Mortgage Rates Jump to Highest Level Since 2002

>> Manhattan real estate underperformance relative to the rest of the country ex San Fran and perhaps a couple of other areas post Covid and since 2015/6 is undeniable. Ultra-luxury ($10mm+ and high $ per sq ft) and stuffy coops have played a big part in my opinion.

I don’t think that can be. The SE index is home-weighted, not dollar-weighted. $10m+ represents 5% of sales at most, and even if that entire segment became valueless, it’d only reduce the index by 5%.

>> Me thinks Covid flight is over and all the ambitious youngsters want to be in NYC or Silicon Valley and Manhattan development below certain streets seems to be dead. How it translates to prices indeed will be neighborhood specific as Keith says.

I think COVID flight has long been over. But remote work flight persists as does tax flight. All the youngsters do seem to want to be here. Do they seem more ambitious than the generation or two before them? Not really. If anything, I’d say less ambitious about work and more ambitious about life, which I suppose kinda seems like a euphemism for “less ambitious”?

But do the oldsters still want to be here? Less so, it seems. For better or for worse, oldsters are the ones who hold the money. They youngsters don’t have it, and what they make they want to spend, and paying 7% mortgages is prohibitive.

So I expect poor RE price performance, the higher-end the worse. I also expect strong inflationary rent pressure at the lower end, but weak at the higher end. Too many older rich people aging out of high-end Manhattan RE, not enough younger people to replace them — fewer of them to begin with, not as rich, and driven irreversibly to BK after being priced out due to lingering effect of 2007 bubble pricing.

I'm working with a new buyer, smart what most people would consider wealthy, wealthy enough to to pay almost $3 million in cash for a home. We're discussing an offer we submitted, and the fact that there's somebody (trying)taking a $400,000 haircut on a similar unit in the building. He said, "I thought Manhattan real estate only went up?" I channeled my inner nada and we had a very interesting conversation : ) now we're moving in a different direction....

I'm with nada - The youngsters want to be in NYC, but ex-trustfunders, how many of them are RE buyers before they move out to burbs?

Starting in late 90s, more GenX started staying in NYC and raising a family. Few of them, especially in current interest rate environment, are downgrading their RE now that kids are in college or out of house. It's worth noting even pre-COVID, NYC school enrollment was trending down and now is sharply down (K-12 was 818K this year vs vs 950K 6 years ago).

NYC RE returns have underperformed the burbs for 5-10 years because the burbs took a huge GFC drawdown they only recently recovered from. NYC just traded sideways (and to a degree continues to) in nominal terms, with the brief COVID drawdown.

Anecdotally, I remember that shift taking place in the '90s. Suddenly I had clients looking to buy homes to start a family in. This was definitely unusual and much different than what I had been used to, when it seemed most people put in their 3 to 7 years in 'the city' and moved on to the burbs to get married and start a family.

This was also much different from all the old-timers I knew in the 80's, my friends parents, who bought homes or large apartments and were lifers, so to speak. Many had country homes, but NYC was home base. Hate to sound like a nostalgic old man, but nyc was a wonderful place in the '80s!

I should say mostly rent homes to start a family...

@Keith - my impression is that millennials and GenZ are shifting back to that model. Many of my GenX coworkers had managed to buy in Manhattan in their 30s pre GFC, while my Millenial coworkers were all buying in NJ & Westchester.

COVID probably was a generational tipping point for millennials who were starting a family.. a good number left and won't return. The zoomers and young millennials were the first to move back in post-vax summer.

My condo's average age probably went down 5 years during COVID, and we were already skewed pretty young (probably 1 boomer and less than 5 GenX).

GenX RE decisions were less impacted by COVID in my opinion as they were either established or priced out by that point in their life.

I can tell you from recent experience the Westchester housing market is a red hot! After eight attempts, we finally have an accepted offer and contract out on a house in chappaqua.

My brother is looking in Fairfield County, CT and outside the super prime areas it doesn't seem that bad. Just looked at a few listings that are like 50% above 2010-2015 prices & only 2x from 1990-2000 prices.

Yeah I certainly can't speak for the whole market. But of the 10 homes we recently bid on, all of them went 15 to 20% above ask with many bids.

