Media Begins Manhattan 'Plunge' Effect

Noah, thank you for your continued thoughtful coverage of the Manhattan market. We've been reading your blog since its inception, and really appreciate your insight. You called this! When it's time for us to buy, we'll be calling YOU.

Noah, I completely agree with you and you are spot on. I would also like to point out the the Case/Schiller monthly index from Tuesday were pretty bad. NY Metro area is still at an elevated level of 180ish. If it was to trend to the all time avg of 116-120, which includes the run up for the last decade, then we still have a long way to go. Even a fall to an index level of 135 would mean considerable downward pressure for the region.

Thanks Otto! I'll be here when your ready.

Noah I saw your blurb on streeteasy about not doing deals because of your honesty and willingness to discuss reality openly on this blog. I beg you to not change! This site is the only breathe of fresh air out there in all the web covering manhattan real estate

Business will come if you maintain your high level of service. I am with Otto and will call you when the dust clears and there is more clarity for my big investment.

cheers!!

I read your Blog religiously. Thank you for putting together a Blog that does not insult the intelligence of it's readers. Davide.

Noah, you are the only realistic sell side person I have encountered! Please keep up the good work.

Your article is on pt. Today's AM newspaper features a disgusting piece advertising my old neighborhood as the "2 bridges" aka Chinatown near the East River.

Are brokers that desperate to put a spin on gentrification that they are advertising a crowded , dirty area as "hip" and "happening"? "2 Bridges"? Where do they come up w/these names?

When I grew up it was known as just plain old Chinatown.

Davide / IN DEBT WE TRUST - Thanks guys! It really makes it worthwhile to hear that, considering the side effect of telling it like it is in this type of industry. And for having a trader viewpoint on residential real estate, that many people don't like or choose not to view it at such an angle.

Thanks again!!

Noah, I'm licensed but don't deal RE in the city anymore. But I did and also have bought in Manhattan and do know the market very well. You are the best blog for honesty and insight. And you had the guts for telling people what was coming long before anyone else did. Thank you.

And how is it that people like Dottie Herman, Dolly Lenz, Pam Liebman and other's of their ilk who are supposed to be the sharpest and savviest minds in the business couldn't see any of this coming. Amazing that they still have any credibility at all and that the media still seeks them out for their largely worthless opinions.

Thanks Aquarian! Such kinds words and again, makes this all worthwhile for me.

I think brokers hate me, I really do, especially ones that blame me because they lost a deal after a buyer read one of my discussions. Yes, its happened.

I really dont get why the executives of these firms dont tell it like it is, but then again, they are a sales driven business so why would they?

I recall my panel discussions, BULL vs BEAR with Dottie 3 times over past few years. But last July she did whisper in my ear that '...I may be right'!

Noah,

Instead of my usual complaints about the analytic skills of your contributors, I have opted for a more positive approach and offer an example of thoughtful analysis. You and your readers should get your hands the the Deutsche Bank piece published over last weekend written by Karen Weaver, titled "Update: The outlook for US Home Prices. Beyond the Bubble". She employs an interesting and internally consistent valuation/forecasting paradigm. While I have still have some issues with her cohorting and potential for positive correlation of her dependent variables going forward, it exemplifies a solid academic approach as opposed to the "licking of one's finger an holding it up in the air to determine wind direction" that some of your contributors have done. Recently. I promised to be nice so no finger pointing today. No more puns either.

Noah,

Great post as usual. In response to some other posts about the prescience of other brokers, most don't have the skill set that Noah does to accurately interpret macro-economic data points and trends. As such, they are operating on stale data and correctly refrain from extrapolating against their own anecdotal experience. To put it concisely, their crystal balls are not as clear as Noah's.

To be fair, very few expected a decline as rapid as we are seeing. To quote Miller, we didn't see a slope down, more of a step down. I predicted an overall drop for the co-op market of 25% from peak based on my own ovservation and research. I think at this point I will be off by about 10% on an average ppsf basis, peak to trough.

Keep up the good work, Noah.

2:06 post is mine - don't know why my name didn't come through.

OT

Anon - very nice of you to say but I do know many very savvy brokers out there that did get the severity of this downturn from a generally early point. Not many of course though as this crisis was very complex and we did get fed false hop by many banks that were fighting for their survival before they died out or were forcibly merged.

