[NEW] Market Firming up - Indicators

We are down appx 6.3% from the peak (1,167,000 to 1,093,000) for Streeteasy Manhattan Index which is only resales. Ultra-luxury is down 15-20% from the peak looking at various new developments. Rents are rather strong.

https://streeteasy.com/blog/q3-2019-market-reports/

In a recent interview with UrbanDigs, Halstead manager Fritz Frigan made the point while he has seen reports about rentals being strong, why is the percentage of listings near his office still offering concessions over 40%?

The best explanation I have is that for that is every one jacked up their prices and now offering 1 month free - more common in newer rental buildings. Also, it is all relative. The rents were soft around 2-3 years back. Did the discount reduce?

Not able to answer 300s question, but here's a data point: I'm In the process of getting a new tenant into my Midtown investment condo and the rent is down from the last tenant (so this is essentially a reset from a 2016 baseline) by more than 5%.

300,
I have been saying for a while that I think a lot of the reporting on rental prices is skewed because they are not properly accounting for concessions, but without a deep dive inside the numbers which are being used there is no proof.

Streeteasy rental index is based on same apartment rental. Listed rents in most cases are net effective rents post concessions. So the index seems reasonable assessment of rents to me objectively without bearish or rose color glasses.

https://streeteasy.com/blog/methodology-price-and-rent-indices/

My neighbor just re-fi'd and his appraisal came in below his 2016 purchase price.
Williamsburg condo.

While I put limited value to bank driven appraisal as it is just one low paid person’s judgement rather than market price, it makes sense that it is lower by 5-10 percent. SE condo index is down since 2016. Still curious how much lower.

Btw, high paid appraisers also can make the valuation whatever gets the deal done. Look at the bankers and WeWork valuation.

On that note, 300, I'm waiting for a good article on how flexible valuations can be, given proposals to institute a wealth tax.

Would love that. Seems to me that private businesses will have to be simply at multiple of reported earning over last x years if the silly proposal goes through. Step basis on death I do like.

Also some one will make a case that valuing only based on past earnings is very good for economy as it will encourage growth oriented business who invest in the future.

It's going to be interesting to see people whose companies are valued at $100 billion for investment purposes get valued at -$ for tax purposes.

Re:"Listed rents in most cases are net effective rents post concessions. "
There are a lot of units being rented that aren't listed as "no fee" but end up getting rented as "no fee" when the tenant says "I want it but I'm not paying a fee" or even no fee plus some "free rent."

30, What you describe may indeed happen. However, are these negotiations resulting in bigger concession than 2 years back as we are talking about relative change in the index?

A really awful week for Manhattan luxury market according to Olshan Report:
https://olshan.com/marketreport.php

9 contracts last week, in what is supposed to be one of the busiest seasons.

I predict some small price cuts from sellers as they try to move their properties, and that it is too little to entice buyers in most cases.

9 contracts a week in Manhattan luxury market is very good.

And plus, they started QE4 already. If history repeats itself, you can see what will happen next.

Anton - when you say that 9 contracts a week it is very good, what are you using as a point of reference?

It is much lower than historical norms, particularly at this time of year, and it means that inventory in this segment will grow and it would take several years to clear the current inventory.

Why can’t you take his word as Gospel.

https://www.bloomberg.com/news/articles/2019-10-28/jpmorgan-weighs-shifting-thousands-of-jobs-out-of-new-york-area

I predict between now and the end of the year tons of properties will be taken off the market.

JP Morgan is about to move thousands of jobs from NYC to Texas and Ohio

https://dealbreaker.com/2019/10/jamie-dimon-making-texas-thirst-official

TeamM,
One thing I noticed about this week's Olshan report is that in addition to a lot less sales than last year, the average price was significantly
higher - $10,282,000 vs $7,455,214. To me this means that the bulk of sales missing were at the lower end of the price range. So I wonder if part of what is happening is that apartments which would have been included had they sold last year or the one before because they would have been selling over $4 million are being sold but not included in the report because they are below $4 million, and the definition of "luxury" is fixed by price as opposed to floating as prices vary.

30 - it is an interesting observation. I think we'll need to look at a longer period of time before drawing conclusions on the numbers. I think it's also possible that deals are getting done at higher prices because those sellers are more likely to come to terms with new market realities, while sellers at lower price levels are more likely to hold out hope for more money because the property is a higher percentage of their overall net worth. Tough to say.

