« Brennan Writes "Laundry List" of Building Legislation At Last, Red Hook's Long-Awaited Traffic Light »

May 2, 2007

"Real Wave of Pain Just Beginning"?

In one of the grimmest articles we've read to date on the US housing market, the Market Oracle scoffs at Treasury Secretary Hank Paulson for saying on Friday that "the housing market is at or near the bottom” and that the subprime mortgage situation is not a "serious problem." Which begs the question, How serious a problem is it? Deadly, thinks fund manager Kenneth Heebner:

The real wave of pain and foreclosures is just beginning... would expect that housing prices in 2007 will decline 20% in a lot of markets...What you are going to see is the greatest price decline in housing since the Great Depression.

If the doomsday scenario does play out across the country, the $64,000 question will be to what extent is New York City (and Brooklyn) dragged into the mess.
Is It Too Late to Get Out? [Market Oracle]
Photo by billypalooza

Trackback Pings

TrackBack URL for this entry:
http://www.brownstoner.com/mte/mt-tb.cgi/1063

Comments

Hey,

If the market sustains a further plummet, then NYC might be hit really hard, because up until now, there really hasn't been any correction in prices. Of course, New York city can also continue to buck the trend and remain constant. If I knew the answer, I would have anough money not to be concerned.

Posted by: Who Knows? at May 2, 2007 9:32 AM

You mean the house we bought for $155K 20 years ago will be worth "only" $500K instead of $1M? We'll unlearn our greed and live. Maybe the "mess" will mean that people like teachers, firefighters, and cops will be able to own their own homes within the five boroughs they serve--like when I was a kid growing up in Queens. More "Wonder Years," less Vegas-style high-rolling, and a new era of sobriety regarding borrowing--sounds okay to me, except for the deep misfortune awaiting current victims of predatory or simply very ill-advised lending practices. What's next: Broadway show prices plummeting to a mere $50 per ticket? Wheee!

Posted by: Brenda from Flatbush at May 2, 2007 9:35 AM

While I agree that we need to "unlearn our greed", Brenda, I don't think the pain of housing depreciation is going to be all imaginary. There's nothing in our current economy that can take up the slack of the housing industry, if it freefalls. The entire economy will be affected. It's not just about the market price of your house, it's about your job, the quality of the schools your kids go to, the crime levels in your neighborhood, everything.

And while I would relish the opportunity to say I-told-you-so (not to you in particular, Brenda) as much as the next person, that small pleasure is far outweighed by the prospect of recession or depression.

Posted by: sylvia at May 2, 2007 9:45 AM

I'd like to see some research which shows a time in history when housing prices crashed with unempoyment at 4.5% and mortgage rates at 6%. People on this blog have been chicken littling for over a year now. Give it up.

Posted by: Anonymous at May 2, 2007 9:51 AM

New York is unique just like London and Paris. If the prices drop too much the chinese/japanese/euros will step in and buy up everything. If you think NYC is overpriced check out London.

Posted by: mike at May 2, 2007 9:52 AM

If the American economy suffers a recession, the rest of the world suffers too. There will be no foreigners stepping in to save the day if they're all in recession.

By the way, I love the use of the word unique: New York is unique. Just like London and Paris. If all three of them are unique, then none of them are. Just sayin'.

Posted by: sylvia at May 2, 2007 9:59 AM

I hope this is true and if so I can't wait for it to happen. I agree with Brenda, people have just become greedy recently trying to sell houses for over a million that are worth far less. unfortunately for them they take these profits and buy an even larger overpriced house and when/if prices plummet they'll be hit the hardest.

Posted by: Anonymous at May 2, 2007 10:01 AM

I hear that one of the things keeping the NYC housing market hot is that the British are buying properties here like crazy. The exchange rate makes our market a bargain to them. That still does not explain the prices in Brooklyn, where I doubt many rich Brits dare to tread, but I do think that the weakness of our currency is a big problem. I have nightmares of Americans having to use Euros or Pound Sterling as "hard currency" because they would need to carry a suitcase full of dollars to buy the family groceries. That sounds implausible but who would have foreseen ten years ago that ordinary Brooklyn brownstones would be fetching three and four million dollars?

Posted by: Anonymous at May 2, 2007 10:03 AM

Sylvia - you need to attend logic class with regard to your "unique" conclusion.

Posted by: Anonymous at May 2, 2007 10:05 AM

I agree with 9:51. Mortgage rates and unemployment affect the housing industry much more than anything else on the whole. Also agreed with 9:52 that alot of what makes nyc popular is how cheap it is compared to other cosmopolitan cities. Did you see NYT building sell for 3x its price in 2004. That's a strong bet by a sophisticated investor. Brooklyn itself seems to be caught in a nice spot attracting priced out of manhattanites, manhattanites with children, and those looking for something edgier and different. Its popular in other words and I think that's a big reason prices have held up in the borough.

