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February 9, 2009

Most Post-2006 Condo Buyers Are Underwater?

In an article describing how co-ops are much better positioned for the downturn because, unlike condos, their position in foreclosure proceedings is senior to the bank, comes this doozy of a quote from the president of a property management company in Manhattan:

I think it’s safe to say that the value of any apartment purchased in the last two years is less than its purchase price. The simple calculation is that if you bought an apartment a year ago and financed 90 percent of the purchase price, as many did, and now it’s worth 20 percent less, you’re upside-down as an owner.

That's another reason why co-ops are in better shape: Most owners had to put down a minimum of 20 percent when they bought.
The Downside for Condos in a Downturn [NY Times]

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Comments

Certainly true for anyone who bought anything, anywhere with only 10% down.

Posted by: daveinbedstuy at February 9, 2009 10:18 AM

Problem if you are a flipper or lose your job. Otherwise, not a problem, but a psychological burden.

Posted by: dittoburg at February 9, 2009 10:24 AM

"That's another reason why co-ops are in better shape:Most owners had to put down a minimum of 20 percent when they bought."

Really - how do you figure????? If I bought a 1M condo and put down 10% (100G) and the place is worth 800G now - I lost 100G of my equity and the bank lost 100G of their equity - which I only have to pay if I move and in the meantime I can use my 100G as I well please.

If I bought a 1M coop for 1M with 20% down - I lost 200G of MY equity and the bank is still whole.

Personally I'd rather have the bank down 100Gs with me (if I get into trouble I bet they'd be slightly more willing to renegotiate)

Besides as DIBS said - it has nothing to do with the ownership method (coop v condo) - you know you can put down 100% if you want

Please stop letting your prejudice against any new construction get in the way of fiscal analysis - it makes you sound very dumb.

Posted by: fsrg at February 9, 2009 10:26 AM

From the co-op's perspective, prices have to fall further before owners are underwater and are more likely to walk away.

Posted by: brownstoner at February 9, 2009 10:30 AM

"Please stop letting your prejudice against any new construction get in the way of fiscal analysis "

I assume this is about the comment I made on the other thread?

Your comment is characteristic of someone with no experience.

Posted by: daveinbedstuy at February 9, 2009 10:31 AM

This is only in the case of new construction condos under the auspices of tax abatement; NTY wants to smear the condos across the board--

Posted by: Squattersrights at February 9, 2009 10:31 AM

As dittoburg said, none of this is a problem unless you were trying to flip it or you go into arrears on your mortgage payments.

Posted by: daveinbedstuy at February 9, 2009 10:33 AM

I know people could do 10% down financing on condos (or even less) -- but do we have any figures/stats on what percentage of people in NYC did that in past several years?
And - do we have any recent resale figures (or even lisings) of condos in buildings that perhaps had 1st buyers in 2007?

Posted by: Petebklyn at February 9, 2009 10:38 AM

dibs -- it IS a problem if other buyers in your condo were flippers or are in arrears!!! That's what happened in FL -- people are living in buildings that are all but abandoned; resident cond owners cannot pay for the upkeep of the building as a whole with other buyers foreclosed, in arrears.

Posted by: BH76 at February 9, 2009 10:39 AM

FSRG,
%20 down (vs %10 or 5%) results in a smaller monthly payment which, along with what Mr. B said (10:30am), made buying a co-op a safer bet.
If, however, condo prices go further south, co-ops WILL follow to a certain degree.

Posted by: Gravis at February 9, 2009 10:40 AM

The whole first half of this article was pretty straightforward story. Condo owner stops paying maintenance and there is little the building can do about it because even if they evict, at current prices, they won't get any of that money back. This leaves the current tenants footing the defaulters share of the monthly bill for the entire time from first monthly default all the way through realsale which is likely to be a few years. In a condo, once the unit is resold, the condo gets the money back and thus the other tenants are not out of pocket forever. Given the size of some of these monthly maintenance charges, this would seem like a real issue, albeit a soemwhat rare one. Is there something not true about the article?

Posted by: Ledbury at February 9, 2009 10:43 AM

BH76...you're right, but that's a completely separate problem from what most of us were talking about. It's definitely generic to what joe the bummer was asking in the Open Thread.

Posted by: daveinbedstuy at February 9, 2009 10:44 AM

I suspect there are a lot more 10%-down coop buyers out there than some might think. Think of all of those "10% down, no board approval" sponsor sales that happened over the past few years.

I know of one building in Kensington, for example, where the sponsor sold off 75% of the apartments over a five year period.

Posted by: SnarkSlope at February 9, 2009 10:46 AM

Nothing not true about the article but usually one of the major factors leading to default on common charge payments (in addition to losing one's job obviously) is skyrokceting common charge payments which happens when a new construction condo loses its tax abatemet status and the charges skyrocket year over year. Not all condos exist under this arrangement

Posted by: Squattersrights at February 9, 2009 10:48 AM

squattersrights - you can't be serious. The NYT real estate section is still pro-developer and pro-broker. Its one of the least objective sections of the paper.

Posted by: dittoburg at February 9, 2009 10:48 AM

I've been saying this for 2 years.

Posted by: 11217 at February 9, 2009 10:48 AM

The finanical wherewithal of other owners is *definitely* an issue for non-flipping long-term owners. Prices are going down, many buildings are filled with people who are operating on thin margins because they had to stretch so much to buy at the top of the bubble, and over the coming years:

- Some owners will default on common charges
- Some developers will default on common charges
- Owners who have very little breathing room are losing their jobs
- Common charges are going up as 421-a abatements expire
- Many owners used various types of dangerous financing that will increase their costs (and likelihood of default) in the next few years

Bottom line: fewer people paying increasing costs, unless of course costs are reduced by eliminating amenities (which lowers property values even further).

Posted by: lechacal at February 9, 2009 10:50 AM

Gravis - how does having a smaller monthly payment make coop a safer investment??

