50 percent in New York and San Francisco, the National Association of Realtors says.


Jumps of this magnitude have little precedent. To afford homes, some buyers, especially in California, have resorted to aggressive mortgages, like those that allow artificially low payments in the early years. In effect, families seem to be buying houses they cannot afford, in the hope that their incomes or property values will rise significantly. “Prices just shot up too much,” said Robert T. McGee, chief economist at U.S. Trust, an investment firm based in New York. The firm has forecast a soft landing for housing, he said, but “as time goes by that starts to look like wishful thinking.”


If prices do decline, some of the first victims would be families in a financial bind that are unable to rescue themselves by refinancing their mortgage.

Foreclosures would then rise, damaging banks and increasing the number of homes for sale.


Even homeowners not in danger of losing their home — an overwhelming majority, certainly — might respond to falling prices by cutting spending, particularly if they had been counting on their home’s value to serve as a retirement account. That could force job cuts in a wide range of industries.


Already, the housing slowdown has begun damaging the job market. Builders, mortgage lenders and real estate agencies have stopped adding to payrolls. Defined broadly, the real estate sector has accounted for 44 percent of jobs created since 2000 and employs more than one in 10 American workers, according to Moody’s Economy.com.


Perhaps the biggest reason to be skeptical about a real estate crash is that the country has not really suffered through one before. Not since the Depression has the combined value of residential real estate fallen over the course of a full year. Homes seem to be much less vulnerable to crashes than other assets, because people rarely sell them in a panic.


But earlier booms have been followed by modest price declines in some cities that turned into long periods in which increases trailed inflation. After peaking in much of California and the Northeast in the late 1980’s, house values fell during the recession of 1990-91 and then drifted for years, often rising more slowly than the price of milk.


In inflation-adjusted terms, prices in the New York and Washington areas did not return to their late-80’s peak until 2002. In Boston, it didn’t happen until 2000, and in San Francisco, 1999.


It isn’t hard to imagine a similar chain of events over the next decade. Based on futures contracts traded on the Chicago Mercantile Exchange, investors expect the median house price in Los Angeles, New York and some other regions to fall about 5 percent in the next year, which would be similar to the decline that started the 90’s slump.


From there, prices might start rising again, but at a slow enough pace that incomes would eventually catch up. Families that now need an exotic mortgage to buy a house in Los Angeles could eventually afford one the old-fashioned way.


Interest rates could play a role in a long slump, too. They have been falling for much of the last decade, helping push house prices higher by allowing buyers to afford bigger mortgages. Most economists expect rates to remain lower than they were a generation ago but not to return to the extremely low levels of a few years ago, making big swings in house prices, in either direction, unlikely.


Christopher J. Mayer, director of the Paul Milstein Center for Real Estate at Columbia University, argues that the recent drop in sales does not suggest that a larger bust is coming. “So far we have only seen people asking pie-in-the-sky asking prices and not getting them,” said Mr. Mayer, who expects housing to continue slowing but not enough to create a recession.


He believes that the boom in house prices was largely a result of the appeal of “superstar cities” like New York and San Francisco that are unlikely to lose their allure. In much of the rest of the country, prices are not unusually high, considering the relatively low interest rates.


Moreover, few borrowers are falling behind on their mortgage payments, and the economy looks fairly healthy outside of housing. So if prices start falling, new buyers may jump into the market and prevent any extended slump. “The fundamentals of real estate are solid, still,” said James Gillespie, chief executive of Coldwell Banker, the real estate company.


Which is it, then — a brief pause, or a big correction?


“Either argument is very compelling. I can debate myself on it,” said Mark Zandi, chief economist at Moody’s Economy.com. “That’s why there’s a great deal of uncertainty.”


Copyright 2006 The New York Times Company

[BPCDude]

From NewYork magazine..


The Year of the Price Cut

Overreaching is so 2006.

By S.Jhoanna Robledo (http://newyorkmetro.com/nymag/author_robledo)So is it a soft market, or isn't it? The consensus is forming: Sellers just can't overreach and expect a huge payout the way they did a couple of years ago. New York asked Streeteasy.com, an online database that gathers information on most listings in the city, to run the numbers and find the largest price drops of the year (leaving out mixed-use and multiple-unit buildings and new developments). Bargain-hunters and bonus-toters, this may be your moment.
http://newyorkmetro.com/realestate/realestatecolumn/realestate070101_1_198.jpg

1120 Fifth Avenue, Penthouse 15A
A full-floor, two-bedroom, two-bath penthouse at Fifth and 93rd.
Asking Price Then: $12 million
Asking Price Now: $7 million
Drop: 41.6 percent
Listed: November 2005
Time on Market: 408 days
Maintenance: $5,131 per month
Broker: Laura and Rheda Brandt, Halstead

The living room measures 23 by 15 feet, small for a space billed as “stately.” Despite having two greenhouses and a sunroom, it has only two proper bedrooms. “It’s a beautiful, magical doll’s house, but it’s very tiny and very impractical,” says one broker who has shown it to clients. (They passed.)
http://newyorkmetro.com/realestate/realestatecolumn/realestate070101_2_198.jpg

160 Central Park South, Apartment 2708
A one-bedroom, two-bath condo at the Jumeirah Essex House.
Asking Price Then: $2.5 million
Asking Price Now: $1.575 million
Drop: 37 percent
Listed: April 2006
Time on Market: 238 days
Charges and Taxes: $2,801 per month
Brokers: Pat Slochower and Richard Gitter, Prudential Douglas Elliman

The monthly charges are high, as is typical of hotel condos. Slochower says that, after a fancy renovation, the apartment was priced very ambitiously. Now, with many other Essex House units on the market, and conversions nearby, there’s more competition.
http://newyorkmetro.com/realestate/realestatecolumn/realestate070101_3_198.jpg

5 East 131st Street, Apartment 4B
A two-bedroom co-op in a prewar walk-up in East Harlem.
Asking Price Then: $275,000
Asking Price Now: $175,000
Drop: 36.4 percent
Maintenance: $612 per month
Listed: September 2006
Time on Market: 100 days
Broker: Jeffrey Gardere, Corcoran

Yes, East Harlem’s been fancified, but it’s still an area where shoppers are expecting to find bargains. One issue here may also be the income restrictions on buyers: Because it’s an HDFC building, a resident can’t make more than $81,800 per year (or $93,500 for a couple, or $116,000 for family of four).
http://newyorkmetro.com/realestate/realestatecolumn/realestate070101_4_198.jpg

21 East 22nd Street, Apartment 12F
A one-bedroom, one-bath corner penthouse facing Madison Square Park.
Asking price then: $2.5 million
Asking price now: $1.595 million
Drop: 36.2 percent
Listed: November 2005
Time on market: 402 days
maintenance: $1,128 per month
broker: Paula Del Nunzio, Brown Harris Stevens

After thirteen months and four price drops, this trophy apartment with an 800-square-foot terrace is still available. But who pays $2.5 million for one bedroom? A local broker notes that nearby, “for $1.6 million, you can get a two-bedroom with a smaller terrace.”
http://newyorkmetro.com/realestate/realestatecolumn/realestate070101_5_198.jpg

480 Park Avenue, Apartment 8E
A fully renovated two-bedroom, two-bath prewar co-op in upper Midtown.
Asking Price Then: $4.6 million
Asking Price Now: $3 million
Drop: 34.8 percent
Listed: May 2006
Time on Market: 217 days
Maintenance: $2,138 per month
Broker: Sallie G. Stern, Brown Harris Stevens
This pretty property is in an all-cash building, which limits the pool of potential buyers. It also lacks a dining room, a liability at this price point; the two bedrooms share one bath; and, well, “it’s still too much money,” says one broker.
http://newyorkmetro.com/realestate/realestatecolumn/realestate070101_6_198.jpg

160 West End Avenue, Apartment 1C
A ground-floor live-work studio with one and a half baths near Lincoln Square.
Asking Price Then: $630,000
Asking Price Now: $410,000
Drop: 34.9 percent
Listed: August 2006
Time on Market: 132 days
Maintenance: $689 per month
Broker: Patricia Galante, Corcoran

Galante says she priced this one high because it’s a rare live-and-work space. Ironically, that may have been why buyers shied away—it looks like an office, not a home. (That said, at press time, the owner had just accepted an offer, though nothing’s signed yet.)

Note: “Time on market” numbers are as of December 14.


http://images.clickability.com/pti/spacer.gif

[BPCDude]

By Janet Morrissey
From The Wall Street Journal Online (http://www.wsj.com/wsjgate?source=homesite&URI=/)

New York City's residential market perhaps has started to crack. The average sales price of a Manhattan apartment fell 5.7% between the third quarter and the fourth quarter of 2006, the second consecutive quarter that prices have fallen, according to a new study.
Prices slipped 2.2% between the second and third quarters.
The report, released by appraisal firm Mitchell, Maxwell & Jackson Inc., showed the average price paid for a condominium or cooperative apartment in the fourth quarter fell to $1,079,363 from $1,144,024 in the third quarter and was down 4.4% from the same period a year earlier.

