The Bull Case

marco_m: about 10 months ago

Manhattan First-Time Apartment Buyers Grab Deals in Slow Market
2012-07-03 04:01:00.10 GMT

By Oshrat Carmiel and Noah Rayman
July 3 (Bloomberg) -- Manhattan home sales were dominated by studios and one-bedroom apartments in the second quarter as rising rents and low mortgage rates pushed first-time buyers into an otherwise stagnant market.
Purchases of condominiums and co-ops totaled 2,647 in the three months through June, little changed from a year earlier, according to a report today by New York appraiser Miller Samuel Inc. and brokerage Prudential Douglas Elliman Real Estate. The median price declined 2.5 percent to $829,000.
Studios and one-bedroom apartments accounted for 53 percent of all deals, the second-highest share since the last three months of 2009, when first-time purchasers qualified for a federal tax credit of as much as $8,000, said Jonathan Miller, president of Miller Samuel. The smaller units, favored by entry- level buyers, accounted for 49 percent of all transactions a year earlier.
“The ones that can qualify are clearly buying,” Miller said. “They’re looking at rent versus buy and in more and more cases, the math starts to work.”
The share of two-bedroom apartments, which reflects the so- called trade-up market, declined to 32 percent from 38 percent in the second quarter of 2011. Tight lending standards for jumbo borrowers, combined with home prices still 19 percent below their 2008 peak, are making it harder for homeowners to sell their properties and upgrade to larger ones, Miller said.
“With rates this low and prices off peak, we should be having a housing boom right now, and we are clearly not,” he said.

StreetEasy Report

Among pending sales -- contracts signed but not completed in the second quarter -- one-bedroom deals climbed 29 percent from a year earlier, according to property-listings service StreetEasy.com, which also released a report on the Manhattan market today.
The largest number of pending deals were in the $500,000 to
$1 million range, according to StreetEasy.
“Rents are just so high right now that for a lot of people it doesn’t make sense” to continue leasing, said Sofia Song, vice president of research at StreetEasy. “A lot of people are saying, ‘You know what? For this amount of money I can probably buy something.’”
In the first quarter, the median monthly rent for Manhattan apartments jumped 7.1 percent from a year earlier to $3,100, or
$37,200 annually, according to Miller Samuel and Prudential.
Rents are now within about 5 percent of the $3,265 peak reached at the end of 2006.

Price Cut

The average rate for a 30-year fixed home loan was 3.66 percent, the lowest in records dating to 1971, Freddie Mac said on June 28. The rate was less than 4 percent for the entire second quarter, according to the McLean, Virginia-based mortgage financier.
For Ed Garry, a year made all the difference in selling his one-bedroom apartment in the Upper East Side’s Yorkville section. He put the unit on the market in April 2011 with an asking price of $695,000 and withdrew it seven months later when he got no takers. In January, he tried again, cutting the price to $649,000.
This time, Garry, 42, a Wall Street bank consultant, got five offers for the 930-square-foot (86-square-meter) property on East 80th Street. He sold it in May for $621,000, according to StreetEasy.
“The mood seemed to be a little bit better than it has in the last couple of years,” said Garry’s sales broker, James Ferrando of Prudential Douglas Elliman. “The buyer mentality, they’re eager to get out there and look and purchase.”

‘No-Brainer’

Garry, who bought the apartment in 2004 for $500,000, was able to upgrade to a two-bedroom unit in Harlem, where the median price of a condo is almost a third of what it is on the Upper East Side, according to brokerage Corcoran Group. His
$890,968 deal was completed last month, New York City property records show.
Low interest rates and tax abatements that encourage Harlem home purchases made buying the bigger apartment “a no- brainer,” he said.
“The combination of the two is what made it feasible in the short term, and, in the long term, I think it’s going to be a big investment,” Garry said.
Other reports issued today on the Manhattan apartment market showed mixed results for sales and values in the second quarter. Corcoran Group said purchases of condos and co-ops totaled 3,650, the second-highest quarterly sales figure in two years. The median price climbed 1 percent to $850,000.

