Urbandigs: Market continues to improve

Financial rationale will be able to secure higher percentage financing if the bank does not adjust LTV by the amount of "seller concessions". Essentially the buyer is liquidity crunched.

I see, 300.

Educatonal. TY.

"supply remains stubbornly low"

Yes, only up 11.7% from last year (plus over 5,000 units of shadow inventory New Dev) in Manhattan.

Not telling the lender about seller concessions and pretending you're putting in more equity kinda sounds like bank fraud.

These stats on the RE market need to be put into context. The SPX is up 16% from a year ago and up 16% in the last 6 months. Meanwhile, we hear in NY real estate that you can no longer get 25% off ask. I do know someone who got 25% off ask during the lockdown, but he probably sold his other assets for 25% lower than current prices to buy that real estate. It has been a far better strategy to leave your money parked in an SPX ETF. The price of NY real estate has gone *down* over the last year relative to the price of nearly any other equity asset. The bruins are winning. Even if prices recover 5% or whatever, the SPX will still be winning handily.

@george as I pointed out at least the majority of clients we work with are looking to buy a home, not necessarily an 'investment'. Based on the number of financial statements that I look at, our clients continue to invest in equities and in most cases have well funded financial portfolios. Separately they purchase an apartment to live in, and they continue investing. Guess I'm just saying it's not a calculation simply based on where I will get the highest return from my money. Even with the house you bought George, what part of that 'investment' was more about consumption? Is that asset outperforming equities at the moment? I'm not ribbing you, just curious how you're viewing your own purchase. No real estate market is bulletproof.

If you can afford it and you're going to enjoy it, all the best to you!

Keith

Just some real world feedback. I just tried to make an appointment for either today or tomorrow for a newly listed 3 bedroom on the Upper East side:

"I am completely booked up with showings today and tomorrow. Maybe next week-end. Sorry"

I levered my own purchase outside NYC with the biggest mortgage I could get, and Zillow has it up in value by 20% since I bought. Zillow is backward looking though, and inventory remains tighter than it has ever been since local agents started keeping records ~20 years ago. I think it's probably up by closer to 35%. There was no transfer tax, the property tax is 1/6th of what it would be in NYC, and a local agent is letting it short term, which has covered the carrying costs and produces a fabulous tax benefit: all the repairs are fully tax deductible as long as I stay out of it myself (and there have been a lot of repairs). I am pretty sure that today I could sell and double my down payment. It has been a far better investment than stocks.

One thing I've noticed is that similar properties to mine that look newer are selling for twice the price per square foot. Everyone fleeing the cities wants modern and move-in-ready, whereas I bought a dated fixer-upper. I'm planning a reno of kitchens, baths, the exterior, etc to make it look modern. The renovation costs are shockingly high because labor is extremely tight, but the rising replacement costs lift the value of all properties.

Ultimately I think it timed the market exceptionally well. My timing in public equity markets is terrible. If I had better timing in public markets, I'd be day trading GME, but I don't, so I put $$ into an asset I understand a little better.

Congratulations, it sounds like you did very well!

Numbers continue to improve, to paraphrase Noah and John; this Market is hot. Great chart on how time on market affects discount from ask. As usual lots of really interesting data and charts in their weekly vlog;

https://youtu.be/rDxLqqvQbio

https://therealdeal.com/2021/02/12/tishman-realty-strikes-bulk-condo-deal-with-elad-group/

stache,
So the developer is bulk selling at $1,100/SF, a 40% discount. How do you think the others buyers feel now? Perhaps any buyer who is thinking of signing a New Dev contract should consider the possibility something similar will happen to them.

This is definitely not the type of thing which happens if the smart money actually believes the market is improving.

It's certainly not a good thing for the people who laid out close to $2,000 a square foot for a unit here. But that said, how many of you here on this forum would have considered paying $1800-$2,000 a square foot for a home on 43rd Street between 9th and 10th avenue?

It will be interesting to see what the new owner of these units prices them at for resale. We have an accepted offer on a much nicer, 37th floor apartment about 10 blocks north at about 1500 a square foot.

Buyer beware; in a good or bad market, buy quality and buy location and pay attention to that price per square foot, that it makes sense for that particular neighborhood.

Keith Burkhardt
TBG

Here, let me rewrite the broker babble.

>> The prime address is 2 blocks from the West Side Highway, Times Square, Port Authority, and all subways and buses as well as 5 blocks from Midtown and a short walk from Hudson Yards. From dining to grocers, all the necessities are in close proximity. And with the transformative Hudson Yards only blocks away, it is easy to take advantage of attractions like The Vessel as well as the best restaurants and retail anywhere in the city at the Shops at Hudson Yards from Charlie West's perfect, centralized location.