Steve/Nada/Keith, Some interesting comments above.

One thing which I don't understand is that if there is tax flight from NYC, why are the suburs so hot. All you save in the burbs around the city is city tax but real estate taxes plus commuting costs can be high.

If you want cheaper real estate, there is plenty in mid-town east at a discount with reasonable taxes. Krolic did a trade sub $1000 per ft with reasonable maintenance.

The clients we worked were moving for quality of life reasons. Couple with two small children.

@Keith - exactly, you can't really cross shop with Midtown East for a family.

You can go to Fairfield County ex-Greenwich/Darien with a sub-$1M budget and get all the home you'll need for 3 kids with taxes under $2k/month.

You can't really cross shop that with a 1200 sq ft 2 bed in Midtown East.

Especially if you are only going to the office 2-3 days/week or better yet, your fund has an office in Greenwich/Stamford you can commute to instead.

Cost of living difference is enough to retire one spouse.

>> NYC RE returns have underperformed the burbs for 5-10 years because the burbs took a huge GFC drawdown they only recently recovered from. NYC just traded sideways (and to a degree continues to) in nominal terms, with the brief COVID drawdown.

The other distinction I’d make is that NYC RE outperformed the burbs during the bubble run up 1999-2007. A 3x increase rather than a 2x increase nationally. Then a 15% GFC drop rather than a 30% GFC drop. Some took this as demonstration of NYC’s impervience, that Manhattan only goes up. So in some sense, the last 5-10 years outperformance of the burbs has simply reverted the relative difference. Both nationally and in Manhattan, prices are currently 3x what they were in 1999.

At 7.5% increase per year, prices double in less than 10 years.

Steve, What are the desirable towns ex Greenwich/Darien with Metronorth stations and reasonable (peak time <45 minutes to Grand Central train ride - call it 1 hour 20 minutes door to door; 10 minutes from home to the station; 5 minutes grace to wait for the train) commute to the city? Appreciate a few listing examples at the low end. ~2000-2700 sq ft ex garage 3 bedrooms in good condition. Commute in the city is generally 20-40 minutes. Call it average 30.

"You can go to Fairfield County ex-Greenwich/Darien with a sub-$1M budget and get all the home you'll need for 3 kids with taxes under $2k/month."

@300 - Desirable is in the eye of the beholder, but if we are comp'ing to Midtown East then places like Norwalk (65-75min train) or nicer parts of Stamford (North Stamford, Shippan, Springdale, Westover.. 55-65min train) are certainly enough

Obviously a walking commute from Midtown East is not comparable to a suburban commuter rail commute, but in the hybrid/remote/regional office world we are morphing into.. its not as difficult a trade anymore.

Could get something like
https://www.zillow.com/homedetails/1-Weed-Ave-Norwalk-CT-06850/58814133_zpid/

Personally, a bit further and worse commute, but something like this up in Westport is way more my style
https://www.zillow.com/homedetails/258-Bayberry-Ln-Westport-CT-06880/177221495_zpid/

Nada, Thank you for this observation. What does it mean going forward for Manhattan/Prime BK excluding ultra-luxury where both us have been bearish since more of less when $4k+/per sq ft pricing started?

"Both nationally and in Manhattan, prices are currently 3x what they were in 1999."

https://www.redfin.com/NY/Chappaqua/25-Paulding-Dr-10514/home/20085990

https://www.redfin.com/NY/Chappaqua/178-Seven-Bridges-Rd-10514/home/20093713

Thank Keith. I think Chappaqua breaks the commute limit for most people unless you work next to Grand Central. But it is a good option with good schools. Just add two mid-end cars to the budget at $600 per month each paid for by City Tax savings for $300-400k annual income family. Value of commuting time - depends on the individual. I decided a long time back appx 1.5 hour unpaid extra commute per day is time you don't spend with your children/family.

This is somehow related to home mortgage rates:

https://www.nytimes.com/2024/05/03/business/federal-reserve-markets-turmoil.html?unlocked_article_code=1.pU0.XXwt.I6B6t7L_SY_Q&smid=url-share

It's a little arcane (at least to my thick skull) but it sounds like selling off or not reinvesting in treasuries (quantitative tightening) will make getting interest rates lower more difficult - if they are able to pull it off at all.