And DIBS - my comment re: prejudice against new construction was aimed at Brownstoner - I agreed with your comment - dont be so defensive.

Posted by: fsrg at February 9, 2009 10:54 AM

Yes lechacal

Some owners will default on common charges in both Condos AND coops

Sponsors of both Condos AND Coops will default

Owners of both Condos and Coops will have little breathing room if they loose their jobs

421-a abatements do not expire overnight, they take 15 years to expire - therefore call me in 10years when this becomes an issue for most "boom era" condos - BTW taxes are rising on Coops too

"various types" of financing were used on Coops and Condos

EXCEPT - you all seem to forget that Coops have an UNDERLYING mortgage - which may prove to be much harder to refinance when the time comes (generally every 10yrs in a conservative Coop) - and many Coops also financed with way to optimistic projections.

The point is - the NYT article had some points - but the one point that cannot be made - because it just isnt true - that Condos are somehow more at risk then Coops -

Posted by: fsrg at February 9, 2009 11:01 AM

It is not only the expiration of tax abatements that increases charges. Most developer really low-ball operating budgets. Any new building can expect a 15-20% hike from the offerring plan monthly costs.

Ther have been too many very naive new buyers; seeing ever increasing property values along with salaries and bonuses. And yes, there are plenty of coop owners under water too. basically anyone who bought in the last 18 months would have a hard time getting even 80% of what they paid. When you look at the TImes -- it is mostly new condos - people in existing buildings are sitting tight unless they absolutely HAVE to sell. Nothing is moving.

Posted by: BH76 at February 9, 2009 11:07 AM

fsrq is right on that last point. These difficulties are arising largely because of the individual owner's inability to pay.

I do believe however, that older, longstanding, maybe call them snobby or selective Coops have probably screened the owners more rigorously and know whether their balance shhets will weather them through a period of lost wages. The newer Coop developments with all their aggressive advertising are in a much more vulnurable spot...similar to that of a condo, essentially.

Posted by: daveinbedstuy at February 9, 2009 11:08 AM

It sounds like the issue is getting a little confused. Higher down payments are better for the co-op as a whole if the market goes down but obviously, as a buyer, if you are going to walk away from your apartment because it's so underwater then it's better to have had less money on the table.

Posted by: brownstoner at February 9, 2009 11:10 AM

Just as a point of reference, I bought into a small brownstone co-op.

I had to prove to have one year's worth of mortgage payments in savings after I paid the downpayment.

It seemed excessive (and almost ridiculous) at the time, but it sure does feel good to have that cushion of money sitting around now.

Posted by: 11217 at February 9, 2009 11:10 AM

It sounds like you bought into a well-run coop, 11217. The smaller the building, the stricter I think they have to be.

I wonder what's going to become of all the little 4-5 unit in-fill condos that popped up in brownstone Brooklyn. I like the looks of a few of them, but they seem like a dicey proposition.

Posted by: SnarkSlope at February 9, 2009 11:14 AM

When a coop owner defaults, and the bank does not pay the maintenance fees (which is said to be happening), the cooperative can repossess -- and it's not that hard. And the then Coop can hold the apartment and rent it until the market improves to sell. Much better situation.

Posted by: BH76 at February 9, 2009 11:16 AM

Fsrg,
Simple. If I'm laid off and/or forced to earn less, then the more I borrow, the less chance I have to successfully pay it off.
If prices go down %20, no one in my co-op is under water, while there will be some in a condo.

Posted by: Gravis at February 9, 2009 11:18 AM

11217 actually inadvertently brings up another issue being ignored - size of the overall property - If you are in a 3-5 family Coop (or condo - although less of those) you are MUCH more vulnerable to another unit defaulting then if in a larger coop or condo -

more evidence that these coop v condo generalizations do not work - no matter how much the condo haters want to make it so.

Posted by: fsrg at February 9, 2009 11:19 AM

Yeah, Snark...it is definitely well-run. We have a few of the long time "hippie" Park Slope folk in the building who are a great combo of relaxed attitudes, yet they still maintain a good, firm financial footing with regard to the building. When it comes to everything else, they are super casual. I lucked out.

My maintenance charges are less than $275 a month, if you can believe it.

But most of the places I looked at required at least 6 months worth of mortgage payments in savings.

For that reason alone, it seems to make co-ops more financially stable than condos.

Posted by: 11217 at February 9, 2009 11:20 AM

Fsrg,

Sounds about right, this is a 10 unit co-op to be exact.

And I'm the only person to buy into the building in the last 10 years.

The rest of the owners have been there for quite a while.

Posted by: 11217 at February 9, 2009 11:22 AM

So ... what people are saying is: my wife and I should stop considering buying when we have 10% to put down.

Posted by: cwbuecheler at February 9, 2009 11:33 AM

If someone in my condo building defaults, cant we just foreclose and force them to pay back-maintenace? Even if they sell at loss - Isnt the condo board first in line for the proceeds from the sale (before the bank)?

Conversely, If the bank forecloses arent they responsible to pay the maintence?

Posted by: newsouthsloper at February 9, 2009 11:33 AM

Condo Board has only the right to sue for arrears in common charges -- bank gets the condo -- and it is a long, difficult procedure. Read the article -- there is a big difference because condos are real property.

Posted by: BH76 at February 9, 2009 11:38 AM

cwb: To be blunt, if you only have 10% you can't afford to buy. Keep renting, keep saving. The former is getting cheaper, which makes the latter happen faster. One of the great lessons from the bubble is that financability and affordability are not synonymous.

Posted by: lechacal at February 9, 2009 11:41 AM

newsouthsloper - yes

Gravis - "Simple. If I'm laid off and/or forced to earn less, then the more I borrow, the less chance I have to successfully pay it off."

