Manhattan market prognostication 2022

NY Times had an article about the higher inflation, mortgage rates, and real estate:

https://www.nytimes.com/2022/03/31/upshot/home-prices-mortgage-rates.html

The focus of the article was across the US, but I thought it’d be interesting to hear what people thought for Manhattan. Where do people see the sales & rental markets heading over the next year, in the context of higher mortgage rates that have come from measures against higher rates of inflation?

Of course, free to prognosticate for the next couple of years, next several years, etc. too.

Trying to predict the short/midterm direction of the real estate market, no thank you ; )

C’mon, last time we played this game you won drinks from me!

Ha. What your prediction Nada using SE Manhattan Index?

The latest print is Feb 2022 at 1075K. My guess is that it’ll creep up a few percent over the next several months (1110K?) before topping out by late summer or fall. It’ll float in that neighborhood through the remainder of 2022, and in 2023 it’ll start coming down in earnest.

What do you think?

I think 1110k is more or less in the bag once the current contracts close in June/July. I would dare to say even higher due to the lag effect in SE index. New development resales will be a drag. I find it hard to predict beyond due to uncertainty about interest rates and Fed balance sheet actions. If I were to be forced to guess, I will say flat line after 1125-1140k.

It seems like the mortgage rate pressure is going to be intense. We are coming off a period where people were loading up on 2.x% mortgages. Market expectations of Fed funds rate in mid-2023 is currently at 3.6%. So mortgages at 5.x% look plausible if not likely, including ARMs. For a populace that heavily considers the cost of buying as directly related to the rate, that is a big increase in cost.

Other pressures that are make the situation stronger in Manhattan are incoming ARM resets, that will be at 5.x% if not 6.x%, tilting people towards selling. Manhattan skews towards ARMs more than nationwide. A lot of Manhattan jobs won’t do well in an environment of increasing rates, so 2022 bonuses will likely be thin. Not to mention drops in financial assets. E.g., people levering themselves on housing at 2.x% to go long high-yield at 4% are currently sitting on ~10% losses from “safe” investments.

That is why it is very difficult to predict more than 6 months out. 10y treasury still below 2.5. So people will shift to fixed instead of ARM. Keith mentioned 3.5 fixed rate still being available to the right people.

While we're sharing (and I offer to pay for drinks this time if we can 1) be outside and 2) get Keith back into the City) I have two ARMs. One is at 3.x%, and presumably it will rise to 5.x% with this year's reset. As an aside, I don't even know what its index is -- do we still have LIBOR?
The other one, indexed off the one-year T-bill, started at 5.x% back in the day, in 2003. It is currently at 2.x%, and when it resets later this year, it will be 4.x% (because annual increases are capped).
While these are indeed significant increases in cost, they're not going to hit a "pain point" till we see a second year of increase, because 6.x% and 7.x% are where this frog starts to feel the boiling water.

As stated earlier, a lot of rate locks and signed contracts are already in place to make the market go up. Furthermore, bonuses were good this year. It is really 2023 where I see the last rate hikes happening. Dealmaking for this year has not been up to snuff, so barring a second half surge, I think that PE / bankers / lawyers are bidding now but may not next year. I think that we see increased prices this year with a peak then falloff in transactions and by mid-2023 the soft buyers market.

300>> Keith mentioned 3.5 fixed rate still being available to the right people.

It’s more about the differential across the board. Sure, the “right people” could get 3.5% fixed (last week, anyways). But before, the “right people” were much lower. E.g., RichardBurg got his “vanilla Uncle Sam Special at 2.375%”. For him, the availability of that rate played directly into making him a busy at the price he was willing to pay. ARM specials for the “right people” used to be as low as 1.75%. I don’t think that’s happening anymore either.

FP, I think LIBOR is still a thing but has been phased out of new mortgages. Then it became Treasuries, and increasingly now, SOFR (30-day backward-looking average of Fed rates, I think). I have also seen margins increase with newer ARMs. E.g., whereas vintage ARMs would be something like 1yr LIBOR + 2.25%, new ones tend to be SOFR + 2.75% even for “right people” mortgages. I’m not sure what the impetus has been behind underwriting with a higher margin.

Answering my own question, perhaps that’s because LIBOR tends to be at a ~0.5% premium to Treasuries?

