Friday, March 7, 2008

Manhattan Housing Continues to Buck the Bust. And: The Florida Land Boom

That headline from the WSJ's Real Time Economics blog reminded me of the "Home Sweet Florida" chapter in Only Yesterday.
From RTE:
The Federal Reserve’s latest beige book, gauging economic conditions across the Fed’s 12 districts, paints a continued bleak picture of housing markets. The report said sales and demand are low, inventories are high and prices are falling. The one upside: Manhattan....
And a couple comments on the post:
Interior space is still at a premium in Manhattan because inventories are low so prices remain high. Helping is that 2007 Wall St. bonuses were still high and foreign investors can buy for a relative bargain due to the weakness of the greenback.

A large apartment in a good neighborhood will still sell quickly. One in my building, which is all classic sixes–2 BR, a maid’s room and 2 baths with a large living room, dining room and kitchen, sold recently after one open house and there was a bidding war among three buyers.

I don’t think it can last, however, not only because of the economy but because prices for these types of properties have risen about 400% since 1998 when I bought, excluding inflation. It’s just silly to believe prices can continue to rise by this much, even in NYC.

Comment by Mike - March 5, 2008 at 5:44 pm
I have lived in Manhattan for 35 years and have seen several market cycles. People who crow about how NY is “different” generally aren’t old enough to remember how bad it can get. The market zoomed in the early/mid 1980s, crashed 25%, then took off. Manhattan’s price gains have outpaced income, layoffs are mounting on Wall Street (where I have worked since 1977), while writeoffs and outright losses are mounting. There is a strong correlation between Wall Street’s fortunes and real estate prices. Anyone who thinks Manhattan coops and condos will continue to soar are, frankly, deluding themselves - or perhaps aren’t old enough to remember the past. What is the catalyst for future gains? I would not buy now. It’s a very, very good time to sell in Manhattan. In 3, 4, 5 years or so, perhaps longer, it’ll probably be a good time to buy.
Comment by Upper East Sider - March 5, 2008 at 9:38 pm

Here are some snips from Frederick Lewis Allen's Only Yesterday:

“There was nothing languorous about the atmosphere of tropical Miami during that memorable summer and autumn of 1925. The whole city had become one frenzied real-estate exchange. There were said to be 2,000 real-estate offices and 25,000 agents marketing house-lots or acreage. The shirt-sleeved crowds hurrying to and fro under the widely advertised Florida sun talked of binders and options and water-frontages and hundred thousand-dollar profits; the city fathers had been forced to pass an ordinance forbidding the sale of property in the street, or even the showing of a map, to prevent inordinate traffic congestion....

“For this amazing boom, which had gradually been gathering headway for several years but had not become sensational until 1924, there were a number of causes. Let us list them categorically....

A lot in the business center of Miami Beach had sold for $800 in the early days of the development and had resold for $150,000 in 1924. For a strip of land in Palm Beach a New York lawyer had been offered $240,000 some eight or ten years before the boom; in 1923 he finally accepted $800,000 for it; the next year the strip of land was broken up into building lots and disposed of at an aggregate price of $1,500,000; and in 1925 there were those who claimed that its value had risen to $4,000,000. A poor woman who had bought a piece of land near Miami in 1896 for $25 was able to sell it in 1925 for $150,000. Such tales were legion; every visitor to the Gold Coast could pick them up by the dozen; and many if not most of them were quite true-though the profits were largely on paper. No wonder the rush for Florida land justified the current anecdote of a native saying to a visitor, "Want to buy a lot?" and the visitor at once replying, "Sold."

As a matter of fact, it was due for a good deal more than that. It began obviously to collapse in the spring and summer of 1926. People who held binders and had failed to get rid of them were defaulting right and left on their payments. One man who had sold acreage early in 1925 for twelve dollars an acre, and had cursed himself for his stupidity when it was resold later in the year for seventeen dollars, and then thirty dollars, and finally sixty dollars an acre, was surprised a year or two afterward to find that the entire series of subsequent purchases was in default, that he could not recover the money still due him, and that his only redress was to take his land back again. There were cases in which the land not only came back to the original owner, but came back burdened with taxes and assessments which amounted to more than the cash he had received for it; and furthermore he found his land blighted with a half-completed development.

