Reporter wants to talk to prospective Manhattan buyers

In the past two weeks I made 9 offers (in Manhattan) and two were accepted at significantly below ask. The Manhattan market does seem much softer than it was a year or two ago. The problem with bidders, especially with the ones on this board is either they are very very poor negotiators or have been brainwashed into believing paying more is a mark of some type of prestige. I routinely have knocked prices down on properties in the Boroughs and on Long Island even during the "bubble" years and I am starting to have much more success in Manhattan lately. I have no idea where all these over paying buyers all of a sudden came from. If you followed real estate in New York for decades as I have, you would have easily and instinctly known, that 2002 to 2007 were crazy years of insane appreciation. You as a reporter, especially for a business journal should do a much better job at informing people what normal historical appreciation is. In 1999 buying an investment propert for a 9, 10, 11 or even 12% cap rate was an every day frequent occurence. At todays prices with 4.5% cap rates its not even worth showing up to take out the garbage.

That's the real story that is being missed by real estate publications.

--- I'll put more details up on the accepted offers once I an through deciding if I will buy one of them. Not fair to the sellers to post publicly all the details of the transaction,

I think certain segments of the NYC RE market is looking at an unambiguous shift downwards. Most of the new-development-condos that have recently gone up (or are currently in construction) were conceived using financial models and assumptions that were significantly different than the current economic environment - easy credit, a strong local job market (especially on Wall Street), and a robust underlying economic tone. My my, what a difference a year makes. The availability of mortgages (especially jumbos) have been noticeably reduced (not impossible, but much tougher to get), job-security on Wall Street and related industries has been obliterated, and we're facing a much tougher economic outlook (lower corporate earnings, reduced government tax revenues and tighter consumer spending).

This divergence between the developer's expected-sales-projections and the buyers' willingness/ability to pay is setting up to be a showdown that will reshape the market. Developers will hold out from lowering their prices as much a possible to avoid devaluing their own products and their unsold units will simply sit empty on the market at prices few people would be willing to pay. Buyers will hold off making large financial commitments until they feel clarity/security return to their economic well-being.

In the short-term, this stalemate will lead to fewer sales being consummated as each side tries to wait out the market. Developers will hope for an economic turnaround and that buyers return to pay the original asking prices. Buyers will hope for developers to become impatient as their inventory of unsold units grows and for developers to compete with one another by offering concessions and reducing prices. We've seen evidence in the market of both of these effects.

At the moment, you'll undoubtedly see brokers claim that the NYC RE market is still strong because prices have not come down, but they will admit that properties are sitting on the market longer (Dollie Lenz comes to mind as she was on CNBC yesterday claiming that the Bear Stearns collapse will have no impact on the NYC RE market). This is because in the near-term, developers can afford not to lower their prices and simply wait the extended time it takes for their units to sell. If the economic downturn extends for a prolong period of time (as many fear it might) and the inventory of unsold units accumulates (remember that most new development construction is in addition to the existing inventory of co-ops and condos that already existed in the market to begin with) developers will feel increased pressure to entertain lower bids and greater concessions - we've seen anecdotal evidence of this as well: developers covering closing costs, transfer taxes, free common charges, etc. It all comes down to which side will feel the pressure first - developers looking to unload their units or buyers jumping in at attractive prices.

You'll also hear the argument that the weak dollar is attracting strong foreign investment to make up for reduced local demand. To some extent, this has occurred. But the benefit of favorable foreign-exchange rates will be offset (possibly eliminated) if the value of the underlying asset falls. Foreign investors who bought RE in Manhattan would gain if the dollar strengthened, but that wouldn't matter if the value of their NYC apartment had depreciated.

Overall, this is a waiting game at the moment. Developers are still listing their condos at prices that are based on 2007 numbers, but buyers are dealing with 2008 realities. I suspect that developers will have to adjust their prices downwards because the economic landscape has fundamentally changed. All those thousands of jobs eliminated on Wall Street (not just at Bear but all across the street) aren't coming back anytime soon. The city will face a dramatic budget squeeze as tax revenues fall. Furthermore, the workers who are lucky enough to keep their jobs will do so at much lower bonus levels than they've enjoyed over the last few years. Workers can't expect their firms to write-down hundreds of billions of dollars of value and then expect the same level of bonuses as 2006 & 2007. Eventually the RE market will find a clearing equilibrium at a lower price level. We've already seen this start to happen in the fringe areas (Williamsburg, LIC, Harlem, etc) where price-chopping has occurred in an effort to stimulate interest. So far, the price cuts may have led to busier open-houses but has had no effect of the number of closings, as buyers remain sidelined and trigger-shy. The longer we stay in this recessed economic environment, the more likely we will see downward pressure affect the rest of Manhattan. This is not the first bubble to have burst. We're still very early in the cycle and the correction has yet to really begin.

