2008 rents - anyone seen this junk broker report?

We're discussed TREG's methodology on another thread:

http://www.streeteasy.com/nyc/talk/discussion/3769-its-confirmed-manhattan-rents-are-rising-at-a-healthy-pace-holy-cow

The basic problem, aside from the relentless spin of their prose, is that they use asking rents, not actual leases.

Rents are going to go up for four reasons...

1. No more easy credit available to get a cheap mortgage, so people hold off on making a purchase.
2. People are afraid to buy because they're still predicting price drops.
3. People are having a harder time financing a new home with a substantial gain from their old home.
4. Everyone needs someplace to live.

We could be entering a whole new phase in society where renting (even your family home) is considered "cool" since it doesn't tie you down with a mortgage and a place that's impossible to sell. We might almost be at the point where being a landlord could be very, very lucrative...does anyone know of any good condo deals?

mrsblogs: Even if you're right about the demand side, what if supply goes up too?

Nybits has average of asking rents. lower east side has the cheapet asking rents.

I recently finished my apartment search. The apartment i am renting is 13% less than what the guy who rented last year was paying (4 year old doorman building in a great neighborhood close to trains). most buildings are offering 1-2 months off (unheard of last year). The reality of 100k highly paid people out of their jobs has to hit someday, no matter how much we deny it.

mrsblogs: manhattan was never a homeowners market. it was always a renters market (dont 70% of people rent here). Rents in manhattan are determined by renters not buyers. (unlike other places?). Drive around on all the new buildings on the west side. This year only the arab oilmen can afford high rents - rents must fall. You cannot deny that credit bubble was inflating rents

I can't, off the top of my head, imagine doorman buildings plural on the Lower East Side. My guess is that that stat is "accurate" but skewed by one or two ridiculously luxury buildings.

In other words, a non-representative sample.

In general, we are finding, as 2008renter has, that renters are softening a little bit from last year.

ali r.
{downtown broker}

Why would anybody believe that rents could go up faster than incomes, which are falling?

All of TREG's reports say the same thing - what isn't going up, is going down. That's very useful.

Mrs. Blogs, you may be on to something about how it is "cool to rent." It is interesting that NYC has historically been a "city of renters."

Just to diverge a little from the usual buy/rent debate, I often wonder whether the current national housing crisis and economic downturn will make keeping a suitcase packed ever the more attractive. Also fewer worries when you rent, at least from a responsible landlord.

This doesn't say much one way or the other about prices and rents in Manhattan (which both seem down a little but generally flat). But could be we are going through a cultural transition.

Real estate agents get bigger commissions from sales than they do from rentals, so that's what they market. The 6% commission that the seller only pays is the hook - it makes buyers feel like they're getting something for free.

Want to change the system? Make it illegal for the seller to pay the buyer's agent (which is what currently happens) because it is a conflict of interest: the buyer's agent makes more money if the property sells for a higher value, therefore his incentive is to increase the price whereas the person whom he represents - the buyer - has an interest in a lower price.

They did away with fixed commissions in the securities industry in the 70's, and transaction costs fell. They did away with money managers steering their customers into their own mutual funds because it increased their commissions, and transaction costs fell. In a market where prices doubled in four years, if there wasn't something wrong with the way the market is set up, commissions should have fallen. They did not.

Force buyers to have to pay their own agents' commissions, and property prices will fall because the true transaction costs would be revealed.

Renting is cool. But you can't paint your living room aubergine, which is why there's an "ownership premium": everybody wants purple walls.

And Purple Rain.

"the buyer's agent makes more money if the property sells for a higher value, therefore his incentive is to increase the price whereas the person whom he represents"

Technically you are correct steve, but I don't think it works this way. In the real world, most buyer agents do everything they can to get a sale as quickly as possible. The reason for pushing buyers to pay more money has little to do with the additional commission ($300 per $10k - split with their agency), but rather to secure a commission in the first place. What a buyer agent is motivated by is winning the deal (sometimes at any cost) and in some cases, this is congruent with the buyer motivations. This is a subtle difference but an important one.