>> This prime address is 2 blocks away from the West Side Highway and even closer to distribution facilities for both FedEx and UPS, so you can watch and hear your Amazon orders come and go on noisy trucks all night long! A self storage facility is at the end of the block, for that authentic Long Island City feel! Just a bit beyond is the finest steakhouse in NYC at the Larry Flint Hustler Club, where residents enjoy a 25% discount on admission before 10pm on Tuesdays and Sundays. Charlie West is also just two blocks from the Chinese Consulate, so you have just a short walk to your Falun Gong protest. Truly, this is the perfect fringe location for the undiscovered and unloved parts of Manhattan. Could me discover what the rest of the world is missing or tries to avoid.

*Come discover. Damn autocorrect.

Ha. I think location potential improvement really suffered due to impact of Corona on Hudson Yard. Also not sure everything was really selling at $2000 sq ft average closing price. I am sue some of the nicer units could pre corona but not sure about average.

7A sold for $1583 per sq ft.
https://streeteasy.com/sale/1431994

Penthouse with Terrace sold for $2k (without factoring in terrace) per corona
https://streeteasy.com/building/charlie-west/phk

One possible bulk purchaser's thinking. Sell-out time 2 year. Average 1y. 10% average cost of capital. Average sellout $1400 per sq ft. Numbers below are just quick guesses.

Purchase cost $1100
+ Transaction cost $40
+ CC+Taxes for 1y $30
+ Selling cost $30
Total cost ex capital $1200
Cost of Capital $120
Buying entity expenses $15
So $1335 is appx breakeven with 10% cost of capital.
So final individual buyers are not going to get less than $1350+Transfer taxes as per the buyer's calculation.

My question is if it's a condo building, is the bulk buyer allowed to start renting out the units or is there a law that says a certain percentage in a building has to be owner occupied?

I think they will certainly be renting out some percentage (see 1 Manhattan Square). There is no legal restriction but the bank financing may become harder if more than certain percentage of units are rented out.

In the meantime, resales market pulse went to 50. I excepted it to go up but this is certainly better than I expected.

stache,
Look at this scheme to circumvent the regulations:
https://therealdeal.com/2021/02/03/investor-eyes-condo-projects-struggling-to-hit-key-sales-threshold/

George, What are your thoughts on improvements in market pulse? Does it remain close to 50 despite new listings expected in the next month or two (call it 45+ given seasonality)?

Olshan Feb 8-14. 38 contacts. Perhaps even 30 will give up his bearish stance for the next year.

https://olshan.com/marketreport.php

It's great that the market is finding a price where buyers and sellers will transact. Sellers are more realistic. The 2% mortgages that are goosing property prices coast-to-coast may be helping, along with a stock market that has doubled since its bottom. The SALT deduction comes back in 2025, and Biden is going to shovel trillions of dollars to blue states. I even heard today one family saying that they're preparing to come back for the next school year -- first time anyone has ever told me that. Maybe we'll have a competent mayor next year. (Competent governor? Not so lucky.)

There were better opportunities elsewhere until various points last year, but HPA in other places has been very strong (e.g. Malibu +75%) to help normalize prices vs. Manhattan. The price of all risky assets will remain inflated for so long as interest rates remain low. What could be a spanner in the works? Inflation. Everyone seems to be expecting higher inflation readings in the spring; the question is whether they last.

Seems that you are neutral if not mildly bullish on Manhattan real estate. I personally think that there are still some very good values to be had in Manhattan resales $3mm+ (under $2mm deals seem to be gone) if someone is looking for a home. Sure you have to pay up vs summer 2020 but that is the case with every asset and you probably enjoyed good rental prices in the mean time which are still there.

30, interesting. Thank you.

For the short term, low interest rates could continue to pressure prices of all risky assets higher. New York real estate prices are likely to benefit as much as anything. But this is in the context of a spectacular year last year for real estate outside NY, which seems to still be going based on sales and markets I watch.

Funny to see a "low interest rates risk assets" post on a day like today's in the rates market. The 10 yr is now 1.32% while it was below 0.60% last summer. Treasury rates have moved sharply higher, lets see if the mortgage market responds by taking away the sub-3% 30-year fixed rate in 2-3 weeks.

As long as the Fed is buying $40bon+ of MBS a month, which likely will continue for the next couple years minimum, mortgage rates probably don’t have a ton of room to move higher.

