Manhattan market prognostication 2023

>> Nada, How do you define affluent for the purpose of this discussion?

Whatever, I don’t make a distinction. We’ve had plenty of people on this forum in the sub-$2M market, and their mental focus has been on rates as a cost. No one ever did a rent vs. buy calculation that involved principal payments on the ledger. People talked about managing cash flow, but principal payments were a dollar saved, not a dollar spent.

Also influencing my view is the following. I’ve looked at a lot of mortgage records over the years. There is little variation in the types of mortgages people take out at different price points. I’d characterize the mix as ~50% ARM, ~33% IO ARM, ~17% fixed.

I agree with Nada. I am looking at the lower end of family apartments. Not liquidity constrained, but I look at buy vs. rent as how much interest and maintenance am I burning per month vs. rent and is it worth spending that much on housing.

Also, when it is brought up that relationship discounts mean the rate for Manhattan borrowers aren’t really 6% - were there not relationship discounts when headline rates were 3.75% preCOVID or when rates bottomed during COVID?

Interesting data on ARMs. Because of the inverted yield curve, ARM rates were much more impacted than 30-year fixed.

In would characterize the typical ARM rates in recorded Manhattan mortgages as follows:

2012-2019: 2.5% to 3.5%
2020-2021: 2.0% to 2.5%
2022: 3.0% (at the start) to 5.25% (by the end)

You also see a big shift towards fixed in 2022. By late 2022, fixed has gone from just ~20% of the recorded mortgages to a solid majority.

This all tells me people were highly influenced by the availability of low rates.

I think it’s helpful to keep the situation at hand in mind. Focusing on changes relative to the past can be helpful but doesn’t really illuminate the state of fundamentals.

Prompted by the discussion of the sub-$2m market, I went to my go-to building at 200 RSB to see what was happening. This is the most recent sub-$2M unit that sold:

https://streeteasy.com/property/834289-200-riverside-boulevard-10f

Rent: $3800
CC+taxes: $1628
Price: $915K

That makes it a cap rate of 2.85%, $26k/yr. This particular buyer financed with an 80% IO ARM at 5.125%, at a cost of $37.5k/yr. The downpayment is forgoing $9K/yr in risk-free interest. The ARM will reset to 7.x% next year. I’m sure if you squint enough, quote tax deductions, etc. you can make it seem not so bad. But really, we’re down to this???

As the last decade or two demonstrated, a 3% cap rate is not a winning financial formula. Prices could barely tread water with the tailwind of mortgage rates going from 5.x% to 2.x%. By the end, I was left thinking “Maybe 3% cap rates can be an equilibrium in a 2% ARM world, but would I bet a 2% ARM world will hold? Not really. The upside is rather limited, and the forces producing 2% ARMs seem unsustainable.”

And who warned about low cap rates deals? And had posted ad nauseum about the "outdated model" where cap rates always exceeded mortgage rates by 3 to 10 percent? I'll also note again how we here in NYC have a disjointed view of how GFC affected Real Estate prices because the Obama $780 bailout pumped a disproportionate amount of money into finance and thus NYC. So here the Real Estate "crash" lasted a minute while in most of the rest of the country prices didn't crack pre-GFC levels for a decade.

Check out what's happening in the office market with deals like 1340 6th Avenue
https://www.urbandigs.com/forum/index.php?threads/is-this-the-end-of-expensive-office-space-in-new-york.70/page-7#post-5124

Which nows seems was just foreshadowing for large office landlords like RXR
https://www.urbandigs.com/forum/index.php?threads/how-much-will-local-law-97-compliance-cost-and-now-you-wear-your-scarlet-letter.10/page-3#post-5997

I’m not sure why it irks you so, 30yrs.

Markets sometimes give you opportunities for outsized returns, and if you’re willing to apply a modicum of sense about yields and risk, you’ll know when it’s happening. You’ll have a hard time convincing anyone of it at first. But eventually people move in, and slowly the opportunity fades. Then the know-nothings pile in, attracted by past returns, but unwilling to listen to or consider the most basic of fundamentals. The same people who wouldn’t listen to you when fundamentals were great have now become zealots. But the fundamentals suck, and the asset class stagnates for a decade or two or four. Until it eventually pukes.

Such is the circle of life. Don’t get mad about it; accept it.

"Response by 300_mercer
3 days ago
Posts: 9144
I see down 42% Overall. Down 37% for resale.

30 Wrote> Contracts Signed for January in Brooklyn down over 60% year over year."

From The Real Deal:
"New co-op and condo contracts fell in Manhattan by 49 percent and 51 percent, respectively, from a year ago. In Brooklyn, the drops were 56 percent and 64 percent."
https://therealdeal.com/2023/02/02/new-listings-in-manhattan-brooklyn-rise-for-first-time-in-4-months/?utm_source=internal&utm_medium=after_article&utm_campaign=related_article

What does Urbandigs say?

About you? You probably don't want to know.

inonada,

I'm not mad at market cycles. I'm angry at the "professionals" who knowingly spread disinformation and rip people off under the old Canada Bill Jones axiom.

I have a more sympathetic view. Like most people, the “professionals” are know-nothings. If you look at their portfolios, they tend to be skewed towards whatever they’re doing. True believers, smoking too much of their own dope, and all that. Such is the nature of proximity.

