“The New Normal” In New York
Newsday reports from New York. “The new normal of real estate, For Sale signs on every block and slipping prices, is here to stay, at least for a little while. The median price of a home in Nassau County was $480,000 last month, 4 percent, or $20,000, lower than a year ago, according to data released Thursday by the Long Island Multiple Listing Service.”
“Perhaps even more significant was the disparity between the continued increase in inventory, by about 50 percent annually, and the annual decline in the number of closed sales, 20 percent for Nassau, 24 percent for Suffolk. Gross dollar volume of closed sales is down too, 6.5 percent less than a year ago, a decline that could ripple through the economy.”
“‘Real estate has been a driving force in the Long Island economy for the past five years and, to some extent, for the last decade,’ said Pearl Kamer, chief economist of the Long Island Association. She said that the market affects spending and jobs, and a downturn could slow the economy overall.”
“It would take 13 months for the homes listed in Suffolk and Queens to sell at the current pace. Nassau has an 11 months’ supply. Many potential buyers are on the sidelines, but low interest rates may bring some new ones, said Judy Markowitz, broker in Flushing. ‘But there’s still not going to be enough buyers to absorb all the inventory.’”
“That’s especially true, Markowitz noted, because asking prices in some areas are still rising. ‘Sellers will need to negotiate if they want to be the bride rather than the bridesmaid,’ she added.”
“The problem, said buyers agent Beth Marten, is that sellers and buyers alike are following a ‘herd mentality.’ When the boom began, buyers paid whatever they could to get a house. Now, the opposite is true. But buyer be aware, said Marten: ‘There are good deals that can occur at any given moment.’”
The New York Observer. “The housing market has been nudging downward for a while now. Add one more factor: the overhaul, recommended this morning by the city housing department, of the so-called 421a tax break. Housing commissioner Shaun Donovan said in a conference call this morning that condo ‘prices would potentially go down to some degree’ in neighborhoods where the abatements would be eliminated.”
“In those neighborhoods, like Tribeca, the Financial District, Dumbo and Brooklyn Heights, prices have been inflated by about 50 percent of the value of those abatements, he said.” Just how much difference would that make? The abatements were worth $40,000 to $210,000 over their lifetimes, so prices would come down $20,000 to $105,000 just because of that one change. ‘It’s very clear that implementing these changes in a measured way over time is the right way to do this so that there is not a one-time significant impact,’ Donovan told reporters.”
“That said, Mayor Bloomberg said early this year that real estate prices were too high, so we don’t imagine he is too worried.”
The New York Sun. “Clearly the boom in the condominium market we were experiencing over the last few years and reached its peak about 12 months ago has cooled and the bloom is off the rose.”
“The vice president and regional manager at Fremont Investment & Loan, Patrick Crandall chimed in: ‘In terms of Manhattan, while its true inventories are climbing, it is really only in comparison to the frenzied absorption we have seen for the past several years. Buyers now know they have time to think and shop before making their purchase decision. I think buyers are taking longer to commit than they otherwise might, because they keep reading about an impending market decline in the papers and fear if they buy now their apartment will lose value.’”
“‘While some ill conceived, poorly located, or overpriced condominium projects will likely suffer somewhat in the marketplace, well designed, well located, and smartly conceived projects should sell nicely, though, perhaps, not as rapidly as a year ago,’ said Robert Ivanhoe.”
“‘The residential market in Hoboken, Jersey City, and Philadelphia has slowed though quality unique projects are still selling,’ the principal of Hoboken Brownstone Company, Daniel Gans, said. ‘There is a lot of product being built and until that inventory is soaked up new starts will continue to slow down.’”
“A partner at Apollo Real Estate Advisors LP, William McCahill said, ‘Once the market perceives that prices have hit the floor, demand will return, stronger than most expect. Right now the market sees a falling knife which no one wants to grasp because of fear of injury. Financing for new condo projects and conversions are beginning to dry up. Once the press stops making negative predictions on housing prices, the boomers may start to snap up available inventory,’ he said.”
“Principal at Stellar Management, Robert Rosania said, ‘It is impossible for one environment to totally avoid what every other location has felt. With so much supply coming to market, the market is ripe for a major correction.’”
Starting to see “takeover” payments on Craig’s List here in little-old Ithaca, the shining star of Upstate NY. Actually, it is just one so far, and Craig’s List staff keep taking it down (so I cannot link). But considering how late we were to the run up, I was not expecting this so soon.
Contagion may result in more tightly correlated timing on the way down. All this talk in the MSM about “no bursting bubble” and “no crash” may eventually cause the sheeple to smell danger.
As I walked through Seaford, LI this morning with my friend, a homeowner, we couldn’t get over the amount houses in the neighborhood were going for even though the inventory is not moving. A flipper down the block, that hasn’t done any work on the house in the past year, recently started gutting it….then stopped all together. My friend and I call it the boil on the butt of Seaford. This guys wants 399k for this gutted out POS, on a main street no less….
it boggles the mind.
Welcome to everybody and their brother now trying to call the floor of the housing market . As if buyers at this point would trust industry people in the news these days .
