A few agents from my office had the opportunity to get an up close and personal look at 255 E 74th street, a new development by the World-Wide Group (The Milan, 50 Murray, Park Belvedere). The development and sales team interviewed about 100 local residents, buyers, and brokers before determining the unit mix for the building to find out what people wanted to see in the neighborhood. Here's what they came up with:
- 80+ units; 30 floors
- Estimated completion Fall 2008
- Base of the building has a few one bedrooms (starting at ~$1.2M), 2 bedrooms (starting at ~$1.8M), and 3 bedrooms (starting at ~$2.7M) and duplex homes
- Tower of building has 3, 4, and 5 bedrooms
- 25% sold
- 10 year, 421-a tax abatement
- 24 hour doorman
- 43,000 sq ft Equinox in the building
- 2,400 sq feet "Children's Pavilion" with separate rooms for toddlers & teens/'tweens. Includes a "cruising wall," ping pong, foosball, dance kareoke, pinball, and basketball
- Bike room
- Storage (for a fee)
- Private garden
- 10 foot ceilings (most units)
- Some apts with balconies, terraces, and/or fireplaces
- Most apts have windowed breakfast area in the kitchen
- Choice of kitchen cabinet colors
- Washer/dryers are fully vented to the outside. Apartments are pre-wired for every technology need. For an extra charge, you can turn on the a/c, lower the blinds, turn up the iPod, and dim the lights - all from one command and control center. Lower floors have triple-paned city windows to keep out any street noise (usually you only get double-paned windows, which only keep out about 90% of the noise; triple-paned windows keep out about 95% of the noise)
- Common charges are high (& the Equinox Membership is not included). A four bedroom, 3.5 bath apartment on the 12th floor has common charges of $2,644.91 for 2,325 sq ft ($1.14/sq ft - the rule of thumb is to stay under $1/sq ft). The apartment itself is $3.88M ($1,668/sq ft). Apartments on lower floors are closer to $1,250/sq ft.
The marketing materials say, "The superb finishes and details...appeal not only to families, but to professionals and empty nesters wanting to live in one of Manhattan's most sought-after neighborhoods... 255 E 74th is located in the PS 290 elementary school district." Were I to tell customers that this is a "family friendly" building, I would be treading on thin ice around the Fair Housing Act ("Questions Your Broker Can't Answer," Front page, NY Times, Sunday, June 24, 2007), so don't say you heard it from me!
There aren't that many buildings in this area with true 4 and 5 bedroom apartments. Generally, owners have to combine apartments to get anything larger than a three bedroom, and combinations frequently lead to awkward configurations, frustrating construction experiences, and higher maintenance costs. Some co-ops require that the purchaser have one or two times the purchase price of the apartment in liquid assets. In a condo, you don't have to sell your soul to be in the "Club" - if you can get a mortgage, you can buy into the building without having to worry about what the Jones' think of you.
For the big spenders out there, PHA, a three bedroom, 3.5 bath, 3,240 sq ft apartment with 1,286 sq foot of outdoor space is available for $12,000,000 ($3,703/interior sq ft).
Today I visited 212 E 47th street and if you are looking for a primary residence and don't have a ton of money for a down payment, this might be the building for you. Here are the details:
- Converted from rental
- 260 apartments; 35 floors
- Closings anticipated Nov '07 - Jan '08
- Market rate tenants are on month to month leases & have option to buy
- Only about 15 apts left on market now, more units coming available mid-July when market rate tenants decide whether to purchase
- 24 Hour Doorman
- Roof Deck
- Fitness Center w/ Yoga Studio
- Screening Room
- Library / Conference Room
- Laundry in Basement
- Three types of finishes; finish style depends on the floor you are on
- Sq footage measured to mid-point of the wall
- Approx 8'6 ceilings
- Customized closets, towel bars, toilet paper holders included (sounds silly, but some new developments have these in their model units and then you find out they aren't included in the apartments)
- Shower rod in baths (not shower doors)
- Kitchens have Jenn Air & Bosch appliances
- Some apts have windowed kitchens and/or baths
- Some apts w/ balconies
Pros: Good price per sq ft for a brand new apartment/building. For example, 25A is a 628 sq ft one bed for $680K ($1,082/sq ft). No two bedrooms currently available but 3 bed, 2 baths are $1,230/sq ft (18F is 1,160 sq ft for $1.427M. 1,160 sq ft is about the same sq footage as a lot of two bedrooms, though).
Cons: No tax abatement (you may wish to read the UrbanDigs post Noah wrote on why he dislikes the 421a tax abatement. In my case, I would find it helpful in keeping my monthlies low), no w/d in units
I loved 24H, a 642 sq ft one bedroom with an open kitchen and a balcony with a sliver of the river as well as Chrysler Building views for $743,000 (at the time of this post, someone else in my office has a contract out on this apt for one of his customers, so evidently I wasn't the only one that thought this was a great apartment!). Condo sublets of a similar size (also with outdoor space) are renting at the Highpoint, a condo building on 40th st with similar amenities (although it also has a pool), for $3,300. The Vanderbilt is also in this area. 800+ sq ft apts sublet for $3,600 but 650 sq ft one bedroom apartments there sublet for about $3,300. So unfortunately there are a LOT of one bedrooms in condo buildings for rent right now in this neighborhood.
With a 5/1 interest only ARM (lowest payment) and 20% down payment, my monthlies are $4,417. Yikes. After tax deductions (still undecided as to whether I will live there or sublet it out for a while, etc.), net monthlies are about $3,250. If this were definitely going to be my primary residence, I would buy this apartment because of the open kitchen, the balcony and the views. After tax deductions, it's cheaper than rent, and the price per sq ft is great for a conversion.
But I am leaning towards renting the apartment out, which means I will be losing $1,000 a month depending on how creative my accountant can get with depreciating the property. I almost crossed this off of my list of potential purchases, but then I checked the rental history for the building. Churchill (a short-term furnished rentals company) is renting out the 630 - 700 sq ft one bedrooms for $6,150 - $6,300, which would explain why some of the apartments are on a month to month lease. To get a company like Cort Furniture to furnish the apartment (renting furniture for a one bedroom is about $600/month), all I would need to make is $5,000/month to break even. Or I could furnish it myself, but I'd need to replace the furniture every few years, which could be a pain. There is more of a hassle dealing with short term rentals because you have more turn over and you have to include utilities, cable, internet, local phone charges, and sometimes weekly or bi-weekly cleaning service in the rent (this probably adds another $400/month). When I have rented short term furnished rentals to customers, there was this pesky hotel tax for anyone staying under 120 days, so I would need to look into that as well.
There is also a risk that once the condo board is formed, they might set a minimum lease period (some buildings have a 6 month minimum lease), which would kill the furnished rental idea. If I could rent the apartment to a corporation, the situation becomes more promising. Some condo boards will not allow corporate leases, but it's possible I could have a corporate lease approved before any of the "House Rules" are set. 47th and 3rd is very close to the UN and Grand Central, companies like JP Morgan at 250 Park Ave, and an easy commute for anyone on the E line (like all of those attorneys in Times Square)...
I also really like the new Phillippe Starck building, The Gramercy. Let's compare (assuming $150K down payment on each apartment and an Interest Only 5/1 ARM at 6.125%):
25A at 212 E 47th St
628 sq ft
CCs - $514
RETs - $762
Total monthly - $4,075
Net monthly - $3,013
8F at The Gramercy (340 E 23rd st)
638 sq ft
CCs - $550
RETS - $65 (10 year tax abatement)
Total monthly - $3,754
Net monthly - $2,792
One bedroom apartments at the Post Luminaria, a luxury rental building right next to the Gramercy, are renting for $3,900 a month. Stuyvesant Town's one bedrooms rent for $3,000 - $3,400 based on how close you are to 1st Avenue. Despite the great price per sq ft at 212 E 47th street, I think the Gramercy wins out for my personal investment needs. Besides Crossing 23rd, there isn't much inventory in the way of luxury condos in the area.
However, look how this plays out for a first time buyer who doesn't have that much cash to put up front, but who makes a great salary:
212 E 47th:
$680K w/ 20% down - $136K down payment
Closing costs - budget 5.5% - $37,400 (in a new development you have to pay the sponsor's transfer taxes. Sometimes you can negotiate these but it depends on how quickly the units are selling)
Total cash up front = $173,400
$765K w/ 20% down - $153,000
Closing costs - $42,075
Total cash up front = $195,075
That's $20K extra cash up front for the same apartment. So you have to also look at a. whether you have the extra $20K and b. the opportunity cost of that $20K. Some buyers in this price point may need the extra tax deduction that 212 E 47th street provides because of the higher real estate taxes. The Alternative Minimum Tax (AMT) is killing some young traders and iBankers, so it's possible that they would actually NEED these extra taxes as another write-off. DISCLAIMER: I'm not an accountant. You should always consult your accountant (and don't forget your attorney and mortgage broker!) before making any real estate purchase.
I look forward to reading your comments!
A: A week ago I wrote a post titled, "So Rates Rose & You Didn't Lock In", where I discussed some options for those who missed the boat in mid to late May to lock in their rate. I was hoping for some relief after the huge runup in lending rates over the past 4-5 weeks as the 10YR yield corrected from a trading high of 5.316% on June 13th. Currently, 10YR yields are in a trading range of between 5.08% - 5.19% or so and hovering around the 5.1% mark. So far there has only been rate relief in the adjustable rate loan products.
According to Michael McGivney of Wells Fargo, a direct lender, here are today's rate quotes for three popular loan products:
JUMBO Loan Rates Quoted At...