It just so happens that my first obsessions is the markets (equities, bonds, debt markets, commodities, etc.) which I have been trading and following for a looooooong time. So, when credit markets froze up, I knew how that would affect the banks holding the assets that couldnt be sold, and the general path that would lead us on. of course, im not perfect, nobody is, and I made mistakes over the course of this crisis (we all did), but in terms of real estate, it was the arguments that many brokers dished out that would hold up this market OR why Manhattan was so different or immune that I totally disagreed with.

Again, thanks. Lets continue to keep it real. One thing is for sure, Im not the best salesman and therefore from a brokerage firm standpoint, Im not the best real estate agent when it comes to production.

Noah, You ever thought about creating an ultrashort Manhattan real estate ETF?

:)

Ha! I wish I could. I totally messed up the VNO trade.

Noah,
I have been looking for a NYC apartment for an eternity (at least 5 years) and it seemed I always just short of the required down payment. I would earn and save, and the market would lurch ahead just out of reach - or at least it felt that way.
By 2005 I had given up all hope of buying and threw in the towel -- it was just too depressing to even look. The prices were insane.
The city I had moved to when I graduated, had become a city only for the wealthy (or at least only the wealthy if they wanted to own an apartment).
When the markets fell apart last Fall and I started reading economic blogs (as the MSM was so behind the curve one couldn't read them for any reliable information) I found your blog.
It was your blog which finally offered the hope that one day those of us who did not work on Wall Street, might eventually own an apartment!
Noah, keep up your good and honest work. I cannot tell you how many agents (including personal friends) have told me that I should buy right now!!!
I'm hoping that the under $1M apartments will eventually experience the kind of percentage deductions you mention that the over $5m apartments are experiencing now.
If and when they do, I intend to call you and hope that by then you will still have time to work with a former lurker. Many thanks Noah, you have done us all a great service! Susan

I read the Journal article reporting the data today and it was interesting the silver lining that's being put on this. "Prices are down, foot traffic is up, we're coming out of it."

And here I am DROOLING over rents available on Craiglist. My building is now offering a 2BR for 20% less than my 1-BR cost to renew last June. Insane.

The lower rents go, the less attractive buying is!

Boy I love asset deflation!

i always enjoy your posts but you often start them by telling us some variant of "i told you so". you don't need to do it as often as you do. just a thought

Noah - Appreciate your conservative view for the past few years. However, I disagree that there is not a "bid" in the market. There is a clear bid in the market that is being rebuffed by everyone but the desperate seller. Until sellers become motivated/distressed en masse, the Las Vegas-style bids won't be accepted. I'm waiting to see if Manhattan sellers capitulate; the Q1 data shows that they haven't come close. There will be a minority that give in, but that will most likely be on low volume at least in the near future, and I know that you as a former trader understand the risk of relying on low volume as an indicator of direction. I am a 30-year old former banker with a number of friends with similar backgrounds, and I can speak generally that we have quite substantial reserves that don't make a forced sale a near-term consideration. Bottom line is, no one knows where this market is going. But I'd be more likely to capitulate on my second home in Scottsdale than I am on my primary residence in Manhattan.

Noah: Here's one real time piece of evidence supporting your point.

A couple in our UES building were trying to negotiate lease renewal for a nice luxury 2BR apt. The mgt wanted to RAISE their rent to $6600/mo. They refused and searched Craigslist for an alternative 3 weeks ago. They were more concerned with finding value and were willing to pay more if they discovered it.

They found a 3 BR + Alcove unit (huge, prob >2000 sq ft and costing >$3m) for rent 1/2 a block a way in a PROMINENT (blogged about a lot on Streeteasy) New Construction building for $8k/mo. They took it.

The owner of the New Construction 3 BR unit could not move in and was FORCED to rent it out, because they cant sell their current NYC condo in this market.

Any way you slice it, this is an amazing story. Imagine how desperate you must be, when you rent out your brand new 3 BR New Construction condo for an amazingly low price because you cant sell your existing condo. Either the market is totally frozen or you'd have to lower your asking price so much that it would put you in a distressed position vis a vis the new mortgage.

Our building dropped their 2 BR asking price to $6200, but it was too late since our friends had made their decision and will move in a month.

Also illustrates the tight linkage between the rental and owner markets. If one falls, so does the other.

Always a fun, informative read! I stopped selling properties over a year ago. I have a less glamorous past than Noah, so got back into the rental trenches to pay the bills.