I have to google to understand the meaning of "Canada Bill Jones axiom"

"It's morally wrong to allow naive end users to keep their money."

Learned something new today.

30, The number I quoted for BK Jan contracts signed were from Urbandigs the site I am sure you are familiar with.

"I see down 42% Overall. Down 37% for resale."

A guess another quote is also of interest. Please note that this quote is not to attack any professional. I just want to share it upon understanding the meaning of "Canada Bill Jones axiom"

"It Is Difficult to Get a Man to Understand Something When His Salary Depends Upon His Not Understanding It"

30,

Mad at market professionals as in Real Estate Brokers who have done and do $100's of millions in transations each year or professional Real Estate funds managers or both? Don't the buyers make their own decision to buy when it comes to real estate purchases?

At people like this?
https://www.serhant.com/

I met Serhant once. A very positive and optimistic man. His motto seems to be: You have a property to sell. I will find the best way to market the property and let the buyers tell me what they want to pay. That is exactly what a Broker is supposed to do as long as the hard facts about the property (square footage, number of bedrooms etc) are correct.

I can say the samething about Ari Harkov (another very successful broker without song and dance) who I know well.

Nada, your Riverside Blvd example is where my head is at. That buyer is paying 40% more per month to buy instead of own. Even with taxes and model appreciation expectation, how can that not ve an overpay?

* buy instead of rent

Wondering if there's a method to your madness not on singling out 200 Riverside drive? Certainly always a development along with all the rest over there where there's a significant differential between rent versus buy.

It's pretty obvious, but yet there are those that want to own the place they live and continue to buy homes there. It's a little bit of a niche almost like Sutton place, you either love it or hate it.

300,
Did you feel personally attacked because you're a licensed Real Estate agent but don't really disclose that here?

No. I don't I keep my license for my own deals.

I do not seek any business here or otherwise. I refer even my closest friends to other brokers in 99% of the cases.

Keith is doing a deal for one my dear friends right now. Nice big transaction.

I think we should all do our best to leave personal attacks off the table here. I mean we are only talking about residential real estate being bought and sold by the 1% and better. Personally I feel if someone doesn't want to share something about themselves, that's up to them.

I know quite a few things about a number of posters on this site. I would never think of revealing any of that information in this forum.

Just my dos colones.

For the apartment https://streeteasy.com/property/834289-200-riverside-boulevard-10f
The apartment was probably priced at the last year's 3% interest rate to explain 2.85% CAP rate.

The 2023 buyer is paying 915K, while the seller bought it 970K in 2015.

The seller probably had around 3% interest (if 30 year fixed) or much lower interest with ARM during the last 8 years. The monthly total cost is better for the seller than the current buyer due to the low interest.

After owning the apartment for the 8 years, how much money did the seller loose or make?

Most buyers probably had looked at tons of apartments before they fixed on the one they eventually bought. They probably made an optimal decisions given their own circumstances at that time.

The buyer for apartment 10F must be very desperate as he resorted to 80% IO ARM at 5.125%. Maybe the buyer's rental apartment was going to have 40% increase for the next renewal (we have heard a lot of horrid stories on the rent increase last summer)? Using the 2.85% cap rate, this apartment is bad deal. Somehow, this apartment was the best one the buyer could find at that time. I guess the buyer was probably also banking on that the interest may come down to 2025 or 2026 to refinance, whether the 30 year interest will come down before 2026 to the old 3% is another story though.

Keith, it’s just representative of the types of places where I’ve resided in the past 20 years. Perhaps cap rates in other types of places are different, but if I don’t care to live there, I just don’t pay attention to it. You may as well ask me to consider cap rates in Nowhere. What do I care about Nowhere if I have zero interest in living there or playing landlord?

Got it.

300,
A) pretty sure there's no carve out in the disclosure regs for that, and
B) When you claim every renovation costs significantly more than it does, or than you actually pay, while a significant part of your business is the "value add" from renovations I think it's not only misleading but self-interest misinformation.

Keith,
Does this mean you're going to stop the false posts about "what I posted here in 2008" (2 years before I made my first post)? And for someone who has steadfastly posted about what the NYS Dept of State/AGs office wants you certainly seem to be giving your ally a pass on disclosure.

Woodsidenyc,
I'm not going to argue with your math but I'll shift to buyer psychology:
Under ZIRP we saw buyers essentially not care about cap rates at all, simply parking money because in the bank it got zero (see discussion about parents buying for kids, etc).

Once they get knocked off of that, historically they don't just go up to the mortgage rates but now need to acknowledge that buying an apartment is neither "passive" nor "risk free" and need to add the appropriate premiums on top of that. So while I don't have bones to pick with either your math or analysis I think you may be underestimating how bad things *could* get for investor condos. If I were the owner I'd bite the bullet and limit my downside will I still could.

I'm guessing certain statements are so prima facie falsehoods that I need not comment. They must be be options to buy the land under a condo.

Oh, it's an investor condo, that is probably the reason that why it was so expensive. When I was buying my own apartment two years ago, I cross-ed out condo immediately as it was at least 30% more expensive than the equivalent COOP.