SOFR is structurally lower than LIBOR, so a higher margin gets the same average rate. The convention for converting to SOFR from 3-month LIBOR is the margin should increase 0.26%. SOFR is overnight secured lending (similar to swaps). LIBOR is an unsecured term bank lending rate.

Thanks for the clarification, WP.

Sorry, I should have said SOFR is similar to repo rates, not swaps.

WP, our heads seem to often be in the same place.

What is making you say PE / banker / lawyer deal making is not up to snuff? Is it rate driven, or something else? My prognostications are based on what I think would be happening in theory, not from actual data points.

Also, where do you see rents headed? I would guess it continues its rise this year before dropping next year, for the reasons you mentioned w.r.t. people feeling flush from bonuses.

The dealflow I am just seeing as first quarter numbers come out and they are lower than any of the past five quarters for debt issuance. Still a long way to go this year with twists and turns sure to come and we could catch up, but so far we are behind the 2021 pace (which was a great year).

Re deal volume: The headlines in Reuters and FT articles the other days blamed it on global economic uncertainty, not rates.

"The Russia-Ukraine war has increased market volatility and uncertainty about the global economy, driving down the value of mergers and acquisitions worldwide by 29% in the first quarter. Dealogic data shows the volume of M&A reached $1.01 trillion, down from $1.43 trillion in Q1 of 2021."

The SEC's proposed changes to SPAC regulation may also have a chilling effect (at least on the deals of more dubious quality).

And on a related note for commercial rents (which may indirectly affect residential sales and rentals): "The availability of office space in New York's financial district hit the highest rate in the first quarter since 2000, reaching nearly 25% overall, up from 17% a year ago, according to Savills Research. Sarah Dreyer, senior vice president of research and data services at Savills, says the availability rate will continue to rise in the short term before it starts to recover in 2023."

The office space datapoint is harder to conceptualize. I can see people wanting to live in the city even if hoteling becomes the norm with 2-3 days per week in office for many workers. That would maintain pressure on office rents but residential would still be well bid.

>> Re deal volume: The headlines in Reuters and FT articles the other days blamed it on global economic uncertainty, not rates.

What's driving "global economic uncertainty"? The war is only about a month old but inflation (and therefore rates) has been gathering steam for much longer. Irrespective, the 33% drop in deal volume / fees in 2022 Q1 sounds big:

https://markets.ft.com/data/league-tables/tables-and-trends
http://graphics.wsj.com/investment-banking-scorecard

This is not an industry I know much about, but Q1 2022 felt more like the amuse-bouche ahead of a multi-quarter feast of "global economic uncertainty". If that curtails deal volume, then I wouldn't hold my breath on this:

>> Still a long way to go this year with twists and turns sure to come and we could catch up, but so far we are behind the 2021 pace (which was a great year).

I think that rents are going up because so many people left the city who are now being called back to the office. There apartments didn't sit empty all pandemic - new entrants were attracted by the more affordable rents. Now that workers are called back to office they need to not just bid market, but must pay enough to displace those who stepped up to a bigger apartment/their own apartment/moved to the city because of COVID rents. Also, wage inflation caused at least 5% rent growth. Cant wait for the next rent regulation increase vote to see the fight when from the landlords when the progressives propose a ~1% increase.

I forgot to make a rent prediction: I think return to office is happening now, so we have seen the largest of the rent growths. We level off here assuming inflation starts to get under control by the end of the year.

>> Now that workers are called back to office they need to not just bid market, but must pay enough to displace those who stepped up to a bigger apartment/their own apartment/moved to the city because of COVID rents.

That’s a very interesting observation, WP. I hadn’t been able to understand why the rental market has become so bid, with inventory tighter than it ever was pre-pandemic, while the sales market / inventory has remained steady / ho-hum. But what you’re saying might explain it (or at least some of it).

Those that left temporarily and are now coming back are more likely renters, but their “place” got filled by someone attracted by COVID rents. I have certainly contributed to this phenomenon, having moved to a bigger apt (much bigger than is reasonable for 2 people) simply because COVID rents were so cheap. Now that I’m here, I’m not leaving. For one thing, I got a 3-year lease. For another, inertia. I can easily afford the post-COVID rent — COVID rents just served as the incentive for me to get off my lazy butt. But now that I’m here, I’ve taken a “slot” that would have naturally been earmarked for a sizable family for years.