The average price of an apartment in full year 2006 was down 7.7% from the market's peak in the second quarter of 2006, the report said.
However, Jeffrey Jackson, co-founder and chief economist at Mitchell, Maxwell & Jackson, said it isn't clear how much further prices may fall.
Mr. Jackson said the residential market showed signs of some stabilization in the past two months as inventory, which had reached its highest level in more than 15 years in the third quarter, began to dissipate. He said a 7.4-month supply of apartments was for sale in December, down from 10.4 months in September. A six-month supply is considered equilibrium, with supply matching demand.
Between 2004 and 2006, more than 20,000 new condo units were added to the market, causing an inventory glut. But since this inventory has started to tick down, he said, speculation has somewhat subsided that the market could be facing a major correction.
He said the economy has remained strong, employment is healthy, wages are increasing, the Federal Reserve stopped raising rates and Wall Street bonuses were "exceptionally good," which bodes well for market fundamentals, he said.
On the other hand, the equity markets have been performing strongly, which lets investors get bigger returns from stocks than real estate. As a result, he said, many people may be reluctant to put their cash into real estate, when the residential market is uncertain.

Email your comments to rjeditor@dowjones.com (rjeditor@dowjones.com).

[lofter1]

Set up for a fall

Subprime mortgages lead to record foreclosures
in the city's poorest nabes

NY DAILY NEWS (http://nydailynews.com/news/2007/03/28/2007-03-28_set_up_for_a_fall-3.html)
By JUAN GONZALEZ
DAILY NEWS COLUMNIST
March 28th 2007
http://nydailynews.com/img/2007/03/28/art_map5.jpg

In some areas of South Jamaica and Bedford-Stuyvesant, as many as 10 homes per block faced foreclosure last year.

The reason: subprime mortgages offered by unscrupulous real estate brokers and predatory lenders, according to a new study on the epidemic of citywide foreclosures.

The crisis has even spawned a new group of real estate predators that offers to counsel homeowners in default, or "help" them refinance their homes.

In neighborhoods like Brooklyn's East New York, signs have sprouted on street poles offering cash on the spot to buy homes in foreclosure.

More than 9,000 New York City home owners faced foreclosure last year - an astounding 50% increase over 2005 - and that number has skyrocketed even higher during the first months of this year.

Mortgage lenders have filed 3,116 new motions to foreclose against delinquent homeowners since Jan. 1, according to a soon-to-be released study by the nonprofit Neighborhood Economic Development Advocacy Project (NEDAP).

Our city is now on track to surpass 15,000 filings this year, more than double the total two years ago, according to the study, which examines one- to four-family homes.

The foreclosure wave has struck hardest in minority neighborhoods of South Jamaica and Cambria Heights in Queens, Bedford-Stuyvesant and East New York in Brooklyn and Williamsbridge in the north Bronx, the NEDAP study shows.
http://nydailynews.com/img/2007/03/28/art_map1.jpg

http://nydailynews.com/img/2007/03/28/art_map4.jpg

http://nydailynews.com/img/2007/03/28/art_map2.jpg

http://nydailynews.com/img/2007/03/28/art_map3.jpg

http://nydailynews.com/img/2007/03/28/art_map6.jpg

Neighborhood leaders blame subprime mortgages, which offer low "teaser" interest rates that escalate rapidly after two years and often require no verification of a borrower's income.

"Loan companies are going out and bombarding these owners, many of them senior citizens, to convince them to take home equity loans," said Yvonne Reddick, district manager of Community Board 12 in Southeast Queens. "How do you give someone a loan when the monthly payment on that loan is higher than the person's income? It's a disgrace."

"We need to get the attention of the attorney general and DA's office," said City Councilman Leroy Comrie (D-Queens). "A lot of these activities are illegal. We have a high rate of senior citizens and immigrants here, and these lenders are preying on the elderly with reverse mortgages that are really subprime loans."

The subprime industry, which typically provides loans at high interest rates to people with poor credit histories or low incomes, mushroomed during the real estate boom of recent years.

Virtually anyone who wasn't in jail or in the hospital could find some lender willing to finance up to 100% of a home purchase or a major refinancing.

"A lot of first-time home buyers didn't know what to look for, and these brokers even supply them with lawyers who don't defend the buyer's interest," Reddick said. And when the homeowner can't make the payment, "they're ashamed to say anything publicly until it's too late," she added.
But as more and more borrowers have landed in foreclosure, the subprime industry has been rocked the past few weeks by the financial meltdown of some its biggest players. Subprime loans represent only 15% of all mortgages but more than half of all foreclosures.

Sen. Chuck Schumer (D-N.Y.), a fierce industry critic, claims subprime lenders routinely targeted many black and Hispanic homebuyers with otherwise good credit histories in a form of "reverse-redlining." Those borrowers were steered into high-interest loans even though they were eligible for conventional prime rate loans.

Industry defenders say subprime loans have democratized credit and given millions of people an opportunity at home ownership.

But the nonprofit Center For Responsible Lending challenged that claim in a report it released yesterday.

From 1998 to 2006, subprime lending enabled 1.44 million people to become first-time homeowners - but it led to 2.37 million foreclosures, a net loss of nearly 1 million, the center reported.

That discrepancy is possible because most subprime loans involve refinancing an existing mortgage in order to cash out equity. Many longtime homeowners who refinanced with subprime mortgages were forced into foreclosure when they couldn't make the higher monthly payments.

The latest local foreclosure numbers "debunk the myth that New York City has been spared the impact of this crisis because of our strong housing market," said Sarah Ludwig, executive director of NEDAP.

"Since most people in foreclosure end up losing their homes, some of these worst affected neighborhoods are going to be devastated," Ludwig said.

© Copyright 2007 NYDailyNews.com

[chan_2001]

Pretty interesting data . . thanks for sharing

[spaceboy]

I agree that things will probably slow down, but ever notice the news usually has it wrong?

1) All throughout the stock boom, they said "buy high, sell higher" => You should have been selling. (And NOT buying bad stocks)
2) After the bubble burst the papers could not stop talking about the stock bubble and how horrrible things were => You should have been buying (good stocks).
3) The recent real estate bubble, they've been saying bubble is going to burst for years now => Instead, there was double digit appreciation in home prices.

Maybe this means it won't be as bad as the news is saying it is... (unless you bought bad properties). I mean, isn't it a pretty wide known fact/thought right now that "real estate is bad"?

Can someone share what the news was saying around 1988 and 1994?

[Front_Porch]

I feel like I'll have to say this many, many times, so I might as well start now: the subprime mortgage problem has nothing to do with prices.

The defaults are not happening because people can't sell their homes. The defaults are happening because people have mortgages they never should have gotten in the first place.

Widespread fraud perpetrated on immigrants and old people? Time will tell.

But the best indicators of whether there's a bubble popping in New York are average pricing (roughly flat); days on market (up slightly) and average discount from list (roughly flat).


ali r.
[downtown broker]

[Deimos]

This may come across as cold hearted, so I apologize if it does, but staring at the 2 posts from January, I had the following thoughts... that 2 Bedroom in Harlem for 175k looks like a great investment, and i'd hate to be the 1 person in Manhattan south of Harlem who defaulted on their mortgage.. kind of embarrasing!

[Deimos]

oops... make that the post from january, and lofter's post from today

[BrooklynRider]

Variable rate mortgages are just plain predatory. In my opinion, most of these people had no problem paying their mortgages until the rates started rising. Is it better for a bank to collect 5% interest on a mortgage and have the loan repaid or is it better to raise it to 7.5% and get nothing? I find it predatory and unethical. I wish there was more regulation.

This is the second Bush presidency where we see cash diappear into thin air. First the S & L scandal now mortgage lenders.

Hi Pat, I'd like to buy a clue for $250.

[MikeW]

Predatory? No. A gamble? Yes.

I know a number of very smart people who are in variables. They're a tool people use, nothing more. As long as they know what they're getting into, it isn't a problem. Especially in NYC, people's planning spectrum for holding property may well be less than the fixed rate period.

What should be illegal is teaser rates. The rate during the fixed period should be based on the same criteria that it would be after the fixed rate period ends.


Variable rate mortgages are just plain predatory. In my opinion, most of these people had no problem paying their mortgages until the rates started rising. Is it better for a bank to collect 5% interest on a mortgage and have the loan repaid or is it better to raise it to 7.5% and get nothing? I find it predatory and unethical. I wish there was more regulation.

This is the second Bush presidency where we see cash diappear into thin air. First the S & L scandal now mortgage lenders.

Hi Pat, I'd like to buy a clue for $250.