Except again it is not the same buyer in the two different housing types (condo & Coop) - The person who payed 10% down may have borrowed less than the person who put down 20% and if you lose your job (and cant get another) then it probably matters little if you put down 10 or 20% - you are still selling or being foreclosed.

The ONLY overall difference is how much equity you and your fellow owners have in the place. And here - generally - older buildings (generally coops) may have an advantage - this is because if people have equity they will sell rather then foreclosed and the rest of the holders wont be stuck with late or no common payments for longish periods of time.

All the due diligence in the world (and we know that few actually really do good due diligence) is going to change that the "snooty" Coop board approved who has/had 20M shares of Lehman Brothers in the bank to back up his mortgage - now has ZERO.

Every Coop board in NYC would likely have approved someone whose earnings and net worth were largely tied up in Madoff, Bear, Merrill or hundreds of hedge funds (now worthless), or in RE like Maclowe(bankrupt), Tischman Speyer (will be bankrupt soon) and thousands of other seemingly "safe" investments.

Unless the "snooty" coop made sure that its buyers had substantial Municipal or Treasury Bonds - people all over the economic spectrum will be finding themselves in apartments they can no longer afford....

Posted by: fsrg at February 9, 2009 11:50 AM

BH76 - the Condo board only cares about the maintainace - which the Bank is responsible for.

Posted by: fsrg at February 9, 2009 11:51 AM

> "cwb: To be blunt, if you only have 10% you can't afford to buy."

Plus, don't you then have to pay mortgage insurance?

Posted by: SnarkSlope at February 9, 2009 11:54 AM

Interesting article from the Real Deal:

Buyer interest in studio apartments strong

Brokers say that their studio listings are getting more traffic at open houses and more interested buyers than other types of apartments for sale, mostly because first-time buyers, who were previously priced out of the market, are taking advantage of low prices and falling interest rates on mortgages. In the fourth quarter of 2008, studios made up 14 percent of contracts signed in Manhattan, and in the first two weeks of January, 17 percent of contracts signed were for studios. According to Brown Harris Stevens, the average price per square foot for Manhattan studios rose about $49 in the fourth quarter of 2008, compared to the same time in 2007, while almost all other units saw price declines.

Posted by: 11217 at February 9, 2009 11:55 AM

lechacal - Interesting. What if the properties we're looking at are way below what we can technically afford? We're looking at stuff right now which is nearly doable on what I make by myself. My wife - once she has another job - will probably make more per year than I do, but we have no intention of changing what properties we're looking at.

The basic deal is: some of the condos and co-ops we're investigating would be *substantially cheaper* per month than our current rent, even with only 10% down. So it seems hard to believe that renting is the smarter alternative.

Posted by: cwbuecheler at February 9, 2009 11:57 AM

Interesting, though during the last big downturn, weren't studios the hardest apartments to sell/finance?

Posted by: SnarkSlope at February 9, 2009 11:58 AM

foreclosures hurt condos and coops. But they hurt condos more for the reasons very clearly articulated in the New York Times article.
The Co-op always has first dibs on the proceeds of the sale of shares, a condo has to stand in line behind the bank and if the sale does not cover the mortgage or barely covers the mortgage, the condo association will never get its maintenance back.
That is a bad situation, no matter what size building.
Co-ops definitely protect the shareholder more and they screen new buyers to make sure they actually have the means to sustain the apartment. It all makes sense. New buyers have to keep in mind that not all co-ops are alike. Some old established buildings are very picky and almost onerous in their requirements. Other buildings are easy and may just want to know that you have 20% down and a decent income and some savings. Some buildings have outrageous flip taxes, some have no reserves and need to constantly impose assessments for repairs or even operating costs. Due-diligence is an important part of buying a co-op. If you work with a good realtor they will never show you a co-op where they feel you do not qualify to get it. People should not sorry so much about the "board interview" the first and most important screening is done by the realtor. They don't want to waste their time either.

Posted by: sam at February 9, 2009 12:01 PM

If you bought a condo in 2008 for $550k, it went down 10% in value in the last year ($50k), and you got a tax benefit of ownership of roughly $10k for 2008, then by January 2011 your unit will be back to break even assuming that you keep getting that $10k tax benefit for ownership (for 2009 and 2010), inflation stays at or near 4%, and you didn't spend more than $20k on closing costs.

Posted by: DarkStar at February 9, 2009 12:01 PM

Snark,

I do believe you are correct about that. I think they took a real beating.

But I think a couple of things might make that not true this time around.

1. New York City is a much nicer place to live in than the last time around and a lot of single people probably see themselves sticking around for a while.

2. People saw how much NYC could go up, and if they can afford something, they might not want to "miss out" again.
I'm not saying I believe there is anything to even miss out on because I don't think we'll see a huge run up in housing prices anytime soon, but the mentality is still there, I believe. You don't want to be the last renter standing around in 2012 or whenever prices stabilize/start increasing again. That is, if you are the buying type and can afford something.

Posted by: 11217 at February 9, 2009 12:01 PM

I also think that during this time, there might be some people wanting to scale back their costs and lifestyle from a 1 bedroom to a studio. If you're single and the kind of person who doesn't need or want a lot of stuff, a studio can make sense. In many cases, it's cheaper than renting. Even still.

Posted by: 11217 at February 9, 2009 12:04 PM

First it was just a subprime problem. Then it was a just a national problem outside NYC or one confined to the ghettos like East New York, Bed Stuy and South Side Queens. Now it's just a condo problem.

Where will the denial end about the likelihood of a massive, across-the-board (co-ops and brownstones too) "correction"?

