trump victory: now what?

well considering Trump has a tremendous amount of property in Manhattan(actually got started in Manhattan) that his top priority would be to increase the value of his holdings. So you lucked out big time.

Trump has said interest rates have been kept too low for political reasons. If interest rates rise, say goodbye to the market.

They have already risen a 35bp or so in last two days to 2.15. Guessing 5/1 mortgage rates are up to 2.75. I am in the camp that fed funds rate will go up a bit faster than before but will not go too far. In addition, 10y is unlikely to go above 2.50 (5/1 at 3%). I recently got 2.55 for 5/1 interest only for a jumbo loan) any time soon unless we see strong US/ global growth. Hence, unlikely to be be big negative.

They have already risen a 35bp or so in last two days to 2.15. Guessing 5/1 mortgage rates are up to 2.75. I am in the camp that fed funds rate will go up a bit faster than before but will not go too far. In addition, 10y is unlikely to go above 2.50 (5/1 at 3%). I recently got 2.55 for 5/1 interest only for a jumbo loan) any time soon unless we see strong US/ global growth. Hence, unlikely to be be big negative.

Higher interest rates and glut of new development .. may be some deals in the next 12 month in high end condo's .. thoughts?

>If interest rates rise, say goodbye to the market.

Maybe 30 years ago that would be the prevailing wisdom.

JR1, For sure. There already are. Look at where 17 East 12th st was listed and closed. Started at $3500 per sq ft and closed at $2k per sq ft. Not a view building.

There is a chance that the Federal Reserve will end its emergency stance of zero-interest rates now that the election is over. Additionally, members of the Trump administration might want to push for some reforms of the Fed to end these extraordinary policies. If that happens and interest rates return to a historic norm, then property values will obviously fall somewhat, at least in real terms. I believe that Trump wants to keep the mortgage interest rate deduction, which inflates property values somewhat.

Interesting article on how Trump administration might affect the Fed: https://mises.org/blog/why-president-trump-will-fumigate-fed

I think if economy grows faster under trump, the fed will raise faster. However, lower rates are a new reality as technology puts more and more people out of jobs. The difference between dovish and hawkish fed is 50 bps.

The only thing we know with near certainty is that there will be large tax cuts for the rich.

Imagine you are a middle class Manhattanite earning $500k. Currently, after taxes you make about $25k per month. If you are a W2 employee, I suspect this will change to $28-30k per month. Doesn't seem like a lot but it will affect affordability. That extra $3-5k per month is a $600k-1m mortgage.

Let's go further and look at the $1m income business owner. It's very possible that the corporate rate will end up lower than the W2 rate - somewhere btwn 15-20%. If this happens, it will cause serious reverberations in the market. Currently, at $1m, you net about $42k per month. In the new world, if this change is created, you would net $60k per month. That is a large difference. That extra $18k per month can pay for an additional $3.5m mortgage, for example (not that people will necessarily use it all on an apt). Also, I wouldn't be surprised if NY and CA use these cuts to increase state income taxes as they can get away with it now.

If you play this exercise out, what it implies to me is a stabilization of the $3-10m market. I expect prices to start widening as well. Also, I suspect cap gains will go to 20% and this may cause several business owners to consider selling now while taxes are low.

Of course, supply is still an issue, so until the end of 2017/early 2018, I suspect that we won't see crazy moves. However, if supply starts to tighten in NYC, SF, and LA, it could be one of the greatest times to buy luxury real estate.

I ignored any mention of interest rates, simply because no one knows where they will go. I know the markets are predicting they will go up, but there are too many variables to determine this currently. The House and Senate may curtail many of this trade proposals and other ideas. Therefore, I am not doing anything until mid-next year. I would like to see how this plays out. However, if you bought long-term, it will likely even out eventually, as there is no political will in the Eurozone or the US to let rates rise rapidly. Trump will not be immune to the stock markets' cries for help.

Don't forget about abolishment of AMT.

True, AMT will play a part as well, but only up to about $750k income or so. If you use a 3x multiple for house-to-income ratios, that is $2.25m. This particular impact should affect the sub-$3m market the most.

NYC1234, Good analysis. Lower taxes, which is a part of stimulus driving rates up, will indeed have an offsetting effect. Higher bank stock prices will have an offsetting effect. It is hard to say the net effect but I am thinking below 4-5mm under 2k per sq ft will be stable. Too much supply at high end (>2500 per sq ft) for it to even stabilize.

In 1970 mortgage rates were 10% they eventually peaked at around 21% around 1980 and stayed over 10% until around 1995. In that 25 year time period where rates were over 10% the average home increased in price over 12 times. Keep that in the back of your mind buyers if you "fear rising interest rates".

Steve,
If the rate increase is accompanied by inflation, it is generally good for real estate. The problem is when the real rates (nominal rate - expected inflation) go up. I do think they have some room to go up after having gone up in the last couple of weeks. They are still below what they were early in the year looking at 10y rate and much below long run average of 2%. Assuming with the new realities of the world, we do not see 2%, there is still room for 50bp to 1% increase in real rates (to 1-1.5% level). That would not make a huge difference.

https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldYear&year=2016

yes mercer higher interest rates are a direct result of higher economic productivity which leads to higher earnings/wages which more than offsets the interest induced increased monthly mortgage payments. Yes inflation is a friend for assets.

http://www.wsj.com/articles/mortgage-demand-plummets-as-rates-spike-1479315638

"Lenders and analysts are cautioning that too much of a pickup in a short period could hit demand for mortgages. That could have a domino effect on home prices that have appreciated rapidly in many U.S. housing markets over the last two years."

what is this point about the AMT? i hate the AMT.

It looks like a possibility that they may slash AMT or at least make it more bearable. Of course, don't get excited yet. It's too early to tell. The business class won. We have to see what they do for the professional, working, and lower classes. We will soon find out.

My general guess is that anything that would help someone earning $5m and up is likely going to be agreed upon quickly. After they deal with the meat, they will work there way down to us, where hopefully some of us plebian high-6 and low-7 figure people will be given the bone. Chew on that.

Thanks to all. We went ahead and entered contract last week, for following reasons (most of which were touched on above):

1. Hard assets may be a better hedge against inflation. Yes, rates are up, but because of expected inflation from stimulus.

2. Tax cuts on the rich I guess have to benefit us (roughly in the 3mm vicinity).

3. Bank stocks are way up (30%) post-election, expected (partial?) repeal of Dodd-Frank. This may a) stimulate another housing bubble (where we'd like at least to have bought in at the bottom); and b) anything which is good for banks is good for bankers, which must be good for residential NYC housing more than anywhere else in the world.

Game plan: buy the place, wait for housing bubble & bunch of bankers to get rich, sell it back to them at the peak & become a happy renter again into the crash.