Friday, January 09, 2009

New York Real Estate Outlook: Mega-Crash


Here is Henry Blodget, the analyst who put a $600 target on Amazon summarizing Goldmans latest analysis on NY real estate. On similar lines Mumbai should crash as well. No more excuses including the followng will be able to prevent this steep drop. Lack of land availability, density, growth, 20 million population, migration, jobs, stock market, diamond market, financial center, Reliance, black money.
Henry Blodget January 8, 2009 4:31 PM
Lockhart Steele at Curbed summarizes Goldman's latest tome on the New York residential real-estate market. . Here's our summary of his summary:
Look out below.
Curbed:
Goldman: "New York apartment prices are very high relative to the observable fundamentals. Using three alternative yardsticks—price/rent, price/income, and affordability—we find that prices would need to decline by 35%-44% to return to the valuation levels seen in the 1995-1999 period, before the start of the recent boom."
Goldman: "Under the (admittedly unrealistic) assumption that prices decline by the same percentage in each market segment, this type of drop would imply that a 1-bedroom condo whose price currently averages roughly $800,000 would decline to $480,000; a 2-bedroom condo would decline from $1.7 million to $1 million; and a 3-bedroom condo would decline from $3 million to $1.8 million."

Goldman: "It is instructive to consider the potential implications of a return of relative Manhattan incomes toward the national norm prevailing before the Wall Street boom of the past two decades, either because of pay cuts in the financial industry or because of a possible out-migration of affluent individuals. From 1969 to 1986, Manhattan per-capita income averaged 2 times the national average, with no clear trend. Over the next two decades, however, it grew to 3 times the national average. If incomes fell back to the pre-1986 level of 2 times the national average—and if national per capita income remained unchanged—prices would need to fall as much as 58% to return to the 1995-1999 price/income ratio.
Goldman: "In addition, it could be that societal and demographic changes will keep New York apartment valuations above the levels that prevailed in earlier periods. For example, one might argue that the memory of high crime rates was still fresh enough in 1995-1999 to make this period an excessively pessimistic benchmark. If crime stays low during the current economic downturn, perhaps Manhattan real estate will retain its higher valuation in coming years. Alternatively, one might argue that the aging of the baby boomers will continue to support the New York market as "empty nesters" want to live closer to the city's attractions. These types of arguments are difficult to quantify and are often heard just prior to the start of a real estate downturn, but they do underscore that our analysis of the observable data on prices, rents, incomes, and interest rates only provides a very partial view of the New York apartment market."
FUN SCARY BONUS GRAPHIC:

12 comments:

Anonymous said...

Very soon India will also show the same declining trend in rental. The oversold real estates after struggling for new buyers for a long time, are now ready for rental to minimize the losses through rental income. The recent trend on any property web site shows the increase in rental ads. One year before, the broker who refused for any rental business for hefty 2% commission on rising real estates, are now very much willing to rent the same apartment. After failing to pursue the buyers at 20% discount now, the owners & builders are searching for rental income.

The rental fiasco & the corporate earnings will add some more fuel to economic fire, in 2nd Q of 2009. Yes we can expect some more cockroaches & worms to come out due to heat.

So guys let it fall then only pick up, minimum 50% price cut is guaranty.

Vulture.

Yoko Ono's Owner said...

Horrid...but if you read the original article....the comments are hilarious. But to summarize the comments in the original article - 58% drop isnt enough. Expectation of overshooting on the downside....do read. http://curbed.com/archives/2009/01/08/we_read_goldman_sachs_mindnumbing_nyc_real_estate_report_so_you_dont_have_to_kill_yourself.php

Anonymous said...

Taking a metaphor from real life and something from my engineering days, the real estate market is getting stressed and heated up. As each day goes by the load on the market increases due to lack of sales, increase in inventory and interest to be paid up. At a certain threshold which could be 3 months from now or 6 months from now the market will go into the plastic stage and flow freely before snapping and breaking up. When that might happen is not known but rentals will drop to an amazing degree and home prices will drop like a stone. Foreclosures will mount and a lot of banks may rupt(bankrupt). RE players will go bankrupt..there will be blood on the streets. If I have to do crystal ball gazing, It should happen after Feb or March.

Anonymous said...

I came across this site on US layoffs:
http://www.layoffdaily.com/

I was also reading the blogs where the store closings are mentioned, bloggers are saying American workers to get back to work even at low wages to avoid jobs being outsourced to Chindia.

HB

Anonymous said...

From economictimes, this article portends what is ahead for IT/BPO crowd. Infosys/wipro/tcs folks get ready for the onslaught..excess IT crowd will cut salaries by half for thos who are fortunate to have it.


HYDERABAD: Credit card dues and EMIs for various loans are giving sleepless nights to thousands of Satyam Computer’s employees -
Satyam
Employees of Satyam
The Satyam scam
The Great Fall of Satyam
called ‘Satyamites’.

“Even if we are not retrenched, we may face cuts in our salaries. This whole thing is not our fault,” said one employee who, like all others interacting with the media at Satyam campus, spoke on condition of anonymity.

With tears in his eyes, this ‘Satyamite’ of three years further added that he got Rs 72,000 per month till last year, and had bought a car and even taken a home loan.

“My total liabilities are now over Rs 45 lakh. I don’t mind selling my car. But what do I do about my home? I have to live in that with my family,” the employee said.

Similar tales are being heard from other ‘Satyamites’ at the IT firm’s corporate office and other campuses at Madhapur and Begumpet.

LOANS WITHIN 24 HOURS

Such was the power of a ‘Satyamite’ tag that financial institutions hardly took any time in disbursing loans and credit cards.

“It was like- ‘Fill our form and take the money’. That was what finance executives used to tell us all the time. Loans were processed in 24 hours,” said a female employee.

“Till last month, I was drawing a salary that was double of what my husband earns. I made huge investments in realty. Now if I were forced to liquidate my ass

Anonymous said...

Anon above:
I hope she doesn't have to liquidate her "ass" as in the last sentence above.

Ramvilas said...

To: Anon 4.03 PM

Chindia??????????????????????????????

How dare you call our mother country with such a derogatory name. Do not hold the whole country responsible for the scams perpetuated by satyam, reliance etc. I guess you are in US. How did you get there. You too must have forged, falsified documents in order to reach there and laughing your ass off thinking how you fooled everyone

Anonymous said...

Idiot Ramvilas:
Chindia is China plus India.

What is derogatory in that. And don't show your frustration on this blog. And there are still honest people also in India like myself. I never falsified any information, came from lower middle class, worked hard to get into a premier MBA school and doing well now. But never lied or forged or anything unlike many other honest Indians.

Anonymous said...
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Anonymous said...
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Anonymous said...

Guys,
Lets not talk about North and South Indians. We are all Indians and lets focus on the issues here:
--Layoffs
--Housing Bubble

HB

Ramya Haider said...

Renting a place has got many complications and if you have passed all of them there is one more important thing to be kept in mind is to read the lease. Seriously, read the lease. And then read it again. You wanted to play your acoustic guitar in the house? Make sure you can. Your parents come visit every month? Make sure it’s legal. This is a legally binding agreement you are signing – make sure you read it.
www.kgfurnishednyc.com