30YR Fixed - 6.875% (same as last week)
7YR ARM (principal + interest) - 6.25% (down from 6.375% last week)
5YR ARM (principal + interest) - 6.125% (down from 6.25% last week)
*Disclaimer - Rates are subject to change, size of loan, risk adjusters, and a minor banking relationship with Wells Fargo may all affect the final rate quote.
Keep an eye on 10YR yields for where lending rates might be headed next. Use this as a general guide:
MORTGAGE RATES WILL TREND LOWER IF ---> 10YR Yields Drop Below 5% & Holds
MORTGAGE RATES WILL REMAIN UNCHANGED IF ---> 10YR Yields Stay Between 5.05% - 5.15%
MORTGAGE RATES WILL TREND HIGHER IF ---> 10YR Yield Surges Over 5.2% & Holds
The goal here is to educate you on the relationship between the bond market (10YR bond yield) and the mortgage markets. Once you grasp an understanding of this relationship, you should be able to use the bond market as a very short term guide for where lending rates might be headed. Obviously you should focus on this if you are very close to signing a contract or if you are a seller trying to figure out what affects buyer demand. As rates rise affordability goes down and purchasing power is restricted. This is the current environment we are in AFTER rates and the 10YR bond yield made their respective moves higher. We are still waiting to see the full effects of higher borrowing costs on Manhattan property pricing.
A: Last year UrbanDigs.com WON the 'MOST INNOVATIVE REAL ESTATE BLOG'. This year, I'll be flying to San Francisco for the conference and speaking on two panels. If you can make it or are a reader around the area, I would love to meet up with you after for a discussion on the market in general as I'm sure a bunch of very talented bloggers will be getting drinks and dinner afterwards!
Inman's REAL ESTATE CONNECT 2007 will be held Aug 1st - Aug 3rd in San Francisco. I will be participating in the following panels:
SHOW ME THE LEADS
You have a blog, you're spending hours to write and polish relevant content, now how do you get prospective clients to notice it? Find out how to use SEO techniques to get your blog noticed in search engines and how to convert your site visitors into paying clients.
Moderator: Kevin Boer, Principal, 3 Oceans Real Estate
Brian Brady, Managing Director, World Wide Credit Corporation
Jim Cronin, Owner/Author, Real Estate Tomato
Mary McKnight, Blogging Evangelist, RSS Pieces
Noah Rosenblatt, Founder, UrbanDigs.com/Licensed RE Salesperson,
Charles Turner, Real Estate Broker, Prudential NW Properties
THE BLOGGING SUPERSTARS
Join in on this fun and exciting panel as top online real estate executives discuss the latest trends in blogging and how the industry has embraced this powerful new tool – as well as how blogging has embraced the industry.
Teresa Boardman, Realtor/Broker, Keller Williams
Kevin Boer, Principal, Domus Consulting Group
Ardell DellaLoggia, Associate Broker, Sound Realty
Jonathan J. Miller, President/CEO, Miller Samuel, Inc. & Chairman, Radar Logic Research
Noah Rosenblatt, Founder, UrbanDigs.com/Licensed RE Salesperson,
A: Thanks to Calculated Risk for this chart. I just want to sway away from Manhattan real estate for a moment and show you what is going on in the national real estate marketplace. As I reported yesterday, existing home sales slowed to the lowest level in 4 years and the result was a 5% build in total inventory levels. Total existing housing inventory rose to 4.43M units, enough supply for 8.9 months given May's sales pace; a level not seen since July 1992. Here in Manhattan we are governed by a completely different set of fundamentals that make our housing market lag in recessions and lead in recovery's. Question is, how long we can keep it up!
According to Calculated Risk:
This graph shows the year end inventory levels, since 1982, for new and existing homes. (2007 numbers are for April, I'll update when the New Home numbers are released tomorrow).Bill over at CR was referring to the statement by NAR economist Lawrence Yun, who stated in the WSJ article titled, "Existing Home Sales, Price Declines"..."If builders can be disciplined and cut back on production, then overall inventory would begin to diminish,"
Yes, the builders need to cut back on production, but even if the builders stopped building, it would take some time to work through the significant excess supply currently on the housing market.
Alternatively a significant price decline might spur demand; I wonder why the NAR economist doesn't suggest that solution?
Here is the chart (click the chart to enlarge):
Not a pretty picture going on around the country! With inventory levels so high, it seems outright silly for any economist to go on record for saying we are anywhere near a bottom. Given housing's illiquid nature, it will take time to get through this supply problem and I am very thankful to be working as a real estate agent in a marketplace that is experiencing the exact opposite of this!
Some fundamentals that separate Manhattan housing from other markets include:
* Tight Inventory / Limited Options For Buyers
* Very Healthy & High Quality Buyer Pool / Lack of Significant Sub-prime Presence
* Strong Jobs Market / High Salaries
* Rental Vacancy Rates Under 1% / High Rental Rates
* Growing Trend To Live Closer To Place of Work / Healthy 2nd Home Demand
* Lack of Speculative Activity / Flippers (75% of Manhattan RE is Co-op)
* Cheap US Dollar Attracts Foreign Investment
* Growing NYC Population
* Investment in Infrastructure / Development Benefits
* Low Crime Rate / Great Place To Live
You just can't compare New York City real estate to other local markets and it further proves that real estate is a local phenomenon.
As I mentioned, I have been looking to buy an approx $750K investment property that I might move in to in 2 - 3 years. I could also sublet out my current alcove studio and move into the new property, so at least I have a few options. I am looking at buying about 620-700 sq ft in Manhattan OR a two family brownstone in Bedford Stuyvesant near the Utica stop, preferably in the Stuyvesant Heights district.
There isn't much available for $750K - most two families that don't need a lot of work and that have nice architectural detail remaining are asking approx. $799K, like this one. This one is a bit farther east / farther from the subway than I would like to be, but you can see how gorgeous these homes are!
A few readers commented on my last post asking why I didn't just buy a new development condo in Brooklyn. I have mixed feelings about new development condos in Brooklyn because there is so much new product coming on to the market and a lot of it seems to be investor-owned rather than owner-occupied. If I do buy a condo, it will be to potentially live in or to keep as a pied a terre, so I would purchase one in Manhattan. If I am going to buy outside of Manhattan, I would prefer to buy a brownstone. A saying in real estate is - "buy pre-war - they don't make them anymore!" If I am going to buy in a different location than I really want to live in, I want to buy something that is charming and unique. Intrinsic value is more important to me than looking solely at the numbers since I plan to live there at some point.
When I visit Bed-Stuy, it takes 15-20 minutes from the 14th street & 8th Ave A train to get to the Utica stop. Depending on the specific location of the property, the Stuyvesant Heights historic district is a 4 - 7 minute walk from the subway, down wide, tree-lined streets. I've seen two-family brownstones with high ceilings, fireplaces, pre-war details, and a garden. It is difficult to not fall in love with all that space! (And the red velvet cake at Bread-Stuy is to die for!) There aren't a dozen new development condos going up (refreshing!) and various neighborhood and block associations are trying to extend the historic district in order to preserve the "Brownstone Brooklyn" feel.
From a cash flow perspective, I hear mixed things about what rentals really go for there. Depending on which broker you ask, owner's duplexes go for $2,200 - $2,500/month and an upstairs one bedroom rental rents for $1,100 - $1,400 depending on the condition of the apartment. So it is possible that I would get better cash flow in Bedford-Stuyvesant than the rents of $3,000-3,500 I would get in NYC for a one bedroom condo. Looking in our rentals database, however, there is a lot of availability in Bed-Stuy. So it could take a few months to rent both units, essentially wiping out the differential in cash flow between the Financial District and Bed-Stuy.
Then there is the maintenance factor. When you buy a new condo, you can pretty much count on not having to renovate anything in the near future. When you buy a house, all sorts of fun things can happen, like roofs caving in. So I would want to purchase something a little bit less expensive than I would in Manhattan to keep an extra buffer for maintenance issues. The highest taxes I've seen for brownstones in Bed Stuy are about $1,700 a year, so about $150/month, but I'd be paying more than that for a condo anyway, unless something was tax abated, and in that case, I'd be paying much more in taxes in 10 - 14 years when the abatement runs out. And you don't have those pesky common charges, so essentially, if it costs me an extra $700/month for trash collection, maintenance, etc., its a break even.
Then there is the appreciation factor. Which will appreciate more in ten years? Bedford-Stuyvesant or the Financial District? On the one hand, the Financial District is completely up and coming, with dozens of luxury retailers moving to the area, and the World Trade Center / Freedom Tower / Fulton Street subway being finished (someday). BUT there is a LOT of product going up in the Financial District. And there is a demand for family-sized space within a 20 minute subway commute from Manhattan and people are being priced out of other Brooklyn neighborhoods. An article from the NY Times in 2003 reported that two family brownstones in Bed-Stuy could be purchased for the mid-$500Ks and now they are $750K. In a few years, I could see myself living in a brownstone but I really don't see myself living in a large studio / one bedroom in the financial district. Plus in a 2 family home, there is always the opportunity to live in the owner's duplex and rent out the one bedroom or vice versa.
So part of the dilemma is that I am not purely looking for cash flow OR cash on cash return OR or even appreciation. I am also looking for something that I would move into at a future date. I may be making this process too difficult by trying to accomplish too many things with one purchase. Looking forward to reading your comments!
This week I will be looking at: 212 E 47th Street and possibly District...