Posted by: Anonymous at May 2, 2007 10:06 AM

Europeans are indeed buying in Brooklyn. We know a German who just paid for a house in Clinton Hill using Euros and it felt pretty cheap to her!

Posted by: Brownstoner at May 2, 2007 10:06 AM

Shortage of housing is serious in Manhattan and many parts of Brooklyn, I guess that's also one of the reason for the high housing price in London and Paris. Are there any other city in US experiencing the same? Maybe SF, but price is also high there.

Posted by: Anonymous at May 2, 2007 10:10 AM

"Mortgage rates and unemployment affect the housing industry much more than anything else on the whole. "

And those rates will rise - see the posts above concerning the utter worthlessness of the US dollar. The only way to prop that up is to raise rates. They'll go up - maybe not to 18% but they will rise. At the very least, they won't get cut. And employment - well, chicken or the egg? What are the jobs being created right now? Are they service related? Manufacturing? Do they relate solely to the "wealth effect" created by the increase in property values? Employment is not a certainty either - I don't want to be unemployed, but I certainly think there is some kind of financial storm brewing, and how it will play out, who knows?

By the way, Amen Brenda. Too many people like the new "me me me, give me, give me" lifestyle. I'll take the Wonder Years over My Super Sweet Sixteen anyday!

Posted by: Anonymous at May 2, 2007 10:13 AM

There are no housing crashes when the unemployment rate is 4.5% and the mortgage rate is 6%. Just don't assume it will stay like that forever.

Posted by: djr at May 2, 2007 10:14 AM

that super sweet sixteen show makes me sick, but i can't tear myself away from the horror of it.

Posted by: Anonymous at May 2, 2007 10:16 AM

I don't think Japanese or other businessmen are really interested in investing in properties which, until recently, were considered middle class family oriented neighborhoods in Brooklyn, Queens, SI and the Bronx. What we may be looking at (hopefully) is a return of middle class families to these areas because property values fall enough for them to be able to afford to buy back into the neighborhoods they grew up in, myself included.

Posted by: Matilda at May 2, 2007 10:16 AM

Generally the greater the rise, the harder the fall. There is nothing 'unique' about NY or Brooklyn that a change in psychology wont eliminate.

The real estate market is mostly about psychology (just like all markets).
Its easy to say a sophisticated investor made a strong bet on NYC by buying NYTimes building for 3x 2004 price - however its just as easy to say that Tishman Speyer who knows the NYC RE market better then some Israeli (and former Boylemgreen partner) must be fairly convinced that the midtown office market has reached a top.

Currently the psycology of the NYC market (which tends to have more international particpants then other US locales) is that low interest rates, strong employment and low vacancy rates justify higher and higher prices. One of these 'pillars' of wisdom (or some unforseen event) could easily destroy this conventional wisdom. And absolutely NO ONE anywhere has EVER been able to consistently predict such changes in advance.

Posted by: David at May 2, 2007 10:19 AM

That article is full of bull: "The details of the meltdown are being downplayed in the media to prevent panic-selling among the public."

Oh yeah, we're all going to run to our windows and sell our homes for $100 just to put a potroast on the table. House ARE NOT stocks. There is no such thing as "panic-selling" a house. Not when it takes three months and requires board approval.

NYC is different because it's a huge concentration of wealthy people. And if there's one thing that BS article kept repeating was that the wealthy are already ahead of the "subprime implosion."

Are we in store for a correction? Maybe. Will the fringe areas of Brooklyn (where there is not a concentration of wealthy people) have a sharper correction? Probably.

But we're not going to see Brooklyn Heights or Park Slope 3-family brownstones going for $1million anymore in our lifetime.

Posted by: chuck at May 2, 2007 10:19 AM

More and more inventory is coming online. I don't think there will be a crash but we will definitely see prices softening. Its a good thing.

Posted by: Anonymous at May 2, 2007 10:20 AM

Ken Heebner profits more as the market turns. He's a smart guy, but because he's taken bets against housing in his portfolios, undermining confidence in the housing market is part of his job.

Not saying things aren't overvalued, but evoking the great depression is more PR than analysis. Brooklyn real estate may no longer be a good place for flippers, but even at today's prices, there's still a lot of homes that are fair value for those of us that need a roof over our heads. And that's not going to change much.

Posted by: John at May 2, 2007 10:20 AM

Sometimes I think people (on this and other blogs, the NYTImes, etc) forget the real demographics of this city. The number of englishman, french, german and whatever - and way overused term 'manhattanites moving to brooklyn'
(as if even 10% of them are even native NYers), suburbanites moving to the city, hipsters and midwesterers are dwarfed by number of chinese, middle-easterers (arab and pakistani), russians, latinos (dominicans, mexican, etc) and other immigrants that have moved here and working hard and buying homes/property.
They are the reason NYC including Brooklyn have increased in population and that even the most undesirable 'hoods (according to 'Our Crowd') have increased in price so much.
Cut off the immigration and that would be far greater blow to housing market than pop at high end of market.

