Market Firming up - Indicators

https://streeteasy.com/blog/q2-2019-market-reports/

We certainly are doing deals and seeing deals getting done. However buyers remain firmly in control, and overall it's a very choppy segmented market. But again we're in the depths of the summer season. It will be very interesting to see what post labor Day through Thanksgiving brings.

Keith Burkhardt
TBG

Thank you for starting a new thread about this.

The only life jacket here is the hope of QE4.

Fed is already planning to cut at least 25bps and probably another 25bps in the next six months. 10/1 ARM at 2.75 or below from Wells Fargo if you go direct without mortgage broker. Could even get 2.5 with high down and solid credit for jumbo.

One more uptick in Streeteasy condo index, current negative sentiment will start to change.

Rate cannot save it, must print money crazily like last round

You mean the fed would have to do some bond buying so that long dated rates are even lower than 2%? Yield curve is already flat to slightly downward sloping. So it will be silly for any one to be calling for bond buying rather than cutting fed fund rates.

I guess Elizabeth Warren read some of my posts here about debt levels.

If I recall correctly, the UD June contracts signed numbers were the worst in 8 years, so I'd say the signs are mixed at best, and still negative at worst. Not sure what you can say about pricing trends on such small volume.

Thoth,
I think people are grasping at straws a bit. They see 10 negative indicators and one positive indicator and exclaim "The market is turning!"

Agree re: grasping at straws. Expect Q3 will be very quiet. Uptick in Q2 was due to avoidance of mansion tax. Will be slow for rest of year and into the next.

I think I want to wait for Streeteasy condo index to at least hold the gains in July/August as 0.8% gain in a month is rather large. Urbandig Market Pulse is at 0.48 much better than 0.42/3 level it has gotten to. I want for it to hit 0.5.

Pointing out how "good" UD Market Pulse doing is a bit of a red herring.
1) It's actually down year on year.
2) It's not market wide, just for what UD calls "existing resale" which not only doesn't include Sponsor sales, but also doesn't include resales under 5 years old - which includes a significant amount of the resales having issues selling, and
3) Doesn't account for the record number of "Off Market" listings. If you added those back in, MP would drop to about 0.31.

It is all true but the methodology for the measure has not changed.

Plus acting as if resales are a totally different market is a bit silly (especially as "new" sales plummet, plenty of people are being enticed by their brokers to cross over and take "the amazing deals" available in New construction.)

And we are starting to see the beginnings of a huge crack in the market:
Sponsors being foreclosed on
https://commercialobserver.com/2019/07/silverstein-in-negotiations-to-step-in-at-125-greenwich-street-sources/

In my opinion, more so than a huge crack in the market this was just a very badly timed to project. This will no doubt become a rental as there is no way you'll get anywhere near $2,000 a square foot in this market in this location.

It's not the only project in trouble, get ready for more such announcements. But the widest impact will be felt by Sponsors trying to convert construction loans into inventory loans and those trying to get extensions on construction loans.

It seems the overall general sentiment across the country is stable. With what would appear to be some markets warming up a bit more than others. Based on low interest rates, current sales data, I think we keep plodding along for now.

https://www.cnbc.com/2019/07/30/sp-case-shiller-may-2019.html

Olshan report of contracts greater than $4mm is weak this month. As discussed in another thread, it seems that that pending tax change on July 1 masked some of the market weakness by forcing transactions, but now the weakness is showing. Impossible to say whether this will be a temporary lull of a further headwind that will remain. My view is that the new tax marginally decreases property values because of further transaction costs, and that in a market that already has a meaningful mismatch in expectations between sellers and buyers, this is more fuel on that fire. I think that ultimately sellers will need to be the first to blink in this standoff and that the sellers who blink first in the form of material price reductions will be the winners among the seller group, but the big question is how "material" that reduction needs to be.

Is 20% ~ 30% material?

At least in the small world we operate in, primarily under $4m, we're seeing sellers become much more realistic about valuations.

Right now it's more about quality of property being matched with correct price. Buyers are definitely being very selective. Grade C units are not trading at almost any price. It's currently a very good time to be a buyer and a buyer's broker (if you have a good bench of clients). We will be much more selective regarding listings in the future. Spoke with a seller today, who had the luxury of purchasing in 2012. Very realistic about price expectations.

