Manhattan Real Estate: New York City Real Estate Tipstag:www.urbandigs.com,2010://42010-03-15T14:40:03ZA blog dedicated to discussing the Manhattan real estate market and tips to best profit from it. Besides New York City real estate tips for buyers and sellers, this blog discusses some macro economic issues that might affect monetary policy and therefore the future trends of real estate investing.Movable Type 3.31'Rate of Rebound' From Extreme Starting Point, To Slowtag:www.urbandigs.com,2010://4.14552010-03-15T14:31:02Z2010-03-15T14:40:03ZA: It has been a year since the extreme set in across most asset prices and markets. Sometimes I think we forget just how volatile and how dramatic the markets reaction was to severe credit stresses. It is quite astonishing...Noah Rosenblatthttp://www.halstead.com/agent.aspx?id=N4R&s=a
A: It has been a year since the extreme set in across most asset prices and markets. Sometimes I think we forget just how volatile and how dramatic the markets reaction was to severe credit stresses. It is quite astonishing to see how the mindsets of investors have changed since that time; from complete fear to perceived sustainable reflation. For Manhattan real estate, the next 3 months should start to reflect the rate of rebound from the miserable Q1 2009 data; via the Q1 & Q2 2010 reports. I already discussed the expectation of a very strong y-o-y Q1 report that will be released in a few weeks. When I look back to the confidence levels of market participants exactly one year ago I think about the high level of perceived distress on future expectations, elevated risk premiums due to market uncertainty, and how this affected buyers' offers for Manhattan property. The resulting extreme came on quickly and severely marking a 'starting point' for future stability to eventually build upon. Looking ahead, expect the 'rate of rebound' to slow from this point on as buyers' already priced out the very serious risks that caused the furious adjustment process for Manhattan property. To me, the market continues to trade at an adjusted lower level from peak but at slightly improved levels from the height of distress one year ago.
Asset prices across all classes saw an incredible rise over the course of 2009 as the fed managed to stage a huge 'search for yield/dollar carry trade' for investors. This was especially true for riskier asset prices. The rise was historic only because of the uber distressed levels that we began from. If we look back twelve months ago, even for Manhattan residential property, we must also go back in time & place to a period marked by:
immense uncertainty over the banking system and global economy
the perception of huge counter-party risks
a dysfunctional interbank lending environment
tremendous negative wealth effect from plunging asset prices
hugely elevated risk premiums as credit markets blew out
perceived risk of a systemic collapse of global banking systems & economies
Those that understood the nature of the crisis and worked right in the middle of the storm, experienced the most fear. And since the Manhattan residential real estate marketplace centers around a Wall Street that was bleeding half to death, the fear was especially high and dramatic!
What's my point? Right now we are just over 1 year removed from the height of this fear; and to look back at the changes between the two time periods is quite amazing. The extremes were simply that dramatic and because of that an environment was ripe for a natural market rebound from an extreme starting point! Here is a quick snapshot of some market indexes and credit indicators on March 9th, 2009 and where they closed on Friday:
S&P 500 was at 676; Friday it closed @ 1,149
DJIA was at 6,547; Friday it closed @ 10,624
The VIX was at 49.68; Friday it closed @ 17.58
TED Spread was at 96bps, down from 465bps in October, 2008; Friday it was @ 12bps
The TED spread, or the difference between the 3-month risk free T-Bill rate and the 3-month LIBOR rate, really captured the extreme nature of the crisis as the measure blew out to over 450 basis points in October 2008 (the VIX blew out to over 80 at this time too); reflecting the markets concerns over interbank credit risk at the time:
Those moves were not some minor blip in an otherwise general trend. No way. Rather, those moves were signs of the markets' cardiac arrest! The long term average of the TED spread is about 30-50 basis points. Since the credit markets were leading the equity markets for late 2007 and much of 2008, the extreme moves in the TED spread were a signal of the shocks that were to come in both the stock markets and debt markets as we approached March 2009. For Manhattan residential real estate, it was the March stock market lows that really pinpointed the timing of the height of fear for buyers out there submitting bids and sellers hitting them to move property at the time. In other words, there were no strong bids and offers that were submitted "priced in" plenty of future downside risk that had not yet took place.
Now take a step back. Look at this extreme and imagine what kind of starting point it resulted in for Manhattan real estate when comparing market forces one year later. The progressive improvement in bids for Manhattan property that resulted from the historic rise in all asset classes for much of 2009, began from a highly extreme starting point! That is the key take-away of this discussion. Naturally, the rate of rebound from highly distressed levels will be noticeable and eventually, self-defeating; similar to $150 oil prices causing extreme demand destruction worldwide for the commodity.
Stocks are a proxy for everything and it should be no surprise that bids for apartments in a market such as Manhattan, improved just like all asset classes improved from that extreme distressed starting point one year ago. For now, its more of a return to normalcy after such extremes of pricing in and pricing out market/credit risk and near term economic uncertainty.
From my observations over a 12-month period, this market continues to trade at an adjusted lower level from peak in 2007 but at an improved level from early 2009. I expect the next 2-3 quarterly reports to ultimately show this rate of rebound from the extreme starting point; with the largest percentage rebounds in the higher price points for logical reasons. In the meantime, I continue to keep a watchful eye for any signs that the recent market action might soon start to abate. The two biggest macro threats I see on the horizon that can directly affect our real estate markets are:
1) bond markets reactions to a fed preparing of an exit strategy and the scheduled end to Agency/MBS purchases; i.e. higher lending rates
and...
2) any disruption to the historic rise in most asset classes (stocks, HY/IG corporate debt, other riskier assets) resulting from the withdrawal of fed guarantees, a stronger dollar and carry trade unwind
As usual, what is going on today in Manhattan's real estate market does not necessarily have to jive with my longer term macro concerns that we are yet to deal with.
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Signs of Strength: Should Underpin Spring Selling Seasontag:www.urbandigs.com,2010://4.14562010-03-15T04:13:56Z2010-03-15T05:18:08Z Just a brief post to note the many signs of strength now being exhibited by the economy and mirrored in the stock market. While I had been worried about the stock market and expecting a correction, which we got,...Jeff Bernsteinhttp://www.guildpartners.com/
Just a brief post to note the many signs of strength now being exhibited by the economy and mirrored in the stock market. While I had been worried about the stock market and expecting a correction, which we got, I was also worried about the economy's ability to do better than just "Less Worse". While I still see significant overhead supply in the major stock indices moderating further gains, the economy is showing signs of sustainable strength. To wit:
FDIC figures for early non-performing loans appear to have peaked in Q4.
Railcar loadings have been running up high single to double digits year-to-year in a variety of categories including steel, automobiles/parts, commodities, and chemicals (away from coal car loadings which have been impacted by high surpluses at utilities related to the slowdown in energy demand and weak cooling demand last summer) for the last several weeks. “Rail traffic trends over the past few months, especially when you take out coal, are consistent with a slowly recovering economy,” said John Gray, AAR senior vice president of policy and economics, in a prepared statement.
U.S. air traffic has turned the corner, as domestic traffic rose by 1.6 percent, with strongest growth seen by Boston +13%, Baltimore +9.1%, Chicago Midway +15%, Los Angeles +9%, New York LGA +5% and San Francisco +8%, according to the ACI PaxFlash report.
Freight tonnage is improving. According to Logistics Management:
"The Cass Information Systems February 2010 Freight Index, which measures the number of shipments and expenditures that are processed through Cass's accounts payable systems, showed that February shipments at .930 was 3.4 percent better than January's .899, but it was down 0.9 percent year-over-year. And February shipment expenditures at 1.569 were 5.6 percent ahead of January's 1.462 and were up 2.7 percent year-over-year. Last week the ATA reported that its advance seasonally-adjusted (SA) For-Hire Truck Tonnage Index was up 3.1 percent in January from December 2009 and was up 5.7 percent compared to January 2009, which the ATA said is its best year-over-year reading since January 2005, as well as its second straight annual increase."
We are seeing flow through from the better retail sales that have been reported, as manufacturers begin to feel more confident in ordering new equipment. At the least, U.S. companies, which have tightenend their belts, cleaned up their balance sheets and begun to gush free cash flow have the wherewithal to spend some money to catch up on deferred maintenance and revitalize their aging equipment.
According to a recent article in Transport Topics Online, "truck trailer orders jumped 10% in January from year-ago levels. Yes, the new number is measured against the catastrophic low levels of early 2009. But truck makers at the show had good things to say as well, with one reporting that his company’s heavy-duty truck production was sold out through May and probably soon would be sold out through June. And the May and June sales were for trucks with the new, more expensive 2010 engines."
Kennametal, the cutting tool manufacturer, whose business is widely seen as a strong indicator of industrial production trends, reported February orders which included the first year-to-year increase in 16 months.
I do not mean to minimize the real risks I still see in the economy domestically. These include the removal of supports from the housing/mortgage market, and headwinds from continued bank failures and reluctance by banks to lend. Neither do I recommend ignoring the very real threats from macro factors including surging gasoline prices, (which recently broke out technically, and seem to be promising $3.00 + gasoline at the pump again), potential further sovereign debt issues, China stimulus/inflation/bubble concerns. In addition you can add to the list geopolitical risks including, but not limited to, Iraq withdrawal and Iran/Israel nuclear issues which could produce second half fireworks. It's a dangerous world out there, but it has been for a long time. There is no denying, however, that the data flow is to the positive as of late regarding the domestic and world economy. This is why despite the stock market correction earlier this year, the Nasdaq composite and Russel 2000 indices have now broken out to new 52-week highs and are awaiting confirmation of the continued bull trend by the Dow Jones and S&P 500 indices. My expectation is that you will get those confirmations shortly as investors continue to play what looks like a more sustainable economic advance. I still think stock market gains will be limited, but I see a favorable economic backdrop and stock market underpinning spring sales season for New York City residential real estate this year.]]>
Following The Bids - Mental Mathtag:www.urbandigs.com,2010://4.14532010-03-08T16:32:52Z2010-03-08T17:08:23ZA: When I was in elementary school I knew that math was my strongest subject. I recall one teacher that would challenge our class in an exercise she called 'Mental Math', a contest me and a few of my close...Noah Rosenblatthttp://www.halstead.com/agent.aspx?id=N4R&s=a
A: When I was in elementary school I knew that math was my strongest subject. I recall one teacher that would challenge our class in an exercise she called 'Mental Math', a contest me and a few of my close friends at the time loved and looked forward to. The idea of 'Mental Math' was to shout out a long math problem and see what student can come up with the correct answer the fastest, without writing out the solution on paper. An example would be, 'Okay kids, now tell me the answer to 7 times 6 plus 8 divided by 5 minus 2 times 9 plus 3 divided by 3 plus 9 divided by 2....'. The winner would get one extra credit on the next test; not that it really meant much but to us kids it became more of a contest to be the winner of! I would always be one of the fastest and I loved the next challenge.."17 - is the answer" as I eventually learned to do the calculations in my head on the fly as the numbers came out - always learning to remember where the numbers first came in so I can get the right answer later.