Remember how LV LANDLORD would talk about her Las Vegas market and how it already had its correction .
The mania is gone , buyers are starting to think for a change .
Foreclosures in Nevada:
http://www.lasvegassun.com/sunbin/stories/sun/2006/oct/13/566657865.html
The new mania.
“buyers are starting to think for a change.” Thinking this way will get you in trouble every single time. We didn’t get where we are by buyers thinking and we won’t get out of it that way either.
Josh
- A partner at Apollo Real Estate Advisors LP, William McCahill said,
- Once the press stops making negative predictions on housing prices,
- the boomers may start to snap up available inventory,’ he said.”
Now it’s clear … the press was making negative predictions.
William McCahill said,
- Once the press stops making negative predictions on housing prices,
- the boomers may start to snap up available inventory,’
ADD this name to the Bubble Hall of Shame….
Where has Gary Watts been? Leslie Appleton-Young? David Lehear?
God, I miss the good old days of the economist/experts predicting the market. Any other names you would like to add?
Add Carol Lloyd from SFgate. Another KoolAid drinker in my opinion. Even Gin, although he has seen the change in his tea leaves, and has turned bearish.
Once the press stops making negative comments about Tulips, Beanie Babies, pet rocks, the investors may start to snap up available inventory, and I will get my well deserved 1,000% profit.
‘Sellers will need to negotiate if they want to be the bride rather than the bridesmaid,’ she added.”
Well. I think most buyers want an annullment.
Or at least a postponement.
I’m thinking “Run Away Bride”
I’ll live in sin, thanks
“…I think most buyers want an annulment”.
Right. Buy their house, and everyone gets screwed on the honeymoon.
“buyers and sellers following a herd mentality”
So what’s new ?
Down is the new up.
Debt is the new wealth.
“Yes darling, those people must be poor, they don’t have a single maxed out credit card.”
The new normal is black.
For those who don’t know, the 421a program exempts new development from property taxes for years and years. It was implemented in the 1970s to entice people back into the city.
During the 1980s revival, an “exclusion zone” was created in the best off areas of Manhattan, limiting the breaks and requiring subdizied units be made available to the less well off in exchange for them. The result was a rush to build under the old rules, one that exacerbated the subsequent bust.
This proposal, in effect, would both expand the exclusion zone to capture the additional areas of the city that have gentrified since 1985 and tighten the rules within it.
New York multi-family construction is already proceeding at rates not seen since the 1960s. A ‘beat the rules’ and ‘beat the bust’ rush could really generate some “affordable housing” here.
WT,
So is the net effect a reduction in the tax breaks, or an increase?
I’m all in favor of removing special treatment to housing (tax breaks) that artificially raise prices.
is all that wall street bonus money stuck on manhattan island?
The leading edge of price reductions in Arizona:
http://www.eastvalleytribune.com/index.php?sty=76452
If these are Dutch auctions, then things could get VERY ugly. For the sellers, of course.
Thanks, Tortious (i’m in the east right now). East Valley Tribune says “Houses [sold at auction] may come in at prices lower than the seller hoped for.” And of course, houses listed with an agent in 2006 may come in at 2007’s auction price (in 2007). I have an idea that even the auction prices are going to fall as people realize this thing is going to correct to rent-equivalent prices or less.
About 2 yrs ago a job transfer put me out here on Long Island. Comparing the median income to the median house price, it was apparent to me that the market was out of whack. It continued to climb; up until about 8 months ago when it peaked. The decline has started, but the question is how far will it go? Maybe its wishful thinking because I’m on the outside looking in, but I’d be willing to bet that prices are going to fall a MINIMUM of 20% out here on the island over the next 3 to 5 years.
I also am of the opinion that out here on Long Island, illegal apartments contributed to the run up in house prices. My guess is if it weren’t for people renting out their basements for $1,200+/month, a good portion of the middle class would not be able to afford their mortgages. Even at 6% for 30 yrs , $400k cost $2,400 BEFORE taxes, insc., etc. Even making 6 figures, that’s a tough nut to crack.
Am I the only one who thinks that this house of cards will come crashing down harder than most would care to admit to?
“….here on Long Island, illegal apartments contributed to the run up in house prices.”
Just a comment here - it is next to impossible to find a legal, decent rental on LI.
Well if you think illegal renting was blossoming in boom times, wait till you see what happens during the bust. As is typical in NYC, folks will carve up their homes and rent to as many folks as they can to make it work..
First Timer, Long Island is a weird place because the rental market is so poor.
The illegal renting of basements, attics, first floors, second floors, etc. definitely adds to the problem of housing prices and if you are not willing to play the game, you lose out in the type of house you can get. But I have noticed that a lot of that activity goes on in neighborhoods with a lot of minorities where the community desires (rationally or irrationally) to stick together.
Go to Syosset for example and you’ll see much less of that and hence housing values, while still expensive, are a lot closer to reality these days.
Eventually the market sorts itself out. There was illegal renting in 1995 and 2000 and eventually supply and demand of even illegal housing stock pressures the rent versus buy envelope.