I saw your point that the investor condos could have a lot of problems down the road.

30,

I have no need to disclose anything as I do not seek business and I am very happy when other professionals on this board may do business from these pages.

There are 100's of sources for people to get competitive reno pricing including architects, design build and contractors. I do not offer any of these services. You can certainly offer whatever reno advice you like on this page as well as any other architect or contractor. You can offer to do the reno for them a lot cheaper if you like. Talk is cheap.

People are far smarter than you think. They research widely available public information and make decision for themselves and do not need brokers like you who tell them that they hold secrets to a good deal.

However, I think you comments are a deflection from why you are so mad. I hope you find peace.

And by all mean call AG and licensing board if that makes you find peace.

300 Mercer (Dreaming): Oh, I would love the real estate market to be 15% lower and rebound in 18 months.

300 Mercer (to Sellers) Sellers please listen!! The rates have gone up a lot and reno cost is very high due to inflation. Sell me your property in terrible condition 15% cheaper than you believe the market is. You will not find any other buyer but me. I am the only one to rescue you. There is no one else with the capital and and if you reno yourself it will be astronomical cost and you will get divorced.

Sellers: What do you think we are crazy? We and our brokers knows where the market is and other buyers give us feedback. Ignore ignore the dumbf 300 Mercer on that chat board.

Full disclosure: 300 MERCER does not pay NADA anything to express his bearish opinion on NYC real estate when he needs to buy some properties in bad shape.

I can only imagine how 300 Mercer reacts when he goes to the dentist and they hit a nerve.

BTW if disclosure doesn't matter why do you make sure to put on the listings:
" Listing Agent is the owner and developer"?

And make whole threads about how difficult it is to do renovations in the buildings?
https://streeteasy.com/talk/discussion/45408-cost-of-apthorp-renovationwindows

I predict an upcoming thread about renovating townhouses in Brooklyn soon.

Of course, when the disclosure is needed, I disclose as I am seeking to sell a property.

>>> BTW if disclosure doesn't matter why do you make sure to put on the listings:
" Listing Agent is the owner and developer"?

And jealousy is very detrimental to health.

Board: Ignore 300 Mercer.

>> After owning the apartment for the 8 years, how much money did the seller loose or make?

The buyers lived in the apt for 4 years, moved to the burbs in 2019, and rented it out for 3 years.

They had an 80% 7/1 ARM at 3.125% that just reset in August 2022. They were paying out ~$3500/mo in cc+taxes+interest, offset by a rent (or rent benefit of) ~$3500/mo. Income tax benefits for the first 4 years were probably a wash against other carrying costs (insurance, repairs, etc.) over the full 7.5 years. So let’s call that all a wash.

They started with a $194K down payment. Sale at below-purchase price took out $55K. And then ~$95K transaction costs on the way in/out. So $150K in total, leaving them with ~$45K of the original downpayment.

Various ways of accounting that:

- Keith: They owned their home, which is priceless to some people. If you’re one of those people, $150K is not that important in the scheme of things. Who wants to be the richest person in the graveyard?

- Inonada: $194K in SPY became $440K, with less risk than 5x-levered RE. $440K is a lot more than $50K. The richest person in the graveyard is the one who could spend the most, if they so wished, whenever they wished.

WoodsidePaul and woodsidenyc, what is the cap rate on the sort of stuff you’re interested in?

>> Once they get knocked off of that, historically they don't just go up to the mortgage rates but now need to acknowledge that buying an apartment is neither "passive" nor "risk free" and need to add the appropriate premiums on top of that.

I think we were at these same sorts of cap rates vs mortgage rates in 2005-2010. The biggest difference, IMO, was bubblenomics. Whether buying into the bubble or buying the dip, there was a firm belief in the ever upward trajectory of RE. Nothing crazy, just “reasonable” appreciation rates of 4-5%/yr. Of course, that didn’t materialize. No doubling of prices, just 15 years lost to sideways.

I wonder, is there anyone left who expects 4-5%/yr appreciation rates? If not, who’s gonna wanna buy 3% cap rate against 5.x% mortgages? I’m sure there are people who want to own their home, but will there be enough of them, and can they afford it like they could before?

This just looks very asymmetric right now. The downside scenario looks, if not likely, plausible. The upside scenario looks non-existent. “Maybe we go back to ZIRP and the Fed pushing ARMs down to 3%, so we can get back to the old equilibrium that supported NYC RE going sideways for a decade!” I’m sure there’s some upside scenario that I’m not envisioning, but it just seems very lopsided.

This all is not to say you shouldn’t buy a home. Do what makes sense to you. I don’t really care which way the NYC RE market goes. I just like to prognosticate.

"They had an 80% 7/1 ARM at 3.125% that just reset in August 2022"

What idiot was pushing those time bombs?

"I think we were at these same sorts of cap rates vs mortgage rates in 2005-2010"

How about 1975-2000? 18 months ago there were tons of Real Estate professionals all over linked in the rising mortgage rates "wouldn't affect cap rates" on the commercial/investment side and that they wouldn't affect house prices on the residential side. This is what gets gets me mad because you can say all you want "people make their own decisions." Well if that's the case let's just get rid of all consumer protection.