[Peteynyc1]

Housing Crash Deepens in 2008 as U.S. Realtors See Record Drop

By Daniel Taub
http://www.bloomberg.com/apps/data?pid=avimage&iid=i7cL0nQMUiuc
http://images.bloomberg.com/r06/news/enlarge_details.gif (http://www.bloomberg.com/apps/news?pid=photos&sid=aFGRVkX98Hzw)

Dec. 14 (Bloomberg) -- For U.S. homeowners, builders, bankers and realtors, the crash of 2007 will only get worse in 2008.
Everyone from mortgage-finance company Fannie Mae to Lehman Brothers Holdings Inc. expects declines next year. Existing home sales will drop 12 percent and existing home prices will fall 4.5 percent, Washington-based Fannie Mae says. Lehman analysts estimate almost 1 million mortgage loans will default in 2008, up from about 300,000 this year.
``We're only halfway through the housing shock,'' said Ethan Harris, chief U.S. economist at New York-based Lehman, the fourth-biggest U.S. securities firm by market value. ``It's just a matter of time before the weakness spreads to the rest of the economy.''
The housing market collapse has been anything but the ``soft landing'' that Federal Reserve Bank of San Francisco President Janet Yellen and David Lereah, former chief economist at the National Association of Realtors in Chicago, predicted for real estate at the start of 2007.
Median home prices declined in the U.S. this year, the first annual drop since the Great Depression, according to forecasts from the National Association of Realtors.
``I'm not going to sit here and tell you it's going to turn real strong next year,'' said Jim Gillespie, chief executive officer of Coldwell Banker Real Estate LLC, the largest U.S. residential brokerage, according to Franchise Times. ``It's not going to turn real strong next year.''
`Let the House Go'
Analysts at New York-based CreditSights Inc. predict housing won't rebound until ``2009, at best.'' Moody's Economy.com Inc., the economic forecasting unit of Moody's Corp. in New York, says home sales will hit bottom next year, declining 40 percent from their peak. And U.S. Treasury Secretary Henry Paulson's plan to slow foreclosures won't help those who already are facing the loss of their homes, like C.W. and Sandy Hicks of Las Vegas.
The Hickses refinanced the mortgage on their four-bedroom, 1,300-square foot home two years ago. Their $237,000 adjustable- rate loan resets every month, and now their monthly payment has jumped 50 percent to $2,700. The couple can't afford it.
``It looks like we're going to have to let the house go,'' said C.W. Hicks, 65, a long-haul truck driver who has kept working past retirement age to help pay medical bills for his wife Sandy, 59, who has heart problems. ``I guess we'll try to rent a house or something.''
The Hickses aren't the only ones grappling with the consequences of this year's housing market. The number of Americans behind on their mortgage payments rose to a 20-year high in the third quarter, the Washington-based Mortgage Bankers Association said earlier this month.
Lender, Homebuilder Woes
``The whole thing has deteriorated faster and further than we or anyone else had anticipated,'' said Ron Muhlenkamp, president of Wexford, Pennsylvania-based Muhlenkamp & Co., which has about $2.5 billion under management and holds shares of mortgage lender Countrywide Financial Corp. and homebuilder Ryland Group Inc.
The five biggest U.S. homebuilders by revenue, led by Miami-based Lennar Corp., recorded writedowns and charges totaling about $7.5 billion this year for land that plunged in value.
Mortgage companies, including Irvine, California-based New Century Financial Corp., the second-largest subprime lender in 2006, have filed for bankruptcy protection after borrowers unable to repay their loans defaulted.
H&R Block Inc. of Kansas City, Missouri, shut Option One this month after plans to sell the subprime home-lending unit fell apart, and U.S. regulators ordered Santa Monica, California-based Fremont General Corp. to stop selling subprime mortgages, loans given to people with poor or limited credit histories or high debt levels.
O'Neal, Prince Fall
Bank and brokerage writedowns and losses related to subprime loans totaled more than $80 billion. Citigroup Inc., the biggest U.S. bank by assets, last month said it would write down the value of subprime mortgages and collateralized debt obligations -- securities backed by bonds and loans -- by $8 billion to $11 billion. At Merrill Lynch & Co., writedowns on mortgage-related investments and corporate loans have cost the world's biggest brokerage $8.4 billion. Both companies are based in New York.
The losses led to the ouster of Merrill Chief Executive Officer Stan O'Neal and the resignation of Citigroup CEO Charles O. ``Chuck'' Prince III. O'Neal's exit came after he said as late as July that ``not even a sharp downturn in one market today necessarily portends financial disaster in another, and we're seeing this play out today in the subprime market.''
Fallout from the subprime crisis in the U.S. has crimped economic expansions in the U.K., Canada and Germany.
Investment in U.K. commercial real estate may slump 60 percent in the fourth quarter as buyers shun large acquisitions of shops and offices, Chicago-based Jones Lang Lasalle Inc., the world's second-largest property brokerage, said Dec. 10.
Fund Markdowns
Spending on British commercial real estate, Europe's largest investment market, may decline in the final three months of the year to 5 billion pounds ($10.2 billion) from 18.6 billion pounds a year earlier, Jones Lang said in a statement. Investment for all of 2007 may fall 24 percent to about 48 billion pounds.
Falling prices are already hurting U.K. property funds. New Star Asset Management Group Ltd., the fund company founded by John Duffield, said earlier this week that value of its U.K. commercial property mutual fund was cut by 8.2 percent after the value of its buildings dropped 18 percent since July.
Market lending rates rose worldwide in the past month as writedowns linked to subprime defaults heightened concerns about the strength of financial institutions.
Anxiety Continues
``Until the public is convinced that the subprime credit exposure has been identified, quantified and dealt with, there will continue to be anxiety,'' said Todd Canter, international director at LaSalle Investment Management in Baltimore, where he helps manage about $11 billion in real estate stocks. ``There will continue to be volatility in the marketplace.''
U.S. office sales fell 70 percent in October from a year ago, industrial sales declined 24 percent, and retail and apartment sales dropped 50, according to New York-based research firm Real Capital Analytics Inc. The declines are the biggest since the company began keeping records in 2001.
The 128-member Bloomberg REIT Index rose 62 percent in the two years ended Feb. 8, the day before New York-based Blackstone Group LP bought Equity Office Properties Trust for $39 billion, including debt, in the real estate industry's biggest leveraged buyout. The index has dropped 26 percent since then.
``You're not seeing the Equity Office transactions anymore,'' said Dan Fasulo, Real Capital's managing director for research. ``It's extremely difficult right now to finance the large portfolio transaction and privatizations we've seen over the last couple of years. I can't even think of one major privatization that has been announced since the credit crunch.''
Financing Difficulties
Mission West Properties Inc., owner of almost 8 million square feet of Silicon Valley commercial buildings, disclosed talks in July with a private equity firm about being acquired. The Cupertino, California-based company said a month later the sale might fail after a bank withdrew funding. Mission West then said in October that there remained three potential bidders. A transaction hasn't yet been announced.
Highwoods Properties Inc., the owner of almost 34 million square feet of commercial space, said last month that it no longer expects to sell properties in Winston-Salem, North Carolina, totaling 1.6 million square feet. The company cited ``volatility of the capital markets'' as the reason the sale didn't go through.
``I know we weren't predicting things would get this bad,'' said Frank Liantonio, executive vice president for global capital markets at New York-based Cushman & Wakefield Inc., the largest closely held real estate services provider. ``There were some signs there, but I don't think anyone anticipated the level of dislocation that was actually created.''
To contact the reporter on this story: Daniel Taub in Los Angeles at dtaub@bloomberg.net
Last Updated: December 14, 2007 00:16 EST

http://www.bloomberg.com/apps/news?pid=20601103&sid=aFGRVkX98Hzw&refer=us

[lofter1]

Blindly Into the Bubble


NY TIMES (http://www.nytimes.com/2007/12/21/opinion/21krugman.html?_r=1&oref=slogin)
By PAUL KRUGMAN

Op-Ed Columnist
December 21, 2007

When announcing Japan’s surrender in 1945, Emperor Hirohito famously explained his decision as follows: “The war situation has developed not necessarily to Japan’s advantage.”


There was a definite Hirohito feel to the explanation Ben Bernanke, the Federal Reserve chairman, gave this week for the Fed’s locking-the-barn-door-after-the-horse-is-gone decision to modestly strengthen regulation of the mortgage industry: “Market discipline has in some cases broken down, and the incentives to follow prudent lending procedures have, at times, eroded.”


That’s quite an understatement. In fact, the explosion of “innovative” home lending that took place in the middle years of this decade was an unmitigated disaster.


But maybe Mr. Bernanke was afraid to be blunt about just how badly things went wrong. After all, straight talk would have amounted to a direct rebuke of his predecessor, Alan Greenspan, who ignored pleas to lock the barn door while the horse was still inside — that is, to regulate lending while it was booming, rather than after it had already collapsed.


I use the words “unmitigated disaster” advisedly.


Apologists for the mortgage industry claim, as Mr. Greenspan does in his new book, that “the benefits of broadened home ownership” justified the risks of unregulated lending.


But homeownership didn’t broaden. The great bulk of dubious subprime lending took place from 2004 to 2006 — yet homeownership rates are already back down to mid-2003 levels. With millions more foreclosures likely, it’s a good bet that homeownership will be lower at the Bush administration’s end than it was at the start.


