Price Discovery Phase 1 Begins

Noah wrote: "Truly interesting times."

Indeed! And I fear, that we ain't seen nothing yet given what I believe is in store for the economy in general and NYC in particular.

Im curious to see discovery on 5M+ places that are in contract but have not closed yet. What the % decline for some sellers that had to sell in 4Q was.

If anyone knows any that closed based on recent comps, please post here! Thanks

Real estate prices will be a trailing indicator to the real distress in the local economy. Watch closing prices and inventory levels in 2Q 09 if you want to see a downturn--6 months of unemployment, burning through savings, no job prospects, a declining equity market, etc., will create a lot more motivated sellers than what was going on in 4Q 08.

Great post Noah. Tracking repeat sales of the same apartments is probably the single best way to monitor the market and I wish people would use this method more often rather than tracking "comparable" apartments, which can be distorted by upgrades, views, etc.

Since you asked for examples: I have my eye on 1060 Park Ave, # 13F

StreetEasy History
07/08/2006 Previously listed in StreetEasy by Citi-Habitats for $3,200,000
07/10/2007 Citi-Habitats listing unavailable at $3,200,000
03/24/2008 Previously listed in StreetEasy by MLBKaye International Realty for $2,800,000
04/07/2008 Listed in StreetEasy by Corcoran at $2,495,000
05/06/2008 MLBKaye International Realty listing unavailable at $2,800,000
05/28/2008 Price decreased to $2,395,000
07/11/2008 Price decreased to $2,295,000
09/14/2008 Price decreased to $2,195,000
10/18/2008 Price decreased to $1,995,000
11/03/2008 Corcoran listing entered contract

By the way, this listing has been 'in contract' for about 4 months now ...

I think Condos will do much better than Coops.
Manhattan is a small island and people from all over the world dreams to own a small part of it.
Foreign buyers will keep the Manhattan Condo Market from sinking,
[ yet i know of a very myopic condo board that extort 2 years of advanced maintenance payment to foreign buyers even when they are payng cash/ those condos will suffer with the coop market unless they get realand change policies]

We are now at the point where sellers are beginning to realize that they will have to sell below comps that occurred in 07 and 06. As more and more units come to market over the next several months and more and more sellers come to realize that they are now in a race to the bottom, we will start to see rapid and deep price cuts across the spectrum. Units that would have sold for 4 mil in 06 will probably be selling in the 2 range, which will impact all price points below that. This next year will be a year where Manhattan real estate prices drop 30% or more from peak to trough.

334 West 87th Street #4D

StreetEasy History
07/27/2007 Previous sale closed for $807,500
05/03/2008 Listed in StreetEasy by Elliman at $829,000
06/13/2008 Price decreased to $799,000
08/01/2008 Price decreased to $775,000
10/10/2008 Elliman listing entered contract
12/08/2008 Sale closed for $675,000

157 West 79th Street #10AE

StreetEasy History
09/07/2005 Previous sale closed for $1,328,000
09/13/2008 Listed in StreetEasy by Halstead Property at $1,495,000
09/30/2008 Price decreased to $1,395,000
11/11/2008 Halstead Property listing entered contract
01/14/2009 Sale closed for $1,280,000

Good catch Henry!

the percentage of folks who bought their 3 bed or more back in the 80s or maybe very early 90s and have presumed it would be their retirement nest egg, is huge. think about it, you paid $400k for something that peaked at $3mm or more and now you really would like to lock in the gains - these folks can price cut well below the new stock's cost basis in a heart beat. its a vicious cycle and is going to really suck for a lot of people but we have to get back to the 5x median income range in order for there to be any long term reason to buy real estate.

363 East 76th Street #20B

StreetEasy History
06/29/2007 Previous sale closed for $1,282,500
07/08/2008 Listed in StreetEasy by Corcoran at $1,449,000
08/09/2008 Price decreased to $1,399,000
09/14/2008 Price decreased to $1,349,000
09/17/2008 Price decreased to $1,295,000
10/17/2008 Price decreased to $1,250,000
11/12/2008 Corcoran listing entered contract
01/20/2009 Sale closed for $1,197,500

363 East 76th Street #20B

StreetEasy History
06/29/2007 Previous sale closed for $1,282,500
07/08/2008 Listed in StreetEasy by Corcoran at $1,449,000
08/09/2008 Price decreased to $1,399,000
09/14/2008 Price decreased to $1,349,000
09/17/2008 Price decreased to $1,295,000
10/17/2008 Price decreased to $1,250,000
11/12/2008 Corcoran listing entered contract
01/20/2009 Sale closed for $1,197,500

201 East 62nd Street #2B

StreetEasy History
07/30/2008 Previous sale closed for $1,230,000
09/04/2008 Listed in StreetEasy by Judy Rubin RE at $995,000
09/30/2008 Judy Rubin RE listing entered contract
01/06/2009 Sale closed for $995,000

I wonder if the seller at 363 E 76th renovated the apt.

