Great discussion on the state of the market

Hey thanks for the plug Keith! I thought that session with Donna Olshan covered a lot of key talking points about where the Manhattan market is right now and where we came from. Personally, I'm bullish as buyers have the most leverage and discounts they had in 5-6 years. Cheers all!

I really like Donna. Sold me my apartment and is a straight shooter.

Always great to hear from Noah!

Noah, What is your take on why Streeteasy Condo index barely shows any decline despite the fact that plenty of time has elapsed for the recorded sales to catch up? I know the very top end of market say >$5mm or most new developments probably do not impact this index as there are very few repeat sales (repeat sale being a criteria to be included in the index). Is most of the decline limited to this segment in your opinion?

Noah: Just wanted to thank you for your website and your commentary on NY real estate. I always find both incredibly helpful when trying to understanding what is happening in the market.

We have seen a real pick up this past week on all fronts; views on SE doubled, from 0 attendee's to busy open house(offers after 1 week) 2 signed contracts and currently two accepted offers.

Buyers definitely have more leverage and sellers seem to be loosening up a bit and accepting the new reality of the market after reading articles like this; https://www.bloomberg.com/news/articles/2018-09-21/nyc-home-sellers-cutting-prices-like-it-s-2009-and-then-some and accepting the realities of the data.

Perhaps a soft Landing after all. You can see the latest open house report on my blog, pretty interesting stuff in thanks a lot to Fritz at Halsted (if you're an agent with listings you should go ahead and email him).

http://backtotheoldhouse1.blogspot.com/2018/09/fritz-frigans-open-house-report-light_22.html?m=1

Keith Burkhardt

It is not surprising that more buyers enter the market when prices are lower. When has that not been true? But a soft landing assumes we have reached a floor in pricing and I see no evidence of that.

When I hear that business has picked up, the economist in me wants to know what period that is measured over. Are open house showings higher than the previous period one year ago? Are views on SE twice the number of one year ago? If you are only comparing current data to one week ago or one month ago or one quarter ago, it's not really apples to apples, is it?

In any case, this news seems to be good for brokers and possibly for the market but I remain diligently sceptical.

I mean let's keep in mind these are just some comments from one broker (me) passing on what I'm experiencing in the field. As well as some less than scientific data points from a slightly intriguing open house survey. However in the present moment relative to the way things were three months ago, we're seeing activity that's good for both buyers and sellers.

To make anything more than just a guess over a short period of time is just about impossible.

Keith Burkhardt
TBG

My sentiments exactly. Hope 4th Qtr. stats indeed show an improvement over last year. Wish there was a better way to gauge the market than to wait another 6 months for the period over period stats to be reported.

Re: Open House traffic:
When you see -
- There were 50 open houses with zero traffic
- This past weekend First Open House commanded 319% premium in traffic vs. “old” open houses. 61 properties had their first open house
It would seem likely that there has not really been a significant increase in open house traffic that can't be attributed solely to new product coming on the market.

As far as the market performance:
If deals are being done solely because sellers are taking large haircuts, it points more to a plateau pricing wise rather than a market rebound. Where Donna Olshan like to talk about her "Olympic sized pool" for listings, I like to use the analogy for buyers like they are on line to buy with the buyers who are willing to pay the most at the front of the line. When those people go away (by either buying something or leaving the market) the people behind them are willing to pay less. The only way you get people who are willing to pay more is:
1) New buyers entering the market,
2) Current buyers changing their attitude.
With articles like the Bloomberg one, I don't see people changing their current attitude of what appears to be "prices still need to come down."
One metric which could convince me otherwise, but you don't see, is "who is pulling the trigger on these new deals?"
If it is mostly people who have been looking for a while and are taking advantage of what they perceive to be discounts, then I think it is more likely that the market will continue downwards as this pool of "we've been waiting for years for prices to come down so we could buy" purchasers dries up. If, OTOH, those buyers are still sitting on the sidelines and the vast majority of these new deals are brand new buyers who have not been looking at all until now then I would be more likely to believe the market will rebound rather than continuing to slide.

Very interesting video, particularly for people like me who are completely outside the industry. Just as interesting as the discussion about the market is the discussion about broker strategies.

Is this video part of a series? I would like to see other similar videos if they exist.