On the one hand, I guess I should feel bad? On the other, nah — these are all wealthy people who jumped ship during the pandemic, so screw ‘em!!! It is kinda funny though. I think the full 3 years on my lease costs less than what people were paying a year later for 2 years of leasing. If they just showed up last winter, signed on the dotted line, and left the apt empty for a year, they’d have come out ahead.

Here’s a fun one. Rented in 2017 with an ask of $100K. Came back at $100K just before the pandemic hit in 2020, then spent the year chopping down to an ask of $50K until it finally found a taker by year-end. Now, it’s back at $100K with a mid-2021 availability.

https://streeteasy.com/rental/2988462

At least my apt for 2 isn’t 15K sq ft…. And who in their right mind would undertake furnishing such a big place for only 18 months???

White the interior of this one are very nicely done, it is overbuilt (lot coverage almost to the back) compromising the natural light and yard at the back. At this price point, people care a lot for that. Probably good for someone with 4 kids plus a full time staff of 2 who just got divorced.

If you want good natural light, I don’t think you should be looking at townhouses in Manhattan. Most of the light on this one is gonna come from the front, which faces south. And I think the light situation is more gonna be about the fact that across the street are other townhouses, rather than tall buildings, which means direct sunlight into the rooms.

Do you think this’ll find a taker without chopping the $100K ask?

>> plus a full time staff of 2 who just got divorced

Who wants to hire a couple who just got divorced??? ;)

Ha. I never took pride in my grammar.

Nada, There are many townhouses which have at least 20 foot deep yard and in many cased with another townhouse garden at the back. 40 foot clearance from the back is not unusual.

https://streeteasy.com/sale/1559195

A few more examples in $15mm plus range. Townhouse without a backyard at least 20 feet deep is shot. New regulations want you leave at least 30% of the lot depth at the back.

https://streeteasy.com/sale/1592960?featured=1
https://streeteasy.com/building/163-east-82-street-new_york/house
https://streeteasy.com/sale/1579973

Very expensive one without a backyard sitting on the market for a while.
https://streeteasy.com/sale/1463861

That last one is particularly egregious.

I guess I am just too far from townhouse interest to really understand. I appreciate good light and distance from other buildings, but it’s on such a different scale that the distinction amongst the townhouses seems like quibbling.

And Eat-in-kitchen on ground floor is a chef’s paradise. Bring your own gas stove.

At least it's no longer a procedure room:

https://streeteasy.com/sale/1339982

https://www.nytimes.com/2022/04/11/nyregion/remote-work-hybrid-manhattan.html

People may not like working at the office 5 days per week, but they still like living in Manhattan:

"In June 2020, Zillow Group, the real estate website, announced that employees could move anywhere in the country and never return to an office. The company now has more than 300 employees living in New York City, a 15 percent increase compared with two years earlier, according to a company spokeswoman."

I think inflation beats higher mortgage rates, especially in NYC where approx 50% of buyers are all cash.
One directly affects 50% of the pool, the other near 100%. Short term at least.

But something has to break too. Small example, ordering meals for one on Yelp which after $30 of menu order turns into $45 after special fees, tax and 20% tip.

Very limited data, however we're seeing the market softening on the 'edges'. And in the somewhat less desirable homes/locations, more scrutiny and negotiating.

That's an interesting point, truth.

Keith, can you say anything about that theory in real-time -- is the softening on the 'edges' coming more from financing buyers, or is it equally present from all-cash buyers?

In my current experience, it is coming from people financing.

Makes sense, Keith. For now.

I will add, if you've got the right property it's still a bit bonkers. Hot and heavy bidding that went 400k over ask on a Tribeca loft. And a townhouse we also bid on in Kensington, I was just told it went "well beyond the asking price. "

I have two clients one who is in all cash buyer that called me today to say they're taking a break. These are buyers looking for what I would call more or less prime properties. They feel like there are a lot of headwinds, however they're not seeing that reflected in pricing.

Well crap, Keith: it took all of 10 hours for my "For now" foreshadowing to come through.

It's A tale of two markets, currently...