***Bid half off peak comps***

Posted by: Brownstones Half Off at February 9, 2009 12:07 PM

New York may be a lot nicer now than during the last downturn but it is also more expensive. In fact it is incredibly more expensive. Has the quality of life increased by as much as the prices? I don't think so. That wil be one of the factors as to whether people decide to stay or not. Think of how cheaply one could have bought a house in Cobble Hill in 1991. Has the quality of life inproved so much there as to justify 5 0r 6 fold increase in prices? I don't think so. It was a pretty nice neighborhood in 1991. Fort Greene is defintiely 100% nicer than in 1991 but prices have gone up 800%.

Posted by: sam at February 9, 2009 12:09 PM

Sam - you ignore the fact that Coop shareholders actually own equity in the building - which is also generally financed...if a coop cannot make up its lost "maintenance" - the risk is Foreclosure/receivership of the whole corporation. Condos who lose their maintenance risk - deferred repair, less service etc....
i.e. risk of losing the whole building is alot less.

Each has its advantages/disadvantages - none is inherently more immune to downturn - you have to compare each development/building separately.

Posted by: fsrg at February 9, 2009 12:12 PM

Some interesting points, but one thing hasn't changed: When those single people get married, they want to move up to a bedroom. When they have children, they want to move to a two bedroom. Because of this churn, studio apartments are most vulnerable in the market.

This doesn't really so much apply to me, as I plan to buy, stay put, and leave feet first. But I think it does affect the market at large.

Posted by: SnarkSlope at February 9, 2009 12:15 PM

The last thing a bank wants to do is foreclose on entire co-op. they would rather stand on their heads. There is a simple formula put out by the NYC Council on Co-ops and condominiums that set out what the acceptable limit of debt is per share in a co-op, that has to be part of your due-diligence.

Posted by: sam at February 9, 2009 12:17 PM

I'm playing devil's advocate for a second here, but honestly Sam...and I'm not AT ALL saying I'd like to live here in the bad days of the past, but just the fact that these neighborhood change at all (and so fast and abruptly) is the reason why some people choose to live here.

I like fast-paced change and an ever-evolving landscape. It's what creates NYC's energy, which is one of the first things tourists from out of town or out of the country comment to me as their favorite aspect of the city. They say it feels like it's buzzing, which is pretty special and rare for a city in the U.S. I'm not sure I feel that "buzz" anywhere else, in fact. Not on this scale. Buenos Aires has it a bit too, as do some other great cities in the world.

I would not be happy in a nice, quiet suburb where everything looks and feels the same today as it did in 1960.

It takes all kinds, and today NYC is a pretty amazing and special place for me. I wouldn't want to live anywhere else right now.

Posted by: 11217 at February 9, 2009 12:17 PM

Absolutely, Shark. And if I were to fall in love and couple up right now, we'd be keeping our respective apartments and not co-habitating at this point. That's the price I've paid for buying a studio and I'm cool to live with it.

But things have gotten so expensive lately that there are MANY people into their late 20's and 30's who still have roommates. I even know a few in their 40's. It's not ideal.

If they see a chance to escape the roommate life (like I did) I jumped on the chance to live alone. Even if it was a studio and not a 1 bedroom. I bought what I could afford to increase my living standards. I love it.

Posted by: 11217 at February 9, 2009 12:21 PM

> "Absolutely, Shark."

Und der Haifisch, der hat Zähne und die trägt er im Gesicht..

> "And if I were to fall in love and couple up right now, we'd be keeping our respective apartments..."

I'm with you there. My BF bought a quite lovely place, but we like having separate abodes.

Posted by: SnarkSlope at February 9, 2009 12:29 PM

US economy has collapsed. More so the NYC economy. One of the reasons is the housing bubble. I can't believe people believe that people will break even in 2011 or 2012. I think that no one who bought in the last 8 years will break even (inflation adjusted) unless another housing bubble comes again which is highly unlikely in the next 20-30 years.

Posted by: MaplewoodGuy at February 9, 2009 12:32 PM

Even better yet is when the bf lives in Philly and I live in brownstone Brooklyn!!!!

Posted by: daveinbedstuy at February 9, 2009 12:32 PM

That's not a boyfriend Dave, that's a SEPTA-Guy-Aryan.

Posted by: DarkStar at February 9, 2009 12:39 PM

[rim shot]

Posted by: SnarkSlope at February 9, 2009 12:42 PM

I've never dated an Aryan in my life. :)

Posted by: daveinbedstuy at February 9, 2009 12:45 PM

11217 what do you know about Buenos Aires?--I lived there for 4 years and still have close friends there and can tell you it MUCH more provincial than NYC--and many other European cities for that matter. Please, just because it's the IT city right among the New York Magazine crowd with ad-nauseum glossy spreads in Travel and Leisure and Conde Nast Traveler doesn't give it that "buzz" you reference.

Posted by: Squattersrights at February 9, 2009 12:54 PM

I feel a good fight coming on.

Posted by: daveinbedstuy at February 9, 2009 12:59 PM

I've been to Buenos Aires 3 times in the past 2 years. Each time for at least 2 weeks. Please don't tell me what I do and do not know about. I'm in the process of looking to buy a small apartment there and will be living there for a couple weeks each summer running a small music festival.

The only thing I said about Buenos Aires is that it has great energy. And that I love it. I never said it was perfect.

Posted by: 11217 at February 9, 2009 12:59 PM

No fight Dave.

This new squattersrights poster is a real a-hole.

One of his best quotes so far:

"Atlantic Mall Target = Brownstoner's Flea"

Not someone I plan to fight with. It's like fighting with Cornerbodega or Hannible.

Posted by: 11217 at February 9, 2009 1:03 PM

The only coops that I have ever heard of that were even close to foreclosure may have been when the sponsor defaulted (and that was back in the last down-turn when there were so many investors who bought rental buildings and converted them). It would take a weird situation for it to happen...

Posted by: BH76 at February 9, 2009 1:03 PM

cw, don't listen to the naysayers. You can definitely get a mortgage with 10 percent down. You may (or may not) have a problem getting private mortgage insurance with only 10 percent down. If you can't get it, the bank won't give you the mortgage. My mortgage broker says it's totally unpredictable. Solution: Make sure you have a good independent lawyer and get a mortgage and a PMI contingency in any contract you sign.