I can’t understand why Manhattan real estate is not on fire already. I am not a finance person and can’t wrap my head around the monopoly money in various accounts just begging to be burned on SOMETHING. I am not a big consumer of anything and don’t have any investment prowess. A sitting duck for various “friends” starting SPACs. How is this going to end? FFS, Rover? I don’t think that is going anywhere. Everyone I know is open to anything; if only I had some entrepreneurial idea that could scale, or make a straight-faced pitch for anything. Why has inflation not already hit?

The fed can force rates down if they keep buying. But they need a good reason to keep buying. Powell's guess as well as the consensus of the current Admin is that a recovery will be slow for a number of years. But where do they get that from ? Is it possible that a sharper drop in Covid infections in the coming months and increased vaccinations will allow current restrictions which choke the economy to be lifted earlier then thought ? I think so. A 1.3 10 yr could be a blip or a warning. Fed has made plenty of mistakes in the past so this would not be the first nor the last. Fed is using stim/low rates as if this was a typical hard economic downturn. But past downturns never had a vaccine or some visible guessable date where the consumer is expected to come back to life.

George makes an interesting comment about areas outside NYC still increasing. I would've expected some mean reversion with respect to both NYC (turning up) and surrounding areas (turning down).

NYC is definitely up from its low in the summer and recovering, but the northern burbs and Hudson Valley are still hot. Can't comment on the Hamptons, but in many areas north of the city there is simply no inventory. The inventory that had built over a slow few years prior to spring 2020 was rapidly digested and is no longer. Few new listings are coming on, and quality is even scarcer.

To give you an example, properties in Dutchess/Columbia/the Berkshires were sitting for months/years prior to the pandemic. Now, in the Berkshires, where 7 months inventory is considered a strong sellers market, there is 1.4 months of inventory! That's mindblowing. It'll take years for supply to catch up with demand up there.

I think of what just happened as mean reversion. It happened overnight rather than over several years, so it looks dramatic. The price gradient from city to suburb is now closer to what I would consider to be more rational as a long-term mean. It could continue to swing in favor of suburbs if city governments don't get their acts together.

In the market where I bought, there is literally no inventory below certain price points, not even tear-downs. A single-family home about 20% cheaper than anything else in the market came online last week, and it went into contract 4 days later. If you want a single-family below those price points, you have to either take an attached townhouse (which themselves have been run-up) or go to another town farther from transportation and cultural attractions with lower-quality schools.

knewbie, Fed has plenty of time to react. They have stated that they want to actually see the inflation above 2% for some time (guessing that is at least 6 months) to compensate for lower than 2% periods we have had. That level of inflation is not happening anytime soon. As long as they do not increase their treasury purchases, 10y interest rate will have small upward bias due to increased supply of treasuries and improved economy - essentially some tightening.

Best week since June 2016. "13% discount from asking price".

Without a doubt the best deals were happening early last summer. I certainly acknowledge there's still a lot of headwinds that New York City faces, however most buyers don't seem overly concerned.

I don't make short-term predictions about anything. However, early last summer we were telling clients we felt the market was stabilizing, we weren't sure if the bottom was in, however we knew prices were down and there was opportunity to negotiate aggressively. Our personal best was about 20% off original ask.

What's the bear road map today?

@george would you be comfortable saying the market is improving? Or are you sticking with your original thesis? Not trying to be cheeky, sincerely wondering if there's enough positive activity to change your view.

"What do you call a market where sales are happening only because prices are falling? There are many words. "Improving" isn't one of them."

Keith Burkhardt
TBG

https://therealdeal.com/2021/02/16/manhattans-luxury-market-sees-best-week-since-2016/

I ran into my real estate lawyer on the street the other day. I got the impression things are not going well for him right now. The recovery does not seem unilateral.

I guess it depends on his niche. If he specializes in transactions, he should be fine? But if he does eviction litigation (on either side) then things may be tight for awhile, only to go crazy later this year.

Richard, Saw the closing price. Congrats. You nailed it!!

Buying at the bottom of absolute prices isn't always a good decision. If you sold shares to buy in July, you need to be up a lot now or had a lot of leverage, else you're losing on a relative value basis. Should have left it in the stock market. NY resi real estate will become more interesting to the extent that the stock market remains high, interest rates low, and inflation tame.

https://www.bloombergquint.com/pursuits/january-home-prices-in-new-york-city-had-record-declines

That’s something of an understatement. StreetEasy’s January report found that Manhattan saw a 57% increase in luxury contracts signed year over year, “and even with that surge,” Wu says, “inventory for luxury homes has still been near all-time highs.”

In the "the market is hotter than you think it is" department...

