Manhattan State of the Market
A: I'll give you guys a quick take on what I see out there right now, and what I expect based on the view.
My business has slowed in the past few weeks, in terms of AGGRESSIVE NEW buy side demand. What I mean by this is that although I continue to get calls/emails from perspective buyers, I am finding that the motivation level is subdued. This is completely normal for this time of the year in Manhattan; I discussed Manhattan's seasonal market way back in DEC 2005:
"During the hot summer months of June, July & August most NY'ers want to jump from A/C filled work rooms to A/C filled cabs to A/C filled apartments. Being outside during these times with the heat reflecting off the building and streets, and brutal subway station waits, is a nightmare for all of us. Going out of your way to view apartments you might buy is usually not a priority. Rather, weekends at the hamptons and trips upstate or to VT/NH are the main thoughts in your head.This dynamic still applies, only in today's market, I think the savviest buyers out there are using the 'light traffic' pitch more forcefully when submitting a well-timed low ball bid.
Looking at it from a different viewpoint, humans are generally a group minded species. What does this have to do with it? Everything!
If you go to an open-house and see no one there, you will probably think LESS of the apartment and be in no rush to place a bid. However, if you go to an open-house and see a ton of people there with you, you will be MORE interested in the property and probably have a feeling of more time-urgency in placing a bid."
Over at TrueGotham.com, Doug pitches in his take on today's Manhattan marketplace, that I agree with:
"Overall, the Manhattan real estate market has changed drastically from the days of multiple bids on every property that hit the market. That said, those properties with incredible views, layouts, outdoor space or other unique features are still garnering a plethora of interest. The rest will also sell...it may just take longer than you had planned."Here is how I would dig a bit deeper:
BUYERS: As Doug says, are both 'anxious & cautious'. Understandable given the macro environment and the time of year. Buyers can no longer be fooled. They expect to negotiate, and they will negotiate. I don't see any buyers jumping into bidding wars or paying full ask unless the property was priced correctly to begin with OR aggressively reduced on the downside, overshooting market value in the hopes of a very quick sale.
Inventory is down about 10% in the past 3 months, and buyers are frustrated that with all the headwinds the economy is facing, the uncertainties, and the negative wealth effect of a falling stock market, that there is not fierce seller competition out there. Put another way, asking prices simply are NOT 10% below past years levels, battling each other to be the best deal on the market at any given time. That hope is leading many buyers to be more willing to wait for a market with more sell-side panic; whether it comes is a different story.
SELLERS: Its all about the buyers! The sooner you realize this the faster you will get your sale. Its in YOUR hands. Chances are your broker is doing all the standard marketing for your listing, and shooting out proactive E-blasts, which in my opinion lost a bit of its luster as a marketing tool (the reason why lies with any new tool, after a while, it gets overused and now I simply delete the 40 pieces of spam I get a day).
Again, as Doug says, unique/special properties with strong sell side features such as outstanding views, big outdoor space, etc., that separate them from the pack should still be able to procure a good level of traffic in today's market. But these properties likely are NOT immune to the psychological effect of declining buyer confidence, and will still experience bids come in lower than originally expected.
In the end, the broker must educate the seller on the state of the current market so that a strategy includes pricing the property ahead of the curve. If not, chances increase that your listing will simply sit on the market, stale out, and risk lagging the real time market should prices drop a bit. I mean, before accepting a bid 15% below your asking price, won't it make sense to drop the price 5-7% first and see the effect?
The seasonal effect is in place, and I'm sure many sellers removed their listing from the open market for this time of year; contributing to the drop in inventory over the past few months.
I have contracts signed for my sell side properties after implementing price reductions; my Brooklyn property was removed from the market. Most of my buyers either closed or are in contract waiting to close. All of them bid wisely taking into account the state of the current marketplace as I described above; pricing in some downside risk. If anything, it shows that sellers are coming down. The range of accepted price relative to the original asking price is about 2% to 40% off the original asking price. Most were in the 8-15% off original asking price range. The one deal that was close to the asking price, was a property in a great location, with high west open city views, and priced perfectly.