Also, it's always been the case that it's hard to find coops that take less than 20 percent down, although they do exist. And new coops or new condos are looking risky now. You can put as much or as little down on a condo or house as the bank will loan you.

Posted by: mopar at February 9, 2009 1:07 PM

Feb. 9 (Bloomberg) -- U.S. home prices will reach bottom by
the end of the year, concluding a slide that will have cut values 36 percent, Moody’s Economy.com said today.
“Notwithstanding the intensifying economic gloom, the
bottom of the housing downturn is within sight,” chief economist Mark Zandi said in a statement today.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aJTtcFir47.E&refer=home

Posted by: daveinbedstuy at February 9, 2009 1:07 PM

Sounds about right to me, Dave.

And I'd guess that the 40-50% drops in Phoenix, all over Florida, California, Las Vegas, etc will offset the probably 20-25% drops we will see here.

Posted by: 11217 at February 9, 2009 1:11 PM

DIBS - and since the overall housing market has been falling for 2 years and NYC seems about 6mo into this - IF Zandi is correct we are looking at 2011 until NYC bottoms.

Posted by: fsrg at February 9, 2009 1:15 PM

I think you misread the article, fsrq.

Posted by: daveinbedstuy at February 9, 2009 1:17 PM

im in my 30s and like having a roommate. i think if i lived alone again i'd get depressed or something and hole myself up in the apt all the time. plus i like sharing utility bills and stuff. and it's nice to have stuff to cook with and in and adult furniture. granted none of it is my stuff, but it's nice to have access to it all. im probably coming across as seriously lame with this post hahah

sometimes i think human beings arent meant to live alone actually. we are more like dogs than peacocks you know.

*r*

Posted by: PitbullNYC at February 9, 2009 1:17 PM

I think Zandi is too optimistic. The whole "recession" part of the recession is just starting...by this I mean that most of the housing price movement we've seen has been from toxic mortgages and frozen credit. we haven't seen the effect of high unemployment yet. we've only gained 2 points of unemployment out of a predicted 6 or 7. I can't see people scooping up houses.

Posted by: joe_the_bummer at February 9, 2009 1:22 PM

Reaching a bottom does not mean there will be an upside. If rates go up prices will be depressed further. Even if prices remain flat houses will be depreciated because of inflation.

Posted by: MaplewoodGuy at February 9, 2009 1:22 PM

I enjoyed living with roommates....until I just didn't anymore. It was like a switch had been flipped.

Doesn't make you odd for liking living with someone. Everyone is different. I was actually terrified to live alone, and after the 3rd day in the new place, couldn't imagine living with anyone EVER AGAIN.

It's pretty heavenly for me. I love the privacy and being able to do exactly as I please any time of day or night.

Posted by: 11217 at February 9, 2009 1:22 PM

11217--So you've visited Recoleta a few times and want to buy. You've spent a grand total of 1 month there and make sweeping statements about the city. Have fun getting your CDI and hope you have enough luck to hire an honest agent. I promise you the process will be a humbling experience.

Posted by: Squattersrights at February 9, 2009 1:29 PM

Excellent, by all means quote this guy:

"Mark Zandi Says Housing Slump at `Beginning of the End'"

2008-06-26

- http://www.bloomberg.com/apps/news?pid=newsarchive&sid=azco4uH3RZKY

Posted by: SnarkSlope at February 9, 2009 1:30 PM

maplewood - totally agree. check out "irrational exhuberance" by robert schiller. people don't realize how many long periods of flat returns there have been historically. everyone expects the recovery to look likke a V -- where do they get this? how can the assumption of even long-term price appreciation be so widely accepted? new york ran out of land a century ago -- so that's not it -- population in the city can actually decrease (it did over the 50 years up to the 90s) -- just look at the demographic trend as all of the baby boomers get ready to sell assets to finance their retirements. I haven't seen one bull argument that doesn't work perfectly in reverse.

Posted by: joe_the_bummer at February 9, 2009 1:35 PM

Squatter...what's your problem??? All 11217 said was that Buenos Aires has a buzz.

Did you get burned down there????

Posted by: daveinbedstuy at February 9, 2009 1:36 PM

"new york ran out of land a century ago -- so that's not it"

These comments are getting SO stupid!!!

in 1909, NYC had 4,766,883 people.

Today it has 8.3 million!

Are you people really this dumb??

Please show me where the population TREND of NYC is downward.

1698 4,937 —
1712 5,840 18.3%
1723 7,248 24.1%
1737 10,664 47.1%
1746 11,717 9.9%
1756 13,046 11.3%
1771 21,863 67.6%
1790 33,131 51.5%
1800 60,515 82.7%
1810 96,373 59.3%
1820 123,706 28.4%
1830 202,589 63.8%
1840 312,710 54.4%
1850 515,547 64.9%
1860 813,669 57.8%
1870 942,292 15.8%
1880 1,206,299 28.0%
1890 1,515,301 25.6%
1900 3,437,202 126.8%
1910 4,766,883 38.7%
1920 5,620,048 17.9%
1930 6,930,446 23.3%
1940 7,454,995 7.6%
1950 7,891,957 5.9%
1960 7,781,984 −1.4%
1970 7,894,862 1.5%
1980 7,071,639 −10.4%
1990 7,322,564 3.5%
2000 8,008,288 9.4%

Posted by: 11217 at February 9, 2009 1:38 PM

> "we are more like dogs than peacocks you know."

Speak for yourself. My plumage is magnificent.

Posted by: SnarkSlope at February 9, 2009 1:45 PM

DIBS: No sir, I love Buenos Aires but I smell a bit of naiveté in the air, that's all.

