Manhattan market prognostication 2023

Keith,
You don't have to answer this, but when you say "gross commissions" is that net of the rebates or the rebates come out of that?

Who here thinks today's inflation print is going to lead to lower mortgage rates?
https://amp.mortgagenewsdaily.com/article/63eab7a2f94c04aab9c51f70

@30 - lol, exactly
Note that the fed funds futures stopped pricing in any 2023 rate cuts as of last week
They may go down a bit from here, but its going to be range bound at levels not seen since 2008.. at least through the rest of the year, easily.

The markets point to a mid-five fed funds rate by year end. The question is where do things go from there. Financial markets are pricing rate cuts in 2024. Perhaps, but as Steve says, rates will be at pre-crisis levels for the foreseeable future. The elections may pressure fake 2024 interest rate cuts.

I wonder why that listing went into contract so fast (bumping this).

Can't wait to see the market's reaction function to higher rates vs. seasonality. Are we over 200 contracts this week? There is a house which I considered (but did not tour) which actually went into contract this week, so perhaps some activity is picking up.

WoodsidePaul,
UrbanDigs has Manhattan Contracts Signed at 233 for the last 7 days. A nice 35% bump from previous week. But 30 days Contract Signed I think is still lagging from average at
798 even though that's up a whopping 70% from prior 30 days. Also I believe what is saving Market Pulse is that Off Market continues to run hot.

https://www-cnbc-com.cdn.ampproject.org/c/s/www.cnbc.com/amp/2023/02/15/mortgage-demand-drops-interest-rates-jump.html

Here is another apartment at a 3.66% cap rate. Seems more attractive to rent than buy here and keep the money in bonds. The buy vs rent is better at last year’s price, but somehow they think the apartment is worth more now.

https://streeteasy.com/building/160-west-87-street-new_york/sale/1647263?card=1

https://www.forbes.com/advisor/mortgages/mortgage-rates-02-20-23/

https://www.bloomberg.com/news/newsletters/2023-02-20/whats-happening-in-the-world-economy-could-the-fed-boost-its-key-rate-to-9?utm_source=website&utm_medium=share&utm_campaign=linkedin

WoodsidePaul,
What's the return on this one?
https://www.urbandigs.com/building/16-west-19-street/8e/sale-listing/

WoodsidePaul,
What's the return on this one?
https://www.urbandigs.com/building/16-west-19-street/8e/sale-listing/

Always some good commentary from Noah and John on the state of the market.

https://youtu.be/5ApzfmHT-3A

Keith Burkhardt
TBG

So why is Off Market still so high? I think about double 2015 levels for this time period. Seems to me an indication of not so hot market. Also compare Contracts Signed both to last year (and admittedly scorching market) but also to average for all years. I think we get "the market doesn't suck as much as it has recently" but not "The market is doing well."

Not sure the monthly interactive chart will work here, it's an interesting tool to play with.

https://www.urbandigs.com/marketwide-charts/monthly-contract-activity/?agentid=9325&agentid=9325

https://www2.optimalblue.com/OBMMI/widget.php

I'm seeing softness in the Studio and 1BR segment within my co-op, but the 2BRs are still pretty strong.

Volumes are definitely down

Those permabulls keep talking about mortgage rates going down. Meanwhile back in the real world:
https://www.mortgagenewsdaily.com/markets/mortgage-rates-03022023

I don’t think anyone here is currently bullish. At best, they’re “Well, if you gotta buy a home, you gonna buy a home. Hope for the best it’ll all work out in the long term.”

It increasingly appears that the economy can function just fine in a higher-rate environment. Jobs remain plentiful, people continue to spend. Asset prices in many ways reflect an implicit hope of an eventual return to ZIRP, except the bond markets sure don’t seem to point that way.

I had a small HELOC I used to improve one property rather than pull money from the stock market. It went from around $450 a month to now approx $1, 250! Happily I have the cash to pay it off, that was a real stinger!

inonada,
There are at least 2 people here I'd need to hear the moral equivalent of "prices will likely go down in the near term" for me to agree with you.

Which two?

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

Response by theburkhardtgroup

I think a 10% decline across the board is most certain for most NYC property by early next year. Probably closer to 15-20% for the less desirable properties on the fringes. I also think inventory will continue to build.

We are seeing a significant decline for the less desirable properties already, with many not selling.

To my simple way of thinking, I try to understand why prices would go up or why they would go down. Currently I can't think of any scenario that would lead to higher prices.

And on the same thread, we had this from 300 in his treatise about how he sees fundamentals pushing prices down 15%:

************ 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.

>> I had a small HELOC I used to improve one property rather than pull money from the stock market. It went from around $450 a month to now approx $1, 250! Happily I have the cash to pay it off, that was a real stinger!

Yikes! I imagine that story is going to play out slowly for years to come throughout the economy. Some will have the cash to pay it off, some won’t. Some of those who don’t will sell, others will feed the alligator for as long as they can and HODL.

Who on Earth would think rates are coming down anytime soon with the current fed policy?

Nada, There are some people who find a new reason to be mad at something or someone everyday. Their life is defined by this. There is Cramer CNBC Mad Money in a gentler version. I have full sympathy for them as they can’t help it.

inonada,
So you found a thread where they made an admission. And in this very thread what's been going on? I just see postings implying "mortgage rates going down It's a great time to buy." And then of course a snide comment someone who has chased multiple good posters off of this forum (and always secretly talks his own book - looking forward to the threads about how great it is to buy a renovated townhouse near downtown Brooklyn when he's ready to bring it to market).

Plus a rather disingenuous argument about where I pulled numbers from in an attempt to somehow prove the market isn't going as badly as it is grasping at straws - because somehow Miller Samuel had become and invalid source now the he doesn't like the numbers.