If you have any specific questions for me about todays market, comment below, and I'll try to answer.
Posted by JT
Fri Aug 22nd, 2008 12:19 PM
As always, great post. Where do you see the selling prices compared to prior years. Are we at 2005, 2006 or 2007 prices. I believe you have stated in the past that the market might drop more in 2009. Do you see the market ever going back down to 2003 prices, which will be a 40% drop from current prices? As a person looking to upgrade, I see both side of the market. Unless there is a desperate seller, prices are still near record--maybe a 10% drop from the peak.
Posted by Noah
Fri Aug 22nd, 2008 12:34 PM
hey JT - Im on record in various forums, I think here on UD too recently, saying that I think right now the market is down about 5-8% or so from peak 2007 levels. Although this likely will NOT be proven or shown until 4Q of 2008 or 1Q 2009 when high end illusions are removed from data.
In terms of 2009, I do think that it will be a tough year for sellers. Just a hunch, but in can certainly play out differently. I just think we are about 6-8 months into the slowdown here, and we prob have another 3/4 of the drag left to go.
Pockets of distress will be only chance for a 40% haircut off peak levels. Rather, I would say a 15-25% correction is more likely from peak to trough, on a generalized level. Pockets of distress may lead to some areas of 30%+ declines, for plan units with no special features, before we see the full extent of this economic storm
Posted by Michael Oliver
Fri Aug 22nd, 2008 12:44 PM
I agree Noah your market has changed and will continue to be more difficult to get sellers in the correct mindset to be able to actually sell their home. In Tucson Arizona it took (still is taking) 2 years to get sellers in the mindset of we need an aggressive price and good marketing to find a buyer the old "lets see what happens" is not getting anyone's home sold and the "Let's test the market" is also an equal waste of time and any seller who starts talking like that it is best for me to walk the other way because they are no where near serious enough to allow me to get their home sold.
Posted by Colgin
Fri Aug 22nd, 2008 12:58 PM
Noah,
Good post and thanks for the update. What you are reporting is consistent with what I am seeing out there. For the astute buyer I think there are starting to be some potential good deals (albeit there are fewer choices due to lowered inventory). There are a number of properties I see out there within our criteria that had we not already bought (closed in late June) we would be looking at because prices have (finally!) been chopped and sellers may well be negotiable as some of these listings are starting to get stale. So, if I were still in the market there are at least 3 or 4 properties I would be making aggressive (but not absurdly lowball) offers on and feel like they would be good deals at such offer prices. All that said if one's views are that prices are Definitely heading down another 10-20% (or more) then I guess one should consider waiting. But that bottom picking thing is really difficult.
Off topic, I have been thinking about penning a short piece about my decision, as someone who had been very bearish on NYC real estate and continues to be somewhat bearish, to buy an apartment and the various factors that went into my (actually "our" together with my wife) decision. I thought I would post it on streeteasy but think that your readers are generally more thoughtful (although there is clearly some overlap in readership) and less nasty (see many streeteasy ad hominem attacks from bears on bulls and vice versa). If you would be interested in posting it here let me know and how I can send to you.
Colgin
Posted by Noah
Fri Aug 22nd, 2008 01:02 PM
email me Colgin, sounds like a great idea
Posted by jmg
Fri Aug 22nd, 2008 01:06 PM
Hey Noah,
What's your advice in dealing with sponsors
in new developments? Williamsburg, for instance.
And would I be more likely to have leverage
with a seller who bought in 2006/07 or with
a developer?
Thanks,
Jay
Posted by bahamas real estate
Fri Aug 22nd, 2008 01:27 PM
I agree with this statement that humans are generally a group minded species.
Posted by Noah
Fri Aug 22nd, 2008 01:28 PM
For that, its all about the health of sponsor or buyer. Is sponsor behind on terms of construction loan? Are units not selling at all? Was unit bought for speculative reasons, to flip? Did buyer lose job and now needs to sell? Etc.
I would think the BUYER would add on his transaction costs to buy & sell to his asking price FIRST, and only take a loss if no bids are accepted a few months. For distressed buyer, after 4-6 weeks.
