Why aren't '99-2000 prices possible? 50% drop?

why is it inconceivable? that's a trick question. it is not inconceivable at all--although i think prices will have to decline more like 70% on average to reach 2000 levels.

There's a pretty good proxy for Manhattan here:

http://350bleecker.com/policy/sales.html

with sale prices all the way back to 1998. For co-ops. Unheard of elsewhere.

hey steve, that's awesome info.

As a logarithm that chart would look even more interesting. It would show that from beginning of '98 to mid '00 ($1000 to $2000) there is a doubling in price over just 18 or so months. So that bears out my own recollection (albeit imperfect) that there were huge runups at that time. I remember friends leaving the city as their rents at the time jumped 20-30% over each of two consecutive yearly lease renewals. It took 4 years to do the next doubling though that might have been slowed a little by the recession and 9/11.

So the big increases weren't actually as dramatic in '05-'07 as they were earlier. That doesn't mean that they didn't exist, only that the scope was less. It must have been those dramatic increases that fueled the expansion into new neighborhoods and added the demand to build new inventory.

I guess that is really my point, that 2000, though 60-70% from where we are now, wasn't some deep dark depth of a real estate cycle but was double what the previous cycle had achieved and perhaps then some.

I concede that such a drop would be monumental and for some devastating. But that doesn't mean it is impossible or even improbable.

In 1999--2000, we didn't have the "risk-free" treasury yielding 1 or 2 %. What an investor can earn in alternative, safe investmetns will have a bearing on prices they pay for blue chip investments like manhattan apartments. Ultra low interest rates feed the mania, and they may soften the decline. Price declines could be more painful if Manhattan vacancy rates increase from their traditionally low levels.

Awesome info, Steve. A microcosm of the Manhattan market?

1998: apt 4U $117,500
2006: apt 4U $625,000

over 425% increase in 8 yrs. Tulips & tech stocks.

So, in 2009, where will this apt trade? $300k?

205 Third Avenue one bedroom '99 $210k

I'm afraid I was on the Board of Directors and I opposed posting that information at the time, but now I'm glad I did. It's not perfect, but it's the best Case-Shiller type information I know of since co-op prices weren't recorded back then, and there were very few condos.

I predict 2003 prices. Apartment 4G is for sale for $1.14 million. It sold for $675,000 in 2003. Apartment 2P - also a 2-bedroom but with a worse layout on a lower floor facing 10th rather than Charles Streets, sold last year for $1.3 million.

So already prices are down about 15%. Plenty of room to go.

BTW the prices in 1988 - at conversion - were about similar to the prices in 1998: about $1,100 per share.

but now I'm glad THEY did

Fair enough. Except that those low interest rates are sure not igniting an interest in other alternative investments that are more liquid and where you would see the results much more quickly. Commodities are down and still dropping, even gold is down since the drop in rates. And one can get a reasonable yield on the debt or equity of strong companies where there are actual cash flows and the investment is not predicated entirely on the value of the underlying asset. So while low rates fueled us up to this point, today they are there just to keep us from crashing. And when that danger is over, rates will go way up to sop up all the extra currency dumped into the market.

You also touched on another fundamental. Demand. But will that demand exist if we go back to an age of fewer securities, fewer complex transactions, and less leverage? How many bankers worked in NY in 2000 versus will be here in 2009? Will there be profits in those industries to handle $300-500k salaries for enough middle level people to absorb NY real estate at $1.5 million/apt. prices? '99-2000 were boom times in finance which we don't exactly have right now. So are the prices of back then possible? I think it is so low people aren't even asking that question.

Anything is possible - I never thought Berlin Wall would come down in my lifetime (2 Germanys unify) or that China would host the Olympics or lots and lots of things.

I moved here in '98 and prices doubled the year after - the real difference in the last 10 years has been the number of 20-somethings like myself who stayed on to have families. 20 years ago, most of us would have headed for the suburbs. Not to mention the mecca NYC has become, yes in part because of SATC and
the lack of real metropolitan alternatives in the U.S.

NYC10023 Makes the best point of "why it's different this time". The problem is the context and the trajectory. The trajectory of so many factors have changed. Will some decide to change their minds? Will the new realities affect how many can afford NY life at the price it is today? After all, some of those 20-somethings bought in to NY for the long haul, but they did it at '03, or even '00 prices, which are decidedly different from what we have now.

Personally I think the real estate overreached. I think '03-'04 prices are a definite with a good chance we are headed to '00. '00 was not a bad place. And it shouldn't scare off those who bought later if they still love the city. What it will do is shake out the "weak holders" and the investors who thought real estate was a way to make money without actually working for it.

"I moved here in '98 and prices doubled the year after "

Why did RE double after 1998? Just the progression of the bubble? What propelled the bubble at that point?

For all the joyous out there regaling at lower mortgage rates, while it is without doubt a net positive that rates are moving lower, remember that lower rates have already worked through much of the real estate valuations of the last few years. We've already blown up that balloon and each successive breath has lesser impact. Asset prices responded to lower rates throughout the last 5 years so hard to see how it packs the same punch. Also, higher equity components required today (mostly 10% higher from the apt's i've visited) will offset much of the ballast from lower rates. Prices/SF in the city were $600 or so for co-ops in 2003, and that was after 6/7 yrs of sustained higher pricing and 3/4 yrs of double digit price increases. That was unprecedented and clearly unsustainable. The lesson of most bubbles (greater than 3 std's from mean) is that previous cyclical gains are wiped out. I would not expect a 70% decline from the peak but 50% or seems quite reasonable, and 30% pretty certain. The other thing I have not seen written about (yet) is how many of the older homeowners with built in equity may monetize that equity in light of retirement savings destruction?