That fascination with numbers and the rush of the fast paced challenge is what I think attracted me to Equities Momentum trading right out of college. I genuinely loved the rush of trading in and out of positions in a matter of seconds. I started young as my first investment was in SGI, Silicon Graphics to the home gamers, as they made a few of the computer games I always played as a kid. I bought a few hundred shares of SGI at the age of 13 and since then, I was hooked on the markets.
Now I have a new challenge ---> Manhattan residential real estate. Following where the bids seem to be coming in is a constant challenge, and I love it! If it were easy to follow, I wouldn't be interested in it. I always must admit that the market is bigger than all of us and that what I see out there may not be the actual general trend. The fact that this market is mired in mystery and lacking transparency makes me want to gather more data, parse it, and see what we can come out with! When I tell you real time reports on where I see bids coming in, people yell for REAL CLOSED DATA; and rightfully so. But we all know the lag it takes to close from contract signing.
Being out there in this real estate marketplace daily eventually gives you a 'feel' as to how strong or weak the market may be at any given time. One example is simply following all the responses of the brokers I talk to everyday and keeping tabs on what the 'individual listings' that my clients become dis-interested in end up doing. Just because a client dismisses a property after a 2nd viewing or a poor response from what is perceived as an offer too low, doesn't mean I stop watching it! I want to know how quickly it goes to contract and ultimately where it sells - so I can gauge how a buyer valued the unique features the property had. Over time, assuming you keep a mental history of what has happened in this market and when, your 'feel' for the market becomes more natural; it takes less effort to focus on multiple variables and understand what it all means.
Is following the bids an exercise in futility? I don't think so. While I only know where my client's are bidding and how the outcomes are, I still can learn a heck of a lot about the marketplace even if we do not get the apartment. Which is why I can confidently say that today's marketplace is one where bids exist, and sometimes competing with each other. That is much more to say than this marketplace from October 2008 until March of 2009; when bids did NOT exist and sellers had to 'hit a bid' to move property. Today it feels more like buyers are 'paying the offer' or very close to it, to use an old trading term. That is the difference in this same marketplace when comparing two very different time periods: MARCH of 2010 vs MARCH of 2009.
Here are just a few examples of closed sales where the buyers paid either full ask or more than ask:
155 W 70 - 15E sold at Full Ask at 1.699m
850 Park Ave - 8B sold Over Ask at 4.3m
10 WEA - 25A sold Over Ask at 1.557m after a price increase in NOV
333 E 69 - 10CD sold at Full Ask at 3.495m
210 W 78 - 8A sold for Full Ask at 1.65m
146 W 57 - 74C, price reduced when it didn't sell in June 09, then sold for Over Original Ask at 3.7m (great example of the progressive improvement in this market over time from early 09 lows)
15 W 81 - 8G sold for Over Ask at 2.5m
90 Riverside Drive - 12B sold for Over Ask at 6.125m
61 Jane Street - 19G sold for Full Ask
150 WEA - 27M sold at a discounted Full Ask of $1,050,000 and 5% higher than prior sale of $999k in April 2009 (another example of the improvement from early 2009)
509 Hudson St - #3S sold for Full Ask
Now you can't cover an entire marketplace with just some examples, I'm aware of this, but these are the things I have been noticing for months now that signal the changes this market experienced over time from exactly one year prior! I mean, what else am I supposed to show if its not actual sales? Even higher end stuff is starting to move again, like the Townhouse over at 178 E 73rd St that sold for $13m after having trouble getting bids in that range for much of 2009 - the contract was signed in late January 2010. A year ago, even 9 months ago, getting an offer of $13m for this proved very difficult.
There are many more apartments that sold within 5% of the last ask and 10% of the original ask (i.e. 180 E 79th, PHE @ $4.2m or 470 WEA, 14FG @ $2.4m or 1 EEA, 10C @ $3.125m) - a dynamic that depends mostly on how the apartment was originally priced. This is why I say very clearly, 'quality apartments that are priced right are selling fast in today's market'. Not everything is priced right and not all apartments have features that buyers would deem 'quality' worth bidding up for.
A year ago the bids came in at much lower levels pricing in future downside risk that had not happened yet - fearful or desperate sellers had to 'hit' one of those bids to get a deal done. Take a look at the listing discount of the deals done for 15C at 1165 Park Avenue (20% off Last Ask & 41% off Original Ask) or 9B at 490 WEA (24% off Last Ask & 39% off Original Ask); both contracts that were signed a year ago. Both Listing Discount & Absorption Rates blew out in 2009 reflecting the extreme move this market experienced. I would expect both to come down noticeably based on the data/deals I'm seeing in past few quarters.
Today offers are not pricing in downside risk anymore and instead, seem to be reflecting emotions of 'missing out on the bottom' or 'losing another quality apartment' more than anything else. For serious buyers faced with frustration over the lack of supply of quality/well priced apartments, a gap up offer all of a sudden becomes something you will strongly consider - feeding the herd-like mentality of this fast paced market. If you are out there everyday, you see this. I simply question how long this will last!
Then there are those units that didn't close, but I know will close over ask because of information gathered when my clients bid for them: 35 Bethune Street, 205 W 89th Street and 15 W 72nd Street just to name a few. And I'm not including all the broker responses of 'we have multiple offers over ask, doing a best & final soon' to properties I have attempted to setup appointments for in the past months. Follow the bids and keep a mental history of what happened! By doing this you will know not only where this market seems to be trading, but where it recently came from. I consider this to be one of the most important services a broker can offer their client's when devising a buy side strategy and doing a property valuation - where is this market trading right now????
Do you know?
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VIX Nearing 52-Week Lowstag:www.urbandigs.com,2010://4.14522010-03-05T21:05:20Z2010-03-05T21:33:21ZA: I need to get away from real estate for a moment. Taking a look at the VIX nearing 52-week lows makes me wonder about complacency and how cheap it is right now to buy some volatility? Maybe some puts?...Noah Rosenblatthttp://www.halstead.com/agent.aspx?id=N4R&s=a
A: I need to get away from real estate for a moment. Taking a look at the VIX nearing 52-week lows makes me wonder about complacency and how cheap it is right now to buy some volatility? Maybe some puts? Anyway, when the VIX usually gets to this point its a contrarian signal to the markets that complacency might be settling in just a bit too much. The last time the VIX got this low was January 19th, when China's tough talk on curbing bank lending led to a 5-7% adjustment in markets. A hiccup in the grand scheme of things really. But with volatility this low again, I just wonder if a rattle might lie in the near future?
Here is a quick look at the VIX S&P 500 down 7.37% today.
The VIX "tracks prices that investors are willing to pay for options on the S&P 500-stock index, often to protect themselves against declines in stocks". As the VIX falls to 52-week lows it is a sign that complacency, or unawareness of dangers still out there, might be settling in. Many traders use the VIX as a contrarian short term signal and buy downside protection while volatility is cheap. It's been pretty spot on so far so lets see what the next week or so brings and if the markets are getting a bit 'ahead of themselves'.
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Measuring UP Square Footage - Is Regulation Needed?tag:www.urbandigs.com,2010://4.14512010-03-05T13:39:13Z2010-03-05T13:42:46ZA: This is a topic I touched on a few times here, and is an old story that gets replayed every 10-12 months or so. Just how 'off' is Manhattan square footage? To be honest, its way off but I...Noah Rosenblatthttp://www.halstead.com/agent.aspx?id=N4R&s=a
A: This is a topic I touched on a few times here, and is an old story that gets replayed every 10-12 months or so. Just how 'off' is Manhattan square footage? To be honest, its way off but I think this marketplace has evolved past the point of really caring anymore. Everybody knows that co-op apartment sizes are estimated and I rarely run into a broker anymore that actually quotes some odd total size. They'd be foolish to say something like that given that only condos have the marketable square footage clearly documented in the offering plan filed with the AG's office. Brokers learned, and as a result, so did the consumers that for co-ops the 'how large is this apartment?' question always comes with a roughly estimated number followed by a very clear disclaimer on accuracy! In this day and age, buyer's know they have to take matters into their own hands.
The Real Deal discusses how the "Inexact science of square footage causing inaccurate appraisals, unhappy buyers":
"When it comes to square footage in New York City, it's the Wild West," Bill Staniford, the CEO of real estate data Web site PropertyShark. "It's measured in so many different ways."
And in the current downturn, the difficulty of determining square footage is contributing to a number of other problems, from low appraisals to ruined deals. Staniford, who constantly fields questions from brokers about inaccurate square footage data on file with the city, said using price-per-square-foot as a measure of value is "totally pointless."
I totally agree and is the main reason why I do NOT use price per square footage as the source for my client's property valuations - rather, I focus on same line comps or at the very worst find a similar bed/bath unit and make a simple size adjustment if the data exists; more on this below.
The market knows or at least learns very quickly, that marketable square footage is if anything skewed to the upside. Which brings up a very interesting question --> You know those quarterly market reports that we all spend so much time analyzing? How accurate could price per square foot trends really be if the marketed size for 70% of our housing stock is estimated? I guess over the long term one can argue that the trend filters out some of the noise of the inaccurate data.
