Is This the Peak?

Lots of reasons why we may have reached the peak of this housing cycle. Here are some of the negative trends:

1. Sluggish growth in prices
2. Increase in days on market
3. increasing discounts to asking prices
4. Current economic expansion is 2nd longest on record
5. Increasing interest rates
6. Current oversupply and price softness in luxury sector may expand to other sectors
7. Lower demand from foreign buyers e.g. China
8. Decline in rental values may reduce demand from investors
9. Increases in housing costs growing faster than wages
10. 2018 tax law changes has increased tax burden on many homeowners

Did I miss anything? Anyone care to list the positive trends?

I think that it depends too much on location/segment to say that we are/aren't at a peak. I think that for NY, we are already on a downward trend in luxury. I think that in other price points and geographies, we might still be trending upwards.

Positive trends:

1- Stock market continues to rally
2- Bonuses are strong
3- Companies are flush with cash/profits
4- Economy is incredibly strong with no current signs of trouble

5. Unemployment is all time low.
6. Wages are finally starting to rise. One it starts, it does not stop for a couple of years before fed kills it.
7. Supply except luxury/ultra-luxury is constrained pretty much everywhere.

Fed raising rates beyond 2.5 percent is the biggest negative.

Thanks, anonymousbk and 300. These are positives indeed. The cynic in me would argue that they are what you would expect at the peak of the market and are not indicative of future trends. But certainly they seem to indicate that the market should be OK for the very near term.

I think the main question is the one the article raises - Is it time to sell?

If you own Manhattan commercial property at 3.5 cap rate with no value add, sure. But where would you put your money? Another risky asset? That would not make sense.

For primary residence, round trip transactions costs will kill you unless you were going to move to another state or significantly downsize any way.

Seeing slowing above $3m, primarily Manhattan. $1.5m and under absolutely on fire in Brooklyn. Most recent best and final we bid $113k over ask on a small sort of two bedroom Brownstone unit in Fort Greene. 16 total bids came in, and we didn't get it. Was told the winning bid was significantly higher!??!

Participating in another one of these Brooklyn firecrackers! Wish us luck.

Keith Burkhardt
The Burkhardt Group

Surprisingly honest quote from Bess Freedman, Co-President of Brown Harris Stevens in today's Crain's:

"The market has been flat for maybe two years. The uncertainty in the political arena and the new tax law, along with fears of inflation and rising interest rates, have had an impact. Supply and demand are out of whack, and the market has become very value-driven. Sellers have to get more realistic on lowering their prices."

http://www.crainsnewyork.com/article/20180522/REAL_ESTATE/180529997/brown-harris-stevens-co-president-bess-freedman-says-the-144-year-old-real-estate-firm-still-wont-send-listings-to-streeteasy?ite=34373&ito=1147&itq=ab594831-5ff3-444e-9a78-777544c3ba0e&itx%5Bidio%5D=2782847

As soon as I saw this post, I knew that brokers would show up, and talk about how the market is still "ON FIRE!!!"

Obviously, it's slowing down. Look at all of those little down arrows all over StreetEasy.

mache...keith burkhardt is the furthest thing from a shill besides he said he sees slowing in the 3m+ market. The entry level has no choice but to be on fire as there is absolutely no inventory. Sub 1m condo inventory is practically non existent.

We're always transparent. From the listing broker regarding the above-referenced Brooklyn apartment;

"I just wanted to let you know that the sellers decided to go with a much stronger offer. The sellers appreciate your clients bid. We ended up getting a total of 16 final offers."

Year-over-year housing permits, starts, & completions are up (country-wide), however Northeast region Apr vs March and Apr 18 vs Mar 18 is down (-23 and -32%, respectively.)

(#s released last week: https://www.census.gov/construction/nrc/pdf/newresconst.pdf)

I rely a lot on the Urban Digs numbers, and he's been saying (as have I) that the Manhattan price peak was a couple of years ago.

In certain segments (small Manhattan 2/2s, for example) prices are above where they were a couple of years ago, but overall no.

REBNY number indicate that for the first Q, volume of transactions (i.e. number of deals, not the price of deals) down 20% in Manhattan and 10% in Brooklyn... a combo of the tax bill and rising rates, I think. I'm slightly bearish, which is unusual for me; only reason I'm not more pessimistic is the relative continued strength of the stock market. There are buyers and they do have money; they just don't have (except, apparently in Brooklyn) much urgency.

ali r.
{upstairs realty}

Absolutely no argument, market peak was 2014. Without a doubt one of the more difficult times to be a buyer. I'm also very cognizant of the fact I'm presenting a snapshot of what we are experiencing. However since we don't specialize in any particular part of NYC, we usually have a pretty diverse perspectives based on the clients we're working with.

We're even doing deals in Sunnyside and Forest Hills! Working with clients from 500K up to about 7 million.

Keith
TBG

2014 may indeed be the peak, but the prices have not really come down except for top end in luxury which is down 10-20 percent from ridiculous new development prices in 2014-15. Street easy condo index is flatlining for the last two years rather than going down.

