Still doing 1400+ deals a month..but for how long?

inonada

Well-known member
BTW as long as we're crabbing about the market, I'm salty about how much money I lost betting Coinbase would go below 200, Peloton would go below 100, Carvana would go below 200, Zillow would go below 100...
Are you being sarcastic, in that you made money since it all happened, or actually crabbing, in that you were eventually right but didn’t hang onto the trades long enough?
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
Staff member
There might be an interesting dynamic that will take a while to work through:

1) People are flush with income & wealth at the moment.

2) There seems to be nowhere to hide. Stocks have been heading down. Bonds have been heading down. Cash has been heading down (in real terms).

3) Rents are up.

So for some, RE seems like a good place to hide. Sure, financing is at 5% on an illiquid asset that only yields 1-3%, with 10% transaction costs. That is not usually a winning formula long-term. But, people can convince themselves that rent inflation will be high / scary. And the losses from RE, which tend to be slow and hidden, are more palatable to the psyche of a lot of people.
Yes I agree these forces are at play, in addition to demand pull from rates rising + reative value for our markets vs other sectors that went parabolic last 2+ years

Wrote Sugar High piece about this topic May 9th.

This could lead to a summer lull that is perhaps depper than usual? thoughts?
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
Staff member
People are used to "risk free returns" being close to zero under ZIRP. That's why they have been willing to buy Real Estate at close to zero returns. What will be interesting to see is what happens to Real Estate "cap rates" as Alternatives like CDs, bonds, etc start showing actual returns as interest rates rise. Because even as rents go up, increasing cap rates lever values downwards rapidly.
The massive search for yield era driven by a dovish fed is gone. This seems like a reset that is occurring right now before our eyes
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
Staff member
Rationally, I agree. But I’ve learned that people do not necessarily behave in ways I consider rational.

It’s also going to be interesting to see the effect on people who levered themselves up on RE to deploy cash elsewhere. E.g., borrow via a mortgage at 2.x% to buy stocks, bonds, etc. at anemic yields. People seemed to like the margin-call-free nature of mortgages as a source of leverage, paying an extra 2.x% for it relative to proper margin rates.
Right. And this feels like 1999 to 2000 tax wise too. Plenty of big taxes owed on last years performance and now dealing with portfolios that got smacked
 

inonada

Well-known member
You figure some of this is / will keep the deal rate afloat for a spell:



They Signed Contracts for Their Dream Homes Last Year. Now Their Borrowing Costs Are Ballooning.​

Many buyers in contract for new homes calculated monthly payments based on near-record-low mortgage rates​


When Lauren Sparks and Taylor Briggs paid a deposit on a new house with a yard in Savage, Minn., last summer, their loan estimate had a 2.875% interest rate. In January, they had the option to lock in a 3.75% interest rate for 75 days, but they decided against it in case the construction was delayed beyond the 75-day window, Mr. Briggs said.

“I had no idea that rates were going to explode as much as they were,” he said.

In February, the couple opted for a 45-day rate lock at 4.375% and paid more up front to lower their interest rate to 3.625%, Mr. Briggs said. The purchase closed in March.
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
Staff member
You figure some of this is / will keep the deal rate afloat for a spell:



They Signed Contracts for Their Dream Homes Last Year. Now Their Borrowing Costs Are Ballooning.​

Many buyers in contract for new homes calculated monthly payments based on near-record-low mortgage rates​


When Lauren Sparks and Taylor Briggs paid a deposit on a new house with a yard in Savage, Minn., last summer, their loan estimate had a 2.875% interest rate. In January, they had the option to lock in a 3.75% interest rate for 75 days, but they decided against it in case the construction was delayed beyond the 75-day window, Mr. Briggs said.

“I had no idea that rates were going to explode as much as they were,” he said.

In February, the couple opted for a 45-day rate lock at 4.375% and paid more up front to lower their interest rate to 3.625%, Mr. Briggs said. The purchase closed in March.
Yep. And it's happening for resales too! Buyers are focused on those rate lock terms, and in this market sometimes forces outside your control can delay the closing data
 

David Goldsmith

All Powerful Moderator
Staff member
I'm not sure I really buy this article but it's an example of irrational Real Estate investing.

The headline is that "More than half of property investors think market is overvalued," but the closing is "86% of respondents expecting their acquisitions to stay the same or increase in 2022."
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
Staff member
We are still pumping 1400+ on monthly basis but weekly trend is starting to fall. Looking at credit spreads and eqiuties right now...

SELLERS GET THOSE PRICES RIGHT AND DEALS DONE BEFORE SUMMER
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
Staff member
One week is far from a trend, but a 20% drop in contracts signed when there's no holiday and it's before Memorial Day (i.e still "prime" Spring Selling Season) is "interesting".
Agreed. But combining: coming seasonality, wealth destruction in stocks, rising rates demand pull effect...a tightening fed, makes me wonder which way the scale is tilted for the near term future
 

David Goldsmith

All Powerful Moderator
Staff member
Agreed. But combining: coming seasonality, wealth destruction in stocks, rising rates demand pull effect...a tightening fed, makes me wonder which way the scale is tilted for the near term future
Don't forget over $300 billion in crypto losses.
 

inonada

Well-known member
To what extent do you think the NYC RE “safety” play shores up the situation for now, as it did ~13 years ago? I’m not saying it’ll work out long-term term (or otherwise), but between recent losses in stocks, bonds, and inflation-adjusted cash, certain people may find allure in the promise of “Manhattan RE always goes up.”
 
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