China commercial market reversal

Never mind the facts which are compelling by themselves, it's the public disclosure of this trend which will chill the market worse than the facts suggest. Our market is smoke and mirrors at this point. Irrational exuberance. Sound familiar?

Commercial market has been indeed overheated despite retail having significant issues.

Ximon, when you say our markets - do you mean the equity/m&a market or the real estate market? The equity markets are nowhere near the insanity of 1999 in terms of valuation.

I mean the real estate markets both commercial and residential which have historically been indirectly aligned.

I agree that the equity markets are a little saner but keep in mind the Dow Jones reached a record high this year and we are now in our 8th consecutive year of economic expansion, the second longest on record, soon to be the longet next year.

Also, the cyclically adjusted price-to-earnings ratio (CAPE) which reached a peak in 2000 is now the second highest on record and climbing back strongly up towards that 2000 record level.

https://www.bloomberg.com/news/articles/2018-07-26/american-housing-market-is-showing-signs-of-running-out-of-steam

More news.

I think the prices in NYC/SF respond primarily to liquidity events driven by M&A, IPO, etc, more than by wages. As long as the markets keep going up, there will be a floor on prices. If the equity market takes a 20% drop, we could have a window to buy again, where things are discounted across the board.

A man can dream, right?

Wow! That Bloomberg article is chilling! Great interview with Jonathan Miller who nails it. I love his layer cake analogy to describe seepage in prices from upper tier to lower tiers.

“This could be the very beginning of a turning point,” said Robert Shiller, a Nobel Prize-winning economist who is famed for warning of the dot-com and housing bubbles." When Robert Shiller talks, people listen!

I truly think we are now at a turning point in the market. As I have said before, it's not the statistics that matter anymore, its the market sentiment which will cause the next downturn, fundamentals be damned. And more articles like this will only add fuel to the fire.

The flip side of this is that construction in NYC has slowed at least according to the crane index:

https://archpaper.com/2017/08/booming-seattle-dominates-nationwide-crane-count/

This could be a sign of future supply reduction, which could balance out the drops, again setting up the potential that the next 12 months or so may create a nice window for buying.

I find the idea of crane count skewed against NY due to high cost (unions etc.). There are 20+ story building constructions that in other cities would have a heavy tower crane but here get visited now and then by a mobile unit.

The idea that under $2m properties are still flying off the market despite upper tier luxury slowdown also seems to no longer be true. I have seen several listing for 2 BR condos under 2m in Manhattan sitting for months and taking price reductions.

CC, Please post some examples. Thank you.

Here's one. This has taken several price chops, and 8E two floors below sold at $1.8 on 2014.

https://streeteasy.com/building/gramercy-starck/10e

this is a 3 BR recent development, just took a price chop, though it's in Harlem so not sure if that counts:

https://streeteasy.com/building/the-adeline/10f

another:

https://streeteasy.com/building/the-clare/2b

there are really plenty:

https://streeteasy.com/building/the-future-condominium/13d?featured=1

One more:

https://streeteasy.com/building/chatham-44/7c

https://streeteasy.com/building/325-5-avenue-new_york/15h

https://streeteasy.com/building/coda-condominium/16a

https://streeteasy.com/building/the-charleston/7i

It would be interesting to see days on market trends by market segments. Anyone know where to find?

CCL3: Yes, the impression I get is that the slowdown is now affecting every segment. Curious to see how the market starts to react when/if you get a critical mass of sales that show a decline vs. comps.

"It would be interesting to see days on market trends by market segments. Anyone know where to find?"

Doesn't Urbandigs do that?

Yes 30. Thanks. Urban Digs shows DOM by submarket, property type and # bedrooms. Almost across the board, DOM year-over-year have increased except for the lower end of the sub-markets such as Hudson Heights, Washington Heights, Central and West Harlem, East Village etc. I am thinking this means that the lower end of the market is healthier as 300 believes.

CC, Thank you for the links. I will look at them in more details as in where the prices were in the last sale, location, if the original asking prices was fair and if the current price is a good deal in my opinion.

Ximon,
Note that it is those same submarkets which have historically gotten hit the hardest during contractions.

In terms of the health of the East Village sales market, one sign is the abandonment of the condo conversion at 62 Avenue B and subsequent sale of the building as a rental instead.

Yes 30. It is usually the secondary markets that get hit the hardest in a recession. Such purchases seem attractive on a comparative basis but there are risks in a downturn. That said, some purchases in these areas might make long term sense if they are in up and coming areas and one can survive the dip. I would include the Manhattan financial district in this category. Low prices attract bargain seekers but the lack of infrastructure and units one can grow into are among the negatives. How long will someone be happy in a 4th floor studio or small one bedroom walkup?

Is it relevant that, except for the one in Harlem which hasn't been on the market that long, all of these have monthly expenses of around 3k? Could it be reasonable to assume that the price corrections are weighted specifically towards apartments with high maintenance/taxes?

David, Most condo are now at least 2.25 per sq ft in maintenance and taxes. New ones are at least $2.50. So that is not a common factor in the listing posted by CC.

I don't think any of the ones I listed have outside of the norm monthlies for 2 BR condos in Manhattan. You won't find much less than that except for buildings with brand new tax abatements, and those are much harder to find these days.

Thanks, yes, I can see that. I suppose my question could have been put a different way:
Do you think the downturn is equally effecting apartments (coops?) that have low maintenance?

Someone just posted this, but I suppose it is only one example and not in the sub $2m range:

https://streeteasy.com/talk/discussion/44160-thoughts-on-price

Have you guys seen the equity markets in China? It's a bear market now ...

I think more is to come, the US equity markets are not pricing it in just yet, but somehow the NYC real estate market seems to have.

How is Chinese real estate market in Tier 1 cities?

https://therealdeal.com/2018/08/04/are-resi-markets-headed-for-a-global-apocalypse/

Thanks 30. While short on detail, the article does lend credence to the opinion that our housing problems are not directly attributable to the new tax law.

I thought that the new tax law had significant impact on the NY housing market. That and rising interest rates.

anyone see the yield curve basically being flat? sign of upcoming recession?

nicesmile, when passed, many thought the tax cuts would not have necessarily have a great impact. I personally thought it would have some impact but that there could be other, perhaps more important, factors involved in foreseeable negative price trends such as rising interest rates or declining demand from overseas, or a possible general economic recession. So, IMO it's entirely possible that this market will die a death by a thousand cuts.

I'm a bit rusty on some financial issues, but isn't it hard to argue both that:
A) even though the Fed is raising interest rates mortgage rates won't rise much because the 10 year isn't tracking the Fed rate, and
B) the RE market will be strong because the general economy will continue full steam in the face of an inverted yield curve which has been a precursor to the last several recessions?