I can say, now that it's public info: 140 Riverside Dr. (The Normandy). High floor 2/2 with renovated kitchen; city and river views, sold in a competitive auction for 5.2% off list . ( Corcoran represented the seller; Upstairs represented the purchaser.)

https://streeteasy.com/building/the-normandy/15o

Anecdotally I hear that the number of signed contracts January and February has been strong -- which is not a license for sellers to pick any number they want, but it is a good sign.

ali r.
{upstairs realty}

Why aren’t people taking money out of stock market and reallocating to real estate? Gains in stock market seem to good to be true. Why not concert those gains into a down payment before they evaporate?

@mcr: Because in the overall view of an personal investment portfolio, there's still the matter of overall asset class allocation: I may not want to have more than 40% (to pick a number) of total net worth in real-estate. With the recent booming securities market, there's also potentially the matter of taxes on the capital gains incurred.

No stonks were harmed in the making of this film.

Even so, George is completely right to note how volatility in stocks will swamp any gains or losses on my RE balance sheet. I have no idea which direction they will drag us (and would not be permitted to share my $0.02 regardless).

@Aaron2 - Thx. Makes sense. I just can’t wrap my head around the gains in the market. If this set of circumstances doesn’t get NYC real estate moving, I can’t imagine what will.

https://www.businessinsider.com/new-york-prices-falling-when-to-buy-real-estate-2021-2

Which sources from
https://streeteasy.com/blog/nyc-real-estate-prices-continue-to-drop/

Only problem with the Streeteasy article is that price data is appx 3 months old when market pulse was probably 30. Also they forget to differentiate between new developments and resales. The deals signed now, with resales market pulse at 0.51, are at a least a a few percent higher than 3 months back. I am guessing we will see uptick in monthly SE condo index numbers by March.

"sold in a competitive auction for 5.2% off list "
https://www.urbandigs.com/forum/index.php?threads/manhattans-multiple-offers-but-not-achieving-asking.348/

30, How much more decline are you expecting using SE condo index as a benchmark (Jan 2021 being the last published data)?

https://therealdeal.com/2021/02/19/price-cuts-spur-deals-as-glut-of-luxury-homes-lingers/

Richard, he does transactions, due diligence etc.

MCR>> Why aren’t people taking money out of stock market and reallocating to real estate? Gains in stock market seem to good to be true. Why not concert those gains into a down payment before they evaporate?

You are expressing a view that stocks are overpriced. Fine, let’s go with that. Why does that mean money should be allocated to RE? What if RE is also overpriced?

Without expressing a view on stocks, I can tell you why I don’t allocate any money to RE. As the market would have it, annual rent on my apt is 2% of purchase price. I consider about 1% of it as covering cc+tax+upkeep and 1% of it as amortization of transaction costs. So in my market, apts are being lent for effectively 0%.

Others may feel differently, but if someone is letting me use something for free, I don’t feel a particular need to buy it. Not with my cash, nor with cash borrowed at 3%.

Ha! Of course, Nada, that's a very specific calculation to your submarket. My tenant is paying 5% of what it would cost them to buy the Midtown studio. I'm not in the rental market up here on the UWS, but it looks like it would be close to that for a 2/2 or a Classic Five up here too.

ali r.

MCR: I'm not sure NYRE is a great way to manage risk. If you think the stock market is inflated, I suspect the same factors inflating the stock market are likely inflating NYRE. It's a lot easier to manage this risk with equities than NYRE via hedges, diversification, etc.

The calc definitely changes at the ~$1000 ppsf market. Looking at my 2005-ish building’s 1BRs similar to mine, I see somewhere in the range of 4.5% to 5%. But three cc+tax is nearly 3%, and by my math upkeep + transaction costs add another 1%, so 4%.

1% for borrowing an apt is more compelling than 0%, but not enough for me personally. On the other hand, it’s a lot easier story to start with. Perhaps we’ll see a 20% rebound in rents by next year, partially reversing the COVID plunge. So if that 5% rent becomes 6%, apt borrowing becomes 2%. Maybe that’s marginally compelling?

However, at 2% rent / 0% apt borrowing costs, it’d take a doubling in rents to get to 4% rent / 2% apt borrowing costs. Just to make it “marginally compelling” from my viewpoint. And while I do think rents in my segment will bump 20% (say), I don’t think a doubling is in the works.

I should also say that my take is less about the absolute price of the apt, but rather having a degree of financial flexibility regardless of price.

E.g., there are $1M apts out there that are “marginally compelling” by my accounting. So I view them indifferently between rent & buy. However, for 30% more rent I can have a $3M version of the same thing: same size & BRs, but more light, more windows, higher ceilings, fancier finishes, fancy building amenities, etc. I personally value these things. Is the value 3x higher to me? Maybe, maybe not, but not something I really need to think about. There’s no question the value to me is loads above the 30% increment.