And BTW anon 10:03 - 'ordinary' brownstones aren't 3-4Million - It is detailed, crafted houses that would cost much more to ever replicate that cost that kind of money. Ordinary they are not.

Posted by: Anonymous at May 2, 2007 10:26 AM

Should marketoracle.co.uk really be read as gospel?

Posted by: Anonymous at May 2, 2007 10:26 AM

Anon 10:05: I would need to attend logic class if the original poster of the comment had meant that Paris was unique in terms of its baguettes and London was unique in terms of its doubledecker buses and NYC was unique in terms of its real estate market. But that's not what they were saying. They were saying that all three of them are unique in terms of their real estate markets, that all three of them have real estate markets that are impervious to national trends. Which is wrong. As is their use of the word "unique."

Posted by: sylvia at May 2, 2007 10:26 AM

New York is different, for now, per Bloomberg:

http://www.bloomberg.com/apps/news?pid=20601109&sid=asLI7aWzN8Jc&refer=home

Yes if housing prices have risen to the point that no one can afford, some of the slack can be taken up by foreign buyers -- in selected areas. I remember after the bust hit in the early 1990s, everyone was hoping to sell to the Japanese. Not everyone did.

Posted by: WT Economist at May 2, 2007 10:34 AM

Yeah, the article gets pretty unhinged towards the end, dragging in hedge funds , derivatives and securitization into a pretty incoherent rant. It doesn't illuminate particularly well what would happen if interest rates and/or foreclosures spike. What was most interesting to me on the propertyshark bubble map yesterday was how much more pronounced the spike in foreclosures have been in marginal neighbourhoods (I spelled it that way cos i has POUNDS). I suspect that firefighters etc might do very well out of this. If you're hoping to buy a brownstone/apartment in a nice area you won't experience much of a drop, but will find it hard to buy without a larger cash component. My suspicion is that this will increase the disparities between neighbourhoods.

Oh and 10.03, rich Brits know a LOT about Brooklyn. It's much more similar to London, and more of them are coming over from occupations outside finance. Visit the Gate or Black Sheep for some illustration

Posted by: Gari N. Corp at May 2, 2007 10:34 AM

sylvia, I have nothing to do with using the word "unique" above, but I cannot stand it when people simply do not understand the use of a word (but go on and on about how it is being used incorrectly). "Unique" does not have to mean just "the only one." It can be used more broadly to mean "distinctive," or "unusual." Please, look it up.

Posted by: Anonymous at May 2, 2007 10:34 AM

John makes a good point. This guy Heebner is probably shorting the housing market for some hedge fund. I would have to investigate this analyst further to give his dire predictions any credence. Always question who is giving the information when it comes to money matters. In line with another good point by a previous poster is that low unemployment, low inflation, continued growth in GDP, low interest rates and continued population growth are a good conterbalance to any perceived "crash". More than likely, in my opinion, we will continue to see a softening in prices in weak markets, a leveling off in strong urban markets like LA, San Fran, Miami and NYC, and no doomsday crash. In this global economy many folks are buying property in the US which does act as a firewall to rapidly declining prices. Foreign REIT's are keeping a close eye on US housing prices ready to step in and buy when low enough, you can bet on it.
Lastly, you cannot underestimate the political effect here as in practically any other conversation in America today, for some folks, the economic news will never be good as long as President Bush is in the White House. Don't mean to cheer or jeer, only pointing out the obvious political reality.

Posted by: Patrice Mersault at May 2, 2007 10:36 AM

Brooklyn is going to see 10,000 more new condos hit the market in the next five years, at the least. While there may not be a crash in the market, prices and values will have to stabilize based on neighborhood amenities and quality of life. I could see crashes happening in certain neighborhoods, while in others prices might slowly continue to appreciate. For example, the Williamsburg/Greenpoint nabe has a great deal of high-priced condos on the fringes of the neighborhood's amenities. What happens there? Will people keep going to Bushwick? How about Downtown Brooklyn? Nothing can take away those subways and proximity to Manhattan. Will the BAM thing happen and change the face of the nabe? Could that market continue to rise while all that construction north and east of McCarren Park crashes? What would this mean for Clinton Hill and Bed-Stuy? It will be interesting to watch.

Posted by: Anonymous at May 2, 2007 10:38 AM

By the way, check out Local Area Personal Income data from the Bureau of Economic Analysis, released last week for 2005.

That year per capita income in Brooklyn was 83% of the national average (Manhattan at 271% or nearly triple). In 1979, when the whole Northeast was in the pits, Brooklyn was at 85% of the national average in per capita income.

