What Lies Beneath?
Now that everyone’s had the weekend to digest last week’s insanity, how you feelin’ about ye olde real estate market here in Brooklyn? It’s been clear for a while that the some fringe areas are in for tough times, but how about the most blue chip ones like Brooklyn Heights and the choicest parts of…
Now that everyone’s had the weekend to digest last week’s insanity, how you feelin’ about ye olde real estate market here in Brooklyn? It’s been clear for a while that the some fringe areas are in for tough times, but how about the most blue chip ones like Brooklyn Heights and the choicest parts of Park Slope? How about some of those right in the middle like Clinton Hill? How far do you think they’ll end up falling from their peaks when all’s said and done?
Brooklyn Heights
Clinton Hill
Bed Stuy
Wall Street Reorg: Impact on Real Estate? [Brownstoner]
Photo by Gregory Taylor
I think lechacal is a bit panicky, but on the right track. What makes this crisis unique is it’s based on the fact that none of these junk loans have any money backing them. It’s all gone. It’s not magically going to get balanced.
So the question is how long this will last, and my feeling is that this will last for years. And frankly, if property values are down and you’re in it for the long haul, this is no big deal. Flippers need to be concerned. Also, I’d dare say expect lots of small boutiques and restaurants shutting down. This is not the economy or market for stuff that has a flaky business plan.
Lechacal–please keep us posted as to how its going (haha). All kidding aside, I have no idea exactly what you do but since you are right there in the thick of it I sure hope you continue to post on what’s going on. I can see how it could turn into a panic I think. The whole thing is built on perception more than any real structure so when the perception is the foundation is shaky it must be a very disconcerting feeling for any big investors.
God help us? That sounds bad.
No wasder, nothing that principled. Large groups of people aren’t really capable of principled thought.
From where I sit (currently, in my office near Wall Street, where I have been almost nonstop for the past week, right smack dab in the middle of all of this), I can offer my belief that the general public, and even the vast majority of those who consider themselves informed, have no idea how quickly the current financial situation could turn into a panic. Or it could boil away like it never happened. I have never seen a situation so volatile on such a large scale. But volatility works both ways. This could get very bad very quickly, or it could go away very quickly.
And if this gets very bad quickly, God help us all.
The financial industries are not being brought down by “irrational” panic, but by their own terrible investments, which have left them insolvent.
If you lend money to people who have no reasonable expectation of paying it back except by selling overpriced real estate to other people for even higher prices, and then take the loans and shuffle them around to investors who don’t understand what stands behind them, sooner or later there is going to be a problem.
Our bad luck is that it was later, so the problem is quite large. Someone, presumably US taxpayers or our lenders (i.e., the Chinese), is going to have to pay $1-3 trillion to repair the damage they’ve done.
NY incomes are going to drop faster than in the rest of the country, since more of them are directly or indirectly tied to the recently deceased business model. In a rational market, which this has not been for the last 6-8 years, that would lead to a sharp and dramatic real estate price drop, even if prices were not bubble-inflated to begin with.
If I remember correctly, in Tokyo’s bubble bursting, real estate values dropped 85%. Our bubble is by most measures no smaller.
Legion–a brave post no doubt. Hope you are right about some or all of that, but god knows I am not about to make any grand prognostication at this point. Thanks for your thoughts though. Clearly there is an irrational level to the market’s behavior these last few weeks but it is unclear whether the bail out will succeed in restoring order. Also, yes we have other industries and some of them (films and television seem to do OK in recessions) will not be directly affected by the crisis, but alot of spheres of modern life are tangled up in Wall Street somehow or another. Definitely some kind of re-organization/restructuring is taking place in our finance industry, unlike anything we have seen before, and it remains to be seen how effective it will be and how long it will take before we see the results.
Wow Lechacal. What is the basis for your guesstimate about the possibility of civil unrest? Frustration of the lower middle class exploding against the elite political/economic class for having to bail them out of their own mess? Something like that?
boy oh boy,
with this many people on one side of the issue, I have got to take the contrarian position.
1. Despite all the breathless pronouncements of doom, what we are talking about is a widespread panic over a 2% stake in the overall mortgage market. A mortgage market that makes up a small percentage of the overall economy.95% of mortgage holders are paying their mortgages dutifully.
2. This is not to say that the market wasn’t overextended and underregulated. It is to say that these giant companies are falling because of irrational fear. Fear that is clearly evident on this thread. And that is forcing institutional investors to make a run to the banks and investment houses, much like that scene in It’s a Wonderful Life where all the townsfolk bum rush the Bailey Savings and Loan. But times a billion.
3. The world will go on.
4. Credit will tighten.
5. Oil will decrease in value. Leading to increased corporate profits due to decreased transportation and fuel costs.
6. Large scale economizing will take root and companies and families will begin to see profits again. As they did in the past.
7. The concept of capitalism is not dead, simply under re-examination.
8. Even a taxpayer backed bail out of a Trillion dollars is a fraction of the overall US Gross Domestic Product.
9. Lose your illusion of money as anything more than an intangible promise backed by the strength of the nation whose name is printed on it. In other words a transformative event like an invasion or a pandemic could make 10 trillion dollars worthless in a week. What good is money when there is no nation behind it. A billion Sadam Hussein dollars is worth less than monopoly money right about now.
10. We have other industries in this country in case you folks haven’t noticed, such as, tech, pharm, energy, aviation, farming, armaments, health, media, food service/restaurant, mining, etc., etc.
11. real estate pullback yes, great depression….ain’t gonna happen.
I take that back. 25% chance, not 40%. Like the housing crash, it would not start in New York but it would eventually find its way here.
To be clear, I do not think this is likely. 25% means 3 to 1 odds of it not happening.
In my view there is an approximately 40% of widespread civil unrest in the next two weeks.