Estimated Closings

StreetEasy said the median price climbed 2.4 percent to $840,000, while completed deals climbed 24 percent to 4,430. The figure is an estimate that includes transfers recorded with the the New York City Department of Finance by June 30, as well transactions that were completed in June and are expected to be recorded later, according to StreetEasy.
Brown Harris Stevens and its sister brokerage, Halstead Property LLC, both reported a median price of $850,000, up 2 percent from the second quarter of 2011.
“People stopped worrying about the end of the world and started focusing on the fundamentals,” said Gregory Heym, chief economist at Terra Holdings LLC, which owns the two firms.
“There’s not a lot of supply. It’s not an investors’ market like some parts of Florida. People buy to live here.”
The inventory of apartments available to purchase declined
14 percent in the second quarter from a year earlier to 6,981 units, according to Miller Samuel and Prudential. About 376 new listings came to market each week in the period, about 4.8 percent fewer than in the second quarter of 2011, StreetEasy said.
Purchases of luxury apartments, defined as the top 10 percent of all sales by price, totaled 265 deals, unchanged from a year earlier, Miller Samuel and Prudential said. The median price of those transactions fell 10 percent to $4.08 million.

For Related News and Information:
Top Bloomberg News real estate stories: TOPR Stories on the U.S. property industry: TNI US REL Stories on the homebuilding industry: NI HOM U.S. housing and construction data: HSST Luxury real estate resources: LXRE Miller Samuel Manhattan prices: MLH SQFT GP

--Editors: Christine Maurus, Daniel Taub

To contact the reporter on this story:
Oshrat Carmiel in New York at +1-212-617-3317 or ocarmiel1@bloomberg.net

To contact the editor responsible for this story:
Kara Wetzel at +1-212-617-5735 or

caonima: about 10 months ago

in the past few years, manhattan keep going up no matter yields go up or down

JButton: about 10 months ago

I would say demand is strong for a narrow property type and location. In the village anything goes pretty quickly. Also big apts that Qatar politicians are buying is in demand. That will boost per sq ft for 2nd and 3rd quarter. Marco and similar types will latch on to that and will mark up their yorkville apartments in their heads and will claim victory. in reality fringe area values are down...

Brooks2: about 10 months ago

No, he was pretty clear.

huntersburg: about 10 months ago

Hi columbiacounty, how was your day?

columbiacounty: about 10 months ago

Not really.

You are a complete asshole.

columbiacounty: about 10 months ago

Very profound.

Makes it seem like you're not the complete asshole that you are.
'

huntersburg: about 10 months ago

>Another dynamic that should put chills into the bullish case. Despite record low interest rate, demand has been soft, at best. Just imagine when rates do "eventually" normalize. How will that clamp down on demand ? I understand "eventually" could be a long ways off despite a 30-year bond bull already. Historically, bond bull runs have a "life expectancy" of about 30-years. Oh oh.

Please name the other 30 year periods that led you to your conclusion.

str33teasier: about 10 months ago

Another dynamic that should put chills into the bullish case. Despite record low interest rate, demand has been soft, at best. Just imagine when rates do "eventually" normalize. How will that clamp down on demand ? I understand "eventually" could be a long ways off despite a 30-year bond bull already. Historically, bond bull runs have a "life expectancy" of about 30-years. Oh oh.

vic64: about 10 months ago

He wrote it like mortgage rate was keeping equal pace with the bond yield for comparison. If mortgage rate follows point to point with treasury yield, who can tell how the real estate market will behave. Secondly, the two had different leverage, risk factors and hedges. Did JPM just lose a few billions trying to hedge its positions?

Brooks2: about 10 months ago

and the longer the bond is the more the px goes up when the yield goes down..

Ahhh F$ck it.. just buy an over priced apartment

Brooks2: about 10 months ago

and when yields go down prices go up....