A: Not the best housing report, however, with expectations already so low and everybody anticipating a bad number, the market shrugged it off! Few things to discuss for our national housing marketplace. Mainly, with sales slowing to the lowest level in 4 years inventories had a 5% build. Median sales price of a home dropped for the 10th straight month to $223,700, down 2.1% from a year ago.
Again, no surprises here. Housing across the nation still has issues but we New Yorkers live in a protected environment that has been bullet-proof thus far to the slowdown most other housing marketplaces have been experiencing.
According to Yahoo Finance:
The National Association of Realtors reported Monday that sales of existing single-family homes and condominiums dropped by 0.3 percent to 5.99 million units in May, the slowest sales pace since June of 2003.Stocks rally on the news as existing home sales came in AT expectations. Supply in the marketplace is at its HIGHEST since 1992 with 8.9 months worth of inventory out there.
The median price of a home sold last month dropped to $223,700, down 2.1 percent from a year ago. It marked the 10th straight price decline compared with a year ago, the longest stretch of weakness on record.
According to Barron's:
Existing home sales came in right at expectations, at a 5.99 million annual rate in May for the lowest since June 2003 -- offering perhaps the clearest evidence of all of the housing slowdown. The year-on-year decline is steady in low double digits, at 10.3 percent in the latest month. Supply on the market is at its highest since 1992, at 8.9 months and compared with 8.4 months in April. Sooner or later high supply will press down prices, which however remain firm at a median $223,700 for a month-to-month increase of 1.8 percent and only a 2.1 percent decrease year-on-year.Here is a great chart from Barron's showing the decline in existing home sales (bars) and mortgage rates (red line) since January 2003:
Financial markets showed little to no reaction to the data which will keep in place expectations for soft results in tomorrow's new home sales report. The housing sector may be finally stabilizing though the increase in supply will be a concern -- especially for Realtors, construction firms and makers and retailers of home products.
A: I've been back to work for a week now and trying to get my mind off my family's recent loss. While one week is not enough to deduce any trends from after working only part-time for the 3-4 weeks before that, I can tell you a few things about Manhattan's current real estate market. There is very little good product, still healthy buyer demand, but higher rates seem to be hitting home with more patient buyers less likely to throw their money around so quickly. It seems to me that buyers are very picky these days. Or is it they are savvier?
First some macro & local market observations and example listings:
1. Interest rates made a big move higher in the past 4-5 weeks forcing sellers with overpriced properties to lower their prices to re-stimulate demand. Those sellers with no time pressure to move are keeping their asking prices higher. Buyers are beginning to realize how much the rise in rates is actually causing them.
2. New properties that are priced correctly (that is, a bit lower than what comparable units were priced at during the more active earlier months of this year; Jan-April) are getting quick offers. Some examples of properties with Accepted Offers within 2 weeks of listing:
205 E 78th - 1 Week Total on Market
444 CPW - 4 Days on Market
516 W 47th - 2 Days on Market
3. Sellers who originally priced high and now appear to want to move their property fast have been lowering their asking price repeatedly since rates really started to rise. These types of properties should be focused on by serious buyers. Some examples of properties that cut their price at least twice in the past 4 weeks include:
205 E 78th - 2 Price cuts in 25 days
23 E 10th - 2 Price cuts in 19 Days
159 W 53rd - 2 Price Cuts in 11 Days
4. Buyers seem to be picky to me given tight inventory trends and very little product to choose from. It seems that with rates rising they feel they should be getting a better deal on price, however, since inventory is so tight and buyer demand is still healthy prices are yet to come down here in New York City. How long this trend will last remains to be seen, but if buyers continue to remain picky and if rates remain at these levels or rise further, I would definitely expect sales volume to slow dramatically and that could help reverse inventory trends as we get closer to years end. Of course, even if this theory did prove true we wouldn't know until Oct-Dec when lagging market reports start reflecting activity from July through September or so.
I'll break down advice this way for buyers and sellers, with the common denominator being time pressure on both sides.
For Buyers Who Must Close By Sept. 30th - It will take time for inventory trends in Manhattan to become favorable for buyers. That means months at the very earliest! Months you do not have as it normally takes at least 2 months to close on a co-op or condo deal; generally longer for co-ops and for deals with financing involved.
Get out there NOW and start looking at every possibility. Don't wait for inventory to build up or else you might be stuck with a property that you don't like. Consider short term rental to help extend your purchase deadline!
For Buyers With No Time Pressure - Learn product knowledge in this tight New York City real estate marketplace and only move on a deal if you fall in love with it and its priced more in line with market value. Sales should slow as we get deeper into summertime helping to reverse inventory trends as product takes a longer time to sell on the open market. This should give you more options towards the end of the year; hopefully!
For Sellers Who Must Close By Sept. 30th - Reduce your price. Stop playing around and make that price cut so that your property is aggressively priced in your building. Instead of being at a price point that HELPS THE OTHER PROPERTY SELL FIRST, be proactive and make your property the best deal in the building! If you don't do it now, it'll only get worse in the next month or two eventually forcing you to take an even bigger hit if you must sell and close within 45 days or under. In that event, you'll have to advertise a fire sale because you have no other choice but to get an offer secured within days to close by your deadline.
For Sellers With Time / Little Incentive To Sell - Consider taking the property off the market. If you haven't gotten top dollar for your apartment by now, and you are testing the market with an overpriced asking price, then chances are you won't get it at all in the next few months. Take the listing off the market and try to keep it fresh for the next time you decide to try again; hopefully during the generally active months of every new year. No good can come from having an overpriced property on the market for 6+ months with still no incentive to lower the price!
A: Well, 2 days ago I told you to expect some relief in the mortgage markets, "...as long as there is no reversal to the downward trend..."! Of course, I picked the exact bottom to the 10YR's volatile trading of late as yields since jumped back up 14 basis points in 2 days time (0.14%) to near 5.21%. However, the lag did provide some relief to the mortgage markets as of yesterday and today, although not as much as I was hoping for. With 10YR yields popping back up again, expect any relief in mortgage rates to be temporary!
Here is the move in yields since I wrote the post "So Rates Rose & You Didn't Lock In?", 2 days ago.
According to CNN Money article yesterday titled, "Mortgage Rates Back Off":
Mortgage rates eased slightly after taking their biggest jump in four years a week ago, Freddie Mac said Thursday. Last year at this time, 30-year mortgage rates averaged 6.71 percent.So you did get a bit of relief, although it was very minor since the drop in yields didn't last very long. If 10YR yields hovered under 5.1% for the week, you would have seen some more relief in the mortgage markets heading into next week. But that didn't happen. Instead, rates popped again and the 10YR yield is closer to 5.21% right now.
The rate on a 15-year loan averaged 6.37 percent, down from 6.43 percent a week ago. Five-year Treasury-indexed adjustable-rate mortgages (ARMs) averaged 6.31 percent this week, down from 6.37 percent last week.
Again, with rates already making their big move higher it is up to the buyer to keep tabs on the 10YR yield for clues as to whether they should LOCK IN now or wait a bit. It all depends on your unique situation and when you expect to close or refinance. If 10YR yields push back to 5.3%, LOCK IN NOW! If they drop back down to 5.1% or under, WAIT for the lag to provide relief to lending rates; a few days or so.
Post a comment if you have a specific situation you want my opinion on as far as when to lock in!
A: Some food for thought. Congress's tax writing committees are weighing taking back a little known tax break that allows private equity firms and real estate partnerships to pay only 15%, instead of 35%, on capital gains generated from performance fees. According to an article in The NY Times today, the performance fees represent most of these firms reported income. Should this bill be passed, one has to question the 'sexyness' of these types of investment firms & partnerships if 20% of their profits are now going to be taxed again.
Carried Interest - The portion of any gains realized by the fund to which the fund managers are entitled, generally without having to contribute capital to the fund. Carried interest payments are customary in the venture capital industry, in order to create a significant economic incentive for venture capital fund managers to achieve capital gains.
According to the NY Times:
Leaders of the tax-writing committees in Congress are considering a new proposal to end a little-known tax break that has allowed wealthy financiers who run private equity firms and hedge funds to cut their total income tax bills by billions of dollars, aides to lawmakers say.Consumers are already overwhelmed with trying to understand macro economics on their investments without thinking about future changes in the tax code that may REMOVE a significant source of buying power that we all got used to. For me, this is territory I understand very little about. What I do understand is that when there are gray areas in the tax code, or little nooks that are hard to find but easy to benefit from, many large investment firms will find it and exploit it adding tons of $$$ towards a specific industry. The thought of losing this tax haven and the benefit that comes with it may mean those $$$ will be put to work elsewhere.
By contrast, the new proposal would affect many more firms and could raise $4 billion to $6 billion annually. It may be attached to a tax bill expected as early as July as a way of helping offset the cost to the Treasury of relieving the growing burden of the alternative minimum tax on large numbers of taxpayers, aides said.
At the heart of the newest proposal is an attempt to bar private equity and hedge fund operators from a longstanding, but little understood, practice that has allowed them to pay a lower capital gains rate of 15 percent instead of the ordinary top income tax rate of 35 percent on their performance fees, which typically represent most of their annual income.
A change in the tax code could also fall on venture capital firms, real estate partnerships and many oil and gas companies -- all of which use similar accounting to justify paying the lower tax rate.
Lots of ifs here, but something that should seriously be on everyone's radar. The article continues...
Raising taxes on performance fees, which are known as "carried interest" on Wall Street, would generate billions. Another possible source of increased tax revenue would be a cap on offshore tax deferrals.No surprise there! I'm sure there are tons of business models out there already wrapped around this little know tax break. If the break gets filled in, well, the model must change or the firm's structure will have to adjust for the loss of net profits.
