Is Manhattan Marketplace Full of Vultures?

Once I learned of your site I've been viewing your site regularly to get your perspective on things. I find your site informative.

I like to sell my place and get another place. My soon-to-be broker has told me I should not worry about what's going on and put my place up for sale because there are buyers out there, still.

I'm not selling because I have to, it's because I want to.

Inventory has dried up and I have actually seen listing price increased in two open houses this weekend. Find it hard to imagine how price can drop drastically when there is so little supply. Unless there are subprime borrowers who will be forced to sell their apartments at whatever price they can get due to increased adjustable rate mortgage (an unlikely scenario in Manhatten) find it hard to believe we will see sort of the price drop national headlines seem to suggest.

There are "vultures" in all financial markets and sometimes they are right to wait and sometimes the event they are waiting for never occurs. As a Manhattan condo owner, I hope there will not be such a correction that there will be room for them, but everybody has a right to wait it out if they wish. As long as the economy stays fairly healthy and Manhattan does not suddenly increase in landmass, my bet is the market stays slow for a couple/few years, but eventually picks up. It is insane that you cannot buy a 2BR for less than $1M, but when a $200K salary is nothing special, I guess that makes sense.

i think sellers dont want to sell into something that they percieve as weakness either...so maybee both buyers and sellers have stepped aside. winner? rental landlords.

#2 - I agree. And thanks by the way. There are still plenty of buyers out there and very little inventory. I cant find good places for my clients and they are still actively looking and ready to buy if the place fits their needs and price is not ridiculously overpriced.

Stella - I doubt there are many subprime borrowers here in manhattan. They would never pass a co-op board.

Also agree with #5..at some point, sellers will choose NOT to sell should market correct. However, this hasnt happened yet and is all speculation given mysterious credit issues we are seeing. One thing to note is change in all psychology if the economic world and NYC housing market does take a dive. Don't see that happening though. At least not anything severe

its not so much that there are "vultures" as the sellers are clinging to last quater's or last year's market mentality. lots of these sellers bought in 2005 and are selling the minute they go tax free on their units and are expecting gains they budgeted back in '05 without reading the papers in '07. That and the unrealistic brokers (not all but most). If this isn't a down market its certainly a sideways market and these sellers seem to think otherwise. Having said that, I went to 2 open houses this past sunday and they seemed well attended for a nice summer sunday.

Noah,enjoy your blog quite a bit. Thank you for the service. My knowledge is strictly related to the UES 1BR/2BR market. I own a 1BR (with intent to sell soon) and looking in the 2BR market. I am also a board member.

The inventory on the UES co-op market is the tightest I have seen in quite a long time. I think it is starting to get better and am sure the type of buyers in 2BR market here will demand a discount in the next few months for the 75 basis point pop on their jumbo. Given my experience during the downturn last year, co-op prices were very sticky despite not selling, so I expect a buyer/seller stalemate like last summer. Condos prices on the other hand, are very exposed. I can only see the foreign (weak dollar) buyer holding up the huge condo inventory coming to market in the next 18 months. They were forced to build at the same time due the expiration of the abatements and may get hit the perfect storm if the foreign buyers leaves the market. The buy/rent models for the new developments remind me of the dot com valuation justifications in 2000.

Urbandigs, I enjoy your blog. If there are truly a number of vultures out there waiting for the market to correct, wouldn't it suggest that any correction would be immediately followed by a heavy buying period? Wouldn't that effectively erase all or a portion of the correction? A correction can only occur if demand slips for a prolonged period of time which, based on the vulture mentality, it would not. I'm not arguing that there won't be a correction, only that if there are a number of buyers waiting for one, they had better be really good at timing it.

