Fear Rises, Markets Jittery, Asia Tensions
A: Man, markets certainly do fall way faster than they rise. As tensions in Asia mount, there is a renewed flight to safety giving US Treasuries and dollars another boost. Bulls will look to the declining lending rates to support their biases, and bears will look to the forces that are responsible for declining yields to explain why. Since confidence overwhelms everything and Manhattan real estate markets are all about the buyers, consider me on the bearish side of the conversation.
The data still shows solid demand out there, but this can quickly change if recent market jitters are our version of a canary in the coal mine. Here are some bullet points that are being magnified by a dollar carry unwind as huge FX and risk positions are unloaded:
These kinds of warning signs can turn selloffs into something much much worse as the costs for money and the markets for rolling over debt de-liquefies. The liquidity is a concern since it is coming right when governments and corporations need to roll over debts and raise fresh capital to run operations. Corporate debt is slated for one of the worst months in years after what seemed liked an endless demand for risk earlier in the year. It seems everything but gold, treasuries, and US dollars are being sold off right now and it's getting to the point where a new psychological down cycle may feed upon itselfl I wonder if we are in the 'Anxiety' or 'Denial' part of this cycle right now after a 14-month long 'Thrill' ride leading to 'Euphoria' and complacency.
I worried about complacency a few times in March & April. Seeing the markets continue to selloff makes me wonder how buyers in our markets might be absorbing these fears. My pipeline of buyers already bought so I am not out in the field as actively as I was earlier this year. And site development is taking all my time right now to get this platform launched for you guys. But my gut tells me that this selloff must be affecting buy side confidence in some capacity, and considering where we came from, I think all of us should expect sales volume to slow down noticeably. It's just too soon to tell the impact it might be having on bids submitted across the varying segments of this marketplace. Manhattan is not one market. Rather it is a combination of submarkets and price points and I would think the higher end once again will be affected first and more dramatically than lower end properties. Remember, this market took about a year to adjust in response to the first crisis and it took the trigger of Lehman's bankruptcy to set it off.
All of this right when I expect future quarterly reports to begin to show the improvement this market experienced from lows of 2009. The setup looks ripe for one of those times where the lagging report and the actual marketplace might show a significant disconnect when it is released July 2nd.
Posted by endthefed
Tue May 25th, 2010 08:49 AM
two trillion in QE, 0% rates for almost 2 yrs, gov't programs to prop up assets and home prices, tax credits, and what do we have for it? more debt and a fed balance shit with nothing but shit
END THE FED!
the reflation project ends the way we all knew it would. A BIG FAILURE!
Posted by Noah
Tue May 25th, 2010 09:25 AM
I agree the reflation environment was built on nothing fundamental. It was a weak foundation and was temporary and unsustainable and it gave rise to a HUGE search for yield that lasted about 16 months.
And I agree the fed has caused as many problems as they solved. We are a boom and bust society. And yes, the credit crisis proved to a transfer of wealth moving the junk from private to public balance sheets. But if we end the fed, how do we re-structure? If there is no central bank, who is the lender of last resort? If we leave rates up to markets to determine, what happens when shit hits the fan? I hear you, I do, but what do you suggest is the answer? Saying to end the fed is one thing, but how do we structure ourselves after that?
Posted by Buyer
Tue May 25th, 2010 10:07 AM
Noah, how long does it usually take for you to see whether or not market moves are starting to affect real estate markets?
Posted by Noah
Tue May 25th, 2010 10:42 AM
Thats a very good question. This time around is different than last time around because this time I have my analytics platform in beta that I monitor daily and its by far the best measurement of this market that exists. I do not yet see anything worthy of a discussion based on data I see on daily changes to all of our broker shared inventory.
Usually, I go on my own business. At any given time I usually have between 10-20 buyer clients. Right now, I have about 7 as I sold about 8 of them in last 6-8 months. Plus, my clients now are not as motivated or pressured by time to sign a contract. I would say 2-3 really need to buy soon and are actively looking. I havent taken on any new clients in last 6 weeks as my time goes to site development. Plus I have a 2 wk vacation in EU planned next week and launch soon after I get back.
So, normally I see it in the field and visits to properties and talks with brokers with whom my clients submit bids..and talks with colleagues and sales managers I trust. But this time around I will be following the data and my analytics platform for changes.
It takes time though for this market to see changes. It doesnt happen overnight like it does in liquid equity markets or credit spreads. It took a year last time to really see the market freeze up and bids disappear. It may take months to see it now.
Posted by PotentialBuyer
Tue May 25th, 2010 10:46 AM
I have been looking at buying a 1 bed for the last couple months and my excitement or sense of urgency has definitely cooled over the last month (first-time buyer, but wasn't in it for the tax-credit though). Prices seem a little high in the face of what I take to be negative momentum. A lot of places I saw at crowded open houses are cutting their asks, and a place I put an offer on has revised their counter-offer or soft ask downwards three times. Bottom line, I think the prevailing uncertainty from the market drop, europe crisis, financial regulation and its impact on NYC banks / hiring, and who knows what else reign supreme.
I don't see a near term catalyst in the next few months for rising home prices, and am happy to keep an eye on things and revisit in September or October.
This morning's WSJ article on landlords charging broker fees again was interesting. Of course, it is "renting season" but prices might be rising. Any thoughts out there on whether this is because more people aren't looking at buying anymore, or whether it is a sustainable push for property prices?
Posted by Noah
Tue May 25th, 2010 10:51 AM
Potential Buyer - as always, appreciate your comments.
Yes I agree, right now I am looking to see if there is a broad 'cooling off' of interest amongst the buyers out there. The market has been strong for months now, so when the data does show it, we have to be careful how we interpret that as even if markets didnt adjust noticeably as they are doing now, I would expect sales volume to slow for seasonal and pent-up reasons.
But as always, macro forces slowly ripple into the mindsets of buyers and that is where it all starts. I would expect the rising competition amongst buyers that we saw for much of JAN- MARCH to noticeably disappear in the weeks and months ahead. It already has to an extent, as I recently described the current market as 'less-frenzish' on April 22nd:
http://www.urbandigs.com/2010/04/misinterpreting_bidding_war_st.html
"History usually shows that these types of mini-euphorias, which I described as starting from an adjusted lower level from peak, don't last long. And I believe this to be true as of now. While the market continues to seem strong to me, its a bit "less frenzy-ish" than it was in January and February. "
Posted by Mbt
Wed Jun 2nd, 2010 10:35 PM
I think another reason fees are not being paid and free months not offered is that prices have come down. Apartments are moving but part of the reason is that prices came down to a point at which they will move.
Posted by Miami Condo
Sat Jun 19th, 2010 02:04 AM
Great Post! I find your blog very helpful for real estate and I am sure others do as well. Keep up the good work!
Posted by coach handbags
Fri Aug 13th, 2010 04:41 AM
It's just too soon to tell the impact it might be having on bids submitted across the varying segments of this marketplace. Manhattan is not one market. Rather it is a combination of submarkets and price points and I would think the higher end once again will be affected first and more dramatically than lower end properties. Remember, this market took about a year to adjust in response to the first crisis and it took the trigger of Lehman's bankruptcy to set it off.