>> What does it mean going forward for Manhattan/Prime BK excluding ultra-luxury where both us have been bearish since more of less when $4k+/per sq ft pricing started?

One can only guess, but I’ll remain the broken clock I’ve been on this question for the past 15 years: sideways.

>> One thing which I don't understand is that if there is tax flight from NYC, why are the suburs so hot. All you save in the burbs around the city is city tax but real estate taxes plus commuting costs can be high.

While I understand the sentiment, different people have different rubrics of cost-benefit. Big picture, the question for me is how the inputs to the rubrics has changed:

1) With the loss of SALT, unless you’re an business owner or partner, as a highly paid professional, you’re paying full-load tax in NYC of 13-15%. Take-home is 45-50% of pre-tax, so saving 3.75% by going to NY burbs adds 8% to after-tax. Go to CT, you’ll save double and add 16% after-tax. Got to FL or TX, you save the whole 13-15% and increase after-tax 26%. All these increases are now ~1.6x what they used to be.

2) It’s 13-15%, not 13%, because of a 2021 NY law. So add another 2% for certain people as increased incentive since pre-2021.

3) Hybrid schedules made the paint of commute a lot lower. You’re only commuting 3 times a week rather than 5 times.

4) 3 days in-office mean that you can keep a home in NY, commuting once per week, without becoming a statutory resident.

5) It’s more acceptable to work remote near full-time, coming back to HQ irregularly.

The NYC suburban price resiliency, at least in mid-markets, I believe to be basic supply and demand. The mortgage spike has crushed supply because folks with significant mortgages can't or won't move, and people have family/school reasons to stay in specific towns. My brother, a cash-buyer mid-50s downsizing couple, has been looking for a $1-$1.2MM house in central NJ for a year. Every open house for a decent property ends with multiple bids at the first showing. No one is building new single family houses in the nearby suburbs, and there is no single family house rental market alternative. So there are more buyers than available inventory, and the lure of higher prices does not foment selling unless someone is heading to Florida.

There is a frequent tunnel-vision about real estate returns and NYC prices, presumably because of the high starting point of NYC pricing. The glory days of home appreciation long passed. My parents house in an outer borough appreciated 25x between purchase in 1964 and sale in 1992. That was way better than investing elsewhere, but I also don't think it reasonable if anyone wants to test relative returns to look at stock markets or even mixed portfolios. Most people think of real estate as more like fixed income, and perhaps too many think its risk profile is more like a government bond or a savings account. My apartment is now for sale; if it achieves ask, we will have earned about 90% return over 20 years net of transaction costs and a full-blown gut renovation in the middle. Not spectacular, not bad, and we had 20 years in an apartment that has no rental market comparison. And, yes, we are now going to turn into renters as we downsize approaching our 60s, and those sale proceeds will be going into the government bond portfolio.

sport, I pass by your apartment all the time. All the best with the sale.

On NJ housing. Your story made me check some stats. I somehow thought that NJ was slowly losing population. But not the case.

https://www.macrotrends.net/global-metrics/states/new-jersey/population#:~:text=The%20population%20of%20New%20Jersey,a%204.29%25%20increase%20from%202019.

Thanks for sharing, nyc_sport.

>> The mortgage spike has crushed supply because folks with significant mortgages can't or won't move, and people have family/school reasons to stay in specific towns.

I hadn’t quite thought about it that way, because in a strict sense people staying in existing homes represents demand just as much as supply. But I guess you are saying that the locked-in effect reduced supply from would-be downsizers? I.e., they don’t have the true underlying demand for the space but retain it because it’s effectively free compared to downsizing.

I could see that, but then there’s the flip side. People whose demand would be higher but are locked into undersized homes. “I would like 30% more space, but not if it means doubling my housing costs.”

My sense is that COVID, WFH, and 2.x% mortgages simply suddenly created demand for 10-20% more space than exists in aggregate. Supplying that demand (in the form of more aggregate space via new homes) just takes a looong time.

In terms of population, NYC suffered population loss during covid years 2020/21 but the loss has started to reverse in 2022-23. Remains to be seen when we will surpass the pre-covid high.

https://www.nyc.gov/assets/planning/download/pdf/planning-level/nyc-population/population-estimates/population-trends-2023.pdf

>> And, yes, we are now going to turn into renters as we downsize approaching our 60s, and those sale proceeds will be going into the government bond portfolio.