Condo's are easy as the marketable square footage is stated in the offering plan; all but eliminating the question of size and making it foolish for the seller or broker to try to artificially inflate! But co-ops? Co-ops take up 70% or so of our housing stock and total size is not listed in the offering plan...and with every co-op sale is a buyer that attempts to value the target property in order to figure out how to bid. Therefore, how do we value or price these things if the listed size is off? Maybe we should start using the # of shares allocated to the unit as a price per share valuation tool? Maybe REBNY needs to implement some regulation on the sell-side that requires every new Co-op listing from a member firm to use an outsourced contracting agency to measure the floorplan/size accurately for marketing purposes?
The solution MUST encompass most of the market to be worthy - which is why I say that any regulation needs to come on the sell side and not the buy side. I recall being charged about $150 for a professional floorplan to be made by OLR Digital who physically sends someone to the apartment to measure up everything. Is this cost really breaking the bank? What if REBNY required all new listings to be properly measured prior to listing?
In a commission based industry where the brokers don't earn their cabbage until after the closing, the environment is set up to result in flaws and discrepancies for marketing. Why? Because the broker and the employing brokerage firm doesn't know if they will ever get paid on the sale. That's no excuse, I know. So, maybe REBNY needs to make the employer brokerage firm responsible for professional measurements without penalizing the agent's ad budget? Possible, but not likely in this world.
My main concerns of this topic are over individual co-op unit valuations and the quality of analytical data for the entire marketplace - if in fact the majority of estimated co-op square footage is artificially inflated. This lowers my confidence level in Price Per Square Foot data trends and calls into question how one may value a target property based on a different apartment line whose total size may have been inflated. Exactly what Bill Steniford talks about in The Real Deal article.
When I do a property valuation I always look for in-building comps in order of the following priority:
1) SAME LINE SALE w/ SAME FOOTPRINT - this is the first goal. If my buyer's target property is an 'A' line, then I look for similar 'A' line comparable sales in the same building to do an analysis on. If I find a recent 'A' line to compare to, I just double-check the floorplan to make sure the footprint of the two apartments are identical. This eliminates any flaws in only doing a PPSF breakdown where one of the properties being used may have had its size inflated. I have the same layout, the same line, the sale price and the sale date. Forget the price per square foot method - I'll make my own adjustments for market conditions, renovations, and floor premium or discounts.
2) SAME ROOMS/BEDS/BATHS - this is the second goal if I can't find a same line to compare the target property to. I always stay in the same building unless the data is non-existent for an analysis. If my client's target property is a 6/2/2.5 (the format of this is generally Rooms/Bedrooms/Bathrooms) apartment, then I look for different lines that may have these exact property features - all in an attempt to compare apples to apples. As you start changing apartment lines, you start changing layouts/views/exposures/natural sunlight/etc..and the valuation becomes slightly compromised and more difficult as the open market value of these types of features in this market are highly subjective on the buy side.
3) SAME BEDROOMS/BATHS - If I can't find the same r/b/b to compare to, I eliminate the ROOM part of that equation and look for a comparable in the building with similar Bedrooms & Bathrooms. If the size of the both apartments are provided and there is a gap between the two total sizes, I can account for that by taking the sale price per square foot of the SOLD property and multiply that by the gap in size to the TARGET property and add that total to the comparable being analyzed so I have an equal foundation to do an analysis on. Of course the major flaw in this method is whether the SOLD or TARGET property's square footage was artificially inflated. I'll provide an example:
TARGET PROPERTY --> Apt 14A is a 1,350sft, 5.5/2/2 apt, and is asking $1,595,000
SOLD PROPERTY (same building) --> Apt 6D was a 1,250sft, 5/2/2 apt, and sold for $1,350,000
There is a 100sft difference in the two properties, different property line, and an 8 floor difference. If you read my technique for Valuing Manhattan Property you will know that I don't do PPSF valuations and rather I will adjust the two properties to be of the same size if I can't find a similar line to compare to - after this size adjustment, I will do the following adjustments to complete the analysis:
a) market conditions
b) light/view/exposures of different lines (floor premium)
c) renovation differences
First lets get the SOLD property and the TARGET property of equal sizes by closing the gap using the PPSF of the comparable sale:
100sft x $1,080 = $108,000
Since the SOLD property closed for $1,080/sft and the TARGET property is listed as 100sft larger, lets ADD $108,000 to the sale price of 6D and then move on to the other adjustments:
$1,350,000 + $108,000 = $1,458,000 as a starting point
The hope is to avoid this 3rd option for a comps analysis and to use a similar line.
Back to the discussion. The problem is that this is a very solvable problem but I don't think the powers that be have the motivation or the will to put a proper resolution in place that may cost brokerage firms more money to adhere to. It's a man-eat-man world out there and Manhattan buyers learned to fend for themselves. Brokers out there MUST use caution when quoting the total size of co-ops and it might be worth that $150 to simply hire a professional floorplan from OLR to get the exact measurements before the new listing even hits the market.
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Looking Forward To Manhattan Q1 2010 Reporttag:www.urbandigs.com,2010://4.14502010-03-03T16:16:05Z2010-03-03T16:21:49ZA: Lets have some fun here and take some guesses as to what to expect when the Manhattan Q1-2010 report is released in about 4 weeks. One thing is for sure, the SALES aspect of the report will likely show...Noah Rosenblatthttp://www.halstead.com/agent.aspx?id=N4R&s=a
A: Lets have some fun here and take some guesses as to what to expect when the Manhattan Q1-2010 report is released in about 4 weeks. One thing is for sure, the SALES aspect of the report will likely show a surge over the prior year; making for some interesting future headlines to come in the mass media. Lets discuss.
I've discussed the progressive improvement in bids this market experienced since trades in early 2009; and many on this forum took that in the field observation as 'hearsay' without any hard evidence from lagging quarterly reports. That is fine and understandable. While many quarterly reports did catch the slowdown in the pace of decline on a quarterly basis (Corcoran's report also showed a 1% qtr-to-qtr AVG PSFT price increase in deals, although a continued decline in Median prices), it was the Streeteasy.com Q4 Report that caught an improvement in price action from the prior Q3 report:
"Overall average and median prices, which include condo and co-op resales and new developments, have continued to decline from a year ago, about 7.8% and 10.0%, respectively. However, since last quarter, price gains were made in overall average and median prices, about 5.5% and 2.0%, respectively."
I always discussed that we should ignore qtr-to-qtr moves and instead focus on the prior year period to account for seasonality. Since the discussion centered around the extreme fluctuations in the market both on the downside and on the mild stabilization/reflation since then, it is the short term market observations and performance that garnered such a strong response from UD readers. In short, this market overshot to the downside at the height of fear and reflated from the lows as markets in all asset classes surged and priced out systemic collapse.
It is my belief that the next 1-3 quarterly reports will show this improvement first discussed right here on UrbanDigs.com. Timing which report snags it is difficult. As of now, my data shows 1,039 contracts signed in the last 30 Days and the $2M and under market is seeing strong buy side interest. So the market certainly continues to chug along and that will feed the pipeline of closed deals going forward. I have pending sales at 4,532 right now.
Now, what I think will be interesting is how the media handles the closed SALES component of these quarterly market reports - because the upcoming Q1 report will be rightfully compared to the Q1-2009 numbers. I am on record for estimating approximately 2,400 - 2,600 closed sales for Q1-2010. As you take a look at the chart comparing Quarterly Closed Sales Volume for Manhattan Co-ops and Condos, focus on the BLUE BAR that the upcoming report will be compared to and you will notice that it won't take much to easily beat total closings for Q1-2009 - the report that defined the severity of the downturn this market experienced:
I put my estimate for Q1-2010 in there as a shaded bar for easy reference. If the number comes out around the level I expect it to, the headline in mass media could read something like this ---> "MANHATTAN APARTMENT CLOSINGS SURGE 100% FROM PRIOR YEAR"...or such. So just be prepared for that.
As future reports catch up on how this market behaved and improved over the last 6-8 months, the current market at that time of report release may change. So the crazy thing here is that being ahead of the curve with real time reports may present some discrepancies in the future if this market's sales pace and strength prove not sustainable; which I think will be the case.
The problem is clear: WE NEED REAL TIME DATA so we can see changes as they occur as best as we possibly can. The one problem that I will never be able to solve is the lag from contract signing to closing where the deal price will be kept private until captured by public record. Therefore, the best thing I can do is to provide reports here on where I see deals happening with no hard core evidence to back me up until months later!
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Q4 FDIC Banking Stats - Durable Recovery?tag:www.urbandigs.com,2010://4.14492010-02-24T19:36:07Z2010-02-25T14:02:47Z The FDIC banking profile for the fourth quarter came out yesterday. The following are highlights of the report with my comments. I continue to closely monitor the banking system because while the acute phase of the crisis is long...Jeff Bernsteinhttp://www.guildpartners.com/
The FDIC banking profile for the fourth quarter came out yesterday. The following are highlights of the report with my comments. I continue to closely monitor the banking system because while the acute phase of the crisis is long over with, debt defaults are still at record levels. Additionally, while the banking system is slowly being recapitalized through ZIRP and equity issuance and rationalized through shotgun weddings, it is still not functioning "normally". I should clarify that the shadow banking system (as epitomized by the MBS and CMBS market) is still basically crippled (yes credit card deals have returned). Meanwhile, the regular banking system is doing what it would normally do in this part of the cycle, which is keep lending standards tight, take losses and respond to the low level of actual credit demand from gold plated borrowers. The regular banking system which makes loans and keeps them on its books, still has some heavy losses to slog through and many with high concentrations of construction loans will not make it. That said, the FDIC seems to be merging these bad actors together with healthy institutions at a reasonably good pace. As merger activity recommences we are likely to see a new tier of mid-sized banks built, that can better compete in the marketplace with the industry giants, and have the underwriting skills to eventually start to absorb some of the borrowing needs of CMBS borrowers (albeit on terms and at rates those borrowers are unlikely to be happy with). At this point I am monitoring the bank statistics less as a "death watch" and more as a guide to the "headwinds" facing an economy that looks like it wants to recover, but I don't want to get ahead of myself. Let's check out the latest data:
FDIC banks posted a $914 million profit in Q4 2009 vs. a $37.8 billion loss in Q4 2008.This is basically a break-even performance, nothing to write home about, but it's better than the total meltdown that was Q4 2008.For the first time in 3 years, more than half of banks saw a year-to-year improvement in profits.Frankly with the abominable performance of Q4 08, that's pretty disappointing. I would note however, that a lot of the losses in Q4 08 were big banks taking mark to market losses, this year's Q4 was characterized by big banks making money and small banks playing catch down, by taking realized losses or writedowns on actual non-current loans (rather than trading assets) unrelated to market performance. Indeed, the FDIC points out in its report that while all banks size ranges reported increased ROAs year-to-year, only the largest banks had positive ROAs. Additionally, the FDIC report notes that trading profits were $2.8 billion in the quarter, versus a loss of $9.2 billion last year.Quarterly loan loss provisions fell year-to-year for the first time since Q3 2006 and the $61.1 billion of loan loss provisions was the smallest amount set aside since Q3 of 2008.One might find this to be questionable considering the continued degradation in bank asset quality, as non-current loans and leases on banks books rose 67.5% year-to-year and 6.6% from Q3, except for the following:Loans & leases 30 - 89 days past due (the leading edge of loans going bad) declined 11.9% year-to-year and 1.5% quarter-to-quarter. I have built a little graph of the < 90 day delinquency and the greater than 90 day delinquency (also known as "noncurrent assets") data as well as net charge-off data, which you can see below. (Please note that the data is revised by the FDIC with each quarterly report they put out, but I couldn't find the entire data set, so in each case I use the freshest data point available - the numbers don't move around enough to change the trend.)