Thank you so much Thoth and squid, for the comments :)). Love hearing it about our work at UrbanDigs.

Sorry for delays, it's quarterly time and we do with for a bunch of firms. I'll post some thoughts and charts links towards end of week.

I will say Q3 numbers are starting to show improvement as this loooong down cycle finally looks to be maturing. Buyers, take advantage, not sure how long realtime dynamics continue to favor you this much.

More to come soon, and market podcasts coming soon as well. Exciting times..

I think this listing could provide a good data point for the state of the market:
https://streeteasy.com/building/160-west-77-street-new_york/6b

Decent location, I think good enough renovation considering the price point, under $1 million, pretty much the same price as 2 years ago, lots of interest (40 SE users saved on the first day). All the right reasons to sell quickly, so how fast and at what number this goes should be interesting.

Looks reasonably well-priced with low maintenance. Wondering if the Board might screw this up if they don't like the proposed sales price?

Also, lots of schools (and school yards) on this block. Is this a negative?

Re: school/playground,
That's why I said the location was "decent" - it's similar to how I feel about 208 West 11th St in the other thread.
I can't imagine the Board screwing up the sale due to low price unless it goes substantially below ask considering it's essentially the same price they already let though in the last sale and there have not been higher sales of similar units in the interim.

I used to live at 160 West 77th Street for awhile. Rent was very cheap. Zvi Grunberg was the landlord. I assume they got rid of the roaches. Crime was so rampant on the UWS that I was constantly living in fear of being mugged among other things, especially when entering the building.
I had occasion to pass by the building about a year ago, and the entrance and lobby didn't look much better than when I lived there.
But it does has museum views, a big plus. My apartment faced the schoolyard.

3 percent flip tax and assessment!! No doorman.

3 percent flip tax and assessment!! No doorman.

Q3 numbers come out next week and Ill tell you a few things early on what to expect:

1. Average sales YoY is starting to show slight gains - probably a result of being compared to a depressed quarter last year. Still, a positive sign. Quarter to Quarter down slightly

2. Median sales Quarter to Quarter - showing slight gains up qtr to qtr but slight down YoY. So you see how mixed this is

3. Days on Market way up - seasonal yes, but still a valid sign that sellers pricing expectations do not match what the buyer market is willing to produce

4. Overall - its tough out there for sellers, even when products are priced right. That animalistic craziness that defined 2013-2015, is completely faded. Buyers have rare combination of options, negotiability, discounts and leverage right now but they seem to be hesitant. Contrarian in me would pull the trigger and take advantage if I was in the market to buy right now.

Market segments and nhoods snapshots can be found here for free - https://www.urbandigs.com/marketwide-charts/

Ill be getting the blog going soon and will expand on these thoughts for Q3 later on. Until then, cheers everyone.

Thank you for sharing this info.

It's the hesitation of buyers that worries me as it may imply things will get worse. I would love to see a survey of current apartment shoppers to better understand their states of mind. SE could do it easily I would thin or any of the major brokerage firms (although I doubt they would want to know the results).

Thanks Noah! Ximon, why don't you pose that question to Buyers here on the Forum?

Keith Burkhardt
TBG

Buyers tend to hesitate when they are unsure, not confident, unaware of current market conditions or a continued falling marketplace, uncertain about employment or jobs market, uncertain about affordability/rates, etc etc. Buyers also hesitate when they dont sense any urgency, and Ill tell you that most OHs and listings are not overly packed with bidding wars, etc right now.

So when you look at the entire picture, I think it starts to make sense given where we were and where we are now.

I just recall buyers in 2014/2015 begging - "I dont want to pay over peak prices", "I dont want to bid over ask", "Why are there so few options", "Why cant I have a private 1 on 1 negotiation", etc..Today, all of these forces are in buyers favor. Its only in hindsight when good buying opportunities tend to reveal themselves; think 2009/2010 when there was blood on the streets. Turns out, buyers today would have LOVED to make a purchase back then. Just sayin

urbandigs, all excellent points. It will be buyer sentiment, driven in part by real data and part by gut feeling, that will determine - and has always determined - where the market will go. Perhaps this "hesitation" is ultimately a healthy one especially if it results in a mild correction and then a re-stabilization.