Brooks2: about 10 months ago

which as indeed dropped from 4.4% to 2.69%(todays yield).

JButton: about 10 months ago

Vic, he's talking about 30yr rates not mortgages. TLT is the UST long bond ETF that you can buy like stock to gain exposure to the long bond.

Brooks2: about 10 months ago

Prety sure he is talking about the yield on the bond.. the long bond, 30yr. not the 30yr mortgage

vic64: about 10 months ago

Inonada said, "SE index is up 1.73% over the last year, not even keeping up with inflation. Meanwhile, 30-year yields have dropped from 4.4% to 2.76% since July 1 of last year. That was an amount that produced 38% returns in a bond fund like TLT"

Isn't that 4.4% 30 yr fixed and 2.76% 5 yrs ARM? I have not yet seen 30 yrs fixed gone down to 2.76%.
Most people would call this comparing apples with oranges for the sake of....

Or, don't just read the head line on a google search and believe it and write up about it. Read the fine prints

vic64: about 10 months ago

I don't know how much I will get back for the renovation I put into my houses. I just know that most of the money that my wife put into fashion will only get us back a reciept for charitable donation deductions.

str33teasier: about 10 months ago

[in some cases number of posts is inversely correlated to quality of posts]

highly inversely correlated ...

JButton: about 10 months ago

in some cases number of posts is inversely correlated to quality of posts

huntersburg: about 10 months ago

> bob and gator or one in the same, doesn't matter.

64 posts "new" to SE but you already have your theories on the duplicates.

huntersburg: about 10 months ago

> One thing I find the bull vs bear debate interesting is how markedly the sentiments and arguments have shifted. During the bubble period, the bulls trotted out "real estate have never had a down year" Then when the bubble pop, the argument became "This is NYC. Everyone wants to be here."

Your postulation is that during the bubble, people didn't care that this was Manhattan?

By the way, are they building more land in Manhattan? Have foreigners stopped buying? Have rents been increasing?

huntersburg: about 10 months ago

>Seems like RE longs (hence bulls) are type that keep cash in checking accounts unless it is invested in RE (hence earn zero on it) and they consider liquidity (ability to enter and exit an investment quickly and cheaply) a negative. How else do you explain the fact that they ignore potential return on cash invested in down payment (when comparing cost vs. rent), and their breakeven return iz 0% (hence 1.5% is great as they beat the benchmark). Also, to arguments that stocks/bonds returned more than RE, they counter that most people would have sold stocks/bonds earlier than they should have (just because they can).

inododo isnt even touting stocks anymore, he's on to bond appreciation only, citing their rise due to decreasing rates. I can't wait for the next thread where we talk about how low rates means the likelihood of increasing rates.

str33teasier: about 10 months ago

bob and gator or one in the same, doesn't matter. Let me make it easy and help out in your arguments since you are both, interestingly enough, going in circle.

The centerpiece of your argument is that price reduction can't affect equity. Let me be precise and say define "equity" as "potential" equity for prices above your price paid and "realized" equity for prices below your price paid.

So, for example #3, which is identical to bob's argument, unit C owner, since he paid $400K and now the comps is at $500K after coming down from $550K per the $50K reduction, lost $50K in "potential equity." Did he lose equity ? Yes, he did. Did he lose "realized equity ?" No, not yet.

Now, on the flip side, if the comps were at, say $600K instead of $550K, unit C owner certainly gain $200K in "potential equity" because if he decides to sell and list it at $600K and it clears, he certainly realized $200K in equity now didn't he ? Sales = $600K, paid = $400K, gain = $200K.

See, again, what both of you are nit picking is whether the price reduction eventually turn into a sale. When prices come down, it will eventual entice someone to buy. Whether it's today or tomorrow doesn't matter, all that time, there is the potential for it to turn into a comps. All that time, you have "lost" equity, potential or realized. At the end of the day, when prices come down, you are losing equity as I stated originally.