FYI late October is not one of the busiest seasons. More characterized as a time when things 'pick up' post summer (typically one of the slowest seasons).

Meant to include this fwiw;
https://ny.curbed.com/2018/3/14/17119234/months-when-to-buy-nyc-real-estate

Whoever wrote that Curbed article is a moron who completely misrepresents what they are plagiarising from Streeteasy. For example the statement "Buyers will get between a 10 and 20 percent price cut between April and June, and up to 20 percent in September and October," when what they Streeteasy article said was "Homes are 10 to 20 percent more likely to receive price cuts between April and June. The likelihood of price cuts dips in the summer and peaks during the second flurry of home-buying in September and October, as owners rush to sell after the summer but before the holidays. Price cuts are 20 percent less likely in August and 20 percent more likely in September and October. Buyers are least likely to find discounts during the holiday season. In December, when inventory levels are also lowest, price cuts are 40 percent less frequent."

I gave up on Curbed a long time ago. Willful stupidity combined with blatant shilling is a very bad mix.

Anyway, point being late October is not prime selling season.

Keith - one of the nice things about Olshan's Manhattan luxury market reports is that they keep all of the historical reports up on the website, so it is easy to compare YoY. So regardless of whether October if a prime selling season, you can still compare to previous Octobers, which I believe is that 30 is doing.

So for a point of reference, in the week of October 22-28 in 2018, there were 21 contracts at $4mm+. Last week was 9 contracts at $4mm+.

Other than two weeks ago (19 contracts at $4mm+, which is ok but not great), the Olshan report has shown really weak activity in the $4mm+ segment for several months now, and it has been more than four months since there were more than 20 such contracts in a weak. That is much worse than prior years on a YoY comparison.

Reasonable minds may vary on how to interpret this information...

"9 contracts last week, in what is supposed to be one of the busiest seasons."

I was just addressing this comment, no biggie either way. Just pointing out late October if not one of the busiest seasons.

Olshan 4 weeks of month,
2014
March 125
October 101

2015
March 135
October 105

2019
March 90
October 53

Meanwhile, over in finance...

https://www.bloomberg.com/news/articles/2019-10-28/jpmorgan-weighs-shifting-thousands-of-jobs-out-of-new-york-area

How many think this is just bluster?

I think it's carefully designed positioning by Dimon to manage his New York tax bill (and breaks) and staff: JPM has started a full rebuild of 270 Park, expected to have a capacity (15,000 people) which is >2x it's current occupancy. They lobbied hard to get the area rezoned, and are supposed to provide significant contributions ($40mill) to the district improvement fund. They also have to figure out what to do with the old Bear Stearns building next door, which they will have no use for. Having spent lots of effort to get things this far, and given the current state of the commercial market, it's unlikely they're doing a fluff and flip to a buyer. Unless they think they're going to use the spaces as the next WeWork, they're staying. The question is how much they will extort from NYC along the way for the 'privilege'.

And yes, while JPM rebuilds 270 Park, they probably will move a lot of people out of state. But they (and all the financial firms) have been doing that for years. It's entirely possible with the increases in automation in the finance industry that those people will relocate, and find themselves automated out of a job in 5-7 years. At least they'll be unemployed in a lower cost of living area than NYC.

Traffic has gotten so thin Fritz Frigan jokingly suggests we cancel all open houses:

"The overall average in NYC dropped again, this time to 2.31. October numbers continue to slide: from 3.00 on October 6, 2.62 on October 13, 2.38 on October 20 to miserable 2.31 this last weekend. Should we cancel open houses in November?

80 open houses had zero attendance, almost 23%.

"With the economy and politics in an unsettled state, some experts believe prices are going to drop further. Grant Long, StreetEasy’s senior economist, is one of them: “We can expect to see prices continue to fall through the course of 2020,” he predicts."
https://streeteasy.com/blog/buyers-market-is-it-a-good-time-to-buy-a-home/

How much does he predict?

I don't know if anyone has posted this from the WSJ: https://www.wsj.com/articles/manhattan-condo-market-looks-bad-contract-data-show-its-even-worse-11572522638

I am a little surprised that the data shows poor performance at the lower price points too. I had thought that market had been holding up more.

It is only new condos. We usually talk about resales. If you look at the price chart, you can see 1 and 2 bed room holding up better despite being over-priced like their bigger brethren. Smaller new condos are down I think 10-15 percent from peak on an average and larger more expensive ultra-luxury $3-6k per sq ft 15-25 percent from 2014-15 contracts. New condos still have some room to come down as resales are still much better values. One Manhattan square may explain some of contract signing being high in the last few years and higher closing now. It is just the development cycle.

