Deals At Every Price / Inventory Close To 10,000
A: A quick check on some real time data for Manhattan real estate. Doug over at TrueGotham reports on an active start to 2009, and there is talk from colleagues about an uptick in traffic as well. Given that this market arguably drained 15%-25% off the peak level following a very dull 4th quarter, this is to be expected! What people that actively monitor Manhattan real estate trends need to understand is that deals happen at every price, both on the upside and on the downside! As word spreads that deals are happening at levels closer to 2005 pricing, buyers seem more comfortable bidding. Time will tell whether this pickup is simply a counter-trend activity surge, embedded in a longer term correction. For now, as prices reach a certain level, there will be renewed signs of interest; and this market is seeing that right now.
Take a look at what total inventory over the past 3 months has done, and notice the large uptick in January:
Now, in my humble opinion, there IS a pickup in action right now that is not reflected in the above chart, and that is a function of a few dynamics:
1) some sellers are 'hitting the bid', and just want OUT
2) sellers are getting more realistic, and lowering prices to where it needs to be to get a noticeable increase in foot traffic and bids received
3) this market is arguably down about 20%-25% in the past 4-6 months! It is now the active season, of course there will be a pickup in action reported by agents / attorneys
4) some buyers are comfortable bidding and signing a deal at a 25% discount to peak sales - not everybody tries to time the exact bottom of the market and sales volume never falls to zero!
5) pickup in activity immediately follows a completely dull 4th quarter with drastically less deals occurring
Look, on the way up and on the way down there ARE buyers! Right now, prices are on the way down and guess what, there ARE BUYERS! On the way up when the market fundamentals are strong and on the way down when market fundamentals weaken, deals were happening. Period! Its when the market gets illiquid, that a new trend will likely emerge until we hit the next 'comfort zone'. For now, it seems we hit the first comfort zone as buyers start to perceive 'a deal' wherel transactions seem to be reportedly occurring at.
This story of a pickup in activity is ruminating through the brokerage community, in buy side calls coming in, in foot traffic at OH's / showing requests, and in bids received. Most deals seem to be occurring at the comfort zone level of 15%-25% below peak; but time will reveal price discovery as contracts signed today close in 2-3 months. The correction so far was fast, furious, and to many, shocking. Not for us here at UrbanDigs! I continue to expect macro forces to drive this marketplace going forward, as buyers set the tone at what price any property is worth bidding for!
Posted by anonymous
Thu Feb 5th, 2009 01:04 PM
I'm sure some people thought they were getting a deal in Miami, Las Vegas and San Diego a year or two ago as well. NYC, San Francisco, Portland, Seattle are now playing catch up.
I feel kinda of bad for those rushing out right now thinking they've got the bottom.. but not that bad. Personally, I can't wait for when inventory hits 20,000. The April reports should get that going.
Posted by Office - Noah
Thu Feb 5th, 2009 01:08 PM
nothing goes in straight line down.... well oil almost did. But my feelings on macro have not changed at all for this local economy.
Posted by truthteller
Thu Feb 5th, 2009 01:49 PM
anonymous is correct.
Att Buyers: Way too soon to rush into this declining market.
Noah, no one is talking about timing the bottom, but you know better than most, that this is just shall we call it the appetizier, before the feast begins.
The feast will be thousands of desperados trying to unload condos for ANYTHING. Yes, anything. I've been in this racket since 1987, I know what a market collapse looks like, and it's just beginning.
My suggestion, wait until you can pick up that million dollar 1BR for not a penny more than say $500,000.
BTW, there's another "D" line on the market at 201 East 81 (Richmond Condo) asking $1,450,000. The asking price is the same as the selling price for the "D" line Noah showcased. So this D line will probably sell for maybe $1.200 and here you have the forces of the economic collapse converging on ne apartment.
Posted by Office - Noah
Thu Feb 5th, 2009 01:57 PM
I agree truthteller. Thats why I had to insert: "Time will tell whether this pickup is simply a counter-trend activity surge, embedded in a longer term correction."
Posted by OT
Thu Feb 5th, 2009 02:17 PM
As I have predicted across several threads, there will be a tangible recovery in activity and price stability from Q4 08 that we will see in Q1 09. Those that sold in Q4 08 will regret the decision. As the numbers smooth out, we will see a significant year on year decline in Q1 and Q2 closing numbers (down 10-15%), a smaller decline in Q3 & Q4 closing numbers(down 8-10%) and flat numbers for Q1 & Q2 2010. This is a year on year prediction.
