Has The Residential Market Bottomed Out....???

It is interesting to hear what Amir Korangy has to say on this topic, so I included the link.

http://therealdeal.com/newyork/articles/top-national-real-estate-tips-for-2010

six months ago it was all the vogue on this site to predict 40% down, even though all the market indicators had the New York market down roughly 10%. Interesting how the market is following the collective bet of the market and not the extreme predictions. It does feel as if the majority of the decline has occured, but I would expect much of an uptick either.

NAR released a report yesterday that said the median home price in Nov 2009 was 3% lower in real terms than Nov 1999.

The answer is NO.

In NJ, the market bottomed in April and has since risen 1.4%.

This according to the wall street journal:

Video - News Hub: Is U.S. Housing a Steal? - WSJ.com
online.wsj.com

"six months ago it was all the vogue on this site to predict 40% down, even though all the market indicators had the New York market down roughly 10%"

Interesting that not one of the indicators posted here said the market was only down 10%.... all the major brokerage reports, the Jonathan Miller reports, the bloomberg coverage, you name it... said 20% and beyond.

"It does feel as if the majority of the decline has occured"
not sure how much that means if you missed half the decline.

So does that mean that el presidente thinks NJ RE will be higher a year from now?

somewhere, when you've purchased new development near the height it helps to ignore the declines.

Dear Lord
My new Years wish.........
I am still looking for the apartment of my dreams.
I've seen it several times but, the price was about 40% above my comfort zone.
If you could see to it that manhattan RE drops another 40% that would be splendid. While your at it, while RE drops, if you could decrease unemployment, taxes, intolerence and bring back bell bottoms we might all have a wonderful year.
I'm giving you this one last chance to prove your existance to me.
If you can part seas and change water into wine, lower seller's expectations should be a snap!
I don't want to seem impatient but that foot that's tapping...that's my foot.

falco, you forgot velour. bellbottoms are nothing without velour.

velour is not in?.........presently?

There's way too much going on in the economy to know what is really happening. All the housing numbers you see are to one extent or another "cooked" to suit the agenda of the cook. When I see some small change in Coop/Condo pricing in Manhattan like +1.4% as far as I'm concerned it might really be +5% or -5%: people take numbers on sales which occurred and draw way too strong inferences on where the entire market is headed from them. What we basically know is prices fell a significant amount and then leveled off for a relatively short period of time. There are very significant downside and upside pressures, so who knows which way we are actually going to head. Personally, I think the "other shoes" dropping, which haven't yet, are going to lead to another dip, but that's just my opinion.

Here are some more 2010 predictions!

Oops here we go.

http://ourtownny.com/?p=5060

Jonathan Miller, President and CEO of real estate appraisal and consulting firm Miller Samuel and co-founder of Miller Cicero, LLC, a commercial real estate advisory service

Real estate will continue to try to find a bottom. Over the next year, we’re not anticipating unemployment to be resolved, we’re not anticipating the credit crunch as it relates to mortgage financing to be resolved, therefore we anticipate the housing market to move sideways—a modest erosion in price over the next year.

The city has counted about 90 stalled projects in Manhattan and about 500 citywide—I anticipate that to rise in 2010. I see 2010 as a moving-sideways market, best case. I’m less bearish than I was six months ago, but I’m still bearish.

I think that the Yankees, like the real estate market, it’s very possible that they’ll move sideways too, meaning a 28th World Series championship.

Well, Mr Miller has formed a partnership with Gerald Guterman and Westwood Capital, an investment bank, to buy $1 billion in new residential condominium buildings from banks for conversion to rental properties. The group is looking to make an average ***10 percent return**** on the properties, which it plans to hold onto for about four years apiece. So you tell me, when the chips are down, what does Mr. Miller REALLY think is going to happen to prices (or rents)?

Excellent point!

http://www.radarlogic.com/research/RPXMonthlyHousingMarketReportforOctober2009.pdf
Don’t Believe the Hype: Housing Won’t Collapse in 2010
Despite the fact that housing prices and home sales are outperforming historical trends for this time of year, many
economists and housing market observers remain pessimistic, offering dire predictions of a second large decline in
home prices in 2010. While we acknowledge that serious troubles remain in the nation’s housing markets, we think
predictions of a second “collapse” of the housing market are exaggerated.
----------------------------------------------------------------------------
My view is that while housing may decline marginally over the next year those that wanted to get "deals" will regret not scoopin up the distressed/panic sales that occured earlier in the year.