Now of course, if you don’t care at all about the nicer version of the same apt, you shouldn’t think like that. Nor if you are stretched financially for the incremental 30%. But I care. And I just have never lived my life financially stretched, not even in most of my 20’s on $20K-$25K a year. So there has always been room to skew my marginal spending towards the good deal.

I keep about 20% of my investment portfolio in cash, that's my thing.

I would only sell stocks to buy a home if I indeed wanted to buy a home, for the myriad reasons that people value home ownership or prefer owning over renting. There's certainly no absolute need to own versus rent, whatever best fits your emotional and financial profile.

I have yet to work with a client that was convinced that through the purchase of their home they were going to become rich. And in my personal experience with clients, no one is betting the farm via a home purchase. They put 10 or 20% down, and if they're are people that invest in stocks, they continue doing so.

One of the reasons I created my business model based on adding value through commission rebates, I'm pretty frugal myself.

Keith
The Burkhardt Group

All I care is market pulse remains in normal range. So it is fair for both buyers and sellers. SE condo index down 5-6 percent vs pre corona (contracts signed in Sept/Oct pre-vaccines). It could start to reflect stronger market in the last 2 months soon perhaps in March.

>> I have yet to work with a client that was convinced that through the purchase of their home they were going to become rich.

You must have been brokering under a rock or something in the 2000’s. I’m no broker, so all I can speak to are friends & acquaintances. The majority of the chatter then was some version of “get rich”.

BTW, do you ever have investor clients? Are they looking to “get rich” with their purchase, or something else?

Nada, While rich depends on the state of mind and where you are coming from, in Manhattan average buyer has not made much money in resales market. However, there are plenty of townhouse buyers in BK who put down $300k to buy 1.2mm house 10 years back, put $200k in to repair, and now those are $2.4mm.

Then there are CCIV buyers at $12 2 months back.

https://www.urbandigs.com/forum/index.php?threads/median-listing-discount.356/#post-2475

30, Is that Jan closings meaning pre-vaccine October/November contracts? Also, I do not think people adjusted the asks commensurate with the market decline. So higher discount from ask makes sense as market is down 5-6% on an average pre-corona using SE condo index.

>> Nada, While rich depends on the state of mind and where you are coming from, in Manhattan average buyer has not made much money in resales market. However, there are plenty of townhouse buyers in BK who put down $300k to buy 1.2mm house 10 years back, put $200k in to repair, and now those are $2.4mm.

To each their own, but my version of rich involves parlaying $500K into something more than living in the same place as 10 years ago.

Nada: I was doing rentals in 2000...

I'm speaking of the present moment and the company I currently run. I think the same could go for stocks, I remember every Tom, Dick and Harry thought they could get rich by investing in the market, that didn't end well for many. I think Edelman financial planning puts out a report that most Americans are still in Shell shock from those losses, and are afraid of the stock market and don't invest. I know this attitude would apply to most of my family and many of my friends.

Of course this attitude doesn't apply to the subset of wealthy New Yorkers that buy homes.

And as I said before but it doesn't seem to completely resonate here, the 10 to 20% deposit New Yorkers are putting down on Manhattan condos / co-ops, does not represent the majority of their investable assets. Buy home/continuing investing..

Nada, For me, if the space is adequate and I like it, I wouldn’t move even if I had more money to spend. Of course if my networth became 10x since buying, I may think differently.

“To each their own, but my version of rich involves parlaying $500K into something more than living in the same place as 10 years ago.”

New Thread as this one is too long.
https://streeteasy.com/talk/discussion/46431-urbandigs-market-continues-to-improve-feb-21

300 thank you for doing that.

Surely this trend will only apply to the extremely wealthy... ?

https://www.wsj.com/articles/wall-street-moves-to-florida-nyc-real-estate-11614020268?campaign_id=4&emc=edit_dk_20210223&instance_id=27394&nl=dealbook&regi_id=69395791&segment_id=52169&te=1&user_id=0ee78fbe7414c12d83966706ca1eb7f3

youname, Please post to the new thread. This one is too long.

https://streeteasy.com/talk/discussion/46431-urbandigs-market-continues-to-improve-feb-21

The market is definitely better in my UES co-op .

The building has closed 2 sales in the 1Q 2021 , and 3 in 2Q 2021 , and there are 3 co-ops in contract so far in 3Q .
This compares to 2020 , of 4 sales all year.

Prices are still down relative to 2019 , -15% , but the price cuts are slowing and there seems to be some traction