If not, I think they did very well by selling, post-Lehman, at 7% less than peak price

Fred, exactly. If you are 55-60, your kids are in or finished college, you've just seen a large portion of your retirement wiped out, and now there is the possibility that housing prices won't rise for 10 or so years, what are you going to do with that coop you're sitting on? Are you going to try and wait it out, or try to sell now to guarantee a certain minimum amount of profit realized. I wouldn't want to be making that decision right now.

Noah,
this is EXACTLY what buyers (and some sellers who don't have their heads buried in the sand) are looking for...an idea of where the current market is trading vs peak. I see the Hamptons peak as roughly the same - late 2006/early 2007.
16% is pretty steep, and I have not witnessed that yet in this market, although I believe we will see some short sales that will exceed that.

Thanks for shedding light on the reality of this market. It's so exhausting to listen to the drone of the "spinners" who continue to spew the NAR "Now Is A Great Time To Buy" campaign.

Truth is, there are some very good isolated deals to be made if you're working with an agent who knows where they are buried.

This just in: Mortgage rates may go to 4%! (And you thought that 4.5% was the deal of a lifetime).

From Bloomberg:

"Among the changes Republicans are seeking: a plan to have the federal government back fixed-rate 4 percent mortgages."

http://www.bloomberg.com/apps/news?pid=20601087&sid=abMCMQN27R5w&refer=home

i would love to see someone put together a database of repeat sales and post it online. streeteasy could put together their own case-schiller.

Donald - unreal. When will they understand that:

1) This is not a rate problem, prices are still unaffordable and the jbs market is deteriorating

and

2) there are always unintended consequences of meddling to get rates lower!

They are digger a bigger grave.

Noah, I think the rate issue may have a bigger impact that you are giving it credit for.

Consider that these manhattan condos are selling for 1 million plus -- and the rates of jumbo mortgages for these units are 6.5%-7%.

Hmmmm.... as a buyer why would i want to buy housing that is artificially propped up by artificially low interest rates -- when the apartment I'm buying will not benefit from these rates.

And I certainly think that it is helping to prop up prices in units that are under the jumbo mortgage threshold.

Personally i'm waiting for rates to balloon and prices to fall further -- pay all cash and get a great deal. If i could get a 4% mortgage and pay 20% down on a 1.2 million dollar apartment..i'd consider that as well.

Hey,

Why don't you compare the non-maintenance cost of an apartment purchase to the after tax yield on large apartment REITs that have operations in NYC. You would find that apartment, if one excludes the tax savings on purchases, would need to fall to 500 / Sq foot to equal the return on the REITs. In otherwords, if you can buy $500K of REITs in a Roth IRA, that pays for $1 million of the savings by owning an apartment (the non-maintenance/tax cost) in the rent on the same apartment. (Comparison done on an UWS 1000 per square foot purchase with a $2 per square foot cc/maintenance/tax, vs. rental cost of $5 per square foot.)

So any investor would buy REIT instead of buying these apartments -- as true investors can write off the interest as part of their Rental company.

Even a retail investor in the 35% AMT tax bracket would pay 20% less -- in this case only 800 per square foot. But this is retail -- not the professional landlord.

The equilibrium price will is the professional landlords price.

And finally, consider that rents are going down.

In fact, a final scary thought, is that if compensation is restricted as proposed in the Senate bill to $400K per year, rents have to come down, and so do equilibrium purchase prices. Unfortunately, rents can come down below $2 per square foot unless taxes, cc, and maintenance comes down. So it is possible if Wall Street compensation is restricted, that high end landlords go bust become people cannot afford to pay the maintenance, let alone the mortgage.

If you have room in your tax deferred or tax exempt account to buy REITs, your foolish to buy -- you should rent.

Your NYC apartment REITs will likely match the performance of rents (they may outperform), so you are largely covered unless you think that NYC rents will increase at a higher rate, i.e. NYC up 10% per year, the other parts of their portfolio up only up 5% per year. But this is out of equilbrium for professional investors.

