Real Estate Market Cools... Just FYI....

down....getting ready for some firesale prices...!

I don't know if i'd be so gleeful. This could have widespread ramifications. Buildings not being built, buildings being built but never becoming viable condo developments, quality of facades and finishes being compromised (already being seen), bankruptcies and litigation. There's often an ugly side to market correction. Caveat emptor has never been more appropriate.

I find it fascinating that none of the young turks have responded to this. To add some meaning, I'll mention the one pain that I didn't previously: unemployment.

spunky?

Keeping wishing everyone. Since you can't afford to buy at these prices and you're pissed off about it the best thing to do is voice your complaints on this board and post articles predicting a drop in prices.Wah Wah Wah cry me a river. Now get your dam rent checks in because it's 3 days past due!

hey spunky sounds like you’re exposed...bumping up against some covenants or time lines...are your banks threatening squeeze your _alls?? given that your mr money bags are you a better buyer or seller at these levels??

sorry to be negative, but the chickens are coming home to roost...and there's not thing anyone can do about it. and unfortunately it’s just beginning (rd. 1). the strain on the financial system from sloppy underwriting the last 6-8 years in both real estate and commercial credit (which no one is talking about...yet) is going to need time (years) to work its way through the system. with mounting losses the banks are going to pull back and credit into 2008-09 is going to get tight. defaults will rise and new projects and homes will be foreclosed on...fire sale in new york, hardly, but lower prices, absolutely. those with cash and access to capital for both corporate and real estate assets will have a field day...

a few things to watch....employment numbers. when this starts to slip and it will (in ny and across the country)...send in the clowns...the falling dollar will be a saving grace as long as europe stays strong, but unfortunately their banks will have their own challenges. and if your are a savvy foreign buyer, why buy now, when you can get it on the cheap in the future??

for those who like this site...watch the arrows (up or down). also note that recently closed transactions were negotiated 30-150 days prior. and in contract properties...well those data points won't surface for a few months.

1. Wall Street's getting hammered. Bankers' bonuses down. Bankers' net worth (company stock) slammed.

2. Dollar plummeting. NYC on sale for Europeans and Canadians.

What's gonna happen? Who the hell knows. My guess is the market softens all around Manhattan, but Manhattan stays firm. There's always a core neighborhood, or core neighborhoods, that stay firm during downturns. In the 1990s it was the Park/5th Avenues that only suffered mildly while everything else got killed. That "zone of downturn immunity" has grown significantly since then to, arguably, all of Manhattan south of 96th. Possibly parts of Brooklyn as well.

That said, fun little anecdote. This week I noticed flyers advertising a rental (printed by a BROKER, no less) on mailboxes/lampposts in prime UWS. Remember the days when folks used to put flyers on lampposts advertising rentals? Thought it was 1994 again.

yournamehere:

Actually, the neighborhoods best insulated in the last downturn were indeed 5th/Park as you indicate, but were also GV and CPW (w/park views only). It seemed to me that during that time that 5th/CPW values dropped the least, but GV property values snapped back quicker than any other, and also had the lowest consistent inventory availabilty and those units sat on the market for the shortest length of time before eventually selling, even during the downturn.

Right. Good neighborhoods will suffer the least. I think you can include parts of Brooklyn in that category.

As for the foreign money (NYT article), it's chasing new condo developments that (i) allow pied-a-terres, (ii) offer trophy properties and (iii) are extra-extra-extra-full-service (concierge, hotel-quality services). My bet is you won't see too many Russians or Chinese going pre-war with a view of the courtyard. In a weird way, many of these condos are not "housing" stock, but a luxury commodity in a category of their own.

Here's another fun stat to consider, for what it's worth. Taking a quick look at the open houses listed for this weekend for 2 BRs on the UWS, 37% have had price reductions. Would you consider this high/normal/low?

another good stat to keep in mind is the number of new development condos that are already heading to the rental market...

It's such personal thing. My own view (of course, not knowing the time on market for each individual unit, nor being able to assess whether the discounted units were over priced in the first place, or the various locations of the units, etc.), is that if less than 30% of the offered units are being reduced than that's a pretty low percentage of reductions and the market is probably too hot, if more than 70% of the units are being reduced than it's a very high percentage and the market is probably tumbling, and anything in between 30% and 70% would be normal. 37% (again, not knowing any of the finer details, which are very, very important) seems pretty fine to my way of thinking.

Historically this is the slowest part of the season. Wouldn't it be ironic if prices shot up again in the upcoming spring.

