Weak sales = unknown market value

Interesting perspective...most sellers haven't even come close to accepting 30% off from peak which is why inventory keeps going up. I'm more than happy to pay what I consider fair, this is my home more than an investment, but there is still a "what is fair" disconnect between sellers and buyers. I just renewed by lease (with an adjustment down)...will wait and see how the year progresses.

I'm sure someone will have something negative to say...there always is :-)!

Jonathan Miller has a crystal ball and can tell you the exact value of any apartment.

i think that it's just too soon. fundamental truth is that no one has a clue at this moment as to what constitutes fair value. so...my guess is that the few people who are buying and selling do not represent a sample of the overall market i.e. they either have a lot of $$ so the pain of losing is softened or very few $$ so they have to make huge concesssions (on the sell side). or they have very specific life situations that trump more rational financial considerations.

this is going to take years to sort out absent further significant external events most of which would probably be negative.

I almost bought an apartment last year (May2008) and I was over bid by someone else. The apartment is back on the market being not sold due to the buyer backing out and giving up deposit. The same apartment is now 15% lower. I may rebid but with so many inventory comps, I will ask for 30% from original which is 20% from current listed price.

"The true value of a thing is what someone else will pay for it"

28% down is what people are paying for it right now. And, I'm with you, it will continue to decline.

If 28% discounts are still only being taken by a few people, it means we're going to see a lot more discounting.

If I buy a loaf of bread for $10 it doesn't mean the market value for a loaf of bread is now $10. Its an anomaly. It means that one loaf of bread was worth $10 to me. Its like most of the sales happening right now. I don't see how you establish market value based on the few sales happening right now.

with spring usually brings optimism, so i expect much more inventory to begin to move. after all there are many people that prefer to own then to rent. price is set by how aggressive a buyer and a seller are, not necessarily how many buyers or sellers there are. can prices fall from here, sure it can, but it can also go sideways or up. no one has a crystal ball. do what is right for you and your financial situation if you knew this was happening you would be super rich by now shorting the markets, otherwise don't make the situation worse by telling everyone that the end is near.

OP asks a serious question re: determining market value. and your response is? spring brings optimism? and your insight is that prices can go up, down or stay the same? very, very helpful---particularly your thoughts on which direction prices can go.

Anyone with an interest in the question posed in this thread should have a look at the long post by streeteasyaddict here: http://www.streeteasy.com/nyc/talk/discussion/9550-disaster-at-the-rushmore
It starts out with a number of specific points on the Rushmore, but progresses to a great capsule summary of issues and trends affecting Manhattan RE values. While s/he does not directly address the weak-sales-means-no-measurable-market point, this is the inevitable implication of the market environment summarized in the post.

spinnaker -- if you believe we are going thru a correction phase, then the true value of an apartment is the 1997 price multiplied by 3-6% per annum increase. You can determine/guess the 1997 price either thru acris, thru nytimes archives or thru an old Miller Samuel sales report.

Alternatively, you can find comparable rentals and determine if maint + mtg payment == rental price.

OR, you could take the yearly rental cost of a comparable apartment X 12 to get a valuation.

You will find that using these measures will generally return the same number and show that RE is about twice as expensive as it should be right now.

Let me add this -- when housing corrects, it generally will take an extended period of time to hit the "bottom." In other words, we shouldn't hit a price to rent ratio of 12 for some time. This is what has happened in NYC in the early 90s, Japan in the mid 90s and the rest of the USA the last several years.

Agreed that the post sidelinesitter referenced also lays out the issues -- though i dispute that manhattan was at 17x price to rent, I think it was closer to 25x.

"If I buy a loaf of bread for $10 it doesn't mean the market value for a loaf of bread is now $10. Its an anomaly. It means that one loaf of bread was worth $10 to me. Its like most of the sales happening right now. I don't see how you establish market value based on the few sales happening right now."

That is not at all a proper analogy.

If 20 bread makers line up and try to sell bread, and the only guy who is actually successful is the one who lowers his price to 10c, and he gets a few sales...

YES, it ABSOLUTELY means the market value for bread is 10c.

The other breadmakers can hold out and say "my bread is worth $50, the ingredients are $25 alone" all he wants, but it is not relevant.

The going price is 10c for bread.

I think OP meant that one sale (one loaf of bread) does not make a market. We can only determine consensus when we have multiple data points to access.

We're not talking about one sale, we're talking about hundreds in the stat.

And, one sale DOES make a market anyway. The last picasso sale dictates the going rate for picassos.

And, again, we're talking about HUNDREDS of sales.

Its the other way around 10022.

There are about 250 2/2's under 1.25M listed on the UWS. 10 of these Picasso's have entered contract in the last month but 50 more originals have been put up for auction in the same period. Following the historical spring rush we may see another 50 or even 100 next month. I contend its the volume of new listings that are dictating the market price right now, not the listings entering contract..

the upcoming Public Auctions for new condos will set the next price point

how does one find out where and when something is being auctioned?

Auctions are a good idea joedavis, I heard about a classic 7 with outdoor space being offered for $1745.23.

The market is, indeed, pretty illiquid today with bid/offer spreads quite wide. But as 10022 says, there are hundreds and hundreds of transactions taking place every month - even now. The classic phrase in finance is, "A thing is worth what someone else will pay for it." And those hundreds of transactions are down - depending upon your measurement metric - IMHO about 20% from the "tippy-tippy-top."

BTW, there is a quite significant correlation between low sales volume and subsequent price declines in residential real estate.

As regards the notion that New York real estate has historically (last 15 years) averaged 12 X rent - that is true. But remember that "average" is just that. Sometimes (like recently) that ratio has been far above 12. Sometimes (like the early 1990s) that ratio has been in the high single-digits.

We live in interesting times.

Smart sellers should get ahead of the curve.

Smart buyers should keep their powder dry through at least next year.

There have been auctions in Miami (of all kinds of types of housing, and including some Miami condos), and in retrospect one can say it was better to wait, because prices still kept falling afterwards.

My impression is that auction prices have generally been substantially better (lower) than "traditional" transaction prices at any given time.

I think Manhattan is still a long ways away from any meaningful level of auction activity.

That said, there is going to be a lot of new construciton inventory piling up by the end of 2010. Never say, "never."

How about the auction in the Hampton's referenced in the Times mag on the weekend. A house was being auctioned, the owner having defaulted on the 1.5M mortgage. When the bidding opened, the only person in the room, a rep from the bank, hollered "500 dollars".
"Sold" said the auctioneer.

agreed

I hear the Avonova is probably going into auction???

Jumping into the spinnaker1 and 10022 debate from last night, I believe that both are correct. 10022 is right that contracts being signed define where the market currently is - the LEVEL. People can debate whether the market will be lower, higher or unchanged tomorrow or next month or next year, but it is pretty much indisputable that an actual arm's-length transaction defines market, at least for that unique property on that particular day. On the other hand, spinnaker1 is right that the volume of new listings (or more generally the supply/demand imbalance) is dictating where the market price is going - the TREND. Why anyone buys at today's market price in the face of current market trends is another question entirely...

i think if sales transactions are down over 50% despite growing inventory that means that the "market" is not functioning correctly, i.e. buyers and sellers have fundamentally disconnected.

Well said, sideline...