A couple of observations are worth making. As you can see, loans 30 to 89 days past due peaked in Q4 of last year. So technically, loan delinquencies are improving. Note that many times a loan that is 30 to 89 days past due can be rehabilitated, but when you get past 90 days generally the borrower is going south on you. So I would take the "improvement" we have seen in this metric with a grain of salt relative to the obnoxious trajectory of loans > 90 days past due. Now of course the > 90 day category of bad loans accumulates as the 30 to 89 day delinquencies that don't get fixed rise. However, these bad loans are also worked out...the hard way....through the bank taking possession of the collateral, selling it and taking a charge-off for any amount not recovered from the sale. Now you can see from the graph that that net charge- offs continue on an upward trajectory, but are much smaller than loan delinquencies. This in part reflects severity (the amount actually lost when a bank sells the underlying property it lent against) as well as the lag in the amount of time it takes to actually foreclose and sell the collateral. My guess is that severity is actually pretty bad considering the loan to value ratios banks were allowing and the severe declines in the value of most real and personal property banks would lend against. The absolute levels of both 30 - 89 day past due loans and charge-offs most likely are being most heavily influenced by a severe backlog of dud loans to be dealt with, long processes for dealing with them and illiquid markets to sell into. All in all there are some rays of light here with regard to loan delinquencies, but expect charge-offs to continue rising and possibly go ballistic in upcoming quarters as the backlog of bad loans is dealt with.
While bank managements are up to their assets in alligators and dedicating lots of time to working out sour loans and disposing of collateral, it would seem pretty obvious that there is neither time nor predilection to make lots of new loans. As you can see from the chart above, lending by FDIC banks is still contracting. Most importantly, the amount of loans that directly lead to job growth like commercial and industrial loans and construction and development loans are still falling rapidly. Only home equity and the non-farm non-residential category (which likely relates largely to permanent loans for commercial real estate) are stable to rising. (Although I didn't include them to keep the chart digestible, farm loans and credit card loans are flattish since Q408).
While I would expect loan growth figures to lag the economic rebound, without the economic oxygen of lending related to job creation (and no shadow banking market to speak of) the durability of this recovery must still be questioned.
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Handling Multiple Offers in Today's Markettag:www.urbandigs.com,2010://4.14472010-02-24T14:22:25Z2010-02-24T14:39:23ZA: Whether you question the sustainability of it or not, you can't deny that some well priced properties out there are receiving multiple offers in the past 4-6 weeks or so. However, that doesn't mean each will end in a...Noah Rosenblatthttp://www.halstead.com/agent.aspx?id=N4R&s=a
A: Whether you question the sustainability of it or not, you can't deny that some well priced properties out there are receiving multiple offers in the past 4-6 weeks or so. However, that doesn't mean each will end in a bidding war! In fact I find that while sellers love bids competing with each other, almost all buyers and many brokers out there hate them - it just "complicates things" they say! They call it a war but it's not really a bidding war; which I would describe as a situation in an auction where two or more bidders aggressively battle each other in a transparent manner sending the final price for the item much higher - each buyer knowing what they are up against with each move. For highest & best situations in Manhattan, interested buyers are simply provided a deadline with which to provide their most aggressive offer for the target property. In the end, the seller broker and seller review all bids submitted and choose the highest and best one to proceed with! However, "highest & best" situations are often perceived as bidding wars and that alone could scare many qualified buyers running for the hills!
Disclosure: I no longer work with sellers and currently spend my time servicing buyers only. This is a big no-no in regards to building a successful broker business model. The proven broker model is to establish a successful sell side business and to the best of your ability, recycle business (buyers) as traffic comes in - the team approach allows for this and the power in numbers adds to production volume which increases the split distribution with your employing brokerage firm. Then, the team continues to work the referral base expansion aspect of the business. Since UrbanDigs LLC became a member of REBNY, I have been working only with buyer clients as it fit my niche target audience, business model, and compliments my ongoing vision for where I see UrbanDigs.com in the years ahead. You will soon see where I am going with my vision.The most important thing every buyer should understand about a property that declares a highest & best situation is that you only have to bid what you are comfortable with bidding!! Nobody is forcing you to get into war with anybody and since you are not told the competing offers, there is no back & forth for you to ponder whether to up the ante a bit more! It's basically a one and done!
Now, as I wrote in my "How To Handle A Bidding War" piece almost three years ago:
It is very important to note that the intended seller strategy of a bidding war is to encourage a sense of urgency via potential property loss and NOT to install fear into the prospective buyers. I can't begin to tell you how important this is. By installing fear into the bidders rather than encouragement to participate in the bidding war, chances are you will 'scare away' and lose one of the bidders messing up the entire goal of the war.
The ultimate goal of the bidding war is to procure the highest & best bid that generates a signed contract for the seller!
I'll take this one step further and add that a desired goal of a 'highest & best' scenario is the gap-up potential from one of the interested bidders.
The key is knowing when the situation is ripe for a 'highest & best' declaration, as many brokers and sellers with minimal experience in Manhattan real estate transactions may get a bit excited and ahead of themselves. The ideal situation is when the listing broker receives BOTH of the following:
1) Two or more ACCEPTABLE offers - the offers must be in the realm of acceptability by the seller. There is no point in calling for a 'highest & best' situation when the seller is asking $1M and you receive two offers below $800,000 that the seller has no intention of accepting due to price alone! The buyers' terms must be acceptable as well...
AND...2) Two or more QUALIFIED offers - the two or more offers must be financially qualified to both be able to secure a loan commitment and to pass board approval; assuming it is a co-op.
Simple. Clear. Easy enough. Now, every offer has its own variation of terms that must also be considered by the seller in these situations - closing dates, inclusions/exclusions, gifted monies, inspection requests, etc..
Assuming your property has procured both of the above, you now have a choice to make on what to do - but before I go into the choices I want to discuss the concept of 'gap-up' bids.
Gap-up Bids: this occurs when a very interested buyer deals with a highest & best situation by going all in in regards to aggressiveness! Let's say you got a property asking $2,895,000 that was priced such that it received multiple offers; a highest & best is declared and deadline for submitting offers provided to all interested buyers. To ensure they get it, one buyer decides to bid $3.1m, well over ask! I consider this a gap up offer that may not have come in like this if negotiations were privately held. I believe this actually occurred for 35 Bethune Street, Unit 2/3A...which is in contract now awaiting closing - let's revisit this discussion in a month or two when we see how far over ASK the winning bidder went to get that desirable duplex! Another example of a gap-up offer was 37D @ 115 East 87th street at the peak of the market, closing some $600,000 over ask after a best & final environment was set by the broker!
Gap-ups don't always happen for highest & best situations, but the environment certainly exists for one to occur. Moving on, when multiple qualified & acceptable offers are submitted the seller has two choices on how to proceed:
a) Handle Independent & Private NegotiationsPros: Allows you to continue marketing the property and continue the negotiations back & forth for as long as the seller likes or as long as the buyer(s) participate, less chance of scaring away buyers,
Cons: Limits the gap up potential of a highest & best, time may allow for a competing property to come to market and steal one of your buyers
b) Declare A Highest & Best SituationPros: Increases the gap up potential in a bid, usually ends the process fairly quickly, usually keeps the sense of urgency on the most interested and the winning bidders to produce a signed contract
Cons: may scare away some potentially strong buyers who 'don't do bidding wars', the situation is usually not handled correctly by the broker or seller, if it fails to produce an executed contract from the interested buyers it could leave the seller in a bad position
Both have its pros & cons and I don't have time to think about and list them all. Experienced brokers will know when to advise a seller which path to take; there is a feel to it that good brokers are quick to pick up on. Handling this situation the wrong way can end with no deals done, no bids left, and a listing that lost all control after being in the driver's seat going full speed ahead.
For newer agents that don't know how to handle this kind of situation, go back and read my article on handling multiple offer situations. In the end, experience will be your best lesson on how to handle similar situations in the future; so when you encounter this environment be sure to focus on how you handled it, how the buyers responded and reacted, and how everything played out! Learn from your mistakes so that next time you don't make them!
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A revolution or Non-Event? Breaking Down The VOW!tag:www.urbandigs.com,2010://4.14482010-02-23T16:49:10Z2010-02-23T17:07:27ZIt’s been touted as a consumer-empowering trend, a revolution, a win for buyers and a loss for agents … VOWs – Virtual Office Websites. It all started with a lawsuit in which the Department of Justice sued the National Association...Ana Mariahttp://www.theapplepeeled.com/
Department of Justice sued the National Association of Realtors in 2005 for additional transparency in property listings on IDX (a data-sharing listing service). The settlement in 2008 was intended to make it a playing field for internet-based brokerages as they compete with traditional firms.
