"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…
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
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!
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?
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).
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..
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”.
“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”
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.
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.
(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.