My guess is that there are alot of people like me that would snap up a 2 or 3 bedroom Manhattan apartment if prices fell more than 10%. However, I'm not waiting for the credit situation to sort itself out because I'm renting a great place that is much cheaper than buying. It's not that I couldn't afford to buy now, it's just psychologically more attractive to buy at a cheaper level having missed the boat over the past few years, which has been painful. I don't think Manhattan will suffer the sub-prime or Alt-A problems the rest of the country will face and you'd be foolish to wait for that to happen here. I'll just continue paying rent and wait for an opportunity that probably won't come. But I'm there if the opportunity comes!

The trouble with Mr. Urbandigs is that he's not very good at hiding his writing style when using aliases.

Urbandigs, we closed today and asked our lawyer and our lender the same question. Maybe they were blowing smoke up our butts, but they said they have seen no change whatsoever in the market. Our lawyer said he thinks there could be a correction, but that it will be short-lived and that since we bought in a great location we shouldn't lose sleep. That said, I know plenty of people licking their chops at what they perceive to be a crack in the facade of NYC real estate. Will they be able to affect things? I doubt it. If there's even a slight dip, the floodgates will open, assuming interest rates are decent (and I realize that's a big assumption).

There is one problem with your characterization of "buyers". People who are looking, trying to negotiate for better deals, etc. aren't "vultures", they just have more common sense (and aren't easily brainwashed by all this hype). They dont see the point in constantly bidding prices higher and higher and have decided the run of the last 6-7 years has just gone too far by all reasonable measures. Only amateurs think they are getting truly wealthy by having this bubble continue. If I own a million dollar home that goes to 2 million in 5 years what difference does it make if I decide to sell and buy another place when prices have gone up across the city? If I decide to cash some money out (refi) and buy an investment property, what's the point if you have driven cap rates down from 10% to almost 4%? You as a broker (If you were truly responsible) should be telling people what historical rent/price ratios in New York have been, instead of supporting this bubble by constantly cheering prices higher and higher.

zizizi - so your suggesting that I spend my time logging as aliases and plugging my blog. Damn, you got me, you got the tater!

Bonzo - I didnt mean to use the word vultures as a demeaning word for NYC buyers. I meant to use it in the context that SHOULD Manhattan prices fall, plenty of buyers will be hovering around waiting to scoop up a deal.

Flatdweller - I only see a psychology change right now. Fundamentals still in tact. Ill definitely report if I see a change in those.

Thanks Juicemand & Robocop..Oh wait, that was me as an alias. Thanks Noah!

#12---Lawyers and Lenders can tell you about volume, not direction, of the market. Ask brokers. Price appreciation is screeching to a halt. No more offers at open houses. Product is remaining on the market. Have the prices dropped 30%? No. But they are no longer going up 30% a year or a quarter as they had been in prior years. Newsflash. We're in the middle of a correction. Hell, it might be over already.

urbandigs -- yes, that's what I'm suggesting.

Regarding said vultures, we are anxiously waiting for quality 2BR coops to go back to $500/sqft or so. They have a long way to go.

zizizi:

Umm, exactly WHERE do you expect 2 bedroom units 'to go back to $500/sqft or so?' Do you mean Harlem, or Dumbo, per chance? 'Cuz I KNOW you don't mean prime Manhattan locations like the Village, UES from 5th to Park, UWS on CPW, SoHo, TriBeCa, etc.

How unreasonable would it be to expect prices to go back to 2004? When lending standards were still sane?

back to 2004 would be what.. 30% decline? was 2004 really that long also, isn't it possible?

I posted here before and always mentioned that I am a broker. Here again I am a broker and I am not the only one who says we've never seen such a busy AUGUST. I thought I would get my break already but running around like a crazy chicken up to this very day.
So conclusion is we still have a very strong market. Unbelievable strong. Don't take my work go check yourself and go to any open house. Any active buyer knows what I am referring to.

I've been looking, and am waiting. I think it's too early to tell - the sellers are hoping this goes away quickly and are doing their best to wait it out without changing their mindset or prices, and the prospective buyers like myself are waiting to see what happens and thinking the sellers should be recognizing the market has changed. Have I gone to open houses regularly? Yes. Have I made appointment to see apartments I'm legitimately interested in? Yes. Have the brokers working the open houses and showing me the apartments been busy and running around? Yes. Have they sold anything? NO.