Now, the big hooplah comes from the media as it looks to large NYC brokerages who are adopting VOWS and allowing other brokers’ listings to be listed on their sites, with Halstead being the first. Basically, buyers can now see listings from Corcoran, Elliman, etc. on the Halstead site. Other firms are also jumping on this bandwagon, all under the same banner of this being the wave of the future.
Some are calling it a revolution, and big win for the little guy in the age of the Internet. Crain’s has picked up this story several times (here and here) with such attention grabbing headlines like “Brokers lose grip on their listings”.
Did I miss something? Have we not had Streeteasy and Property Shark? If I were to break down buyer’s behavior, I would say that any do-it-yourself or research-driven buyer out there will go straight to Streeteasy to do their research. Why go anywhere else? It’s as if the current dilemma has been the necessity of having to go to each and every brokerage firm’s site to conduct property due diligence; that’s not the case. Further, unlike SE or PS, VOWs adopted by the big brokerages will require a user to register in order to view the listings, an extra step in an otherwise straightforward process.
[Disclaimer: I’ve always had a bit of a philosophical problem with brokerage firms touting a huge online prowess and fancy features; those bells and whistles are supposedly targeting those do-it-yourselfers, those buyers who have chosen not to engage buy-side representation (all of 5% or so, in my experience). It’s meant as a pitch to sellers for exclusivity and touted as a differentiator in the race to attract as many eyeballs as possible. I guess I’ve never bought into it, as I feel that those 5-10% of buyers are aware of Streeteasy and PS already.]The more fruitful idea, if we’re talking about market-leveling efforts, would be to create a true competitor to Streeteasy, with additional value-add features, rather than to transform each brokerage firm into a Streeteasy derivative. … ‘Just a thought.
I’d love to hear from the UD community on this topic:
• For those do-it-yourself buyers, where do you go online to dig?
• How often to do you visit the big brokerage websites? In which instances?
• How significant do you think VOWs will be in the NYC market?
• Sellers, how important is your chosen firm’s online capabilities to you and why?
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Pending Sales / 90-Day MA Closings / Q1 2010 Previewtag:www.urbandigs.com,2010://4.14432010-02-19T12:53:28Z2010-02-19T12:58:12ZA: I'll try to get right to the point here for you guys. I continue to see Pending Sales stay at healthy levels after a short adjustment down from the surge we saw in contracts signed starting around mid 2009....Noah Rosenblatthttp://www.halstead.com/agent.aspx?id=N4R&s=a
A: I'll try to get right to the point here for you guys. I continue to see Pending Sales stay at healthy levels after a short adjustment down from the surge we saw in contracts signed starting around mid 2009. My data shows Manhattan Pending Sales hovering around the 4,356 level right now; pending sales are contracts that were signed and are awaiting approval to close. This suggests a fairly strong upcoming y-o-y comparison when the Q1-2010 market report is released in early April. In addition, the 90-day moving average for closed sales clearly shows both the plunge and improvement this market experienced over the course of the last 18 months or so - that is pulled directly from ACRIS and is public record.
The data doesn't lie and it certainly does paint an interesting picture when you filter out the noise properly from the source data and assign the right rules to calculate different metrics worth following in the Manhattan residential real estate market.
Below is a chart comparing the trends for Manhattan Pending Sales (orange) vs. the Closed Sales 90-Day Moving Average (green) the past 4 years:
Consider this another sneak peak at what's to come here on UrbanDigs in a month or so. So what is this chart telling us?
1) First off, in my eyes, the 90-day moving average for closed sales (taken from a direct feed with Acris) clearly shows the roller coaster ride this market experienced starting in mid 2008. The plunge in sales was dramatic to say the least and if you want to really blow your mind you can do some digging into the plunge in DOLLAR VOLUME this market experienced as a result of the higher fear and mortgage market freeze up surrounding credit crisis at its peak; both for residential and commercial sectors.
You will notice the slight lag between Pending Sales and this 90-day sales trend due to the lagging nature of the sales process from contract signing to closing.
The improvement in the sales trend shows you the sustained increase in deals being signed since May/June of 2009 or so - I like to look at it as this market pricing IN fear leading up to early 2009 and pricing OUT fear over time as the reflation mentality took hold.
2) Second, pending sales dropped from about low 7,000s to about mid 3,000s in about 7-8 months time at the height of the crisis. The plunge was dramatic, the adjustment was dramatic, and it had a fierce, uncertain, scary feel to it. When it was happening nobody knew how far it would go or how long it would last before stabilizing. In hindsight, the % drop from peak varied across price points and took about 8 months to find a comfort zone; as noted right here on UrbanDigs in February 2009.
As sales volume started to rise with time, we topped out around the August-November period with pending sales hovering in the low 5,000s - we are now seeing these deals close and be captured by quarterly reports. The slight move down in pending sales was more a function of seasonality in December around the holidays then a new trend to the downside in sales volume - recall that in June, July & August we were averaging about 1,100-1,200 or so contracts signed a month as buyers swooped in with the fierce adjustment in price action. It shouldn't be a surprise that we could not sustain that level of activity for long. Over the past 30 days my new systems show 971 contracts signed and that was closer to 785 or so about 6 weeks ago reflecting the seasonal slowdown in December.
With pending sales holding at a healthy level I think its safe to say that when the Q1 2010 market report is released to the public on April 1st, we will see a stunning y-o-y improvement that could have some 'headline effect'. Just be prepared for it as it will be a function of an improving marketplace being compared to the report that marked the worst period of sales in the past decade or so; recall that Q1 2009 recorded only 1,185 sales, and I would not be surprised to see Q1 2010 sales come in around the 2,400 - 2,600 level! Let's see how close I get!
For now, as I attempt to setup appointments for clients I get these types of responses about half the time:
You should know we’re in a multiple bid situation, the executors have called for best and final offers this week, and they hope to choose a Buyer next week. There’s been a lot of activity around this listing and if your customers are comfortable with those circumstances I’d be pleased to show it over the weekend.
Which property r u referring to? If it’s 23A I have a contract out and only showing at the open house sunday
we have multiple offers and all cash offer over ask that is about to be accepted..we are waiting to hear how the seller would like to handle the other offers as we are negotiating privately for now given the board is on the tougher side
I have the tools in place to track these CONTRACTS OUT & OFFERS ACCEPTED broker status changes but unfortunately many brokers do not bother to update a listing's status to these "in between" settings in their respective broker sharing systems. The natural progression in regards to how a broker handles a new listing that stays on the market and ultimately closes is NEW ACTIVE --> OFFER ACCEPTED --> CONTRACT OUT --> CONTRACT SIGNED --> CLOSED. It would be great if all brokers updated their sales listings as this progression took place in the real world, because having a listing whose internal status is set to OFFER ACCEPTED or CONTRACTS OUT doesn't change a thing for the active webad. For all intents and purposes, that listing is still ACTIVE in the public eye. But its clear that very few brokers update each stage as it happens which gives me less confidence to those metrics for trend purposes.
Now, even though well priced apartments are seeing strong demand I continue to question the sustainability of this pace of signed contracts! That's just me as I continue to have macro concerns and worries over the withdrawal of stimulative policy and programs. I won't deny its happening, but I do question how long it will last.
GOOD PRODUCT w/ DESIRABLE FEATURES + PRICED RIGHT = STRONG DEMAND OUT THERE
Simple - so don't interpret it as anything other than this. No, you can't price at peak levels and expect multiple offers. No, you can't have a property priced high and in need of a total gut renovation and get multiple offers over ask. And No, you can't have a property with no light or view fetch top dollar and sell fast today! If you price high and test the market or have a property with features that make it a hard sell (low floor, undesirable location, lack of sunlight, lack of view, in need of major work), you will find the market may be very different than what I am describing here. My business has been quite active for about seven months or so with about $4.1m in closings the past four months, $4.4m or so in contracts signed pending closing, and another $7.8m or so in active negotiations across varying price points in Manhattan right now. All of my deals seem to fit in with the updated range of where I see this market trading right now. I leave it to you guys to tell me if you see something different!
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Fed Hikes! Discount Rate That Istag:www.urbandigs.com,2010://4.14452010-02-18T22:05:54Z2010-02-18T22:29:37ZA: Okay okay, so I teased you a bit. But this is the first real sign that the era of exit strategy has officially begun. Sure you could have argued that it began earlier with the expiration of some emergency...Noah Rosenblatthttp://www.halstead.com/agent.aspx?id=N4R&s=a
A: Okay okay, so I teased you a bit. But this is the first real sign that the era of exit strategy has officially begun. Sure you could have argued that it began earlier with the expiration of some emergency credit facilities, but this is a sure sign of what is to come. To me, this feels like a test of sorts by the fed to the markets as they raise the discount rate by 1/4 point; nothing really too hawkish in the grand scheme of things but a signal as to what may lie ahead of us. The stimulative/liquidity spigots are basically still on.
Via Bloomberg's "Fed Raises Discount Rate by Quarter-Point to 0.75%":
The Federal Reserve Board raised the discount rate charged to banks for direct loans by a quarter point to 0.75 percent and said the move will encourage financial institutions to rely more on money markets rather than the central bank for short-term liquidity needs.
“These changes are intended as a further normalization of the Federal Reserve’s lending facilities,” the central bank said today in a statement. “The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy.”
The dollar jumped and Treasuries extended losses as the Fed took another step in a gradual retreat from its unprecedented actions to halt the deepest financial crisis since the Great Depression. The Fed has provided hundreds of billions of dollars in backstop credit to banks, bond dealers, commercial paper borrowers and troubled financial institutions such as American International Group Inc.
The U.S. currency rose to $1.3541 per euro at 4:40 p.m. from $1.3616 before the announcement, while the yield on two- year Treasuries increased to 0.93 percent from 0.87 percent.
The discount rate increase is effective on Feb. 19. The Board also said that effective March 18 “the typical maximum maturity for primary credit loans will be shortened to overnight.”