"This is the No. 1 issue all offices are getting lobbied on right now," a senior aide in the Senate said. "Carried interest is billions; publicly traded partnerships is millions."
I sure hope the full implications of this type of tax code change are considered by our lawmakers before pushing this bill through. If they aren't, an unintended market adjustment could occur.
As I mentioned yesterday, I am on the hunt for an investment property. I plan to rent it out for at least 2 - 3 years and then potentially move into it. I plan to hold the property for at least 10 years.
Yesterday I visited 90 William.
90 William Overview:
- Conversion from a commercial building
- 113 units
- 16 stories
- Opened 5 or 6 weeks ago - already 60% sold
- Approx December 2007 closings
- 24 hour doorman
- Indoor Lounge w/ fireplace, pool table, etc.
- Sky terrace w/ fireplace & BBQ
- Private storage rooms available
- Fitness center
- 15E - $615K for 640 sq ft ($961/sq ft)
CCs: $542/month; RE Taxes: $265/month (after the abatement kicks in 1/08 or 7/08)
- 10F - $698K for 845 sq ft ($826/sq ft)
CCs: $715/month; RE Taxes: $341/month
- 14D - $751K for 845 sq ft ($889/sq ft)
CCs: $715/month; RE Taxes: $348/month
Pros: Price per square foot is super low, high beamed ceilings (8'6 - 9'6), 14 year tax abatement would help with cash flow
Cons: No washer/dryers in any units, all studio and loft apartments face north right into another building, so there is no view and light is limited on the lower floors.
Assessment: Although the price per square foot is attractive, the 825-900 sq ft lofts at 15 Broad that face directly into another building have been renting for $3000 - $3500. With a 20% down payment and a 6% (interest only) mortgage, my payments are $4,407, so I am out of pocket $900 - $1,000 a month. However, after the tax write-off for the interest-only mortgage and the real estate taxes (assuming a 40% tax bracket), my net monthly cost is $2,924, so I am actually cash flow positive, especially when you count depreciation of the property.
My only issue is that I personally can not live in an apartment with absolutely no view, which makes me wonder how many other purchasers bought in the building as an investment. How many people will I be "competing" with when closings begin in order to find a tenant since the entire north side of the building is studios/lofts, and one bedrooms with lofts? And the building will be closing in the dead of winter when it can be hard to find renters. Even still, the price per square foot is tempting...
I looked at 88 Greenwich ages ago and I keep comparing everything I see to the building because of the river views... I might have to revisit it to see what their availability is. At the same time, a lot of renters really don't care about views since they are only there for a year or two and space is more important to them. I would appreciate your thoughts! Do renters really care about views? Or is getting a huge apt at a great price more important? For example, you can rent a 625 sq ft one bedroom in the Financial District for about $3,500 with light & a view, or you can rent an 850 sq ft open loft with no view & not much light. Which would you prefer?
I got in a lot of hot water for my last new development post, which you might have noticed is no longer on UrbanDigs. So from now on when you read one of my new development posts, it's just the facts! If you want my real, unbiased opinion on a building, you will just have to call me because I 'ain't puttin nuthin' in writing that will get me in trouble with my company!
I am looking to purchase a studio or one bedroom for myself since I just sold my co-op and despite the rise in interest rates, I still feel that real estate is the best place for me to put my money. I have been concentrating on the Financial District and in Bedford-Stuyvesant, Brooklyn, which is the last place someone with my budget can buy a two-family brownstone within a 20 minute commute to the city. Quite the contrast in neighborhoods, I know, but I see huge potential for both locations over the next 10 years. I know that I am going to be cash flow negative for at least two years, although when you count the tax benefits and the depreciation of the property, I will come out on top. My budget is about $760K and if I go much higher I am going to sweat profusely if it takes more than a month or two to rent out the apartment.
My focus in the Financial District/BPC is on new condo developments that are at least 6 months from completion. By buying in early, I am most likely to get a "discount" in comparison to those who purchase when the project is completed.
Today I visited 225 Rector Place. Here's the scoop:
- Condo conversion from a former rental building
- Opened less than 2 weeks ago
- Approx 300 units on 24 floors
- Expected occupancy January 2008
- Screening room
- 3,000 sq ft fitness center
- 75' Indoor Pool w/skylight
- Sauna, steam room
- Parking garage
Alcove Studio (layout suitable for conversion to a one bedroom)
- 11G - $625K for 574 sq ft ($1,088/sq ft, closer to $1,000 a sq ft on lower floors).
CCs - $560/month; RE Taxes $484/month
- 11M - $745K for 687 sq ft ($1,084/sq ft)
CCs - $659/month; RE Taxes $570/month
- 10O - $730K for 654 sq ft ($1,116/sq ft - has partial river views)
CCs - $634/month; RE Taxes $549/month
Pros: Park and/or River views from most units, price per sq ft and CCs are low. The building just opened, so you can get a good deal by buying in early.
Cons: Building is on an 85 year landlease with 62 years to go, so there is no real estate tax abatement. Since the building is a conversion, the windows are smaller than new developments built from the ground up. Ceiling heights are about 8 - 8.5 feet.
Assessment: Due to the lack of a tax abatement, I can make better cash flow elsewhere. Even though I am going to be cash flow negative anywhere I go, I want to be as close to a break even as possible.
Tomorrow I visit 90 William
A: So many readers have emailed me about what to do now that rates just made a big run over the past few weeks and whether they should rush in now to lock in. My answer to them is NO! Here is why.
I write about interest rate trends as a very short term trend. I have NO IDEA where rates are going to be in 6 months! So, don't even ask. However, I do have a very good idea where rates are most likely headed in the next 1-2 weeks; making this component of urbandigs.com great for serious buyers and sellers.
If you read the site, then the run up in rates was not a surprise. So lets move on to what to do now. The 10YR woke up to reality and surged to an entirely new trading range which is currently trying to discover its boundaries. The 10YR yield reached a recent trading high of 5.316% back on June 13th. Six days later you can ask your mortgage broker how bad it was for their buyer clients who got the unfortunate news before locking in their rate.
But since then, we have fallen nicely a total of about 24 basis points, or 0.24%, over a 6-day period and are still drifting lower. This WILL provide relief to the mortgage markets toward the end of this week and beginning of next! According to Michael McGivney of Wells Fargo, a direct lender, here are current rate quotes for three popular loan products:
LOAN AMOUNT - $750,000
30YR Fixed - 6.875%
7YR ARM (principal + interest) - 6.375%
5YR ARM (principal + interest) - 6.25%
Lets see where these loan product rates are next Tuesday, and whether they reacted to the correction in 10YR yields at a lag! Here is a 5-Day chart of the 10YR yield showing the fall from the 5.31% tradable high reached on June 13th:
For Buyers Who Recently Signed & Didn't Lock In - Try to wait until this time next week! I think you MISSED the boat to lock in your rate 4 weeks ago in anticipation of your new home purchase, and there is more risk than reward in rushing to lock in after the move already occurred. The better play is to wait a week and watch 10YR yields for any sharp reversal in the downward trend. As long as there is no reversal to the downward trend, mortgage rates should see relief in the days to come!
The Bigger Picture Thought - With the overnight fed funds rate at 5.25%, there is talk on the street that the 10YR might be in a generally upwards trend, as long as the fed is clearly on hold. There very well could be a run up in 10YR yields so that it trades above the overnight rate. However, this is a longer term trend to watch out for and NOT something that should be taken into account if you have to make the rate lock in decision soon! When it comes down to days, look at the trend in the 10YR over the past week or two for a quick guide.
I also wonder how low yields really can go given that oil & food prices are STILL trending higher! With oil nearing $70/barrel, it should help provide a floor to dropping yields.
A: I had a conversation with an ex-New Century Financial employee (a now defunct sub prime lender) last week who is now working for a new mortgage lender and specializing in still sub prime and alt-a loans. While the sub prime mess wasn't news to me or him, I was concerned when he mentioned the words COSI & COFI. Word on the street is, mortgage companies are instructing their employees to promote these types of loans with rates as low as 1.75%; and which offer four options to the consumer. I myself once considered this type of loan product UNTIL I researched it on my own. Turned out, the mortgage lender was flat out lying to me on the phone when answering my questions. So, once again, buyer beware!
Before I go into defining what these two loan types are, you MUST understand that the COSI & COFI loans were designed for troubled lenders and offer options in how to pay monthly bills. Given the nature of the situation, lenders know that most homeowners will choose the MINIMUM PAYMENT OPTION which costs the lowest amount! By choosing this option, the loan will negatively amortize, deferring interest to the principal of the loan. In a nutshell, you will end up owing way more than the original loan when you go and resell your home!
Now, lets define what the COSI & COFI loans are.
COSI Loan - The Pick a Payment / Options Loan based on the Cost of Saving Index (COSI) is designed to give the borrower significant cash flow savings for the fist five years of homeownership. The Cost of Savings Index is the hardest to track but arguably the least volatile. The COSI index is the weighted average of the rates of interest paid on depository accounts held with World Savings. The index is calculated at the end of every month and then averaged with the previous 12 months creating a very stable index.
COFI Loan - The 11th District Cost of Funds Index reflects the average interest rate paid by the member banks and savings institutions located in Arizona, California and Nevada. The largest part of this index is based on savings accounts so it will move more slowly to market swings. The COFI has long been considered the most stable and popular of indices associated with the Options ARM.
