Manhattan's Correction Now Front Page Media
A: Just like they did to support and enhance the upside, with articles focused on the weak dollar, a surge in foreign investment, tight supply, and bidding wars, the media is now putting the Manhattan adjustment on its front page. The latest is Barron's Cover, 'Manhattan On Sale', covering the high end recession discussed right here on UrbanDigs almost a year ago.
Don't say I didn't warn you about the coming impact of the media! The media plays a role both in booming markets and in busting ones. The only problem is that when a market rolls over, the uneducated start blaming the media for causing the downturn!
In booming markets, the media enhances the validity of the up move and argues why it will last for much longer; fooling many into buying at or near the peak. In falling markets, the media enhances the deterioration and tends to depress buy side confidence; causing what sellers/brokers claim to be an adverse feedback loop. Any broker that argues the downturn is the result of negative media, simply doesn't understand the macro forces at work here. Besides, if media enhances the boom side of the asset cycle, of course it should be expected to affect the bust side as well! And it does.
I tried to warn my readers about this in my 'Preparing For Price Reports w/out New Devs' piece way back in July, 2008:
Price data is lagging and misleading, and just as it mislead on the upside and brought unwarranted happiness to many homeowners out there, it will also bring unwarranted depression and media headlines!According to Barron's Cover Story titled, "Manhattan On Sale":
First came Miami, Las Vegas and Phoenix. Now Manhattan's high-end housing market is cratering. With Wall Street firms stepping up layoffs, and money for big-ticket mortgages drying up quickly, prices for new york apartments and townhouses of $5 million or more have been falling and may well drop by another 30% before finally bottoming out. That could help turn the Big Apple into the ugliest housing market in America.I would have been more impressed with Dolly Lenz if she was on record for predicting this downturn a year ago. But I guess that is not good business for one of the best producers, in a sales based industry. And here is stupid me, spilling my guts on UrbanDigs trying to tell it like it is! I digress.Streeteasy.com, a Website that pulls together listings and insights from a variety of brokers and buyers, now shows 795 New York apartments offered for $5 million or more, up from 518 a year ago.
Realty brokers, the industry's natural cheerleaders, are now unabashedly glum about the high-end market. "The $5 million-and-above market is inventory-rich and buyer-poor," says Dolly Lenz, a broker to the stars and vice chairman at Prudential Douglas Elliman.
One of the thorniest issues for the New York market is mortgage availability. Though high-end buyers historically have paid mostly or entirely in cash, more now need to borrow -- just when large mortgages have all but vanished.
I'm sure we will hear calls for bottoms & recoveries from all the top brokers and firm executives, who never saw this downturn coming to begin with; or at least, who publicly wouldn't acknowledge it to begin with. This industry is a changing, you can count on that. Today we get news that BrownHarrisStevens is acquiring Edward Lee Cave boutique realty, via The NY Times:
"I would assume that almost every firm has a negative cash flow," said Hall F. Willkie, the president of Brown Harris Stevens. While the number of closings filed each week is still plummeting, he said that the pace of new deal making had picked up a bit in January and February.That's quite a statement from Mr. Willkie, president of BrownHarrisStevens. I tend to agree that most brick & mortar based realty firms are being squeezed, from the drop of sales volume and prices that started with the collapse of Lehman Brothers last September. And I would also agree that the most established and seasoned agents will gobble up what's left of sales volume amongst themselves, making it especially hard on new agents that are yet to learn the ropes of this industry and build a solid referral base.For consumers, this changing landscape could create some nervousness, but the best brokers, those with the strongest deal-making skills and deepest knowledge of the market, will no doubt continue to thrive and offer useful advice throughout the downturn.
Expect more innovation as time goes on, more transparency, virtual realty firms, new models, new buy side / sell side services, etc.. as this market continues its adjustment. It is virtually impossible to get away with broker spin and dirty real estate sales tricks to convince buyers to pay peak prices; without making the broker look like an idiot. Those with the deepest connections, networks, referral base, consulting expertise, sales savvy, and vision will succeed. The rest of the brokers will have to adjust to a new, slower world where more work is needed to make less money. Nobody likes slow markets, especially in a commission based sales industry like this one; but the future can be exciting if you envision it that way!
Comments (29)
Another great post, Noah.
I have also almost been spit on for saying for ages that what was happening in Manhattan was in a word, unsustainable.
It's called the bigger fool theory, and now all the fools who did all the buying are collecting unemployment checks.
Si I'll repeat what I've been telling anyone who would listen.
One bedroom condos are worth at most $500PSF. There will be waves of foreclosures as the option arms reset and recast (thank you Noah for educating us about the spectre of the recast).
