Slow Market so Pull Lisitng

This time of year is perhaps the slowest so owners might prefer to pull their listing and relist after Labor Day.

I think that not only seasonally, but that owners can no longer list at aspirational prices and simply wait for the market to rise to meet them.

Yes I guess relisting for Labor Day but why pull it now?

I mean its not a rush of listings being pulled like the credit crisis(the world was ending in 2008). It's more like an uptick. I guess many many owners simply cannot sell when a price drops to a certain level otherwise they would be underwater or close to it. So they are forced to wait.

https://www.urbandigs.com/marketwide-charts/

Check it out for yourself in real time. Scroll down on the link above to Off Market, it's at the bottom. It's up 53% year over year, so yes

wow pure anecdotal evidence backed up by pure data......

I do see a few listings of apts. that sold just 2-3 years ago. Prices are all at least 5% higher so owners are thinking they can make a small profit. But that does not seem be realistic.

I have been looking at one bedroom units in Beekman area and nothing seems to be selling at least not at the current listing prices. Some prices have been reduced but most have not. It seems clear that listing prices that were reasonable 1-2 years go are now aspirational and probably unobtainable.

Two experienced brokers I spoke with just yesterday said the same thing - the Manhattan mid-market has been flat for quite some time. Recent listings made me hopeful that my condo could get a better price than I thought but I am now realizing that these prices are not achievable.

Right Ximon...so I'm thinking that buyers decide to not list or remove their listings as they cannot get the price they need so they wait for when they can get that price. In any event this is what I'm seeing lately and it's interesting to note that Urbandigs is also.

But when can they get the price they want? Not anytime soon, I suspect so seems a foolish strategy. But as a seller, I am happy to see listings pulled.

Its true today as it has always been - serious sellers don't pull listings and sell at what the market will bear.

What are the signs that a seller is serious?

Some sellers I'm thinking will pull listings because they will be underwater and can afford to wait. Each new tier of higher real estate prices puts a floor under those prices. It looks like with real estate you are forced to wait unlike stocks with a margin call you are forced to sell.

Interesting analogy with the stock market. I hope you are right about current price floors.

I wonder how those have been saying the mid-market is still hot and everything is selling quickly reconcile these things.

30, I use Street easy indices. They are still positive yoy despite the top end having corrected.

and it does not include coops which is where a lot of mid market is.

"Each new tier of higher real estate prices puts a floor under those prices. "

If you want to say that then conversely you have have to believe that each lower sale puts a ceiling on the next sale on the way down.

Ximon,
If I'm understanding what you are saying, prices 5% higher than 2-3 years ago are now aspirational/unubtainable. If that is the case I find it hard to believe that we are not in a declining market.

30, I cannot disagree and when brokers tell you the market is flat, perhaps that is broker-speak for starting to decline? Admittedly, they have their ears to the ground and I do not. After Labor Day, it will be interesting to see if even more listings get pulled or repriced.

I think a lot of brokers who have been "buying" listings (intentionally pricing them too high to get the listings and then hoping that over the long run the seller bring the price down so they can sell it) and then getting bailed out by a rising market are in for a rude awakening. For all these listings which you are seeing which are aspirationally/unubtainably priced, there is a broker who told a seller "Sure, I can do that." They were counting on either the market rising to meet the price or the seller coming down. Since the first isn't happening any longer my guess is a lot of the "come to Jesus" meetings where the broker finally tells the seller they have to lower their price or the unit won't sell have resulted in an unsuspected "Fine. I won't sell then."

I wonder what Howard Lober, chairman of Douglas Elliman based his statement that prices are down 15% on.
"Lorber said the New York market is starting to pick up, as sellers come to terms with prices that are down around 15 percent. “They’re finally starting to realize that they have to drop their pricing,” he said."

https://therealdeal.com/2018/05/09/douglas-elliman-loses-8m-in-q1/

He is probably referring to new developments which a major driver of revenue as per the article. He also has to blame something as despite higher revenue vs 2017 Q1, the profit turned to loss. 15% decline is in the ball-park from the aspirational prices for new developments. 432 Park is selling 15-20% from list. 157 West 57th is selling 15-25% off from initial sales. Many new developments are marketing at lower price than the developer expected. Well-priced and located are selling out fast like 21 East 12th. However, I still see top-end prices much more than $3k per sq ft. Going upto $5-7k per sq ft. That is hardly a benchmark for general market.

"30, I cannot disagree and when brokers tell you the market is flat, perhaps that is broker-speak for starting to decline? "

Usually what happens when the market turns is that Brokers decry anyone who admits to it as "talking down the market."

Then one day you wake up and every day, in every newspaper, those same Brokers are talking about the decline in the market, because they realized that they would need to show those articles to their sellers to convince them to drop their prices.