Keith Burkhardt
TBG

Can't speak to the rest of the country, but we invest in properties in LA and the market has slowed there as well. Not quite at the slow pace of NY though for various reasons.

On a similar note, news reports are indicating that the Fed may reduce rates. I guess that could be a good/bad thing. It may trigger on the fence buyers with cheaper money, but it may also signal to everyone that the overall economy is not as healthy as it appears to be which could further erode consumer confidence.

I'll disagree with Keith again saying that we are selling plenty of what I consider Grade C properties and it's ALL about the price. And I think that almost all C Grade properties are currently sellable, it's just that the price cuts necessity are outside of the consciousness of people thinking the market isn't in the throes of a major correction.

I guess I just have 'A' type buyers. My point is we're seeing a lot of properties languishing on the market, no one is arguing with that? And they are what I would consider C grade. The best in class are selling across the board as long as pricing is within reason.

Why buy a mediocre property when with a little bit of patience you can buy something a bit more fab.

I'm not arguing against that as a strategy, I'm just saying that B and C properties are not unsellable, we have just gone back to "normal" where they need to be appropriately discounted as opposed to the very minor discounts they were being marked down in the overheated market. Historically one way of knowing when markets have been ready to turn is when discounts to quality become thin. For example in the late 1980s we saw discounts between the East Village and Central Village fall to around 20%. Then when the market crashed that discount increased to over 50%.
Note this is similar to the discussion in the Upper East Side townhouse thread.
Of course if you DEFINE C properties as "those which are languishing on the market" then it's a tautology. Or if you DEFINE C properties based on being overpriced. But if you DEFINE C properties based on location, view, layout and building quality, you can make a C property pretty "Fab" for someone at the right price. Example: make a first floor 3 BR in Kensington cheaper than a studio in Park Slope and for people at $X price who are planning on having kids, it's a no brainier decision.

I'm curious what you would grade this property as:
https://streeteasy.com/building/345-montgomery-street-brooklyn/6a?context%5Bcontroller%5D=%23%3CBuildingController%3A0x000055cc7accfc58%3E&context%5Bcurrent_user%5D=1040784&hide_if_empty=true&section=sales

I certainly wouldn't call it an "A" - it's in Crown Heights, in a non-descript Coop with no doorman, and it's unrenovated (at least not in the last 20 years). But it's in contract.

Come on 30 don't be so black and white, I'm not saying one particular group of apartments it's not selling at all! It's not like the market has completely Frozen up for non-prime homes. But if we can break down the data for say sunset Park, crown heights, Morningside heights; sales are probably much slower in these neighborhoods versus say Carroll Gardens, Park Slope or the upper West side etc. Whereas in 2014/2015 I personally participated in multiple bidding situations in Sunset Park!

And the one you selected has been on the market for 7 months, be interesting to see what price it closes at. No argument from me it seems like a pretty fair deal for someone who would rather own than rent and likes the neighborhood. But I would rather rent than own an apartment that might not appreciate much over the years and then take 7 months to sell. I think we have to really look at such an apartment and try to understand why it's not selling or took so long to sell at such a low price. And what has to change to make this a more desirable commodity?

Hey at least we're both in agreement the market has definitely slowed down and continues to slow down. I just don't think the stars have aligned for a major correction. I think Prime homes in Prime neighborhoods when price correctly continue to move at a pretty nice clip. Unfortunately a great deal of homes were sold between 2014 and 2015, and if for some reason you've got to sell now you could be in a bit of trouble. However if you purchased in 2012 like a gentleman I spoke to yesterday, we assisted in the buy. He paid $1.195m in Park Slope, a very similar apartment right above him just closed for $1.750 (3/2). Will be putting this listing out about a week after labor Day.

Keith Burkhardt
TBG

The market is doing well now, because people already price in a yet-to-happen QE

When you say "Grade C units are not trading at almost any price" go back to the early 1980s when mortgage rates were 18% or the early 1990s when a 3 BR penthouse at 372 5th Ave was offered at "$10 plus 50% of the profit on sale" (and still no one took it) or basically that same apartment at 345 Montgomery St which we bought for $2.50 and sold for $32,000. We are nowhere close to that (yet, anyway).

