Thursday, November 15, 2007

Manhattan Real Estate Props

More dataless musing about Manhattan real estate. The big question is, why has it not fallen in price with the rest of the White Plains - Wayne MSA? Seattle and Manhattan are only now starting to join the rest of the country in declining residential real prices -- they've held out for a while. Obviously, most of that is self-reinforcing -- speculators moved their money to those markets because they weren't falling. And Manhattan has also been supported by increasing bonuses in finances and hedge fund managers desperate to keep their fixed income instruments going.

But, say you were a real estate speculator, and you said to yourself, "Self, in 2006 all these interest-only ARMs are going to demand their balloon payments, and the bubble is going to start to deflate. But, Manhattan will keep going for another several years, as it's driven largely by finance bonuses, and the actual impact on the economy won't be felt for a few years, and won't be fully reflected in Manhattan residential real property for another." You're somewhere 'upstate,' which is our word for the rest of the country. At the beginning of 2006, you decide to park your money in Manhattan Real Property, with the idea that your local market is going to lose value very quickly at first, but inflect before Manhattan starts to drop.

Do you see where this is going? You flip just when Manhattan sees a real drop -- you lose some money, but less -- and reinvest it in two or three times as much real estate as you had. Maybe from one McMansion to 6 or 7 regular single family homes, which you can rent. Using the services of a national real estate manager ;)

I think this is a measurable effect, but I continue to refuse to do any research. But, if it exists, this tendency will sharpen the drop here somewhat.

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