Mmyles the almighty prognosticator--keep wishing those forecasts are quite entertaining. The only thing you can bet on is that your rent is going to higher particularly when it's time to renew. Oh BTW vacancy rates in Manhattan is below 1.2%. In some areas of Manhattan it's below 1%. You can fantasize all you want about those silly prognostications but in the prime areas of Manhattan you just go ahead keep waiting to try to time the market like every other renter.Then if and when it drops all the renters will jump on the bandwagon bidding up prices and setting new highs in Manhattan RE.

how does 30% compare. i have only been following the market for about 10 months but if 30% were to extend to the whole island, that does seem a bit concerning. pseudonym you may have more experience on this than i, so your opinion probably has more substance, but personally, it does seem above the norm in a market where people dont generally accept deals below offer.

residential real estate is an illiquid investment and for price change to be recognised cash has to change hands. new developments and people who have to sell their properties fall into this category. if i live in my apt and i want to sell but cant then why not hold out. in some cases people can and sometimes they cant. what is the relative proportion in the city. if you are a long term investor with no consumption then why should you worry about what happens between now and then? reasons that people generally need to sell: higher interest rates, and reduced/no income ( ie you work for a bank / hedge fund / exposed to finance in some way ). the question is what is the run on effect of this. i would assume most of us can live out over the next 12 months and suffer through the next year. so i doubt most of the city will be unemployed. higher interest rates, well i wont predict but indications are they will stay lower short term, but longer term will real rates have to increase to a point where people will have to sell. a firesale scenario.

new developments are my concern, especially the ones that are mediocre and there seems to be a few of these. an area where cash will have to change hands. someone will have to eventually have to take over empty apartments. liqiudity is becoming scarse and i am sure development aint that easy anymore, the return premium has probably vanished. most new developments are under construction and what will happen when these buildings actually exist. the take up on these building has changed over the last few months. when i first started looking last year this time, it was hard to even have a chance to take up apts but now i have a myriad of choices. even though inventory levels are low, how much of the new developments are actually outstanding beyond what brokers allow us to see. fyi have been looking mainly in the chelsea, west vill and gv vill, but my interest has drifter toward older co-ops. i dont need to be a genius to work it out. will developers get to a point where they will have to offload inventory.

spunky if you are so bullish why not buy another investment apt. i would assume the only reason you dont is that you are already fully leveraged. given such conviction ?

lupus1:

Thoughtfully stated as a whole.

As to your assertion "... it does seem above the norm in a market where people dont generally accept deals below offer..." I would have to offer/add that in a normal Manhattan residential market people DO generally accept a solid fair offer slightly below offer. Until now, I would not characterize the recent (past three years) market as 'normal.' But some people, having only dealt with/in this market in the recent past as the only thing they know do not have the experience to understand this.

prognosticator spunky, maybe. only time will tell. fortunately i'm old enough to have experience several credit markets... entertaining?? glad your amused. are your bankers?? hardly. as for my real estate portfolio spunky, i'm firmly above water, delevered with no worries for 2008 and beyond. marginal increases for my renters next year...possibly, i recently renewed some at current levels. i'm more concerned with credit quality and consistent cash flow.

spunky, anyone with a brain fart knows the late fall and early winter are slow periods for real estate in the northeast. what is disconcerting is the amount of inventory, although low by national standards, starting to build. trust me, my banker colleagues who are lucky enough to receive nice checks this year, won't be burning them on over priced real estate and porsches...

"now that the tide is out we're going to see who's been swimming naked"...warren buffet. sounds like your naked spunky...hey it's life. to each his own. maybe we'll see you in the halloween parade next year. by the way you never answered my question. are you a better buyer or seller at these levels?? your notes on this blog spunky, sounds like you've been sampling the ether. rule number one spunky, is that pushers shouldn't sample or get hooked on their own product.

if your in it to make money. never fall in love with an asset. it's just that.

case in point. sam zell. enough said.

Spunky, got to love your optimism. This board has been fascinating for me. I've been wondering about the numbers (projected development vs. population growth, and a whole lot of numbers thrown in to boot) since 2003, but have been extremely hesitant to mention my concerns because of the generally widespread abuse heaped on us realists. Now, it's almost boring to be on the chicken little side. The downturn has been so sudden, but to those of us who read more than just the tea leaves, I don't think it's been so stunning. Some of the information that has explained the overexpansion has been shocking, but not necessarily so stunning given the greed (and historical, i.e. 70's) almost always present in the lending industry.

YourNameHere, maybe the best way to answer your question regarding price reductions is by looking at the acceleration of price reductions in Manhattan. I did some research for you on here: (you guys can verify for me on this site by looking for price change by any amount and then reducing that by price increase by any amount over the same period).
In the past 60 days, there have been 1217 price decreases.
In the past 30 days, there have been 814.
In the past 7 days, 219.
and 81 in the past 2 days.
If you annualize each period to get a day-weighted figure for each period, you get the following:
7302/year over the past 60 days
9768/year over the last 30 days
11388/ year if you are just looking at the past week
and 14782/year if you used the past 2 days as sample.

So the amount of price decreases has increased by 33% in the past 30 days vs the past 60 days on an annualized basis, 56% for the last 7 days vs. the past 60 days, and 102.4% in the past 2 days vs. the past 60 days, on an annualized basis. Is that good or bad? I don't know. I guess it's "a personal thing." I guess it depends on if the apartments were over priced in the first place (read: they were).