Yes, 30. Saying that sellers should be more rational in their pricing appears to be broker-speak for the market is down. Its obvious that lower asking prices will result in higher sales volume. Duh.

Saying that prices are "flat" only means that they are "flat" for a moment in time. It's what happens next that is critical.

One thing I will note is that if the market was sloped upwards and now it's flat then the first moment - acceleration - is negative.

Market is certainly very quiet right now, seems we're going to have a true summer seasonal slow down. It's been awhile since we've experienced this... To know if this is simply the market taking a breather or more significant correction, I think we'll have to wait until after Labor Day, see what the fall-winter brings.

The US economy seems to be humming along, threats of trade Wars and physical Wars don't seem to be stopping the March. History tells us sooner or later things will come undone and head south, what will spark that and when is the million-dollar question.

Great comments from 30 regarding the standard modus operandi of many listing agents. We take more of a, guess what you could call transactional approach. We're not cheering on either side of the market, simply reacting to what is. And then assisting our clients to achieve their goals.

Brooklyn 2-bedroom Market under 1. 5, hot hot hot! We're continuing to do deals but certainly at a much slower pace. definitely a good time to continue your hunt if you're looking for a home. I think there's a very good chance things start to pick up after Labor Day. Without some significant political or economic event, there won't be any real compelling reason not to buy (if you're an individual that would like to own your home).

Keith Burkhardt
www.theburkhardtgroup.com

While supply at the high-end more than $3k per sq ft and rents not increasing are negative for prices, 10y continuing to remain under 3% and strong economy are certainly positive. Did I hear that starting 2020 there is very little new supply (assuming the building completed in 2018 and 2019 are full sold which will not happen at ultra-luxury) as the existing buildings under construction will all be ready and done?

yes, here's an example of a recently pulled listing that was languishing even after a price cut

https://streeteasy.com/sale/1329919

yes 1st timer..that is a classic example. When buyers start their weekly searches again on Wednesday/Thursday they will be like "Hmmm where's 5E?" and "Also where's 6E?"......5E and 6E are stored away waiting for market psyche to turn. ....see you then.

So 1600 sq ft coop apartment at $2.4mm+ likely facing inside in good condition but needs a little bit of work gets pulled. Location is great but $1500 per sq ft?

Since it sold for $2,425,000 August 2012 I don't know how you could argue that the asking price was too high without conceding prices are down.

I'm a little surprised this one hasn't sold considering size, location and price. 50% financing certainly plays a role in that.

Keith Burkhardt

I follow this submarket pretty closely, and I think that the unit is priced fairly. The idiosyncratic decor may have slowed the sale.

For downtown, I think the other key factor is that the abatements are starting to expire on new condos built right before the crash. These prices have to head down because the monthly charges are often doubling from where they used to be and there's nothing to offset this downward pressure in a stagnant market. Looking at YoY prices for similar units in some buildings is eye-opening.

Thoth,
Could you please give some specific examples of what you are talking about?

Keith,
I agree that the 50% financing has to be at least part of the issue. However, some people have argued that mortgage interest rates increasing won't be a factor in prices because many people are buying all cash. But if that is the case, wouldn't it be counter to the thought that high cash requirements are affecting sales?

To me this listing is somewhat of a litmus test for the lower-to-mid market:
https://streeteasy.com/building/166-east-96-street-new_york/7a?context%5Bcontroller%5D=%23%3CBuildingController%3A0x000055a89596d370%3E&context%5Bcurrent_user%5D=1040784&hide_if_empty=true&section=sales

2 BR, 2 bath, renovated, same line units on higher floors (but not in as good condition) sold for more than this unit is asking.

@30 I'm not one of those people who think Rising rates won't affect the market (; less than 10% of the deals we do are all cash.

Thoth, your analysis of expiring abatements only makes sense if you believe that buyers paid too much for these units when first offered. I actually agree with that. Behavioural finance would call such behavior "financial myopia". I would call it short sightedness.

I don't work the East side often, but I do sometimes, and I would make the observation that if you want a 6-room apartment in the 80s near the Park you've got a couple of choices. I think buyers are also making a mental adjustment for maintenance, which looks like it's gone up around 25% since the prior sale.

30: Sure, here are a few examples.

1 Wall St. Court, "5" line
2018 - 1405: in contract at $1.39MM & 1505: on market at $1.35MM
2017 - 805: sold at $1.86MM

90 William, "B" line
2018 - 9B sold at $1.49MM
2016 - 12B, sold at $1.622
2015 - 4B, sold at $1.54MM

59 John "F" line
2018 - 4F sold at $1.46MM
2017 - 65 sold at $1.95MM

Ximon: I totally agree that people acting rationally would never overpay for a temporary reduction in their monthly costs. Unfortunately, I don't think people were thinking rationally over the past few years. This is starting to bite those owners who weren't able to get out while the going was good.