I found a great article from a mortgage lender dissing this type of loan because of the dangers and abusive nature of the product. According to Mortgageforum.com:
The COSI loan described is a NEG AM or NEGATIVELY AMORTIZED LOAN. If you as a borrower decide to make the minimum or first payment option, your mortgage loan will NEGATIVELY AMORTIZE. This means your payment was low for a very scary reason. The payment was not enough to cover the interest charged on the loan and the difference gets added back to your mortgage loan balance.Now the tricky part. The first deferred interest payment of the MIN PAYMENT OPTION of the COSI loan is usually very low; adding not too much to your principal! However, this is what lenders want you to believe as the worst case scenario. Back to the article and this example.
Example: 300,000 COSI Loan
Minimum payment option (1.95%) - $1101.37
Interest Only Option - $1162.50
30 year fixed option - $1546.91
15 year fixed option - $2318.04
*By the nature of this loan and the targeted consumer it was designed for, most will choose the minimum payment option giving them the lowest monthly payments to be responsible for.
In the above example, $61.13 was added back to your 300,000.00 loan. True, for the first month payment, this isn't very much, but the misleading part of a NEG AM LOAN is that the lender wants you to think this is the worse case scenario every month. NOTHING COULD BE FURTHER FROM THE TRUTH! As your loan balance begins to inflate, YOU START PAYING INTEREST UPON INTEREST! This is a nice thing your credit card companies like to take advantage of!?! Also, as you see later in this post, THE INTEREST RATE IS VERY ADJUSTABLE. As the rate goes up, the 3 payment options go up. And that means more money added to the back of your loan!Confused? This is why you stay AWAY from this loan product and don't fall into the trap! As Mark from this article states, "...The problem is that COSI LOANS are marketed without a little hidden part". Problem is there are alot of little hidden parts. These types of loan products are tricky and dangerous because:
According to the guy I had that conversation with last week, his company is selling hundreds of COSI & COFI loans every day! And that is just one company's office! He clearly stated to me that the powers that be at his office are promoting this product now that subprime is in the mass media and ARM's & I/O ARM's have been targeted by the regulators and marked by the consumers. Few know about COSI or COFI loans making them an easy sell!
Trouble on the horizon if this trend turns out to be true nationwide and not just around our neck of the woods! Expect uneducated homeowners to wake up to a grim realty in the years to come that their home loans are much higher than they anticipated and may even be higher than what the home is worth. Rising principal and shrinking home values are NOT a good combo!
If it sounds too good to be true, it probably is! Time will tell how this scenario plays out!
I would love if any mortgage brokers out there could comment on this post and whether COSI loans are being sold at your lending institution!
A: Well, the Home Builder Index did fall BELOW expectations as the number came in at 28, the lowest since it hit 27 in February of 1991. Expectations were for an unchanged reading of 30. The second of my two outcomes seemed to play out as even with this horrible number, the markets really didn't move much as the data was released. With the street's expectations on the national housing market already very low, even this real bad reading isn't enough to have an effect on stocks or bond yields. We'll know more tomorrow when Housing Starts & Builder Permits are released for more of a reaction from the tradable markets.
According to CNN Money:
Sentiment among U.S. home builders slid in June to the lowest level in more than 16 years as tighter lender practices and rising mortgage rates crimped sales, the National Association of Home Builders said Monday.Keep in mind that this dataset really doesn't affect the Manhattan real estate market much and is more of a leading indicator of builder sentiment across other markets in the US. Until you see this number start to trend higher, it's safe to assume that the home builders really have very little faith in a national housing recovery anytime soon.
Economists had predicted the index would be unchanged from May's 30 reading, based on a Reuters survey. Readings below 50 mean more builders view market conditions as poor rather than favorable.
"It's clear that the crisis in the subprime sector has prompted tighter lending standards in much of the mortgage market, and interest rates on prime-quality home mortgages have moved up considerably during the past month along with long-term Treasury rates," said NAHB Chief Economist David Seiders.
A: Interesting psychological angle I want to discuss very briefly before the business week starts. On Monday, the National Association of Homebuilders releases its Housing Index. On Tuesday, the Commerce Department releases its latest Housing Starts & Building Permits numbers. With the recent surge in interest rates NOT LIKELY to be reflected in these most recent reports, expectations are already pretty low given the psychological effect of rising borrowing costs of the past 2 weeks. The data will reflect activity further back than what we all just went through. So, I'm betting on better-than-expected data on the housing front over the next few days that will extend the rally in stocks and maintain rates at these levels after the huge run up.
Housing Index - To be released Monday. May's index registered in at 30, down from 33 reported for the April period. This drop represented a weakening outlook for the housing market. With psychology dragging down expectations, chances INCREASE that the data will be better than expected, or if anything, not as bad when they are released.
Housing Starts - To be released Tuesday. Expectations are for a drop in the market of new homes and apartments.
Building Permits - To be released Tuesday. The only of the bunch whose expectations are for a rebound from a 10-YR low registered in April, according to economists surveyed by Thompson Financial. The number will have to beat the rebound whisper expectation for the bulls, and this is the only dataset that I don't expect it to flat out surprise to the upside.
I could be totally wrong on this yielding a completely different market reaction in equities and bond yields. But hey, why not take a stab at it and at least point out that when the surveyed economists and the streets' expectations are already lowered (from previous data/trends plus recent psychological events; i.e. surge in rates), the chances begin to increase that the report, when released, will be better than thought. A pretty simple, yet often overlooked, aspect of the tradable markets.
A: Brad Inman, founder of Inman News, has a long history of success. I am lucky enough to have met Brad a few times in the past few months and take part in his new InmanTV show which includes interviews with great bloggers such as Jonathan Miller of the Matrix, Rudy & Joe of Sellsius, Lockhart Steel of Curbed, Jonathan Butler of Brownstoner, Pat Kitano of Transparent RE, Matt Heaton & Jonathan Washburn of Active Rain, etc.. This interview was taped about 3 weeks ago so try to put yourself back into time & place when listening to my responses, although they haven't changed much. Enjoy!
A: This is the disconnect between the stock markets and the real world that makes equity trading so mysterious. When I saw the inflation numbers come out this morning at 8:30, I saw a surge in consumer inflation. But when you strip out the volatile food and energy components, the Core CPI rose only 0.1% as reported on CNBC. Stock futures surged as this was below expectations of a rise of 0.2%; giving a bullish knee-jerk reaction to the equity markets and a fall in yields. But when you look a bit deeper, it's not all rosy. Here's why.
First, the news. According to Yahoo Finance's article titled, "Consumer Prices Shoot Higher in May":
Consumer Prices Shoot Up at Fastest Pace in 20 Months in May, Fueled by Surge in Gas Prices. So far this year, consumer prices have been rising at an annual rate of 5.5 percent, double the 2.5 percent increase for all of 2006. The acceleration has occurred because of the surge in energy costs and increases in food costs that have been caused in part by higher demand for ethanol fuel, which is produced with corn.The same article then goes into the Core CPI number, which is a closely monitored dataset of our Fed board of governors, you know, those guys that set monetary policy. The article stated:
Outside of the volatile energy and food categories, inflation rose by a much more modest 0.1 percent. That was slightly lower than the 0.2 percent which had been expected and provided reassurance that this year's surge in energy costs has not spread to other parts of the economy.Sounds great right! Well just hold on a minute. There is one VERY important REAL statistic you should consider when looking deeper into this Core CPI number that was the catalyst for this morning's surge in stock futures and will probably lead to a very bullish day on wall street:
Furthermore, add in this interpretation of one aspect of the Core CPI reading that housing costs remained at the same level and you see that rental price decreases outside Manhattan helped keep inflation lower than what it might normally be.
So, rental prices are considered a good portion of the CPI data used to monitor inflation. This is important because with nationwide housing inventory at very high levels contributing to the weak housing market outside of New York City, there is a growing trend of converting condo inventory into rentals...As rental inventory increases across the rest of the nation prices should ease, helping to further moderate the CPI data that eventually comes out!Now, while the fed looks more closely at Core CPI, stripping out food & energy volatility, the real world IS affected by these inflationary items. Honestly, who doesn't buy food or fill up their car with gas? So, don't look too much into this so called tame Core CPI reading today. But by all means enjoy and ride the stock market reaction to it! Why not right?
As far as I'm concerned, global commodity prices are hitting peak highs, oil prices are nearing $70/barrel, consumer inflation did soar, core-cpi barely missed being rounded up to meet expectations and not beat expectations as it did, global economies are very strong, US economy seems stronger than expected, corporate profits are beating estimates, and rates should still be rising globally!
Not much has changed on the inflation front when you look into it with clear eyes!
A: This is the lagging effect of the mortgage markets following the trend of the bond markets; and more specifically the 10YR T-note yield. Unless you have been living under a rock the past week or so, rates have been surging due to renewed inflation concerns and globally rising interest rates. Global economies are very strong and rates are rising to slow things down and ease inflation pressures. Although we are off the highs in the 10YR yield, the short lagging effect to the mortgage markets is only now beginning to be felt. Buyers will realize at a lag that home loans are getting more expensive to take out and will affect affordability and purchasing power.
According to CNN Money:
30-year fixed-rate mortgages spiked to 6.74% this week, up from 6.53% last week, according to Freddie MacI know what some people are saying, "But Noah, rates are still historically low? 6.75% won't cripple the market!"
My response is, "YES, rates are still historically low which tells me there is plenty of upside to this current trend! And I don't need to tell you guys that rates are signficantly higher than what many of us have gotten used to over the past few years. So, to say there will be NO effect on purchasing power due to the surge in lending rates is putting a blindfold on your eyes to block out what is really going on".