Speaking completely anecdotally here, I feel like this war, inflation and interest rates are starting to take the wind out of this market.

I know when I look at the numbers things continue to look pretty good. But when I talk to my attorneys and bankers, they seem to be echoing the same thing I'm seeing / feeling. That said, we're all coming off of an absolute gangbuster 2021. For perspective we did 67 or so deals last year, that was a record for us. I think that worked out to be north of $130 million in transactions. We also rebated back a record number of dollars to clients.

I think this market looks very different come Labor Day, and I think this July and August will be exceptionally slow, even factoring in normal seasonality. Buyers, start your engines!

Currently we're still getting deals done, and we're busy although not swamped. Time will tell...

Keith
TBG

All that said, what surprises me is how strong certain segments / properties remain. We had submitted offers on three best and finals, all in Brooklyn this week. 2 one bedrooms under a million, one Brownstone price of The Brownstone offer was all cash at ask, the one bedrooms, one with 2% above ask one was 5 and all cash. We weren't even close! This was a typical response from all three agents:

"Hi Keith & Regina,

Thank you again for Steve's revised offer. The sellers have decided to move forward with a different offer. This was a competitive property and we received 8 total. Steve's offer was 6th out of the 8. If anything changes, we'll be sure to let you know!

Thanks,"

You're talking to yourself again .............

Nah, I’m listening. Just don’t have anything useful to add.

a friend got a lease renewal offer from landlord: pay 20% more per month and lock in one more year, or pay 40% more per month and lock in two years. Crazy!!!! way above official inflation.

Is it catch up for low rental rate deal in early 2021 when the rental market was still soft?

From Street Easy blog. I guess barring recession, rising rents will keep a bid under $1000-$1500 per sq ft properties.

"Luxury rentals in Manhattan (the top 20% of the market) saw the smallest year-over-year increases in rent, with a 23.6% jump to $6,844. Mid-tier rentals (the middle 40-60%) saw the largest year-over-year increase of 30%, reaching $3,516 in Q1."

https://streeteasy.com/blog/pandemic-deals-expiring-q1-2022-market-reports/

Spurred by your comment, 300, I looked at the latest print of the SE index. It looks like Mar 2022 was a flatline to Feb 2022, which could indicate a top sooner than either of us had guessed if it holds. It could be just noise, but it would imply a top before increasing rates / Ukraine / etc. given the lagged nature of the index. A bit of a head-scratcher…

I noticed that as well. Probably a Omicron driven scare or just slow December season.

I think theres been a serious turn in the economy or at least sentiment in the last few weeks.

Look at the VC funded operating at a loss SV startups announcing layoffs .. FANGS announcing hiring freezes and in some cases cuts..
In a way it's the long expected deflating of the VC funded lifestyle bubble we've all expected for 5 years.

On the NYC Wall St job market I am seeing a similar slowing/chill if not freeze.

It looks like Q1 earnings are coming out and are generally not great.
Slowed growth after the crazy 2021-2022 boom, earnings that don't look great when accounted for near 10% inflation, guidance downward for next quarters due to supply chain, etc.

My other indicator is that new cars, for some makes&models, have actually become reasonably available, within single digit week waits, at sticker price with no dealer markup. This has not been the case for the last 12-18 months. Production is still constrained, and you can see automaker production&sales numbers are still low/guiding lower, so this is fully a demand reduction. Likewise the used car market appears to have peaked in February or so.

Similarly my house shows its first price estimate reduction on both Zillow & Redfin in the 2 years I've had it, with a -0.3% print in May. Granted from their iBuyer attempt, we know how much these numbers are BS.. however for 2 years they've been BS in the upwards direction.

Time will tell if things pick back up this summer. So far it appears feds raising rates is doing what you'd expect.

NYC seems levered to the economic shifts. Easy money tends to flow most strongly to its population in many ways. The wealthy are more likely to hold liquid assets like stocks & bonds, which have the largest wealth effect. They are also more likely to use cheap mortgages / ARMs / IO loans to lever themselves. And, as you say, financial firms have had a very prosperous couple of years. Some look at it as above-expectations outcomes that fuel a little spending, but others look at it as a new baseline expectation that boosts spending a lot more.