With so much money printed, that good old days cannot come back any more.

Anton: If this is the "market doing well", I hate to see what happens when it performs poorly.

FYI, UD says that July contracts signed numbers were up 5% YoY, but I believe almost everyone agrees that this was mainly due to a rush to avoid the new taxes. In other words, no new demand, just redistribution from other months. Will be interesting to see if August is particularly bad as a result.

30yrs, Above you mentioned: "We are nowhere close to that (yet, anyway)." in reference to the dire days of the early 80s and early 90s. Your "yet, anyway" has me wondering.... In the time I have lived here, starting in 1998, we have survived the Tech bubble bust, 9/11 and 2007. What, if anything, in your (or anyone's opinion) could put NYC in a position to get back to those dire days?

My opinion: material change in crime, taxes, increase in supply, exodus of Wall St. firms...the last one seems most likely, imo.

Changing mayoral term limit to 3 terms should do it

Stock market crash, recession, terrorist attack, blackout with looting/rioting, series of water main break/other infrastructure issue, highrise fire where NYFD can't reach the high floor and people die, NYPD strike... Should I keep going?

And just to be clear, we don't have to get back to those dire days for the Real Estate market to crash. I think any single significant event could do it.

Wishful thinking like Sanders or Yang

Thoth, May/June contracts and closing were impacted by transfer tax increase. July contract YOY impact shouldn’t be much and if there contracts should be lower due to some contracts being pulled forward, but YOY number is up 8 percent. While I do not think it is big positive due to volatility in data but in no way is it negative.

“FYI, UD says that July contracts signed numbers were up 5% YoY, but I believe almost everyone agrees that this was mainly due to a rush to avoid the new taxes. In other words, no new demand, just redistribution from other months. Will be interesting to see if August is particularly bad as a result”

July resales contracts in UD are actually up 11 percent YOY.

And resupply pace -64 percent which is in no way negative. Very volatile number as it is a difference of two somewhat volatile numbers.

Most powerful numbers are
1. price action in Streeteasy condo index for which we only have 3 months delayed data from contract signing date
and
2. Market Pulse, which has been improving in the last couple of months, but in my opinion needs to get to 0.5 and above and stay in that range for a month at least.

300M: I didn't say it was a negative. My point is that's one of the few positive datapoints, but it can be explained by external factors. All other metrics are negative.

And I'm looking at the market as a whole. I'm with 30Y on this one - you can't just ignore the New and Recent Development segment of the market and claim everything is great as long as you ignore the sector that is crashing. It's like the game companies play with non-GAAP financials. What a surprise, their profits look great once they pull out all the costs that made them make a loss.

I already addressed the condo index number - that's on record low volumes.

And I think the biggest risk to NYC real estate is NYC finances. The city is sitting on a fiscal time bomb with its unfunded pension and healthcare obligations.

Thoth: Pension underfunding is news to me. Are you certain?

Also most new spending will have to be funded by RE Tax increases.

While I agree that both new contracts going up and new listings going down is good news, with the recent increases in the number of "shadow listings" (especially in new construction) my confidence is waning that supply isn't being significantly under counted.

To 30yrs point, a number of sellers in our neighborhood have given up and pulled their listings.

Market pulse just hit 0.5 for the first time in a while (what Digs defines as normal market - there is no science to it). See if it stays there or at a higher level as it can be very volatile.

If I were to add a third indicator besides Streeteasy condo index and Market Pulse, it would definitely be Buy vs Rent but there is no market wide statistic as the larger percentage of rental apartments just not available for buying and vice versa. The ones which are available for both buying and rent typically will not do more than 2 year lease with second year typically not having the free month.

multicityresident, those are greedy and unrealistic sellers

@Anton - At least one seller in our neighborhood who has pulled listing would sell at market-clearing price, but fears that coop would not approve sale at the market-clearing price. That is why I revived an old thread about coop boards and price protection. I have advised friend to just go ahead and present contract with highest price he has been able to get from market and see if board rejects as he anticipates they will. Accordingly, it may not be seller who doesn’t want to admit true value as much as his coop board, which is comprised of those who want to believe (and project to the outside world) that their apartments are worth more than they are.