We saw something similar happen in the 80s and 90s. Developers would renovate a commercial building into "lofts", get a j-51 tax abatement, and then put a mortgage on the building where the Debt Service would be approximately equal to what the taxes would have been. Then 12 to 15 years later, the taxes would actually kick in and maintenance would skyrocket. There was also a case at 32 Morton Street where the developer sold out quickly, so he didn't bother to file all the j-51 paperwork, and thus the maintenance ended up being much higher than was projected in the Schedule A. The Coop ended up suing the developer, but I'm not sure what the result is. The irony is that while it was very hard for a number of years to sell units in the building because of the higher-than-expected maintenance, in the long run the owners did well because as everyone else's tax abatements expired and maintenances ballooned, it didn't happen in this building and the maintenance went from being perceived as very high to being perceived as normal almost overnight.

I think buyers in tax abated projects have rarely thought rational as the lure of lower carrying costs was too great.

As an appraiser, I used to value these benefits by projecting out the tax savings and then discounting the savings back to the present. The result was often 20-25% of the total appraised value of the project "as built" which was used as the basis for financing. J-51 was the queen bee of all tax programs. What a massive give-away by the city to developers.

Studies have shown that 80-90% of the value of these savings inured to the benefit of the developer. In other words, the attractiveness of these savings were so great that buyers negotiated away most of its value. The same is true for rebates or credits given by developers as sales incentives.

All depends on the cost of capital of the buyer. If the buyer is tapped out for payments and is already taking the max loan, what discount rate do you use?

Or if a buyer thinks that they can reinvest the money not paid in taxes at 6 percent.

ximon,
I agree with you as to the benefits inuring to the developer. I'll go further and say that the concept that these buildings would not have gotten built without the tax abatements is a red herring. It's my belief that the vast majority would have been built anyway, the developers merely would have offered less for the land and the market for parcels would have adjusted accordingly.

On a separate but related note in terms of the various up-zonings both past and proposed it is my belief that the extra FAR being granted should be optional and that the city should be charging a fee per square foot for it. The precedent is the sale of High Line air rights which NYC has been selling at top dollar.
https://commercialobserver.com/2018/02/city-sets-price-for-west-chelsea-air-rights-at-625-a-foot-favoring-buyers/

Developers have gotten so used to tax abatements, zoning variances and other giveaways that very little ever gets built "as of right". This creates a co-dependency relationship in which developers "need" these incentives in order to build and the city needs these incentives in order to collect fees.

Interesting article, 30. I wonder why the city would allow air-rights transfers to be unrecorded and therefore untaxed.

300, good points on discounting tax benefits. The discount rate would be personal to each buyer depending on their situation. But if its market value one is trying to estimate in order to insure they are not overpaying, I would select a discount rate that includes a safe rate, an inflation rate, an illiquidity rate and a risk (default) rate. I do not think I would use an alternative reinvestment rate unless I was able to compare it to a safe rate.

But the most important calculation is to estimate the value of the unit without the tax incentives. Can't use sales in the same building of course so need to find similar buildings that do not have tax abatements or whose tax abatements have expired. Not easy to find these comps I would assume. The bottom line though is that the resultant value estimate will almost certainly be below what less analytical buyers would be willing to pay so it really would be a waste of time.

Frankly, I would never buy in such as project unless my strategy was to sell within say the first five years, adhering to the greater fool theory.

Ximon: The greater fool theory definitely worked over the past few years. Unfortunately, the ones trying to sell now are realizing that they are the fools.

When you are playing musical chairs, eventually the Music Stops.

I think for desirable units in top locations that had 10, 15, 20 and in some cases 25 year tax abatements-sellers are going to be fine. Appreciation will ultimately win the race against any price destruction from increased taxes. I don't think it's necessarily true people are paying a premium for units with a tax abatement versus similar units without abatements. I think more realistically if you paid a premium at the top of the market, then trying to sell 3 to 5 years later in a softening Market, you're going to have issues getting whole for reasons that have nothing to do with tax abatements.

Keith Burkhardt
The Burkhardt Group

In my experience expiring tax abatements have been an issue in RESALES for the past 30 years. The abatements are a selling point by developers as a positive on initial sales, but on resales all buyers want to know is "what are the taxes going up to?" and it's never a good number (especially considering the stagering increases in RET on Coops and Condos in the last 2 decades.

So, benefit/positive on initial/sponsor sale, negative on resale (unless a quick flip).

Understood 30. However I just remind people take advantage of the break while you can, then you're going to pay full Freight like everybody else.

how are things looking now that it is post-labor day and the Fall Market is underway?

It's kind of interesting to see some people who didn't acknowledge the market was even slowing down till 3 minutes ago now saying how great it is that we are emerging from this long down market.