Meanwhile, during the bubble years, the mortgage industry lured millions of people into borrowing more than they could afford, and simultaneously duped investors into investing vast sums in risky assets wrongly labeled AAA. Reasonable estimates suggest that more than 10 million American families will end up owing more than their homes are worth, and investors will suffer $400 billion or more in losses.


So where were the regulators as one of the greatest financial disasters since the Great Depression unfolded? They were blinded by ideology.


“Fed shrugged as subprime crisis spread,” was the headline on a New York Times report on the failure of regulators to regulate. This may have been a discreet dig at Mr. Greenspan’s history as a disciple of Ayn Rand, the high priestess of unfettered capitalism known for her novel “Atlas Shrugged.”


In a 1963 essay for Ms. Rand’s newsletter, Mr. Greenspan dismissed as a “collectivist” myth the idea that businessmen, left to their own devices, “would attempt to sell unsafe food and drugs, fraudulent securities, and shoddy buildings.” On the contrary, he declared, “it is in the self-interest of every businessman to have a reputation for honest dealings and a quality product.”


It’s no wonder, then, that he brushed off warnings about deceptive lending practices, including those of Edward M. Gramlich, a member of the Federal Reserve board. In Mr. Greenspan’s world, predatory lending — like attempts to sell consumers poison toys and tainted seafood — just doesn’t happen.


But Mr. Greenspan wasn’t the only top official who put ideology above public protection. Consider the press conference held on June 3, 2003 — just about the time subprime lending was starting to go wild — to announce a new initiative aimed at reducing the regulatory burden on banks. Representatives of four of the five government agencies responsible for financial supervision used tree shears to attack a stack of paper representing bank regulations. The fifth representative, James Gilleran of the Office of Thrift Supervision, wielded a chainsaw.


Also in attendance were representatives of financial industry trade associations, which had been lobbying for deregulation. As far as I can tell from press reports, there were no representatives of consumer interests on the scene.


Two months after that event the Office of the Comptroller of the Currency, one of the tree-shears-wielding agencies, moved to exempt national banks from state regulations that protect consumers against predatory lending. If, say, New York State wanted to protect its own residents — well, sorry, that wasn’t allowed.


Of course, now that it has all gone bad, people with ties to the financial industry are rethinking their belief in the perfection of free markets. Mr. Greenspan has come out in favor of, yes, a government bailout. “Cash is available,” he says — meaning taxpayer money — “and we should use that in larger amounts, as is necessary, to solve the problems of the stress of this.”


Given the role of conservative ideology in the mortgage disaster, it’s puzzling that Democrats haven’t been more aggressive about making the disaster an issue for the 2008 election. They should be: It’s hard to imagine a more graphic demonstration of what’s wrong with their opponents’ economic beliefs.


Copyright 2007The New York Times Company

[lofter1]

Blindly Into the Bubble


... where were the regulators as one of the greatest financial disasters since the Great Depression unfolded? They were blinded by ideology.


“Fed shrugged as subprime crisis spread,” was the headline on a New York Times report on the failure of regulators to regulate. This may have been a discreet dig at Mr. Greenspan’s history as a disciple of Ayn Rand, the high priestess of unfettered capitalism known for her novel “Atlas Shrugged.”



Fed Shrugged as Subprime Crisis Spread


http://graphics8.nytimes.com/images/2007/12/18/business/18subprime.600.1.jpg
Mel Evans/Associated Press
Federal agencies completed standards for subprime lending on June 29.
By then, many lenders were out of business.


NY TIMES (http://www.nytimes.com/2007/12/18/business/18subprime.html)
By EDMUND L. ANDREWS
December 18, 2007


WASHINGTON — Until the boom in subprime mortgages turned into a national nightmare this summer, the few people who tried to warn federal banking officials might as well have been talking to themselves.


Edward M. Gramlich, a Federal Reserve governor who died in September, warned nearly seven years ago that a fast-growing new breed of lenders was luring many people into risky mortgages they could not afford.


But when Mr. Gramlich privately urged Fed examiners to investigate mortgage lenders affiliated with national banks, he was rebuffed by Alan Greenspan, the Fed chairman.


In 2001, a senior Treasury official, Sheila C. Bair, tried to persuade subprime lenders to adopt a code of “best practices” and to let outside monitors verify their compliance. None of the lenders would agree to the monitors, and many rejected the code itself. Even those who did adopt those practices, Ms. Bair recalled recently, soon let them slip.


And leaders of a housing advocacy group in California, meeting with Mr. Greenspan in 2004, warned that deception was increasing and unscrupulous practices were spreading.


John C. Gamboa and Robert L. Gnaizda of the Greenlining Institute (http://greenlining.org/sections/view/whoweare) implored Mr. Greenspan to use his bully pulpit and press for a voluntary code of conduct.


“He never gave us a good reason, but he didn’t want to do it,” Mr. Gnaizda said last week. “He just wasn’t interested.”


Today, as the mortgage crisis of 2007 worsens and threatens to tip the economy into a recession, many are asking: where was Washington?


An examination of regulatory decisions shows that the Federal Reserve and other agencies waited until it was too late before trying to tame the industry’s excesses. Both the Fed and the Bush administration placed a higher priority on promoting “financial innovation” and what President Bush has called the “ownership society.”


On top of that, many Fed officials counted on the housing boom to prop up the economy after the stock market collapsed in 2000.


Mr. Greenspan, in an interview, vigorously defended his actions, saying the Fed was poorly equipped to investigate deceptive lending and that it was not to blame for the housing bubble and bust.


On Tuesday, under a new chairman, the Federal Reserve will try to make up for lost ground by proposing new restrictions on subprime mortgages, invoking its authority under the 13-year-old Home Ownership Equity and Protection Act. Fed officials are expected to demand that lenders document a person’s income and ability to repay the loan, and they may well restrict practices that make it hard for borrowers to see hidden fees or refinance with cheaper mortgages.


It is an action that people like Mr. Gramlich and Ms. Bair advocated for years with little success. But it will have little impact on many existing subprime lenders, because most have either gone out of business or stopped making subprime loans months ago.


Before this year, officials here enthusiastically praised subprime lenders for helping millions of families buy homes for the first time. “I was aware that the loosening of mortgage credit terms for subprime borrowers increased financial risk,” Mr. Greenspan wrote in his recent memoir, “The Age of Turbulence: Adventures in a New World.” “But I believed then, as now, that the benefits of broadened home ownership are worth the risk.”


As housing prices soared in what became a speculative bubble, Fed officials took comfort that foreclosure rates on subprime mortgages remained relatively low. But neither the Fed nor any other regulatory agency in Washington examined what might happen if housing prices flattened out or declined.


Had officials bothered to look, frightening clues of the coming crisis were available. The Center for Responsible Lending (http://www.responsiblelending.org/), a nonprofit group based in North Carolina, analyzed records from across the country and found that default rates on subprime loans soared to 20 percent in cities where home prices stopped rising or started to fall.


“The Federal Reserve could have stopped this problem dead in its tracks,” said Martin Eakes, chief executive of the center. “If the Fed had done its job, we would not have had the abusive lending and we would not have a foreclosure crisis in virtually every community across America.”


Mr. Greenspan, hailed as perhaps the best central banker in history when he left the Fed in early 2006, is now feeling defensive. In an extensive interview last week, he adamantly disputed the assertion that he could have prevented the mortgage bust.


The housing bubble, he said, had far less to do with the Fed’s policy on interest rates than on a global surplus in savings that drove down interest rates and pushed up housing prices in countries around the world.


As for his role as a regulator, Mr. Greenspan argued that the Fed was ill-suited to investigate deceptive lending practices.


“I got the impression that there were a lot of very questionable practices going on,” he said. “The problem has always been, what basically does the law mean when it says deceptive and unfair practices? Deceptive and unfair practices may seem straightforward, except when you try to determine by what standard.”


Mr. Greenspan also contended that the Federal Reserve’s accountants and bank examiners were ill-suited to the job of investigating fraud.


“It becomes essentially an enforcement action, and the question is, who are the best enforcers?” he said. “A large enough share of these cases are fraud, and those are areas that I don’t think accountants are best able to handle.”


Others are more critical.


“Hindsight is always 20-20, but it’s clear the Fed should have acted earlier,” said Ms. Bair, who became chairman of the Federal Deposit Insurance Corporation in 2006. “Financial innovation is great, but you have to have some basic rules. One of the most basic rules is that a borrower should have the ability to repay.”


A Booming Industry


Mr. Greenspan and other Fed officials repeatedly dismissed warnings about a speculative bubble in housing prices. In December 2004, the New York Fed issued a report bluntly declaring that “no bubble exists.” Mr. Greenspan predicted several times — incorrectly, it turned out — that housing declines would be local but almost certainly not nationwide.


The Fed was hardly alone in not pressing to clean up the mortgage industry. When states like Georgia and North Carolina started to pass tougher laws against abusive lending practices, the Office of the Comptroller of the Currency successfully prohibited them from investigating local subsidiaries of nationally chartered banks.