How would behavior change if the buyer paid the buyer agent? The same issues and motivations would be present regardless of who cut the check. My guess, at least in Manhattan, is a lot less people would use buyer agents.

As a buyer, I agree, I should be paying my own broker for working for me, finding me the best apartment for me. He/she should not be tempted to collude with the seller's agent or the developers in oder to get their commission. Furthermore, I feel I should be paying my broker for the time he/she puts in whether I choose to buy or not. Believe me, the bad brokers will be weeded out quickly if they are not doing an adequate job. Nobody will continue to pay someone who is not doing a good job for them. I have said it before, the model is broken.

stevejhx is right about sales versus rentals -- most agents who are minimally competent will make more money in sales. That's one reason why most rental brokers aren't very good.

I don't know how to fix that, though.

As far as changing the pricing structure for sales, you will find most brokers are all for it. If I could get a flat fee from buyer clients who soaked up my time and didn't transact, that would be fantastic!

ali r.
{downtown broker}

Use the flat fee concept, JuiceMan. It eliminates the temptation.

Just like money managers now charge either an hourly fee or a percentage of assets, not on a transaction basis, because there was too much temptation to churn.

Flat fee for both buyer and seller. Forget the commission as a percentage of sale price. But the NAR wouldn't go for that.

"Real estate agents get bigger commissions from sales than they do from rentals, so that's what they market."

I'm not sure I agree front_porch. For brokers, there is a skill level required to sell vs. rent and there is a skill level required to sell $500k vs. $12M apartments. steve's comment makes it sound like brokers have a choice on whether to be a rental broker vs. a listing agent vs. a buyer agent. It comes down to the person, capabilities, relationship skills etc. It is like saying that if you sell used cars could make a choice to sell BMW's or that a TJMaxx store clerk could choose to sell at Tourneau. They could eventually make the transition (maybe) but it isn't as simple as choosing to do it or not.

Many brokers are now doing both, often as a service to a prior/future client. My broker is superb. And he has consistently stated that he is happy to help me buy or rent (he actually offerred to waive his portion of the fee for my last rental, but I went for a no-fee building). A very good broker is looking to form relationships. If someone doesn't have any time I can entirely see them not taking on any rental listings or people looking to rent. But if you have a long-term client, or if things are a bit slow, helping clients find rentals (a market that scares me far more than buying, talk about no transparency) can probably be a great long-term marketing decision.

Well, aboutready, I do rentals too -- mostly in the neighborhoods of Chelsea/Village/SoHo/Tribeca where I'm trying to build my business. And I have a little bit of a specialty in high-end (five-figures a month) downtown rentals.

But selling a $2 million 2-bedroom apartment is only about twice or three times the work of helping a picky renter find a one-bedroom apartment -- especially if you end up finding them a co-op sublet and have to do a board package for the rental -- and it pays tremendously better.

As far as skill level, I hear JuiceMan, but the point I was trying to make is that because the pay is better, most brokers who can focus on sales do.

ali r.
{downtown broker}

Ali, I hear you. But I've sold two apartments with my broker, bought one, and referred two or three to him. He knows I'm with him until he retires as is our kid, born and raised in NYC. (He gave her a fab present from Dylan's Candy Bar a few years ago, some people really know how to market). I know I'm not his "friend" but he is a great guy who hears what I am saying, and knows what I want. He will eventually sell me the apartment of my dreams, and probably an interim apartment that I will buy (long-term, investment) for my daughter. Will he, ever, in this process tell me that I need to "BUY NOW?" No. He won't. And thus, he will help me find a four figure rental.

Rents are definitely on there way down. Here are a few signs:
1) Walk into any full service building and note the inventory and management's willingness to cut a deal (even during their high season).
2) The increase in thenumber of FOR RENT signs on 3 and 4 story buildings throughout the city.
3) The lack of new Wall Street hires both full time and summer interns.
4) The building inventory of unsold new condo developments.
It doesn't look good for this winter and early 2009.

aboutready, your broker sounds like a gem. If he works north of 59th Street send me his name, I prefer to work south of the Park can always use good people to refer to.

ali r.
{downtown broker}