Friday 3 October 2008

Manhattan - the Mother of all Property Bubbles

Having spent the past week in the US has been extremely interesting to say the least. The timing was fortuitous, witnessing the 9/11 of the financial services industry in the USA and its attempts to paddle its way out of the mire through a 'bailout' that miraculously became an 'investment' in the space of a few short days. 

Some of the tax breaks included in the 'newly revised' bill, in an unabashed attempt to directly target those who voted against it first time around, include 'an exemption on exise for children's wooden practice arrows' (I kid you not, it's all there in black and white) along with sweetners for those who commute by bicycle, TV production writeoffs, commercial fishing incentives and extended writedown periods for motorsports complexes????????? Only in the good old US of A. 

The strange thing, looking at the US market as a whole, is that, despite the fact that there is an impression that the property market here is in dire trouble, no great affect has yet been seen in major metropolitan markets such as Manhattan. If you were to speak with a few estate agents around the city (and I did, although a few cancelled due to the workload the implosion of the financial sector was causing) they would seek to differ with you, as prices haven't been doing much for the past year. But neither have they dropped much - and I suspect they will. Manhattan is still, to the outsider, the mother of all property bubbles. 

Taking the Downtown Loop bus tour (highly recommended if you want to get a feel for the city) we were informed of some ridiculous rental and purchase figures for gentrified portions of the Lower East side (where most of the immigrants landed in the early portion of the last century), even for a basic studio apartment. In the greater scheme of things property markets don't allow that sort of thing to go on forever. It is a cyclical industry and the longer the upswing, the bigger the drop and the longer lasting the pain on the downswing.

While I don't expect that the Manhattan market will return to the nadir of the eighties, when you could hardly give away property on the island, an outsider would have to say that the concept of 'fair value for money' would have to enter the equasion at some stage - and it's a long way away just yet.

For those looking at Manhattan as an investment I would have to say 'steer well clear', the worst may well be about to come. This is a region that has built its reputation on trade, particularly financial trade. The fallout of the financial crisis hasn't yet hit shore, look at it like a hurricane hitting land. The affects of the winds are being felt but it is not until the aftermath the true havoc is unveiled. When the loss of jobs from the mergers and acquisitions in the banking sector hit and the fund and hedge managers that are currently twiddling their thumbs do eventually lose their jobs, there may be more than enough property in the Manhattan market to service everyone who wants it. This should lead to sharp price declines in the future.

To those who feel they are suffering problems in the Manhattan market at the moment you'd have to quote the old Bachman Turner Overdrive lyric 'You Ain't Seen Nothin' Yet'. 

If you think the above is the rambling of an unqualified hack, then you'd probably be right. But we're not alone in this outlook. Just look at what none other than the eminent economist Robert Schiller has to say on the Manhattan property market. He's gone a lot further than we have by likening the current market as being akin to the cusp of the 'fall of ancient Rome'. Shiller says  "New York will self-destruct if prices don’t come down, it can’t keep going like this." If you have the time Schiller's books "Irrational Exuberance" and "The Subprime Solution" are excellent reads to get your head around global economic instability and the likely outcome down the line. 

If you're looking for some other corroborating evidence then this report, from the Overseas Property Mall, based on a recent Corcoran Report (incedentally one of our intended interviewees which was victim to the increased workload of the economic 'bailout/investment' meltdown this week) should give you some further food for thought.

For a selection of property in the USA click here

For a list of agents selling property in the USA click here.

For independent articles on overseas property click here.

For advice on purchasing in the US click here.

For news on the US property market click here.

For new releases and product updates from US agents click here.

For a selection of property exhibitions featuring American property click here.


Florida Property Links


For a listing of property in Florida click here.

For a listing of Florida Estate Agents click here.

For a listing of Exhibitions showcasing Florida Property click here.

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