Virtually every federal bank regulator was loathe to impose speed limits on a booming industry. But the regulators were also fragmented among an alphabet soup of agencies with splintered and confusing jurisdictions. Perhaps the biggest complication was that many mortgage lenders did not fall under any agency’s authority at all.


Subprime loans carry high interest rates, sometimes as high as 12 percent, and were designed for people with weak credit records. Unlike traditional banks and thrifts, which traditionally financed their loans with deposits, most subprime lenders are financed by investors on Wall Street who buy packages of loans called mortgage-backed securities.


Starting from a virtual standstill 10 years ago, subprime lenders became by far the fastest-growing segment of mortgage lending before they collapsed. They made $540 billion in mortgages by 2004 and $625 billion at their peak in 2006 — about one-quarter of all new mortgages.


Mr. Gramlich, a Democratic appointee to the Federal Reserve who had spent much of his career studying problems of poverty, saw both great benefits and great perils in the new industry.


As head of the Fed’s Committee on Consumer and Community Affairs from 1997 to 2005, he agreed that subprime lending had opened new doors to people with low incomes or poor credit histories. Home ownership, which had hovered around 64 percent for years, climbed to almost 70 percent by 2005. The biggest gains were among blacks and Hispanics, groups that had suffered discrimination for decades.


What alarmed Mr. Gramlich was that many subprime loans were extremely complicated and loaded with hidden risks.


Borrowers were being qualified for loans based on low initial teaser rates, rather than the much higher rates they would have to pay after a year or two. Many of the loans came with big fees that were hidden in the overall interest rate. And many had prepayment penalties that effectively blocked people from getting cheaper loans for two years or longer.


“Why are the most risky loan products sold to the least sophisticated borrowers?” Mr. Gramlich asked in a speech he prepared last August for the Fed’s symposium in Jackson Hole, Wyo. “The question answers itself — the least sophisticated borrowers are probably duped into taking these products.”


Turning Away a Bigger Role


In 2000, Mr. Gramlich privately urged the Fed chairman to send examiners into the mortgage-lending affiliates of nationally chartered banks. Many of them, like Bank of America’s affiliate, had already come under fire from state regulators and consumer groups. Fed examiners, Mr. Gramlich argued, could clean up those practices from the inside.


Mr. Greenspan was against the idea. In an interview last week, he said he feared that Fed examiners would fail to spot deceptive practices and inadvertently give dubious lenders what amounted to a government seal of approval.


“I remember telling him, ‘be careful,’ ” Mr. Greenspan said. If the Fed gave the appearance that it was overseeing thousands of local institutions, which he said it did not have the resources to do, “we’re going to end up with a situation that very well could be worse rather than better.”


To be sure, some of the speculative excesses of the housing bubble and the subsequent bust were driven by broader forces.


The Fed helped stoke the housing market by slashing short-term interest rates from 2000 to 2004. The rate cuts drastically reduced the effective cost of buying a house, which added more fuel to what was already a powerful housing boom.


In addition, foreign investors were pouring trillions of dollars into American securities. Much of that money, often described as the “global savings glut,” flowed directly into mortgage-backed securities that were used to finance subprime mortgages.


But by 2005, federal banking regulators were beginning to worry that mortgage lenders were running amok with exotic and often inscrutable new products.


The agencies, however, were like a Rube Goldberg machine with parts moving in different directions. The Office of the Comptroller of the Currency was in charge of nationally chartered banks and their subsidiaries. The Federal Reserve covered affiliates of nationally chartered banks. The Office of Thrift Supervision oversaw savings institutions. The Federal Deposit Insurance Corporation insured deposits of both state-chartered and nationally chartered banks.


Because each agency receives its funding from fees paid by the banks or thrifts they regulate, critics have long argued that they often treat the institutions they regulate as constituents to be protected. All of them are wary about stifling new financial services.


Ms. Bair was an exception, especially for the deregulation-minded Bush administration. As a former assistant secretary of the Treasury in 2001 and 2002, she had worked with Mr. Gramlich to raise concerns about abusive lending practices. Indeed, she tried to hammer out an agreement with mortgage lenders and consumer groups over a tough set of “best practices” that would have covered subprime mortgages.


But that effort largely stalled because of disagreement. Though some big lenders did endorse a broad code of conduct, she recalled, they soon began loosening standards as competition intensified.


The drop in lending standards became unmistakable in 2004, as lenders approved a flood of shaky new products: “stated-income” loans, which do not require borrowers to document their incomes; “piggyback” loans, which allow people to buy a home without making a down payment; and “option ARMs,” which allowed people to make less than the minimum payment but added the unpaid amount to their total mortgage.


Fed officials noticed the drop in standards as well. The Fed’s survey of bank lenders showed a steep plunge in standards that began in 2004 and continued until the housing boom fizzled in 2006.


But the regulators found themselves hopelessly behind the fast-changing practices of lenders. In a bid to set new standards for exotic mortgages, the agencies waited until December 2005 to propose a “guidance” to banks and thrifts. They did not agree on the final standard until September 2006.


Standards for Lenders


But the real shock to consumer groups — and even to some of the regulators — was that the new underwriting standards did not apply to subprime loans. Instead, they applied to only a fairly narrow array of exotic mortgages like “option ARMs.”


“The gaping hole was that it would only apply to nontraditional mortgages,” Ms. Bair said. But the exotic mortgages were already fading from the market, in part because of bad publicity. Subprime lending, by contrast, was still booming and represented a much bigger business.


“We hadn’t really focused on that,” said John C. Dugan, Comptroller of the Currency, who had pushed hard for the new guidance. “From our own perspective of national banks, it was really a smaller part of our universe.”


It was not until March 2007 that the group of regulators proposed yet another “guidance,” this one to address standards for subprime lending. But those standards were not finished until June 29. By that time, more than 30 subprime lenders had gone out of business and many more were headed that way.


Several people familiar with the regulatory deliberations said the delays stemmed in part from intense resistance among some policy makers to challenging subprime lenders.


“I had concerns, I really had concerns,” acknowledged Mr. Dugan, adding that he became convinced after listening to enough public comment on the issue.


In the end, any concerns for the industry quickly became moot. Less than two months after the new standards were issued, the subprime industry was essentially dead.


Ben S. Bernanke, who succeeded Mr. Greenspan as Fed chairman, is now scrambling to head off a recession. Last week, the Fed lowered its benchmark interest rate for the third time since August, and officials now worry that the subprime crisis has inflicted deep damage on credit markets that could in turn derail the entire economy.


Gretchen Morgenson contributed reporting from New York.


Copyright 2007 The New York Times Company


***


http://graphics8.nytimes.com/images/2007/12/17/business/20071218_subSUBPRIME_GRAPHIC.gif

[Landwatch.com]

Is there no hope in sight? We were expecting better times with coming years. Would fall have no end? It has to have an end but I hope it won't be too late by then.

[lofter1]

What goes up ...

But thankfully what goes down eventually rises again.

At least that would be the optimist's take on things.

[Edward]

http://www.nytimes.com/2007/12/26/opinion/26schiff.html
December 26, 2007
Op-Ed Contributor
Frozen Rates, Falling Prices
By PETER SCHIFF
Darien, Conn.

THE Bush administration’s mortgage rescue plan will worsen, not alleviate, the problems in the housing market.

We are suffering from a home value crisis, not simply a credit crisis. If home prices were still rising, defaults would be low, investment returns would be high, borrowers would still be cashing out equity, and lenders would be showering credit on home buyers.

Falling prices reverse this dynamic. A recent study by the Federal Reserve Bank of Boston found that most foreclosures result from falling home prices, not from the resetting of mortgage rates.

And if rates are frozen for some subprime mortgages, standards for most new loans will become increasingly strict. Lenders will have to factor in the added risk of having their contracts rewritten when borrowers default. Higher down payments, mortgage rates and required credit scores — along with lower loan-to-income ratios and perhaps the death of adjustable-rate loans altogether — will further push down home prices.

Whether or not their payment levels are frozen, borrowers with loans that are greater than the values of their homes will have few incentives to keep paying their mortgages or to maintain their properties. Why spend more on a home in which they have no equity and which they may lose to foreclosure anyway?

Having put nothing down or having extracted equity in previous refinances, most subprime borrowers will lose nothing financially from foreclosure. In some cases the low teaser rates allowed them to pay less than what they might otherwise have paid in rent. The real losses are borne by the lenders.

Proponents suggest that a rate freeze will buttress home prices by keeping foreclosed homes off the market. But that is a stay of execution, not a pardon. Most homes temporarily saved from foreclosure will continue to depreciate as new buyers fail to qualify for loans. Lenders will be on the hook for even more losses than if the foreclosures had taken place sooner.

Everyone seems to agree that a return to traditional lending standards is a good idea, but no one seems willing to accept a return to rational prices as a consequence.

While the bubble was inflating, self-serving explanations were offered for why traditional formulas of home valuation no longer applied. As it turns out, the laws are still in effect. These traditional measures, like the relationship between home prices, rents and income, indicate that prices need to fall at least 30 percent more nationally. The sooner this balance is achieved, the sooner lenders will again commit capital.