If you guys don't agree, then I don't have anything else to add b/c you two keep going in circles.

huntersburg: about 10 months ago

> The 1.73% appreciation in sales YoY involves apts that on average have had upkeep and -- strange as it might sound -- transaction costs. Shocking, I know...

So you calculated appreciation assuming new transaction costs that came into play during the measurement period?

str33teasier: about 10 months ago

Correction,

[No, what if it did clear at 1M and you decide to sell and your unit clears at 1M ?]

should say

[No ? What if it did clear at 1M and you decide to sell and your unit clears at 1M ?]

str33teasier: about 10 months ago

[Not if the price reduction still results in a sales price that is higher than the appraised or perceived value of the apartment you are comparing it to. If I properly valued my apartment and purchased it, does it matter if someone else overvalues their comparable apt and tries to sell it for an inflated price and then proceeds to cut the price? Does it affect my equity in the way you are calculating it? Not unless that price ultimately ends up less than the most recent valuation of my apartment.]

You are pointing to example #3, go back to my post and look at example #3. Forgot it, here it's

[3) Unit C, owner still paying a mortgage and bought the unit at $400K say 7 years ago. Let's say he has $300K in his mortgage so his "equity" is $100K. With the comps at $500K, he "lost" equity because any "price appreciation" is his equity gain. Since the comps have come down, he didn't lose any money per your "precise" definition, he lost "equity." And should the price falls below his $400K purchase price, he will really lose equity.]

You are back to nit picking realized and unrealized loss. You lost equity b/c if the recent comps were going up, you it certainly will add to you equity now would it if you decide to sell ? So, if it adds to your equity when prices appreciates, how come it doesn't subtract from your equity when prices come down. I didn't say whether you will sell it or not, I simply said "lost equity", realized or unrealized is beyond this discussion b/c bringing that into the discussion is completely asinine. Who knows when you'll sell or not ?

[If I own an apartment that is appraised at 600K. Someone lists a comparable apartment for 1 million and proceeds to cut all the way down to 700K. Are all those cuts hurting the value of the my apartment or making me lose equity? No.]

No, what if it did clear at 1M and you decide to sell and your unit clears at 1M ? Did you gain $400K ? Yes or no ? If no, I have a PO Box that you can send that proceed to and I will be more than happy to collect that $400K for you :) You can't have it both ways.

str33teasier: about 10 months ago

[Price reduction from listing prices? No that does not equate to a loss in equity. Plenty of listings are being priced above (and even well above) market. If someone listed a unit for $3 million that after numerous price reductions sells/clears for $1.75 million is that a $1.25 million loss of equity?]

You are using a realistic example here. 1st, the comps for the other units wouldn't be at 3M, it would be close to 2 or 1.75. If this inflated unit owners want to high-ball the list and see the price collapse back to reality, by all means, have fun. However, no one would be basing the comps of the 1.75M unit with those of the 3M. Does that make sense or not ? If it does, your example doesn't make sense then. Right, you can't, using your example, price something at say 10M, and then when it finally clears at 1M, then you are using it to say "see, can't say someone has lost $9M in equity." Yes, you can't because in reality it shouldn't have been a 10M listing to begin with. It was probably a 1.5M or 1.2M listing. Now, we can say this comps have "cause" other comparable units in to lose 500K or 200K in equity. Just as also you can't say because the 10M original listing finally cleared at 1M that those unit owners of the TRUE 10M units have lost $9M in equity. That's what you are trying to pin this on your argument and it's completely asinine. You are not comparing apples to apples using an unrealistic example. besides, the example you used, even if it did occur in real life, will most likely be a one-off.

Truth: about 10 months ago

I'm out! Have a nice discussion, gentlemen.

bob420: about 10 months ago

"Simply answer that question, will it be a comp at that point when the price reduction enticed a buyer to step up and buy ? If you said yes, which is the correct answer, then doesn't that clearing price cause a LOST IN EQUITY for all the comparable units ? Does it or doesn't it ?"

