Rent Direction and Cost of Living in New York (real estate, apartments)

[lowndes]

Hi, hope everybody is doing well. Been browsing this forum for a while and really enjoy it.

I'm a young attorney and will be moving to New York City in the Fall of 2010. My wife and I are planning to move into a 1 bedroom apartment preferably on the UWS but we are also considering the UES. My question is has anybody seen any articles that discuss the direction rent is going and the cost of living?

I have been doing some research and know that rents have dropped dramatically in the past year or so. Curious if people think that rents have started to bottom out or if there is an expectation that they are going to continue to drop?

[tpk-nyc]

Did you see the Times this week? (http://www.nytimes.com/2009/08/09/realestate/09cov.html) I think rents will continue to fall, not dramatically, but be weak. Then again, leases are so short compared with a mortgage, does it really matter when landlord are lowering rents for existing tenants so readily?

[ddhboy]

basically, next year is going to be a disaster for NYC real estate. There are tons of yet to be released property that will come to market in 2010 that will drown the market, with a smaller, yet still strong wave coming in 2011. We're talking 1000 condos in addition to the 410 in FiDi, and in Williamsburg, a near 1:1 of the current market. That said, it will be a great time for renters because the market rates will be crushed. You should be fine, because of all the over development that took hold of the city from 2004-2008.

[tpk-nyc]

I read a Times article a few months ago (I'm addicted to the Times Real Estate section) about how landlords were refusing to lower rents for existing tenants. They preferred to have the tenant move and find a new tenant at a lower rent rather than set the precedent of lowering the rents of existing tenants. They were betting that most people would be too lazy to move just to save a few hundred bucks a month.

I remember thinking at the time that the ploy would be unlikely to work. It must be their worst nightmare right now because everyone's demanding a reduction.

[ddhboy]

Originally Posted by tpk-nyc

I read a Times article a few months ago (I'm addicted to the Times Real Estate section) about how landlords were refusing to lower rents for existing tenants. They preferred to have the tenant move and find a new tenant at a lower rent rather than set the precedent of lowering the rents of existing tenants. They were betting that most people would be too lazy to move just to save a few hundred bucks a month.

I remember thinking at the time that the ploy would be unlikely to work. It must be their worst nightmare right now because everyone's demanding a reduction.

Exactly. The market rates are dropping horrifically, with some neighborhoods getting 100% increases in stock, while cost of operations are rising. While landlords were praising market rates in the boom years which seemed it would go on forever, they're cowering away from them. I wouldn't be suprised that by the year's end you'd start seeing landlords talking about "fair" rents, which would pretty much be rent control in favor for landlords, limiting drops in price.

[lowndes]

Thanks for the replies and pointing me in the direction of that article. I appreciate it.

[gradstudent77]

Originally Posted by ddhboy

Exactly. The market rates are dropping horrifically, with some neighborhoods getting 100% increases in stock, while cost of operations are rising. While landlords were praising market rates in the boom years which seemed it would go on forever, they're cowering away from them. I wouldn't be suprised that by the year's end you'd start seeing landlords talking about "fair" rents, which would pretty much be rent control in favor for landlords, limiting drops in price.

There's no way anything like this happens. There are just too many people who want to live in nyc. Think about how many people living with roommates right now would get a place on their own if rents fell. Think about how many adults are living at home with their parents, but would love to move out. Think about how many young people across the country dream of coming to NYC but are scared off when they start researching what housing costs. Of course, the opposite argument can be made: job losses, people fleeing to other metros to escape the cost of housing here, recent immigrants leaving the country because they couldn't make it work here, etc.

As for "fair" rents, while costs of operating housing is rising and rent is falling right now, all that means is that some landlords will have to go into bankruptcy or sell off their holdings. There are always buyers, even for buildings that lose money because people will hold on, waiting for their rent stabilized tenants to die or move.

We might be looking at a 10-20% drop in rents, metro-wide. Anything more than 20, would be shocking. Think about what 20% means: a $1,250 apartment today goes for $1,000.

[cirlin6]

Originally Posted by gradstudent77

There's no way anything like this happens. There are just too many people who want to live in nyc. Think about how many people living with roommates right now would get a place on their own if rents fell. Think about how many adults are living at home with their parents, but would love to move out. Think about how many young people across the country dream of coming to NYC but are scared off when they start researching what housing costs. Of course, the opposite argument can be made: job losses, people fleeing to other metros to escape the cost of housing here, recent immigrants leaving the country because they couldn't make it work here, etc.

As for "fair" rents, while costs of operating housing is rising and rent is falling right now, all that means is that some landlords will have to go into bankruptcy or sell off their holdings. There are always buyers, even for buildings that lose money because people will hold on, waiting for their rent stabilized tenants to die or move.

We might be looking at a 10-20% drop in rents, metro-wide. Anything more than 20, would be shocking. Think about what 20% means: a $1,250 apartment today goes for $1,000.

That's the same argument that Realtors used back when it was "impossible" for home prices to drop at all, let alone 20%. Of course, now, in many places prices have dropped far more than that.

Rents, like everything else, are going to suffer as long as demand suffers. There's no artificial floor that it would be impossible for rents to fall below. Rent will keep dropping as long as demand drops. I already know of people who have gotten rent decreases of 25% or so. And don't overestimate this "dream" of living in NYC keeping rents high. People need jobs. They won't live here if they can't find jobs. And NYC's job market is suffering like everyone else's.

On the other hand, I don't think landlords are going to start talking about "fair" rent. Maybe there will be some sort of collusion that keeps rents sticky, but that only works as long as every landlord with vacancies follows it. Given that most landlords have to make mortgage payments on their buildings like everyone else, I imagine they'd rather have somebody paying $1,500 a month than have no one paying $2,000 a month.

[tpk-nyc]

We're at the beginning of a great "trading-up" period.

All of those amenity laden (pools, gyms, roof gardens, etc.) condos that are being converted into rentals are going to attract people currently in mid-range rentals. It will start a chain reaction of people trading-up and put downward pressure on prices. If you can get more amenities for the same price, the original apartment will decrease in value.

[lowndes]

Thanks again, I guess the area and type of apartment we are most concerned about are 1br apartments on the UWS between 70th and 85th that are pre-war with a doorman. Trying to keep our price between $3000 and $4000 for a pretty nice apartment around 800 square feet. Right now that seems doable.