In other words, for every gentrifying neighborhood new Manhattan that has gotten relatively richer, there is a former middle-income white neighborhood further out that has become working class immigrant. (Poverty, while high, is basically unchanged).

Brooklyn was at the national average in 1969, before the onset of the 1970s.

Posted by: WT Economist at May 2, 2007 10:38 AM

"If the American economy suffers a recession, the rest of the world suffers too. There will be no foreigners stepping in to save the day if they're all in recession."

Your analysis is off. The rest of the world ie India, China, Brazil and euro are growing while it looks like we are in the recession. The only US companies that are growing are those that do business in those areas.

Posted by: Phil at May 2, 2007 10:46 AM

Anyone notice the Dow going over 13,000 last week. We are not yet in a recession.

Posted by: Anonymous at May 2, 2007 10:50 AM

Patrice, Heebner is a mutual fund manager. He's out of building stocks, true, and does have a new fund that does a little short selling, which mutual funds shouldn't really do, but mostly he votes against sectors by getting the hell out of them.

Posted by: Gari N. Corp at May 2, 2007 10:52 AM

Most of the dow movement is because of US companies that have interests abroad. US based companies that do business only in the US are in for a drubbing.

Posted by: mike at May 2, 2007 10:54 AM

Blah, Blah, Blah.

Posted by: Anonymous at May 2, 2007 10:56 AM

Aside from all of the other reasons to hate Atlantic Yards, the 6,000 apartments that are part of the plan would, I'd imagine, be a big enough change in supply to have a bit of a depressive value on the local market. Ratner's making so much money off this that a dip in local real estate is one step away from irrelevent . . . to him.

Posted by: John at May 2, 2007 10:57 AM

Of course real estate prices in NYC will fall in the next few years. Where else could they go? The run up has been remarkable.

Who knows what exactly will be the straw that breaks the camel's back. Market psycology is immposible to predict. But whatever it is, it's bound to happen eventually. The question is not "if" but "when?"

Posted by: Jake the Snake at May 2, 2007 10:58 AM

I am willing to risk recession if it means the yuppies and ibankers leave the city and take their trendy lounges with them.

Posted by: Anonymous at May 2, 2007 11:00 AM

"They were saying that all three of them are unique in terms of their real estate markets, that all three of them have real estate markets that are impervious to national trends. Which is wrong. "

But the facts say otherwise. London, Paris and NYC prices continue to rise or remain unchanged while in general prices in other parts of these contries fall. You are confused, you'll get over it.

Posted by: Phil at May 2, 2007 11:04 AM

let's say for a second that this doomsday scenario plays out and nyc real estate DOES fall 20% this year, with the average apt. price of over 1 million, this would mean the average would be 800K.

with so many wealthy people in the city and now in brooklyn, someone with a 2 million dollar brownstone might find their place worth 1.6 million or whatever.

do you honestly think that is reason to say the sky is falling???

oh and sylvia you never cease to amaze me with your ignorance.

Posted by: anon at May 2, 2007 11:21 AM

So much is wrong in the thinking, here in this thread. Why does everyone think Brooklyn is the only place in the country that has seen huge appreciation in home values in some areas? On a per square footage basis, Brooklyn is on par with most of the in-town neighborhoods in major metropolitan cities. Like L.A., San Francisco, Seattle, Chicago, Minneapolis, Miami. Condo-conversion lofts in downtown Minneapolis are priced the same if not more expensive than the ones in Brooklyn.

Those saying Europeans never heard of Brooklyn - wrong. Last Fall we had a lot of Brits looking at our co-op when it was for sale.

Posted by: Anonymous at May 2, 2007 11:40 AM

From talking to people who have been in the real estate business in nyc for a long time it seems like when the housing market busts you just see real estate transactions grind to a halt. Prices however do not tank (though they may be off from the high but not 20% off). I think as long as the rental market stays strong (and inflation keeps rising, which it seems it will), there is no reason to believe that this will be any different from any other housing bubble in nyc.

Posted by: AnnaBee at May 2, 2007 11:50 AM

the distinction given to brooklyn this past year as one of lonely planet's top destinations for 2007 has been a huge boon to brooklyn as well. europeans who travel LIVE by lonely planet.

i live in park slope and the past few weekends have seen/heard a TON of german, british tourists along 5th and 7th avenues.

a ton.

Posted by: anon at May 2, 2007 11:52 AM

I think we still have a ways to go to really compare ourselves with Paris or London (have you been in the Borough Hall Subway Station lately?) but it is great to work towards that goal. Development in Paris, and London, is incredibly heavily regulated. These are both government centers, national capitals, that benefit from huge public expenditures for maintenance of parks, streets, subways, museums, and even historic churches. In New York, most of that comes from private sources, even central Park is maintained by a private not-for-profit. I think Hong Kong is closer to the NY model. Markets and speculation rule. That makes it harder for us to invest in the public menities such as streets, parks, subways and public squares. It nakes our city very dynamic but also a bit of a hodge-podge physically. We need to work on it and I think we are doing so.

