Looking At Todays Manhattan Marketplace

Posted by urbandigs

Wed Sep 23rd, 2009 09:06 AM

A: I always enjoy reading my friend and fellow colleague Doug Heddings stuff over at TrueGotham.com, especially when its strictly about what he sees in the marketplace at any given time. His latest discussion delves into the realistic pricing adjustment that he says sellers have made either in listing price or in negotiated price for a deal. This varies depending on price point and right now the lower end (studios, 1BRs), especially under 1M, is very active. This is mostly a function of lower prices, higher buy side confidence and more liquidity in the mortgage markets. I see similar things that Doug reports on out there, but I also see a good amount of listings that are still ridiculously overpriced with no relation to past comparable sales. What buyers need to understand is that there will always be a subset of sellers that will test the market and have no financial or time pressure to sell. After all, its not your apartment to sell.

Doug discusses his feelings that "Sellers More Realistic Than Buyers in Today's Manhattan Real Estate Market":

Before you get all crazy on me, here me out. I'm not AT ALL suggesting that it is a seller's market...because it's not. That said, it also is NOT the buyer's market that many believe it to be.

Anecdotal evidence is showing that aggressively well priced properties are receiving multiple bids which may indicate that we are nearing the "bottom." Most sellers and their agents have already adjusted asking prices to reflect recent depreciation. Of course some are still delusional but it seems to me that asking prices are down almost the same 10-40% from peak levels. Buyers bidding another 20% below these already adjusted prices are experiencing overwhelming frustration at the inability to negotiate with sellers.

So despite the fact that we have witnessed one of the most rapid price declines in housing market history, buyers must take into consideration that many sellers have finally accepted this fact and adjusted prices accordingly.
I largely agree with this. Just yesterday Christine Toes writes to me..."I'm seeing bidding wars left and right in the under 600K range."

I have certainly seen this market as quite active for about 4-5 months now. The market will always do what it wants to regardless of what you, me, or any one individual thinks or says. The fact is this market is reacting with the same reflation trade mentality that is encompassing the credit markets and the equity markets. It seems assets across the board have got a bid under them - even in the CMBS world where AAA Series 1 bids are in the low-mid 90s where it doesn't seem it could rally much further. Any talk about commercial real estate being the next shoe to drop certainly is not being reflected in dropped bids for commercial mortgage backed securities. Back to the market.

Looking at today's Manhattan marketplace it seems to be a classic case of a natural market rebound after an overshoot to the downside. In a few months you will have the analytics to see this in the data as it happens - so stay tuned as Im working hard on this now for you guys!

What buyers need to know is where this market seems to be trading right now. That is why Doug says, "It has never been more important than it is today to analyze an apartment's price and how it compares to peak pricing levels as well as recent sales and contract signings.". Well, where are contracts being signed? Where are the bids coming in? This is what brokers need to educate their clients on and in my opinion is where the true meat of the buy side consulting kicks in. If you are going to spend hundreds of thousands or millions of dollars on a property, its kind of important to have a credible guide advising you where this market seems to be trading today. Otherwise you will be navigating a very fast moving marketplace blind and bidding at a level conducive to 'getting a deal done'. If I had a dollar for every time I was told by a listing broker that the 'bid must come in near ask' with no comparables to support that price leve, I would be a rich man.

It seems to me that each price point is now trading at the lower end of the % discount from peak range noted here in earlier posts. So it would look something like this:

HIGH END ($5M+) - down aprox 28% - 38% from peak
HIGH/MIDDLE ($2M - $5M) - down aprox 23% - 28% from peak
MID END ($1M - $2M) - down aprox 18% to 23% from peak
LOWER END (Under $1M) - down aprox 15% - 20% from peak
*NOTE: approximations of where price points seem to be trading must always take into account any one unit's unique identifying features (light, view, raw space, renovations, layout, outdoor space, monthly expenses, bldg amenities, etc.)

If I were a serious buyer today, this is the range I would use to figure out where any one product likely will trade in the marketplace today. Fine tuning the analysis based on the unique features of a property then comes into play. If you compare this to my previous estimates on where price points seem to be getting bids, you will notice that it has been updated closer to the lower end of the range down from peak. The biggest fear I have now is that sellers will get too optimistic and refuse to move property where bids seem to be coming in - that leads to a buyer-seller disconnect and much lower volumes. For now that doesn't seem to be happening as serious sellers acknowledge where the market is today.

You just can't deny that buyers are out there and bids are coming in around the levels I described above. If you are a seller and you got a bid higher than the range I suggested, I say great for you and strongly advise you to take advantage of the confidence boost that comes with a surging equity market and recovery headlines. Always know that confidence can turn on a dime and be shattered at any time due to some unforeseen event or trend reversal. Nobody can predict the timing so we are left to analyze where we are today, where we came from, and where we might be going. I'll leave the future up to you guys and stick to monitoring whats happening out there now. If bids change further, Ill report on it here.

The biggest mistake a seller can make right now is to price their property way ahead of where this market is right now, simply on the belief that the perfect buyer will come in and include a premium in their bid for anticipated future profit potential. I still see many listings out there today that are pricing this way. That strategy is counter productive. Only you and your broker know how traffic has been and where bids are coming in - and this is not a perfect science and I am only one agent out of more than 8,000 doing business in the NYC area. Ask yourself, is the pricing right or are the bids right? If you think your priced right and we are telling you this market is quite active, then why haven't you sold?

The best description I can give regarding my buyer clients mentality right now is that they are more than willing to pay market value for property, but not at all willing to chase for fear of being priced out forever or be swayed into pricing in a future profit potential that has not occurred yet. This leaves sellers and their brokers to figure out where market value is for the property. Price right - get the traffic in - create a sense of urgency - and hopefully get multiple strong bids.

Buyer's seem to be well aware that bids have improved over the course of the last six to seven months, and to get a property today they need to come in around those improved levels. Similar to what Doug said, I find that buyers bidding as if fear of future downside risk should be baked into the purchase price are getting disappointed in the response.