Many, many people feel that this is a great time to buy, and we can debate all day whether they are right or wrong, but they are the ones writing the checks. Let's not forget that following a 6 month drop after 9/11, real estate prices surged for 6 years running. To some, this means we are due for a correction. To me, it means that properties at the time were ridiculously cheap for people to even consider buying on the island that hosted the greatest terrorist attack on the continental United States in its history.
I purchased a 2-bed in a well-kept walkup on the UES in 2003, and was able to afford the monthly payments VERY comfortably. And I don't work in finance.
Wall Street is a factor on real estate prices, but it's not the only one, and IMHO not as much as some think. I would love to see Noah, Jeff or one of the other guys smarter than me attempt to isolate the impact of Wall Street on real estate (either showing correlation of market activity against real estate prices, or correlation of employment/compensation trends in financial services against real estate prices).
Posted by truthteller
Thu Feb 5th, 2009 02:20 PM
But Noah, who do you intend to unload that very overpriced apartment at 429 West Broadway on?
It's probably worth no more than maybe $3.5 max. And who's got $3.5 any longer? Truth be told, it's probably not worth $3.5, I just don't want to hurt your feelings. But come on Noah, what's up with that white elephant?
Posted by Office - Noah
Thu Feb 5th, 2009 02:32 PM
sorry, will have to ignore any/all comments on my listings.
Posted by anonymous
Thu Feb 5th, 2009 02:39 PM
I love Noah but I have to agree with truthteller, 3.5 seems more like the number
Posted by come-on-guys
Thu Feb 5th, 2009 03:04 PM
lets not put Noah or his seller customers on the spot like this. If anything, Noah deserves that much courtesy from us for all efforts here over the years
just my two cents!
Posted by Seller
Thu Feb 5th, 2009 03:17 PM
Noah, in regard to the #6 item in your recent UD Upgrades topic, I cite the comments by truthteller and anon as precisely the reason I would not submit my listing if you added that feature; I'd have more to lose than gain by doing so.
Posted by lars
Thu Feb 5th, 2009 03:28 PM
Noah,
I recognize what I am about to suggest would be a detriment to the blog, but if people continue to comment on your listings I would rather see you screen comments (and delete those delaing with your listings) then run the risk of you losing interest in the blog.
Posted by anonymous
Thu Feb 5th, 2009 03:32 PM
dead cat bounce.
Posted by anonymous
Thu Feb 5th, 2009 03:32 PM
dead cat bounce.
Posted by Seller
Thu Feb 5th, 2009 03:41 PM
"Wall Street is a factor on real estate prices, but it's not the only one, and IMHO not as much as some think. "
OT has it exactly right. I still think Manhattan RE will continue correcting downward over the near term and buyers are still largely in control- but the pool of qualified buyers was never all-in or all-out; not everyone is trying to time the market to the bottom. There may be bumps along the way. Telling people it's too early or too late to participate in a market doesn't make sense and may even be irresponsible. It reminds me of what people were doing on all the discussion boards during the dot com boom *and* subsequent bust, in order to hype a position in their favor.
Posted by OT
Thu Feb 5th, 2009 03:53 PM
I would like to echo C-O-G and Lars - don't put Noah in a difficult position here. As far as I'm concerned, discussing his sales strategy for his active listings is WAY out of bounds.
As if I needed another reason (beyond the grammatical inconsistencies, the spelling errors, and the baseless prognostications) to bristle at TT, he just made himself (herself?) even less likable.
Posted by truthteller
Thu Feb 5th, 2009 04:42 PM
sorry Noah, I won't make any more comments on listings. I like you and your blog way too much.
Posted by anonymous
Thu Feb 5th, 2009 05:39 PM
"Many, many people feel that this is a great time to buy...Let's not forget that following a 6 month drop after 9/11, real estate prices surged for 6 years running."
yes, but. you had financing. and more importantly, increasingly available, easy financing after 9/11. today, it's the opposite. i actually heard someone say today that it's the bottom in manhattan real estate - i bit my tongue, smiled and said nothing. there is imply no point in arguing the facts any longer. until affordability returns, prices will be lower and that process is just going to take a couple if not three years to work through. $500 / SF for a decent dig with a view, a doorman and maybe a storage closet in a clean basement. walk ups will get absolutely crushed and i won't be surprised to see 15 CPW trading at well under $2,000 / SF either.....
Posted by Eastvillboy
Thu Feb 5th, 2009 09:28 PM
OT:
I think you are focusing too much on Micro and not enough on Macro.
To say, "Wall Street is a factor on real estate prices, but it's not the only one, and IMHO not as much as some think" is to miss the Fundamental issue.