BTW, what’s the reason for downsizing, renting, and govt bonds?

Steve,

What do you think of reno needed in these? I realized reno labor cost is cheaper there vs Manhattan. Probably 30-40% cheaper. Weed Ave seemed fine to me. Bayberry seemed to need new countertop etc as the existing ones seem to be laminate. But nothing major.

I went to Norwalk last year to have dinner with a friend. Pretty depressing and decaying was my impression. Plus 1.5 hour commute door to door would kill me but I understand it is much cheaper that anything comparable in decent parts of the city.

Stanford probably a better choice due to express trains but the pricing is pretty efficient and factors in commuting time. Of course, I am not factoring in school choices which is very important for most suburbar buyers and reflected in pricing and taxes.

>>Could get something like
https://www.zillow.com/homedetails/1-Weed-Ave-Norwalk-CT-06850/58814133_zpid/

Personally, a bit further and worse commute, but something like this up in Westport is way more my style
https://www.zillow.com/homedetails/258-Bayberry-Ln-Westport-CT-06880/177221495_zpid/

I bet you bayberry goes for 1.4+. 6,000 views and almost 500 saves!!! For a minute, I fantasized about living in one of my favorite places in Connecticut, Westport.....

<>

We love our oversized apartment, 12 foot ceilings, and silly space for two people and a dog. I have always thought space was the greatest luxury in NYC. I planned and chose every inch of our apartment--floors, fixtures, appliances, layout, doorknobs, hinges, etc., and personally built many of the light fixtures. But we have aged out of our neighborhood, want a gentile doorman building, dont need 3800 sq ft of space, spend three days a week at our weekend house, likely done working in +/- 5 years, and frankly despite having lived here all of close to 60 years and being a voracious NY cheerleader, this is no longer the place where I grew up, and we may not be here long term. So, government bonds because it fits better on my portfolio, the income will pay my rent and much more without flinching, and we may be buyers again here or somewhere if something great comes along. The problem is that, despite growing disenchantment with NYC, i remain like a fish out of water anywhere else, and not sure i am ever leaving. And, i have had Knicks season tickets since 1993.

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I’m always appreciative of spaces painstakingly designed under a specific vision. I’d never want to do it myself, but I enjoy living in the end result. How old is your renovation at this point? I just hope whomever buys it — even though it’s their right — doesn’t rip it apart. I currently live in a home whose detailed renovation was done (finished, really) around 2010-ish. It was all done right, and beyond the tech (giant Lutron panels, etc.), it still looks & feels great.

On your future in NYC, sounds like you’re in for an adventure. After 20 years in the same place, I’m sure you’ll hate the process of moving. But once you set up in your new place and neighborhood, I hope you find excitement and enjoyment in the change.

>> So, government bonds because it fits better on my portfolio

What are you planning to do on this in terms of duration — T-bills, 10yr, 30yr, etc. — and what does the rest of your portfolio look like?

It’s certainly consistent with your viewing of RE as fixed income. Although I appreciate your insight that most people view it similarly, it’s a completely foreign thought to me — possibly because I’m not normal.

Most people I know were overweight RE early in their portfolio accumulation years, as in a large portion of their wealth getting directed to buying home(s) at an early age (20’s or 30’s, say). Thereafter, it became more balanced as new (and often increasing) income got directed elsewhere in portfolios (stocks, etc.). Were you the same?

While completely “normal” — I get the urge to establish a home via RE — the notion of putting the vast majority of your wealth into a fixed income vehicle when you’re young seems like the opposite of what people are told they’re supposed to do with their portfolios (e.g., how target dated funds work).

>> So, government bonds because it fits better on my portfolio

What are you planning to do on this in terms of duration — T-bills, 10yr, 30yr, etc. — and what does the rest of your portfolio look like?

It’s certainly consistent with your viewing of RE as fixed income. Although I appreciate your insight that most people view it similarly, it’s a completely foreign thought to me — possibly because I’m not normal.