It would be extremely helpful to get a more organized breakdown on these reductions by -

1. location
2. price points ($0-$1,000,000, $1,000,000-$2,000,000, etc.)
3. size of unit (both # of bedrooms and square footage)
4. type of unit (condo, coop, freestanding)

and even then, knowing all this, I'd want to see these on a case-by-case basis to see who was on a fishing expedition, and who was being realistic with regards to pricing. There really are so many damn variables to consider that just running the numbers as dmag2020 has done really tells us very little in the end about the situation. Only the most general trends can be inferred. It's like saying there's a sub-prime/Alt-A crisis in greater NYC, but if you compare Jamaica Plains with Greenwich Village, I think you'd see two drastically different stories with regards to foreclosure rates and lender instability/willingness to loan.

You could assume one of three things: that the ratio of fishing expeditions that have ended has remained constant over the last 60 days (and the amount of "realistics" being reduced is increasing at a worse than illustrated rate than indicated above), that it has increased proportionately with the amount of "realistically" priced units being reduced, or that the trend is that the amount of sellers on fishing expeditions who, after realizing there really are no fish out there and its time they come, have dramatically risen with every new week over the past 60 days. But in all cases the numbers reflect just Manhattan, so it is safe to say there is a psychology change taking place throughout the city, either for the overly optimistic "tycoons" trying to get $2200/ft for their boxes, or for the ones trying to get $1000/ft. But, we don't get data that specific on most economic numbers that move the major markets in a very meaningful way on regular basis, and, as of late, the few specifics that we do get have told a much scarier story than the headline number indicated, specifically with the latest GDP and non-farm unemployment numbers. (read Alan Abelson's article in today's Barron's.) You could easily run the numbers I ran using price points, size, and type, but I would put money on the fact that the ratios will be similar amongst all price points and unit size, but, in absolute terms, you might see a greater increase in reductions of the 700-1.5 million range, and, in percentage terms, a greater increase in reductions in the +2 million range. Although it doesn't matter, they are all headed in the same direction. And its not up, and its not sideways.

Lol. That's funny.

On the serious note, I thought about that, but here's the thing: the brokers don't take the listings off the market at least until they are closed. They leave them up as "in contract" (in case a buyer walks, can't finance, doesn't get board approval, etc.) So you have to assume that from the time a price is reduced until the time they have accepted an offer and closed is, at a minimum, 60 plus days, if not longer. (A broker could verify this for us - pseudo - you there?). So the numbers hold. The only potential statistical error I could think of is if sellers tend to lower their prices on a Friday and Saturday vs other days of the week (affecting the 2 day number, obviously), or at the very end and the very beginning of the month vs the middle, which I would find hard to believe. In either of those circumstances, you can't argue October over September as a seasonal trend for lowering asking prices. I think this real. And the trend is your friend... And the bulls make money, and so do the bears, but the piggies, they get slaughtered... And (insert your favorite market cliche here).

dmag, this is pretty interesting stuff. Would you be so kind to parse it by ethnicity and buyer body-mass index so pseudonym can get more comfortable with the conclusions?

But seriously, something that the analysis doesn't take into account is all of the properties marked down 30 days ago/60 days ago that are no longer listed since they've been snapped up. Therefore, the rate of properties marked down in the past two days that are still listed or open housed should naturally be higher than older properties simply because many of the older marked-down properties got sold or entered into contract (so are no longer listed).

By the way - I'm not just looking at the open houses, i was looking at all the listings reduced.

That's weird, it posted my response to you, yournamehere, before your response, not after. Anyway, please read the response before your post as my answer, not the one after (which was an after thought). Must have something to do with the time warp created by daylight savings.

dmag - that makes sense. As for the end of week/beginning of month effect, I suppose you can just track the analysis throughout the month to see if that holds.

Also, dmag, just to be clear, are the markdowns double-counted across the time periods? In other words, do the 1217 markdowns in the past 60 days include the 814 over the past 30 days? If so, you can look at it the following way as well:

# of markdowns:

1-2 days ago: 81 (avg 40.5/day)
3-7 days ago: 138 (i.e., 219-81) (avg 28/day)
8-30 days ago: 595 (26/day)
31-60 days ago: 403 (13/day)

If I'm doing this right, it really shows the acceleration vividly.

Just did the same analysis for Manhattan below 96th street, markdowns >5%.
Avg 1-2 days ago: 12.5/day
3-7 days ago: 9.8
8-30: 10.0
31-60: 6.7

You are right, my method does double count the more recent numbers. The reality is more pronounced, as your math shows. So you are talking about a 100% increase in the last 30 days, excluding this past week, and additional 55% increase in the last two days, over the past month. That is an insane velocity. Somebody write a NYtimes art- oh wait.