Is Manhattan Getting 'Cranky'?
Quick Note: With the holidays, my clients and working more than part time on the new site I won't have much time to write here for the next 3-4 weeks. I'll do my best to keep posts shorter and to the point though so at least I can try to keep you updated on what I am seeing in the Manhattan market real time.
A: Interesting discussion on Streeteasy.com a few days ago, discussing whether or not sellers are cranky? Given the time of year and what we just went through, I figured it might make for a good discussion here. Are sellers cranky? Are buyers cranky? Is it the media's fault? Lets discuss.
Manhattan real estate is always a topic of interest. I find that even if you are a buyer or seller that is not interesting in transacting in the very near future, you still have a desire to follow the market and read the real estate sections of the NY Times or other to 'stay in the loop'.
While I am just one man in a very big market, I'll try to give some thoughts on WHY both buyers and sellers may be cranky:
CRANKY BUYERS?
Buyers may be cranky because of these two main reasons:
1) Declining Inventory - My new backend systems have active inventory around 7,810 or so right now. We spent many months tweaking and spot checking our new data feed and fixing many bugs that were affecting the real time status of each listing. We have over 180K records and over 13M status updates going back 6 years, so you can imagine the job we had to ensure that accuracy and quality of the data was very high.
Looking at where we came from, I see this active inventory down 25.7% over the past six months alone. The reason was a combination of listings removed from the marketplace and the strong pace of contracts being signed. In short, the market was active for properties that were priced right OR where the seller was reasonable in terms of hitting a market rate bid submitted.
When buyers have trouble finding adequate options in their price point that meet their needs, they tend to get frustrated.
2) Improvement in Bids - The recent lows from the adjustment we had occurred during the months of February, March & April of 2009. Those were the so-called fear trades I discussed here often. Since then, the market has gradually and sustainably priced OUT fear and bids improved just like they did across all asset classes. This is known as a reflation trade and I can't deny it. Since the adjustment I was looking for in late 2007 and early 2008 took place, I became significantly less bearish on Manhattan property prices.
Buyers are frustrated because the fear trades only occurred over the course of a few months and that bids improved so quickly and continued to do so right up to today's' market. Every buyer wants a deal and every buyer has a hard time buying into the fact that they have to raise their bid to get a deal done. While trades are still occurring noticeably below peak levels in 2007, bids have noticeably improved in all price points.
CRANKY SELLERS?
1) Sell-side Optimism Outpacing Improvement in Bids - This is a psychological force that I discussed around August - which was about 3-4 weeks after I first started to see out in the field here. It takes two to tango, so if sell side optimism outpaces the improvement in bids submitted by buyers we will see another period of slower sales - and we all hate that! Well maybe not the buyers but then again if sellers do not see bids in their 'perceived acceptable range', they are likely to remove the listing from the market and try again at a later time. By the way, my new data shows a huge surge in listings removed from the market in September of 2008 - now why would that be????
Sellers may be cranky because they are seeing healthy traffic levels, tons of private showing requests, receiving multiple bids on their property but not near levels they feel is appropriate given the reflation that has occurred in other asset classes. Reports from brokers, media, and seeing most of their competition enter into contract likely re-inforces this optimism that the perfect buyer with the strong bid is just around the corner. That optimism may cloud the sellers thinking from working with a perfectly good buyer who submits a solid market rate bid that may be just a few percentage points off from being accepted. Sellers should know that it is all about pricing right OR being reasonable when a market rate bid is sent in.
2) Media Effect / Uptrend in Contracts Signed - Between reading reports here on strong activity the past 6-7 months, seeing streeteasy listings go to contract, and reading the NY Times articles stating that "Bidding Wars Resume", why wouldn't sellers expect to get much more for their property?
You can't deny the affect this all has on the average seller - you know, the seller that really is not pressured by financial turmoil or forced to sell real fast for personal reasons. Going into the mind of the seller, if you were affected by this media effect and the traffic is there but the bids aren't, you may tend to get cranky!
My $0.02: Everyone should just calm down. Sellers should be happy that this market has proven to be as resilient as it has when faced with a crisis as severe and wall street centered as we just had. Buyers, while in hindsight probably wished they bought at the height of fear, usually do not want to bid when things are outright scary out there! Hindsight is 20/20 and right now I see a market that stabilized quite well considering the nature of this crisis. If I was a buyer, I would feel safer and more secure buying in a market that saw a healthy adjustment in prices but is not imminently facing Armageddon.
Sales volume has been unseasonably strong and has been solid for about 7-8 months now. Its normal for listings to be removed from the market and for new listings to not come to market this time of year! The last few weeks in December usually is slow and boring, so why get cranky? I would expect more listings to come back on starting in mid January in anticipation of more buyers getting serious about pulling the trigger in the first 4-5 months of the year. Until then, crank down!
