Manhattan market prognostication 2022

well, these are nice, look straight out of a design magazine, but much more expensive and further away.

How are suburbs other than Westchester doing? NJ and CT still on fire?

Amen, Aaron2. The second one is small, on tight acreage, and bland. But the first one, I can get behind!

https://youtu.be/C1aGlneGLvs

The first one is definitely a proper mansion.

Decent prognostications from 3+ months ago.
Well done

It's been quite a while since I've experienced a typical summer slump in real estate. We've been picking off deals here and there, but it's been difficult. If you're a seller it's time for the reckoning, if you're a buyer, we're in the beginning stages of real estate going on sale.

Great data in this video from Urbandigs on what's currently happening, makes it easy to draw a line to where we're going.

https://youtu.be/PEkhdrjqFjI

Keith Burkhardt
TBG

And let's hear from the great Olshan Luxury Market Report:

http://olshan.com/marketreport.php

I’ve been checked out of from NYC real estate and just checked in to see business as usual in Beekman Place cul-de-sac, meaning very little movement despite units asking prices that even if achieved would result in a hefty capital loss for sellers. Is there any area of the city where real estate purchase is more likely to result in significant capital loss than it is in my beloved Beekman Place cul-de-sac.

High up on 57th St?

https://streeteasy.com/building/one57-condominium/81

PSA: if you're going to take a 20 million hit on a resale, please get in touch with me I can help.

Keith Burkhardt
TBG

Ouch - What is the story there?!

Side effect of divorce, I think. (Wife of John Moores, and former part owner of the San Diego Padres, among other pricey baubles.).

Urbandigs market pulse has gone to neutral for Manhattan.

How does the current pace of contracts in Manhattan look? I’m too poor to get my own account ;). But from Noah’s posts, it appears we have gone from a pace of ~350/wk in March to ~250/wk in June and ~150/wk in the first two weeks of July.

Looks like we might be at a point to talk about settling “wagers” from 6 months ago…

inonada>> The latest print is Feb 2022 at 1075K. My guess is that it’ll creep up a few percent over the next several months (1110K?) before topping out by late summer or fall. It’ll float in that neighborhood through the remainder of 2022, and in 2023 it’ll start coming down in earnest.

300_mercer>> think 1110k is more or less in the bag once the current contracts close in June/July. I would dare to say even higher due to the lag effect in SE index. New development resales will be a drag. I find it hard to predict beyond due to uncertainty about interest rates and Fed balance sheet actions. If I were to be forced to guess, I will say flat line after 1125-1140k.

Ha. July is 1,110,199.

That’s from the July report, and it’ll get slightly revised in the August report.

I see the August print on the chart, seems slightly above July but essentially flatlined. They haven’t updated the spreadsheet yet, though. So, we’ll have to wait a bit still…

Is there a wager here? It looks like you guys were in agreement as to where things would be, and indeed it appears that is where things are?

I said flatline around 1110K, 300 went with 1125-1140K, dammit!

(Ok, fine — we got nothing better to “wager” over.)

Who is more optimistic today than they were 6 months ago?

Optimistic about what? I am more optimistic that the Fed will bring inflation under control.

I feel like we all knew this correction was coming for both real estate and equity markets. I'm glad the reckoning has begun, however, not sure what inning we're in?

I'm optimistic that things will improve and I look forward to the next bull market!

Nada, I think I was indeed more optimistic than you with me expecting further increases after 1110k July print. So we will call it a "wager" which I will lose with high probability after revisions etc in the next few months.
"I said flatline around 1110K, 300 went with 1125-1140K, dammit!

(Ok, fine — we got nothing better to “wager” over.)"

I know it was just wager-less prognostication — I’m just looking for a way to redeem myself after my loss to you/Keith/FP last year.

I think my verbal articulation of the market seems to be panning out... You're the math guy nada, you nailed the numbers right on the head!

Ha. Nada, we wait for Keith's trip to NYC for me to pay up.

The numbers are in. Peaked in August at 1111K. Who da man?

2022-01 1071463
2022-02 1077306
2022-03 1080090
2022-04 1087003
2022-05 1093816
2022-06 1102346
2022-07 1108331
2022-08 1111038
2022-09 1102613

Nicely done.

Nada da man!! Lower is the path when the recent contracts show up in the data in Jan 2023. Rent being very strong will continue to dampen the decline.

What’s our next wager gonna be, Jan 2023 level?

Make a forecast!!

Gotta think a little…

3.5% or less decline from the 2022-09 number in 2023-01.

I’ll take the other side, 3.5% or more. The line is at 1064K.

Done. We do percentage changes as they revise the previous numbers.