Professional investors will no longer be able to lever to purchase at these levels because it does not pay.

--A Real Estate Bear

Anony,

Keep dreaming. If, and it is still a big if, Congress allows 4% mortgages it will only be for conforming loans, not jumbos. Not much help in NYC.

I went to look at about 5 open houses this weekend. At the most visited one, there were two other people who had shown up. The quality of the apartments that are available are now far higher than I have ever seen (and I've been looking at apartments for 3 years). However, the prices really haven't fallen that much.

As a buyer, I listen to these brokers spin something faintly positive about how things have picked up this month while they continue to list these properties at prices that rival the same prices at the peak of the market. On the one hand, I am curious to see what is out there and am serious about buying something. On the other hand, it is hard not to think that property values will decline between 40-50% when all is said an done. After all, nearly every other asset class in the world has declined by that much (except for treasuries). I fail to understand why people believe NY real estate is different. Even if the declines end up being more modest (as bulls would contend), it is hard to argue that buying in NY even at 20% off the highs is not an extremely risky proposition. And there will be risks to the downside as opposed to upside from here. At the very least, if in hindsight buying Manhattan now at 20% turns out to have been a wise move, I can think of about 50 other investments that will turn out to be absolute homeruns.

With that rant done, I wanted to ask Noah what he thought about bidding strategy for high end apartments ($3-$6m range). As I mentioned, I am serious about wanting to buy an apartment. However, my desire to own is dwarfed by my desire to preserve capital and not lose an additonal 20% over the next 2 years. It is hard to listen to these selling brokers because while I know they are doing their job at spin, I want to level with them and cut to the chase. Being inpatient, I am tempted to talk to them about bids that are literally 40-50% off their asks. I worry, though, that it is all a big waste of time, and think that maybe it would be better just to go away for 6 more months and check in again then. 1 year ago I decided to check out and it was the right decision. Wondering if it is the right decision to check out again. The sellers just seem too out of touch still - as if their NYC apartments are the only asset in the world that has held up under the meltdown.

I have seen some price drops, but very incremental - and for newly listed properties, there is still this massive dissconnect. I live in a 2 bedroom/1100sq. on rsd, doorman etc. building - last year, pre-crisis, two places on the same line sold for 950k. I think I'm being realistic when I say that I hope that we can get 800/825k - who's knows. We are running out of space and would like to move to 2 bedroom with space for a nursery, or a small 3 bedroom - we've been looking for 6 months now on the UWS and there have been virtually no places under 1.1 which I think is crazy, escpecially considering most are only 100 to 200 sq. feet bigger than the place where we live in now and not any nicer. We put in an all cash offer for 920K on a place that was 1.1 and didn't even receive a counter-offer. Most of the brokers I have come across are still saying the same old tired things - they still don't get it. Noah - keep up the good work and perhaps some will "get it" one of these days.

I'm a buyer that has been looking since August. I go to open houses every Sunday. I have seen prices drift down gradually since then (say 10-15%). However, this weekend I saw some real distress out there-there was a 3600 square foot apartment on west 27th street that looked like it would be sold this weekend for $1.9mm (after the seller reportedly declined a $3mm offer for the same property last spring). Another very nice apartment on west 18th street looked like it was going to go for $2.2mm (down from an original ask of over $3mm). I saw other attractive properties starting to get real discounts from original asking (25-30%). The disconnect is that the price cuts are coming from sellers who have sat with these properties for 6 months or more. Sellers just listing their properties seem to still think it is 2007 and are unwilling to accept a significantly lower offer. I think the only way to get these properties at a realistic price is to just wait them out. Their brokers are doing them a terrible disservice by not advising them of the current market. Btw, you can always tell a banker's unit (flat screen tvs in every room, including the bathrooms!).

Wait another 6 months and the sellers will be much more realistic.

Brokers need to see that nobody is hitting the overly optimistic asking prices and feel enough confidence to break the news that to move properties, sellers are going to have to take losses.

Be patient.

wow, great real time commentary here. Thanks guys. Unreal.

jn,

When did you put in your 920K cash offer? I'm very surprised that you didn't get a counter if this was the last 2 months...

"After all, nearly every other asset class in the world has declined by that much (except for treasuries)."

And gold.

uwsider - I put in the offer in mid-december and I was equally surprised. I figured there would at least be some dialogue - but there was zip. Saw a place yesterday on 92/rsd - 2 bedroom with what seemed, from the floorplan, a possibility for a very small 3rd - orginally listed for 1.175 90 days ago, and now listed for 1.05 - place was ok but needed work. They are crazy to think they will get anything near that in this enviroment - at least another 75-100 to go.

