Signs of a week market

Damn speech to text.

Thank you for this update.

In an attempt to research yields for investment condos, I looked at the referenced 3 buildings with the most simultaneous listings. I could find no more than 3 in each building so wonder what that means. Is this phenomenon still happening?

The 51% increase in simultaneous listings certainly makes me think that owners are trying to look for the best deal between cashing out by selling or earning a return by renting.

Also, indicated gross yield rates (listing rent minus carrying costs divided by asking price) were higher than I have recently surveyed, ranging from 2.0-3.3% with an average of 2.8%. Given that median asking prices are 24% higher and median asking rents are 14% higher for these units than last year, I wonder if there is a disconnect somewhere. I would have guessed gross yields much closer to 2.0%. I would have guessed that asking prices are still too high and asking rents are more realistic but not so sure.

In my experience people who do both tend to be in trouble (I used to go look at properties which were listed both ways because I considered them potential foreclosures). The sales broker told them they can't get the price they "need" to sell and the rental broker told the they can't get the price they "need" to be rent, so they think if they go for the long shot they will double their odds by trying both. Typical desperate gambler thinking. In reality it's like a White Castle double hamberger - twice nothing is still nothing.
I think this is consistent with what you found in your research - that these people are equally unrealistic in their goals in both markets.
I have found it happens when the music stops for people who have been flipping pre-construction condo buys. They can't execute the flip without losing money so they try and rent it, but then they can't do that without losing money either.

Interesting. Any explanation for the higher potential yield rates other than that they may not make any sense? And why are all of these simultaneous listings disappearing? e.g. article says the W Downtown had 22 such listings in first 9 months of 2018 but I now I can only count 2.

Could it be that most of these units were never occupied and, as you suggested, now under water? It only makes sense that many condo buyers in the past few years were looking to flip their units. Just one more additional level of stress for the market IMO.

Take a look at 20 Pine Street, 88 Greenwich and 99 John Street.

Re:W Downtown
223 units, 50 active listings.
That's a shockingly high percentage.

Also, seeing a lot of units "No Longer Available on StreetEasy". Man, this is looking bad and maybe getting worse in a few months.

Options for sellers seem to be 1) pull your listing for a while (maybe a long while), 2) rent it out for a year or two and hope market rebounds, 3) sell now for whatever you can get.

What would you do?

If my plan was to take it off the market for "a while" (either renting it or continuing to live in it) I would make sure that plan included the possibility that "a while" could be greater than 10 years.

Which of the three options might have the highest NPV?

Looks like someone's taking a loss on this resale:

https://streeteasy.com/building/the-sutton-959-1-avenue-new_york/18d?featured=1

People bought thinking the market would continue to endlessly climb?

Yes, CCL3 and it looks like the owner customized the home a bit after purchase so they are in the hole even more than the recorded prices indicate.

But the problem with the market isn't just that there are a few examples of units that are selling under their purchase prices from 2-3 years ago. Its that there may be a lot of such units and such an overhang on the market may have a similar effect as foreclosures during the last crash. These owners may not be distressed in the traditional sense but may simply be motivated to get out of a bad deal while they can. Heck, they may not even be living there, at least not full time. Soon enough, we will learn what really happened in this market to turn it sour and I think non-resident investors will play a big role.

One potential counter argument is that when you have units that people have been carrying as investments which they haven't even rented out, there isn't the same type of pressure to "sell at any price."
Foreclosures don't necessarily drive prices down - especially if there aren't loads of them. But when they start to become prevalent, banks literally have to sell them at ANY price to make room for new foreclosures coming into the REO inventory because banks can only carry so much REO.

Right, I guess the issue is whether the prevalence of buyers were those who can afford to hold the properties, or those who thought they could profit off a quick flip and now have to pay the piper.

Yes, 30, not the same kind of pressure but maybe enough to turn the direction of the market further down. The problem is that we do not know how big the investor market is. Some guess it's as much as half of all new condo sales. And if these buyers sole strategy was to flip at a profit, I think many are realizing it's not worth holding onto these units any longer. So no, it's not like 2008 but it may be enough to fuel a major correction until owner-occupants take back the market.

Right, CCL3. I could be wrong but I don't see many investors willing to ride this downturn out. Better maybe to sell now and find other uses for the money. Although not sure what those other uses would be.

50% investor owned units seems like a fair estimate for some of the new developments when you look at the number of rentals that went up (not just currently, but look at those previously rented in the last year or two as soon as occupancy was available). 550 Vanderbilt comes to mind and there were enough others.

Also condo boards these days not making renting out very friendly for investor owners. Some are charging up to $1k move in/move out fees (that is FEE, not security deposit) plus other ways of ripping people off.

CCL3,
There's been some chatter on here about "why don't coops become more like condos?" But I think if anything we have seen things go the other way (i.e. condos acting more like coops). The problem is that generally the people who care enough to run for the Board of Directors are the residents, so any way that they can shift costs away from themselves and towards others is taken (often at the suggestion of the managing agent and/or attorney). From where I sit it looks like Management Companies are underbidding management contracts on condo buildings knowing that they can make up the difference on "Condo Fees" which are actually going to the management company and not the condo.

I also think condo investors/flippers are finding out what some Coop converters found out in the late 1980s - the market doesn't have to crash to blow up your model, it just has to stop rapidly appreciating. The issue is how badly/quicky will this segment of the market shed these units? I think the answer to that question is dependent on several factors, 2 of which are how much debt is on them and how is the alternative of renting them. I haven't seen much lately about the absorption of all these new rentals coming on the market - any have any good recent data?

I'd have to leave the data to the RE pros on here!