So what is going on? In a nutshell:
For now, if you weren't prepared for this rise in rates then let it be a good lesson to be learned that some of the stuff I talk about on this site, is discussed for reason! Being a savvy real estate investor goes way beyond knowing what location to buy in, or what property features to look for. A general understanding of macro-economic trends will take you to the next level of becoming a savvier real estate investor; unless you believe nothing affects real estate cycles in which case all of this is irrelevant. Personally, I don't think that way and have an urge to understand what effects these cycles and what risks or rewards may loom on the horizon.
Like I have mentioned in previous posts, you MUST adapt to this changing world of higher borrowing costs especially if the trend holds or continues higher. Reasses your personal financial situation with the new rate quotes for todays world and see how that increases your monthly payments. Knowledge is power and understanding every aspect of your real estate investment is a MUST in today's marketplace!
My father passed this morning after losing his battle to cancer. For those that read my site, you should know that I have a passion for blogging that drives me to put so much time into this at the expense of my own business. Few understand how much time I put into this site and bringing to you what I think you need to know to learn about Manhattan real estate and some macro economic pressures that might affect it. Others do and I thank you for the kind emails and words of support.
There is more to life than all of this and for anyone that doesn't understand why I do this, well, than you don't understand my passion for change and transparency and to help others who are eager to learn how to become a savvier real estate investor. It just makes me feel good.
I never ask for donations on this site and have refused numerous requests from advertisers so as to keep the site clean and personal. But now, I want to ask for your help and support for organizations that help families like mine and patients battling diseases like cancer get through daily caregiving and the emotions that come with seeing a loved one get weaker as the disease rages on.
It puts things into perspective. It's not all about whats going on in the economy, or buyer and seller tips, its about me truly appreciating those that enjoy and find use from this website and the efforts that I put into it. I reach out to those readers to make a donation to one of the following organizations in memory of my father, Marshal Rosenblatt.
My father taught me how to enjoy life, how to treat others in a kind way, to be honest, and most importantly, that life is short and time is precious. He was right. If there is anything you learn today from my site, I want it to be that life comes first and that money isn't everything. Take some time out and enjoy yourself and do something special for your loved one and family. Life is just too short to be a harsh critic of everything or to hate everybody.
When a loved one battles cancer, Hospice Organizations provide a service that is absolutely priceless. They work on donations and don't put a financial stress on the family that needs their support. Please consider a donation to this organization first, who helped my family and my father tremedously over the past few months:
HOSPICE CARE NETWORK
Also consider a donation to:
NORTH SHORE UNIVERSITY HOSPITAL
Needlesstosay, there will be no live chat and posts will be whenever I have an urge over the next week or so. I'm sure I will have a few urges over the next week. Believe it or not, this is therepeutic to me and I love blogging. Even when the nasty curbed commenters tear me apart. Or that streeteasy crowd that I just realized had plenty to say about one of my previous posts. At least I know whatever I am doing is working.
For me personally, this helps the healing process and provides another way for me to honor and remember my father. He was truly a great man. I love you dad!
A: The past week was a very exciting one for traders. With lots of volatility comes good profits; as long as you are on the right side of the trade. When I was an equities trader I used to hate the slow, non volatile markets that made it hard to predict short term movements. Last week, markets reacted to what could be a new world of higher rates and the movements were volatile. Which leads us to this coming week and the economic reports that are set to be released. Be sure to watch if higher yields hold onto last weeks moves, correct back down a bit, or make another strong surge higher. The world may not be done changing yet!
Over the last week, yields on the 2YR, 5YR, 10YR & 30YR all surged to near peak levels seen last June; when analyzed over the past year. To show you just how dramatic the moves have been, take a look at the last 4 weeks (in the below chart) in the US Treasury bond markets that should explain to those who don't understand, exactly why their debt payments are getting 'more expensive'! (doesn't include Friday's big moves for some reason, so please take into account that yields are higher than noted here)
Leverage was used waayyy to much in the 'old' low interest rate world; you know, that world we are just leaving! But there is still tons of liquidity out there and plenty who are not heeding the wake-up call. Fact is, rates are only higher than where they have been and could very well be headed to much higher levels.
According to Yahoo Finance and via FT.com:
Investors have got used to taking ever more risky bets, assuming a stable economic backdrop, low inflation and low interest rates. They have been right for a long time. In recent years maximum leverage has been the right call....It's NOT just in the US either! Globally, investors and consumers are waking up to a world where debt is more expensive! Check out this chart on the right, showing the movement in 10YR gov't bond yields (actual basis points where 1 basis point = 0.01% move in yield) in some foreign markets.
...The recent sharp rally in global government bond yields is a wake-up call that things might have gone too far. The massive 30 basis point move in 10-year Treasury yields in the space of as many hours last week was the most dramatic.
And the recent sharp adjustment shows that even predictable US Treasuries can still spring surprises. The real risk is that long-rates will continue to move higher as still flattish yield-curves start to steepen to more normal levels. Or, more alarming, that a real inflation scare will give rise to greater market volatility.
In this new world, you could start to notice some re-allocation of assets, especially amongst large institutions and private equity groups. For stocks, in a rising rate world consumer staples and healthcare get more attractive while utilities and REIT's get less attractive. What you need to look out for is whether it will happen or not. So, carefully watch what happens to these boring bond yields this week and their reactions to the inflation data expected to be released. On tap for this week includes:
BEIGE BOOK - Wednesday
RETAIL SALES - Wednesday
PPI - Thursday (expected to rise by 0.5%)
CORE PPI - Thursday (expected to rise 0.2%)
CPI - Friday (expected to rise 0.6%)
CORE CPI - Friday (expected to rise 0.2%)
Given the volatility, and that a sharp move was already made it makes it very difficult to predict what will happen next. While rates are STILL at low levels and there is plenty of upside potential, I think traders will wait out the economic data before making bigger bets. But definitely keep an eye on whether or not yields will hold at these levels, correct back down a bit, or start a new run towards higher levels.
A: Sorry to report it to you like this, but welcome to this very new world of higher rates! I've discussed it and discussed it and tried my best to prepare buyers and sellers about what is going on macro-economically that would lead to a higher interest rate environment. Now its here and prices will have to come down to compensate for more expensive loans!
10YR Treasury Note Surges to 5.11%! All I can say is WOW and watch out for all those with resetting ARM's, high credit debt, or serious buyers who now have to re-analyze their max budgets! Check out my past stuff to get re-acquainted on what I discussed and how to adjust:
Jobs Market Strong - Rates Headed Higher
10YR Surges - Mortgage Rates Next
Economy Still Strong - Yields Rise
Rates Going Higher - How To Adjust
Interest Rate Talk Likely To Begin Again
Expect the effect on buyer activity to hit home in a month or so as buyers realize what is going on at a lag! This will be one tough summer in Manhattan unless inventory trends stay as tight as they have been keeping buyers options low.
A: Get used to it! Either you adapt because you are keeping tabs on what is going on in the world or you don't. I hope it's becoming more clear why I talk about this inflation stuff here on UrbanDigs instead of writing about the next good deal in town. The world is changing. As global economies continue to have strong growth, inflation becomes more of a problem and that ultimately makes money more expensive to borrow. Already, I see the number of mortgage applications falling due to higher interest rates. If this continues, you can argue the ultimate negative effects on purchasing power and consumer spending.
First, onto the latest news. According to Yahoo Finance's article, "Productivity Slows in 1st Quarter / Wage Pressures Ease":
The productivity of American workers slowed sharply in the first three months of this year but wage pressures eased as well, providing evidence that inflation is being restrained.Don't get excited yet! The article continues:
Labor costs rose at an annual rate of 1.8 percent. That was up from an initial estimate of 0.6 percent growth in unit labor costs but was still lower than the 8.9 percent surge reported in the final three months of last year.And finally, the kicker:
While higher wages are good for workers, increases that outstrip the growth of productivity can trigger unwanted inflation as employers are forced to boost the cost of their products to meet their higher payroll costs
Rising productivity means that employers can boost salaries because of workers' increased efficiency. It is the single most important factor supporting rising living standards.But productivity didn't rise! It is slowing, yet the economy seems to still be growing -----> which means an inflation problem! Confused? Here, try another source.
According to CNN Money's article, "Wall Street Slumps at the Open":
Investors' rate jitters intensify after a government report shows productivity slowing amid a growing economy, an inflationary signal that could mean rate hikes are coming.Over in Europe, the ECB (Europe's equivalent of our Fed), raised rates by 1/4 point to 4% and issued a statement saying, "...and the bank's president Jean-Claude Trichet said that European economic growth is significantly stronger than expected, and that inflation risks are on the rise." The ECB is more transparent than our Fed and it is safe to assume that MORE rate hikes are coming in Europe. This will put further pressure on the US Dollar and keep our Fed on the ropes to either hold steady for a longer period of time or hike rates sometime in the future to help curb inflation and support pricing stability and our currency.
Worker productivity in the first quarter was much lower than original estimates, according to a government report Wednesday that was in line with the latest Wall Street expectations. The slower productivity raised inflation concerns, and could keep the Federal Reserve from moving to cut rates to spur the economy.