Posted by: Squattersrights at February 9, 2009 1:47 PM

and i smell a bit of Jean Nate in the air.. i bet it's brg

*r*

Posted by: PitbullNYC at February 9, 2009 1:51 PM

What's truly naive is saying that someone who has been there for only 6 weeks must love it less than you do because you lived there for 4 years.

You have the same ignorant mentality as these Native New Yorkers who think if you weren't born in NYC, you don't know anything.

Even though 90% of the ones I have met are horribly racist.

All of your comments so far have been ignorant.

Posted by: 11217 at February 9, 2009 1:55 PM

This is somewhat interesting:

NYC Population
1940: 7,454,995
1990: 7,322,564

U.S. Population
1940: 132,164,569
1990: 248,709,873

While the US population nearly doubled from 1940 to 1990, New York actually had fewer people in 1990 than 1940.

Posted by: SnarkSlope at February 9, 2009 1:58 PM

Thanks 11217 -- you totally popped my brownstoner cherry. my first personal attack. Actually I had the same data as you -- did you notice that the # in 1990 is lower than the # in 1950? My point is that it CAN go down over an extended period of time. Add the fact that the bulk of our population is nearing retirement, and I think you have a pretty good case that it could shrink. at least not "so dumb".

Posted by: joe_the_bummer at February 9, 2009 2:00 PM

Snark,

Two words explain that: white flight.

I hope we are beyond that at this point, however.

Posted by: 11217 at February 9, 2009 2:01 PM

Does John Lindsay ring a bell??????

Posted by: daveinbedstuy at February 9, 2009 2:03 PM

I thought your point was that NYC ran out of land 100 years ago?

Wasn't it?

Even though 100 years ago, we had 3.5 million fewer people...?

I don't see your point, I guess.

Posted by: 11217 at February 9, 2009 2:03 PM

sorry -- also add the facts that lots of people are losing jobs and can't afford to live here, that the banking industry will be smaller for the medium-long term, and that the city revenue crisis will make it kind of suck at the margins...and you get an even stronger case ...and I misquoted you 11217, you said "so stupid"

Posted by: joe_the_bummer at February 9, 2009 2:06 PM

Sorry to hurt your feelings, Joe.

I'll put on the kid gloves next time, just for you.

Posted by: 11217 at February 9, 2009 2:10 PM

"that the banking industry will be smaller for the medium-long term"

Just wondering how you know this with such certainty?

medium-long term?

Really???

Posted by: 11217 at February 9, 2009 2:11 PM

oh yeah -- maybe I should be more clear --- two separate points, one about the potential for people to leave, and the history of people actually doing it (we could argue all day about whether white flight is relevant to the future), so call it a "demand side" argument -- but the land point was more a supply point, about the perennial boom argument that "they're not making any more land" --- this is always used to justify speculative RE pricing and further upside. I meant that we are not any more "out of land" than we were a long time ago, so the supply argument doesn't justify prices higher than they were, say, a decade ago. you can't justify a V recovery any better than you could justify the boom in the first place

Posted by: joe_the_bummer at February 9, 2009 2:17 PM

I don't see how you can argue that NYC is working with limited land/supply.

Not in the least.

The reason prices are so incredibly high here are precisely because we have a housing shortage.

Posted by: 11217 at February 9, 2009 2:28 PM

well, yeah.. about the banking industry. I'm open to debate on it, but a big part of the industry supported an infrastructure to provide leverage that is no longer needed. lots of small leveraged firms popped up over the last 5-10 years, & most of those will disappear for the (i don't know) "medium-long term". Same true for banking jobs in leverage-related business like securitization. They're gone for a long long time. I don't have any numbers, but total staffing has to recede and stay back until the next comperable credit cycle starts...don't know when that will be. I have a pretty good look into it, because I work in a credit markets job at a bank and I've watched my colleagues and clients get shot all year -- but I think anyone would tell you that it's worse for biz here than any time in their whole careers. So anyway no offense taken about the S-Bomb.

Posted by: joe_the_bummer at February 9, 2009 2:29 PM

yes but how much WORSE is the shortage than it was ten years ago in 1998? does it justify a 3X price increase?

Posted by: joe_the_bummer at February 9, 2009 2:31 PM

sorry, I can't spell or subtract. comparable, and 11 years.

Posted by: joe_the_bummer at February 9, 2009 2:33 PM

I dont think there was such a phrase back in the 1700s, 1800s, and most of the early 1900s as "high rise."

Posted by: daveinbedstuy at February 9, 2009 2:37 PM

I don't know the answer to that one, Joe.

But NYC has always been expensive compared to the rest of the U.S. And it's still not one of the most expensive cities in the world.

I think prices will come down, but I also believe that our economy will continue to diversify and come back.

Greed is one of the seven deadly sins. People will find a way to act upon that sooner rather than later.

Posted by: 11217 at February 9, 2009 2:39 PM

The fact that there is a limited housing supply in NYC is not particularly relevant to the future of prices. Static supply means that prices will be higher than somewhere with increasing supply. It absolutely does NOT provide insurance against price decreases. When prices have finished falling in NYC, they will level out somewhere that is still much higher than most of the rest of the world. Consider a priceless work of art - there may be only one in the world, but that doens't mean the price won't go down (see what is happening in the art world right now for example).

Posted by: lechacal at February 9, 2009 2:39 PM

Don't economists usually say that just as prices overshoot at the top, they also overshoot at the bottom as well?

Posted by: 11217 at February 9, 2009 2:47 PM

11217 - Yes.