When the press has published articles like this in the past it has been a precursor to market corrections.
https://www-nytimes-com.cdn.ampproject.org/c/s/www.nytimes.com/2022/11/04/realestate/housing-market-interest-rates.amp.html

Some more data from Donna Olshan. Signed luxury contracts down, certainly expected this time of the year. However, of course there's more than just seasonality at work here.

http://www.olshanreport.com

The Times article, unless I missed it, didn't mention the most outstanding current indicator, which is busted deals. Those are quite high nationally, and we're even seeing them in New York -- I've got a whole lotta "deal fell through / back on market" in my inbox.

It's a decent landscape for buyers, but they need to tread carefully and be well-advised, because both sellers and boards have not yet caught up.

ali r.
{upstairs realty}

Perhaps as big news in the ultra-luxury sector isn't just that deal volume has slowed but that top weekly deals seem to have shrunk from >$50 million deals to $10 million < deal < $19 million.

In the rest of the market owners giving up and pulling listings appears to be an issue. UrbanDigs has Off Market monthly pace jumping 71% over last month and yet Market Pulse still only 0.35 (down 31% from last year).

>> busted deals

And then there are deals stuck in purgatory. My building has one that has been “in contract” for 7 months.

and you're in a condo, right, nada? that's nuts because there's no issue - not financing hiccups, not having to hand-apostille the documents of overseas buyers -- that should take nearly that long to resolve.

Sounds like somebody trying not to close....

Yep, it’s a condo. I figure it’s what Keith says, but I don’t actually know.

Although we also had a townhouse seller last year who refused to close after we had signed a contract and had a closing scheduled. Evidently something changed in his life. My client actually fought it because he loved the home, took about a year but we closed a couple of months ago.

Although that's probably not the case with this particular condo, but you never know..

Nada, I don't see the 7 month old contact in your building. I will reach out offline.

I got it.

So I see 3 multi family townhouses listed on E61 and within 3 weeks of listing broker tells me that they have contracts out with back-up. Priced as just less than $1000 per sq ft with normal taxes for a multi family. While I haven’t seen the rent roll, I estimated 3.5 or lower cap. Who is buying? Any speculations from the board?

https://streeteasy.com/sale/1633018?card=1
https://streeteasy.com/sale/1633015?context%5Bcontroller%5D=%23%3CBuildingController%3A0x000055e7aab942a8%3E&context%5Bcurrent_user%5D=1004028&hide_if_empty=true&section=sales&separate_sponsors=false
https://streeteasy.com/sale/1633008?card=1

Re 130 E 61: I'm on this street fairly regularly. I'd see at least 2 of the properties as candidates for conversion to a single family -- the # of single family units on E 61st is increasing, not decreasing. The broker-suggested combination of 122 & 124 into a yuuuge single family seems unlikely though -- this part of E 61st isn't that sort of block. 122 + 124 could yield a medium height multi-unit building -- zoning is R8B. Buildings back up to a mid-height medical building on E 60th, so those in the back aren't getting much in the way of views/light.

Sale (of all 3) appears to be a family portfolio / estate sale (possibly related to the guy responsible for the Ziploc bag and many other patents?). All 3 buildings, while not wrecks, will need major work to even approach the staged pictures, so I can't imagine how the finances work to continue as rentals.

And given that taller medical building on E 60th, I could see somebody applying for a variance to build something much bigger on 122+124, which the city would probably do in a heartbeat, and probably for free, given their general lack of interest in this part of town (no landmarks, no aggressive CB, insignificant # of aggrieved Park Avenue residents).

Aaron, Thank you for thoughts. Agree that 122/124 combo as single family does not work for that block. I had missed the extra-square footage (3000 sq ft extra FAR which is worth $2mm or so) which can be added on top if one combines the lots, adds an elevator, and gets around the height restriction of the sliver law which limits the height of narrow lots. Given all three have offers with backup in 3 weeks of listing, it is likely a developer rather that separate parties buying them.

Conforming
Loan Type MI Type Interest Rate Discount Points APR
Conforming 30-year Fixed 6.250% 0.625 6.365%
Conforming 15-year Fixed 5.750% 0.875 6.017%
Conforming 5-year/6-month ARM 6.125% 0.750 6.247%
Conforming 7-year/6-month ARM 6.125% 0.750 6.190%
Conforming 10-year/6-month ARM 6.375% 0.875 6.389%

Jumbo
Loan Type MI Type Interest Rate Discount Points APR
Jumbo 30-year Fixed 5.500% 1.000 5.601%
Jumbo 15-year Fixed 5.250% 0.875 5.400%
Jumbo 5-year/6-month ARM 5.250% 0.750 5.787%
Jumbo 7-year/6-month ARM 5.250% 0.875 5.711%
Jumbo 10-year/6-month ARM 5.375% 1.000 5.695%
Rates shown are for purchase loans only. This information is accurate as of 11/13/2022 8:14:32 AM (CT) and is subject to change without notice.