Not if the price reduction still results in a sales price that is higher than the appraised or perceived value of the apartment you are comparing it to. If I properly valued my apartment and purchased it, does it matter if someone else overvalues their comparable apt and tries to sell it for an inflated price and then proceeds to cut the price? Does it affect my equity in the way you are calculating it? Not unless that price ultimately ends up less than the most recent valuation of my apartment.

If I own an apartment that is appraised at 600K. Someone lists a comparable apartment for 1 million and proceeds to cut all the way down to 700K. Are all those cuts hurting the value of the my apartment or making me lose equity? No.

Just listing price cuts and commenting on how much money you are saving by not buying doesn't really make much sense.

gatornyc: about 10 months ago

Price reduction from listing prices? No that does not equate to a loss in equity. Plenty of listings are being priced above (and even well above) market. If someone listed a unit for $3 million that after numerous price reductions sells/clears for $1.75 million is that a $1.25 million loss of equity? Of course not because the listing price was never anything close to realistic to begin with. Many listing prices are set with full knowledge of an anticipated reduction as the final sales price. So that reduction is not a loss of equity either.

I also disagree that a price reduction trend has been established both Streeteasy's and urbardigs indices indicate otherwise.

But I certainly will agree that a downtrend in actual sales prices equates to a loss in equity. We've seen that happen recently. But whether that means one should sell, or not buy, depends on one's time horizon, the value of the actual property in question (as opposed to the general market), the ability to spot the swing back to the upside, etc. You only look at one discreet issue, i.e., there is a decline in real estate prices which is continuing. While no right minded person can dispute that real estate prices can decline (and indeed they have), it can be disputed whether the decline is continuing or will continue.

Truth: about 10 months ago

I'm trying to follow along just to learn something but now I have a headache.

This is why I always pay cash.

str33teasier: about 10 months ago

[no str33, I don't want it my way. I want the discussion to be more worthwhile and useful that these silly bull and bear positions. I agree with you that in today's market that there are many purchases that would not make sense. But there are many purchases that do make sense.

And yes I used a single example but it is a good example of the market in Brooklyn Heights, Cobble Hill, Downtown Brooklyn, and the surrounding area over the past two years. ]

terrific, now we are talking like adults.

I will not dispute that Re is location, location, locaton. However, looking at all the factors, you can't say price reduction, espeically when a trend is established, that it doesn't equate to lost in equity. It certainly does.

gatornyc: about 10 months ago

no str33, I don't want it my way. I want the discussion to be more worthwhile and useful that these silly bull and bear positions. I agree with you that in today's market that there are many purchases that would not make sense. But there are many purchases that do make sense.

And yes I used a single example but it is a good example of the market in Brooklyn Heights, Cobble Hill, Downtown Brooklyn, and the surrounding area over the past two years.

str33teasier: about 10 months ago

gator, like I said, you are starting to sound exactly like bob. Anyway, just don't confuse who said what OK ? I will play along.

[You keep talking about price reductions, which are from an arbitrary listing price and equate that to a loss of equity.]

Price reduction, especially with when a trend is established, will eventually find a buyer at some point. At that point, isn't that a comp ?

Simply answer that question, will it be a comp at that point when the price reduction enticed a buyer to step up and buy ? If you said yes, which is the correct answer, then doesn't that clearing price cause a LOST IN EQUITY for all the comparable units ? Does it or doesn't it ?