Most people I know were overweight RE early in their portfolio accumulation years, as in a large portion of their wealth getting directed to buying home(s) at an early age (20’s or 30’s, say). Thereafter, it became more balanced as new (and often increasing) income got directed elsewhere in portfolios (stocks, etc.). Were you the same?

While completely “normal” — I get the urge to establish a home via RE — the notion of putting the vast majority of your wealth into a fixed income vehicle when you’re young seems like the opposite of what people are told they’re supposed to do with their portfolios (e.g., how target dated funds work).

@Keith - same, growing up Westport was where (to me) rich people lived. Nevermind Greenwich or Darien which were out of my awareness or Manhattan, haha.

@300 - sure replace the counters, or don't.. they seem to have served the prior owners for 50 years or so, haha. Again not a showstopper to simply moving in and getting on with life.

Probably a lot of people in this forum have too many 0s in their bank account to consider the type of people making this calculation. Keith probably deals with customers like this.

Early/mid 30s with a husband making $300k and wife making $150k ready to start a family. To stay in the city you will need to stretch on monthlies and wife will have to keep working, incurring like $50k of after-tax childcare costs (consuming over half of the wife's income, but she still needs to work to make the numbers work). Given those numbers you are essentially looking at a 2BR in Park Slope or LIC maybe, and crossing your fingers that if you have 2 kids they can share a bedroom for a while/indefinetely. Maybe you are sleeping in the living room and giving the kids the bedrooms (many such cases).

Or you look in the burbs with a near-$1M budget getting you 3+ BR, saving a bunch on taxes, wife can stop working, etc.

Obviously if your HHI is $700K-2M the math is quite different and it's a lot easier not to leave the city. Not everyone gets there before they want to have kids.

Steve, I get your point. However, I view $250k is more of an income below which it is harder to live with 2 kids in the city without significant compromises. 3 kids is certainly a breaking point for even higher income as many families are looking for much more space at that time.

For $450k income, you can get something like this or better at $300k higher cost. With one person working in your example, there are giving up on future career growth which could become $150k to $300k and you don't need nanny's as the kids grow up. Commuting and cars are costly.

https://streeteasy.com/building/138-east-36-street-new_york/9c

Steve, funny story about my boss & Westport. Whatever number of 0’s you might think I have in my bank account, it’s probably safe to assume he a tad more. He grew up in some town like yours in CT. He recently bought a “country house” in CT, but rather than buying in one of the tony towns, he bought a place in his hometown for just under $1M a couple of miles away from his parents, his high school, etc.

It’s a fine place, and they did some renovations and have a house manager who keeps the house and grounds in pristine shape. But at the end of the day, it’s a $1.x million house that punches several rungs below his financial wherewithal.

At some point last year, I was ribbing him about his “fancy country estate in Westport”. Indignant, he said “Westport?!?! No, that’s where the rich people live! Im in XYZ.”

To us non CT-ers, all the towns look & sound the same. But I can confirm that, as steve123 says, there’s a pecking order.

Steve,

May be I should move to Westport at that $1mm and put my kid in local school rather than paying ridiculous private school cost in NYC but not happening as I will be bored to death there and drink my life away.

Sport, I understand how you feel about NYC. It has indeed changed but I partially view that as just me getting older and the rest of the city (perhaps country) moving on vs me. That smell of pot is hard to escape.

>> I will be bored to death there and drink my life away
You can just merge synergies between the two by quickly drinking yourself to death.

>> It has indeed changed but I partially view that as just me getting older and the rest of the city (perhaps country) moving on vs me.

I am certainly increasingly the grown up in the room, especially given the demographics of our current neighborhood and its popularity with the youngins. But I think I prefer that to being surrounded by random people my own age, who (for the lack of a better term) behave increasingly like old people.

ha. You mean I should be saying that I will drink myself to death before moving to Westport?

I'm old enough to remember when places like Westport and even Malibu weren't just crazy rich outposts. But instead filled with a eclectic mix of personalities of various stations in life. It doesn't seem like there are many places left where they're just absolutely beautiful, and that's why you choose to move there. Seems all the beautiful places have been found and are now untouchable by mere mortals. I'm glad I pulled the trigger and bought a place in Palm Beach county, because I currently couldn't afford to purchase the house that I live in ; )

@300 as a real estate broker, the problem I have with the listing you've posted as an example of something affordable, it's something I'd much rather rent than have to own. Either that or I'd like to see its valuation come down significantly more. These neighborhoods are very difficult to sell in in anything but a raging seller's market with buyers chomping at the bit to get anything they can get their hands on.