Peter Schiff is the president of a Connecticut-based brokerage company and the author of “Crash Proof: How to Profit From the Coming Economic Collapse.”

[JerryL]

^ The truth often hurts. Still, no one has an accurate crystal ball making it impossible to predict future economic developments. Generally, human societies muddle on, day-by-day, with little or no apparent difference, in the short-run, in extant conditions from one month to the next.

I was surprised that during this month, people still seemed to be "shopping 'til they dropped" as in prior years. True, current business news indicates retailing is down, but there's still hope for last minute sales boosts and the level of decline in retail sales is, overall, quite small.

Sooner or later something has to give. Don't know where, don't know when.

[pianoman11686]

^^That's a great article, Edward. I'd like to talk about it some, but since this is now a national issue (indeed, falling prices in New York City are not yet a reality), I vote we move some of these articles into a new thread in News & Politics.

(Hell, I may just do it myself later.)

[Front_Porch]

Inman Connect -- a real estate conference that pulls in experts from all over the country and also included heads of brokerages here like Pam Liebman of Corcoran, Dottie Herman of Prudential Douglas Elliman, and David Michonski of Coldwell Banker Hunt Kennedy, was in New York Wednesday thru Friday.

I need to do a l-o-o-o-n-g blog post summarizing everything that was said, but basically, no one sees much of a slowdown for Manhattan because the plethora of co-ops kept us from going into the kind of overexpansion that we saw in South Florida.

In general, the consensus was no slackness at the high end. The comparison was made to London, where housing prices have been quite strong. That 5% softness on one-bedrooms might continue, or it might disappear in two weeks as the bonus money continues to crowd the system.

Any softening panelists would even guess at coming, they pushed out to Q3 and Q4.

ali r.
{downtown broker}

[Mike Jonze]

It's eerie how similar those articles are! If we get another 5 years of price appreciation like that, how is anyone supposed to afford owning in Manhattan?

[Front_Porch]

How will people be able to afford Manhattan?

They'll be single people living in small spaces, long-term holders or the very rich.

Relative newbies like myself -- who have "only" owned in Manhattan for a little over a decade -- who have families will be pushed to the far Northern reaches of the island, the outer boroughs or the 'burbs.

ali r.
{downtown broker}

[spaceboy]

How will people be able to afford Manhattan?

They'll be single people living in small spaces, long-term holders or the very rich.


Can I amend that to "multiple single people sharing small spaces"? :)
Tis already happening.

[MikeW]

I no one can afford it, then, by definition prices will drop. If prices are rising, someone must be paying them. People get bent out of shape whne THEY can't afford them, but someone else can.


It's eerie how similar those articles are! If we get another 5 years of price appreciation like that, how is anyone supposed to afford owning in Manhattan?

[kliq6]

The bubble has burst, commercial market is flat at best and second home residential has dried up

[Front_Porch]

The bubble has burst, commercial market is flat at best and second home residential has dried up

Speaking only to residential, I wouldn't say that.

First of all in Manhattan, we never saw the same kind of crazy overbuilding that took over Las Vegas and south Florida, so to that extent we never had a supply "bubble."

Secondly, inventory is pretty low. Now in Jersey, it's pretty low because sellers are convinced their homes aren't going to move, so they're waiting to list until later in the spring; but in New York City, anecdotally, I'm not seeing that kind of "I'll hold off" kind of behavior. We're still expecting a good spring.

Thirdly, interest rates are still near historic lows. I bought a second home back in the good ol' days, using a dreaded adjustable-rate mortgage. So you know what's going to happen to me this year? I have two mortgages that are going to reset to (gulp!) 6%. Maybe 6.25%. Even to poor, squeezed "lil ol' me, I have to compete in an economy against hedge fund guys" -- that's not a crisis.

Taking advantage of current low interest rates and the supply bubble, you know where people are buying vacation homes? South Florida.

That's not to say we aren't seeing some Manhattan slowing. My buyers are fussier than they should be, because they're worried about their ability to hold their jobs. In some cases, they'll be kicking themselves five years from now.

One-bedrooms, especially, keep popping in and out of contract, and I wouldn't be surprised if year-over-year price per square foot on those is down, for the first time in awhile, by single digits.

But that all doesn't add up to a "burst bubble" -- not by a long shot.

Now the early nineties, that was a bad time. . .

ali r.
{downtown broker}

[KipsBay]

Hey Front_Porch,

Sure Manhattan is faring better then rest of USA, but for different reasons (and can't really compare to London either). Low inventory and foreign investors (taking FX advantages) have really helped, but can that last without some aggressive Federal fiscal stimulus (with a real money multiplier affect and not a one-time refund) and much more monetary interest rate easing?

USA Household real wealth is getting a major hair cut:
1) USA Aggregate Real Estate Prices are down.
2) US$ weakness making it harder to purchase from abroad - 35% of our consumption.
3) Similarly to #2, inflation is at 17 year highs.
4) And now stock market is sharply off highs.
5) No USA savings to speak of either...

Ok, so this year's bonuses may not be so off from last year, but what about next year (bonuses are not looking good at all and job losses expected too)?

And what if the in 2009 income tax rates go sharply up - ending Bush's "tax cuts" (btw, there were no Bush "tax cuts," they were just replaced by City/State tax increases, including RE taxes)?

All that said, the RE inventory waiting game may be over in 2009 for Manhattan to pay off all those mounting "household" bills due to waning household wealth. And Bloomberg is leaving NYC just in time for next Mayor to face severe budget gaps and raise RE taxes once again for the budget shortfall which will surely make local RE condition worse.

[Front_Porch]

I guess some of my argument is that a sub-4% ten-year treasury bill rate is a federal stimulus.

If rates go up, will it hurt the Manhattan real estate market. You betcha.

Will rates go up? I dunno. I thought they'd go up years ago and they haven't. If I could predict 'em, I'd be on Wall Street and not out shilling co-ops.

The jobs point is a good one, you're not the first person to suggest that there will be a loss of financial jobs that will trickle through the New York City economy and make for a bad '09.

But should New Yorkers put off buying till then? Well, I'm biased, but I'd say no.

Also, I believe you didn't.

ali r.
{downtown broker}

[MikeW]

Dollar stays cheap + rates stay low = real estate stays high

[KipsBay]

Dollar stays cheap + rates stay low = real estate stays high

Hmmm.... I don't believe I've seen^ this formula before....

Weak dollar and low rates is a prescription for underlying inflation, especially when there is pervasively strong global demand for commodities and flat supply/production (i.e. oil). Unless, you plan on selling Real Estate solely to Customers with non-dollar income streams, Real Estate prices cannot stay high since eventually Rates have to rise to combat inflation which is the FED's main purview. The problem now is we may be heading into a recession, so we've got a slight reprieve from high rates. The FED no likey the risk of Stag-Flation so rates will keep falling for now despite Clinton's desire to freeze them (i.e. Argentine-style - now that was a Credit Crunch).

Falling Household Wealth + Credit Crunch + Increased Government Borrowing (Fiscal Stimulus from Tax Refunds to lead to higher rates) = Falling Real Estate Prices

Question is does this scenario catch up to our tiny island of Manhattan which happens to be a few standard deviations from the economic norm...

[MikeW]

I'd buy that, except it should have happened already, but hasn't. You're right about the stagflation thing. The cure to that would to raise, not lower interest rates, have the inevitable recession, and move on. But the fed is going the other way (cutting rates). So the dollar gets cheaper, and Manhattan stays on sale for foreign buyers.


Hmmm.... I don't believe I've seen^ this formula before....

Weak dollar and low rates is a prescription for underlying inflation, especially when there is pervasively strong global demand for commodities and flat supply/production (i.e. oil). Unless, you plan on selling Real Estate solely to Customers with non-dollar income streams, Real Estate prices cannot stay high since eventually Rates have to rise to combat inflation which is the FED's main purview. The problem now is we may be heading into a recession, so we've got a slight reprieve from high rates. The FED no likey the risk of Stag-Flation so rates will keep falling for now despite Clinton's desire to freeze them (i.e. Argentine-style - now that was a Credit Crunch).

Falling Household Wealth + Credit Crunch + Increased Government Borrowing (Fiscal Stimulus from Tax Refunds to lead to higher rates) = Falling Real Estate Prices

Question is does this scenario catch up to our tiny island of Manhattan which happens to be a few standard deviations from the economic norm...

[BrooklynRider]

February 3, 2008

Home Prices Start to Dip, Recalling ’90s Slump

By PATRICK McGEEHAN (http://topics.nytimes.com/top/reference/timestopics/people/m/patrick_mcgeehan/index.html?inline=nyt-per)

For homeowners in the metropolitan area, all of the talk in the past year about a real estate collapse may have sounded as foreign as a Bollywood musical.

After all, the value of the typical home in the area has more than doubled in this decade. And at the region’s core, the prices of apartments in Manhattan have floated upward on seemingly unquenchable demand.

But lately, more cracks in the housing market have begun to show, and the trend is reminding some analysts of the severe downturn in the region during the recession that followed the boom years of the late 1980s.

