Broker State-of-Market Comments - Manhattan Real Estate

Posted by urbandigs

Thu Apr 16th, 2009 01:24 PM

A: Want to have a quick discussion on what brokers see out there and provide some of my feelings on this market today and looking foward. It's best to do this every once in a while, because what I see and discuss here is only a very tiny crack of the overall picture. The market is way too big for me to accurately interpret on my own. Mainly, I am looking at how this market reacted to the first stage down and what buyers are thinking as we head closer to summer. If there is one takeaway I can come up with, it is that buyers are still lacking motivation to submit aggressive bids. Forgetting for a moment why they are lacking this motivation, what does this mean for sales volume as we enter the normally slower summer months. Will we see a spike month to month that is interpreted too optimistically? Or will we see continuing negative data/headlines that enhance these distractions to buy side mindsets? Will the comfort zone hold? Lets do a quick check around the brokerage community (sorry, only got 4 colleagues to participate here), and see what brokers are saying about today's Manhattan real estate marketplace.

Todd Stevens, Senior VP, Douglas Elliman

QUOTE: "The market would quickly get better if all realtors demanded checking account statements of 20% price of each home's price from any buyer that’s wants to view a property. For Harlem, Mayor Bloomberg just needs to demand 125th Street vacant building and land owners to build or be triple-taxed. With these demands, the buyer demand will indirectly have a quick rise."

Rosemarie Deane, Senior VP, Halstead Property

QUOTE: "I see the market coming back to life. Phones are ringing, agents are running out to show properties. Sellers are becoming more grounded, accepting the new reality of lower prices. Deals are being made at 5%-27% off summer 2008 prices. The savvy buyers are buying now."

Christine Toes, VP/Associate Broker, Corcoran

QUOTE: "Buyers and sellers are still 10% apart on price. There are a lot of buyers are getting into the market but they're all hoping to buy at the "bottom" and no one knows where that is. Some people think there will be a gradual leveling out / increase in prices after the "bottom." But with all of this buyer activity (I speak mostly of the under $1.5M market), it's possible that there could be more of a U shaped curve where a lot of buyers who are trying to get in while rates are low may jump in at once. Only time will tell."

anon-broker.jpgBroker I Know & Trust Who Chose To Remain Anonymous

QUOTE: "Deals - Deals are being done but they are moving very slowly. That's not such a bad thing - buying your home is a major investment and it was crazy trying to do a deal from the middle of a stampede like the 2007- 2008 market. The starter end of the market is the most active and the top end is the softest. Buyers - The downside for my buyers is that it is more difficult to get a mortgage and the financing process takes longer. In this market, it's crucial for buyers to get a handle on the financing side even before they start their search. On the upside, I can now show buyers a better selection of apartments than I could have done at any other time over the past four years. I'm definitely seeing a trend of renters, who felt locked out of the Manhattan property market over the last years, finally seeing this as their opportunity to own their home. Sellers - My sellers are being realistic about pricing - since early 2008 I have been refusing to work with sellers who aren't. There are opportunities but it requires realistic buyers and realistic sellers - both of whom are negotiating from solidly researched data points."

UrbanDigs Two Cents
: I think the Manhattan real estate market hit a comfort zone in its first initial snap down move from peak trades, during the first four months of 2009. Moving ahead, lets get a bit detailed and see how things may play out in medium term as the process continues.

As I noted before, this is a high end recession for our local marketplace due to the nature of the crisis that we are dealing with. The high end market is significantly more illiquid than the sub $1M market, and therefore you will see the sharpest price declines from peak occurring in that segment of the market. This leads me to believe that at some point in the next few quarters you will see a bunch of quality Classic 6s, 7s, and 8s, looking mighty attractive!

Right now, do not be surprised to see some high end or even mid/high end properties trade for up to 35-40% below peak - as a seller feels no choice but to hit a bid. The problem is that almost all buyers expect to get a deal in that range regardless of price point and property features; and that is just not the conditions that this market is operating under right now. Not all, but many buyers want protection against future downside risk and are pricing that into bids. This explains the disconnect between buyers & sellers that I mentioned before - buyers are picky and patient if they don't get their price & terms. Even though a price point seems to be trading down X% from peak, that is not to say a seller is eager to hit the bid that comes in around that level!