Comments (22)
As a potential buyer in Manhattan for the past three years, I can say without a doubt, and with pure 20/20 hindsight, I am quite happy to not have bought during what you call "the hight of fear" in late '08/early '09.
And I am very content to wait through yet another year of price declines before picking up a 2BR for the same price as a comparable rental. Especially with the 10% rent decrease my dear sweet LL just gave me.
After all, if I had taken the god-awful advice of the real estate "professionals" that lurk around here the last few years, I would have essentially thrown away hundreds of thousands in dollars.
Posted by David UWS | December 15, 2009 11:05 AM
David UWS - Thanks for comment. Just to be clear, the fear trades were contracts signed during feb, March, early April only in my opinion.
Check out 490 WEA:
http://streeteasy.com/nyc/sale/283224-coop-490-west-end-avenue-upper-west-side-new-york
1165 Park Ave:
http://streeteasy.com/nyc/sale/211308-coop-1165-park-avenue-carnegie-hill-new-york
and other higher price point trades during this time and you will see what I mean.
Back to your point, I agree. I got a 10% reduction and 1 month free concession on my rent renewal and that amounted to my rent being reduced form 3300 to about 2750 or so. Not bad in my opinion. But for me, not buying was personal. A) I cant afford a classic 6 to grow into, and B) my job security in this business is moderately stable at best given the ups and downs of real estate sales volume. I have great clients and do fine, but Im not about to buy something I will grow out of in 2-3 years or that puts myself in a bad financial situation where Ill be forced to sell.
So really this is for those buyers that already made the decision to BUY, and are just cranky that they cant find what they want or feel they missed on the best deals.
Again, thanks for comment
Posted by Noah | December 15, 2009 11:16 AM
Noah,
Does your new database show inventory of specific segments of the markets (i.e. UES 1BR's). If so, do they show any secular trends in any segments or neighborhoods?
thx
Posted by robocop | December 15, 2009 11:21 AM
Aha robocop! You will be happy my friend with the system I am designing for you guys.
Dont want to go into details now, so close to launch. I built this the thing with you guys in mind! Ill tell you that. I think you will be VERY happy with the product but for now Im keeping details on down low
Posted by Noah | December 15, 2009 11:41 AM
the second wave down is coming in the new year.
Posted by Jason | December 15, 2009 12:56 PM
Looking forward to your inventory numbers, Noah. If you have neighborhood breakdown then that will be ideal. You should see some real increase in traffic. I know I'll be a regular visitor.
Posted by SteveF | December 15, 2009 1:13 PM
Noah - good observations on both sides. As a buyer, I have gotten cranky and feel like I missed my window. I see Jason's comment get ready for 2nd wave down, but I don't believe it's going to happen. Unfortunately for me, I have had to get more aggressive and the really good deals have gotten away from me. I just don't think as one of the posters commented that you can get a really nice 2 BR after this year in a full service doorman building in a great neighborhood for less than 1.2. It's not going to happen and I'm shopping for one every weekend. The ones listed for 900k or less are not TRUE 2's they are junior 4's or have something wierd about them. IN any case, I think it is frustrating and I have now accepted that I have to bid at ASK or better for those places that are priced to sell. There are many that are and if you low ball them, you lose out like I did.
Posted by Crankypants09 | December 15, 2009 3:52 PM
Hi Crankypants, I mean SteveF.
Good to see you posing as a bitter buyer. Why not do what comes naturally, and pose as someone who is unable to sell their properties?
Posted by anon | December 15, 2009 3:59 PM
anon,
I'm not trying to pose as anything. Just wishing Noah well. He seems like a nice guy. Also why in the world would I sell now when prices will be higher in 2010?
Posted by SteveF | December 15, 2009 4:31 PM
DavidUWS and Jason- I look at the data and can't make any strong prediction about 2010, but you sound pretty certain that it will be a year of price declines.
Can you give the evidence that supports your conclusion?
I only ask because about this time last year many readers here predicted 2009 would be a year of sustained declines throughout.
Posted by Former Seller | December 15, 2009 5:30 PM
DavidUWS and Jason- I look at the data and can't make any strong prediction about 2010, but you sound pretty certain that it will be a year of price declines.
Can you give the evidence that supports your conclusion?
I only ask because about this time last year many readers here predicted 2009 would be a year of sustained declines throughout.
Posted by Former Seller | December 15, 2009 5:30 PM
I was wondering if any of the Urbandigs staff can run a story on age discrepancies regarding property values.
I've just been wondering, as a lot of the comments on the site seem to be from older people worried about their pensions, shares, or house prices. Is there a divide between different generations with respect to economic outlooks?
Most young people don't have a large amount of assets such as shares and real estate that are declining in value. Generally, they don't spend a lot of their income as a percentage on food and fuel which have increased in price.