I work in the financial services industry and have been looking for a new apartment to buy. I went to a five open houses over the weekend (two coops and two condos all in chelsea and one new development in the flatiron area) and four of them had seen significant price reductions-one from $950K to $885. The brokers for the four apartments said the sellers were "flexible." Only the new development price seemed firm, but they were willing to throw in a washer/dryer (!). I am reasonably confident in my job prospects, but many of my friends who work in finance think more pain is on its way and that I should wait until later in teh year to buy. I will keep on looking, but I not in any rush to buy and am determined not to overpay.

Hi Lincolnrames,

can you call me at 212-210-0265. I'd love to talk to you and i don't have t use your name.

Theresa

I was recently just about to go into contract for a coop in Manhattan and decided to pull out the day after the Bear Stern’s news transpired. I had bid up to the seller's desired price, but in the wake of what happened in the financial markets I decided to not go ahead with the contract,, as I felt had it been a week later I wouldn’t have gone up in price so much. My job is in no way related to the financial markets so it's hard for me to gauge whether the current turmoil is having an effect of people’s confidence in their job security.

Hi Jayer would you please call me at 212-210-0265 so I can interview you. don't need to use your name if that makes you uncomfortable.

Theresa

we have been looking to buy in Manhattan or Park Slope. My spouse works for a hedge fund, I work for a bank. Based on the current financial markets, solidified last week, we have decided to no longer look to buy at this time. Neither of our jobs are invulnerable to layoffs (from redemptions, takeovers, etc) or lower compensations in 2008. At this point we would rather have the option to walk away from a rent with our liquidity intact than to tie it up in realestate.

Let us know when you publish your article.

My husband is an i-banker and I work in PR. We were about to go into contract on a classic 6 on the upper West Side the week that the stock market started to tank and decided to walk away as well. We don't fear for either of our jobs, but believe that Manhattan is way over-priced and didnt' want to look back in 6 months and know that we bought at the absolute top of the market! We are renting now and are ready to jump in when prices start to come down, which looks inevitable. If you look at charts, and there is one very interesting chart that compares Manhattan prices to those in Japan in the 80s, I believe, they follow the exact same curve. In Japan, prices plummeted and then stayed flat at the bottom for about 10 years. We did escape a major depression last week with the Fed's intervention, but Wall St. is still preparing for more layoffs and the markets remain uncertain. Buying now seems like very poor decision making...unless you are forced for one reason or another.

Lawyer with a wife who is expecting. We were in contract and nervous and had a complication come up. Upon review by our attorney, the RE tax number was higher than we had been told. We tried to get them to adjust downward, but they wouldn't move enough for my taste. In the meantime Bear went belly up, other institutions announced layoffs and the overall economic outlook got even more unstable. We pulled our offer and have decided to wait on the sidelines until we see a decrease in prices, a stabilization of the market, a decrease in the interest rate spread for mortgages verus treasuries, or a once in a lifetime deal to come along.

I would be willing to discuss my logic if you are still interested.

coopseeker and or reardon --can you let us know if someone purchase the apt that you decided to walk away from or is it still on the market. Interesting to see what your offer was and what it actually sells for.

We've been looking for a co-op for 15 months (currently renting very nice, heavily subsidized apt through work). It is tough to find something we can afford that is as good as or better than our cheap rental. Having said that, we still want to buy for long term. Long story short, we have only made one (failed) offer (we underbid) and there is nothing out there we like in our price range. I have noticed recently that a lot of places have had big price reductions and have even come off the market altogether (i.e. without selling). In one case, I have also seen a seller take off their property because they couldn't find something they wanted to buy, a common problem I suspect.
Sellers seem more flexible based on what props are selling for. I personally am not waiting to see if prices drop, I'm just waiting for the right apartment! Maybe this is one and the same?

I work for a large internet and sofrware comapany (really large); at contract for a new build on the UES. Just got my mortgage (interest only) and need to make our decision next week. Leaning towards taking the plunge; we are 1st time buyers with a combined HH income of 300k+ and enough cash to lean on even with 20% down. Not to say I'm not sufficiently terrified though- my thinking is prices wont come down to the point where I will be able to score my dream 2BR for 1.3 but there is a good chance the mortgage I just got wont be available in 12 mos.

iMom should be a journalist. Very well wrtten observation.

