Pam Liebman: Brooklyn Doing Better Than the Rest

DIBS, I would respond that they will suffer the same fate, just to a lesser degree.

I am increasingly surprised by how much differences there is between what is going on in Manhattan and what is going on in Brooklyn. I have been predicting this for some time now (pat on the back) but I didn't think it would be this stark. Not to say Brooklyn prices aren't coming down more of course, and not to say I'm not going to keep sitting on the sidelines for a while...

Posted by: lechacal at May 7, 2009 9:37 AM

DIBS, I would respond that they will suffer the same fate, just to a lesser degree.

I am increasingly surprised by how much of a difference there is between what is going on in Manhattan and what is going on in Brooklyn. I have been predicting this for some time now (pat on the back) but I didn't think it would be this stark. Not to say Brooklyn prices aren't coming down more of course, and not to say I'm not going to keep sitting on the sidelines for a while...

Posted by: lechacal at May 7, 2009 9:38 AM

Mr B and others: Good article on page C-1 of the WSJ today. Really drives home the pressure on the Manhattan market right now (nominally on condos, but the hip bone is connected to the leg bone etc).

Posted by: lechacal at May 7, 2009 9:40 AM

I stand by my prediction that there will be a meaningful increase in supply in Brooklyn in the near term and that will be accompanied by further deterioration in prices. I will not buy until I see this happen.

The supply in Manhattan is starting to get pretty impressive. There is just a ton of supply in the $3mm plus range right now. Remember all those foreign buyers who were going to keep the market up forever? They turned into foreign sellers. And wall street.... we all know what happened.

But Manhattan is an island! There is limited supply! It costs too much to build! It's special and prices will only ever go up! Buy now or be priced out forever! To every broker and mouth-breathing bubble cheerleader who has ever given me these arguments, you can all kiss my ass. Line forms to the left.

The landing in Brooklyn will be softer. But at the end of the day I think that is actually good for people like me who will be buying in the next couple of years. It makes my purchase less risky as compared to someone who is buying on the dip in Manhattan.

Posted by: lechacal at May 7, 2009 10:01 AM

Rob: Differences include the following:

1. Many more owners in Manhattan are either speculators or bought as a second (or third, or whatev) home. This introduces a lot of risk in a downturn. Owners who are not residents have a greater incentive to take whatever price they get and run. Owners who are residents *may* be able to just keep living there and paying the mortgage.

2. A much bigger percentage owners in Manhattan come from the financial services industry (or used to).

3. Much bigger supply of new condos coming on the market. According to today's WSJ there are 4500 new condo units expected to hit the market in Manhattan this year. That is a huge number. There is also a big overhang in the Brooklyn condo market, but nothing even close to this (even adjusting for size of the market).

That being said, the markets are connected and weakness in Manhattan will affect Brooklyn. But I think the amount of decline will just be much bigger in Manhattan than in Brooklyn. I think the next couple of years are going to be crushingly bad in the Manhattan market. In Brooklyn prices will keep drifting down for a while but nothing like Manhattan.

Posted by: lechacal at May 7, 2009 10:10 AM

You heard it here first:

Go short Manhattan and long Westchester.

Posted by: lechacal at May 7, 2009 10:46 AM

Long westchester for the following reasons. This is about Manhattan vs. Westchester. Forget about brooklyn for now.

The rise of Manhattan real estate is closely tied to how comfortable middle class families are with living there. Living in Manhattan, you are pooling your tax dollars and sharing your fate with a huge number of people. And as long as the tide is rising and the streets are clean and safe and there is good subway service and you can send your kids to public school, a middle class life in Manhattan can be more rewarding and exciting than one in the suburbs. But when the tide goes out and that huge collective starts coming apart, suddenly it doesn't make so much sense to have your fate tied to so many things that are beyond your control. When crime is up and schools are on the decline and services are deteriorating, suddenly it makes sense for middle class people to buy into a smaller collective. Suddenly it sounds so much better to share the tax burden and pay for public school and police services only with other people who have middle class jobs and pay their taxes. Suddenly the boredom of suburban life sounds better than reading about murders on your block.

Thus long westchester and short manhattan.

Posted by: lechacal at May 7, 2009 11:37 AM

The price of gas is not particularly relevant to someone who commutes to work by metro north.

And heating oil costs the same in larchmont manor as it does in northern westchester.

Posted by: lechacal at May 7, 2009 11:45 AM

We all agree prices are going down in Brooklyn and I think we all agree they will continue to do so for some period of time. I think the disagreement is only about how much more prices will go down. Some of the more dire predictions seem to be intended to have a psychological effect (as if what you say here has any effect whatsoever on the market) rather than reflecting an objective analysis. I think I offer the latter.

As I have said many times, the market just doesn't care what any of us on this board have to say, so there really isn't much sense in doing a hard sell on your point of view. The market is going where it is going and time will be an impartial judge.

Posted by: lechacal at May 7, 2009 12:41 PM