Keith, I have raised this issue of buyer sentiment here many times but it appears that most people posting here are not current shoppers at least not in the traditional sense. And the response I suspect would be far too small to be considered representative. SE and other platforms have done a lot to create greater transparency and provide better tools for buyers. Alas, I feel buyers still need more help especially from buyer-brokers who should want even more tools for their clients.

Definitely healthy! All corrections tend to be healthy for longer term sustainable growth. Just the markets way of removing frothiness.

I am prob not representative of a typical buyer because I am an entrepreneur and invest in a lot of different deals. The way I usually look at it is if I am going to accept a -1 to 2% cap rate at best, it better be a really prime property. At the sub-$3m, 3bdrm, 2 ba, outdoor space, doorman, elevator, lower manhattan market, that is minimal to non-existent, unless you want to pay $50k/yr in maintenance fees.

The math was easier up until this last 12 months or so, because there was still a lot of class B real estate in the rest of the country (2nd/3rd tier cities) that could easily cash flow 8-12% annually. That is drying up as real estate markets everywhere have tightened. When the spread btwn my other investment options dries up, I will start seriously considering a lower cap rate in Manhattan. That is almost starting to happen now.

Also, although it is likely not wise, I think a lot of people are trying to figure out how the new admin changes will play out as they are a significant shift from the previous admin. Particularly, in terms of taxes. My acct ran an early run estimate last week, my rate went from ~41% (2017) to ~46%, a 5.5% difference. This is a fairly large amount of after-tax money, if you consider how people really use money (the effect on personal savings rate is leveraged depending upon your spending habits). And this is as a renter! Not sure how it would work as a buyer, but can only imagine it would be worse.

Hoping that the state moves to place the income tax on the employer's side. That would make a drastic difference.

anonymousbk,

"Hoping that the state moves to place the income tax on the employer's side". Does this mean that you support increased payroll taxes to alleviate the income tax burden on employees?

I am a recent buyer, was looking to buy in Manhattan for last 3 years but prices were horrendous for what you got. Finally opted out of Manhattan market and bought across the river in NJ. My husband was still concerned about the market continuing to get worse and us taking a loss if we bought now, but I pointed out rising interest rates and that fact that we already got a significant discount to list price on the condo we were buying. For us to have bought in Manhattan instead, prices would have had to come down at least another 10%.

Nice CC. What discount to list did you negotiate?

I support increased payroll taxes on the employer side as I think most employees care primarily about their after-tax income, their gross salaries would be reduced to reflect that. Ultimately it would be a win for everyone, the employees then don't have to worry about getting double-taxed. The employers ultimately are in the same situation as before.

300, a 14% discount plus a few other freebies thrown in. The condo was almost fully sold at the point and the developer probably just wanted to be done though. We also got about double the space we could have gotten in manhattan with only a miniscule increase in commute time.

The time of irrational exuberance is over and buyers are starting to balk at the prices for what you actually get space-wise in NYC. I include LIC and Brooklyn in there too. Plenty of greedy stingy floorplans and ridiculous prices in those areas as well.

Manhattan Home Sales Slide in a Market Clogged With Listings (1)

Deals drop for fourth straight quarter while inventory climbs
Would-be buyers balk at overpaying after years of price jumps
By Oshrat Carmiel

(Bloomberg) --

It’s been a rough year for Manhattan’s home sellers, and they’re not about to catch a break any time soon.

In the three months through September, purchases dropped 11 percent from a year earlier to 2,987 -- the fourth straight quarter with a decline, according to a report Tuesday by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. Listings piled on to the market at an even greater rate, climbing 13 percent to 6,925 homes, the most for a third quarter since 2011.

A surging stock market typically fuels buyer bullishness on Manhattan real estate -- but not this time. Years of escalating prices, coupled with federal tax changes that increased burdens for some homeowners, have would-be purchasers assessing the value of buying property against other investments. Many who do take the plunge are pushing for bargains, refusing to overpay when they have so many choices.

http://resource.bloomberg.com/images/331300983?height=733;width=1200

“It is somewhat perplexing,” said Garrett Derderian, director of data and reporting for brokerage Stribling & Associates, which also released a report on Manhattan home sales Tuesday. “The financial markets are quite strong. Mortgage rates, while rising, are still at historic lows. But the perception has become that the market is overheating in terms of pricing. No one obviously wants to come in at the top where they’re paying the highest prices as things are going down.”