And although I love and work with Noah & John, every time they are overly rosy about the market outlook based on "inside talks with agents" Keith makes sure to post a link to the videos.

Life’s too short to throw barbs at each other. We’re the only 6 people left here after all these years. Let’s celebrate the fact that pretty much all of us, for once, think it’s a shit time to buy.

There are other places to have Real Estate discussions, like
https://www.urbandigs.com/forum/index.php?forums/real-estate-discussions.2/

Where we have no problem calling out shills like 300_mercer.

If it’s a shit time to buy why aren’t prices going down.
If no one wants to buy, like a stock, isn’t that the time to buy.
Or perhaps even though it’s a shit time to buy, buyers are still buying, at least some.
But the next two weeks will be crucial what with the jobs report and CPI and Fed speak. Rates will be affected one way or the other.

>> If it’s a shit time to buy why aren’t prices going down.

Usually, the worst time to buy is at the peak, before prices go down. If the price is already down, it’s no longer the worst time. Just kinda how this prognostication thing works at the most basic level: you gotta make the call before it happens.

That said, in my view it can also be a bad time to buy even if you expect prices to go sideways. If you’re paying 6% to borrow money for a 2%-yielding asset whose yield growth is inflation, that’s usually not accretive to wealth growth. Even if prices stay flat, especially when you have better uses for capital.

Just my opinion on the subject.

It's a bad time to buy because real estate has two bottoms - a sales volume bottom, followed by a pricing bottom. The first is a "sellers strike" followed by "capitulation".

We are seeing the significant volume drop but not much in the way of pricing drop yet.
So once we see some price action it could present opportunities.
I'd imagine even now, a patient buyer with a lot of cash could put in low offers and see what comes back.

While buying at high interest rates gives you an option to capture lower price now & refinance to lower rates later, one must remember we could be stuck in this interest rate range for 1-3 years.

Steve, I think softness in pricing is already here. It’s just starting to show up in the indices, which run at a lag of several months. I’m sure that softness has been a factor in the small increase to sales we’ve had over the past month or two.

>> While buying at high interest rates gives you an option to capture lower price now & refinance to lower rates later, one must remember we could be stuck in this interest rate range for 1-3 years.

I think your phrasing here captures the zeitgeist perfectly. There is this assumption that rates will go down to “normal”, meaning ZIRP-era. 1-3 years? Why can’t 5/10/30-year rates sit right around 4% for the next 10 years, where the market is putting them.

>> So once we see some price action it could present opportunities. I'd imagine even now, a patient buyer with a lot of cash could put in low offers and see what comes back.

Mostly feels like a booby prize.

I recall conversations here a dozen years ago where people were giddy to swoop in and pick up Manhattan RE "on the cheap", meaning 10-20% below peak bubble prices. Here we are 12 years later, and peak prices are 20% higher than the bottom while inflation is up 36%. And by year-end it'll likely be 40% inflation vs. 10% price increase. Just enough to cover transaction costs. Now this all might be fine if one were earning a rental yield, but it was a crap yield in the range of 2-4% depending on the specific product. At best, the rental yield matched inflation on a cash purchase. But more often, financed purchases meant the downpayment earned zero.

It kinda feels like we're back there again.

Black Monday was October 1987. There wasn't much price action until 1989. Bottom was around 1992 - 5 years later. To give 1 building as an example:
200 West 20th St
In 1989 units sold between $90,000 and $120,000.
In the first 6 months of 1992 I bought or sold 6 units in the building between $27,000 and $42,000.

We haven't seen much price action yet. But people are calling the final score of the ballgame after 2 innings.

The problem with "deal hunting" is that buying Real Estate is much more about timing. If you got the best deal possible in 1987 you were still f*cked in 1992. If you got the worst deal possible in 1992 you were still golden in 1997. Getting an "extra" 10% off today might seem like the bargain of the century. But the sellers who need to capitulate early like that may have to do so because they are sitting on the kinds of properties with a defect or 2 which would cause them to fall in price more than average should we see a real downturn. And historically "bargain hunters"/"bottom feeders" (who else here was called that by a Coop Attorney in the New York Times? Lol) tend to have a blind spot for those at this point in the market cycle because they think they are getting a bargain.

Example;
When I managed the SALES side of the JI Sopher Greenwich Village Office on more than one occasion we had buyers dealing with or agents who informed them they found a great deal on a unit, and upon further questioning it was at 77 Bleecker St. Upon further questioning it was directly through the owner who told them not to talk to "brokers" about it. But when I pushed the agents to find out the units, it turned out that the units were actually listed with us.... AT LOWER PRICES!

In 1991 through 1995 many units sold in the building over 50% below 1987 prices. Even in 1989 when owners wanted me to price their units in the building I would simply say "Look in the Offering Plan and find the Insider's Price. That's what your unit is worth today." Every one would respond "Oh, no! When I bought this unit I got a bargain so it's got to be worth more now!"

Bye bye Silicon Valley Bank

I guess highly leveraging cheap floating-rate loans (customer deposits in this case) to buy low-yield, long-duration assets (mortgage-backed securities in this case) is not a winning financial formula. Once rates go up, stick your head in the sand and pretend losses on your low-yield asset don’t exist. They’ll surely revert or, worst-case, you’ll be able to make the payments over the years (a.k.a. bleeding out the losses slowly). A pleasant fiction until your hand gets forced.

I am reminded of George’s co-opting of the phrase “buy, borrow, die” into an investment mantra of this nature:

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

I suppose SVB reached the “die” stage of the strategy. Unfortunately, it won’t be a quiet death, and they’ll wreak havoc in the process.

Wonder if they get a bail out?

https://en.m.wikipedia.org/wiki/Savings_and_loan_crisis