"Changing mayoral term limit to 3 terms should do it"

Likestocook, haha top marks

jas: Here you go. The healthcare liabilities are actually worse. And to 30Y's point, the primary way the city would try to close any financial problems is with RE taxes, since other taxes are easier to avoid. I would have included more links, but SE flagged my comment as spam when I did that.

https://www.statedatalab.org/state_data_and_comparisons/city/newyorkcity

https://fee.org/articles/new-york-city-s-pension-debt-is-driving-it-to-bankruptcy/

https://www.bloomberg.com/news/articles/2018-11-01/new-york-city-owes-over-100-billion-for-retiree-health-care

I am not a real New Yorker and had to research the mayoral term limit comment. I now understand that those who think DeBlasio is not good for the city (embarrassed to admit that I do not follow Manhattan politics so I do not have any opinion, let alone an informed one, on DeBlasio) think NY is done for? I am so embarrassingly ignorant on this subject that I don’t even know when DeBlasio was first elected.

"what Digs defines as normal market - there is no science to it"
Where are you getting that from?

Just to be snarky, those term limits don't stop NY mayors. Hell, even when their terms expire don't NY mayors try not to leave.

Thoth,
Here is a potential solution:
Roll back every single upzoning and make them available on a "buy in" basis by $/SF. In other words you get the old zoning as-of-right but you have to pay for each square foot over that (up to the limit of the new zoning). In terms of precedent I don't see it as all that different from the city selling off "High Line air rights" https://ny.curbed.com/2018/2/28/17063150/nyc-high-line-air-rights-sale-price-city-planning-commission-vote
Or Grand Central air rights
https://www.nytimes.com/2018/03/02/nyregion/jp-morgan-chase-midtown-east-air-rights.html
Because I feel that up until an upzoning those extra square feet are "owned" by the people and rather than being given away for free to developers should be compensated - especially when a) each of those square feet places infrastructure burdens (water, sewer, school, fire/police dept, etc), and b) developers obviously want and would pay for those square feet because they are already doing so. The only people it would cost are those who are currently benefiting from the windfall because developers would need to deduct the cost from whatever they were paying for parcels or air rights.
If you want to ask "what about those who already paid for parcels based on the upzoning" my answer is "taking speculative risks cuts both ways: you get huge profits by buying land speculatively based on inside info about upzoning, but sometimes you lose." (and yes I'm being dramatic because I realize some of these purchases were made after upzonings but I'm trying to make a point)

@30yrs - Your proposed solution seems like it would be a brilliant step in the right direction. Again, I don’t follow NYC politics at all - is there any politician in a position to implement the idea?

With respect to already paid for parcels based on upzoning, I would expect a Constititional Law challene not unlike those seen when property owners challenge new environmental regulations as unconstitutional “taking” of their right to develop property in manner intended at the time of purchase. Not my area of law by a long shot so no idea how it would turn out. Cannot imagine developers wouldn’t pull out all the stops to keep this idea from even getting out of the gate.

Downzonings have consistently been upheld. Why do you think in many areas all these buildings were built in the early 1960s? As G

It was in advance of a major 1963 downzonings.

It was in advance of a major 1963 downzonings.

@30yrs - Thank you for the additional information. As is frequently the case, your issue spotting piqued my curiosity, and I just read a lot more about downzoning offline. So interesting, and the articles I read even gave me insight into why developers are frequently okay with it. As always, many many thanks for your commentary. If you ever start a blog outside of Streeteasy Forum, please share its existence and address with those of us who very much your insight. In the interim, please keep the comments coming.

multicityresident - I echo your thoughts on 30yrs's contributions and that I would read a separate blog by him. It's a great mix of insight + a history lesson.

I would read that too - even the always bearish part.

I learn a lot by reading his historical perspective and arguing with him on these pages.

300 - you are an excellent contributor too, with a different and also thoughtful perspective.

Thank you. My knowledge is limited to individual apartments in Manhattan relative to 30 and some other posters who know all boroughs and commercial pretty well and interact with their customers on daily basis.