It's a pause with a negative skew right now - if it holds, the sellers will have to change. If it blows over, the buyers will have to suck it up.

I see the same thing - we've had a couple of open houses in my building for a single unit on the market. I thought the sellers were crazy to begin showing a place in mid-August, and not just wait 'til after Labor Day. But lo and behold, there have been numerous prospectuve purchasers coming through to see this unit. On the other hand, I must temper this with the fact that I know the seller has received an offer already, but not at ask. So it still remains to be seen if the seller actually sells the place or not, and if so, at the ask or at what discount to the ask. Actually, I wonder what the 'average days on the market' is for a downtown Manhattan condo - that would probably give me a good yardstick to measure by....

pseudonym -- I expect those prices in 2 years in Midtown east, for places that are currently priced arounf $850-$950/sqft

And as mentioned before, I am betting money on it, and it's paying off so far.

zizizi, where are you betting money on it? CME housing futures?

I think people who want a good deal are not vultures. They are just smart. And the opposite of that is someone who wants to give asking price when this market is tanking by the minute. It's like, if you have $600,000 in the bank, why should you buy a 1-bedroom just to see it worth $300,000 next August? These people are not vultures, they are pragmatic. Even though you are a broker, you would not want to lose your money on this market either.

ziziz:

Do you really expect the price psf in Manhattan to drop to Dallas prices?

I wouldn't mind a "correction", but I don't see apartments on the island below 96th getting down to Dallas/Austin/Phoenix price levels.

zizizi:

So what you're saying is this - if the average midtown east price now is about $900 psf, and you're waiting for it to go down to $500 - in two years.

So you're 'betting' on a 45% drop(!) - in two years(!) - in midtwon east.

Like Gordon Gekko said - 'A fool and his money are lucky enough to get together in the first place.'

You're going to be waiting an awfully looooong time, zizizi.....

MMAfia - as I posted on another topic - CME futures are very wide and hardly ever trade, I managed to sell a couple, but they're just not viable. I'm short some real estate ETFs and I've secured a put option in the form of an increase-capped rent 2 years ago.

Lance75 -- I suggest you take a look at where NYC real estate was in 1996 or early 2002, you can adjust for inflation if you want. If Dallas is at $500/sqft then boy, are we in a bubble...

pseudonym -- we'll see. Obviously in your world they can go up that much in a few years, but not down ;) Remember that a 1% increase in mortgage rates means a 10% increase in monthly payments.

"I'm short some real estate ETFs and I've secured a put option in the form of an increase-capped rent 2 years ago."

nice position! asian stocks got hammered last night... i thought the nikkei was going to go past 500 points down from fears of Countrywide going belly up.

Yes, I'm surprised the JPY is still over 114, would have expected it to be up to 112 by now. My one long exposure to this is J-REITs, because I don't think Japanese real estate will have the same problems and they're just getting clobbered along with everything else (except #8975, which was up 5% last night for whatever reason).

Disclaimer: not investment advice, forward looking speculations, blah blah

The vultures are the brokers, and they're being taken down by the Little Black Arrows.

I wish I understood what zizizi said. (I know squat about trading.)

1. The yen (JPY) is typically inversly correlated with the stock index in Japan, so if the stocks are going down, the yen becomes stronger, so the number of yen a dollar buys goes down. You can see this here:

http://finance.yahoo.com/q/bc?s=USDJPY=X&t=3m&l=on&z=m&q=l&c=%5En225

(red is nikkei index, blue is yen)

2. J-REITs are Japanese real estate trusts. They own and manage property (some residential, some commerical). Unlike the rest of the world, property prices in Japan have been going down for the past 20 years, so they're somewhat more attractive, although still not terribly cheap.

3. #8975 is a stock identifier on the Tokyo exchange.

Disclaimer: not advice, assume I know nothing, place your own bets and don't blame me.