The fact that this market is quite active right now could lead to a sell side unintended consequence because it is happening at the same time that buyer confidence is still depressed. Crazy right, but hear me out. What I mean is, there is a lot of foot traffic for my listings and I am setting up a lot of private appointments for my buyer clients - but buyers are still patient. Brokers I talk to are reporting a similar trend across the board; with some agents doing many deals, but more agents doing fewer.

Now, take this environment a step further to see the issue that it may cause. Sell side brokers are seeing this activity and passing along the feedback to their seller clients. This affects sell side psychology - how could it not! So, if a 3M property is trading in this market down 25-30% or so and that is where the most willing & able bids are coming in at, the seller's motivation to hit that bid may get muted by feedback of increased activity that is accurately being reported by the listing agent. Hope sets in that perhaps tomorrow will bring a stronger bid, making the seller less motivated to 'hit a bid' that otherwise represents exactly where the market seems to be trading right now! The point is a psychological one: reports of higher traffic give the seller one reason to expect more because of where this market has come from in the past 8 months.

Focusing on the sell side, the problem I see is one of timing and where we are in the seasonal aspect of this market. If a seller is serious and needs to sell or really wants to sell, they should be very cognizant of the fact that we are rapidly approaching summer when traffic usually slows dramatically! Do not ignore a bid just because you think higher traffic will produce a higher offer in the near future. For stocks, the saying goes, "Sell in May & Go Away" - well, one could argue that saying should also apply for sales in Manhattan. Whereas an open house today might procure 10+ prospective buyers, once we get into JUNE/JULY/AUG that usually falls closer to 2-3 prospective buyers; unless of course the price is uber-aggressive compared to competition in the price point - something most sellers hope to avoid. It's hard to sell a property when traffic is light. So, my view is that this countertrend pickup in activity (which is mostly foot traffic and not a surge in contracts signed) will not last for much longer. Once we enter the slower summer months, history will probably repeat itself and this market could get significantly more illiquid; similar to what the 4th quarter of 2008 saw and bad news for anyone that must sell. If this seasonal component proves correct, serious sellers will find it even more difficult than it is now and that may ultimately mean a bid will have to be hit. Therefore, I think the latter half of the 2nd quarter all the way up to the 4th quarter will show continuing sluggish sales volume and perhaps the second wave of adjustments in pricing that is only proven after the fact. Time will tell. Nothing moves in a straight line and there will be deals at every price along the way. By the end of the 4th quarter of 2009 and more likely the 1st quarter of 2010, I think the bulk of the adjustment will be complete - unless the world changes again by some unforeseen event.

For now, just like stocks had countertrend bear rallies embedded in a larger move downward, I think Manhattan real estate will follow a similar pattern until pricing is more in line with trending macro fundamentals, incomes/affordability, and price/rent ratios sparking buy-side demand - basically, the new world. To visualize this, I plotted a chart of the DOW since the beginning of this crisis to show you the bigger trend, and embedded inside that a number of countertrend rallies that brought with it both hope and bottom calls:


Some macro/psychological factors that I think will power the continuation of this adjustment process for our local market include:

1) rising unemployment
2) rising taxes & maintenance / city budget issues
3) rising inventory / sluggish sales volume
4) local auctions
5) deteriorating commercial sector / empty retail spaces
6) zombie condos / lawsuits against developers
7) household deleveraging / selling because you are forced to - many will do anything to avoid the decision to sell their home, and sometimes that emotion works to build an uglier situation down the road

Its hard to argue these forces although I am way less bearish today than I was only a year ago on Manhattan real estate because the process is happening. It must happen. It will happen. And we will get through it! I look forward to the day that I can say with clarity the worst is already behind us. For now, lets keep it real.