BTW do people only want to talk about how successful Real Estate brokers are or are they interested in why a VERY successful Tamir Shemesh just got booted from the King of "It's just Marketing" Ryan Sehant's firm - apparently the third time this happened with him.

>> 18 months ago there were tons of Real Estate professionals all over linked in the rising mortgage rates "wouldn't affect cap rates" on the commercial/investment side and that they wouldn't affect house prices on the residential side

Really? That shows more foresight than what was happening here 18 months ago. Most of this crowd, which I presume skews heavily towards finance, had a hard time envisioning a world where ZIRP and Fed-subsidized mortgages could ever end:

https://streeteasy.com/talk/discussion/46917-new-purchases-arm-rate-expectations

At least the Real Estaters were ahead of the Ivy Leaguers in contemplating a future with rising mortgage rates. (I know, you probably meant ~12 months ago.)

>> This is what gets gets me mad because you can say all you want "people make their own decisions."
Were the RE professionals dumping their portfolios? Not really. They smoke their own supply. I cannot tell you how many things I’ve carefully explained to people over the years, only to receive nonsense in response. Even when it is clear to them that I have subject matter expertise. Often to their future detriment.

>> WoodsidePaul and woodsidenyc, what is the cap rate on the sort of stuff you’re interested in?

Well, I bought coop twice for my whole life.

First time around 2013, at that time, I was not looking at the CAP rate specifically. It was no brainer for me to buy as the total monthly cost (20% down 30 years fixed mortgage and maintenance fee) was almost the same as the rent (maybe even a little lower with owning). The CAP rate was 4.46% and the mortgage rate was 3.25%.

As that time, I could buy a larger apartment (3bed2bath) rather 2bed2bath, but I just found the price was too expensive (the CAP rate was probably around 2.8%) and I also thought about moving to Manhattan. If I could go back in time, I should have bought 3bed2bath instead.

The second time at the beginning of 2021, it was a more nuanced decision. The total monthly cost (20% Down 30 years fixed mortgage + maintenance fee) was probably 20% higher than the rent. However, I didn't have much a choice as the rental supply of three bedroom 2 bathroom in Jackson Heights is very limited and my wife didn't want to go back to rental again and this apartment will be my forever apartment. So the apartment was bought with 2.8% CAP rate while the mortgage rate was 3.0%.

You clearly knew my thinking process, I was not really taking the exit price and CAP rate initially into account . I was just comparing the rental cost and the total cost with owning. The decision was also influenced by the personal desire and the market supply and also how long to stay in the apartment.

If I were to buy an apartment now, I probably can not find any apartment to buy with the same mentality, the total cost of owing with 5-6% interest rate is just too more expensive than renting. Of course, the CAP rate is just much lower than the mortgage interest rate (20% Down, 30 year fixed).

The other factor is on the projected rental increase, it seemed the one bedroom apartment rental in 200 Riverside Blvd has stayed flat much from 2015 to 2023, it always stayed around $4000. While in Jackson Heights, the 2bed2bath apartment I bought in 2013 could be rented around $2200, now probably around $3000. I guess if you know that your rental is going to be increasing a lot, you probably want to use the projected rental two years down the road to go ahead of the market to do the calculus.

RE: S&P 500 vs Downpayment.
Yes, if I deployed my 20% down payment in S&P 500 around 2013, it will be increased to be four times. At the same time I would face annual rental increase (about 4%) and have to move my home from time to time, which would be very difficult for my wife and the two kids. If I hadn't sold the old apartment, the CAP rate with the current rent and the 2013 purchase price would be 7.2%, not too bad.

@inonada

I think that thread & the current head-in-sand behavior of consumers & professionals is a reminder of jus how abrupt the end of the ZIRP era was for most. No one believed the fed then.

I mean in July, only 7 months ago, I was trading in a 4 year old car for 85% of its new price and getting a 3% rate on its replacement. The car I traded in is now worth 40% less and the new car loan would be about 6%.

Now with jobs numbers still so rosy, and inflation not really constrained, the fed is warning they are going to keep going higher, which is largely being ignored.

Information changes, and sometimes opinions take a while to catchup.

I'm now in the "5-7% inflation for another 1-3 years, 3-5% for a 1-3 years after that, and maybe we see the old 1-2% regime in 5 years, soonest" camp. You can extrapolate some rates from that if you wish, but don't see us going back to 3.x% mortgages before say 2027+, if then.

There's enough weird stuff going on in macro with de-globalizing/developed world re-shoring, cuts to China exposure, etc that are hard to see as deflationary.

Note there's also some quiet talk of the idea of an inflation resurgence say 6-18 months out, after everyone takes a deep breath, still has their jobs, and decides its time to spend spend spend again.

As I've said 2 weeks ago on this thread - we don't get to have a soft landing & low rates. The only catalyst to us reverting to low rates again quickly is a sharp, somewhat deep recession, which no one wants. If we are seeing 3% mortgages anytime soon, it's going to be trying to spur RE purchases while we are all hoarding "cash on the sidelines".