> NYC10023 Makes the best point of "why it's different this time".

Don't forget the other "why its different" on the other side... we've never had price appreciation like this. All those "why its different" were factored in and then some. You don't need them to completely go away to see major declines...

> the lack of real metropolitan alternatives in the U.S.

I have to call bs on that one, though. 20 years ago, there was very little competition in terms of vibrant downtowns with life and transportation and such. But even city has been adding back what they lost. St. Louis was a GHOST TOWN 15 years back, and now its got a humming downtown. Baltimore, with the stadium. San Diego added a downtown it never had. TONS of examples. Hell, places like Milwaukee even trying to do the same thing.

Not saying its the same thing, at all. But for the last 10 years cities have been trying to follow NYC's lead...

If they stock market can drop to the 1998 levels -- real estate may give back as well -- especially if credit is scarce.

They're not real "downtowns" in the sense that NYC is. I have never felt that any other city in the States had families living their lives in the city, in the same kind of density.

nyc10023: I think you need some stats to back that statement up. Didn't we just read last week that 80% or so of NYC apts were single occupancy? You probably won't get that feeling anywhere else in U.S. because there are no other cities of the same scale and density of NYC, period, irrespective of families or not. However, abroad, there are probably 20-25 cities that may fit your metric.

I think San Francisco is the only American city that remotely resembles NYC. The density, the bias against chain stores, the many distinct neighborhoods, the fact that a car is not so much a necessity ... and SF's condo prices are still kinda high.

Oh I guess I forgot rufus's favorite place. But people actually want to visit NYC and SF.

Has anyone heard of 900psf for units in Tribeca?

sticky,

i am a die-hard new yorker and really wouldn't want to live anywhere else in the united states. but i would propose boston, minneapolis, philadelphia, washington, dc, chicago, seattle, portland, san francisco, and miami as cities with dense, walkable urban cores, significant cultural and economic activity, and (perhaps aside from DC) strong local personality.

i would also argue that many of america's smaller cities are extremely pleasant urban environments, often surrounding a great university: ann arbor, cambridge, chapel hill, berkley, annapolis, charleston.

there are tons of families living in downtown boston, central seattle, all areas of portland, certainly central areas of chicago. it;s great to love nyc, but don't get hyperbolic.

chapel hill, north carolina is a terrific, walking (not everywhere) city.

Haven't been to Minneapolis or Portland, but disagree with your examples - my point was not that they lacked downtown cores or cultural activities but that there is no other American city where there are so many families living at such a great density - that in itself enables a carless lifestyle because of the concentration of services. Of course, things may change.

I love college towns, but they don't have the same density.

As for hard core stats, no I don't have any . But just looking at the number of families within a 10-block radius of where I live, and the services that go with that particular demographic, I would say that there are a lot of kids - not necessarily that they dominate the population (yes, there are SROs on my block) but it's an entirely a different feeling from an urban core with mostly singles/couples.

I've looked and looked and unless the school situation becomes do-or-die or our income goes to zero, here we'll stay. I can't see settling anywhere other than NYC in the U.S. London would be our next move.

> They're not real "downtowns" in the sense that NYC is. I have never felt that any other city in the
> States had families living their lives in the city, in the same kind of density.

Doesn't have to be, just has to be somewhere in the range to make the case.

Hell, we managed to get TONS of folk to move to Brooklyn, and it is less dense than the downtowns of most of the cities mentioned.

So, like it or not, there is more competition than ever. And less money for everyone.

Doesn't bode very well for prices.

I am with nyc10023 on this - I've traveled a ton, both in the US and outside, and would not consider any other place in the US as a "city" in the sense NYC is. Lovely places, lovely people, but totally different. SF comes the closest, but is so much smaller, and still pretty different. Just an opinion, obviously.

no one is saying that nyc is not a unique place in this country and in the world. but that doesnt mean that there are no other cities with density and no other downtowns with families. there are.

> and would not consider any other place in the US as a "city" in the sense NYC is.

Nonsensical argument. No other city in the US is a city in the sense that SF is. Or Washington is. You can put 50 cities in that list.

But they compete with each other, plain and simple. To claim otherwise is idiotic.
There is more competition now, that is the point. It doesn't have to be even competition to have an effect.

"no one is saying that nyc is not a unique place in this country and in the world. but that doesnt mean that there are no other cities with density and no other downtowns with families. there are."

Bingo, happyrenter...

Back to the OP's topic, there's no one who wants housing prices in nyc to come back in line with incomes more than I do. But I have begun to believe the saying "don't fight the FED". I believe the FED and the local and national government will do everything conceivable to reignite a new bubble, and to stop further price losses on real estate. I'm not saying that prices can't drop further here. What I am saying is that just when I/we think that prices will return to normal the govt will start some new crazy program to incentivize living beyond your means. I don't know what that will be -- maybe we'll all get checks in the mail for 200k to put towards the purchase of a condo -- they'll think of something. I keep hearing a line from that old Eddie Murphy movie Trading Places when the money's all been lost and the rich guy yells to the floor of the NYSE "Turn the machines back on!" That's what the govt will be doing.

I disagree that they compete with each other. Honestly wouldn't consider living in any of those - would move to London or Rome or Paris before I'd move to SF or DC.

They might not compete for you, but that doesn't mean they don't compete. TONS of folks move between NYC and other American cities. Whether you think they should or not doesn't matter, they do...

BTW, Times recently had an article about mass migration from NYC to Atlanta...

Eeek, Atlanta! Land of no sidewalks.