Posted by: Anonymous at May 2, 2007 11:54 AM

I'm a bit concerned. I purchased a 4 story brownstone with rental income in an area that was recently landmarked a year ago @ $515K with a 6%, 7 year arm, interest only. When all is said and done the renovation will be $200K. The house was recently appraised @ $835K. Once the reno is over, what in your opinion, should I do, considering the way the market is going? BTW, I plan to live in this house with my family for a very long time.

Thanks in advance for your input and please be kind.

Posted by: anon at May 2, 2007 11:59 AM

To 11:59

What you should do is listen to yourself and not the knuckleheads that are posting on this site lately. If you have a townhouse you like and a cost basis of $715K ($515 purchase + $200k reno) you are lucky and in good shape.

Posted by: Anonymous at May 2, 2007 12:04 PM

AnnaBee raises inflation, an issue which probably should be part of this discussion. Without looking at prices on an inflation adjusted basis, the numbers are essentially meaningless. If prices "stay the same" but inflation
rises at a healthy per year %, that would qualify as a price correction and would increase affordability, assuming wages rise to match.

All that being said, on an inflation adjusted basis, the current high housing prices in NY are unprecedented. Same for most of the rest of the country. Current prices are simply unfordable.

The assertion that the Pied-a-Terre market will prevent price erosion seems naive to me. Realistically, what percentage of New York's market is held by people with a foreign source of income? Besides, don't foreign investors like getting a deal too. It smacks of wishful thinking to rely on magical foreign investors will flock to NY in droves to pay outrageously high prices for vacation homes.

Prices have no where to go but down. As stated by the poster above, its if but when.

Posted by: Anonymous at May 2, 2007 12:15 PM

"Of course real estate prices in NYC will fall in the next few years. Where else could they go?"

I thought so too when I bought my place 3 years ago, now I've given up. Who the hell really knows? There are "experts" on both sides of the issue.

If I had followed my instinct and waited for the market to correct, I'd be in a sorry state right now.

Even if the market corrects in 2 or 3 years, will it's value slip below what you pay today?

If you love it and can afford it without risking your future, then go for it. If Brooklyn's too expensive, go check out Jackson Heights.

Posted by: ImNotYourDaddy at May 2, 2007 12:17 PM

To 12:04, how can you say ll:59 is in good shape without know the house's neighborhood?

If you can afford the 30 year mortgage, re-fi, stay in your house, and be happy.

If not, you have some thinking to do.

Posted by: Anonymous at May 2, 2007 12:22 PM

(let's say for a second that this doomsday scenario plays out and nyc real estate DOES fall 20% this year...do you honestly think that is reason to say the sky is falling???)

No. Even a 40% decline, adjusted for inflation, would only hurt those who purchased at the peak based on an investment mentality rather than a life mentality and were subsequently forced to sell. Prices would still be high here, and the quality of life would be unchanged. For buyers, things would be better.

High housing prices only benefit those cashing in and moving out.

Posted by: WT Economist at May 2, 2007 12:51 PM

No market is unique but with interest rates in the low 6 percent range and unemployment low ,the market in the NYC area is not going to crash. If rates rise up to 8 percent than you will start seeing price drops in the least desirable areas. If you look at past housing crashes interest rates were much higher than today's.

Posted by: jc at May 2, 2007 12:53 PM

To anon at 11:59

Looks like you made out well and should do fine even with a big drop in the market. Just make sure you have money in investments outside of your primary residence. Too many people put all their money into a primary residence and call it an investment.

Posted by: Anonymous at May 2, 2007 1:20 PM

"High housing prices only benefit those cashing in and moving out."

True but you have to live somewhere. I guess if you downsized(who does that) or moved to Montana you could get some money back on your "investment"

Posted by: Anonymous at May 2, 2007 1:22 PM

The scariest scenario from the sub-prime CDO mess is a tightening of the credit market which would have a dampening effect on prices in the most overdone areas (already happening) which would ripple throughout the national market. Institutional investors who were trolling for higher yields were happy to buy the securitized subprime mortgages until they started defaulting, and now they are understandably not buying the CDOs, which has kicked out a lot of the marginal buyers. Speculative excesses in some parts of the country have been correcting. Prices in NY and particularly Brooklyn defy the imagination. All the things people say about the weakness of the dollar are true in that it inflates the price of those properties attractive to affluent European and Latin American non-US buyers which I suspect are largely interested in Manhattan. 10:26 made the point that much of the immigration though is Middle Eastern, Indian subcontinent, Chinese, etc. Brownstoner had an interesting article several weeks ago about demographics - NY population increases of 700,000 are largely due to natural reasons, (more births largely from new immigrant communities) and that there is a net outflow of people moving out of NY, but that the births and extended lives of NY'rs are increasing population.