@30yrs - You and I both get overly exercised by those who live by the Canada Bill Jones axiom; you’ve just got to let it go, particularly if you want to remain immersed in NYC real estate. The axiom defines the ethos of my historic tribe, which I have definitively left in the rear view mirror. The break was the right thing for me, and now enables me to read the stories of my old cronies without emotion. For example, someone who was in my closest inner circle for years recently made the real estate news for the purchase of a $41 million estate in Atherton. Were I still immersed in that world, I would be disappointed and angry with her for getting so rich by taking advantage of those who don’t have the education/time/skill set to understand why they have lost their savings to snake oil salesmen. Because I have made a break, I now read that news with peace and evena bizarre happiness for an old friend who has gotten what she has always wanted. She never pretended to be anything else. Those types are always going to exist; they will always be one step ahead of the regulators. Just play your own game and ignore them.

Thanks, woodside. It’s interesting that the cap rate in your neck of the woods is about the same as mine.

One fascinating thing to watch has been the loss of the “rich renter’s subsidy”. Circa 2014, the high end in Manhattan used to go for a cap rate of 1.5-2.5%, against 2.5-3.5% in the low end. The pandemic lows brought both those down by ~1%, retaining the subsidy. But then by the peak in 2022, they were both around 2.5-3.5%. The rich renter’s subsidy had disappeared. I don’t ever recall a time in NYC where the cap rates were so flat across price levels. I think this may now be reverting? The high end rents are certainly coming down, not sure about the low end.

Rent inflation is a thing. Your market’s $2200 to $3000 change over 10 years amounted to 3%/yr. Mine has been less. E.g., the apt I rented in 2014 (and lived in for 6 years) is on the market 8 years later at the same asking rent. I ended up paying below ask. If they get their ask, it’ll be 3%/yr. The will likely end up lower, making it 1-2%/yr.

Rent inflation certainly seems top-of-mind for a lot of people. I think this correlates with a perceived lack of investment alternatives for cash. I just never saw it that way.

@inonada - regarding “smoking their own supply” and not dumping their own portfolios, I would personally dig deeper there and see where they were hedging. You can cash out enough and hedge to maintain the appearance that you believe in your product. But, all of that aside, I am not overly sympathetic to anyone who loses money in a multi-million dollar purchase of NYC real estate.

@30yrs - I don’t feel strongly about consumer protection in this area. All parties involved are playing the same game, and I don’t hear any of them asking to government to protect them in any way other than allowing contract disputes to play out in the system as they do.

MCR,
So you don't think the 2 lawsuits currently against NAR count towards that? Seems to me we are seeing consumers asking.

I would say the dream would be buying at a 4.5-5% cap rate. That would mean an apartment which rents for $8,000-8,500 which I could buy for $1.25 million with ~$3,000 monthlies. Still seeing a lot of 3.x% cap rates out there, for example this one ($2.45 million with 4k monthlies vs. $11.9k rent, 3.86% cap rate). But part of the cap rate game now is that more and more places are closing ~10% below list, while I imagine the rent is firm.

https://streeteasy.com/building/400-east-85-street-new_york/sale/1614881?card=1

I hear the people who say "if you buy crap your own crap" but similar to the other Woodside, I owned in Queens and had significant gains from 2015-2021 which outpaced Manhattan simply because I bought when the monthly costs between buying and renting were compelling. Buying value can be compelling and has served me well in real estate as well as the stock market. Valuation protects downside risk.

On another topic mentioned, I don't think there needs to be more regulation of realtors, but that doesn't mean we shouldn't all call them out when they are spouting B/S. I was at an open house two weeks ago where I heard the selling agent say "I don't know the size, but I think it is 1100-1200 sqft" in a listing that was 930 sqft.

@30yrs - I will look them up, but litigation by its nature involves transgression of existing regulation. That is where any aggrieved individual’s remedy lies. With that said, I can absolutely understand your frustration at watching peers in your industry potentially profit from questionable ethics, but you will go mad if you pay too much attention to issues you don’t have standing to address.

@WoodsidePaul - I support calling out those with whom I am personally contemplating transacting on disingenuous representations, and I actually support @30yrs drawing attention to questionable representations in this forum; my suggestions for him are more for his own mental health. Many on here know exactly what he was referring to yet continue to interact with the party involved for their own purposes. It is what it is, and that is not going to change.

WoodsidePaul,
"But it feels like 1200 square feet."

Here's a specific example of outright fabrication in a "marketing video."
https://youtu.be/nlwQu0AaCa8

Remember when I called out 2 Reality TV superstars for outright fabrication claiming they sold a unit in 57th St and a poster here called me names for it? (And then apologized to Ali)

And to be clear outside of perhaps 2 or 3 people I doubt anyone here has the slightest clue how I earn a living.

steve123, your inflation outlook is more extreme than mine. I personally think the market’s got it mostly right. More like 2% over the next few years, not your 5% viewpoint. To me, 5% implies a Fed willfully ignoring its basic job function.

The question is what it’ll take. Again, I think the market’s got it mostly right. Maybe we go to 5%, holding it there for most of the year before loosening, like the market expects. But maybe we go to six and hold it longer. Main point being the outlook right now is for 3.x% long-term rates. 10yr rates at 1.x% or 0.x%, plus trillions of Fed mortgage purchases on top, are a thing of the past. So I wouldn’t hold my breath for 3.x% mortgages. It might happen, but that’s an outside possibility IMO.