You and bob and both nit picking when the price reduction actually turns into a sale. Your argument is that if the price reduction doesn't turn into a sale, then no equity lost. The trend is down. Price reduction don't suddenly reverse into price appreciation overnight. Your arguments are extremely asinine and bordering on comedic.

str33teasier: about 10 months ago

Now,

[On top of that, you lost equity as price reduction, i.e., comps, brings down the value around the 'hood. ]

the obvious conclusion, which you didn't leap to and now I understand why because I need to lay it out. Had that "price reduction" induced a buyer to buy. Then that "price reduction" did indeed turn into a lost equity because it's now a comps, isn't it ? :)

So, not matter how you like to nit pick my arguments because you can't find any other holes, at the end of the day, when the trend is down, you are losing equity bob. Face reality and admit that! You'll feel better. If you can't stomach the lost, and I am sorry, then just sell and take that "lost equity", sorry, I mean realized loss .. 8)

str33teasier: about 10 months ago

[It's called value investing str33. I bought my apartment as comps were coming down because in my view my unit went below market value and presented an excellent buy. Was there a chance of further price declines? Of course; I estimated approximately 10% in the short term, but it never materialized and if I waited I wouldn't have gotten my unit because I got one of the last units in my line.]

Now you're generalizing with you single example just like you accused me of using 1 comp. Fine, have it your way.

["Be fearful when others are greedy and be greedy only when others are fearful."]

Hahaha, but they never tell you when the fear ends! it could be another 10%, 20% or even 50% below where the "fear" was impallatable.

gatornyc: about 10 months ago

str33, this is what you said:

"With that said, I am still renting because the areas I are focusing on, I see price reductions of anywhere between 50K-75K at a pop. In other words, if the unit goes on the market and there are no takers, I see the unit reduced by 50K or 75K or sometimes even 100K. That type of price reduction can afford me to rent a $4K unit for a year or two-years and I am still ahead in terms of the price improvement I get at the end of the day."

"Missing the forest for the single tree. $100/month = $1200/year. Let see, price reduction, as I mentioned previously, comes at $50K to $75K a pop. $50K/$1200 = 41.6 years!!!! It will take you 41.6 years of "reduce mortgage payment" to catch up to a price reduction of $50K a pop! On top of that, you lost equity as price reduction, i.e., comps, brings down the value around the 'hood. Lose-lose-lose because factor in the time value of money, ouch, 41.6 years ? Nice math Socialist.

Here are samples of price reduction across the city ranging from $25K to $50K reduction. Many more where these came from, "missing the forest for the single tree""

You keep talking about price reductions, which are from an arbitrary listing price and equate that to a loss of equity.

str33teasier: about 10 months ago

[On top of that, you lost equity as price reduction, i.e., comps, brings down the value around the 'hood. ]

Didn't I say comps ?

bob420: about 10 months ago

It was all based on price reductions which you then switched to sales comps at the lower price:

Missing the forest for the single tree. $100/month = $1200/year. Let see, price reduction, as I mentioned previously, comes at $50K to $75K a pop. $50K/$1200 = 41.6 years!!!! It will take you 41.6 years of "reduce mortgage payment" to catch up to a price reduction of $50K a pop! On top of that, you lost equity as price reduction, i.e., comps, brings down the value around the 'hood. Lose-lose-lose because factor in the time value of money, ouch, 41.6 years ? Nice math Socialist.

Followed up with this:

I didn't say losses, I said "lost in equity." Any price reduction, if that price even clears the market, i.e., there is a willing buyer, then everyone in that 'hood lost equity! How ? Here are two examples and let's use the following premise

I initially said price reductions don't mean losses and they don't mean loss in equity. You then switched to examples of a lower comp sale.

I think we all agree that declining sales prices in comparable apartments will cause paper loss in equity. But random price cuts don't mean anything and that is where this all started.

gatornyc: about 10 months ago

It's called value investing str33. I bought my apartment as comps were coming down because in my view my unit went below market value and presented an excellent buy. Was there a chance of further price declines? Of course; I estimated approximately 10% in the short term, but it never materialized and if I waited I wouldn't have gotten my unit because I got one of the last units in my line.

It's stating the obvious but real estate cannot be compared to a stock because of the difference in liquidity. If you wait until you see comps rising across the board to make a purchase you will have missed your best opportunity to purchase. As Warren Buffet said:

"Be fearful when others are greedy and be greedy only when others are fearful."

"Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well."

The same rationale pertains to real estate (again as pure investment and not the quasi-investment it is for a primary residence).