Even in Manhattan, signs of weakness have appeared beneath the headlines about ever-rising average sale prices of condominiums and co-ops.

A report last week found that rents in Manhattan declined in January, by more than 7 percent in some neighborhoods, according to the Real Estate Group New York.

The latest set of numbers “reinforces our sentiment that the market has, in fact, turned,” Daniel Baum, the chief operating officer of the company, said in the report.

Economic distress signals are not nearly as widespread as they were in the early 1990s, and economists are still debating whether there will even be a recession this time.

Nonetheless, the long advance and subsequent retreat in house prices in the region bear an eerie resemblance to the rise and fall of two decades ago. It is too soon to tell just how deep the current decline will be. But James W. Hughes, who has tracked the market for homes around New York City through cycles of boom and bust, said he expected it to be worse than — maybe twice as bad as — the fallout from the “real estate bubble” of the 1980s.

Mr. Hughes, the dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University (http://topics.nytimes.com/top/reference/timestopics/organizations/r/rutgers_the_state_university/index.html?inline=nyt-org), said that housing prices in New Jersey rose 145 percent from 1980 to 1988, then fell about 9 percent by 1992.

The pattern for the suburbs in New York and Connecticut was similar, he said. That flow and ebb left people who stayed in their houses during that period with property values that more than doubled, on average.

But the people who bought near the peak in 1988 faced significant losses if they had to sell quickly. Indeed, it took 10 years for house prices in New Jersey to return to their 1988 level, Mr. Hughes said. (Taking inflation into account, the recovery was not complete until 2002, he said.)

“A lot of the pain was felt by peak-of-market buyers that bought in ’88,” Mr. Hughes said. “Those are the ones that really got stuck.”

From 1998 to 2006, the suburban housing market was sizzling again, with prices of homes in New Jersey rising 135 percent during that period, he said. According to the data that Mr. Hughes uses, prices in the region peaked in mid-2007.

Figures for Long Island show a similar pattern. In Nassau and Suffolk Counties, median home prices peaked in August and were lower by the end of the year than at the end of 2006, according to data compiled by the Multiple Listing Service of Long Island.

Compared with most of the country, New York City property values have held up better. During the 12 months ending in November, prices in the metropolitan area fell 4.8 percent, according to Standard & Poor’s/Case-Shiller Home Price Indices. But that was not as bad as the 7.8 percent drop in the Washington area and far better than the declines of more than 12 percent in Miami, San Diego, Las Vegas, Phoenix and Tampa, Fla.

Property values in Sun Belt cities grew faster than those in New York in the latest run-up. That was a reversal of the pattern of the 1980s, when house prices in the New York area rose faster and higher than in the rest of the country, then sank faster and farther.

Within the region, the closer to Manhattan, the better the situation looks.
Homes in suburbs within a one-hour commute have not lost value as fast as those in the outer suburbs, said Jeffrey Otteau, president of the Otteau Valuation Group in East Brunswick, N.J. And Mr. Otteau forecasted that the closer suburbs would suffer only half of the decline of the outer suburbs by the time the market hit bottom early next year.

“Up to this point, the state of the market is worse now in the outlying suburbs than it was in the ’89-’92 correction,” Mr. Otteau said.

By his measure, those prices fell 15 percent during that recession and already are down almost 15 percent since they peaked in 2005, he said. In all, he predicted that prices in the outlying suburbs would decline by about 19 percent and would not reach their previous peak again until about 2014.

Homeowners who are waiting for the market to rebound to sell their houses will regret that decision, Mr. Otteau said.

“For those sellers who’ve decided to wait until spring to get what they think their house is worth, the spring they’re waiting for is a very long time off,” Mr. Otteau said. “Unless you have the ability to wait this out for five years, waiting is a losing game.”

Mr. Hughes of Rutgers relies on a different set of numbers than Mr. Otteau cites, but both concluded that house prices in the region would drop by at least 15 percent in the current correction, despite the recent decline in interest rates.

Although the local job market has not been battered by widespread layoffs as it was in the early 1990s, Mr. Hughes said he believed the housing market would suffer more this time because of the reckless lending practices that allowed so many people to buy homes with little or no money down.

“I think the excesses of the subprime lending and extraordinarily low interest rates, as well as all those other exotic loans, really helped inflate the bubble,” Mr. Hughes said. “The correction from that and the fallout from the credit meltdown globally probably portends a more severe correction.”


Copyright 2008 (http://www.nytimes.com/ref/membercenter/help/copyright.html) The New York Times Company (http://www.nytco.com/)

[lofter1]

The scary looking graphic from the Times article ...

http://graphics8.nytimes.com/images/2008/02/02/nyregion/03property.graphic.jpg

Copyright 2008 The New York Times Company

[Front_Porch]

Oh, STOP!!

Standard & Poor's/Case-Shiller index is an index of house prices in the New York City metro region.

Co-ops and condos and rentals, the housing stock that most people on this board live in, are not included.

As an indicator of what's happening nationally, S&P/Case-Shiller is interesting; as a proxy for what's happening in Manhattan/Brooklyn, which is the number most of The New York Times readers thought they were getting, it's useless.

ali r.
{downtown broker}

[lofter1]

I never claimed the graph was honest, just that it was "scary" :D

[Laura KC]

^^ Strong reaction, Ali! :)

I agree that it's not a direct indicator of the market, but I wouldn't describe it as useless. As house prices in the area decrease then people will make economic choices. If the downward trend of area home prices causes people to buy in the suburbs (and not the city) then that will lead to a downward trend in city condo/co-op prices.

Likewise, graphs that show decreasing rental costs are also helpful. As rents decrease, people will be less likely to own and that will also pull down prices.

Mind you, I have no idea whether "down" will be 1%, 5%, or even 20%, but I don't buy into the notion that Manhattan is so special that it moves in a vacuum unrelated to the regional housing market.

IMHO :cool:

[Front_Porch]

I agree that as rents go down, that makes renting a better economic choice, and pulls buyers out of the market, and that will pull down prices.

But I don't see the suburbs/city correlation -- over the last year, the price of my house in Long Island (Nassau) has gone down, while the price of my condo in the city (Midtown) has gone up.

If current pricing trends continue, in another year my Manhattan studio will be worth as much as my three-bedroom suburban house.

ali r.
{downtown broker}

[KipsBay]

I never claimed the graph was honest, just that it was "scary" :D

Yes, I agree, the graph is very scary. U.S. household wealth is tanking. This falling measure of wealth correlates with stock market losses. Sure, the stock market is often considered a forward indicator for the economy and coupled with falling interest rates, equity markets should portend economic growth 1-2 quarters in advance, but this won't be the case in this economic cycle IMHO. With less disposable income to prop up the stock market from declining household wealth (unless foreign investors continue to buy into the American for sale sign), and now with anemic job growth and actual losses last month (well it's hard to keep growing jobs when market is running near full economic employment of 95%) and falling levels of industrial production (despite weak dollar and shocking falling growth in US exports), the stock market will not be reacting as strong to the upside from just FED rate cuts. All that said, Wall Street is going to cut bonuses and/or jobs despite the FED trying to save the Financials. New York City real estate will feel Wall Street's pain at some point in this downturn. Question is will this pain be shortlived or not?

Oh, how I wish there was at least one Presidential candidate with a real economic plan.

[pricedout]

Economic plan? To me that is sort of like starting to rebuild when the war's still going on. We're still getting bombed, and we don't know when it's going to end. It's also very difficult to plan when you have nothing to plan with. We're broke.

[Laura KC]

But I don't see the suburbs/city correlation -- over the last year, the price of my house in Long Island (Nassau) has gone down, while the price of my condo in the city (Midtown) has gone up.

New York Magazine (http://nymag.com/news/features/43574/) has an interesting cover article this week comparing the current economy to 1989. In the article they quote the President of Warburg Realty as saying with regards to the residential sector, “The first half of the year was just like ’88, a banner year, and then it just stopped. The Japanese kept buying for another year. But then it just ran aground.”

The article goes on to say, "Real estate was the last to recover—the aftermath of the 1990–1992 fire sales continued to depress the market well after the financial meltdown that triggered those sales was over. According to Barbara Corcoran, a one-bedroom postwar co-op on the Upper East or Upper West Side that might have cost $275,000 in 1988 sold for around $160,000 at the end of 1993. By 1994, however, real estate had already embarked on the storied upward climb that would remain virtually unbroken until now."

The same foreign investment that had kept the market afloat then exists today. As the same article, and past posts have noted, "foreign buyers were behind 15 percent of our apartment sales in the last quarter of 2007. The Irish, Russians, Chinese, Saudis, and many others have all been enthusiastically investing in Manhattan pieds-à-terre, and especially in new construction."

I would argue that foreign buyer demand is what is making NYC lag behind the region, causing your condo price to rise while your home price falls.
Once foreign demand falls off, then I think you'll see the suburbs/city correlation. At that point, locals will be the ones deciding whether or not to buy in the city based on area home prices and comparable rents, which will put New York city back in sync with the region.