Look at 520 Park trading 15 percent down from original made-up ask. I am sure they will take 20 percent or more down from original ask for $30mm plus units.

Weakness even in 2-bedroom resale market:
https://www.nytimes.com/2019/11/01/realestate/two-bedroom-market-new-york.html

"Median Sales Price by Size: Manhattan’s two-bedroom market had the largest discount among studio to three-bedroom co-ops and condos last quarter."

For those who think this is just a condo problem, a luxury sector problem, etc. When the top stalls and falls, the impact will cascade. It is just a matter of time, and it is seeping closer to the lower end of the market.

Even in Upper Manhattan:
"Upper Manhattan just had the fewest third-quarter sales of co-ops and condos in a decade, said Mr. Miller, the appraiser, in part because of a surge of new expensive inventory and ambitious resale pricing that followed."

https://medium.com/@noahrosenblatt/november-manhattan-market-update-new-charts-are-in-d2abeb32c06e

I don't think it's just luxury markets that are down 20-25%. Looking at some of Noah's numbers shows wide variation across neighborhoods, and it's not all driven by ultra luxury. The charts show that one of the worst hits markets at all levels is FiDi for both resales and new developments and from studios to 3+ bedrooms. You can also easily find comps in that area that are 20%+ down from the peak.

I'm also starting to see some owners have wised up and are putting in price cuts that reflect the reality of the market. This is good, except now it's undercutting their neighbors who have units on sale, who are going to have to either pull their units or cut their prices in response. If these trends continue, it's only a matter of time before they start putting even more downward pressure on pricing.

Thoth, I have not followed FIdi closely. Is there some effect of tax abatements expiring which tends to have a much bigger impact that it should using a spreadsheet without emotion?

Look how bad the numbers are even for Tribeca.

300: There are definitely buildings where abatements will soon be ending, but the fact that it's hitting every market segment is where things are odd, because clearly some of those buildings don't even have abatements to affect them. If anything, I was actually thinking the reverse of what you were saying about spreadsheets and emotion: I think people at the peak allowed themselves to be fooled into thinking the pending expiration of the abatements didn't matter, because property prices would always go up. In other words, the expiration of the abatements should have had a much greater impact on their decision making if they followed a spreadsheet instead of their emotion.

30Y: Exactly, while they are close to each other, I don't think anyone would consider Tribeca and FiDi to be similar markets. But the flip side is that Harlem's numbers aren't bad, so it's seems like a very schizophrenic and fragmented market.

An accurate spreadsheet will show that prices of apartments with tax abatement will underperform over time (by more than the npv of abatement amount as some people can only afford apartments with tax abatement and will put too high of a price on abatement) as the price premium being paid is due to abatement will no longer exist once the abatement expires.

FiDi co-ops are struggling as well - and it isn't necessarily taxes that are causing the struggle. Take this unit at 65 Nassau: it has been chopped all the way down to its previous selling price in 2014; maintenance costs are only up about $300/month since then.

https://streeteasy.com/building/65-nassau-street-new_york/9c?featured=1

Thoth: Harlem is pretty bad right now for resales. Overall numbers might be skewed by sales at Circa Central Park. I must say I am amazed that a new large condo is in construction at w 122 and St. Nich
https://marketproof.com/article/new-offering-new-condo-units-in-harlem-at-300-w-122nd-st-the-ladera-10027-on-jun-5th-2019

Previous selling price in 2014 was already historic peak though

Harlem: I don't have any particular knowledge of Harlem, I'm just going by Urbandig's latest numbers for each neighborhood. Central Harlem and East Harlem were showing market pulse numbers of 0.47 and 0.35 and up YoY, while FiDi's was 0.09 and down. For context, all of Manhattan was at 0.33 and down YoY

Regarding 65 Nassau, this is an example of the weakest product getting hit the hardest. That is a tiny unit with zero amenities in an old non-doorman building, no view, narrow street lined with discount stores, coop not condo, etc. It really has nothing going for it except price.

And no coat closet.

Don't expect Wall Street bonuses to bail this market out - and next year will be worse.

https://news.efinancialcareers.com/us-en/3002632/bonuses-2020-down

https://streeteasy.com/talk/discussion/45391-new-new-market-firming-up-threat

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