I have met morons who bragged about buying in places like 200 Chambers and 325 Fifth with the benefit of an option arm. These suckers will now have to hand the keys back to the banks or sell their puny 1BRs for $500PSF.
I am simply telling the truth, and often the truth is painful.
Anyone who saw this catastophe coming will now be able to sit back and buy a so-called "trophy" property for pennies on the dollar.
Posted by truthteller | February 23, 2009 12:48 PM
Right on, Noah!
Still, the lack of transparency in Manhattan and the Hamptons is contributing to the "deep freeze". In the past, when things were spiraling up, up, up and the cheerleaders were jumping up and down with their pom-poms, buyers rushed to buy. Now, with the lack of reliable and accurate data available(due to brokers unwillingness to "pull back the curtain" on what is truly happening) buyers and sellers don't have the information they need to make decisions. So, they do nothing.
Today, three months is a lifetime. MLS is looking better all the time, eh?
Posted by Michael Daly | February 23, 2009 12:59 PM
Thanks guys - sorry for lack of commenting. I got some real bad news today on my 10yr old choc lab, stella, who has cancer in her entire right jaw.
not a good day
Posted by Noah | February 23, 2009 4:17 PM
Oh no! I am so sorry to hear about your furry friend. We have a 12-year-old Yellow Lab, she's the delight of our life. Hugs and wags to you and your sweet pup. Hopefully there is something that can be done. Please keep us posted.
Posted by Otto | February 23, 2009 4:29 PM
spot gold found a little resistance at 999 today ... but is trading with Stock market..
FYI ... approx 2M ounces of the 1 month $805 puts were bought today ... and 75 000 on Friday ....
if the date from the exchange re open interest is correct .. this is not a liquidation of a short , THIS IS A NEW POSITION !!
interesting ... : )
Posted by johnny | February 23, 2009 5:04 PM
spot gold found a little resistance at 999 today ... but is trading with Stock market..
FYI ... approx 2M ounces of the 1 month $805 puts were bought today ... and 75 000 on Friday ....
if the data from the exchange re open interest is correct .. this is not a liquidation of a short , THIS IS A NEW POSITION !!
interesting ... : )
Posted by johnny | February 23, 2009 5:04 PM
spot gold found a little resistance at 999 today ... but is trading with Stock market..
FYI ... approx 2M ounces of the 1 month $805 puts were bought today ... and 75 000 on Friday ....
if the data from the exchange re open interest is correct .. this is not a liquidation of a short , THIS IS A NEW POSITION !!
interesting ... : )
Posted by johnny | February 23, 2009 5:04 PM
Do we really see $1,000,000 condos in prime manhattan areas falling to $500,000? I hope so!
Posted by condo_shmondo | February 23, 2009 5:06 PM
condoshmondo.....
were they really worth 1M to begin with ??
Posted by johnny | February 23, 2009 5:09 PM
Johnny
That wasn't the question. Irrespective of what they are actually worth (which is a subjective measure), do you see a 50% price reduction in prime mahattan condo prices (think the heart of Chelsea, UWS and UES etc.)
I certainly will swoop in if they start to sell at 50 cents on the dollar relative to 2008 prices.
Posted by condo_shmondo | February 23, 2009 5:12 PM
condoshcmondo...
agee with the " subjective measure " ...
but can you say terrorist attack ??
Posted by johnny | February 23, 2009 5:39 PM
sorry to be so blunt about a sentitive subject but my answer would have to be YES ..then !
Posted by johnny | February 23, 2009 5:40 PM
could gold go to 500 in 6 months ... yes ..... there arent any NO's anymore !! its all possible at this point...
rgds and good night
Posted by johnn | February 23, 2009 5:42 PM
Noah - sorry to hear about your dog. Wishing you both strength during this difficult time.
TT - as one who has been a vocal opponent of yours on these boards in the past, I feel compelled to again clarify my "beef". I don't think anyone has villified you for your belief about the market direction or severity of correction. You may well end up being right with your prediction (although I personally doubt it). It's your name-calling of those that needed a home and therefore purchased one that sets people off. No one is a "moron" for buying a home when they need a home, provided they didn't grossly overpay based on comps available at the time. Even though most buyers had a feeling that they were buying at a market high, hardly anyone predicted as sharp a weakening across all asset classes as we have seen.
Is the person who bought in 2007 any dumber than the person who didn't in 2002? No, it's all hindsight. People buy homes when they get married, when they have kids, when they move to new cities for work, etc. Most don't try to time the market. It seems to me you bear a chip from seeing friends get rich on real estate and it is now your turn to gloat as the tables have turned. Well, enjoy your day in the sun, because the market will come back at some point, and in waiting for a bottom, you will probably miss the next cycle.