Forget about the effect of the evisceration of Wall Street on Real Estate and think about what it means for New York. How many restaurants are seating fewer tables and selling less bottles of overpriced wine? How many Nannies and Cooks have been laid-off because they are just not needed anymore? How many millions of dollars of tax revenue is the City missing out on because Lehman, Bear and Merrill no longer exist?
Real Estate is a function of Supply vs Demand. When you say, "Those that sold in Q4 08 will regret the decision," you are betraying your Micro focus. People sell for lots of reasons. And people who sell today may be looking to re-enter the market immediately. Don't be so quick to paint Sellers with a broad brush.
I think a "V-Bottom" is unlikely and that this market has a long Correction ahead of it.
My opinion: think more Macro and less Micro.
Posted by Office - Noah
Thu Feb 5th, 2009 09:31 PM
tt - no worries. Thanks all! I appreciate the self correcting mechanism here. I hope you understand my position. I just want more exposure for my clients. There are other venues to discuss this. For here, lets keep comments for the discussion at hand, and try to all benefit from each others thoughts. Thanks
Posted by sang
Thu Feb 5th, 2009 09:33 PM
Hey Noah,
Keep up the good work!
As some of your readers have pointed out, this has happened before in other cities that had a big ride up in the bubble.
It's just part of the process...we are in a transitionary period from falling volume to falling prices... think of it as a football hand-off from one to another... as the hand-off starts, the rate of decline 'moves over' to prices... which begin to accelerate to decline as the decline in volume begins to stabilize, as will be reflected in the future reports that will base data on prices moving right now.
Posted by OT
Thu Feb 5th, 2009 11:12 PM
EVB - your point about my Q408 comment is well-taken. It doesn't make a ton of sense and counters my earlier points. I will say that Q4 in general is a poor time to sell - data over time show that it is a slow period that typically lags other quarters.
As for your points about the slow-down in the economy, etc., I get it and do agree that prices are always a function of supply & demand (am an economist by training, but not by trade).
I agree that we can't look forward to a V recovery. I think the charts over the next few years will be all over the place. Based on my analysis of historical trends and knowledge of the market, I simply don't feel that a doomsday scenario being predicted by some will play out - that is all. I do think certain neighborhoods and property types will struggle (Harlem, far LES, 5th floor walkups, etc.) I also feel that good neighborhoods and good product will hold up OK (down 10-15%).
Over the past twenty years, prices have gone up an average of 3% over inflation (I ran the numbers on another thread here and am too lazy to look it up) for coop properties in Manhattan. Some would say this is too high, as property prices have historically tracked the inflation line. However, the city has become a much MUCH more desirable place to live over that same time frame and justifiably commands that premium.
Yes, some restaurants are struggling or closing up shop - same for retailers, etc. I just don't feel that the fundamentals are as bleak as some point out. We are a year and a half into the financial meltdown, and probably have 6 more months to go. NYC is still a desirable home to the many scientists, teachers, doctors, attorneys, etc. that work here and don't want to commute an hour each way.
Posted by NYLuxuryBroker
Fri Feb 6th, 2009 08:00 AM
Mr. Digs-
The market is moving and deals are getting done even in this current financial crisis. Just had a bidding war on a property this week (116 West 22nd St), over 80 buyers showed up, multiple bids over asking price. What this tells me, if the property is listed below the current market value and buyers feel like they has some downside protection they will buy. There are a lot of buyers on the side lines waiting for deals. Continued success,
Posted by Smokeblowey McBroker
Fri Feb 6th, 2009 08:17 AM
Noah,
The market is as active as I've seen it in years. I've had a bidding war at the property I'm representing. Not in contract yet, but what a crazy bidding war! Over 10,000 buyers took a look. Over 500 bidders, all investment bankers borrowing against their stock and flush with cash from this year's bonuses.
You have no idea how many buyers there are out there! We're going to blow through 2007 prices by the end of this year.
Posted by Office - Noah
Fri Feb 6th, 2009 08:35 AM
well I know that the property at 116 W 22nd was very aggressively priced and there were in fact many many people at the open house and multiple bids submitted.
But the way this was priced is the reason, and it proves that the market dictates the price of a property, not the broker. All those sellers who price high out of fear that pricing low will 'miss their chance' of getting a higher bid, should take a look at where 116 W 22nd ends up closing at in a few months.
I bet it closes over ask. But again, its rare to see such aggressive pricing for that type of product off the bat.