Posted by: lechacal at February 9, 2009 2:56 PM

I think they say they "can" overshoot -- they hate unambiguous comments. of course if you want to call an overshoot you have to first agree on what the right price should have been. a quick rebound would require a whole lot of new credit or new capital. the thing is, ALL kinds of assets have lost value, and lenders look at their former lending practices as huge mistakes. what do you sell if you want to invest? not your stocks... someone pointed out (Dave?) that a lot of money is parked in US treasurys, but that's mainly institutional, and mostly buy-and-hold. when buying time starts for companies, depressed RE will compete with dozens of cheap asset classes for attention. And then, the way they would naturally invest is through structured funds like REITS and CDOs, which are politically toxic. It's hard to see everyone jumping back in like they sometimes do after a stock market crash.

Posted by: joe_the_bummer at February 9, 2009 3:09 PM

I don't think anyone is arguing that NYC real estate will continue to demand a premium over other parts of the US. The question is how much of a premium. As US population has shifted south and west over the last decade, it's not ridiculous that NYC might demand less of a premium going forward. Some have argued that we didn't see the same kind of speculative silliness that happened in sunnier climes, which is probably true. My biggest concern is that the landscape of the New York economy has been radically altered by the collapse of the finance industry.

And while NYC has had population increase during my adult life, 11217 data shows that is by no means a mortal lock. The biggest mistakes are made when we think we "know" beyond a shadow of a doubt that something is true, when in reality it is only the case that it has been true for awhile.

I think everyone is rightly re-examining their assumptions and trying to figure out what information now matters to our financial decision making. For my part, there's too much noise and uncertainty for anything to be clear and that in itself means something. As I try to figure out what is happening, the unemployment % is my key indicator. I don't see how we can expect a stabilization or even a shallowing of the real estate market until job losses decelerate. If NYC job losses continue the disturbing trend from the beginning of this year of outpacing the national percentage, then you may very well see a net loss of population. I agree that we may not have "white" flight, but we could see some kind of "white collar" drought.

Posted by: 2br_or_bust at February 9, 2009 3:12 PM

11271--no I saying your are naive to think you know something based on 6 WEEKS in a country with as many cultural quirks and nuances as Argentina. In fact, it's downright annoyingly presumptious to think you have a good handle on how things work there.

Posted by: Squattersrights at February 9, 2009 3:19 PM

Actually what the data I posted was to show that since New York City's history began, we lost population in only 2 decades.

One a loss of 10%.

Another of 1.4%.

The general trend is for a growing city. Some years may show a loss, but overall, we are growing.

Adding 3.5 million people (the number of people in the next largest city in the U.S.) to an already almost 5 million people since 1909.

Long term trends are up. The Southeast/Southwest are unsustainable as they are. Not only do they need to somehow pull through this housing bubble (70% declines in Salinas and Merced, Ca.?!) then they need to figure out where they are going to get enough water to provide for the people that live there 20 years from now.

Some of the once fastest growing cities in the U.S. (Las Vegas and Phoenix) have got a lot more problems ahead than NYC does, in my opinion.

Posted by: 11217 at February 9, 2009 3:25 PM

All he said was that Buenos Aires had a "buzz." Drop it Squatter.

Who's the annoying one????

Posted by: daveinbedstuy at February 9, 2009 3:25 PM

I can't believe you are still talking about this, Squatter.
What exactly do you care? You've got some issues, dude.

Posted by: 11217 at February 9, 2009 3:27 PM

History of prices in NYC:

Explosive growth, high prices, speculation, greed, slums since the beginning.

Manhattan's population peaked around 1900-1920 at 2 million. You will recall that subways joined the outer boroughs to Manhattan at this time, and the explosive growth continued in the other boroughs.

A housing shortage in the early 1940s led to rent control.

The only time this state of affairs reversed itself was during the years of White Flight. Now the older parts of the city are fashionable again and people want to live here.

I believe prices were undervalued in the 1980s and 1990s because of lingering effects from disinvestment, particularly crime. Previously "edgy" areas are now full of cheese boutiques, good schools, and rich people.

Consequently, prices are high.

Posted by: mopar at February 9, 2009 4:09 PM

Something being dangerous doesn't make something else safe--economic pain is not a zero sum phenomenon.

The bad mortgages in the southwest were written, securitized, bought, and sold by giant investment banks and hedge funds, most of whom call NYC home. The financial collapse of these entities will be felt nowhere more so than here.

Housing in Phoenix looks like a classic bubble that deals pain by reverting to the mean. I think the real concern is that the underlying business practices that have made New York so wealthy for the last 20 years are being swept away--there is no mean left to revert to.

Posted by: 2br_or_bust at February 9, 2009 4:12 PM

The population numbers are irrelevant. Your millions maybe unemployed or experience loss of income. Or, worse go into debt, as the prices continue to lower.

You see, what matters is not how many people live here but how much they make. Real estate is linked to income not population. For example, Amsterdam prices have historically stayed the same.

That why we call this a bubble. That's why there will be a correction. Housing prices should return to their income limitations.

Posted by: MaplewoodGuy at February 9, 2009 5:02 PM

maplewood guy - the recent bubble was not linked to income, that's how it became a bubble. It was linked to availability of loans regardless of income. Incomes didn't rise 300% between 2000 and 2005.

Posted by: dittoburg at February 9, 2009 5:33 PM

Re Amsterdam:

It would appear, however that a 2 bedroom/1 bath apartment in Amsterdam listed here for 599,000 Euro (or $778,000 USD) is similar in pricing to that of Park Slope, today's co-op of the day, as an example. It certainly isn't inexpensive.

http://www.viviun.com/AD-120854/

Posted by: 11217 at February 9, 2009 5:40 PM

11217, please do all of us Argentines a big favor and do not buy in Buenos Aires. A quick perusal of your comments on many different threads indicates that you're quite neurotic, obnoxious, and sometimes, just plain mean. We don't need you or your music festival, but thanks anyway.

Posted by: adip at February 9, 2009 7:20 PM

As a rule of thunb, when posters start writing about Buenos Aires, I sign off.

Posted by: sam at February 9, 2009 7:36 PM

11217: I think you should compare apples with apples. You should compare that apt with prime Manhattan. Not overrated periphery park slope.