My wife and I have a one year old and are renting a one bedroom. We are currently looking for a 2 br place. We walked away from a deal earlier in the year due to games the brokers were playing and I called them out. We are close to another offer on a place (new development), I am going back to look at it a second time this week.(you see so much more the second time) My offer will be about 5% to 10% below asking and I do not expect them to accept but I cannot pay asking in this environment because I think prices will go down slighty and stay there for a number of years.

Really good brokers and sellers will know how to navigate through these changing times but those are few and far between, the rest will be wasting everyones time living in the past.

My wife and I have been looking for an apartment for the last 10 months or so - mostly on the UES, UWS or Park Slope. We weren't in any rush, so we wanted to get a feel of the market and make sure that we were finding the right place. About 8 months ago we would go to open houses, many of which were inundated with prospective purchasers or gawkers. We put low bids on a couple of places and both went for asking or above without financing contingencies. Looking at listings online 8 months ago, it appeared that prices were still increasing (at least based on the listing prices).

Over the last 2 - 3 months, however, we have noticed a few changes. There have been less gawkers at the open houses and an apparent increase in price reductions in apartments. It's difficult to tell whether this is because of a softening market or because the apartments were originally overpriced (even for an inflated market), or because the sellers were just highly motivated. I have also noticed that listing prices for new listings have generally not increased over the last 6 months or so. Does this mean the housing bubble has begun to burst in Manhattan? I don't know. I can tell you that, even with these apparent changes in the market, inventory of "quality" apartments in these areas at reasonable (relative to Manhattan) prices is scarce. A search of 2/3 bedrooms under $1.5 in these areas is only producing a few places that I would even consider (trying to find a true quality 3 bedroom at this price point and in this location is essentially fruitless). If there are only 2-3 places that I'm seeing (each week or so) that are in the right locaction, have the right size and condition and are affordable to me, how much of a bubble burst can we really expect on these quality apartments?

I doubt you will see a too much softness in the 3BR range. And this is coming from someone who is a "bear" on NY RE. It is just the mechanics. Most who bought these places probably did so for the long haul. If the market softens they will just sit on the properties, especially if they are of decent quality. Most of the "investor" type purchases, which will probably be the first to drop were 1 to 2BR. On the other hand, things that are on the margin, either of quality, location, etc. and had gone up the fastest in the last few years those will probably drop more significantly.

Also remember that 3BR's did not rise as fast as the smaller apartments did. And not as many of them were built recently either.

Despite the relatively low number of postings, I think this is actually the most useful thread on Streeteasy right now. Many thanks to the above posters for sharing some personal experiences. I, too, am in "limbo" right now with an accepted bid but no signed contract. I'm almost certainly going to pull the plug, though, because the Bear Stearns debacle and the rising tide of layoffs leads me to believe that I would be wise to wait a while. In this particular case, I also have a feeling that the seller and his broker will panic and start backpedaling on the agreed upon price.

The balance of power has shifted in this market - absolutely no question about it.

So far, the apartment that we pulled out of has not sold. We also are eagerly waiting to see what happens. For your info, it was listed at $1.95, we offered $1.85 and settled on $1.93 before pulling out. The apartment needs about $300k in renovations. After looking at current prices, we now think that the right price is about $1.8 finished.

coopseeker, were you the only bidder in your situation, or were there others?

In my case, the broker kept alluding to "other bidders" during the process...and somehow or another they all have now mysteriously disappeared. Imagine! Kidding aside, I can't say I'm particularly shocked that the broker (obviously) concocted phantom bidders to move things along. But I told him from day one: if you have a better bid, then go ahead and take it, because I see no reason to budge on my bid. Sure enough, it wasn't long before I was getting voicemails about other "interested parties" blah blah blah. Now here we are many weeks later, my bid was accepted, but the contract is in flux (on various technicalities and misrepresentations), and I'm holding all the cards insofar as I can either walk away or lower my bid. And where are all those other other "bidders" now, who were once waving fistfuls of cash at the broker? Vanished into thin air.

I was also asked to compete with phantom bidders. I still bid low and the seller rejected my bid before the BS sht hits the fan. Now she just pulls it off the market.

I wonder if imom may not be right, that the correction is yet to begin. I too am sitting, waiting uncertainly. Prices seem too high for the value offered. Top dollar is still being asked for too many apartments that need work or that have had sloppy work done. I pulled out of one deal on legal advice not long ago, but am still watching the RE market closely. Bank rates are tempting, but I don't want to buy yet if prices slip downward as they might.