Just as it began to be clear that a wholesale deflation was inevitable, two hurricanes showed what a Soothing Tropic Wind could do when it got a running start from the West Indies.

No malevolent Providence bent upon the teaching of humility could have struck with a more precise aim than the second and worst of these Florida hurricanes. It concentrated upon the exact region where the boom had been noisiest and most hysterical-the region about Miami. Hitting the Gold Coast early in the morning of September 18, 1926, it piled the waters of Biscayne Bay into the lovely Venetian developments, deposited a five-masted steel schooner high in the street at Coral Gables, tossed big steam yachts upon the avenues of Miami, picked up trees, lumber, pipes, tiles, debris, and even small automobiles and sent them crashing into the houses, ripped the roofs off thousands of jerry-built cottages and villas, almost wiped out the town of Moore Haven on Lake Okeechobee, and left behind it some four hundred dead, sixty-three hundred injured, and fifty thousand homeless.

By the middle of 1930, after the general business depression had set in, no less than twenty-six Florida cities had gone into default of principal or interest on their bonds, the heaviest defaults being those of West Palm Beach, Miami, Sanford, and Lake Worth; and even Miami, which had a minor issue of bonds maturing in August, 1930, confessed its inability to redeem them and asked the bondholders for an extension.

The cheerful custom of incorporating real-estate developments as "cities" and financing the construction of all manner of improvements with "tax-free municipal bonds," as well as the custom on the part of development corporations of issuing real-estate bonds secured by new structures located in the boom territory, were showing weaknesses unimagined by the inspired dreamers of 1925.

...The final phase of the real-estate boom of the nineteen-twenties centered in the cities themselves. To picture what happened to the American skyline during those years, compare a 1920 airplane view of almost any large city with one taken in 1930. There is scarcely a city which does not show a bright new cluster of skyscrapers at its center. The tower building mania reached its climax in New York-since towers in the metropolis are a potent advertisement-and particularly in the Grand Central district of New York. Here the building boom attained immense proportions, coming to its peak of intensity in 1928. New pinnacles shot into the air forty stories, fifty stories, and more; between 1918 and 1930 the amount of space available for office use in large modern buildings in that district was multiplied approximately by ten. In a photograph of uptown New York taken from the neighborhood of the East River early in 1931, the twenty most conspicuous structures were all products of the Post-war Decade. The tallest two of all, to be sure, were not completed until after the panic of 1929; by the time the splendid shining tower of the Empire State Building stood clear of scaffolding there were apple salesmen shivering on the curbstone below. Yet it was none the less a monument to the abounding confidence of the days in which it was conceived.

The confidence had been excessive. Skyscrapers had been overproduced. In the spring of 1931 it was reliably stated that some 17 per cent of the space in the big office buildings of the Grand Central district, and some 40 per cent of that in the big office buildings of the Plaza district farther uptown, were not bringing in a return; owners of new skyscrapers were inveigling business concerns into occupying vacant floors by offering them space rent-free for a period or by assuming their leases in other buildings; and financiers were shaking their heads over the precarious condition of many realty investments in New York. The metropolis, too, had a future, but speculative enthusiasm had carried it upward a little too fast.”

Here's the Wikipedia entry on the Great Florida Land Boom.

Here's how they marketed:

Florida Land Rush

The Great Miami Hurricane was referenced in this release from the NOAA a couple weeks ago:

Increased Hurricane Losses Due to More People, Wealth Along Coastlines, Not Stronger Storms, New Study Says
...The results illustrate the effects of the tremendous pace of growth in vulnerable hurricane areas. If the 1926 Great Miami Hurricane were to hit today, the study estimated it would cause the largest losses at $140 billion to $157 billion, with Hurricane Katrina second on the list at $81 billion.