While not the biggest of moves, it will be interesting to see how this affects the banks recap efforts & the greenback because that will impact other markets after what we saw for much of 2009! Should the dollar start to rise as we start to tighten policy and withdraw stimulus right when Europe seems to be facing sovereign debt issues, it could make for very interesting moves in many asset classes. The dollar rose, gold dropped and equity futures sold off on the news. As for banks, it will discourage borrowing from the fed's discount window and raise the cost for those that need access to that source of liquidity. The play for much of 2009 was for banks not to lend and instead borrow at zero from the fed, buy safe Treasuries and park them while pocketing the spread.
Now I promise you that you will start to hear the other side to this tale! You will hear the arguments that this is a sure sign the US economy is on the road to recovery and the fed is starting its strategy to temper future inflation expectations. Anyone want to bet that these sorts of headlines start to come out tomorrow? This move is really nothing in the grand scheme of things and when I cautioned about unintended consequences as a result of stimulus withdrawal, I was referring to a heck of a lot more than a 1/4 hike in the discount rate!
However we could look back at today as the start of a new era of a slow and drawn out period of stimulus withdrawal in many formats; hiking discount rate, hiking fed funds rate, stopping debt monetization experiment, removal of credit facilities, raising capital requirements, regulatory reform, phasing out of consumer tax credits, raising interest paid on excess reserves, and ultimately the selling of assets to primary dealers via POMO to further drain excess reserves just to name a few of the moves that look to be ahead of us!]]>
Where the Deals Are Happening Jan & Feb 2010tag:www.urbandigs.com,2010://4.14442010-02-18T19:25:56Z2010-02-18T19:28:43ZChristine Toes here. I saw Noah's post a few days ago citing that the market had really picked up lately. Here is what I have seen in my own business: 201 E 28th, large one bed co-op with outdoor space/views,...Christine Toeshttp://www.corcoran.com/agents/listings.aspx?region=NYC&userid=CTOES
Christine Toes here. I saw Noah's post a few days ago citing that the market had really picked up lately. Here is what I have seen in my own business:
201 E 28th, large one bed co-op with outdoor space/views, asking $799K on 9/1, reduced to $749K mid Oct, contract signed early January at ~6% below ask.
77 Seventh Ave (14th St), renovated, converted alcove studio co-op w/ views asking $525K, in contract just below ask. Multiple offers. First open house 1/17, contract fully executed 1/27.
115 East 9th St, updated, one bedroom co-op w/ views. On market 2/7, first showings 2/12, 52 buyers viewed property between 2/12 and 2/15. Four offers at best and final. Cash offer accepted over asking price, 1/15. Two bidders were putting over 50% cash down. Two of the bidders had just lost bidding wars on other units, came to view the apartment during a blizzard and came in strong with offers the next day.
101 W 23rd St, renovated, converted one bedroom in a landlease co-op building. In contract at asking price after being on market since 9/2009. Price drops in Oct & Nov, then with reduction from $275K to $260K on 1/4, OFAC within ten days.
Week of Feb 7th, 2010 - Williamsburg, Brooklyn new development condo - Under $500K One bedroom, contract out at 10% below asking price.
Week of Feb 7th, 2010 - Williamsburg, Brooklyn new development condo immediate occupancy, 85% sold and closed. $830K two bedroom w/ city views, buyers wanted 15% below ask, developer would only do 10% citing market pick up. No deal.
Week of Feb 15th, 2010 - Williamsburg, Brooklyn new development condo, 60% sold and closed - $850K two bedroom w/ city views, buyers wanted 15% below ask (prices already reduced 19% since offering plan filing), developer would only do 10%.
Week of Feb 15th, 2010 - Upper East Side one bedroom co-op with outdoor space, ask $560K, on market for three open houses, contracts out at less than 5% below ask. Buyer putting 50% cash down.
Week of Feb 15th, 2010 - Chelsea one bedroom co-op asking $650K, thought customer had it for $615K, contracts went out, higher all cash offer came in, buyer lost apartment, continuing to look.
Toes says: Inventory is way down and transaction volume is up, especially in the studio and one bedroom market. Apartments that sell the fastest have something special about them - renovations, views, outdoor space, etc. The below 23rd Street and above Canal Street market is alive and well.
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Junk Bond Spreads Widen on Sovereign Debt Concernstag:www.urbandigs.com,2010://4.14422010-02-15T15:48:19Z2010-02-15T16:07:40ZA: Yes global market forces and sovereign debt concerns do matter. They just matter before any ripple may ultimately come our way, so its worth keeping your eyes on. After the huge rally in all assets for much of 2009,...Noah Rosenblatthttp://www.halstead.com/agent.aspx?id=N4R&s=a
A: Yes global market forces and sovereign debt concerns do matter. They just matter before any ripple may ultimately come our way, so its worth keeping your eyes on. After the huge rally in all assets for much of 2009, the search for yield now comes with great risk and you are seeing signs of risk aversion these past few weeks. Will the equity markets once again lag and follow the credit markets?
According to FT's, "Investors Abandon Junk Bonds" (via Yves over at NakedCapitalism):
Spreads – the difference between the yields on junk bonds and US Treasuries – have widened more than 100 basis points since January 11, and stand at about 700bp, as measured by the Bank of America Merrill Lynch index.
“If the result of sovereign problems is fiscal tightening and higher rates, a double-dip recession becomes an increasing possibility. This outcome would dent, if not fully derail, the positive trend in corporate fundamentals.”
Junk bonds, issued by companies with credit ratings below investment grade, soared in price last year as investors poured more than $30bn into bond funds, in search of higher returns at a time when official interest rates were at all-time lows. This demand for higher yields led to record bond issuance, allowing even cash-strapped companies to refinance. However, in the past week, US high-yield bond funds and exchange-traded funds saw outflows of $984m – the highest since the week of September 28 2005, according to Lipper. The redemptions pushed the trailing four-week average sales figure to an outflow for the first time since March. The net asset value of bond funds tracked by Lipper fell $1.6bn in the week, because of market declines, the largest such drop since November 2008 in the thick of the downturn.
Below you can see the latest MARKIT CDX.NA.HY INDEX, Series 13, showing the recent rise in spreads the past 4 weeks or so:
Junk bonds soared in 2009 (reuters states HY bonds soared a record 57.5% in 2009) as the search for yield was the name of the game. Now, after that huge move the search for yield comes with a high price: higher risk, as investors demand higher yield to own junk bonds rather than risk free US Treasurys of similar maturity. As market junkies know all too well, investors hate uncertainty and risk.
Sovereign debt issues & tightening in China now seem to be at the forefront of investor concerns, causing a flight to safer assets (mainly treasuries and US dollars) and that is causing a ripple effect to start an unwind of a huge dollar carry trade that built up for much of 2009 behind Fed ZIRP and guarantees on everything and anything. The buildup of such a crowded trade usually leads to an exaggerated unwind when confidence and perception changes; the challenge is timing and pinpointing the exact spark as you never know what the market will deem worthy of reversing the trade and not. For example, Dubai's default was all but a case of fleas that markets quickly shook off. Greece and other concerns over the PIGS, however, are a different story today. It's still a bit too early to tell if this is simply a healthy adjustment after a huge move in 2009 or something else that will lead to a more extreme adjustment in global markets; either way, our eyes should be open!
As I said before, its possible a future double dip is the result of fiscal/monetary tightening as an unintended consequence of actions taken to stem the crisis we just went through...China began already, time will tell when we do the same.
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The 101 Guide to Getting an Investor Deal Donetag:www.urbandigs.com,2010://4.14412010-02-12T22:59:11Z2010-02-12T23:17:03ZWe thought we would share a bit of what we’re seeing on the investor front at this time. In this market, we’re speaking with lots of groups with cash galore (particularly foreigners), looking to capitalize on this “depressed” market that...Ana Mariahttp://www.theapplepeeled.com/
we’re speaking with lots of groups with cash galore (particularly foreigners), looking to capitalize on this “depressed” market that we’re in. News are a’buzzin’ over in their respective countries that Manhattan is THE place to buy right now, and all of them want to get in on the action before their competition does. We’re finding that many of them are stepping into the NY market for the first time based on this buzz, with little local experience and much hearsay upon which they’re hanging their hats.
The issue is that many believe that they can purchase property at distressed prices and still get out of the investment in the next few years. While this can happen, it is far from the norm, with the plan generally executed by heavy hitters versus first time investors. Further, many are looking for “opportunity”. Who isn’t? It quickly slides into a question of which came first: the chicken or the egg?
The conversation usually goes something like this:
Agent: What are you looking for in terms of an investment?
Investor: I want to see properties that offer great value.
Agent: What does that mean to you?
Investor: You tell me, where is there opportunity in this market.
Agent: It depends on your needs, financing and exit strategy
Investor: We are in this to make money, and will tailor the strategy according to the opportunity.
So for those of you looking to wet your feet as a newbie investor, (or merely if you’re interested in that side of the coin) here is what it takes to make a deal happen today.
Keys to getting a deal done:
- Understand the basics: let’s look at very round numbers to make the point. Assume that you’re looking at a $300-$500 sq. ft. purchase price to acquire a building. Add on to that another $350-$400 in construction costs. Add on 5%+ in transaction costs. We’re now already nearing the $900/sq.ft. mark, and this doesn’t even take into account other soft costs associated with completing the project. Considering that condominium apartments are selling at an average of $1000/sq.ft. in the city, we’re talking razor thin margins for a re-sale opportunity, and long time-frame for renting the apartments out. Compare this to the ability to purchase in bulk new construction at less than $650/sq.ft. and you have to really wonder.
- Realize that it’s all scalable: “Yes but what about Harlem, Brooklyn or LIC?” you ask. Sure, most of the related costs are scaled down to be cheaper, but so are the prices on the way out, meaning there’s only a slight marginal benefit for investing in less expensive neighborhoods for the near term.
- Have your financing lined up: Understand that financing for acquisition needs is a max of 50%, and for development it’s close to non-existent. No longer can you rely on leverage to make a project worthwhile, refinancing just one or two years down the road as your exit strategy.
- Know your investment strategy: what does “opportunity” mean to you? Yesteryear’s mom-and-pop developers are this year’s vulture investors. You are not alone in trying to find a deal; chances are the bigger players have already scoured through the existing market opportunities. What is your time horizon? How realistic is it? Be disciplined about what your needs are, and then diligently work to find situations to meet your needs. If you do happen to work it the other way, be ready to work quickly and with all cash (further about that below).