January 2nd issue of the Economist says unlike rest of the world home prices in U.S. no longer above fair value(using home price to rents)

"The group is looking to make an average ***10 percent return**** on the properties, which it plans to hold onto for about four years apiece. So you tell me, when the chips are down, what does Mr. Miller REALLY think is going to happen to prices (or rents)?"

What does this really tell us? If he wants a 10% return, does that mean he is going to offer 40 cents on the dollar on a market that offers a 4% cap rate? Are you implying that makes him a bull...or does it make him someone who thinks the market is going to go down 50%+ so there will be opportunities to make 10% returns?

This tells us nothing about what he thinks. It all depends on what he expects to be able to pay. If we think about the math necessary to buy a condo and rent out the units and make 10% we are talking about very low prices.

Riversider, what do they think the fair ratio is? Doesnt the fair price to rent ratio depend on interest rates? I doubt NYC would hold up against the same test for fairness. 15x is the highest median I have ever heard quoted....and you still can't buy something for $900k that is as nice as a $5000 rental.

Riversider why are you using national stats to defend the Manhattan market? This would not be Manhattans second collapse....it would be a continuation of its first and only of this cycle.

Yes, Manhattan is very much at risk. How many buildings are not servicing their debt? No one has any idea. Here is an example:

http://therealdeal.com/newyork/articles/joseph-moinan-company-moinian-group-sues-to-block-dwell95-auction

I have never heard anyone on this blog mention the possible outcome of this foreclosure. Will rents fall in Fidi as the flush new owner cuts deals to fill up this building? Will that affect condo prices in FiDi? Will there not even be a ripple due to this building changing hands? How many condo buildings in Manhattan and Brooklyn are facing the same pressures on their mezzanine debt?

This is what happened in Miami, in Phoenix, in Las Vegas. One by one the buildings toppled and the net effect was a slow bubble bursting over three years. Who can say Manhattan will not face a similar fate--even if it is less dire given the singularity of this market. Manhattan is still in it's own etheric bubble. How many buildings can you name that are in trouble?

You got it right. The idea that because the US might have hit bottom that things are resolved here specifically makes no sense. A market can't be resolved with so many unresolved situations!

I'll throw this out there. The foreclosure problem may be overblown. If we're talking commercial real estate the banks aren't stupid and will renegotiate loans instead of taking a loss. With regards to residential banks are to effectively borrow at zero interest rate and may manage an orderly liquidation. The topper is the new credit line to Fannie & Freddie which drives this point home even more. Consider this food for thought, as the conclusion is clearly not set in stone yet.

How far do rents need to fall for enough people to want to live in Fidi? How far are rents going to fall if the marginal buyer of condo developments are vulture funds like Miller's who plan to convert to rental? What does it say about there view of values if they think the best use of condo space is as rentals?

Riversider, are you assuming that an orderly liquidation doesn't mean lower prices? What are you talking about? Gobbedy gook is coming out of your mouth.

"the banks aren't stupid and will renegotiate loans instead of taking a loss." what the hell does this mean? if a property is underwater, how do you renegotiate and not take a loss?

I think it's time for marco to wake up and ask: bulls?

There is no "workout" scenario that makes some of these condos solvent. Many seem to have been built to assume sale at $1800+ psf...which may take as long to see again as Nasdaq 5000.

CC ------ I am not hfs.
It's 2010! Congrats to all of us who are keeping our eye on the real estate ball and not nurturing hangovers.
I'm going to buy my final, permanent, forever single-person with dog apt. in Manhattan in Sept. or Oct. of this year. It will be within five blocks of Grand Central or five blocks of 125th metronorth. If it's still too scary to buy, I'll delay longer. I know both those hoods and either one could work for me; I'm flexible.
Aboutready: I think you deserve the SE Talk person of the year because of your intrepid spirit, brilliantly pragmatic prose style, rapid-fire response, and ability to withstand various pressures involved in .......... being party to this whole shebang.

Rhino wrote: "What does it say about there view of values if they think the best use of condo space is as rentals?"

Good question.

i know you're not hfs---riversider is. and lo and behold---hfs is popping up all over. what a surprise.

U really think Riversider is HFS? HFS has really got you on the ropes!