Of course, not everyone agrees:

https://www.wsj.com/articles/housing-market-shows-signs-of-thawing-11675617472

Heather Cruz, an assistant superintendent in a school district, started looking to buy a house with her boyfriend in Phoenix in the past few weeks. After touring about a half dozen homes, they made an offer that was accepted last week.

They decided to purchase knowing that rates might fall and they could refinance their current mortgage later on. “I’m thinking this isn’t a forever thing,” Ms. Cruz said.

I was actually quite surprised how much action and multiple bids we got in December on a 2 family house in absolute need of renovation in Richmond Hill.

Thanks for sharing your thinking, WoodsidePaul.

FWIW, I wouldn’t assume rents are firm. Sometimes they are, sometimes they’re not. On my last 4 places, I ended up at 12%, 21%, 18%, and 27% below ask. People tend to be a lot less anchored to their ask when it comes to rent than sale. I just bid the number that makes sense to me. Maybe it works for the owner, maybe it doesn’t. I won’t know unless I ask, so I just ask. This is not a contentious issue either: unlike a sale, you’re going to have an ongoing relationship. Hell, the last two didn’t even counter my bid. They were fine with it. After placing the bid on the most recent one, I was pretty sure a deal wasn’t gonna happen — we were too far away — but what the heck. I was wrong.

MCR>> I would personally dig deeper there and see where they were hedging

I think 99.99% of people are clueless about investment. Restricted to professionals, perhaps that becomes 99% clueless. So I have a skeptical view of anything they might be saying, regardless of intentions. For me, I have an easy time recognizing nonsense. Determining whether the nonsense is innocent or deliberate, on the other hand, is work. Why engage in work if I’m going to ignore the nonsense anyways?

>> And to be clear outside of perhaps 2 or 3 people I doubt anyone here has the slightest clue how I earn a living.

It’s obvious: you talk up the Richmond Hill market so you can sell RE there.

>> I was actually quite surprised how much action and multiple bids we got in December on a 2 family house in absolute need of renovation in Richmond Hill.

I also think at the very high end of the rental market, to some degree similar with the uber sales market you can get those sort of discounts. Mostly because some of the pricing is so out of this world, sort of like they just picked the number out of a hat.

I also agree with you regarding making offers that are significantly below the asking price. Nothing ventured, nothing gained, especially if it makes sense.

"(Nationally) The rent slowdown continues..."
https://www.linkedin.com/posts/jay-parsons-a7a6656_apartments-multifamily-rentalhousing-activity-7028735141120266240-Ia5k?utm_source=share&utm_medium=member_android

>> Mostly because some of the pricing is so out of this world, sort of like they just picked the number out of a hat.

I think you know me better than to bother bidding on a place that’s priced like they just picked the number out of a hat.

I don’t know how far this negotiability extends, but $12K does not seem out of range based on my past experience. One can only find out by trying.

MCR, I read a bit into your friend and dug a little. Don’t you think she’s smoking her own supply?

As far as I can tell, all her eggs were in the same basket. Some portion of it became liquid, and she sold half of that. Enough to pay for that (ahem) “modest” house in Atherton after taxes, but not anything more. The remaining liquid half went down the toilet. And while I don’t know the value of the illiquid rest, I think it’s safe to assume it’s also gone down the toilet too. And her career is fully locked on the same basket, so I can guess her prospects have changed similarly. Maybe the prospects will change, maybe she’ll pivot, but for now she seems prettty hitched.

So as far as I can tell, with the exception of the house, she’s smoking her own supply. Maybe she’s got a hedge on somewhere, diversifying her exposure, but her assets just aren’t that collateralizable.

This is not to say I would take any of that as a sign to follow her lead. Just that, like most people, she is pretty deep in whatever she is promoting.

2 percent of 1.5 billion indefinitely without regard to performance will go a long way. Nobody has played this nonsense better than she has, and I give her full credit for that. It would be hilarious but for the bankrupt drug addicts left in its wake. I do believe she lent some credibility to the nonsense, which left those of us who know her well giving her a standing ovation for being true to the person she pretty much always said she was. What is complicated is that she was an excellent friend and is really good to people she knows and loves. It is hard when you are related to individuals whose values diverge so much from your own. The breakdown is all on me; I am the one who changed.

PS - Said former friend has never told me or anyone else I know to my knowledge that she does not believe in her product. Maybe she does, but I always thought she was smarter than that. I got on her case as soon as she started peddling this stuff and each “investment” to date (made entirely with OPM) has panned out exactly as I predicted. But who knows, maybe she will do something positive with the $1.5 billion. Time will tell.

I have no idea if she will make anything out of the $1.5B. It might seem nonsense to you, and it might very well be. But being “smart”, under whatever your definition of “smart” may be, does not lead to uniform opinions about the value of things. I’d encourage you to think about people who are handing her the $1.5B, and whether they are addicts / naive marks / etc., or people with a (perhaps very misguidedly) different view of what constitutes value in society. I personally think social media is a waste of time and humanity, but clearly I’m in the minority.

