First time post from a long time reader and active student of the Manhatten RE market for over two decades. I propose my assessment of the Manhattan RE at the macro level.

1. Rental market bottoms during Q3 '09 as turnover hits a peak and stable price points are reached. I expect a further 10% general correction as condo rentals continue to reprice rental buildings, with stronger corrections of 20% coming in the 'emerging markets' of FiDi/midtown west/harlem. I believe prices will remain low for a few years, however, anticipate a stronger base than we will see compared to the sales side.

2. Sales market will continues to remain dry with light activity ramping up in historically successful areas. I am concerned that pricing pressure for a majority of inventory will continue downwards through the rest of 2009/2010 and into 2011 with further declines of 25% on top of the 8%-15% I am currently seeing in a general sense.

3. As a typical contrarian, my instincts want to find a positive in the market to believe we are closing in on a bottom. Despite this, there is not a single indicator that exists which could even point to an imminent turnaround, and while the resiliency of Manhattan is hard to dispute, the reality of the wider economy prevails over time. Unemployment and taxes are on the rise, which makes a currently unaffordable market even more unaffordable.

4. If there is a long term positive, there is a growing pool of money on the sidelines. Regardless of this increasing trend, rent vs. buy calculations in Manhattan certainly will favor the renter as smart money will not take out a jumbo mortgage unless they have a sense of security in their ability to meet the obligations. The uncertainty that exists economically and in the job market will create the same irrational exuberance downwards that it created on the uptick. This is why speculation is so difficult as nobody can measure emotional decision making.

5. Crime and terrorism is a wild card and a potential 800lb gorilla in the room. History indicates that recession and economic downturns are met with increased crime and vandalism (not related to terrorism). City budgets will require a reduced police force which typically has a direct correlation with increasing crime rates. So many young families have urbanized in Manhattan and would be the first to abandon if they felt that safety was a concern. Anyone who ignores crime as a factor as significant as unemployment has not been around for a very long time. Anyone who doesn't know what terrorism can do to Manhattan RE has been around for even less time.

For the sake of transparency, I have owned in Manhattan since 1992 and expect to stay put until I die. I have bought and sold 3 times over the last 15+ years, starting with a 1br and purchasing a 3br on the UWS most recently in 2005. I expect to stay in my apartment until I die, at which point, I expect my wife and kids to keep the apartment as well. If your time horizon is like mine, opportunities will be about over the next couple years, but I don't believe there is any reason to rush or believe any broker that convincingly lays out a compelling reason to buy now. The Manhattan RE market must correct itself in order to be successful in the future, and I hope it does so in a way that doesn't take too many innocent people down with it.

All the best to all.

Thanks for the insight.

"3. As a typical contrarian, my instincts want to find a positive in the market to believe we are closing in on a bottom. Despite this, there is not a single indicator that exists which could even point to an imminent turnaround, and while the resiliency of Manhattan is hard to dispute, the reality of the wider economy prevails over time. Unemployment and taxes are on the rise, which makes a currently unaffordable market even more unaffordable."

Well said.

NYC isn't falling of a cliff, it will be fine. But note that we were also "fine" in 1996 (Yankees won, no one died) and prices were a lot less than they are now.

This isn't about the death of manhattan, its just about the realities of its life.

One of the most informative posts I've read. These boards get filled up with "Bears" and "Bulls" constantly bickering like children. I think it's safe to say that NY real estate sustained a boom thanks to the subprime mortgage stuff that allowed everyone to buy and created tremendous wealth amoungst the finance industry. This popped and NY will come down because of it. However, I'm not sure we are looking at the end of NYC... just a correction. I hope to buy my first place towards the end of this year or early 2010.

Excellent post. Well thought out and presented.

I hate to quibble but you did hit on a pet peeve on mine though.

People often mix up "the elephant in the room" (something so big and obvious that you cannot avoid it yet people still try to avoid talking about it) with "the 800lb gorilla" (the dominant player in a particular market who is so dominant it can basically crush the competition at will - microsoft were a classic example - google may be a better one now). The Axa financial TV ads particularly grate.

Like this post, especially number 4. I was ready to make the jump as a first time buyer about a year ago. Now, irrespective really of price, I'm no longer willing to do so.

Re #5: what did terrorism do to Manhattan RE in 2001?

Wonderful post - thank you!

"Re #5: what did terrorism do to Manhattan RE in 2001?"

Good question and I'm glad I can clarify. I distinctly remember the immediate aftermath of 9/11 being a general fear to buy in marketplace, however, the impact in the financial district was drastic, to put it mildly. Bear in mind that in 2001, lower manhattan was not as residential and the impact was much more to commercial space than residential. Admittedly, the general market of Manhattan outside of lower manhattan was somewhat insulated given the remarkable bounce in the equity markets following 9/11 and the maintenance of paper wealth. If it wasn't for an aggressive tax abatement program and excess government incentives to build in lower manhattan, the situation would have remained worse for a much longer period of time. Many people to this day still refuse to even consider Tribeca given it's proximity to those terrible events. More importantly, 9/11 sustainably changed the value of 'trophy' buildings given their new reputations as targets.

Most importantly, terrorism raises uncertainty and doubts which creates an irrational downward pressure, if even for a short term event. In these times we face currently, given the sensitivity of the equity and RE markets, the impact of a devastating terrorist attack on Manhattan would create far more turmoil in short to mid term pricing than what we saw in 2002, and this is what I meant when I added this to my post.

All the best.

"People often mix up "the elephant in the room" (something so big and obvious that you cannot avoid it yet people still try to avoid talking about it) with "the 800lb gorilla" (the dominant player in a particular market who is so dominant it can basically crush the competition at will - microsoft were a classic example - google may be a better one now). The Axa financial TV ads particularly grate."

You are correct. I apologize for the improper use of 800lb gorilla.