At the current valuations we're dealing with in New York City, one has to be extremely particular in the location they're purchasing in. It should never be taking 100 plus days to sell anything. Perhaps one exception would be, if somehow you have a crystal ball and you know you'll be there for 15 to 20 years, perhaps that's smooths out some of the liquidity risk.

Keith, I think you're just seeing the net result of RE prices that are ~2x where they "should" be. A series of forces led to a ZIRP world. Over time, people understood it as ZIRP-forever world, pushing asset prices based on ZIRP-forever fundamentals. We now have these ZIRP-forever asset price levels against ZIRP-is-over rates, and it's all looking pricey. But for a variety of reasons, the asset prices haven't moved.

Case-in-point, I think Krolik bought an apartment like the one 300 posted in 2021 based on ZIRP-forever assumptions. On that apt specifically, at 3% cost of capital, a $1M price, and $3500 monthlies, it works out to $6K/mo. Not bad compared to the rental alternative. At 7%, it works out to $9500, which is kinda WTF?!?!?!? Your first $200K/yr of income goes to paying for that after-tax. Maybe you can use the next $100K/yr to pay for food.

Something similar could be said of the Westport house, I suppose.

Keith,
I wouldn't buy that in seller's market but you can bottom fish now in buyer's market if you need 3 bedrooms. I realize 3rd bedroom is a squeeze but the apartment can be used with some clean up if you are on a budget. 1400 sqft for $999k and $50k for simple clean up. $3500 per month maintenane. $750k mortgage with 25% Fed tax rate will reduce 6.5% mortgage to 5% ish. I look at inflation. Has come down to 2.7/2.8% and with all the illegal immigrats, the services wage pressure will abate some time lowering inflation closer to 2%, Fed will likely cut to 1% real rate and 5/1 will be back in fashion. Can it happen in 12 months time frame? Unlikely. But 2 years time frame. Easily.

It all might make sense on paper, but it's no fun needing to move because life throws you a curveball, and you've got an apartment that appeals to a very small segment of the buyer pool. I have some clients in that conundrum right now, and then add to it the restrictions of a co-op, oy vey.

So how does this play out? Interest rates go from 2.5% to 7.5% in the blink of an eye. And supposedly lack of supply, high rents, high sales prices has frozen the market up. And here we are bidding on another inexpensive two bedroom in Brooklyn heights, clients described the scene as a madhouse. How the hell do we have what seems to be a soft landing?!!??

Quick report from Palm Beach county. Lots of new construction, lots of teardowns of 1960s 3/2's In the interior of neighborhoods, this used to happen only on the canals. Condos which doubled post covid seem to be running out of steam. Single family homes in prime neighborhoods selling at record prices. The Ritz-Carlton is putting up residential homes on the intracoastal 5 minutes from me starting at 8 million. It's kind of a crazy world. I now have 50% of my savings and money market accounts, tempted to put everything into US. Treasuries and be satisfied with 5% for the time being.

It seems one of the biggest issues with buying an apartment in New York City, is the relatively short hold time. Doesn't leave a lot of room for the ups and downs of the market.. However, if you're buying out in the suburbs and plan to be there, 20 plus years, is home ownership a no-brainer?

https://www.axios.com/2024/05/08/homeowners-wealth-rich-rents-increase

Meanwhile, Bloomberg is reporting that the number of underwater homeowners is trending upward:

"Roughly one in 37 homes are now considered seriously underwater in the US and that share is much higher across a swath of southern states, according to data out Thursday.

Nationally, 2.7% of homes carried loan balances at least 25% more than their market value in the first few months of the year. That’s up from 2.6% in the previous quarter, according to the first-quarter 2024 US Home Equity & Underwater Report from ATTOM, a real estate data firm.

Several southern states saw shares of seriously underwater homes grow more than the rest of the country. Kentucky’s share jumped to 8.3% in the first few months of the year from 6.3% in the previous quarter. West Virginia’s share rose to 5.4% from 4.4% over the same period, while Oklahoma climbed to 6.1% from 5.5%, and Arkansas went up to 5.7% from 5.2%.