I walked by 130 again today. It would be my candidate for turning into a single family, as it appears to have unusually high ceilings on all floors (which the listing notes). The (original? or at least early) extension on the back is a plus as well.

Aaron, In addition, 24 foot wide is definitely a plus but will people pay $17-20mm (500 per sq ft reno - $5mm, plus $2-3mm carry for a developer plus transaction cost plus profit) single family on that block with a restaurant and its shed next door? I am curios to see what the buyers ends up doing.

@300: Fair point. It's one of the best buildings on the block (or with high potential), but not the best location on the block. It would do a lot better as a reno if it were mid-block between 5th & Madison. I'm curious at this point as to the history prior to its current state.

5th and Madison will probably sell at 50%/100% higher price as is. It could be $30mm finished.

And there's this fascinating bit of history on the brownstones on E 61st, the seller, and developers' plans:

https://www.nytimes.com/1987/06/14/realestate/why-an-east-side-assemblage-collapsed.html

What could have been, but for all those rules! "''Rent-stabilization killed the whole idea, and the downzoning buried it,'' he said."

And as we can can see 35 years later owners are still complaining about how Rent Stabilization and zoning are making it "impossible" to own Real Estate in NYC while both prices and profits have clearly increased.

Relationship discounts at Wells Fargo;

Asset Balances2 Relationship Rate Adjuster
$250,000 to $499,999 0.125%
$500,000 to $749,999 0.250%
$750,000 to $999,999 0.375%
$1,000,000 or more 0.500%

Off 70bps from the recent peak.
https://fred.stlouisfed.org/series/OBMMIJUMBO30YF
And bank of America another 90bs lower today 11/21 at 5.62 published before any discounts.

https://www.bankofamerica.com/mortgage/jumbo-loans/

Nada, We only have one month of data since our bet. Do not why this is thing is so sticky. I expected it to decline more. Here it is

9/1/2022 1108971
10/1/2022 1107899

>> 3.5% or less decline from the 2022-09 number in 2023-01. Percentage change bet.

Jumbo
Loan Type MI Type Interest Rate Discount Points APR
Jumbo 30-year Fixed 5.375% 1.000 5.477%
Jumbo 15-year Fixed 5.125% 0.875 5.278%
Jumbo 5-year/6-month ARM 5.125% 0.750 5.894%
Jumbo 7-year/6-month ARM 5.125% 0.875 5.775%
Jumbo 10-year/6-month ARM 5.250% 1.000 5.704%
Rates shown are for purchase loans only. This information is accurate as of 11/25/2022 9:44:55 AM (CT) and is subject to

Not bad... Wells Fargo

It seems "taper tantrum" is over. I was updating my real rate model on Wednesday to determine theoretical impact on prices in NYC due to higher rates. I got 10% theoretical decline from the peak vs 15% I got a month back. It will be interesting to see the impact on interest rates of continued roll-off of maturing securities on Fed balance sheet.

Some good data, charts and insight into the current market. The decline was quite abrupt, or more precisely the slowdown. It's like when my Tesla sees something it doesn't like and hits the brakes out of nowhere. Jarring!!

Hope y'all had a wonderful Thanksgiving!

https://millersamuel.com/note/november-25-2022/?goal=0_69c077008e-83dc012cd7-120795059

300, does your model assume current rents sustain (with inflationary growth), or that we are currently in a cyclical peak X% higher than the trend line?

Implicit assumption is that rents grow at market projections of inflation.

From the other thread:
I thought about Nada' comments below and also about slow moving nature of the real estate purchases and related decision making. Since the market has been in turmoil due to Covid, I went back to 2019 as a base line for everything. I attempted to calculated real 30Y Jumbo mortgage rate with adjustments. Using 2019 average is just one option for inputs to change in prices using real rate model will be. Meant for $1mm-$2mm basic apartments not high-end.