Do you find that most of the "stubborn sellers" tend to be older folks (at the risk of offending the age sensitive, I'd say 50+)? Are the willing sellers more likely to be younger? What about buyers?
Posted by In Debt We Trust | December 15, 2009 9:59 PM
What happened to the macro discussions this blog was so noted for. Manhattan apartments today are worth 30-40% less in the last 9 months when priced in gold. As a result, more devalued dollars are required to buy real estate while the asset class in relative terms is in virtually continuous decline. Do not be fooled by price tags solely in dollar terms, but look at the whole forest.
Posted by FadingFan | December 15, 2009 11:21 PM
FadingFan - how many times did I have to explain that so much of my time is being put into the development of the new site?
Come on guys. Im not superman. You have to bare with me. I put at least 3-4 hours a day into development of the new site because its funded by me and I only have a 2 man team working on a very complicated project.
Im not as in touch with everything macro as I used to, as my spare time goes to clients and making a living, less time for my normal daily research that the trader in me usually obsesses about
Posted by Noah | December 16, 2009 7:40 AM
re: $1.2mm price point. We've been viewing a number of properties on the UWS in the price range and my bottom line is the value just isn't there. That may well mean that we end up leaving the city or renting. I have a hard time seeing prices appreciating, even though they may not fall further, but the problem with no appreciation is the negative carry on real estate does get reconciled at some point. It may feel like it doesn't cost more, but it does.
Now, my hunch is here's what's going to happen: The shadow new inventory in the $1.5mm to $2.5mm range is coming down - no way around that. How far is the question? But what will happen is a healthy buyer who could easily do $1.2mm will see the value proposition to spend another $300k and get something that is currently asking $2mm for example. The main reason is the delta in terms of quality between the new $2mm and the pre-war $1.2mm is huge. I have a hard time not seeing the continuing reduction in pricing at the middle upper end not impacting the $1.2mm and below. It's basic but then again, NYC is not necessarily rational.
Posted by Fred | December 16, 2009 9:54 AM
if you can't find an "really nice" 2br apartment for 1.2 or less, then you should get out of the city or lower your standards
Posted by anon | December 16, 2009 11:37 AM
Anon - for sake of discussion, define "really nice".
Posted by Fred | December 16, 2009 1:55 PM
jason has no idea what he's talking about and excellent point by Fred - define "really nice." There is no second wave down coming is the reality. prices are going up in the bay area - silicon valley to be exact, nyc will follow by end of 2010 if not sooner.
Posted by nananaheyheyheygoodbye | December 17, 2009 2:58 PM
To 9:59PM poster:
I am a 50+ year BUYER, having just BOUGHT a beautiful UES 2BR/2BA in Feb 2009 at a ridiculously low price when everyone else was running scared!! Don't make assumptions that us older folk are running scared on our pensions and will be distressed sellers. Au contrare, through life's experience we saw a bargain and jumped on it(yes, I was around during the race riots of the 60s and in the 70s when hookers prowled 53 St and 3rd Ave, so I know this City well). Bottom line is that it took b*lls to buy when everyone was panicking; and I guess age can give one a perspective. None of my age group cohorts are panicked sellers...
Posted by anon | December 19, 2009 9:31 AM
anon 12/19 9:31AM:
You would have been considered a fool by many of the readers here at the time you bought, because the so-called irrefutable consensus was that Manhattan was heading to hell in a hand basket, and Q1 2009 was just the beginning. Congrats on your decision to buy during this period. Many of the doom & gloom side-liners from that time may well have missed their best time to get in- though I suppose only time will tell.
Posted by Former Seller | December 21, 2009 5:39 PM
5:39PM
Thanks. Actually the best time was 1990. I remember a foreclosure by Apple Bank (at the time) that was selling REO a 2BR/2BA on E 61 St (at 3rd Ave) for under $200,000. The apartment was completely mint but had a view of the loading docks at Bloomies... I had acrually see it a year before on the market foir $400,000. I should have grabbed that when I could (no one else was touching it at that part of the cycle). Could have clearly flipped it for $1.2MM in 2007... In looking back, I made more mistakes in NOT buying. The two basic take-aways: 1. don't get in too deep over your skis on leverage, and 2. don't be afraid to buy when others are fearful (I thing Warren Buffet said something similar recently. Thanks.
Posted by anon | December 21, 2009 9:19 PM
May it be that the same largely irrational optimism that has driven up the stock market by about 60% since March so that equity prices are quite overvalued again (although not as much as before the crash started), is also behind the stabilization and price increases in the Manhattan real estate market to a large degree since then?
If it is and an overvalued stock market implies a high probability it will come down again, then there is also a good chance for the current stabilization and price increases in the Manhattan real estate market only being of temporary character and prices will go down again, once this irrational optimism fades.
rc
Posted by rootless cosmopolitan | December 23, 2009 2:43 PM