The states with the biggest increase in number of seriously underwater homes are also in the south. Kentucky is in first place with a year-over-year jump of more than 20,500 homes - nearly twice as many as second-place Mississippi and Oklahoma, coming in third.

Among metro areas with a population of at least 500,000, Baton Rouge, Louisiana, had the largest share of seriously underwater mortgages in the first quarter, with 13.4%. Neighboring New Orleans came in second with 7.3%, followed by Jackson, Mississippi, and Little Rock, Arkansas, with 6.5% and 6%, respectively. Syracuse, New York, came in fifth, with 5.6% of homes seriously underwater."

If those homeowners are planning on a 20+ year hold, maybe it doesn't make any difference, but it's sure going to affect the short-termers.

Aaron,

How does one reconcile underwater homes with significant index price increase in Kentucky? Is it some areas are just doing far worse that others leading to homeowners being underwater?

https://www.zillow.com/home-values/24/ky/

@300 - I would wager its a big bifurcation between newdev & existing home sales in some hot markets

For example my parents are out in exurbs of NYC, bought a house for $200k in the 80s that now has a Zestimate of $500k. Up until the 2000s it was considered a large house in our town. There's still old smaller homes in town for $300k-400k listed.

However, all the new devs, including across the street from my parents are priced at $800k-$1M & selling faster than they can build them.

Likely similar situation in some fast growing southern markets where the new money does not want the old homes. The size/style/wealth levels of original buyers of existing homes in some areas are far different than who the new buyers are.

Steve,

Zillow is supposed to adjust for the change in the mix. Also leverages Zestimates process.

https://www.zillow.com/research/zhvi-methodology/

@300: I think a lot of it is about the specific house (quality / location). I don't have the underlying data by specific zip code, but imagine that the areas with the biggest price increases do not overlap with the areas with the worst LTV. Take the link you provided, and add Lexington KY and Columbia KY (large underwater populations) to the comparison -- price appreciation in those 2 cities is approximately 0 since mid 2022.

Here's the link to the news release from the original data source (very informative):
https://www.attomdata.com/news/most-recent/q1-2024-home-equity-and-underwater-report/

Over the past 30 days there were 960 new contracts in Manhattan. 2 years ago it was 1400. Mortgage rates were about 200 basis points lower at that time

We're definitely feeling it, glad to see the data supports what we're experiencing. That said we just won a highest and best in Brooklyn heights. A small dedicated group of buyers, chasing similar small pool of homes...

On another note, I read two articles this morning, one on the fact that a large percentage of us homes, 1 in 37 are significantly underwater.

Another stating a record amount of equity that current US homeowners are sitting on. Certainly a tale of two cities.

At what price point & type of home are you seeing that pocket of demand?

Some interesting info on lags here. Roughly 1y-1.5y lag before the softer rental data showed up in CPI. Even more interesting is the NYC rents are showing tick-up and subbelt is down likely to due to new multi-family supply.

https://www.apartmentlist.com/research/national-rent-data

A little deeper analysis
From Zillow: https://www.zillow.com/research/rent-zori-cpi-33861/

A lot of ink has been spilled on that lag. By my calculations, CPI rent and OER are still ~5% short of where they should be based on 4-year cumulative increases to the real-time indices.

That said, I think too much ink was spilled on where the puck has been and too little on where it was going. I think I've long suggested that high rates will put pressure on rents. Are we seeing it yet? If you look at Apartment List, you see flat rents and might think inflationary pressures are over. However, that's looking at the wrong place.

2/3rds of the US owns, and owned property is typically more valuable. As such, OER makes up 3.3x as much of CPI as does rents. And in most of the US (and most of the dollar weight), the fungible product in rent vs. OER is single family homes, not apartments vs. single-family homes.

What's going on there? Well, Zillow incorporates it to a large extent. But really, compare Apartment List to this index from Core Logic that exclusively tracks single family homes:

https://www.corelogic.com/press-releases/corelogic-february-us-rent-growth-posts-highest-annual-increase-since-spring-2023/

After cooling down, it's now ticking up and sitting at 3.4%. That's probably the better measure for OER, which makes up 77% of rent + OER.

