Buyer-Seller Disconnect in Current Market

I have seen many examples of this in my "dipping toes in" search for 3BRs in manhattan. I think this is still the first wave of significant price cuts and sellers (and their brokers who are not helping) still have a lot of aspirational pricing out there. I feel some of this is intentional as a way of enacting deep price cuts to show what a current "bargain" potential buyers are getting. It works sometimes but there are too many that smell blood and are waiting on the sidelines for this strategy to work as a whole. IMO it ultimately hurts sellers as most units linger on the market and they encounter new disappointment at each price point. It also leads to less negotiating room for buyers who increasingly wish and expect to barter under the list price.

When this first wave of heavily discounted sales gets cleared (or doesn't) and more inventory enters the market in Spring, I hope sellers and their brokers will have adjusted their expectations that this is not just some momentarily blip in a hot market and price accordingly before then. If not, the added glut of spring '19 inventory is going to take the market even further down. Seems to me it's a bit of a prisoner's dilemma out there.

It's also a Catch 22 as clearing out excess inventory is good for the market but will also drive down prices in the interim. It takes the most motivated sellers who are willing to price their units correctly but we are not at that point yet. And expecting buyers to take the bait of perceived discounts seems silly as buyers cannot know such discounts are acceptable unless of course the broker spills the beans. But the low volume of such deeply discounted deals will only keep the market dysfunctional for a longer period.

After Black Monday it took the Real Estate market in NYC 5 years to find bottom.

The "big motivators" in Real Estate have always been marriage, birth, death, divorce and job change (loss, transfer or promotion). These will continue to occur and force purchases/sales, but outside of these I think transaction volume to fall because sellers who don't "have to" sell will sit on the sidelines waiting for the market to rebound and purchasers who don't "have to" buy will sit on the sidelines waiting for the market to bottom out.

Yes 30, it's a little like ripping off a band-aid - the quicker you do it, the less it hurts! But when your band-aid costs millions of dollars, you think twice about taking the quick way out and may prefer to suffer a while longer. Interesting how irrational behavior occurs during up-cycles as well as down- cycles.

But I wonder about the current market and how many of these sellers are overly motivated to sell, in particular the investor who thought they would have sold 1-2 years ago in a different market at a tidy profit. How much patience do they have? This seems the biggest unknown to me because, although I do not know the size of this market, I suspect it's pretty big.

In other words, how patient is their money? They are burning through carrying costs without the benefit of owner-occupancy and perhaps rental income. What are their pressures to liquidate and convert to cash? If foreign, their motivations may have nothing to do with the local market.

Remember one of the prime factors of the last correction was mortgage borrower's rates resetting. If you are correct and there are significant numbers of investors who thought they were going to sell a couple of years ago, and the numbers barely make sense or don't make sense, for those with adjustable rate mortgages what is going to happen to them if rates are 2 points higher when their loans recast?

Example:
An investor bought a unit for $1.3 million and borrowed $1 million @ 3.2% = $4,325 CC+RET=$1,700 total = $6,025.
Rent is $6,000 (which I actually think is on the high side these days for a $1.3 unit). Even though expenses like vacancy, broker's fees, etc make this a loser the owner can convince themselves that they are "one time costs" of getting a good tenant, and that they are breaking even.
But if their rate adjusts to 5% their payment goes to $5,368, the monthly total goes to $7,068 and it becomes hard to ignore coming out of pocket almost $1,100 a month (not counting those "one time" rental costs).

40, good analysis of the possible pressures on traditional apt investors. Current low interest rates seem the greatest disconnect between previous bull markets and the current one. Also, foreign investors may have very different financing issues, for better (all cash purchases) or worse (shadow financing).