Stribling reported the weakest third quarter for Manhattan since the collapse of Lehman Brothers Holdings Inc. a decade ago froze the property market. The 2,212 signed contracts -- a measure of pending sales -- were the lowest for the period since 2008, while inventory was the highest since then.

http://resource.bloomberg.com/images/331301034?height=733;width=1200

Buyers who came around to a deal in the quarter demanded discounts, bringing the median price of completed purchases down 4.5 percent from a year earlier to $1.12 million, Miller Samuel and Douglas Elliman said. In 54 percent of sales, buyers paid less than what sellers were seeking. An additional 37 percent of transactions closed at the asking price, but often that figure had already been reduced.

Read More: Manhattan’s 5-Year Plan Includes 33,000 New Rentals and Condos

“For the last eight years, the market has been going up, up, up,” said Bess Freedman, co-president of brokerage Brown Harris Stevens. “But now, it’s really time for sellers to adjust prices to where the market needs to be. I think slowly they’ll do that more and more.”

Brown Harris Stevens, in a joint report with Halstead, said previously owned Manhattan homes spent an average of 104 days on the market in the third quarter, compared with 94 days a year earlier. Average co-op prices fell for almost all apartment sizes, with three-bedrooms seeing the biggest decline at 17 percent, to $3.13 million.

Corcoran Group said transactions dropped in almost all Manhattan neighborhoods, led by the area that includes the Financial District and Battery Park City, with a 41 percent decrease. The median price of sales there fell 22 percent to $960,000. On the Upper West Side, deals slipped 19 percent, while on the Upper East Side, the decline was 10 percent.

CC, That is a very nice discount for a building which is almost sold. Congratulations!!

Thank you 300

I think this board tends to be overly positive. I was speaking with the head of an enormous real estate portfolio (think Blackstone level) who sees NYC pricing levels contracting severely (50%) in the expansion neighborhoods (Bed Stuy, Crown Heights, etc) and plateauing for ten years.

It's a bunch of brokers, what else would you expect?

So, has this investor sold everything in NYC and is sitting in cash?

Also, is he talking about multi family or retail oriented commercial? Unless crime increases significantly and NYC goes bankrupt, 50 percent general decline in a particular area is a pipe dream.

>>Unless crime increases significantly and NYC goes bankrupt, 50 percent general decline in a particular area is a pipe dream<<

Or a pipe nightmare, depending on which side of the coin you're on...

Sorry NY_Houer but I am guessing that your "Blackstone level" executive has no exposure in these expansion neighborhoods. Perhaps he/she is promoting a "flight to quality" strategy to draw buyers to their more traditional offerings?

I say this because no self-respecting real estate executive would ever say anything negative about their portfolios. It's the nature of the beast.

I do agree, however, that gentrifying neighborhoods will be the first to suffer when prices collapse. 50% declines? Well, I hope so as I will be a buyer.

Sorry NY_Houser but I should have said a "flight to quality" scare tactic.

Squid, I have no exposure in those market but BlackStone type portfolio hold plenty of 4.5% ish cap rate multi-family properties outside NYC. Their REIT available to common people is investing in just those type.

My guess is the Blackstone holds a bunch of multi-family properties outside NY at substantially higher than 4.5% cap rate.

Average multifamily in their portfolio is 5.6% cap rate which includes properties acquired a while back. So indeed higher than 4.5%.

Page 52. 5.6% also includes manufactured housing which is 8-10% cap typically. So true multi-family is closer to low 5% at the current valuation in their portfolio.
http://hosted.rightprospectus.com/Blackstone/SinglePDF.aspx

When you use a cap rate "at the current valuation" doesn't it become a tautology?

They mark to market their portfolio monthly and make assumptions about what the cap rate would be if sold. Hence, cap rate “at the current valuation” rather than when it was purchased.

Right, so the cap rate by definition is simply whatever they assumed. Hard to then turn around and use it as a metric for anything.

But seeing the cap rate at acquisition for their most recent purchases would be quite helpful.

30, It is better than made up metrics by selling brokers and better than costar where the cash flows may be real but who knows the prices. Blackstone is subject to SEC penalty if they mismark.
Ximon, I remember seeing it somewhere but it a made up number by the selling broker. Real cap rate in Blackstones opinion gets reflected in their MTM.