CC - isn't hsf posting enough on his own under his trademarked name and "style" without you seeing him in every other post ? ...i.e., not all tumors are malignant

it's called HSF Derangement Syndrome

My mind continues to race at how little you'd have to pay for a condo building to yield 10%...Unless there is a big appreciation factor built in. Then again a big appreciation factor would likely require a steep discount to present market as implied by the cost of indy units.

rhino..wouldn't they presumably being making some realistic (non-rosy) rent assumptions, then saying we will only buy at x price that will yield y percent per year (perhaps some floor yield below which, per their plan, they just won't buy; )...plus some assumptions about resale in z years with a variety of price appreciation outcomes

even if the floor yield is not quite 10 percent, it seems unlikely to be the kind of yield that current 25% off peak prices would allow

I agree. That said, I do not know what kind of bulk discount you get when you buy a whole condo. I know that a unit purchased at -25% from peak would have under a 3% cash yield. When you see the individual unit holders asking rents on new development condos, its laughable. Somehow they think the market should bear the rental price that would make them feel ok. $5700/mo under 1000sqft junior fours in the Brompton for instance.

presumably they're looking at deals based on percent off of senior debt with the rest of the debt holders getting tiny amounts to not block the deal.

if this really works, pity the poor individual owners.

All of which implies that the very existence of this fund suggests they think decent deals can be had sometimes in the short-medium future,which implies that the rosy facade of delusional pricing and anemic sales at new developments is going to crumble at some buildings (assuming these guys are not idiots content to buy at the very low yields rhino points out).

Rhino: take a look at those "days on market" numbers for individual owners trying to rent their apts. Just as one example, in a top building, 200 WEA, with no other 2 bedrooms for rent:

06/12/2008
Previously Listed by Halstead Property at $8,000.
06/27/2008
Halstead Property Listing rented.
11/03/2009
Listed by Halstead Property at $8,000.
11/11/2009
Price decreased by 10% to $7,200.
12/06/2009
Price decreased by 4% to $6,900.

60 days on the market. When 200 West 72nd street opens in February with almost 200 rental units and 200 West 67th St opens in May with 300 plus units, what do you think the price of this apt will settle at? Under 5000? So much for renting out your 2 million dollar apts. in exclusive neighborhoods -- and this before J. Miller even gets started. There is an apt at a luxury building on 67th and Columbus on the market over 300 days as a rental. Asking rent now is 6500 from over 8000. Apt for sale at about 3.5mm. It is laughable. Prices have to come down.

just read the press release on the fund. two points that they raise: many of the these buildings have avoided foreclosure because of interest reserves that were established at the time of the original loan---these reserves are starting to be used up. as banks are forced to face reality because of non performance--a certain loss by selling to this fund at a significant discount will look better than the prolonged agony of not only a total loss but unlimited and unspecific liability of ownership. explains why this is seeming to take so long.

People dont seem to understand that if you cant even command $7k in rent, the property is not worth $2mm. Rentals of CT homes are similar.

We pay $5k in rent. Maybe we can do better. Its not new construction but 86 & Mad is a better location than WEA.

i think there is some very large new rental building coming up soon on kent avenue south of nspiers...but i dont know what it is called..anyone know?

There was never a greater time for a buyer, (I am not saying that prices have completely bottomed and they are going up soon) A Great time to negotiate with sellers, Low interest Rates and prices have now dropped enough for a buyer in the market to be able to make a decision!

I would say if you are in the market and want to make a move, all bets seem pretty good for the buyer.

I really wish that people would stop fucking saying that low rates are good for buyers.

That's great, Faye. Are you currently in the process of buying something?

inonda

I am a broker who believes in deals like Forte, which I have been promoting ever since the prices were slashed.....

See the thread FORTE REBOOTED!

I believe that I am responsible for many of the sales in that building and no I have not made commision on any of them, so I have no alternative motive for reaching the above conclusion!

Can you help me understand how to price luxury condo space in places where luxury condo space did not exist before the credit bubble....especially in neighborhoods that did not exist before the credit bubble?

ok Rhino, you take the inverse of the cap rate, and you multiply by the cap rate. That's how you get the price.

Faye, it matters not to me whether you are a broker, and I am not questioning your motive. However, whenever I say "it's the greatest time ever to buy X", I have usually either recently bought a bunch of X or am in the process. If you are not currently buying despite it being the greatest time ever, I'd like to understand why not.

inonada:

with all due respect, I think I am in the know when real estate is what I eat drink and breathe. The knowledge from what I see and hear dealing with sellers, buyers, Landlords and renters, is what qualifies me to give the opinions I have!

If you eat and drink and breath it maybe you are too close to it. How can anyone know the right price in Brooklyn or Queens when Manhattan is still so unresolved. These bull arguments are all such shit.

It would be better to say now is an OK to good time to buy if you have a medium to long term time horizon. IMHO

If you think about it, it should never be okay to pay a price that equates to a higher carrying cost then rent. Even with the slimmest margin in favor of purchasing, time will compound the savings.