I didn't have the macro insight, hard data to drive me into my cave, just anecdotal evidence. The sort of sad part is most of the brokers I knew really believed the BS they were telling their clients!? I know a few who put their "money where their mouth" is, consequently they have been buried!

As Noah knows I have been trying to roll out some fresh ideas. For that I get a few choice hate e mails a week from brokers.

Although the rental market has taken a good hit, many owners of these properties are as delusional as most/some sellers. I looked at a place today on Washington street (West Village). A run down, dated floor in a sort of "brownstone", real piece of crap. Maybe it's 900 square feet, 1 bedroom, I suggested $3000 to $3500. He almost fell over, told me I was in la-la land, lol. He wants $5950! He was quoting the recent rental reports from a couple of the big firms. He must of had his rose colored glasses on?

Funny thing is now he says brokers are talking the market down....and he claims it just ain't true.

Jason - never mean to have that tone (all I said is that UD readers were 'prepared for this report' because of a previous discussion on it), but as a blogger, I have to refer to past posts when it comes to stuff like this because there are new readers to sites like mine PLUS brokers and others have been fighting me on this throughout this entire crisis, especially when I come out very early and explain why data like the one released today will come out Q12009, and not 3-4 quarters ago when the process started to occur.

When I wrote that low ball bids piece, i got so much sh*t from people in my industry privately that I am talking out of my a** and have nothing to back it up. I tried to explain why I have nothing to back it up and when it was likely to come out, now they know.

But blogging has a component to it that refers to previous posts, especially if a call turned out to be right. I should be able to refer to it, and people come here for that type of ahead of the curve insight, that no broker will want to discuss for fear of losing a deal.

I'll try to keep the tone lighter though in future, thanks!

Susan - Your VERY welcome and thank you for your kind words. I'll keep it up and Ill be here when you are ready. That is why I refer to older posts, because every broker was dissing me when I started covering this crisis, and stated to their clients MANHATTAN IS IMMUNE, BUY NOW OR MISS IT, BUY NOW OR BE PRICED OUT FOREVER, MANHATTAN DOESNT HAVE SUBPRIME, MANHATTAN IS AN ISLAND, THE WEAK DOLLAR, THE FOREIGNERS, etc..

Unfortunately, many buyers were duped using these arguments. There should be way more of a consulting capacity to representing buy side clients. I truly feel that way.

I had a buyer, not my client, who signed a contract at a pricey new dev about 16 months ago and was about to close. It was a 1900 sft 3BR for 3M, with 20% down. He wanted to walk away because it would cost about 150K to close and he was in finance and strongly felt he could lose his job. His broker tried to convince him to go through with it, and RELIST the property with them for 3.4M and that they could easily get 3.2M at the very least for him. So he called me because he didnt believe it. This was 7 weeks ago. Now, who do you think the broker that originally represented this guy, was trying to benefit by that advice?

Now the guy was considering walking away from deposit. Thats just one story.

Noah

Noah,

You know I am a huge fan and agree with your long-term view of the market, but suffer me some contrarian viewpoint here. I had argued several posts ago that the average ppsf data was probably going to show a much less spectacular decline in Q1 than many had come to expect. This is clearly borne out by the data, which shows a year-on-year decrease of 2.3% and a quarterly increase of 6.4%.

Another interesting data point is the 21% plunge in median sales price for resales - I think it pointless to study this number without the supporting data point of the median size of properties that sold. We all know the market is essentially frozen for 3-bed and up properties, so if the median price fell 21% and the median size fell 25%, then prices on a square foot basis could still be up.

Before everyone lays into me with the "head in the sand" banter, I will say that the trends, based on rising inventory, days on market, listing discount, etc. point to continued gloom. My only point is, the data simply does not support the "market is down 25%" chatter. I don't care what happened with your neighbor, or your client, or your cousin, the data on a macro level doesn't support it. Average ppsf is down nominally (statistically insignificant, I checked), and many of these closings are for post-Lehman contract signings.

Something is happening out there that is causing the average ppsf to stay above $1250, and don't give me the high end condo spiel - that is a handful of units.