As this all reverses, you expect it to tamper demand more than elsewhere. NYC RE sales prices never really moved a lot one way or another, but given the plentiful inventory (in the markets I track anyways), I think we’ll see the slow sideways slide that started in 2015 continue. Rentals seem like they will top out soon enough (if they haven’t already) for another drop and bounce on the yo-yo trajectory they’ve had the past couple of years.

One rental building I like to track is Prism, because they list everything they have and change pricing daily. Their algo seems to use no inputs beyond current inventory to determine price changes. If inventory is at (say) 5%, pricing is kept level. The more it deviates from 5%, the more it is willing to increase/drop price on the next day. It seems to use absolutely zero modeling of long-term effects. The results are somewhere between entertaining and comical. For example, here are a couple of identical apts with pricing over the years on a low-floor 460 sq ft studio:

https://streeteasy.com/building/prism-at-park-ave-south/5n

https://streeteasy.com/building/prism-at-park-ave-south/6n

So:

2015: $3500
2016: $3700
2017: $3300
2018: $3300
2019: $3000
Dec 2020: $2300
Dec 2021: $4500
Apr 2022: $3900

You would think that somewhere along the line, someone might consider the effect of doubling rents on existing tenants and vacancies, possibly adjusting the pricing algo accordingly. But nope, they seem to jack up the price, wait for the vacancies to pile up, and then drop the price.

For reference, they had ~45 vacancies in late 2020. In late 2021, it was 3-5. Now it is 18. They have been renting 3-4 per month in recent months.

The timeframe on this shift is too short to blame economic change. Rather, it’s some sort of weird self-inflicted hysterisis on an underlying stable rent.

Nada, Very interesting.

Steve, Some slowing is actually pretty good. Looks like Amazon will stop hiring 500,000 people every year. And used car prices will go back down. While Fed will go 100bps in the next two meetings, will the slowing mean that they will slow down after that vs what is built into the market expectations?

Spot pricing there may end after Zell dumps his Manhattan portfolio

Probably, 30. It seems unique to EQR and has been fun to watch.

Up

Tired of the Seldon family allegeded puppy killers threads

Solow not Selden lol

Would love a 5 minute window edit feature for SE

+1 on nutty puppy killer threads. Did the poster get evicted for rent non payment?

I'm seeing slowdown in my co-op , sales volume are down 20% vs year ago sales . Pricing is down 8%
Upper East Side

It's a disappointment that those buildings haven't been built yet --I need some more windows to peep into. I'm tired of looking at Queens, and would rather spy on queens.

>> While Fed will go 100bps in the next two meetings, will the slowing mean that they will slow down after that vs what is built into the market expectations?

I’ve heard this notion a few times from you and urbandigs, and I’m not sure I follow. In my simplistic view, if the Fed does not follow through then long-term rates drops, since they are largely based on future Fed fund expectations. As a result, inflation expectations will increase.

As it stands, the market expects forward rates to increase to 3% by year-end, to a little higher after that, and to settle back down to 3% longer-term. Inflation expectations are 4.8% over the next year, the. 3.4% the following year, and 2.5% longer-term. If the Fed wants to control inflation, that doesn’t give them much leeway w.r.t. taking their foot off the gas.

What is the path you’re envisioning on the Fed raising to 1.25% next month, taking a look around, and saying “good enough” thereafter? Is it that they ignore their price stability mandate, or that the effects of 1.25% rates (and hesitancy to raise beyond that in the face of obviousness) will be enough to cool consumer demand for goods & services in a month or two?

I wrote 100bp increase before the fed meeting and they more or less confirmed another 100 bps. So fed funds target will already be 50bps higher at 175-200bps than what I implied. If we get another low GDP increase print, will they swallow inflation for a little longer? There will clearly be a case for them wait a meeting to see the effects of total 175bs tightening and balance sheet roll off. And perhaps go 25bps increments after that. Then there is Amazon (and perhaps other e commerce players) who will likely not be hiring on a net basis as they are overbuilt. Used car prices also coming down. And housing will slow down in the burbs due to higher rates and people continuing to move back into the cities.