I don't need to explain this effect on purchasing power and affordability again do I? Ok, I will, one last time:
AS INFLATION LOOMS AND RATES HEAD HIGHER TO COUNTER IT, MONEY GETS MORE EXPENSIVE TO BORROW. AS MONEY GETS MORE EXPENSIVE TO BORROW, THE CONSUMER GETS HIT WITH RISING MIN PAYMENTS AND HIGHER BORROWING COSTS ON LOANS. PURCHASING POWER RESTRICTS AS AFFORDABILITY GOES DOWN. THE CONSUMER CAN'T AFFORD WHAT THEY USED TO AND THAT MEANS PRICES HAVE TO COME DOWN TO STIMULATE SALES, WHICH IS THE ULTIMATE GOAL OF HIKING RATES IN THE FIRST PLACE ---> TO COUNTER INFLATION AND BRING PRICES LOWER.This stuff is very important to understand and is crucial if you wish to be ahead of the markets in your investments.
As the world finally 'gets it' and realizes that inflation is not going away, those in the dark will be hit hard by what is to come. If you see the 10YR bond yield pass 5% and head closer to 5.2% or so, expect lending rates to really pop and move closer to 7% on 30YR fixed! For anyone that says "7%, yea right, that guy doesn't know"...is living in a fantasy world. Fact is, this is a very good possibility and so far there has been very little data and news released to reverse the current trend of rising rates, strong economies, and still bothersome inflation! Either you adapt to it, or you get hit!
If this does follow through, you will start to hear that inflation is the direct cause for the next leg of the housing downturn as borrowing costs rise driving down demand and affordability. House prices will have to fall further to stimulate sales.
A: U.S. Service sector expands at a faster than expected pace in May, removing any last hope of a fed rate cut; aww, all those fed rate cut people..I feel so bad! NOT! Folks, I've been saying for over a year now that rates need to go higher to curb inflation pressures and right now the markets are functioning properly to correct itself! As the latest report on US economic growth comes in better than expected, 10YR bond yields continue their upward trend and flirts with 5%! Expect lending rates to stay at already risen levels and even trickle higher as long as this trend in the bond market continues!
According to Yahoo Finance:
Surprising strength in the nation's service economy, coupled with recent data showing the manufacturing sector is humming along, suggest the broader economy may be shaking off slumps in the housing and automotive industries.The media is starting to get it and I would certainly expect big media to start reporting on the effect that higher lending rates is having on the national housing market.
The Institute for Supply Management, based in Tempe, Ariz., said Tuesday its index of business activity in the non-manufacturing sector registered a faster-than-expected pace of 59.7 in May. The reading was higher than April's reading of 56 and Wall Street's expectation of 56.
While a rebounding economy is welcome news, investors worry that unchecked growth could prompt the Fed to hike interest rates, a move that could dampen spending.
Here in Manhattan, the effect of purchasing power as a result of more expensive money is still yet to seen. I still see a generally strong market here with healthy buyer demand and VERY little inventory to choose from! I don't expect the inventory trends to change much as we enter the hot summer months but do expect many overpriced listings to come down to earth as they realize savvy buyers aren't biting!
For all those serious buyers out there with a time pressure to move, be sure to re-assess your financial situation now that lending rates have risen to see how your buying power is effected.
Read my post, "Rates Going Higher - How To Adjust" and download the spreadsheet for help with this. As for your apartment searching, continue to be disciplined and be sure to ask your buyer broker for all data on what the building of interest is trading for so that you can evaluate the specific property in question to see if it's asking close to market value! Some fundamentals against buyers right now include:
While it is not a frenzy market like it was back in February & March, the scale is still biased towards a sellers market here in New York City, and you should definitely give yourself some time to find a good product if you already made the decision to buy and have a time pressure to close.
What, me worry?
Recently, several significant issues have been percolating beneath the surface of a buoyant stock market. Despite an otherwise sanguine investment outlook, I can’t help but continue to see parallels to the market environment of 1987: a buyout boom fueling stocks that are running up in the face of slowing profit growth, a weak dollar, bond yields backing up on inflation fears and even insider trading scandals.
The old saw on Wall Street is “When no one is worried, it’s exactly the time to worry.” But the fact of the matter is people are not overly bullish right now and the VIX index - one measure of investor worry - is in the middle of its recent range rather than at the very low level (which normally indicates too much complacency) at which it started the year. I don’t expect a 1987 style crash, but I don’t hear others drawing the obvious parallels. Pesky thing about big market moves:….No one expects them.
With the market making new highs and buyout deals happening daily, it could be a rocking summer on Wall Street and complacency might return. So I am going to take this time to inject a little worry into your mind. Why? As I have noted in a prior post, the strong New York City residential real estate market has very solid supply/demand underpinnings, but at the end of the day Wall Street employment is critical to this situation continuing. Additionally, the fact is most of the rest of the country is experiencing a residential real estate shellacking not seen in 15 years. So there is every reason to be very wary of the remaining strong markets like New York City.
So What’s to Worry About?
Weak Dollar - This is being driven by fundamental factors such as higher relative interest rates and expected rate increases in European countries (which attract bond buyers to these markets), the decision by the Chinese to “diversify” their foreign currency reserves (consisting largely of U.S. treasury securities) into higher yielding investments and efforts by petro dollar driven economies like Kuwait’s to diversify the pricing of oil into other currencies. Please note my prior post on China and concerns about that country making “trophy” investments in the U.S. One of China’s just announced diversification moves was to buy a stake in Blackstone Group, which is essentially a bet on the U.S. commercial real estate and buy out booms continuing (Yikes).
Corporate Profit Growth Slowing - dampened by a moribund housing market and consumer fatigue. The recently released revised GDP number of 0.6% for Q1 shows the economy barely growing. If things slow enough, companies could start laying people off, kicking off a nasty downward spiral.
Inflation Continues To Be A Potential Problem - soaring gasoline pricing, the weaker dollar, hard commodity price inflation (driven by Chinese demand) and soft commodity shortages driven by ethanol production from corn and lower planting of soybeans and other commodities.
Weak Bonds – reacting to the commodity inflation and weak dollar, bonds investors are getting un-nerved driving yields higher! Here is the 10YR bond yield chart over the past 3 months causing money to get more expensive to borrow.
Monday October 19, 1987, also known as “Black Monday” still lives in the minds of investors old enough to have experienced it. I for one am proud to say I am young enough to have been in my senior year in college when the crash hit.
A crash it was. It was the second largest percentage point decline in history at 22.68%. second only to the 24.39% decline in 1914 after the onset of WWI.
In 1986, the economy was in a similar position as it is today. It was having a “soft landing” whereby the Federal Reserve had ostensibly slowed the economy to a point where inflation was being kept at bay. The following summary of events leading up to the Black Monday panic borrows heavily from a 1997 piece by Motley Fool recollecting the events of 10 years prior.
# 1 - The year 1987 opened with bond yields near 10 year lows. The junk bond market was booming with good demand for these higher yielding, but lower quality (higher default risk) bonds. Demand for junk bonds was being met by an ever increasing supply as the leveraged buyout (LBO) boom roared. The acquisition of all of the outstanding stock of public companies by private investors (using large helpings of junk bond debt) was steadily removing stock from the market. Axiomatically, this reduced supply of available stock, coupled with good buying interest, resulted in higher prices for the remaining stocks available in the market.
# 2 - On January 8, 1987 the Dow Jones Industrial average broke the 2000 barrier for the first time, closing at 2002.25. Market participants were emboldened by the string of records in the market that followed and expectations built of increased public enthusiasm for stocks.
# 3 - On January 22, 1987 the Dow had its biggest single day rally in point terms and although it is not a record on a percentage basis, it is taken as another positive omen.
# 4 - In February 1987 a string of insider trading scandals surfaced including the now infamous Ivan Boesky case. (While the other parallels of 1987 and 2007 are obvious, some readers may not be aware of the multiple takeover deal related insider trading cases that have cropped up recently. As was the case with increased mortgage frauds associated with the end of the housing boom, these increases in crime tend to be related to too much of a good thing and tend to happen near the end of big trends.)
# 5 - The dollar declines steadily through the first quarter and after a huge run up the Dow Jones gets hit for a 57 point loss to close the quarter at 22781.41.
After another scandal is reported involving Treasury bond trading, bond prices tumble and yields increase to > 8% for the first time in 13 months.
# 6 - In April bond funds begin to see redemptions. As individuals pull money out of bond funds, it causes bond prices fall and yields rise. Some start to worry that the weak dollar could revive inflation.
# 7 - In late April the government passes legislation designed to reduce the trade surpluses of Asian nations. Investors begin to fear that in retaliation, the Japanese - a major funding source of the U.S. Federal Government - will stop buying our Treasuries, causing an even greater decline in prices and increase in yields (which would be required to attract investors to U.S. bonds).
During this period oil prices are rallying strongly with crude hitting a high of $22.39 per barrel in July, up from only $16.40 in March. The surge is another reason for inflation fears continuing to be stoked. By July, 30-year bond yields hit 8.79% and bond prices are beginning a dive that will carry rates to a peak of 10.5% by August 15, the highest levels since 1985.
# 8 - The stock market peaks at 2722.4 on August 25,1987. A September bond rally fizzles. Already down 5% from its peak, the Dow Jones gets hit for another 3.5% on October 6, 1987. Wall Street firms begin to lay off bond traders. An Iranian missile hits a U.S. flagged tanker in the Persian Gulf.
# 9 - October 16, 1987 the Dow Jones falls 108.35 points on record volume to 2246.74. Many economists worry that the bond market’s message is that the federal deficit and the trade deficit need to be addressed.
# 10 - October 19, 1987, the U.S. shells an Iranian oil platform in the Gulf. The Dow Jones falls 508 points, the worst 1 day decline since the start of WWI, down 22.6%. It makes the 12.8% decline of October 28, 1929 look like a minor dust up. The trading volume of 604MM shares hits twice the prior record; many people and systems are overwhelmed.