Posted by: MaplewoodGuy at February 9, 2009 7:42 PM

"We don't need you or your music festival, but thanks anyway."

Feel free to take it up with my client who's asked me to run the festival. And pay quite a princely sum to do so. Two weeks per year of "work" will pay for the new 1 bedroom apartment in Palermo in 2 summers.

Luckily, I don't take advice about real estate purchases (or much of anything for that matter) from anonymous posters on a blog.

Maplewood guy:

Change Park Slope for Grammercy or East Village then. Plenty of places in "prime Manhattan" which can be found for 800K. I was simply using a recent example.

And Sam, yes...we know you prefer Miami. Lots of people in BA LOVE Miami though!...so you should welcome the talk about it.

Posted by: 11217 at February 9, 2009 8:13 PM

11217, not only are you a bore, but you are really monopolizing these threads. I have news for you, you are not such a great writer and your posts are preachy and off-putting. Stop it! Go out, try to make some friends.

Posted by: sam at February 9, 2009 8:53 PM

You beat me to it, Sam. It's out of control.

Posted by: bk14 at February 9, 2009 9:00 PM

You only make me want to post more, Sam to prove what a curmudgeonly old man you are.

And to also make sure that others are able to hear viewpoints from people who think that the necessary downsizing of America means refining and improving it, not moving backwards as you have suggested many times.

It's an outdated viewpoint and one that as of Jan. 20th, you are no longer in long step with the way the majority of this country.

I don't need your permission to comment here. My comments (while sometimes harsh) do add to the dialogue here, in my opinion. I've become the instigator by default somehow. Maybe you don't like my comments...that cool. But maybe you've enjoyed some of the many great comments from other people which have followed.

I think that's a win win for all. Ignore my comments and take in some of the other great things that come from my seemingly very polarizing viewpoints. Lots of ideas. That's what the world is about. I never claimed to be right about everything. I'm just trying to get people talking.

Posted by: 11217 at February 9, 2009 9:04 PM

How does he fit that enormous ego in that tiny apartment?

Posted by: Oleg at February 9, 2009 9:24 PM

So interesting that there are so many posters today who are just now commenting for the very first time on brownstoner!

Either what I just said is true or commenters are creating multiple log-in names.

Either one is great!

Posted by: 11217 at February 9, 2009 9:35 PM

Really, 11217, a blog is not a substitute for real human interaction, you seem like a bit of a lost soul. Listen to me: turn off the computer! Comb your hair, go for a walk.
Try and meet people, although I understand that may be a bit of a challenge. Maybe there is a vegan, all-windpower, back-to-the-sixteenth-century group you could join in Park Slope, Oh, come on, there's gotta be. Once you start actually interacting with human beings, you can put the whole blog thing in perspective, and maybe you won't feel so depressed.
Really, I know you think I'm old and therefore disposable, but old people sometimes know stuff. Turn off the computer, go to a movie. And take your meds!!!
OK?

Posted by: sam at February 9, 2009 9:45 PM

Does anyone know what he means by "since January 20th"? -in the 9:04 post? That is so creepy. What happened January 20?

Posted by: sam at February 9, 2009 10:00 PM

11217 should go work make some money for the heavy losses around the corner or make money and buy something bigger--perhaps a brownstone.

Posted by: MaplewoodGuy at February 9, 2009 10:16 PM

Hang on to your condo,coop don't worry about it being worth less for now, just live in it and when the market comes back and it always does your equity will go through the roof.

Sam-- your hilarious Oh yes on January 20th a socialist was elected president.

God help us... believe me he will be out in 2012. In 2 years republicans will take back congress. But I would rather have the whole toilet (congress) flushed out and term limits in place so it wouldn't be corrupted as it is today.

That alleged press conference last night was a speech. He's going to let Pelosi and Reid destroy our economy.

Posted by: harrythehat at February 10, 2009 7:42 AM

harry - Did you just wake up from an eight year nap?

Posted by: SnarkSlope at February 10, 2009 7:45 AM

snark - Typical far left liberal, going no where, doing nothing, very upset with people who actually work for a living, thinking Obama is the Messiah, believing the world owes them a living, am I right? Maybe, maybe not but i have reas some of your posts, seems like you are the one sleeping and haven't woken up since birth.

Posted by: harrythehat at February 10, 2009 8:08 AM

Oh harry, you typical windbag. What makes you think I am upset with people (like myself) who work for a living? What makes you think I think Obama is the messiah?

Are you right? No, actually you are wrong on every count. But go with your strengths.

Posted by: SnarkSlope at February 10, 2009 8:34 AM

Property is pretty darn cheap right now. And there is still good property. Buildings that are largely sold, largely paid off, already at 50% or more. Relatively safe buildings and they are priced well right now, at or getting close to cost.

If you’re waiting for the market to get cheaper (less then cost)… then you are planning to buy a high risk unit from buildings under duress. More typically this stuff is picked up by investors who have the stomach and tolerance for it. Most home buyers can’t live with huge vacancy… transient tenants, no services… lawsuits… no ability to re-sell for years, huge assessments that are unpredictable and the possibility of their home becoming effectively uninhabitable.

I think the market overall is well priced right now, I really do. But there should be and I think there will eventually be as the market adjusts a price difference between a largely sold, largely occupied, basically safe building and a largely unsold, un-built, unoccupied extremely vulnerable building. It hasn’t happened yet, but I think that it will and I think that’s where we are going to see further drops.

Posted by: g123 at February 10, 2009 9:28 AM

g123 - The overwhelming consensus is that prices have barely begun to fall in NYC so no, the market is not even close to "well priced" right now, unless you're a seller hoping (unrealistically) to fetch current prices. Just wait til next winter and beyond.

Posted by: Miss Muffett at February 11, 2009 12:57 PM

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