Posted by OT | February 23, 2009 6:02 PM
Noah - sorry to hear the news about your lab. Only another 'dog person' can understand how these furry creatures become so much part of the family. Even if you decide to do what veterinarians call 'the right thing' it is still a total heartbreak to actually ... see them depart. Best wishes to Stella ...
Posted by chris | February 23, 2009 6:42 PM
Noah,
I am very sorry to hear about your dog. We recently had to say good bye to our dog of fifteen years. Was the hardest thing I have yet to do in my life. Puts the worries of real estate in perspective.
Posted by lars | February 23, 2009 6:43 PM
Noah - sorry to hear the news about your lab. Only another 'dog person' can understand how these furry creatures become so much part of the family. Even if you decide to do what veterinarians call 'the right thing' it is still a total heartbreak to actually ... see them depart. Best wishes to Stella ...
Posted by chris | February 23, 2009 6:44 PM
I apologize for the double post ...
Posted by chris | February 23, 2009 6:46 PM
Guys thank you so much. This is the 2nd worst day of my life, just behind the day I learned that my dad had fatal metastatic lung cancer.
Stella is scheduled for cat scan + biopsy tomorrow, and no matter the results, we already decided to go visit Dr. Post in CT, a dog cancer specialist, for a 2nd opinion before doing anything.
Again, thanks for all your support here. It means a great deal to me.
Posted by Noah | February 23, 2009 7:16 PM
Dear Noah-
Our hearts are with you and your beloved Stella. These dogs are better than humans. Be strong, dear friend, and embrace your pain, it's real.
Regarding what OT has to say regarding my continual use of the word "moron" to refer to idiots, yes, OT, these people are idiots.
They were idiots for listening to lying brokers who, till this very moment, are telling sucker buyers that "Manhattan is an island", blah, blah blah. It's nothing but a pack of bullshit designed to get a sucker to jump.
People bought because they wanted to make a quick buck, because they believed there were suckers on line behind them so they could unload their junk real estate for a quick and tidy 20% profit.
Yes, OT, anyone with half a brain and who read Krugman, Stephen Roach, Dean Baker, Robert Schiller, etc. knew Manhattan real estate prices were as phony as a three dollar bill.
So, yes, prices will plummet, prime condos will sell at $500PSF. The final collapse is imminent.
Posted by truthteller | February 23, 2009 9:21 PM
It is simple, it is like a weight lifter on steroids that quits working out. It all falls apart. The first problem was over evaluation due to easy, securitized money. Now there hasn’t been jumbo's pricing, or credit approval guide lines for most living people. At last, for the same reasons that I marked a top forming in the real estate market in February of 2005 in Florida, we are experiencing the beginning of our bottom. In areas, such as Southern Cal and Nevada, Arizona and Florida a bottom has been forming. They have corrected about 50-60%, Fibonacci .5 and .618 retracements, these price declines and a rush of conforming mortgage money (Fannie/Freddie) is giving volume a lift and pending sales are at a 2 year high in some markets. The problem for New York City, as I see it technically, it has not back off enough to make it attractive on a affordability basis or a speculative basis. It is also suffering from the missing Jumbo’s, which shut down last fall.
In Bergen County we are off about 10 -22% from the highs. I true value run up from the 2002 lows was under 100% about 60-80%. True value meaning, like property to like property. This pales, compared to Florida, where I seen 250-300% gains hitting in 2005. So the harder you rise the harder you fall. It is like secondary and blue chip stocks. In normal markets the Blue chip goes up 50 % and the secondary goes up 200% and the secondary crashes and the blue chip has a 20% pull back.
This stock market is of grander degrees so there is no place to hide, and it dose not confirm to a cyclical market rules.
At last, my mortgage officer gave me a deal for a buyer. It was 2 million dollar jumbo at 6.5% no points with a 720 credit score. He said we could, with an underwriter go to $,4 million. We haven’t had this in a long time. If they finance NYC condo’s, maybe NYC will get a bid. However, I would be surprised in NYC doesn’t come down to a correction level. Finally the fed’s money is getting into the market other than conforming.
I am using, 23.6 Fibonacci retracement for Bergen County. If you have good NYC data I will apply Elliott waves to it and fibo and give you support levels.
So, I think we are trying to base in many markets. If the money flows in without a collapses in the dollar, we will dig out for a while. While we are talking about New York, you can’t forget stocks. SPH09 march future, ESH09 Emin,
We are buyers at 735, 700 and 680. We are in the low 740 now. Then let’s hope!