We seem to have the same interchange about how most Brownstoners are OK with their purchases and those with stable financing who are in for the long term have already done well and are in good shape.

In the end, the staggering new supply of apartments can only be a depressant. I wonder about my rentals when renters will have choices of thousands of new apartments, either condos or rentals. Sure, beautifully maintained and restored/renovated historic properties have a distinct appeal, but there is no way all of this new inventory is not going to be a depressant on Brownstone Brooklyn. I also wonder about the effect of the tax structure which is really weird - When the current 421 tax breaks on condos expire or somebody gets the idea of having brownstones share more of the tax burden.

I love Brooklyn, I ain't leaving, I am glad I bought my place, etc. etc. but these are the things I "worry" about when I have nothing else to worry about.

That being said, who is Mike Whitney?, what is Market Oracle?, who are these so called hedge fund authorities being cited? Why should we take them more seriously than Treasury Secretary Paulson? That article is an extremely confused hyperventilation, which concludes nothing - the author at first says the effect of all this CDO activity is "who knows?" and then has the sudden burst of confidence at the end of the article to contradict himself and say that the market will crash. Why not quote the Economist, which did an in depth series of articles at the end of March on the CDO "crisis".

Posted by: donatella at May 2, 2007 2:09 PM

if we are relying on wall street and rich germans and british to prop the market up, while the rest of the country sinks (is there any doubt that it is, no), then things are definitely shaky. If the US economy starts to go flat, don't you think the european block will catch a cold as well?

Although it is all relative. I doubt you'll get much sympathy from an iraqim or even a resident of vegas or florida, when you whine that you just lost 15% on your $2m+ brooklyn brownstone and can't sell it for five years until the market picks up again..

Posted by: Anonymous at May 2, 2007 2:26 PM

All know is this:

According to Crain's New York Business, the rental vacancy rate in Manhattan is under 1% and I just bought a townhouse in Park Slope with carrying costs only slightly higher (before any rental income) than I was paying to rent a Manhattan two-bedroom / two-bath doorman/elevator apartment.

Who cares about a near-term correction if I'm holding for the long term and my next best alternative is to pay the same monthly amount to rent a smaller place as opposed to owning a nice big house?

It's about alternatives and relative cost.

For rents to go down significantly, NYC would have to experinece very high unemployment with a net loss of population. Thousands of apartments have come on-line in the last few years and rents have still climbed (with a 1% vacancy rate).

Posted by: Anonymous at May 2, 2007 2:36 PM

I keep thinking the glut of condos will only hurt sales in the co-op buildings that are not well maintained. But that the glut of condos won't hurt the market for houses because for whatever reason, developers simply don't build many truly family-size condos. I went to look at the Vermeil 3BR condo open house on 7th Ave in Park Slope and wow, that was a small space for $1.6 million. It's nicely done but the bedrooms are tiny and so is the kitchen. One of those open kitchens that is basically just a corner of the living room. Which will mean lots of clutter sitting around for a family. Looks nice as a model unit but when you try to picture living in it day to day it's like, where do we put our stuff?

Posted by: Anonymous at May 2, 2007 3:07 PM

If rates go up then the market becomes only for those people with a lot of cash doesn't it? So it depends how much they'll go up and how much prices will came down, if it wasn't for low rates i wouldn't be able to buy my house and by the way as an european myself everytime I go back to London, Paris or Italy visiting friends everybody talks about brooklyn as been an interesting, cool, and "UNIQUE" place!

Posted by: Anonymous at May 2, 2007 3:40 PM

3:07, why do you think the glut of condos won't hurt Brownstones. More rentals and condos mean lower rents for Brownstones, thus decreasing the value.

Posted by: anon at May 2, 2007 3:40 PM

2:36 has it right. When you have to pay 18k for the same space in Soho for a house with a mortgage of 8K in brooklyn you can see why people coming from Manhattan don't think its expensive, relatively. It happens day in and day out and will continue to do it until its the same price because as far as I can see once people live here they like it better. For this reason brooklyn prices at least for family sized houses and apartments can definitely go up from here. There are many people who make upwards of 500k annually in nyc who are dissing manhattan and the suburbs for brooklyn. Just my opinion.

Posted by: Anonymous at May 2, 2007 3:42 PM

my thing is that i don't understand why people continuously say that prices are beyond reason and "unimaginable" i believe as one poster said.

since people are buying them, how can the prices be that crazy? obviously i'm playing devils advocate here, but people are clearly buying new york city properties, so they have the money to do it, have decided that the purchase price is acceptable and follow through. clearly there is more wealth out there than a lot of brooklynites wish to accept or acknowledge. someone who can afford even a million dollars (not a lot in today's market) does not need to worry about prices correcting. the wealthy will continue to become more wealthy, housing burst or not.

and to those that comment on the ever increasing supply of condos coming onto the market in brooklyn, you make it seem as though they are coming all at once. this is a gradual process, and units are sold block by block, we see it happening now with one hanson. 50% sold, and in another year, when they are gone, there will be another building to take its place.

please do keep in mind the prediction of a million new residents to new york in the next 20 years. when you think about it in those terms, what's 5000-10,000 units. we are gonna need a helluva lot more than that to keep up with demand...