[KipsBay]

Economic plan? To me that is sort of like starting to rebuild when the war's still going on. We're still getting bombed, and we don't know when it's going to end. It's also very difficult to plan when you have nothing to plan with. We're broke.

Some economists would agree with you that its faster (in cycle length terms) and better (getting the froth out) for an economic cycle to play itself out.

Other economists suggest economic cycles should be smoothed out with a some "plan" so there is less overall pain, albeit this may diminish the potential upside by default.

Nevertheless, locally NYC is losing/or lost its status of "World Financial Capital". This will link to the NYC real estate bubble at some point IMHO.

And given in war time, as you put it Pricedout, just because current maneuvers are broken/failed, there are always contingency plans and tactical revisions for the greater "strategery" for victory, to put it in your terms.

[Front_Porch]

New York Magazine (http://nymag.com/news/features/43574/) has an interesting cover article this week comparing the current economy to 1989. In the article they quote the President of Warburg Realty as saying with regards to the residential sector, “The first half of the year was just like ’88, a banner year, and then it just stopped. The Japanese kept buying for another year. But then it just ran aground.”

The article goes on to say, "Real estate was the last to recover—the aftermath of the 1990–1992 fire sales continued to depress the market well after the financial meltdown that triggered those sales was over. According to Barbara Corcoran, a one-bedroom postwar co-op on the Upper East or Upper West Side that might have cost $275,000 in 1988 sold for around $160,000 at the end of 1993."

Well, there's a couple of big differences between the late 80s and now, the scary one being mortgage rates.

According to my historical data (http://www.freddiemac.com/pmms/pmms30.htm)

Rates in 1988 were around 10.5% -- probably 11% to the consumer because there was probably a 1/2 point surcharge for co-op buyers -- and then they dove to 7% in 1993.

That last New York down cycle, as bad as it was, was softened greatly by those falling rates.

With mortgage debt running at near-historical lows of 6% now, there's just not a lot of room to cut to support the market.

ali r.
{downtown broker}

[Laura KC]

I definitely agree that there are a couple of big differences between the late 80s and now, the scary one being mortgage rates. But I go the other way with it.

Despite historically low interest rates, home owners have nonetheless taken out adjustable rate mortgages en masse with current rates anywhere from 3.5% to 5%. This means that home prices have adjusted upward to reflect the availability of rates even lower than the historical low rates.

So now what does the Fed do? During the last crisis they lowered rates "one full point (bringing it to 3.5 percent) and didn’t raise rates again until 1994" (see New York magazine article) which succeeded in bringing NYC out of the doldrums. But now, where do they go from here?

As we saw this fall, even a minor attempt to raise rates had catastrophic effects and resulted in immediate backpedaling by the Fed. Does the Fed just keep rates artificially low for the next decade while our economy picks back up? If inflationary pressure precludes them from doing that then real estate, here and everywhere, will be hit hard.

So yes, in a nutshell, we cold fix the '80s because we could lower rates. Now, if real estate does take a hit, lowering rates to come to the rescue won't be an option.

[bigkdc]

Back in the late 80s and early 90s, the main wealth generator in Manhattan, Wall Street, fell off a cliff. While there have been big write downs on Wall Street, many have done quite well (both in large financial services firms and in hedge funds). Part of what has caused that is that the nature of the financial firms on wall street (of all types) are more global than they were back then. The share of profit being generated in Europe and Asia is much larger than it was back then. Therefore, bonus checks have held up. This local wealth will help to keep Manhattan real estate flush.

The other big difference is that the city is a much better place to live than it was back then. If we somehow end up in another crack epidemic then we could have issues as people will leave.

[pricedout]

Well, I'm not too certain that the global economy is going to do so hot. Globally our banks and funds marketed their worthless products, far and wide. Europe seems to be having it's own problems as well, and Asia seems very dependent on the US consumer. (Gee, the US consumer seems to have a lot riding on his/her actions).

I apologize for not having the cite, I think I read it on either the NY Mag or NY Times real estate section, but there was a sobering article in which a number of brokers from the larger firms indicated that many of their potential foreign investors, some who had already submitted offers, are suddenly backing out, at least for now. We'll have to see if that's just a blip, and who knows what the percentage of foreign purchasers has truly been, but it's interesting.

[KipsBay]

I agree Laura KC, nominal rates are at historically low averages, so that the risk that lowering rates has less historical positive impact to our economy is quite worrisome. Surely the Fed does not want our economy to resemble the Japanese economy of the 90s-present.

However, if you look at different metrics of comparing real rates and rates as a factor of household costs now versus just a few years ago, we are in a much higher real structural rate environment:
1. Average mortgages are being reset at much higher spreads reflecting subprime risky (default risk) lending as a greater percentage of overall mortgage portfolio universe.
2. Stricter lending and refinancing policies are adding to spread differentials.
3. Sub/Prime lenders are disappearing adding to this increasing rate differentials over treasurys and similarly sharply reducing lending supply and rate competition.
4. Falling appraisals (outside Manhattan) are further diminishing access to leverage, thereby adding to the real differential rate versus just a few years ago.
5. In terms of total household costs, all inputs are sharply higher, from energy prices, to utility charges, to insurance costs and to real estate taxes.
6. Other market participants, like the purchases of bundled mortgage tranches [i.e. hedge funds] to the insurers of these securities are adding to the mortgage costs and spread differentials as the demand side dwindles, through less participants and the now more transparent and greater risks with these securities.

Given the preceding mix, the Feds reduction in rates will have positive impact IMO. However for greater impact, the mortgage industry has to be repaired (to lower the real rate costs) along with other ways to reducing household costs should be examined/implemented. All that said, there is the other argument that those participants in the artificial speculative flipping bubble should be stuck holding their hot potatoes. Unfortunately the collateral damage from these fiery hot potatoes are too widespread and that they have scorched way too many other home[price]s.

And of course, for those borrowers with good credit scores and no defaults, the Fed cuts may well likely have historically less impact. But with these easings, maybe the incentive to for purchasing more (possibly because credit card rates have fallen) will benefit the consumption lead economy to recover from a disastrous 4th quarter in 2007 too.

[Laura KC]

You're definitely more optimistic than I am, KipsBay!

I don't know whether the Fed's reduction in interest rates was a good move or not. I think it's too soon to tell, being only a couple weeks into it.

My point is only that the Fed has now limited its options in dealing with the economy. It can't really lower rates any more, unless it goes back to the 1% rate it used after the tech bubble burst (http://www.federalreserve.gov/fomc/fundsrate.htm). But given the current concerns about inflation that seems unlikely.

So even though the Fed currently has the luxury of keeping low rates out of concern for housing, inflationary concerns may soon become more pressing and require the raising of rates that the Fed attempted to do in the fall. If and when that happens, home prices will get pushed downward.

[Alonzo-ny]

Will the credit crunch curb the amount of bank branches? (I hope yes)

[eddhead]

You're definitely more optimistic than I am, KipsBay!

I don't know whether the Fed's reduction in interest rates was a good move or not. I think it's too soon to tell, being only a couple weeks into it.

My point is only that the Fed has now limited its options in dealing with the economy. It can't really lower rates any more, unless it goes back to the 1% rate it used after the tech bubble burst (http://www.federalreserve.gov/fomc/fundsrate.htm). But given the current concerns about inflation that seems unlikely.

So even though the Fed currently has the luxury of keeping low rates out of concern for housing, inflationary concerns may soon become more pressing and require the raising of rates that the Fed attempted to do in the fall. If and when that happens, home prices will get pushed downward.

Excellent discussion especially on the impact of falling rates, however, please keep in mind the Fed's move to lower rates was not wholly a reaction to the real estate market specifically, but more generally to an economic environment characterized by low monetary inflation (adjusted for Oil) and high recessionary trends ( the real estate crisis constituting a large cause of those trends) Why is this important? Because, you have made the case that the Fed needs to keep rates "artificially" low if NYC prices are to be maintained. If current economic conditions continue, most monetarists would argue that keeping rates low is not an artificial reaction but rather a natural tactic to infuse cash into a cash-starved economy. In other words, the Fed is just doing its job.

I should mention that when I refer to monetary inflation I reference inflationary trends based on the supply and demand for money which is different than price inflation which is based on CPI. The reason this is important is that while CPI indicators show high inflationary trends driven primarily by skyrocketing fuel prices, GNP growth remains low if not negative. Bottom line, is that recessionary trends are driving the need for cash infusion.

This is pretty sound policy except for one thing. We have huge deficits which need to be funded at least in part by the infusion of foreign captial... that might be kind of tough to attract in a low-rate environment... To me the key is how will rates overseas hold up relative to US interest rates, in other words, what is the opportunity cost of US markets to foreign central bankers? I we can continue to fund the deficit, and we continue to see recessionary trends, rates will continue to fall because that is the natural reaction from the fed to recession or slow growth. But if we begin to see inflation rise as a result of an over supply of cash, (as opposed to rising fuel prices) or if the Chinese or Japanese or whomever decide to pull out, we could have trouble