apartment therapy changing the world, one room at a time

Even if prices are getting weaker we cannot count on Manhattan prices ever becoming reasonable. We'll be lucky if we see a 3 to 5% decrease, luckier still if prices just hold for a while.

Depends on how you define "deteriorating." If you define it as "not experience over-inflated 20% year-over-year price inflation", then yes, its deteriorating.

However, if you take the view of people who aren't newbies to real estate, its doing okay. The NYC market has definitely softened, as have most major urban markets - those which saw the most dramatic amount of development are softening the most - Miami, San Diego, Las Vegas, etc. But by softened, what we are seeing is year-over-year deflation in 2% range, with most of the softening at the higher end of the market. Single digit decreases after years of double digit increases is just normal and healthy. Bubbles are bad - they lead to a tremendous misallocation of capital which results in too many jobs in one part of the economy, and too little in another.

The bubble has burst -- expect prices to drop over the next year and a half. This blog has been so civil on the topic, but let me say what I have said frequently on Curbed, Gothamist and others -- everyone has been smoking real estate crack!

If you were here in the late 80's, you know what I mean. I knew lots of couples who started having kids and were stuck in 1 bedrooms because prices had fallen so much. It took a number of years before they could sell whithout losing their shirts. It's happening again. In the early 90's, you could pick up a 1 bdrm for $100k -- and damm, I wish I had! Save your pennies, Maxwell and SK -- opportunities are on their way! I'm not missing them this time!

New York Magazine's issue this week is all about NYC real estate. Their main story, Buy Low(er):

"Lo, the prophecy of falling real-estate prices hath finally come to pass. It’s a brand-new—and confusing—market. Here’s how to play it."

"If you were here in the late 80's, you know what I mean. I knew lots of couples who started having kids and were stuck in 1 bedrooms because prices had fallen so much. "

I don't understand this. If prices had increased, the 2br or 3br apartment they would have wanted to buy would have increased as well. Unless 1brs were changing in price at a different rate than larger apartments, the strength of the NYC housing market shouldn't really have affected their ability to move unless they were planning on buying a larger place outside of the city. Am I wrong on this?

Paluka, I think what he was saying was that people who had bought a 1-bedroom condo/coop were stuck with it in the late 80's because the market value of it dropped. In other words, they owed much more on their loan than what they would have been able to sell it for, so they had to stay put and wait for the values to rise again so they could make a profit or at least break even.

Ben -- thanks -- you're explanation is spot on!

Seriously, I think that for people who obviously NOT squeamish about renovation, there will always be something vaguely affordable since most buyers in Manhattan seem determined to find turn-key spaces.

There's a huge 1-br in my building that's only asking $549K, but the only thing that's been re-done in there is the floors.

Also... it depends on you. If you manage to save up enough actual cash that you can afford a nice fat down-payment, you'll be all set to swoop in on a bargain when the interest rates get so bad that no one else can buy anything.

It's funny how short people's memories are, but it's true: Real estate prices, even in the supposedly unique NYC market, do indeed FALL (and sometimes fall a LOT). Anyone around here in the early 90s should know better than to think that NYC real estate is a one-way investment.

Who knows, though, about this time. The city's economy is heavily dependent upon Wall Street, much more so than the rest of the country. And though the housing numbers look bad (or good, depending on your point of view), the stock market numbers seem fine.

Has real estate even really appreciated all that much over the past few years, in real dollar terms? The dollar has dropped in value substantially since Bush took office in 2001, and probably needs to drop more (and would, if China and Japan quit buying dollars in bulk). That has to be factored into the "rise" in real estate prices.

When I bought my old studio apartment in 1998 for $61K, the sellers had waited out the market by moving to a new state, and had been renting it out the whole time until they could just get what they still owed on it.

So at the closing, I got my mortgage from the same bank they were paying off. It would be VERY easy for me to forget their situation and just think about my practically tripling my money when I sold it, if I didn't keep hearing nightmare stories.

I have to say... a lot of people lately over-bought for what they could afford and there was a Times article that said that since co-op boards are pickier than banks about housing/income ratioss (or whatever they call them), that's why there are fewer foreclosures in the city, but there will STILL be some of those kinds of deals where people just have to get out, so keep your ear to the ground.

Take a look at the chart at the top of the article here:

http://www.curbed.com/archives/2006/09/05/curbed_roundtable_september_state_o_the_market_report.php

Notice the housing booms of the 70's and 80's, then look at the most recent ascent and tell me where that line is going next -- and then hang on!!! Wheeee!

remember that cute but tiny studio in the west village selling for $327,000 a month ago? FSBO owner just sent out an email last week announcing the new price of $315,000...and there's a good chance there will be a little more chopping later...

As a homeowner, and a reader of many real estate blogs, I think the price of studios will drop significantly. There are too many out there, and not enough demand. Perhaps also true for 1 bedrooms. But, 2 bedrooms, 3 bedrooms, brownstones etc. will drop only slightly as the demand continues to outweigh the supply. Maxwell, you ahve hope if you're looking for a substantial 1 bedroom that can be converted to a 2.

Fritz,

I totally agree. I think the only big drop will be with the next stock market crash. Or crime wave. But a market crash seems more likely right now, anyway.

personally, even outside of typical market fluctuations, i'm wondering what will happen to brooklyn real estate when all the condos that are going up in williamsburg, clinton hill, prospect heights, etc. finally hit the market over the next year. prices are at record highs in my neighborhood, but with double or triple the available units in the next year, i'm wondering how fast that'll change.

Frank: I know what you're saying, but you're not taking into account how New York City has changed in the last 25 years, plus in the 80's the market boom was based completely on wall street as was the bust. When the market bottomed out, a lot of people lost everything and had to get out, keep in mind that NYC was not even 1/2 as desirable a place for families to live in at that time nor was it a real long term desitination for singles or wealthy retirees the way it is now. Crime was out of control, the streets were dirty and the city was scary at night and during the day in many, many neighborhoods that today seem downright snooty. I was here too, I remember. But slowly it turned around and people wanted to stay, crime is still dropping if you believe the statistics (which eh, I do to some degree, but I know what it's like here now and what it was like in the 80's and these are two different cities) and because of those crazy 80's heights, Co-ops (many of which turned Co-op during the 80's boom years) got smart and starting asking for liquid assets equal to the cost of the apartments, even not so hot co-ops do this now, they won't get caught holding the bag. It's just that the market is sooooo different today and the buyers are soooo different and the bust will be so different. I think there will be moderate opportunities for bargains, but we are not going to see $500,000 decreases in prices not in Manhattan. oh, and look at the markets' close today, dude, it was nearly a record, wall street is more than rebounded from the 2001 troubles and the tech bust.

p.s. Don't be surprised if in 5 years we are seeing hte exact same cycle: rent is so high right now because people are nervous about buying, we will have a democrat in the white house next time (or I;m moving to Canada!) so the Fed will start finding ways to reduce interest rates again, wall street will keep booming and people will start investing in real estate again because borrowing is the best bet and bang we're booming again.

p.s.s. I don't spell check and I type 90 words a minute so I apologize for the typos.

p.s.s. I don't spell check and I type 90 words a minute so I apologize for the typos.

If you don't think your posts aren't important enough for you to check the spelling, why do you think others will think that they're important enough to read????

I got my mortgage from the same bank they were paying off. It would be VERY easy for me to forget their situation and just think about my practically tripling my money when I sold it, if I didn't keep hearing nightmare stories.

Online Paid Survey