Sounds like you are an inflation dove and then some. Very roughly, for the past year-plus I think we have had:

300 < Fed < market

in terms of future rate expectations and responsiveness to inflation. Broadly, consumers have been 300’s too. There seems to be an entrenched consumer view that even though inflation is present, rates will stay low forever (or revert soon enough) because that is the natural state. As long as that view is present, the logical response is to borrow and spend, which drives inflation.

The “wait and see” approach hasn’t worked out well so far. I doubt the Fed is inclined to double down. But I guess others do. This’ll be interesting to watch. Can’t wait for the whining blaming the Fed for doing their job.

Just trying to push the danger thread down : )

Nada, What do you expect peak fed fund rate in the next one year?

Market around 3%.
https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html

I don’t really know better than the market. 3% in a year, with 25-50bp a of variation, seems like a fine outlook. Bigger question is on the variation: do they stop earlier or keep marching up? I see the risks skew toward the upside. The Fed has been late and has lost a degree of credibility, so I don’t think a “wait and see” attitude after a few raises would be prudent. They tried “wait and see” in 2021 and now they have egg on their face with a moderate mess to clean up. I don’t think they want to create a bigger mess. The upside risk is that now the genie is out of the bottle, is 3% enough to put it back in? It might be enough, I dunno, but I do not position myself to depend on it.

Current market dynamics, such as the lack of buyer over-enthusiasm, indicated by the slight slowdown in deal activity, increasing luxury days on market, and mediating last asking price suggests that the seller’s market in Manhattan real estate may be fading.

https://www.forbes.com/sites/johnwalkup/2022/05/11/are-we-nearing-the-end-of-the-seller-market-in-new-york-city-real-estate/amp/

And what a sorry “seller’s market” it was. In nominal terms, prices are flat to what they were 2 years ago. In real terms, down 10%. Compared to the 2009/2010 bottom, up 20% nominally but down 10% in real terms. Compare to the 2007/2008 peak, up 5% nominally but down 25% in real terms. The long-term consequences of poor fundamentals, in my estimation.

For about a minute in 2020/2021, fundamentals seemed acceptable in certain areas of the market if you squinted hard enough and ascribed to a never-ending supply of cheap money. But turned out to be a mirage. I think we might be in for another decade of sideways.

300>> While Fed will go 100bps in the next two meetings, will the slowing mean that they will slow down after that vs what is built into the market expectations?

Here’s what Jerome Powell had to say about that yesterday:

“This is not a time for tremen­dously nu­anced read­ings of in­fla­tion,” Mr. Pow­ell said. “We need to see in­fla­tion com­ing down in a con­vinc­ing way. Un­til we do, we’ll keep go­ing.”

https://www.wsj.com/articles/feds-powell-to-take-wsj-questions-on-inflation-and-economic-outlook-11652779802

Fuller context…

Nick: Chair Powell, a number of your former colleagues, vice chair until this past January, Bill Dudley, the former New York Fed president, have said recently that they think the Fed is going to have to raise its short-term policy rate to 3.5%, maybe 4%, may be higher. How are you thinking about the destination right now for how you might have to raise interest rates?

Chair Powell: As a policy maker, the way I’m thinking about it is right now, we are raising rates expeditiously to what we have been seeing to a more normal level, which is something that we will reach may in the fourth quarter. But it is not a stopping point. It is not a looking around point. We don’t know with any confidence where neutral is. We don’t know where tightening is. We just know in this market, higher inflation, very strong growth. What we are going to be looking at, meeting by meeting, data reading by data reading, is what is happening in the financial conditions, what is happening with the economy.

Really, with what the -- what affects or changes our policy is having on the economy. Are we starting to see what we need to see? Which is a really clear and convincing evidence that inflation is coming down. That is what we really need to see. We are watching for that. If that involves moving past levels of neutral, we will not hesitate to do that. We won’t. Honestly, we will go until we feel like we are at a place where we can say yes, financial conditions are at an appropriate place, we see inflation coming down. We will go to that point and there will not be any hesitation about that.

https://www.wsj.com/amp/articles/transcript-fed-chairman-jerome-powell-at-the-wsj-future-of-everything-festival-11652821738

That is a pretty hawkish statement. I am surprised market took it in stride and keeping an eye on the Financial Conditions index from Chicago Fed.