4% ?
try 14%
thats if you want to actually sell it
off 10% in 22151
The resale sellers and builders are in entirely different camps. All you have to do is look for the regulatory oversight on each. Builders borrow from banks and often have stockholders. Banks do not go BK so this is where the buck stops one level of oversight. Builders will be the first over the cliff. Resellers on the other hand answer to non-bank mortgage outfits. These outfits are backed with hedge fund funny money. Hedge funds are non-regulated, and only answer to investors. So in order for you to get a house from a reseller you will have to wait for three events to occur. The seller must default, the mortgage house must close shop, and the invester in the hedge fund must force a sale at auction. This is a long road,( two maybe three years) and as you see you will be buying from an auction house and not the reseller.
BTW
Supposed journalist, please stop quoting the cheerleaders. They are down by a mile with less than a minute left to play. Screaming defence at this point is just annoying.
(So is the net effect a reduction in the tax breaks, or an increase? I’m all in favor of removing special treatment to housing (tax breaks) that artificially raise prices. )
It is a decrease in the area where the tax breaks are available for new development without restrictions. Hence the opposition of developers.
That NY Sun editorial is infuriating; it’s merely a litany of familiar spins from “experts” whose careers depend on selling condominiums.
Unfortunately, a lot of people here in NYC seem to be in agreement with this guy. The prevailing view around here seems to be that “things have settled down, nothing’s going to make you rich anymore but nothing’s going to decline, either”. I was at a cocktail party the other night and found myself in a discussion with a bunch of otherwise astute people, none of whom agreed with my bearish outlook.
I guess it’s fair to say that for there to be a severe short-term correction in NYC, it’s going to take a shock to the economy, interest rates, etc. As it is, too many people seem to think it’s absolutely fine to pay $1,500 per square foot for an apartment, and too many other hopefuls are standing by in Queens or Jersey with dreams of moving into the city if it gets a little more affordable. Personally, I believe there probably WILL be such a catalytic shock in the next year or two, so we’ll see.
In general, I think we’re into a bounce phase (i.e., suckers’ rally from my standpoint) right now. Interest rates are low, gas is cheap, and a lot of people are starting to think the real estate is at NASDAQ-slowdown 1994 rather than NASDAQ-meltdown 1999. Of course the blood continues to flow in many god-forsaken exurbs, but the patience of bears in places like NYC is being tested right now.
I feel your pain, LowTenent.
I am also a bear, in NYC, and it feels just like it did being a bear in Phx 3 years ago. People either think I don’t ‘get it’, or they are reallly offended (if they own), or usually both. I can’t talk about my favorite topic at all. And just like before, in AZ, I occasionally doubt my own sanity in the few moments of the day when I am not reading this blog.
But, after looking at the data, I do think there will be a significant correction here,in NY, and even in NYC. It is going to be stickier and way slower down than less glam spots like FL or AZ, because of out of state and out of country money swoooping in at false bottoms, but it will happen here, for the following reasons:
-There are many New Yorkers with Arms.
-Many New Yorkers have second homes (or really they are often the first homes; the buyers are keeing their NYC apts) they can’t afford (e.g. the Catskills). Many bought them recently.
-Overbuilding in the city. I can’t go outside or open up a magazine without getting assaulted by an Ad for another LUXURY CONDO. Developer groups are clearly in trouble. Even here in NYC, there are significan’t buildings in progress (and the people from Hoboken might dream of living here, but the exodus to Brooklyn is beginning to make NYC much less desirable.). And its already too crowded here. I mean, really. 6M people was kinda perfect. 8M feels VERY congested. And now they are planning for 9-10M people living here? Get me out.
- They are overbuilding in Brooklyn. Williamsburg and Greenpoint have ALOT of new construction. And I mean, alot. The skyline is filled with Cranes.
I guess it’s fair to say that for there to be a severe short-term correction in NYC, it’s going to take a shock to the economy, interest rates, etc.
I’m betting that a good old 1929-style market crash oughtta do it.
“Financing for new condo projects and conversions are beginning to dry up. Once the press stops making negative predictions on housing prices, the boomers may start to snap up available inventory,’ he said.”
Come on now…are boomers really that dumb?
“Snap up” — oh, how I loathe that term.
Oh I don’t know.
Now the term ‘alligator’ is becoming popular to describe money-eating specuvestments, ’snap up’ is starting to have a certain ring . . .
Prof. Schiller is calling the mean at about 20% to 25% over 1997 prices.. I think that’s right, and I think that means a 40% to 50% drop in prices in LI and queens. Houses in my area of Queens are still going for around $600,000 (down from $700,000 last year).
In 97 they were around $250,000. The run up in prices is unjustified by basic economics and can I see these homes going down to the $350,000 range.
I can see them going down a lot more than that. For a slightly different example, there is no reason on earth that a crappy little old house in Baldwin, LI (that I used to own) should sell for $350,000, which is the Zillow “Zestimate”. It was quite fully priced when I bought it in 1984 at $117,000.
*sigh* Not a lot of math majors on this board.
4% inflation for 20 years = 120% inflation
Compound interest is a bitch.