But sure, her firm will collect $150M in fees over the next decade, and she’ll probably net ~$25M after-tax from it. But relative to the liquid $100M she once had, down now to ~$50M (?), her fate rests on whether she ends up with some multiple or… just a house and enough to pay the bills. Maybe she doesn’t have much alternative, but rather than put that $50M elsewhere, she’s spent it on a place for soirées to promote the vision. Doubling down, not pulling out.

I wonder why these "mortgage rates are going down" discussions haven't continued this week?
https://abcnews.go.com/amp/US/wireStory/average-long-term-us-mortgage-rates-inch-back-97007817

If you ever host SE poker game, I will give you more color. I am right there with you regarding those who handed her the $1.5B. Question for you: Was Elizabeth Holmes a true believer or a criminal? What was her true motivation? Does it matter? Note that I don’t pretend to know “the truth” re these questions. Just wondering what your perception is. I very much appreciate hearing the perspective of anyone who was not raised in the same environment as I was.

I'm comfortable seeing Katie in a big house* and Elizabeth in a cell. It shows that despite the machinations of the last decade, our institutions still acknowledge a difference between fact and opinion.

"Web3 is the future" is plainly a different *kind* of claim than "this device can produce a WBC count from 0.5mL of blood", regardless how deeply held the speakers' beliefs.

*modulo a laundry list of macro concerns, including but not limited to: billionaires shouldn't exist, Atherton shouldn't exist, grass lawns shouldn't exist in the drying West if at all, land shouldn't be owned (or at best, "belongs" to the Ohlone people...), etc etc

>> I'm comfortable seeing Katie in a big house* and Elizabeth in a cell.

Well, Elizabeth is in THE big house.

My take is that Holmes was a true believer who turned into a criminal.

There are those who start out a criminal and play their fraud from the start. These frauds rarely get big, for various reasons we can speculate about. But people can be ethically challenged to different degrees. The winning formula for Big Fraud seems to start with talented people who interpret early success as a sign of their inherent genius & superiority. Faced with adversity, ethically challenged people skirt the rules. As the adversity veers towards failure, most eventually give up the charade as the stakes get bigger & bigger. They may pretend there was no failure and craft some kind of story around it, but they stop digging. The special few just keep digging.

@inonada - agreed, theres a spectrum of "fake it til you make it" from Jobs/Musk types who do eventually generally deliver 80% of stuff 80% of the time, and total frauds who delude themselves most if not all of the way...

"Ethically challenged" is probably the best way to describe it..

Vaguely related, but the most hilarious thing to me in the Holmes case was the cringe text messages between her & Sunny that came out at trial.

Holmes:
"You are the breeze in desert for me."
"My water."
"And ocean."
"Meant to be only together tiger."

Balwani: "OK"

LOL

I wouldn’t characterize Holmes et al. as deluding herself. Having a vision is great. I’m guessing pretty much all visionaries, even the ones that end up successful, have periods of self-doubt that they don’t share publicly. But at some point, fraudsters shift from spreading what can be seen as a delusional vision to outright deluding others about facts.

@richardberg - I agree on all fronts. I do not think there is any fraud involved in what Katie has done, nor do I think she would ever or will ever engage in fraud. Where she and I have parted ways is our positions on the macro concerns. I respect her right to believe what she does and act accordingly, and again, I am oddly happy for her. And, if the most storied institutions in our country want to hand her $1.5 billion to manage, that is on them - I believe she did nothing other than sell the potential of web3, which is quite big I understand. I support the myriad applications of the new technology, just not the currency application that has generated Katie's current fortune to date. Again, time will tell. Hers is an interesting story no matter how you slice it, and I am actually rooting for it to have a happy ending at this point. The most interesting aspect of her story for me is the biases that enabled her to waltz into the position she is in now, but that is not on her (although I do fault her for casting her votes in ways that seek to ensure those biases remain in place to maintain her own status).

And re Elizabeth Holmes, I just remain gobsmacked that anyone gave her money to begin with, let alone the precise individuals who did, as well as those who continued to believe in her to the extent they did when all signs were pointing in the wrong direction. David Boies' reputation is forever ruined in my book. I mean, WTF?!

And one final note re Katie, the purchase of the house does suggest she may be a true believer, because her burn rate with that house (and some other fun new toys) could leave her right back where she started if the fund does not generate returns sufficient to establish her as a real investor. I do believe she will work very hard for her investors, and she is a very talented individual so again, time will tell and I am rooting for her at this point.

@steve123 - The publication of those text messages at trial should be a cautionary tale to all. I am hoping that the email messages that were read in court earlier this week in Mr. MCR's trial hit the NYPost, WSJ and the NYT. It is shocking what some who feel they are beyond reach will send to each other on their work emails. It is all now a matter of public record for those who know where to look.

@nada
Bernie Madoff started off as a criminal and he made the big time. He planned it with his father in law as soon as he got married.

Bernie Madoff was a small time criminal until greedy people heard his scam was too good and then threw their money at him without really doing proper research because they didn't want to, they just wanted those returns.

Probably the same with Elizabeth Holmes and others.

You get people with marginally questionable ethics who really want success/acknowledgement about all else. Add in a little inferiority complex/self doubt and the need to prove: you're not just a college dropout, you're not just some penny stocks creep, you're not just some rich guy's kid like Fred Trump, etc. Then add some initial small success to give you confidence. People give you too much rope, don't call you on your bullshit (they just don't feel like arguing with your asholeishness, but you take it as true belief), you surround yourself with lackies - and if anyone isn't a yesman you get rid of them. Blah, blah, blah.