Posted by k91
Fri Aug 22nd, 2008 02:12 PM
Noah,
Have you had any experience with the non-warrantable/warrantable issue with you buyers/sellers. I'd like to hear your thoughts on this. I am currently in contract and was minutes away from a letter of commitment on a conforming JUMBO at 90ltv, that is until the bank realized less than 51% of the units (new construction Brooklyn) were in contract. Once this was disclosed the condo was deemed non warrantable, the PMI guys DENIED insuring the mortgage, and the lender got real scared and essentially denied funding the loan. Somewhat puzzled and not quite understanding the issue, I called around to various other shops for mortgages. Most shops, and I mean five to seven brokers and direct lenders, heard unwarrantable and essentially hung up. Others were saying that you must hae at least 80 ltv OR even 70 ltv. Apparently the GSE's will not touch notes secured by unwarrantable condominiuS because the pmi guys won't.
Just another way in which the government bailout for a very large segment of buyers (90 ltv'ers), is an illusion. Also another way in which such scrutiny will further contribute to the declining numbers in Nyc. In other words, unless you are coming to the table with over 120 to 150k, on the low-end price points, which means probably NOT Manhattan, good luck buying in a new construction that's having trouble being sold.
Kind of circular, as well. In other words, if you are a developer, be careful. Expect your building not to sell, because it's not selling well.
Thoughts?
Posted by Douglas Heddings
Fri Aug 22nd, 2008 02:17 PM
Thanks for the hat tip Noah. Curious to hear if you agree with me that we will likely see a modest increase in inventory in the fall. I just overheard an agent in my office tell her seller that she would take the place off the market until the weekend after Labor Day. A foolish tactic IMHO that never works.
Posted by Noah
Fri Aug 22nd, 2008 02:59 PM
No prob Doug. Well, about two months ago, when we were around 7,700 or so, I thought we would see a drop after a 45% runup in the past 6 months. Now that it took place, I wonder if we are forming a baseline bottom right now. It seems that we are.
So, I would expect inventory to teeter around here, for a few months, not necessarily see a rise, and then for inventory to start rising towards end of DEC and into JAN/FEB of 2009. I think listings will far outpace demand for 2009's wall street bonus season.
Posted by Noah
Fri Aug 22nd, 2008 03:06 PM
Ask MortgageMan. You'll see his posts more often here!
Posted by Douglas Heddings
Fri Aug 22nd, 2008 03:19 PM
I think we will see an upward blip in inventory sooner particularly in the higher end as summer ends and people get back to their lives. We'll see.
Posted by Noah
Fri Aug 22nd, 2008 03:21 PM
yep, lets keep our eyes on it.
Lets get crazy here. Where do you see inventory in AUG 2009?
You first!
Posted by Pez
Fri Aug 22nd, 2008 05:16 PM
"That said, those properties with incredible views, layouts, outdoor space or other unique features are still garnering a plethora of interest"
Noah or Doug,
Regarding the above quote from Doug. What percentage of the apartments fall into the "incredible" category. My belief it is very few. i.e less than 20%
Posted by Noah
Fri Aug 22nd, 2008 05:33 PM
Pez - I would guess lower. Maybe 10-15% max. By special views, I think we both mean river or park views...Treetop view are nice but then again some buyers dont like to be on 2nd or 3rd floor. Open city views are great too, but most are on medium floors and there are a bunch of these so it loses some luster compared to a river or park view unit.
Also include units with large outdoor space in that category.
Posted by Donald
Sat Aug 23rd, 2008 06:12 PM
Speaking of pockets of distress Noah, what do you think is happening over at Trump Place on Riverside Blvd.? Because that certainly seems to be a distressed development due to the drastic price reductions and huge inventory. There are even several foreclosures over there. I have always wanted to live in that devleopment, so to see fierce seller competition over there is something I like (not that I am a real estate vulture or anything of the kind).
Posted by Noah
Sun Aug 24th, 2008 08:12 AM
Donald - yes you are right. There were some pre-foreclosures there a few months ago. Fierce seller competition over there should allow buyers to get value from real sellers. Question is motivation of those sellers to move their units.