Rhino86
8 minutes ago
ignore this person
report abuse If you eat and drink and breath it maybe you are too close to it. How can anyone know the right price in Brooklyn or Queens when Manhattan is still so unresolved. These bull arguments are all such shit.

Are you now going to threaten to punch those people?

Except the cost of rental has poor viability the further out in time you project. The costs associated with ownership more certain. The last point to keep in mind is that over the long term is is reasonable to assume the renter will pay the owner carrying costs + profit.

Riversider, do the math. What is a medium time horizon? Once you amortize the transaction costs, and assume some downpayment interest how much appreciation do you need to breakeven? Probably more than you think.

Over the long term... What does long term mean? At current cap rates, who is getting over on who, the renters or the owners?

Explain to us what a cap rate is.

No market guarantees anyone a return. 2008/2009 should have taught you that.

You can't even count and you are giving investment advice?

Roughly seven years...and it reasonable to assume rents will double over the next seven to ten years...but who know?

Its reasonable to assume rents will double in 10 years? WTF are you talking about?

HouseMath is a good website for this. Sure, if I believed rents could double in ten years, then I would buy. I dont see that happening in NYC. There are negative forces at work here. Rents didnt double from 1998 to 2008 while finance was booming....why would I expect it to happen over the next ten.

It would be interesting to go back and look at rolling seven-year periods and see how often real estate is flat to down over seven years. I am sure that % falls drastically if you make them 15-year periods. However, that is the quandary in Manhattan - how often can you be sure about the 15 year period...and how few can actually afford a 15-year place.

There are some people who should never buy!

Not really.... If the 1990s were to come to pass again, and you could saving hundreds of pretax dollars a month by coming up with a down payment...then all people who could, should.

Here is another interesting reason people buy!

They fell in LOVE..!

http://www.nytimes.com/2010/01/03/realestate/03cov.html?partner=rss&emc=rss

"What does this really tell us? If he wants a 10% return, does that mean he is going to offer 40 cents on the dollar on a market that offers a 4% cap rate? Are you implying that makes him a bull...or does it make him someone who thinks the market is going to go down 50%+ so there will be opportunities to make 10% returns?"

What it means is that one way or another, they believe that banks are going to sell them condos at something like 60% off CURRENT prices. Now, these aren't holes in the ground with no offering or marketing plans: these are, from what I can tell, completed or mostly completed construction wise. For this to happen, they have to either believe that there will be NO competition from other groups who intend to simply complete the sales of the condos (because such groups could EASILY bid more AND make a higher percentage return) or the banks themselves wouldn't hire people to complete the conversion sales (like http://www.nytimes.com/2009/11/22/business/22real.html?_r=2&ref=realestate )), or that prices are going to fall significantly. So, you tell me which you think it is?

To put it another way, the banks could simply cut deals with the current developers allowing them to immediately cut prices 25% to 30% (perhaps even 35%) off of CURRENT levels and come out ahead of the game rather than going thru the process of first foreclosing on the projects (no small feat in itself) and then selling the buildings to them. IF the group believes that the banks can't use this as a successful scenario, to me it means they think the market can't support/absorb these units at 25% to 35% off current levels (or they think both other investors and the banks are idiots). What does that mean to you?

riversider wrote: it reasonable to assume rents will double over the next seven to ten years...but who knows?

Riversider, honestly, if that view of rents is a key part of your analysis then you need to rethnk a lot. The apartment I rented 10 years ago in Chelsea can be had now for something within 10 percent or so of rent back then (and im sure cc are up, so the yield to an investor would be lower). So, rents flat in nominal terms and way down in real terrms.

Oh, sorry, or it means they think they can CONVINCE the banks that the market is going to fall 50% even though they think it isn't.

Yeah I'd have to say the Miller consortium thinks condo prices are going to be -60% peak to trough.

And if it's that last one, think of how the scenario would play out and the potential conflict of interests.

A bank may not have to believe it to just want to free up some capital on its balance sheet rather than to let the developers wait for unrealistic prices indefinitely.

Half off peak is easy to believe for these luxury condos.

[rhino....can you apply your analytical mind to what i just wrote on the 80 met thread about abatement and comparing ppsf in buildings...curious to see if you agree...to me there has to be some way to make abatements of different and no length comparable]

I would think you have to consider the apartment without the abatement and then discount the value of the abatement in some way. Perhaps the most logical discount rate to apply to the abatement is the after tax cost of debt. The problem with the abatement is order to buy an apartment with an abatement you have to win a bidding war against someone who is overvaluing the abatement/not caring about the implications to value when it rolls off.