Hey Noah,

I don't completely agree with OT's last comment at 11:27AM but I do agree that "something is happening out there that is causing the average ppsf to stay above $1250." I don't know what it is but my anecdotal eveidence from my own business as well as many of my collegaues is that prices are down 20-40% with some bids coming in as much as 50% below ask at times. I think the 1Q numbers are rosier than what is actually happening. just sayin'

Yea Im not sure what it might be other than lagging new dev closings at very PPSF, but in my business, bids are coming in as if market is generally down 25-35% from peak, but I must say that the sellers on the other end are not ready to accept that their place has gone down by that much. Its very tough making minds meet in this market.

Buyers want a deal, and sellers want their price. Unfortunately, the sellers are not my clients so outside of what I send to the seller broker, it is up to them to get through to their client that this bid is a good one. But if they think its not, so be it. I cant force any seller to accept a bit.

Noah, I just want to second the concensus here. I have been reading your blog for over a year now. My husband and I are on the sidelines and would like to buy in 2010 or 2011. You would be our first choice for a broker, if you are available when we are ready.

Noah, I just want to second the concensus here. I have been reading your blog for over a year now. My husband and I are on the sidelines and would like to buy in 2010 or 2011. You would be our first choice for a broker, if you are available when we are ready.

Noah,

You got me too as my buyer's broker. It is worth your fee just to get an honest third party appraisal of the situation. I will be contacting you soon.

The Bear

wow your answer was just so excellent. i understand better now why you do that. your tone is so classy even when defending yourself. keep it up!

very funny Jason, when you have a blog you can be sure to never refer to previous posts and maintain your class - stay classy sand diego.

i meant that as a compliment. seriously. maybe i shouldn't have put the wow. that was overdoing it i suppose.

i just like that your never mean and you don't really fight with people. it's refreshing.

oh sorry, I seriously thought you were being sarcastic. sorry!

OT:
Don't mean to pile on you, but I went back and looked at your comments following Christine Toes' "The Sky Is Not Falling" piece and you predicted "I think a 10-15% correction [in coop prices]is probably more likely." You also predicted "I think over the next 3 years, prices will remain flat to up 5% and we will see positive gains beginning in 2012."

Not sure when you predicted a 25% decline, but it must have been after the Toes article.

Again, I don't want to give the impression that I'm piling on you. As you point out, very few people predicted that the decline would be this rapid (little pat on the back for myself, I got it right, see my post on the same Toes' thread I quoted you from), although many of us got the magnitude right. But I would argue that perhaps you are suffering from the same incrementalism that Noah has repeatedly stated he is seeing from real estate professionals who are in denial on where the market is heading. We are now clearly in the midst of a full-blown real estate price deflation process in Manhattan, in both the sales and rental markets. At $1,250 psf, the cost to own is roughly 2x the price to rent. This differential is unsustainable, and will result in prices dropping by approximately 50% per square foot. And all the other traditional relationships (price-to-income, price-to-inflation) point to the same level of decline.

This Sunday's NYT real estate section quoted a real estate broker (the appropriately named Ms. Sunshine) whose advice to owners in quality buildings is to "raise their prices and have patience." This kind of advice is the exact opposite of Noah's; it's not based on any analysis of the macroeconomic forces at work, but rather constitutes a Hail Mary pass without any fundamental supporting reasoning. I think your analysis on the potential decline in ppsf above has a little Hail Mary about it as well, as you don't offer any supporting reason for why $1,250 ppsf (or thereabouts) is a fundamentally sustainable level.

I do appreciate your willingness to maintain your position on this blog, when the consensus seems to be bearish. Regards.

Keep in mind that there seems to be a lot of price per square foot variation, even in Manhattan's full service buildings.

You guys are talking about $1250+/ppsf, but there are full service buildings in midtown east at about $650/square foot, and in midtown west between $600-800, unless I'm mistaken? I've seen some nice 1-bedrooms listed at about $650k-750 in the Sutton area, for example.

My reading indicates that rents are only down about 10%. I wonder why they haven't decreased further, in line with the sales price declines of 20%-30% that Noah's observing? Any thoughts on this?

Keep up the great work on the blog!

SReal - you are correct, I did opine as such in the Toes article. This was revised downward subsequently. Heck, what do you I know - I just go on gut and some rudimentary data analysis. I think there will always be a premium to owning in the city, so I don't agree that the rent/buy ratios will drive prices down as aggressively as you state. And I do appreciate all opinions (except TT) on this board, so just throwing in my 2 cents. I don't have an agenda one way or the other, just have a genuine interest in NYC real estate. And you are not piling on at all, just correctly referencing an earlier post that contradicts more recent ones.