The value of the stocks that I will be selling to use for a down payment has dropped quite a bit lately, even though they are all solid. I have not seen that apartment listing prices have dipped the same way as the Dow. There is a disconnect.

It's probably not a great idea to fund your down payment by selling stocks, if you can help it. Why take the tax hit now? It's devastating to your long term compound return in the market.

Also, don't look for any similar behavior in RE prices relative to the Dow. The stock market is a leading indicator, the RE market is a lagging indicator (in a broad sense). To wit...look at 1990-1991, as soon as it was widely known that we were in a recession, the stock market took off and never looked back (it was already "seeing" better times). RE prices, on the other hand, slumped for quite some time because the real gears of the housing economy (like jobs and credit) take a while to get moving again. I suspect we'll see the same dynamic in the current markets.

I was planning to purchase a 1 br apartment in Manhattan until I realized that it makes no sense. To rent the equivalent space is 30-50% cheaper, prices are expected to decline over the next several years, and I consider a 1 br suitable for only a 3-5 years. People that are more settled in life typically need a larger space. The concept of a starter place is that you accumulate capital and benefit from the appreciation. Investing in a 1 br now with the 10% transaction costs, means to loose all your equity in 2 years.

Day-to-day fluctuations in the stock-market have very little impact on RE prices - unless, of course, your company just issued an IPO or if the investment bank you work for just got bought out by another bank. (I'm sorry, we kid because we love. Congrats on the new $10/share deal.)

A few observations on the state of the market:

1) Properties in which a potential buyer pulls an accepted bid are not being snatched up by other buyers. These properties simply go back to sitting on the market. If the market were hot, there would be multiple buyers to come in if a deal with one buyer fell through. That is clearly not happening. The pool of buyers willing to pull the trigger seems very thin. Brokers have been trying to create the illusion of multiple buyers, but the fact that these apartments are still on the market would indicate otherwise.

2) Even buyers whose jobs are not threatened are reporting they are waiting for prices to come down before jumping in. This is important because it underscores that fact that the economic impact of all these layoffs extends to beyond just those who have lost their jobs. There may soon be 34,000 or so newly unemployed, but this actually affects the buying decisions of many more people than that.

3) The effect of price adjustments will be highly compartmentalized within neighborhoods. So far, much of people's analysis has been done with broad strokes across NYC. As we study the market in greater detail, we see very different dynamics playing out is different areas. Think of this as a "flight-to-quality" dynamic where properties in well-established, mature neighborhoods hold up better than aspirational neighborhoods that have been labeled "the next...", as in "the next Tribeca" or "the next UES". Ironically, it is these neighborhoods that will soon be labeled "the first...", as in "the first to cut their prices" or "the first to halt additional new development." Remember, it's always better to buy a lesser-apartment in a better-neighborhood than a better-apartment in a lesser-neighborhood.

4) Don't be suckered in by a strong (or even stable) stock market. Stock investors can place or remove their bets in a matter of seconds as conditions change. A home purchase involves a considerably longer investment horizon and considerably higher transaction costs. If you wanted to, you could just dump your shares of Home Depot by calling your broker. A home purchase, you're stuck with. If the stock market stabilizes around these levels, you will undoubtedly hear brokers cite that as an indication that the market is fine. Don't fall for it.

5) Buyers appear less willing to compromise or settle. In a hot market, buyers were more willing to tolerate brick-wall-views, rumbling street-noise or less-than-balanced layouts. Today, buyers are showing much less flexibility to stray from their wish-list. If an apartment doesn't give them what they want, they'll simply keep looking until they find it.

6) Historically, housing corrections take years to play out, even in NYC. Many people report that they are ready to buy but are simply in a "wait and see" mode. This does not mean that once the RE market stabilizes, that a flood of pent-up demand will come rushing in. These cycles occur very slowly and could take years for their effects to completely work through the system - meaning that prices will gradually decline, gradually stabilize and gradually rebound. Housing prices simply don't fluctuate on a day-to-day basis. More like quarter-to-quarter.

Finally, as with any market, it's not a good idea to try to time or pick-the-bottom. Look at your own situation as the main component of your decision. We're all holding different cards at the poker table. What makes a good move for one player could be disastrous for another.

I hope this helps. Comments/feedback are welcomed.

iMom: this sounds spot on, totally makes sense. The bottom line seems to be to buy something you want, at a price you can afford, no matter what the market is doing.