Btw, would love some links providing info on multi family stabilized cap rates and / or price per sq ft in Manhattan. Brokers stated needed to be haircut at least 50bps as they understate expenses and do not typically include the cap ex reserve. That is why I look at both price per sq ft and cap rates in absence of detailed financincials.

My point is that if someone says "we use a cap rate of 5% to value this asset so the return on the asset based on our valuation is 5%" it doesn't really mean much.

What I would like to see is cap rates based on current revenue vs basis in the property (ex depreciation). That would give us some idea of what investors are likely to expect in a "no assumed appreciation" climate.

For me, it is better to see cap rates at acquisition (or stabilized cap rates assuming full lease-up in say one year) to know what was buyer's expected return. Then you can compare to say Blackstone's MTM to see how well they are doing. Calculating a cap rate based on current valuation only tells you where the asset is performing today, not whether it was a good investment or not. of course, comparing current cap rates to alternative investments may tell you a lot about the current and anticipated markets e.g. maybe it's time to re-weight one's portfolio.

Ximon, I use blackstone as a good estimate of true cap rates provide by some one with regulatory scrutiny rather than for market prediction.

30, Blackstone has assumed return as well which is the discount rate - typically 2 percent higher than the cap rate. If you would like to discuss more, we do it offline as this board is mostly non-commercial.

A bit more information:

- He does not work for Blackstone. I used this company to give you an idea of the size of the real estate portfolio he manages
- His portfolio includes multi-family and commercial
- He was discussing single family apartments, condos and townhouses in his expansion / contraction and related price drop comments, not his own portfolio. He was commenting on that category of real estate because that is what I was asking questions about.

Well, at least I have a little company.

To those who's answer to a host of indicators that the market is headed downwards is "but the economy is strong", are you sure that the general economy and New York real estate are always in lockstep?
https://olshan.com/marketreport.php?id=8

https://medium.com/@noahrosenblatt/talking-manhattan-interview-with-jason-haber-warburg-realty-70d7e6722af2

Figured you guys would want to check this out - Interview with Jason Haber at Warburg on state of the market

Thank you for that interview. Interesting stuff.

Have been in the market as a buyer for a couple of years now. Sellers are still in deep denial. It’s bad. And it seems that there are some brokers who are in the same boat. Got caught flat footed after recommending their clients price at the high end and now don’t want to be blamed for catching the falling knife, so they’re advising clients to hang in there (to the client’s detriment). This market has not bottomed out. And it’s not a blip. This is an overdue correction and it will be here for a while. Think about the new inventory out there (including shadow). It could be a bloodbath. Seller have been conditioned to think they are entitled to a profit on their property. Wrong. At this point, sellers should consider just how much more they’re willing to bleed. Catch the knife early if you can.

I can't really disagree with that. As I've said before, I think rising interest rates plus an overdue correction (plus other factors) are going decimate the market and we will end up between 35% to 50% off peak prices.

I mean look at UrbanDigs shadow inventory + for-sale inventory charts... those aren’t coming down until prices come down. And for all the talk about prices having “come-in” from their 2013-17 highs, I can count on one-hand the number of listings w ask prices for comparable apartments at or below 2013-17 prices. So yea UrbanDigs is right that buyers have leverage to do deals... but the most important thing (PRICE) has barely budged!

Apartmentmonkey, In which absolute $ and $ per sq ft price range are you looking?

I’m not looking in an absolute range. I’m looking for a deal where the ask makes sense given the current market conditions.

Market continues its free fall. Bloodbath for sellers in '19. Seriously. It's going to get a LOT worse before it gets better for sellers.

I guess I was right about 160 West 77th St, just not the way I expected. At least I can still pick out the good deals (sort of).

30, Does this sale 20 percent above ask make you less bearish on the resale segment?

https://streeteasy.com/building/160-west-77-street-new_york/6b

After years of soaring prices, Manhattan residential real estate continues to cool off with condos showing slight declines and transaction volume substantially down. Total apartment sales over $10 million are projected to reach $4.4 billion by the end of 2018, down from $4.6 billion in 2017.

https://www.cityrealty.com/file/46a7dd2c24f9b1d1cf423fbe3fa3749c004c706d