The Manhattan Real Estate Dam Is About To Burst


We wanted to highlight some of the excellent comments from our ongoing discussion about the future of Manhattan real estate, an issue that really affects the whole country given how much wealth is tied up here.

Vlad The Inhaler says:

The refusal of owners to face reality is amazing, but eventually the weakest hands will have to cave and sell. Once those price points are out in the market, the floodgates should open.

It’s the same in the Hamptons. A broker friend out there says that owners are refusing to budge on their ask price even with no bids at all. The only bids are bottom feeder bids (e.g., an investor bidding $1MM for a house that sold for $3.5MM a few years ago). At some point, between Wall Street, the market and Madoff, there are going to be desperate owners and that dam will break too.

Onthesidelines offers a good look at how much more expensive homeownership is (still) in Manhattan than renting:

If you bought a typical 2-bedroom for $1.5 million, your carrying costs are $120k / yr. You need a family income of $400k to manage that and you can burn through a ton of cash trying to keep it up with no income. A comparable rental at $4,500/month would only cost $54,000/yr to carry and require a family income of about $175,000. Much easier to cover that nut in today’s economy.

DSP1812 has a similar take:

here’s a casual analysis for nyc housing market. for a decent FBF (ala DABA stuff), your net worth is typically composed of 50% company stock (i.e., stock bonus), 25% stock market (any excess cash invested in the market), and 25% housing.

let’s quickly analyse what happened to each of the three buckets. company stock – either your firm went bankrupt or stock price now down 70-80%. stock market – we are 50% off 52H or down 40% in 2008. housing – things were holding up (in nyc) for a while but you know what’s happening to bonuses, etc.

so if you combine the buckets on an weighted-avg method, you can argue that a decent FBF’s net worth has decreased 40-50% in the last twelve months.

so, i am not surprised about this posting – in fact, i’d think we’ll see acceleration in about 3-6 months.

i had also read in crain’s(?) that mgmt. fees are going up (due to higher taxes) and many co-op owners are extremely pissed-off about this.

i wish nyc housing market were a stock – it’d be a 100% short / i’d be as rich as paulson betting against nyc housing market in the next 12-24 months.

Are you involved in Manhattan real estate? We’d love to get your take.