- Are you an investor or not? We find it interesting when so-called investors get wrapped up in location, views or the quality of finishes. Unless you have a large portfolio you are trying to diversify, what should matter most to you is your return on investment. There is a buyer or renter for every apartment out there; don’t use individual standards to judge institutional opportunities.- On the down low: As banks continue to extend and pretend, and developers maintain their pain, no one wants to make distressed opportunities too public. Most of the good deals taking place happen via relationships, conversations and quiet negotiations. Don’t expect to have 10 opportunities in front of you at any point in time. You need patience to allow the opportunities to surface; any public deal with readily available information is likely not going to give you the returns you seek.- Speed: parlaying on the above, when deals do arise, be ready to move quickly. Speed to closing is absolutely key, and making the process easier on the bank or distressed owner/developer will be a significant competitive advantage to you. The window you will have to move on the deal will likely be tight, which is why having your ducks aligned in terms of your required returns is so important. That will NOT be the time for you spend weeks upon weeks determining if the deal makes sense or not. You will need a turnkey system in place, along with a team of trusted professionals, to help you quickly ascertain the situation to be able to jump on it.- Cash rules: ‘nothing new here, but we couldn’t emphasize it more. All cash deals enable you to have the speed and ease of closing that any distressed seller will be looking for.
- Have realistic market expectations: don’t expect to get out of the project in the next 1-3 years; although the flip mentality should be long gone by now, many investors still believe that they can enter an exit an investment in the blink of an eye. Long term money may well be waiting to be made, but the short term bets are riskier than ever.
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Getting Nervous When Offers Come In Too Quicktag:www.urbandigs.com,2010://4.14402010-02-09T15:12:10Z2010-02-09T21:34:48ZA: This is a stupid little thing that does indeed happen out there in the world of real estate. The reason is because selling your home is a very emotional decision that can make some sellers wary and nervous. When...Noah Rosenblatthttp://www.halstead.com/agent.aspx?id=N4R&s=a
A: This is a stupid little thing that does indeed happen out there in the world of real estate. The reason is because selling your home is a very emotional decision that can make some sellers wary and nervous. When the reality of a deal getting done inches closer, that is when the wariness can turn into nervousness; and that can lead to a rash decision that surprises everybody involved. Luckily it doesn't happen too often, but I did go through this three times in the past two months alone. In my opinion, the last thing you want as a seller broker is to have your client second guess their decision to sell OR their pricing strategy when first putting the apartment on the market. History usually shows that the best offers come in the first few weeks, but as a seller, sometimes you can't help but wonder if you really did price your property correctly?
One of the biggest headaches I find in this business is when you run into a seller that gets nervous or scared when you present a solid offer soon after the property hits the market. What does the seller want???? If you price at $1,250,000 and you get a solid bid in 3 days from a motivated buyer, why is that reason to get all nervous and nuts that ultimately leads to a rash decision?? Well it's not my place to say! I just question why the seller listed the apartment in the first place before thinking things through properly. Unfortunately my clients and I just experienced this situation for a midtown condo. Asking price $1,250,000, 3 days on market, we submit a solid offer and get a seller response of $1,240,00 - so we ACCEPT! And what are we rewarded with? A seller that got scared and removed the listing from the marketplace. This was the third one in the last few months (520w19, 144w27, & 200e58), and I thought it might make for a good topic of discussion.
Here is the rub: Its the seller's home to sell, they need to agree to all terms of the deal or its just not worth getting the attorneys started! In the end they are the one that must countersign the contract that the buyer signed first to seal the deal. Nobody can force anybody to sign that contract. Sure you might be able to calm a buyer or seller into more seriously considering one way or another, but you can't force them to sign the contract! That is something they must do on their own; likely after dealing with the emotions of buying or selling in their own way.
Whenever I present a solid offer for a property whose listing history is under 7 days, I get a bit worried that the seller may start to question things. On the one hand you may get a seller that is ecstatic to have gotten a solid offer in such a short period of time and who feels lucky to be able to move forward so fast. On the other hand, the seller may start to rethink their pricing strategy ---> Did we price too low? Did we give the market a chance to present all offers? Am I making a big mistake here? In both situations, the reality of selling hits home once that first solid written offer is received - it just becomes real and sometimes that can scare a seller a bit. Usually things work out just fine, but sometimes they don't!
I recall selling my condo at 245 E 93rd St, Unit 2M in early 2006. I received a $975K offer in the first week and played tough! The strategy didn't work and I lost the bidder. I wonder how serious they might have been anyway just removing the offer after we were $50K apart in negotiations that first week. Turned out I sold for 40K less some 4 months later. Doh! Live and learn I guess.
The worst is when a seller starts to rethink their pricing strategy and questioning if they are leaving money on the table because they got such a strong offer so quickly! Ugh, that is when the seller broker should educate their client on how markets sometimes work. Sometimes you have a perfect buyer (highly motivated) that missed out on a few places and maybe recently lost a deal because the seller took a higher offer or decided to remove the listing from market after accepting an offer. So, naturally, when the new place hits the market (your place) and the buyers like it they are ready to go in aggressively with all ducks in a row - something as simple as a situation like this. Yet the seller may interpret the situation differently; that they priced incorrectly and that is why they got this strong offer so fast. After all, this is my home and my biggest asset and I have one shot at getting the most money as possible on this trade! That is the thinking in the seller's mind in this specific situation.
The seller should be mindful that if the property was under priced in a market that is clearly active, that you should not only get a ton of traffic immediately but you should also receive multiple aggressive bids. Therefore, if you get one solid offer in the first 7 or 14 days you should NOT mis-interpret that to mean your pricing strategy was wrong; that could lead to a rash decision. The reality is more likely that a perfect buyer found your place at the right time and decided to make a statement to you in a timely manner that they want to do a deal - within reason of course!
I have always explained here on UrbanDigs that brokers do not dictate value of any one individual property, the market does! The broker's job is to educate you on where this market is, how to price your property to meet your time line to sell, and to market/service your listing in the broadest way possible to procure the highest & best offer. The market will ultimately price the true value of your home; and the market is bigger than all of us! Pricing right is the best strategy any seller can do right now, but it sometimes comes with the consequence of raising uncertainties in the seller's mind if they really have no true motivation to sell other than to test the market to see what their place might fetch. That is when the listing broker needs to either educate their client on market dynamics or question if this seller is real enough to warrant their time. Nervousness and wariness are natural human emotions that many sellers and buyers will feel at some point in the process - and the process can get very emotional! The key is to avoid letting those emotions cloud the right decision that works for your personal situation.
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Those moves were not some minor blip in an otherwise general trend. No way. Rather, those moves were signs of the markets' cardiac arrest! The long term average of the TED spread is about 30-50 basis points. Since the credit markets were leading the equity markets for late 2007 and much of 2008, the extreme moves in the TED spread were a signal of the shocks that were to come in both the stock markets and debt markets as we approached March 2009. For Manhattan residential real estate, it was the March stock market lows that really pinpointed the timing of the height of fear for buyers out there submitting bids and sellers hitting them to move property at the time. In other words, there were no strong bids and offers that were submitted "priced in" plenty of future downside risk that had not yet took place.
Now take a step back. Look at this extreme and imagine what kind of starting point it resulted in for Manhattan real estate when comparing market forces one year later. The progressive improvement in bids for Manhattan property that resulted from the historic rise in all asset classes for much of 2009, began from a highly extreme starting point! That is the key take-away of this discussion. Naturally, the rate of rebound from highly distressed levels will be noticeable and eventually, self-defeating; similar to $150 oil prices causing extreme demand destruction worldwide for the commodity.
Stocks are a proxy for everything and it should be no surprise that bids for apartments in a market such as Manhattan, improved just like all asset classes improved from that extreme distressed starting point one year ago. For now, its more of a return to normalcy after such extremes of pricing in and pricing out market/credit risk and near term economic uncertainty.
From my observations over a 12-month period, this market continues to trade at an adjusted lower level from peak in 2007 but at an improved level from early 2009. I expect the next 2-3 quarterly reports to ultimately show this rate of rebound from the extreme starting point; with the largest percentage rebounds in the higher price points for logical reasons. In the meantime, I continue to keep a watchful eye for any signs that the recent market action might soon start to abate. The two biggest macro threats I see on the horizon that can directly affect our real estate markets are:
1) bond markets reactions to a fed preparing of an exit strategy and the scheduled end to Agency/MBS purchases; i.e. higher lending rates
and...
2) any disruption to the historic rise in most asset classes (stocks, HY/IG corporate debt, other riskier assets) resulting from the withdrawal of fed guarantees, a stronger dollar and carry trade unwind
As usual, what is going on today in Manhattan's real estate market does not necessarily have to jive with my longer term macro concerns that we are yet to deal with.
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The VIX "tracks prices that investors are willing to pay for options on the S&P 500-stock index, often to protect themselves against declines in stocks". As the VIX falls to 52-week lows it is a sign that complacency, or unawareness of dangers still out there, might be settling in. Many traders use the VIX as a contrarian short term signal and buy downside protection while volatility is cheap. It's been pretty spot on so far so lets see what the next week or so brings and if the markets are getting a bit 'ahead of themselves'.
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The Real Deal discusses how the "Inexact science of square footage causing inaccurate appraisals, unhappy buyers":
I put my estimate for Q1-2010 in there as a shaded bar for easy reference. If the number comes out around the level I expect it to, the headline in mass media could read something like this ---> "MANHATTAN APARTMENT CLOSINGS SURGE 100% FROM PRIOR YEAR"...or such. So just be prepared for that.
As future reports catch up on how this market behaved and improved over the last 6-8 months, the current market at that time of report release may change. So the crazy thing here is that being ahead of the curve with real time reports may present some discrepancies in the future if this market's sales pace and strength prove not sustainable; which I think will be the case.
The problem is clear: WE NEED REAL TIME DATA so we can see changes as they occur as best as we possibly can. The one problem that I will never be able to solve is the lag from contract signing to closing where the deal price will be kept private until captured by public record. Therefore, the best thing I can do is to provide reports here on where I see deals happening with no hard core evidence to back me up until months later!