The abatement is a scam. If the banks are going to qualify you on a payment that includes the abatement deduction from normal taxes, you are competing with a larget buyers pool. Abatements and 10% down mortgages are why the values of condos flew up higher than the values of coops.

They must have some inkling that certain developers are not servicing their debt. It must be a developer or developers with large numbers of unsold units. Which would mean that condo prices in neighborhoods and/or all of manhattan will be affected. When you think of all the buildings in trouble, it is not difficult to see how such a scenario could unfold -- exactly like it did in other bubble cities.

2001 prices here we come...

...which would be a better value hold in time terms than most cities.

I very well understand those impacts of the abatement on the market, and that's what this topic seems to go when it comes up, but nevertheless it has real value, and ought to be valued.

I think the discount rate should just be the inflation rate because the liability abated is certain, while the cost of debt presumably reflects some default risk of the borrower and/or deflation of value of the collateral. If inflation rate is the discount rate and you assume rates go up with inflation then you just use todays taxes to get the pv of the benefit.

Yeah but it keeps it all in the family to assume that $$$ that would have otherwise paid taxes pay the mortgage. Besides, 6% after taxes is what 4%? What is inflation, 3%? 2%? I don't think it would be all that big a difference.

It may be a certainty, but in order to realize the value, you need to own something inherently uncertain.

My main point is this : 1) just do a simple add up of the abatement value using todays rates and assume that is prepaid taxes, subtract it from the price to get the ppsf on a comparable basis vs. other abatements of different length or no abatement buildings

and 2), as you note, be wary that the whole price point of the place may be distorted by the low monthlies causing a greater buyer pool, dumb people who can't do economics, which lays thee groundwork for some negative price impact as the abatement rolls off.

jim, what happens to you when you go to sell your unit in 10 years as your abatement is running out and the powers that be decide another round of abatements would be just the ticket to juice the local economy? you've overpaid going in, and you'd be screwed going out.

as much as i think the abatements juice the market on this side, i think the expiration of them will be a greater effect. unless incomes and population rise much, much faster than seems likely.

Riversider

Except the cost of rental has poor viability the further out in time you project. The costs associated with ownership more certain. The last point to keep in mind is that over the long term is is reasonable to assume the renter will pay the owner carrying costs + profit.

_________

The costs associated with ownership (in my mind) is far more uncertain in today's manhattan condo / coop market than any time prior. Consider:

1) neighboring condos/ coops where the resident loses a job and fails to pay common charges - more risk
2) cities running budgets on stimulus dollars since the tax revenues have dried up - risk of potential tax increases
3) interest rates will rise at some point - could be a risk to cost of ownership depending on the mortgage and will certainly put downward pressure on resale value

there are probably other risks as well (like rent to buy metrics which could still suggest some more correction), but you get the gist.

Add caps on the mortgage deduction %...

Oh you mean when interest rates rise, it puts downward pressure? I thought it was best to buy when rates are low?

aboutready...I see your point about the negative impact of abatements, really. That's part of what I meant to put under the rubric of my point two. I would point out that it wouldn't just be the rolled-off abated building screwed at that point, but other buildings as well that weren't abated ever that might be considered by potential purchasers.

But nevertheless surely those making the point you are making wouldn't argue that today you just somehow ignore the abatement. If nothing else, one should make some calculation to adjust for the different length of abatements when looking at buildings that are otherwise roughly comparable.

Rhino - you are joking, right?

I think you are the one you brought up the patrick.net piece and I think he does a good job on that site demonstrating the mechanics of interest rates, buy metrics, etc.

I am joking, yes.

Jim, you could do a full blown DCF as an investment property and make assumptions about rents, maintenance increases, rent increases, mortgage rates....and stress it across a range of costs of equity.

jim, i agree. but i don't think it can be formulaic. maybe within a small market, but then you'd still need to consider the ramifications of the larger market.

i think the income is simply not there to support the paying of the taxes in full. and i don't think the income will be there in the future. so, by their very existence, the abatements are creating a future class of distressed owners. i'm close to thinking that negates almost all positives, except for someone who buys much less than they could afford, and plans on holding for the very long term.

OK - sorry to be dense - very tired at the moment / these holidays are wearing me down more-so than in the past (I am almost looking forward to going back to work on Mon...)

Given the number of these buildings about ready, I think your point may well be a warning sign about the whole market (as if you needed any more), not just a particular abated building per se. In a market like wmburg where basically ALL the buildings we talk about have various abatements I guess you would view it as a big risk factor for the hood looking out a while.