1. Rent increases.
Average median rent increase factoring in concessions from Miller Samuel. 16.7% from summer months of 2019 to 2022 which is when most transactions are done.
Month Elliman Median Rent
9/1/2022 3982
8/1/2022 4059
7/1/2022 4100
6/1/2022 3995
9/1/2019 3411 16.7%
8/1/2019 3423 18.6%
7/1/2019 3521 16.4%
6/1/2019 3471 15.1%
Average 16.7%

2. Change in real 30y Jumbo rate from St Lois fed (we know Manhattan is little different but do not have the data for that. Embedded in nominal 30y jumbo mortgage rates are prepayment option and breakeven inflation change
30Y Jumbo 2019 Average 4.08
30Y Jumbo 10/21/2022 6.701
30Y Jumbo Change (bps) 262.5

10y Nominal Treasury 2019 Average 2.12
10y Nominal Treasury 10/21/2022 4.24
10y Nominal Treasury Change 211.6

Prepayment Option Change (Bps) 50.838

10Y Breakeven Inflation 2019 Average 1.74
10Y Breakeven Inflation 10/21/2022 2.52
Change (Bps) 78.0

**** Option Adjusted Real 30Y Jumbo Rate Change 133.61 (262.5-50.8-78)

Deduct 15% for mortgage deduction cap of $750k (woodside pointed it out) at call it Federal income tax rate of 25%.

***** Gets you to 115 bps change in cap rate in the absence of Rent Increase in #1.

****** Theoretical Price Change since 2019
2019 Cap bps (Assume) 300.00
Cap with Rent Increases in #1 since 2019 (no rate change) 350.15
Expected Cap due to real mortgage rate change 413.56
Additional Rent Increase Needed 1.18

************ Price Change Needed vs 2019 Average 15.3%. 2019 SE index average at 1108k relatively unchanged till a few months back with market declining 5-7% plus already. So another 8-10% to go theoretically.

--------
>> From Nada:
300, on the value of the increased prepayment option, you can extract it from the rates. Using data from the Treasury and Mortgage News Daily, here are how various rates have changed over the past year (Oct 21 2021 to Oct 21 2022):

10yr nominal: 1.68% => 4.21% (+2.53%)
10yr real: -0.96% => 1.69% (+2.65%)
30yr jumbo: 3.15% => 6.25% (+3.10%)

You can see the 30yr jumbo has increased by 57bps more than the 10yr nominal rates. Why? That’s coming from the increased likelihood of exercising the prepayment option, I think. So the market’s value on the increased likelihood of refinancing at a lower rate is 57bps. But that’s something you should haircut against the 30yr jumbo increase (+3.10%), not treasury rate change.

From another perspective, you can consider the “real” 30 yr jumbo rate to reflect what you want in B: the real financing rate, offsetting the nominal financing rate against expected inflation. This used to be 0.51% (3.15% - (1.68% - -0.96%)). Now it’s 3.73% (6.25% - (4.21% - 1.69%)). So the real 30yr jumbo rate increases by 3.22%, per B. But 57bps of that is an increase in the prepayment option value of being more likely to refinance, per C. Taking this out puts it at a 2.65% increase, which is the increase in the real 10yr treasury rate.

https://streeteasy.com/talk/discussion/47359-the-coming-collapseprice-cuts

https://www.axios.com/2022/11/28/home-prices-real-estate-housing

I guess kind of "predictably" (LOL) brokers/agents say "It's a great time to buy" and recommend the opposite of what they've been advising everyone (older, smaller, less renovated).

https://www.curbed.com/2022/12/what-should-new-york-homebuyers-expect-in-2023.html

300>> 3.5% or less decline from the 2022-09 number in 2023-01. Percentage change bet.

The situation is looking very grim for me…

2021-12-01 1068383
2022-01-01 1072760
2022-02-01 1079310
2022-03-01 1082218
2022-04-01 1089371
2022-05-01 1096299
2022-06-01 1105478
2022-07-01 1111741
2022-08-01 1113828
2022-09-01 1109575
2022-10-01 1111862
2022-11-01 1104840
2022-12-01 1096809

But my original prognostication from March 2022 appears remarkably prescient:

>> The latest print is Feb 2022 at 1075K. My guess is that it’ll creep up a few percent over the next several months (1110K?) before topping out by late summer or fall. It’ll float in that neighborhood through the remainder of 2022, and in 2023 it’ll start coming down in earnest.

It reads as if I somehow cheated.

The Jan print is out.

2022-01-01 1070403
2022-02-01 1076978
2022-03-01 1079245
2022-04-01 1086841
2022-05-01 1093081
2022-06-01 1101862
2022-07-01 1107760
2022-08-01 1110131
2022-09-01 1105838
2022-10-01 1108689
2022-11-01 1103559
2022-12-01 1096280
2023-01-01 1085367

So 1.9% from Sept to Jan. 300 wins!

Nada, I think I got lucky by a few months. 2023 will certainly be a down year as you mentioned in your original post.

Regardless, I owe you a drink!