UrbanDigs- I really enjoy your Talking Manhattan podcasts. I think it would be really interesting to have 30yr or 300mercer on to share their RE knowledge with the community.

It's not just de blasio, but it's their whole bunch of the same type of people, they keep raising tax and waste them for you.

30 for President, and 300 for Secretary of State!

Thanks but I am anonymous except for a few who know me on this board. 30 for president!!

+1 on stache's nominations with NWT for Attorney General.

30Y: Thank you for your post - that was very informative. It's heartening to see that there's even a viable mechanism for helping tackle NYC's underfunded liabilities.

And just jumping on to the bandwagon of praise for both 30Y and 300M. They are always both helpful and thought provoking.

I recently started to thoroughly follow these boards (especially 30y/300m), so props to them too!

I feel the market is going to slowdown again with the even more uncertainty in the market with the trade ward escalating....

I recently had a bid accepted in brooklyn for a condo, but they couldn't amend a terrace that they said they would give direct/private access to me (the SE listing said it was part of the condo). I'm personally leaning towards canceling the contract and see if there are any further price reductions.

https://www.curbed.com/2019/8/6/20755373/miami-real-estate-condo-foreign-buyers-trade-war

Should tax foreign buyers like Canada did

Market Pulse for all Condos - both New/Recent as well as "resale" - continues to be godawful at 0.31 and 0.33 respectively.

In my view, new condo data is not very good - shadow listing, listing in contracts without showing up in data (220 cps), sudden jumps over a month due to closings in one new condo etc. Whatever impact real invisible new condo inventory has is visible in resale statistics trend.

Resales are doing very good, tens of people visit one open house, with very limited resale supplies, this translates to extremely high demand

Anton - what portion of the market are you referring to?

It's August, it's slow.

He refers to that part of the market called Mars. And maybe 24 Commerce St.

I don't study the market broadly, but from reading the board it does seem that there is activity in certain segments. As far as I read, it does not include properties above $4mm (from reading the Olshan report and some commentary, that portion of the market is struggling), and I wonder whether it is particular to certain neighborhoods.

According to Olshan report July was pretty bad for the luxury market segment.

We just engaged miracle workers referenced in another thread who sold a property at a price that we could not fathom. They reported that for segment into which we are selling (sub 1M), they are seeing good activity.

Urbandigs market pulse showing mom, yes improvement in $2-5mm resales (YOY flat) but not in 5-10mm resales.

Urbandigs market pulse showing mom, ytd, improvement in $2-5mm resales (YOY flat) but not in 5-10mm resales.

If YOY is flat, but last year sucked and in that year since prices have receded, what prediction should one make about the future? Especially since increasing record numbers of "off market" skews that metric upwards.

MCR,
What location are we talking about?

2-5mm mom and ytd are up 20 percent. So meaningful from the abyss we reached late last year with Fed interest rate raise.

Sorry ytd up 10 percent. Mom 20 percent.

I know ultimately this is a sales pitch for a service, but it's a pretty well-respected group. A bit different in the purely residential stuff we discuss here. Wondering what 30/300 thinks about the opinion?

Keith Burkhardt
TBG
https://seekingalpha.com/article/4282777-bursting-bubble-booming-market-real-estate-2019

Institutional money is indeed looking for yields and multifamily is attractive for them. The article doesn’t make a distinction between retail, office and multifamily but I think people like multi family despite low yields. 7 percent cap rate is in the article does not exist for large multifamily in most of the US. More like 3.5 to 6 percent. The institutions can finance at 3.5 or lower for multi family with 30 percent down.

Some of the money may indeed flow into condo inventory loans or outright bulk condo buying in Manhattan but have not see news on latter.

Amazing you can get 7+ yields with many REITs.

Please post some examples of 7 percent yield Reits. May be leverage at two levels - property level and at a REIT Level. Thanks.

Referenced in the article. Here's one that comes pretty close:
https://finance.yahoo.com/quote/OLP/

TeamM, my observation is more in sub 2M range. In each of the open houses I always met a lot of potential buyers, that translate to multiple demand vs 1 supply. And they keep signing and selling.

Just wait until yields go negative in the U.S.

Explain has?

'jas'