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A couple of observations are worth making. As you can see, loans 30 to 89 days past due peaked in Q4 of last year. So technically, loan delinquencies are improving. Note that many times a loan that is 30 to 89 days past due can be rehabilitated, but when you get past 90 days generally the borrower is going south on you. So I would take the "improvement" we have seen in this metric with a grain of salt relative to the obnoxious trajectory of loans > 90 days past due. Now of course the > 90 day category of bad loans accumulates as the 30 to 89 day delinquencies that don't get fixed rise. However, these bad loans are also worked out...the hard way....through the bank taking possession of the collateral, selling it and taking a charge-off for any amount not recovered from the sale. Now you can see from the graph that that net charge- offs continue on an upward trajectory, but are much smaller than loan delinquencies. This in part reflects severity (the amount actually lost when a bank sells the underlying property it lent against) as well as the lag in the amount of time it takes to actually foreclose and sell the collateral. My guess is that severity is actually pretty bad considering the loan to value ratios banks were allowing and the severe declines in the value of most real and personal property banks would lend against. The absolute levels of both 30 - 89 day past due loans and charge-offs most likely are being most heavily influenced by a severe backlog of dud loans to be dealt with, long processes for dealing with them and illiquid markets to sell into. All in all there are some rays of light here with regard to loan delinquencies, but expect charge-offs to continue rising and possibly go ballistic in upcoming quarters as the backlog of bad loans is dealt with.
While bank managements are up to their assets in alligators and dedicating lots of time to working out sour loans and disposing of collateral, it would seem pretty obvious that there is neither time nor predilection to make lots of new loans. As you can see from the chart above, lending by FDIC banks is still contracting. Most importantly, the amount of loans that directly lead to job growth like commercial and industrial loans and construction and development loans are still falling rapidly. Only home equity and the non-farm non-residential category (which likely relates largely to permanent loans for commercial real estate) are stable to rising. (Although I didn't include them to keep the chart digestible, farm loans and credit card loans are flattish since Q408).
While I would expect loan growth figures to lag the economic rebound, without the economic oxygen of lending related to job creation (and no shadow banking market to speak of) the durability of this recovery must still be questioned.
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The most important thing every buyer should understand about a property that declares a highest & best situation is that you only have to bid what you are comfortable with bidding!! Nobody is forcing you to get into war with anybody and since you are not told the competing offers, there is no back & forth for you to ponder whether to up the ante a bit more! It's basically a one and done!
Now, as I wrote in my "How To Handle A Bidding War" piece almost three years ago: 
Consider this another sneak peak at what's to come here on UrbanDigs in a month or so. So what is this chart telling us?
1) First off, in my eyes, the 90-day moving average for closed sales (taken from a direct feed with Acris) clearly shows the roller coaster ride this market experienced starting in mid 2008. The plunge in sales was dramatic to say the least and if you want to really blow your mind you can do some digging into the plunge in DOLLAR VOLUME this market experienced as a result of the higher fear and mortgage market freeze up surrounding credit crisis at its peak; both for residential and commercial sectors.
You will notice the slight lag between Pending Sales and this 90-day sales trend due to the lagging nature of the sales process from contract signing to closing.
The improvement in the sales trend shows you the sustained increase in deals being signed since May/June of 2009 or so - I like to look at it as this market pricing IN fear leading up to early 2009 and pricing OUT fear over time as the reflation mentality took hold.
2) Second, pending sales dropped from about low 7,000s to about mid 3,000s in about 7-8 months time at the height of the crisis. The plunge was dramatic, the adjustment was dramatic, and it had a fierce, uncertain, scary feel to it. When it was happening nobody knew how far it would go or how long it would last before stabilizing. In hindsight, the % drop from peak varied across price points and took about 8 months to find a comfort zone; as noted right here on UrbanDigs in February 2009.
As sales volume started to rise with time, we topped out around the August-November period with pending sales hovering in the low 5,000s - we are now seeing these deals close and be captured by quarterly reports. The slight move down in pending sales was more a function of seasonality in December around the holidays then a new trend to the downside in sales volume - recall that in June, July & August we were averaging about 1,100-1,200 or so contracts signed a month as buyers swooped in with the fierce adjustment in price action. It shouldn't be a surprise that we could not sustain that level of activity for long. Over the past 30 days my new systems show 971 contracts signed and that was closer to 785 or so about 6 weeks ago reflecting the seasonal slowdown in December.
With pending sales holding at a healthy level I think its safe to say that when the Q1 2010 market report is released to the public on April 1st, we will see a stunning y-o-y improvement that could have some 'headline effect'. Just be prepared for it as it will be a function of an improving marketplace being compared to the report that marked the worst period of sales in the past decade or so; recall that Q1 2009 recorded only 1,185 sales, and I would not be surprised to see Q1 2010 sales come in around the 2,400 - 2,600 level! Let's see how close I get!
For now, as I attempt to setup appointments for clients I get these types of responses about half the time:
Junk bonds soared in 2009 (reuters states HY bonds soared a record 57.5% in 2009) as the search for yield was the name of the game. Now, after that huge move the search for yield comes with a high price: higher risk, as investors demand higher yield to own junk bonds rather than risk free US Treasurys of similar maturity. As market junkies know all too well, investors hate uncertainty and risk.
Sovereign debt issues & tightening in China now seem to be at the forefront of investor concerns, causing a flight to safer assets (mainly treasuries and US dollars) and that is causing a ripple effect to start an unwind of a huge dollar carry trade that built up for much of 2009 behind Fed ZIRP and guarantees on everything and anything. The buildup of such a crowded trade usually leads to an exaggerated unwind when confidence and perception changes; the challenge is timing and pinpointing the exact spark as you never know what the market will deem worthy of reversing the trade and not. For example, Dubai's default was all but a case of fleas that markets quickly shook off. Greece and other concerns over the PIGS, however, are a different story today. It's still a bit too early to tell if this is simply a healthy adjustment after a huge move in 2009 or something else that will lead to a more extreme adjustment in global markets; either way, our eyes should be open!
As I said before, its possible a future double dip is the result of fiscal/monetary tightening as an unintended consequence of actions taken to stem the crisis we just went through...China began already, time will tell when we do the same.
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One of the biggest headaches I find in this business is when you run into a seller that gets nervous or scared when you present a solid offer soon after the property hits the market. What does the seller want???? If you price at $1,250,000 and you get a solid bid in 3 days from a motivated buyer, why is that reason to get all nervous and nuts that ultimately leads to a rash decision?? Well it's not my place to say! I just question why the seller listed the apartment in the first place before thinking things through properly. Unfortunately my clients and I just experienced this situation for a midtown condo. Asking price $1,250,000, 3 days on market, we submit a solid offer and get a seller response of $1,240,00 - so we ACCEPT! And what are we rewarded with? A seller that got scared and removed the listing from the marketplace. This was the third one in the last few months (520w19, 144w27, & 200e58), and I thought it might make for a good topic of discussion.
Here is the rub: Its the seller's home to sell, they need to agree to all terms of the deal or its just not worth getting the attorneys started! In the end they are the one that must countersign the contract that the buyer signed first to seal the deal. Nobody can force anybody to sign that contract. Sure you might be able to calm a buyer or seller into more seriously considering one way or another, but you can't force them to sign the contract! That is something they must do on their own; likely after dealing with the emotions of buying or selling in their own way.
Whenever I present a solid offer for a property whose listing history is under 7 days, I get a bit worried that the seller may start to question things. On the one hand you may get a seller that is ecstatic to have gotten a solid offer in such a short period of time and who feels lucky to be able to move forward so fast. On the other hand, the seller may start to rethink their pricing strategy ---> Did we price too low? Did we give the market a chance to present all offers? Am I making a big mistake here? In both situations, the reality of selling hits home once that first solid written offer is received - it just becomes real and sometimes that can scare a seller a bit. Usually things work out just fine, but sometimes they don't!
I recall selling my condo at 245 E 93rd St, Unit 2M in early 2006. I received a $975K offer in the first week and played tough! The strategy didn't work and I lost the bidder. I wonder how serious they might have been anyway just removing the offer after we were $50K apart in negotiations that first week. Turned out I sold for 40K less some 4 months later. Doh! Live and learn I guess.
The worst is when a seller starts to rethink their pricing strategy and questioning if they are leaving money on the table because they got such a strong offer so quickly! Ugh, that is when the seller broker should educate their client on how markets sometimes work. Sometimes you have a perfect buyer (highly motivated) that missed out on a few places and maybe recently lost a deal because the seller took a higher offer or decided to remove the listing from market after accepting an offer. So, naturally, when the new place hits the market (your place) and the buyers like it they are ready to go in aggressively with all ducks in a row - something as simple as a situation like this. Yet the seller may interpret the situation differently; that they priced incorrectly and that is why they got this strong offer so fast. After all, this is my home and my biggest asset and I have one shot at getting the most money as possible on this trade! That is the thinking in the seller's mind in this specific situation.
The seller should be mindful that if the property was under priced in a market that is clearly active, that you should not only get a ton of traffic immediately but you should also receive multiple aggressive bids. Therefore, if you get one solid offer in the first 7 or 14 days you should NOT mis-interpret that to mean your pricing strategy was wrong; that could lead to a rash decision. The reality is more likely that a perfect buyer found your place at the right time and decided to make a statement to you in a timely manner that they want to do a deal - within reason of course!
I have always explained here on UrbanDigs that brokers do not dictate value of any one individual property, the market does! The broker's job is to educate you on where this market is, how to price your property to meet your time line to sell, and to market/service your listing in the broadest way possible to procure the highest & best offer. The market will ultimately price the true value of your home; and the market is bigger than all of us! Pricing right is the best strategy any seller can do right now, but it sometimes comes with the consequence of raising uncertainties in the seller's mind if they really have no true motivation to sell other than to test the market to see what their place might fetch. That is when the listing broker needs to either educate their client on market dynamics or question if this seller is real enough to warrant their time. Nervousness and wariness are natural human emotions that many sellers and buyers will feel at some point in the process - and the process can get very emotional! The key is to avoid letting those emotions cloud the right decision that works for your personal situation.
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