If you sell today, you need to find out where to put the funds & the options are limited:

1-stocks
2-bonds
3-real estate
4-cash/currency
5-commodities
6-alts

Most think stocks are too high. Same with bonds (although rates are finally moving). Many think the dollar is overvalued as well. Many of the RE markets are also pushing highs so if you sell and still need a place to live, then what? Which is why selling due to timing the market can be impractical, because after the transaction costs, you may end up back to a similar choice (minus costs).

anonbk, Transaction costs and a lack of alternative risky assets, which are better value, are exactly why it is hard to time real estate unless you do not mind sitting in cash for 2-3 years. Cash does have a place in the portfolio now that you can get or will get soon returns close to inflation before taxes.

300, I think the leveling off since 2014 that you describe is simply a plateau and perfectly predictable just before a drop. This is how most market curves look, no?

The view from the top of the roller coaster ride is often beautiful but anyone who's ridden one more than once knows that the ride gets scary from that point on.

Agreed, anonymousbk, deciding alternative investment options is difficult. But I think real estate is just one investment vehicle and all investments do not move in complete unison.

My strategy is to reduce, rather then eliminate my real estate exposure by trading down to a smaller but well-located coop/condo apartment that I might be willing to retire to and hold for the next 20-odd years. Either that or move to a cheaper city.

But what to do with the excess cash? Typical recession-proof investments are flight to quality investments like cash, precious metals, commodities, blue chip and preferred stocks. Also, counter-cyclical stocks and of course fixed-income products and Treasuries.

I would love to hear from anyone with investment ideas.

ximon, It is not that easy to predict decline in residential real estate. Only time will tell. Commercial decline is a little easier to forecast.

Very true, 300. No one has a crystal ball. But we do have to protect our investments so I continue to ask whether, if someone is looking to sell in the near term say 2-5 years, is now the right time to pull the trigger? In other words, will the risk of a downturn increase or decrease in the next few years? And will prices likely be higher or lower in the next few years?

To me, the answer seems clear that the downside risk keeps growing. Could I be leaving money on the table by selling now? Maybe, but I am beginning to think I won't be leaving much.

By what $ amount do you expect to reduce your nyc real estate exposure? I have seen people downsize to 30 percent smaller space but transaction costs and income taxes eat a big chunk of that. It is a different matter if you sell your apartment yourself to a direct buyer.

Hope to reduce my exposure in half. Yes, transactions costs will hurt but I was due to sell someday and buying a long-term retirement home makes it likely I will not be doing this again anytime soon. I am looking to keep my powder dry for the near term and then invest in something pro-active and rewarding.

As an aside, I think the trends towards co-living, micro-apartments, pied a terres, house swapping and other forms of transitory and mobile living will increase over time. Millenials will figure out even new ways to be flexible in their home and professional environments and I look forward to the opportunities to come.

I don't know if the market peaked or not, but if feels like it from what I've heard and seen.

However, for my family, it feels like the experience of living in NYC has peaked. The crowds, expense, over flowing garbage cans, traffic congestion, broken subways, dirty parks...even living in one of the world's wealthiest zip codes, the QOL just isn't what it used to be. It may be time to move to a different neighborhood, or take our equity and move it to a different city entirely. NYC and NYS just seems broken.

Jas, I think traffic has indeed gotten much worse as every third car I see is Uber/Lyft. Real estate taxes have gone up. Besides that and significantly increase cost of private schools, I do not see Manhattan more expensive due to Amazon effect.

Park space has improved significantly. Washington square park and Madison square park were terrible but not any more. West side green belt did not exist. High line did not exist. Public seating at the large intersections, which in my opinion makes the city full of life, did not exist.

Ximon, If downsizing by 50%, I would sell if I get a good price without torturing myself whether this is the peak or not, rent, keep the proceeds in cash and think over time about where you want to live and if there is a gut job you can buy.

I agree with jas on some aspects of quality of life issues. Homelessness seems to have gotten worse, and with that continuous panhandling on the subway, entire subway bench seats taken by sleeping homeless people sometimes with carts of all their belongings. Also just got an email to all the residents of my current building to complain to city council about proposed plan to open safe injection site 2 blocks away. NIMBY of course but why plan to put that in a heavily residential area?

300, those parks are indeed much improved - such wonderful, vibrant spaces that really prove out the promise of shared public space. But absent private sector support, the parks I'm closest to are barely maintained. That's a whole different thread!

Ximon, we're selling our place, not for the same reasons you are, but happy to sit with cash for a bit and figure out the next move.

Can't time the market (at least I can't) but from a life-change/downsizing move I consider 1/3 of sale price saved and 50% decrease in expenses to be a laudable goal

eriegel, I am just thinking of my eventual retirement and beyond. Want to live a good life and not be burdened with material things especially things that cannot be easily liquidated under certain market conditions.

A lot of people, including myself, say that we can't time the market but I think the real answer is that none of us can time the market with great precision. We can, however, make fairly reasonable judgements on whether market indications suggest an upturn or a downturn. I think we are in the middle, resting on a plateau with a downward cliff within view. I say this because I believe we are now well beyond the post-recession rebound and think there are now more negative signs than positive ones.

I also think that not enough people take these indications into consideration when making important decisions about their homes. Given how much we increasingly invest in our homes, and how often life takes us on to different paths, we should try to think of homes more like other investment we make. The risks of mismanaging a home investment may be too great for some of us as the last recession has shown.