Posted by: anon at May 2, 2007 3:52 PM

NYC bubbleheads!!! You need to get out of the 4 boroughs(who cares about SI).
I used to think the French where stuck-up elitist snobs. But hearing you folks talk about NYC like its some sort of bullet-proof RE oasis makes me think NYC(especially Brooklyn) is the mecca of snobbery.

Posted by: Anonymous at May 2, 2007 4:09 PM

ain't nothing wrong with loving where you live so much that you are extremeley optimistic about it, 4:09.

most people i know who make brooklyn home absolutely LOVE their homes and are proud to be not only a member of their community in brooklyn but of a larger one in new york city.

when i travel especially in the u.s. to places outside major metropolitan centers, i am always surprised to find how ambivalent people are about where they live.

not the case here in brooklyn. you can denounce it as being a bubblehead or whatever but whether the real estate market tanks or not, i will always be proud to call brooklyn my home.

i personally think that's quite special and worth fighting for.

Posted by: jm at May 2, 2007 4:19 PM

Read Bloomberg's 2030 Report and then talk to me about NYC "population loss" ... rates may be going up but the local NYC economy is humming and demographic trends are on the side of owning.

265,000 new housing units needed in the next 20 years.

http://www.nyc.gov/html/planyc2030/html/plan/plan.shtml

Posted by: Anonymous at May 2, 2007 4:56 PM

Sounds like a lot of nervous kool-aid drinkers around here. Since the market went up about 300% in the past 7-8 years, why does anyone think it should ONLY fall 20% now? And this is over several years with otherwise low inflation, and extremely low wage growth.

That's psychology for ya. People have to get used to the idea first. At least we're making some progress around here.

When the cocktail party consensus is that housing has nowhere to go but down, the brakes, and the wheels, will come off. And the silly money will go elsewhere fast.

Posted by: cg renter at May 2, 2007 4:59 PM

anyone who lives in brooklyn or new york and hopes for people to lose their shirts do not belong here.

period.

Posted by: anonymous at May 2, 2007 5:06 PM

And where exactly do you see the "silly money" going?

Allentown??

Posted by: cg is a moron at May 2, 2007 5:08 PM

couple of things. People here and media and politicians keep quoting the 1 million new resident in next 30 years.
Please be more aware and critical of how this number comes from (very sketchy and questionable assumptions) instead of just repeating this as some sort of fact. What would predictions about NYC population have been made 30 years ago about today?
Second, folks talking about glut of condos (and yes there do SEEM to be lots of development). Just emember there are over 900,000 housing units in Brooklyn alone so 10 thousand here or there is small %age of existing (many of which are substandard and aging and becoming obsolete as we speak).

Posted by: Anonymous at May 2, 2007 5:18 PM

The housing market is not all that expensive in most of Brooklyn right now. There are a lot of bargains, but you have to get out of the "Brownstone Crescent" . There are very nice homes in Marine Park and Bath Beach and Bensonhurst and Bay Ridge and Canarsie and even in swanky Manhattan Beach/Breezy Point. The trendy areas are really outposts of Manhattan, which march to a different drummer. It's about prestige and hipness rather than affordability and contemporary convenience. To each their own. I am very suprised that there are enough people out there willing to pay these prices for these old, rather inconveniently laid out houses, but they are out there in real numbers, go figure.

Posted by: Anonymous at May 2, 2007 5:29 PM

What will kill the brooklyn real estate market is this, if it were to happen: if all those anti-immigrant forces actually force the DHS to strictly enforce the immigration laws and put up a border fence, etc, Brooklyn will become a ghost town.
Tell your congressperson "yes to amnesty!"

Posted by: OE at May 2, 2007 9:29 PM

i own union picnic restaurant, located on the williamsburg/greenpoint border. i owned bean restaurant from 94-2006, and have lived in the neighborhood since'93. before that, i lived on the LES from '88-93, and the west village from '87-88.

i never had much money, still don't. today, i went to klenovsky's on metroplitan to buy some paint. i just knew that somebody i knew was going to show up. sure enough, it was margaret, my neighbor from n.9th street.

we chatted,compared paint samples. she had purchased the apt downstairs from mine (on n.9th, just off bedford) when i was her upstairs neighbor. tub in the kitchen tenement. (kind of glorious, north south breeze). i opened bean, and could barely afford my apt rent, which was about $500/month. she and jan purchased the apt when the building went condo for $46,000.