Richard
Posted by Richard Stabile Bergen County Real Estate | February 23, 2009 11:38 PM
Well just wanted to let you all know that 2 units I placed offers on got higher offers. One was at 375K asking and got a 360K offer. the second unit asking was 350K they got an all cash offer full price. 375K was 500sqft and the 350K was 400 sqft. Both in midtown and both condo studios. I think that is pretty good news in this market.
Posted by ivan | February 24, 2009 1:49 AM
Ivan, the studio market isn't doing so badly yet. The conforming loan world is a whole different game than the jumbo market. Still, your post doesn't reveal much, really. What size studios these were, what the initial list price was, what 2007-08 comps were for similar units, etc.
Posted by brenda | February 24, 2009 6:14 AM
The under 500K market seems to be the most active right now, and if things are priced right, they will sell, as if the market continues to drop, you lose a lot less on this than say a 3 million dollar apartment.
For people predicting $500 psf in condos, what are you basing this on. I see levels maybe getting down to $700-$800 on condos (older, unrenovated, Upper East Side and Fidi areas, not Chelsea, Tribeca or the Village).
And if you think $500 psf is good, think about how much worse the state of our local and national economy will be if that happens, and how New York will sacrafice things like safety, transporation, and other infrastructure.
Althought I would like to see lower prices so more people jump back in, lets be realistic here. If it drops that much, many of us are in trouble.
Posted by Anonymous | February 24, 2009 8:21 AM
truthteller is telling the truth. within 6 months sellers won't get a plug nickel more than $500 psf, probably less. all prime 1brs from the UWS to UES to midtown to financial district greedy, MORON bubble sellers will be begging us buyers to take their crummy apartments off their hands. buyers, get your 20% ready and we will have the prime living we've been waiting for soon enough!
Posted by LovinIt | February 24, 2009 9:18 AM
So sorry about your lab, Noah. Dogs are family members.
Wanted to note the key comments of another person in the Barron's article:
Ivy Zelman, a former Credit Suisse analyst who was among the first to call a national housing bust, figures that the New York housing market is headed straight down.
"When we look at New York City, we look at a price-income ratio that historically has been four times income, versus three times nationwide," says Zelman, who now runs her own firm. At 7.7 today, that ratio is "significantly higher than normal" because prices have only started falling. "If you want simply to get back to the median, it would be a 46% correction," says Zelman.
She's not the only one to note the likely broad correction we'll reach at some point. There will always be an exception here and there, and everyone's hoping their property is it, but this number probably gets us thinking in the right ball park. Prices have to drop significantly, and the 35-45% range seems reasonable, and it could be more, only time will tell.
I don't see any economic fundamentals or trends out in the banking and business world that rationally indicate otherwise.
Posted by Aquarian | February 24, 2009 9:18 AM
truthteller is telling the truth. within 6 months sellers won't get a plug nickel more than $500 psf, probably less. all prime 1brs from the UWS to UES to midtown to financial district greedy, MORON bubble sellers will be begging us buyers to take their crummy apartments off their hands. buyers, get your 20% ready and we will have the prime living we've been waiting for soon enough!
Posted by LovinIt | February 24, 2009 9:19 AM
Noah, stepping in to wish you all the best with your four legged friend. Amazing how close one can get to these little guys.
TT, I agree that Manhattan RE is one of the most perilous markets out there. I purchased in 2004 (my second apt, sold in 2006) for a little over $550/sq ft and at that time, the global economy and specially that of NYC were booming with no end in sight. Given the current very poor macro global economic fundamentals, the massive loss of wealth, strong USD, very tight credit, plunging rents and dire fiscal situation of the state & city budgets, it's difficult to rationalize even early 2004 price levels.
For some odd reason, I just can't get excited about Manhattan RE with Citi shares trading for a buck & change.
Posted by serge07 | February 28, 2009 4:05 PM
My two cents as a person who lived has visited and known NYC since the 80's and lived there 10 years before leaving in 2007: Before Manhattan became a playground for the rich it was an amazing place with lots of character. As the local economy 'boomed' and real estate prices went through the roof most of what made NYC charming was washed out to make room for overpriced condo high rises and the people and businesses to compliment them.
One can only hope that this inevitable collapse of the wealthy having a stranglehold on the city will bring some of that character back. Then maybe people who don't make six figures will have a chance to live there again.
I am glad I sold my apartment in 2007 and am not having to deal with what is going on there now. While I feel for those who invested their money in places that aren't worth nearly what they paid, they should have known that it couldn't go up forever... everything has its ups and downs! Go down NYC, GO DOWN!!! or should I put it in a kinder way, come back to earth NYC, be realistic!
Posted by bringbacktherealNYC | April 3, 2009 12:08 PM