Personally haven't seen it anywhere in Manhattan. 2 beds brownstone Brooklyn under 1.4. , I previously posted some real-time examples. Most brownstones in prime brownstone Brooklyn, We have a couple getting ready to bid on approximately their eighth one over the course of 6 months... A Three-bedroom at Turner towers recently attracted four or five offers. I think we bid 3 % over ask, didn't get it, $2m+

@Keith this matches some of what I’m observing..
Manhattan pricing looks pretty stagnant with UES really taking it on the chin. Plenty of listings with 2bed units flat or taking losses on 5-15 year holds.
If it wasn’t such a hassle I’d consider moving back given the relative price performance of North BK ..

Steve, Great time to do Bk condo to midtown east or UES coop trade. Just my opinion.

Thanks, Keith. Who is the typical bidder? As in age, cash vs % financed, source of funds, etc. I know it’s gonna be a spectrum, but I’m wondering if the demographics of the bidders in these markets stands out in some way.

It's a very small sample, but everybody seems to be in their mid to late 30s, financing between 50 and 75%, down payment sourced from their own savings.

@keith - To your point about Palm Beach, I was just down there and listening to the old guard lament the influx. You would think they would be happy that their property values have tripled, but that is only of use if you want to cash out. Heirs to estate sales are thrilled, but those who remain lament the tearing down of the old bungalows for the erection of modern architectural masterpieces. What is even better/worse is that the locals might or might not have changed some set back rules to save one old house, only to have new entrants seize upon the new rule to block views and develop Jupiter Island in ways that are making Permelia Reed turn over in her grave. Progress is inexorable.

Palm Beach is certainly a much different place today. I no longer feel like I step back in time when we go there occasionally to eat or window shop on Worth Ave..... In some ways I preferred the Old Palm Beach, however, I've never had the desire or the means to live there. For what it's worth, I like, somewhat fascinated by the old guard. In a previous life I got to mingle with them at fundraisers and cocktail parties for the arts. I like tradition, but I do also understand the underbelly that you occasionally point out here. Jupiter island is just so beautiful though, especially the older homes.

Jupiter Island is going the way of Lyford Cay - new entrants are tearing down 5 million dollar homes to put up 30 million dollar homes. Those whose families have lived there for generations are being pushed out. Nowhere is safe from gentrification. :)

>> It's a very small sample, but everybody seems to be in their mid to late 30s, financing between 50 and 75%, down payment sourced from their own savings.

Thanks, Keith. That would have been my guess on the age cohort. I didn’t know what to expect on financing level and source of cash, as in own savings vs family money. I do find the lack of family money interesting. Not in an absolute sense, but more relative to patterns from the recent past.

This can’t bode well for those looking for long-term price increases in Manhattan at the higher end. This is the cohort that would be stepping into Manhattan RE released by the prior generations, now and for the next 10+ years. It seems to me that bubble pricing from ~15 years ago that never deflated nominally in Manhattan pushed millennials to Brooklyn. And once in Brooklyn, people tend to stay in Brooklyn. I know exactly on Brooklynite that came back to Manhattan, FWIW.

As high as rates have been , the market has adjusted somewhat but sales are down .

Is there any change in recent demand ?
What are the brokers saying ?

Current sales market is slow, with the exception of a few listings in brownstone, Brooklyn, which are behaving like it's 2021.

Recently found out my building will have to refinance the mortgage in the fall. : (

Question for the people here holding ARMs. What do you think you'll do when the ARM starts floating? As in pay the higher rate vs. refi vs. pay it off vs. sell.

I ask because a neighbor recently struck up a conversation with me and asked where I thought rates were headed. He's got an ARM that resets from ~3% heading up to ~7.75% starting next year, which made me wonder what people will end up doing. (The neighbor is a RE investor by trade, so his wondering about rates were probably more from that angle.)

Also consistent with my readings of ACRIS, where it seems like 70% of wealthy buyers had ARMs, Figure 2 in this link shows that ARM share increases dramatically at higher levels of mortgages:

https://www.corelogic.com/intelligence/rising-rates-lead-to-increase-in-adjustable-rate-mortgage-arm-activity/