Anon wrote:

"I fail to understand why people believe NY real estate is different."

Soooooo true. Everyone thinks NYC is immune. Ask the folks in London about it...they thought the same thing. Their memories must be short because London crashed by 50% in the early 90s.

-EVB

120 East 81st Street 10F Closed $2.2M 11/2006

120 East 81st Street 10F Closed for 2.45M 1/12/2009, contract signed in November 2009

Up 11.3% in a little over 2 years

The real issue (which hasn't been widely mentioned in this thread) is that Buyers and Sellers face an enormous lack of Financing.

Let's face it: THE BANKS ARE NOT LENDING. They are hording cash (as they must in order to survive).

So, let's say a Seller receives a 500k bid on a 550k ask. This Buyer will require Financing. Ok... that's a 10% haircut which is hard for them to swallow.

The next day, while they are contemplating this offer, their Broker calls with another Bid at 475k. However, this Buyer has an all-cash offer and wants to close within 45 days.

Now, if I'm the Seller (in the current market), the 475k all-cash offer deserves a 5% Theoretical Premium (at minimum).

This is the offer with the REALISTIC probability of closing and closing quickly.

Some might say: "You're crazy to take 25k less."

I would argue: You're crazy NOT too.

The deal that requires Financing is subject to delay and cancellation. I've heard multiple horror stories along these lines. Stories of banks calling up the day of the scheduled Closing and saying they can't approve the deal; when the deal has been in the pipeline and progressing for MONTHS. In a fast-moving downward market, Sellers cannot afford delays that will further deteriorate their pricing.

Sellers would be wise to give a nice Premium to any all-cash offer they receive and have a high-degree of skepticism about ANY buyer who will need to rely on one of the many INSOLVENT lending institutions in the Mortgage market.

EVB

Correction
120 E 81St Street 10F the contrcat was signed Novemebr 2008 not 2009, obviously.

I made two offers in January on apartments in the ~1m range. One was 25% below a bubblicious, peak comp. The other was 20% below ask. Neither was countered in spite of the best efforts of the selling agents. Both sellers NEED to sell.

It does not surprise me that there were no counters... even if likely uneconomic from the sellers' perspective. The speed and magnitude of the change in the market must be hard for sellers to deal with emotionally.

Lars u misunderstood my post -- That was my point -- if the real estate prices are being artificially propped up by subsidized loans -- why would I want to purchase these 1 million dollar plus apartments without seeing a signficantly lowered price -- b/c they are not being subsidized by the 4% loans.

Personally, I'm in a better situation is prices drop when rates go up -- but.... if rates stay low only for loans under jumbo u will not see me buying anything over $x dollars. If rates go up at some pt -- causing real estate to drop further I will be prepared to buy.

my point was right now the only REASON to buy (unless there are other pressing reasons) -- is the insanely low interest rates.

Anonymous February 2, 2009 11:22 P.M.

...perhaps the "magnitude" of the change that has been long anticipated by many, including the media, and as such has been greatly exaggerated by many including those looking to drum up buinsess.

Thanks Rob for providing that. Sure not every unit is trading down 15-25%, but most are. I think this is a rare find, and certainly think the seller made out like a bandit on that trade. There are always freaks of nature, on upside and downside, this seems to be one on upside. I am hearing of other freaks on downside and it is surprising.

@AnonY,

There's another reason to buy -- expectations of high inflation in the next few years.

Also, the apartment that's up 11.3% (120 East 81st Street 10F) could have been renovated.

The way I'm playing this market is to expect that prices of larger units come down faster than prices of smaller units, save cash while we endure short term deflation, trade up to a larger unit when I see prices start to bounce back, take on a larger mortgage, and try to gain the most from future inflation.

Also, it seems easy enough to get financing with an excellent credit profile (720+ credit score, full employment, 20% down).

Thisson,

What does "full employment" mean and who can guarantee future employment in this environment?

I just mean that you have a stable source of income (full time job).

There are no guarantees but if you're not confident in your prospects of keeping your job, why would you be buying a house?

Thisson

was not newly renovated, sold in same condition, sorry

Thisson:

I know some people who were very confident in their employment future and are now laid-off and seeking work.

The Lenders know this too.

There are no guarantee but if you're not confident in your prospects of keeping your job, why would you be buying a house?