A: I want to discuss the article in yesterdays NY Times titled, "A New Way To Tap Home Equity". Right away I thought, "perfect...another abusive lending tactic targeted for the uneducated that will result in tons of money lost before the product's truly understood." But then I wondered and thought more deeply about it; here is a loan product that claims to take on 50% of either the gain or LOSS on the property (based on the time of the transaction) as a term of giving you a loan right now? Is it worth it? The short answer is YES if you are bearish on housing and disciplined with investing and represents a sort of hedge against falling home values.
First lets understand the REX AGREEMENT and that it is only acceptable for single-family detached houses & average-higher credit scores. So, right now this is not an option for most Manhattan real estate owners; but it could be some day if the public sees a benefit in the product.
REX AGREEMENT -
The REX Agreement is not a loan, but a real estate investment agreement in the form of a purchase option. It gives homeowners a portion of their home’s equity in cash today -- in exchange for the right of REX & Co. to share in a specified percentage of the future increase or decrease in the home’s value.Confusing enough. The key is in this statement, "...If the home declines in value, REX & Co. shares in the loss."! Of course it applies to the gain side as well. So, if your property falls in value by $50,000 from the time the agreement is entered into, and you take out a $100,000 line, you'll only have to repay $75,000 when you sell since the Rex lender splits the $50,000 depreciation with you! In meantime, you could invest that $100,000 and earn X%!
For the right to share in an agreed upon percentage of the future change in value of the home, REX & Co. pays the homeowner what is called an Option Exercise Price -- equal to the current value of the home multiplied by the percentage of the future change in value granted to REX & Co. If the home increases in value, REX & Co. shares in the gain. If the home declines in value, REX & Co. shares in the loss.
Lets move onto the math and see if this loan may work for you. Your probably thinking, "OK, take the loan, go on a vacation, pay off some credit card debt, and buy that car I always wanted...." aren't you!
I'm thinking, "...what if you take that loan amount and invest it at 7-8% and then sell your house at a LOSS?" (interest earned on rex loan not compounding since I cant do that math yet in excel and I have a spreadsheet below to analyze this loan and whether it works). Hmmmm. Now that certainly is interesting. If you borrow $100,000 and then sell the house at a loss of $75,000 five years later, would you make more money at the end of the day if you did the loan & invested the money or not?
Lets run some numbers and make some assumptions. If you are going to do this agreement, you should understand what you are getting involved in. This spreadsheet should simplify the decision by taking into account your personal situation and your expectations. Use only as a guide.
DOWNLOAD REX LOAN TEST NOW (fill in yellow boxes - the rest will automatically compute)
Fact is, this product seems beneficial for anyone who thinks the property of their home will fall or remain flat from the time the Rex Agreement is entered into and ultimate sale. The reason is you are earning investment income on the money provided to you. Rex lenders take a 50% gain or loss with you, making the loan product very attractive if there is a loss! The only situation I see this agreement not being beneficial is if the property value JUMPS from the time the agreement is entered into and ultimate resale.
When there is a gain, the Rex lender comes out the winner and you get LESS MONEY than if you didn't do the loan! But what about the earnings you made with the money you got from the Rex lender? Remember, you pay NO interest or monthly payments on that money.
The actual COST of the loan product varies so be sure to go directly to REX & CO. to save any transaction fees if you are interested. The fine print:
"Homeowners who arrange for their Rex Agreements directly from the company pay no fees, but financial advisers, mortgage brokers, and real estate agents licensed by Rex to sell the product can charge fees up to $2,000."I urge you to talk to your financial adviser about a play like this before doing it. While it seems a very interesting product, I did not read the terms and conditions of this type of agreement and therefore I don't know what other payments or penalties there might be associated with this product. I already found this via RealEstateJournal.com:
People who sell the home in less than five years face an "early exit" fee ranging from 5% to 25% of Rex's initial payment.The Pitfall - Using the Rex agreement money for luxury items. This entire analysis is based on the assumption that you are investing the money provided to you via this agreement. The argument for using this type of product strengthens if you are disciplined to invest the money wisely and at the same time feel the housing market is heading lower. If you will not use the money wisely OR feel the housing market has tremendous upside potential, this is not the loan product for you.
Also, using the money for renovations on the property means you will get more money at eventual resale that is not 100% yours! You split that gain with the Rex lender 50/50 now remember! So, money used for major contracting won't return as much profit to you as you may think.
The Appraisal - The Rex agreement's benefits will stem greatly depending upon the appraisal of your property at the time the agreement is entered into. It will be to the Rex Lender's advantage to be very conservative with this appraisal of your property! No doubt the homeowner will think their property is worth more. But because the Rex lender shares in the profits and/or loss on the property at ultimate re-sale, it is to the lender's advantage to appraise the property as low as possible so as to ensure a 50% cut of the profit down the road. If you do decide to take on a product like this, only do it if the current property valuation is acceptable to you given current market conditions.
A: With the US economy strong like bull and inflation seeming to moderate, interest rates have been rising. The trend is clearly UP and we are reaching the highest levels of 2007 which means those who hold lots of debt should expect to see their minimum payments rise. It's all part of the equilibrium process of capitalism. If the economy is hot, money gets more expensive to borrow to try to slow things down a bit. So now that we know rates are higher, how do you adjust? Here's how buyers and sellers should adjust along with a spreadsheet that I think I got working properly so that you can update your decision making after researching how higher rates affect you.
Use this EXCEL Spreadsheet to re-analyze your financial situation now that rates have gone up. First, re-analyze all your minimum payments for all debt now that rates are higher. Then plug in the property details you are considering buying and see what the #'s tell you. Use ONLY AS A GUIDE and take into account more assets and higher salary needed for co-op purchases!!
DOWNLOAD HERE - Fill In Yellow Boxes; The Rest Will Automatically Compute
Debt Consolidation Tip: If you have multiple high interest credit cards that you can only afford the minimum payment for, strongly consider into consolidating those debts into a special offer from a new credit provider! If you can get 12 months of 0% interest, than do it and be disciplined to take advantage of that offer to lower your outstanding debt! Via Google , I see various offers from CreditCards.com here.
HOW BUYERS SHOULD ADJUST TO MORE EXPENSIVE DEBT
First off, re-assess all your minimum debt payments and consider paying off high interest debt first with liquid assets. The goal here is to get acquainted with the recent rise in interest rates and how that affects your personal monthly payments. Most people don't do this and realize later on how much higher their minimum payments went and the spending they have been doing during this time should have been cut down. In regards to real estate investing, you know mortgage rates have risen over the past 2-3 weeks. But so has all your other debts. So first things first, re-analyze all your debt payments and educate yourself on what your total costs are to maintain your debts. Chances are they are higher than you think.
Now that you know this, you must re-assess your purchasing power for real estate! You know your monthly income and your total liquid assets, and now you should know how much higher your current debt's are costing you per month. Next step is to re-analyze your credit score and rate quote that are offered to you. Chances are this is higher than you thought. It's never a good idea to do a financial analysis to see how much you can afford and expect that # to remain constant when other variables are changing; i.e. the cost of money to borrow.
Call a few lenders and get a more updated rate quote and see how that affects the monthly payment with your previous MAX PRICE budget! Chances are it is higher than you thought! Educating yourself on this is extremely important because in the end there is no sense going to a property that you can't even afford to buy and opening up the possibility of making a real estate decision based on emotion, not discipline.
Now that you know some rate quotes, be sure to use the mortgage calculator on properties you have been eyeing to see how the new rate affects your total monthly payment; I added a section on the above spreadsheet so you can do this there and get an idea of the #s. Add in the new monthly payments of your debts from above and see how that fits into your financial picture. In the end:
ALL YOUR DEBTS COMBINED REALLY SHOULDN'T EXCEED 33% OF YOUR GROSS MONTHLY INCOME. MOST BANKS WILL SAY TO KEEP DEBT/INCOME RATIO UNDER 28% OF YOUR GROSS MONTHLY INCOME, BUT I THINK IF YOU ARE STRONG IN ASSETS YOU CAN RAISE THAT UP A BIT AND STILL BE OK, ESPECIALLY IF YOUR TIMELINE TO OWN IS 5+ YEARSEducate yourself on this changing environment beforehand so that you don't get any surprises after the deal is done and have to change your lifestyle to accomodate that higher cost of living.
HOW SELLERS SHOULD ADJUST TO MORE EXPENSIVE DEBT
Higher interest rates = Less affordability
No doubt about that. If you are pricing high and testing the market and at the same time keeping a blind eye towards what is going on macro economically, you may be wondering why you haven't sold your home yet! Now is NOT the time to keep your price at the level where YOU think it should be. Rather, talk to your broker about what price adjustment might need to be made to stimulate buyer demand now that the 'price high' strategy didn't work!
If you MUST sell your home and are not just seeing if you can get your price, a price reduction right now is more than warranted. Ask yourself, "...are you doing what you need to do to move the property?". Now that we are entering the brutally hot summer months you are also faced with buyers dealing with higher lending rates pushing down affordability.
Question is, are you on top of this and ahead of the curve? If so, then you have had a discussion with your hired broker about what to do to stimulate activity and if you are willing to get more realistic on pricing than your broker should be willing to up the ante and buy a larger than normal ad to stimulate marketing's ultimate effects. With me, I usually double the NY Times Print ad out of my own pocket and e-blast the entire Manhattan brokerage community if my seller client heeds my advice and lowers the price on the property to a level more in line with market value.