So 10y yields down 50bps from the peak. Not that I made any money by buying bond futures at the peak yields. So looking like

from 300 < Fed < market

to 300=Market

It’s down 39bps from the absolute peak, at ~2.75%. Full context of what I said was more about the past year.

>> Very roughly, for the past year-plus I think we have had 300 < Fed < market in terms of future rate expectations and responsiveness to inflation.

The market has moved up over the past year, and you seem to have closed the gap between you & the market.

It will be very interesting to see how market handles QT a few months into it.

Was I wrong in my forecast on fed rates?

Nada, Comments?

Who knows anymore, but at least you weren’t saying this last year when 10yr Treasuries we’re at 1.2-1.3%:

UWS_er>> I wouldn’t put much weight into forward rates 10yrs down the line. A cursory glance at the fiscal position of the US makes it quite clear that rates either can never get that high again unless we have some sort of “great reset” scenario in the aftermath of a high and sustained inflationary period, in which case everyone sitting on a mortgage denominate in pre-inflation dollars will be happy anyways. The only other option is a quick spiral into US Treasury default if the Fed actually allowed rates to go that high, so of course they won’t and the release valve is likely the dollar. Until that outcome hits, no worries on mortgage rates.

The Fed seems to be doing its job w.r.t. rates, so I guess that leaves us with a quick spiral into US Treasury default according to that prognostication?

Perhaps Manhattan rents may be a good leading indicator of when the Fed can take its foot off the gas? Rents, because it’s a deeply embedded market of inflation. Manhattan, because its more linked to levers the Fed can pull (rates => finance-linked income & assets).

Note that rents, not RE prices, because that’s what they measure inflation against.

As someone who is actively trying to move back to NYC (after a 3 year move to the west coast), this is quite a different market than it was in 2019 for both sales and rentals. Have the feds actions, market movements and the general recessionary worries impacted this market at all (like were starting to see across the country)? To me it feels like most sellers / agents I speak to are pretending like nothing has changed due to supply / demand technicals (which i understand to a point) but I just can't see how that won't be quite impactful over the next 6 - 12 months. I was about to sign a contract last week and ended up hitting pause given macro conditions and not technically having to move just yet but, my 3.2% IO ARM will surely be missed. Maybe I am foolish as I had negotiated a decent deal ( i thought) but how this market can continue to expect prices above pre pandemic levels continues to shock me.

On the other hand the rental market makes even less sense to me given what appears to be a continued net migration out of NYC (https://www.bloomberg.com/news/articles/2022-04-27/more-nyc-renters-are-moving-on-instead-of-paying-higher-rates#xj4y7vzkg). I get that so many people moved back in at the same time post covid, but surely in the face of a economic downturn, these trends will have to change.

Likely planning on continue to invest in treasuries and renting for a year while I continue to look and hopefully prices normalize but, if anyone has any insight locally, would be greatly appreciated. Just tired of being told nothing has changed (or maybe I need to change my views).

prices are no longer at pre-pandemic or even pandemic level. Take a look at the price cuts on this gorgeous apartment https://streeteasy.com/building/160-east-38-street-new_york/35gh?

There's always a significant gap between sellers/agents and buyers. Buyers are currently pumping the brakes, most sellers are still attached to what their neighbors sold for 6/12 months ago. If you have a prime desirable home, you're lucky. If you're on the outskirts, not so lucky.

I have been seeing a few agent news blurbs bringing attention to the fact that markets are deteriorating. Not everyone is kidding themselves that tight inventory will save us from the larger macro events taking place.

For the best homes in Brooklyn we're still seeing an active Market. Our newest Brooklyn heights listing had an accepted offer after the first open house. We bid on four homes in Westchester last week,$1.5mm range, unsuccessfully. That market seems to be holding up to some degree for now, at least at that lower price point.

Spoke to a new client today moving back into the city. They told me Bronxville has slowed down significantly, not much is moving currently. Wonder how the so-called 'no- where USA' previously overheated markets are doing?

Manhattan has been very hit or miss, but overall I would say things are quite sluggish. And as I pointed out higher up in the thread, I think this is going to be an exceptionally slow(dead) July/August. That said, some of my more active buyer clients are telling me they'd rather put some of their money into a home, than stocks. These are also people that have a bias towards owning, I don't think renting is much of an option for them.