Re:FTX you know the system is rigged when the Bankruptcy Court Judge appoints the "should be conflicted out" firm who represented both FTX and SBF personally to handle the estate
https://wallstreetonparade.com/2023/02/bombshell-emails-raise-questions-about-what-sullivan-cromwell-knew-about-fraud-at-sam-bankman-frieds-crypto-firms/

>> Bernie Madoff started off as a criminal and he made the big time. He planned it with his father in law as soon as he got married.

I’m not a full-on Madoffologist, but that doesn’t match my understanding. From what I’ve read & seen, he started managing friends & family money on the side shortly after starting his pink sheet trading business. He didn’t register it properly, which his accountant father-in-law enabled. What’s the harm? A while later, he lost a bunch of investor money making a bad, overly-risky investment. Rather than acknowledge his failure as an investment manager, he borrowed money from his father-in-law to make his investors whole without telling them. What’s the harm? Meanwhile, his trading business was growing and increasingly profitable as things went digital and NASDAQ got going. The exact details are murky, but at some point he stopped investing the money altogether because he realized he sucked at it. I figure for a while, he would send money from his trading business’s profits. What’s the harm? But eventually, the investment accounts grew too large and the trading business profits started dwindling. So he had to go full Ponzi. Some people place this in the 70’s, others in the 90’s. Either way, the starting year of this whole thing was years earlier: 1962.

I think he fit into the pattern of “ethically challenged person cannot admit failure”. There are lots of ethically challenged people in this world, and lots who have a hard time admitting failure. Most tend to stop once they start crossing into outright criminal behavior. Not because they have some moral realization, more because they determine they’d rather not go to jail.

Back on topic: I find hilarious the broker babble that they see the market heating up anecdotally, etc.

https://m.youtube.com/watch?v=Chp_mFH0Ve8

Then UrbanDigs puts out the weekly: 189 contracts signed. Is that really what we are going to call heating up? Seasonality demands that we go up week over week, but below 200 weekly sales doesn't clear the market. That barely covers the obituaries.

I have toured some places this year and they all remain on the market.

The chart showing dollar volume at the 5:30 mark in the video is interesting and perhaps speaks to where the broker babble may be coming from. After 1.5 years of $2.5B/month, volume has dropped in half. Broker industry revenue has dropped correspondingly: from ~$1500M/yr to ~$750m/yr.

The uptick of 40% in volume, in the context of a broad slowdown, may be meaningless from your perspective: How does this affect prices? But from a broker’s POV, it’s a lot more meaningful: How does this affect my paycheck?

So it is like a biologist saying “the salmon migration has dwindled by 23%” but a grizzly says “f-yeah, don't need to eat tree bark, fish is back on the menu.”

https://www.urbandigs.com/forum/index.php?threads/still-doing-1400-deals-a-month-but-for-how-long.614/page-7#post-5959

WoodsidePaul,
As I've said for a while now, the thing 'saving' the numbers seems to be large numbers of off market. But I'm not sure how large numbers of sellers giving up, taking their ball and going home (So to speak) can be construed as a positive market indicator.

inonada,
I can't tell you current numbers, but historically the big $ deals are done by a small number of "top agents." Right now there are more agents than even before. As such I think we will see large numbers of agents squeezed, with little or no cushion, and find themselves with their backs against the wall. Like I warned them about 3 years ago:
https://www.urbandigs.com/forum/index.php?threads/upheaval-for-agents.45/

https://therealdeal.com/miami/2023/01/27/active-agents-in-miami-drop-36-in-a-year-as-market-cools/

30yrs, what do you think happens on these “top agent” mega-teams? Do the principals take more of the hit, or is it shared equally, or are there deep cuts (possibly via starving entry-level agents but not having them involved in any deals)?

I essentially operate a team, we all share in the 'pain' equally. But we're just 3, I'm not sure how mega teams operate. But there are certainly different ways they split commissions.

2022 was the first year we made less total commission than the previous year, otherwise we've grown revenue for the previous years (with the exception of 2020 we took in $100k less than 2019. Which was pretty remarkable).

2021-$2.7mm gross commission
2022-$1.6mm GC
This does not include deals that carry over and close in the following year.

The last qrt. Of 2022 was dead, our team is now busy again, somewhat normal feeling. Deal wise we have 5 signed/accepted for February, 2 others including a Brooklyn house being negotiated. We also have 3 listings coming on within the next month. Also just rented a brownstone in Park Slope for $13k, good deal on a nice home, 28 months lease with no increase. Surprisingly the competition was not that great.

That said, I don't feel overly confident that we are back on track. Just taking it month by month, we'll see. As markets fall we tend to do well, buyers don't all go away, and those looking like a model that helps them maximize their deal making ability.
$3mm home purchase=$60,300 commission rebate. It helps defray those transaction costs.

Those with a sound referral base will do ok, I've been through all sorts of markets over the last 33 or so years. I started our sales model in 2009, not the best of times. That's why I live based on my worst years income, not best.

Keith Burkhardt
TBG