Buying TODAY at under-market prices

Didn't someone create a post like this about a week or so ago?

Hard to say when some apartments are 10% overpriced, some 20%, and some 30%.

I just asked 20% off on an overpriced coop and my realtor suggested maybe 10% off. I still think there is a big disconnect on what buyers are expecting from this downturn and what sellers are willing to take. Until we get closer, there won't be a lot of movement.

Good point, kgg. I am looking at a particular unit and feel like I have a good sense of what it will sell at today. I am just not willing to pay the price for something that, in my opinion, will go down over the next two years. I am comfortable paying 2006 comps, but nothing more recent. Just curious how anyone else who is really contemplating a purchase in 2008 looks at the very murky market. I suppose it ultimately depends on the mindset of the sellers. In this case, they would only break even if they accepted a price based on 2006 comps. I don't think they'll bite... at least not yet.

kas242: It's impossible to generalize. Post your target listing and your comps, and we'll all be happy to ridicule your lack of fiscal sense, as well as your taste! :o)

Definitely a buyers market but unless you can find really solid contemporary comps, I would not expect any more than 10%. You might also fiddle around with closing costs (get them to pay certain taxes and fees, etc.) and see if there are other possible concessions that they might make in addition to price.

Depending on price, you should consider changing conforming loan rates that may change at the end of the year, and also the "conventional wisdom" that interest might be a little lighter for a couple of months as a result of the Fannie/Freddie bailout.

Also, realistically, you should probably look at late 2006 comps if you are going to go back to 2006. Many people here forget that there was a little slump in Manhattan RE at the end of 2005 into early to mid 2006. Contrary to what a lot of people here report Manhattan has not been an ever-inflating bubble. The articles below do not even take into account the cloud that the Sept. 11 effect long had on prices here.

http://money.cnn.com/2006/01/04/real_estate/manhattan_prices_hit_wall/index.htm

http://www.nytimes.com/2006/07/06/nyregion/06real.html

Thanks, West 81st. The unit is actually not yet listed. The sellers will have it posted with a realtor shortly. They aim to get about the average comp for this type of unit (2 bed, 2 bath, UES prewar coop). Similar properties have been selling in the last six months between $1,250 and $1,350.

Thanks for the articles, will. It was a welcome reminder that the NYC market has not been totally on fast forward for the last 7 years.

I'd probably seriously consider buying at 20% below what I view as current "market". Certainly tough to generalize, so I am thinking specifically of several of the apartments I've seen and liked, prices I think I can get them at, and taking a 20% haircut to that.

kas242 - UES is a very broad description, and 2bed/2bath can also mean a lot of different things. At the risk of overgeneralizing again, I don't think a "typical" 2bed/2bath coop in an "average" area on the UES would fetch anywhere near $1.3MM right now. Others, please feel free to correct me.

Agree with newbuyer completely...I'd argue about 25% down for the year would make it about fair i.e. another 20% to go assuming about 5% is done. If you think foreign buyers are propping the market, then the recent 15% rally in the US$ (and counting) means prices still need to fall at least that much plus the recent 10% drop in London, Paris etc for NY apts to be relatively unchanged. If you are counting on wall street buyers then a 20-30% drop in bonuses is very likely (possibly worse). If apt price is based on disposable income, that means down 25% or so though the mathematics is fuzzier here as you need to account for current free cash too.... Its still cheaper to rent by a big margin. Even if you attach some emotional gain to owning, a long way to go from here. Wouldnt touch it at just 10% below - thats where obstinate faith in NYC's market is shaken and a further sharp drop follows.

My rationale is that the market is heading down. How much? Who knows? In January I was looking for 8-10% off. Now I'm thinking more like 20% off. I'm willing to take a risk, buy now for a 20% shave in price, no mortgage contingency, close at seller's convenience, but have not been able to make a deal yet. So I would say that many sellers are not yet feeling the risk of waiting it out. Tightening credit, job reductions, economic doom and gloom in reality haven't had that big of an impact yet on many sellers. I keep thinking it will but sometimes I think I'm the only one that sees the writing on the wall. Maybe I'm taking crazy pills.

I'd "start" to get serious with a 25% drop.

No seller in their right mind would accept 25% below ask. Even if they lost all hope, they'd lower ask by 10% and try to get interest at some level between ask and 25% below ask.

25% drop would get me in "offer mode" today.

"No seller in their right mind would accept 25% below ask."

Today, that may be generally correct.

That's why I think it's likely that it will take a number of years before such prices become the norm. Residential real estate prices are much like an ocean liner. Once in motion, they tend to stay in motion for a long time. That goes for up markets and down markets. Let's not forget the 1988 to 1997 Manhattan real estate market.

What I believe this post does show is that there is, indeed, considerable demand for Manhattan residential real estate - but at more reasonable prices. Expect to see a continuation of declining sales volume as sellers go into denial and buyers go on strike. Over time, though, a new equilibrium level will be established - but it will take time.

"People are habitually guided by the rear-view mirror and, for the most part, by the vistas immediately behind them." Warren Buffett

This one sold for 20% below the final asking price, and I think it was previously listed higher:

http://www.streeteasy.com/nyc/sale/231959-coop-277-west-end-avenue-upper-west-side-new-york

I guess you could say the seller was not "in his right mind", since he was deceased. But the executrix was presumably sane. Estate sales are one factor that could bring prices down pretty fast - much more so, I think, than foreclosures and other distressed sales. When an apartment is vacant with little or no debt on it, there's no real floor under the price.

west 81st we saw 277 west end apt about 6 months ago and thought it needed a ton of work. Do you think it should have sold for more?

In theory I agree with you West81st regarding estate sales. But in my experience looking over the last couple years it's often these "heirs" that start off with some of the most egregious asking prices with no consideration that Grandma hadn't touched the place since 1972 and it needs $200,000 in renovations.

kgg this was also our observation

bela/kgg: I agree that heirs may have a very unrealistic idea of market value, and may set ridiculous asking prices. My point was simply that once they get their heads around reality, they're often in a better position to accept a lowball bid (or lower a price drastically) because the apartment is vacant, there's often little or no debt on it, and they don't want the hassle of trying to rent it. As the estate bleeds cash on monthlies, many heirs will simply take what they can get.

With regard to 12MC at 277 WEA, I don't have a good comp, so I don't have any idea what it was "worth". It was a wreck, it would have been hard to add air conditioning, and I hated the view of Schwab House. Still, $2.2MM seems like decent value for that kind of space. We'll know more when the sponsor unit on the sixth floor with the same footprint sells. Orsid is asking $2.995MM; that seems rich even if it's in significantly better condition than 12MC (which I doubt).

Early 2005 price levels will be very attractive. I think the market is still 20-25% higher than that.

I think 473 west end is a good comp and it is in contract. So I am just waiting to see the price after closing.

I remember a friend buying his apartment in 2005 and wondering if he was paying too much as it seemed like the top of a market and almost a bubble to him and many of us agreed that it seemed risky though not stupid given the rent vs own comparison. Now the bulls will read my statement and say - see, he made a good move, right? he is way up on his investment. The bears will say - see? even at 2005 levels people were cautious. So a reversion to 2005 level is required at the very least... But given all the pain financial firms are going through, and seeing how much worse it can get after Lehman news today, I am getting even more nervous. For all the reasons I stated in my earlier post, its scary out there. The writing is on the wall... I may turn out to be wrong and hope thats true as it saves many fellow newyorkers a lot of pain, but trying to use any kind of rationale, just can't see prices improving or even staying here.