Last year was bonkers. This year I've had to make serious emotional adjustment to significantly less transactions. That said we are getting deals done, and are probably about 50% as busy as we were this time last year.

Hope everybody's having and will continue to have a great summer!

Keith
TBG

This Fall could be very interesting.

@Krolik: I wonder what is going on with that 'attic'(?) space Is there something about that unit on that floor that had unusually high ceilings, which they dropped to get the storage space? From the photos I don't sense that the ceilings are particularly low. (My building's top floor has a similar oddball high ceilings in parts of some units). I can see why the broker thought she needed to spend time photoshopping the unit, but honestly, it's a style I could live with, mostly as is (though that jacuzzi has got to go).

That’s a lot of apartment for $1M, Krolik.

250: sales market is still below where it was in 2019. For example, see SE Index of same home resales:

https://streeteasy.com/blog/data-dashboard

Rents are higher than 2019, by 10% or so, with low inventory moving fast.

I agree that prices / rents should drop given outlook. Yet, here you are nice, flush, and levered with your 3.2% IO loan looking for a place. Like many others. These things take time to happen.

Krolik, the renovations on that Murray Hill one may be nice but the layout is definitely the result of a combination, with too much private space and not enough public space, for my taste at least, and a hefty combo maintenance. The fact that this one is waiting for its buyer isn't necessarily indicative of larger trends (though IA with Keith that things are kind of slow.)

Murray Hill Place needs kitchen/dining opened up to living room and public space will suddenly feel much larger. I couldn't tell exactly but ceiling height may a few inches less than 8'. Kitchen seems to be 8' which is standard for this vintage. In general, I feel that at this price, you are getting a lot. Maintenance given call it 1300-1400 sq ft , large storage space, top floor and pool is reasonable. Some empty nester moving from burbs would love the storage. Current finishes probably doesn't appeal to the younger generation but the price is very good to renovate over time. Long time back, I spent a few years living in this hood and mexican restaurant at the bottom was a lot of fun.

Forgot to add, if I were to be in the market for a 2 bed room, 2 bath, washer dryer, for $1.2-1.3mm, I would jump on it and live as it is and do minor reno over time. Reno budget essentially got sucked up by higher rates in form of higher down payment (instead of 25% 6 months back say 35%) to keep the mortgage payments manageable.

Happy father's day!

>> In general, I feel that at this price, you are getting a lot. Maintenance given call it 1300-1400 sq ft , large storage space, top floor and pool is reasonable.

I agree. This place is huge and the building has a lot of amenities, including a pool and a gym, and low maintenance given space and floor.

I actually like that this is a combination, as they got more wet areas and were able to put in a laundry room and enlarge the master bath. Most buildings of this age, mine included, have very small bathrooms, so this is a very special feature.

"Wonder how the so-called 'no- where USA' previously overheated markets are doing?"

Not nowhere, but Westchester.
"Exit Sandman: Mariano Rivera closes sale of Rye mansion for $2M loss
New York Yankees legend sells 13K-sf home for $3.8M, down from $5.7M he paid in 2006."

speaking of mansions, how lovely is this one with views https://www.redfin.com/NY/Palisades/32-Lawrence-Ln-10964/home/65584276

I personally was not willing to pay for views, but that was because i wanted my $ go further. But if money was no object....

3300 sq ft of rundown home on an unkempt 1 acre lot counts as a mansion these days?

How standards have fallen. 1 acre, 3300 sq. ft. architecturally undistinguished, and on a narrow lot so that the neighbors could probably keep tabs on whatever you're doing poolside. $5m may be a bargain for the neighborhood, but it's no mansion, when you consider the many great homes that have historically lined the Hudson, e.g., Edgewater, Boscobel, Lyndhurst, Kykuit. And certainly if money is no object.

Head up to Red Hook: 1851, 290 acres, 16k sq. ft, many beds & baths: https://www.point2homes.com/US/Home-For-Sale/NY/Red-Hook-Town/124-EDEN-KNOLL/122896645.html,

or something a bit more modern and closer in Rye: 1913, 2.8ac, 8,000 sq. ft, many beds, some baths: https://www.point2homes.com/US/Home-For-Sale/NY/Rye/Forest-Harbor/859-Forest-Avenue/121853676.html.

*Those* are mansions.