Posted by anon
Fri Feb 6th, 2009 08:41 AM
It looks like 116 w. 22nd was priced pretty aggressively for a penthouse condo, at $830/sf (if you believe the sf). Also priced very aggressively against units in the same building.
I would think that would move, but that's also the lowest ppsf I've seen for a condo sub 96th. I would have been very very surprised if this did not generate a lot of interest.
Can't wait to use this as a comp.
Posted by Eastvillboy
Fri Feb 6th, 2009 10:54 AM
OT:
I appreciate your post and I'm enjoying our discussion.
First off, let me say that I 100% agree with you about the benefits that a life in NYC has to offer. I also agree with you that optimism and pessimism tend to overshoot and right now we are seeing an overabundance of pessimism.
The decision for someone to sell their property is a VERY emotional one. An apartment in NYC is not just an asset, it is a source of pride and provides a sense of well being. This is why, in typical Recessions, people don't sell! They just wait it out. Inventory is usually lower during these times as the "strong hands" outnumber the weak and you don't see a vast amount of "deals".
This time around is going to be different. This Economic calamity we are facing reaches FAR beyond Wall Street and a few reckless bankers. This slowdown will touch everyone, in some way, before it is all over.
My fear is that there are lagging effects for NYC and we still have not seen the worst. I still have friends at Morgan and Citi that are being laid-off. The full effect of that is yet to be realized as they are fortunate enough to have 2 months of severance coming their way.
People are NOT spending. Plain and simple. Fear of waking up and not having a job or having your hours cut back will continue to dampen spending. I'm looking for a wave of panic selling in the Summer. When people start "killing the fatted calf" to survive that will be a sign to wade back into the market.
Posted by Thisson
Fri Feb 6th, 2009 11:02 AM
@OT,
I think you are a bit out of touch and are seriously underestimating the scope of this correction.
NYC is a desireable place to live for professionals -- but ONLY if there are jobs here. The paper shuffling jobs are going down the toilet. We are going to make a long, painful change from a service economy back to a production economy.
This economy is going to be in the toilet much longer than 6 months. After the great depression, the economy sucked for two decades! And the situation we are in now may ultimately be WORSE, since we still haven't dealt with the auto industry, health care, and all the entitlement programs...
Posted by lars
Fri Feb 6th, 2009 11:36 AM
If it can happen in San Francisco, it can/will happen here:
Rare, Refined And Reduced: Radiance At Mission Bay Official Cuts
Official reductions of up to $365,000 (26.5%) off of original prices plus two years of pre-paid HOAs.
Posted by OT
Fri Feb 6th, 2009 05:14 PM
EVB & Thisson - you may be right, perhaps I am out of touch, and I do tend to err toward optimism. I do agree that most people in finance and related fields are simply waiting right now to see whether they will have a job, what their comp structure will look like, etc. However, there are many other professionals whose lives have not changed one bit. I have numerous MDs in my family and their income has not changed, same for tenured profs, restructuring attorneys, etc. Those looking to buy will jump at 20% reductions, they won't wait to time a bottom. I think NYLuxBroker's recent experience is a testament to this point. Hey if you guys can use anecdote to pitch a doomsday scenario, I can use it in the other direction!
Besides, it's not like I'm painting some rosy picture. I have said a hundred times that in my opinion the Manhattan coop market will see a 25% decline average PPSF. Maybe 30, I just don't see it getting too much worse than that. 25% is already pretty devastating, wiping out most homeowners that are forced to sell because of job losses.
I don't think anyone that still has a job and can afford their monthly payments will be listing anytime soon, and those that do will not entertain low balls. I know this is the case in my circle. And many that did lose jobs or chose to move out didn't entertain low balls - they simply rented out, most covering their entire cost, or at the very least their mortgage.
Let's face it, unless you sold all your stock, your home, your car, your children, etc. and put it all in cash over the past 2 years, you got whacked hard. I don't think real estate will ultimately end up hit much harder than any other asset class.
Posted by Thisson
Fri Feb 6th, 2009 05:52 PM
Fair enough, and you raise some good points.
1 other reason not to sell and switch to renting even if you think the downturn is barely getting started -- what the hell do you do with the proceeds of your sale?
I can't think of anything safe to do with a big chunk of money -- even cash doesn't seem safe if you consider inflation/currency debasement to be a real risk.
I'm just going to hold on tight and if there's a big real estate crash, hope that I am left with enough equity and assets to trade up to a larger property.
Posted by OT
Fri Feb 6th, 2009 09:35 PM
Thisson - Amen! I am on the same plan... I plan to be here the rest of my life so I can play the market either way.