this whole fucking thing is completely retarded. i can still walk my dog in mccarren park at midnight, and be the only person in the park. all that glorious acreage is mine; has been for all the years that i've lived here. it's mine, i'm alone, with my dog,and it's beautiful. where are all of the people who demand this living space? they're not in the park.

who gives a flying fuck about status? i've been beyond that crap since i was first able to form a thought.

not to brag, i'm just not made of the cloth that pays attention to any of that - form.

thing is, i was walking home from the restaurant the other night. i picked up my dog, and we walked to mccarren park. i looked up at the building on the corner of bayard and n.12th, and saw a light. this guy was there, in the big TOTAL glass wall space, 3rd floor, with what must be a glorious view of the skyline, THE MANHATTAN SKYLINE, working on his computer. WITH HIS BACK TO THE VIEW. WITH HIS BACK TO THE VIEW.

go figure. so far as prices falling or rising, remember - globalization is ever shifting economic terms. takes people awhile to catch on. the street has been the chesire cat for a long time - don't expect them to budge when they can't swallow the whoe canary, or even the canary whole. that ridiculous statement having been made, i'll wager that the price of real estate in desirable parts of the adjoining islands will not go down in the near future. the market IS on fire.

the dollar is at a ridiculously low price, but is it a dangerous price? no way, globalization is a whirlwind (you know, how the globe spins kinda thing?)

anyWHO, prices aren't going to take a hit in the NYC market, though the condo glut will allow people to buy an $800K condo for $695 in the very near future.

you heard it here first, folks.

try the ribs. i'll be here all week.

Posted by: suzy at May 3, 2007 3:49 AM

a year ago everyone on this blog talked about the market will hold up. Today 90% say it will go in the toilet.
As Jesse Livermoore said, once the public opinion (unsofisticated investor) has an opinion on an asset do the opposite.

Posted by: Contrarien at May 3, 2007 11:01 AM

Actually, 11:01, this past Fall there were a lot of chicken littles who did say things would go in the toilet. They said don't buy now, the prices will get lower in January. But they didn't get lower, they got higher, and any person who actually listened to those armchair real estate "experts" missed out on some real deals that Fall when sellers were dropping prices as much as 15% and 20% on co-ops and houses. And missed out on the last remaining good deals in neighborhoods like Clinton Hill, where prices on houses have now skyrocketed.

Plain and simple, if you know you want to live in NYC long term, there's no reason not to buy at any point when you can get a good rate on your mortgage. That time is now. The other smart option is to find a rent control apartment you love and that's adequate and stay there forever, and be sure to save your extra money not spend it. Plenty of New Yorkers from all income levels are renters; it's not shameful. It's even smart financially, depending on one's perspective and needs. I think the people who are really in a real conundrum now are those paying high rents. Because then the choice is pay even more money for a mortgage, but at least it's towards equity, or keep wasting money on rent during the time you're unsure whether the RE market will continue to go up and up. It's tough.

Posted by: Anonymous at May 3, 2007 11:27 AM

I have no idea whether this guy’s right or wrong, but I don’t think this article makes a particularly coherent argument for the bubble. It’s difficult to trust an article so shrill in tone. A couple of things struck me though—the author says:

“If so, it won't be the brokerage houses or savvy insiders who get hurt [via their investments in HFs]. It'll be the little guys and the pension funds that take a drubbing.”

First, there are no “little guys” investing in HFs…unless the author himself has got so much money that he considers accredited investors “little guys”. Further, pension funds are not so stupid as he makes them out to be. If I had to make a wager between those $25MM HNW individuals and PF managers having the inside scoop on the market first, I’d have to go with the pension funds.

Finally, I work in Derivatives and we have lately done a huge business in IRD CDO and ABS securitizations, so his assertion there made some sense. Has it been enough to disperse market risk? I don’t have a clue. But I don’t think this guy has a clue either.

Posted by: Anonymous at May 3, 2007 11:48 AM

Hey - 11:48 - would love to ask you a few questions about that article if you're in the business. Have an e-mail?

Posted by: Anonymous at May 3, 2007 4:36 PM

"I guess if you downsized(who does that) or moved to Montana you could get some money back on your "investment" "

1:22, I, for one, have done that (no, not Montana, but Dutchess County). I bought my apartment in Brooklyn in 2003 for $200K and sold it recently for $450K. I bought a lovely renovated 3-bedroom 2-bath house with a secluded back yard in the Hudson Valley for $325. And I'm happy as a lark.

Posted by: anonymouse at May 3, 2007 6:14 PM

« Brennan Writes "Laundry List" of Building Legislation At Last, Red Hook's Long-Awaited Traffic Light »

May 2, 2007

"Real Wave of Pain Just Beginning"?

Trackback Pings

Comments

Post a comment

Latest Restaurant Additions