UrbanDigs Press: NY Times / NY Mag / IBD
A: Jeff Bernstein doing his 'reality check' in today's front page story on NY Times. Jeff joined UrbanDigs about 2 years ago and his presence here has proven to be incredibly beneficial for all readers. We will continue to monitor this market and offer commentary on the fast changing macro environment, and how that may impact our local real estate marketplace. While its not the best sales tactic to tell it like it is in a commission driven industry, we are on a mission to make Manhattan real estate more transparent and to offer a venue where reality trumps babble. Lets continue to keep it real!
Front Page NY Times Real Estate, "Don't Even Say The Words":
New Yorkers have moved from a love affair with real estate to a “short-term hate” phase, said Jeffrey Bernstein, a former Wall Street analyst and a partner in a real estate investment banking firm, Guild Partners in Armonk, N.Y.I totally agree with Jeff. What marks bottoms, is when nobody wants to even discuss the asset anymore, the market is sluggish, and frustration is high - sellers just want to get rid of the asset to eliminate the stress of trying to sell it. We are not there yet. Markets usually do not go from peak to trough in a straight line (except it seemed that the cliff dive crude oil did from mid 2008 - early 2009 was a straight shot from 145 to 30 or so). Rather, there are a number of waves or adjustments and then the market takes a breather as the new comfort zone is reached. For Manhattan, I'm positive there are deals happening right now that will define the next wave down when closings are recorded, ushering in a new round of price discovery. The most surprising deals will be found in the high end & mid/high end market. This includes the Classic 6s, 7s, & 8s, and larger trophy properties that must be sold for whatever reason. I think the next round of price discovery will occur in JUN/JULY, right at the time this market normally slows significantly - the seasonal component of Manhattan real estate I discussed in Friday's State-of-the-Market piece: "
“You’re in a short-term hate market when you have prices coming down 30 to 40 percent, but there’s still some feeling you can make some money out of this,” said Mr. Bernstein, who has blogged about the psychology of asset cycles for UrbanDigs.com, which examines the New York City residential market through a macroeconomics lens. Whether the asset in question is oil, tech stocks or condos, he said, “this is all part of the cycle.”
A hate market, he said, is not a market bottom. That, he explained, will be marked by a sustained period of apathy — and quiet.
“Apathy is when people are so turned off they’re just not interested anymore,” he said. “That means all the speculative juices are wrung out and the only buyers are true buyers who need shelter and might even be grudgingly buying.
“Apathy means there are no expectations and maybe the market gets a little bit better, but really over two to three years there is not much progress. And finally no one is talking about real estate as the great wealth-building vehicle anymore. That is what makes a really good bottom.”
...my view is that this countertrend pickup in activity (which is mostly foot traffic and not a surge in contracts signed) will not last for much longer. Once we enter the slower summer months, history will probably repeat itself and this market could get significantly more illiquid; similar to what the 4th quarter of 2008 saw and bad news for anyone that must sell. If this seasonal component proves correct, serious sellers will find it even more difficult than it is now and that may ultimately mean a bid will have to be hit. Therefore, I think the latter half of the 2nd quarter all the way up to the 4th quarter will show continuing sluggish sales volume and perhaps the second wave of adjustments in pricing that is only proven after the fact."If you have not read Jeff's previous discussions on the Psychology of Asset Cycles & Waiting for the Hatin', the links are provided.
UrbanDigs also got some press recently in the following publications, but I was too busy to add to our PRESS page. Enjoy!
NY Mag: Flipped or Flopped -
Normally, apartments are priced based on “comps”—similar sales nearby, adjusted for layout and condition. But now that we’re a year into the market slowdown, the data pool is big enough that the gurus at Streeteasy.com can go beyond that inexact science. They’ve isolated a list of individual apartments that sold at the peak (mostly in 2006 and 2007) and then again in the past few months. “It’s a true apples-to-apples comparison, assuming a property hasn’t changed considerably,” says appraiser Jonathan Miller. “The only variable is time.” Adds Noah Rosenblatt of Urbandigs.com: “It clears out the noise and gives you a pure look.”Investors Business Daily: Manhattan Housing Hurts Amid Job Losses -
But buyers are "pricing in further downturn risk," said Noah Rosenblatt, publisher of Manhattan housing blog UrbanDigs.com.
"Generally, nobody likes to buy a depreciating asset," he said. "There are value-hunters out there. But the bids they are putting in are not where the seller at this point is willing to go ."
Posted by RobNYC
Sat Apr 18th, 2009 09:11 PM
So it seems that we are trying to determine where the "real" bottom is. Have sellers capitulated? What about value of purchasing vs renting? It seems that everyone is assuming that what has happened so far is the first leg down with another sure to follow.
Will NYC unemployment surge higher? Will "luxury" real estate have its own bear market because of the lack of bonuses? At what price point does a home become a "luxury" property? As the US economy stablizes and NY lags will out-of-town buyers see this as an opportunity to purchase the NY Apt they always wanted but could not afford? Will NY crime rate go higher and quality of life go down?
Very interesting situation. At some point those pessimists will also have to capitulate. When does the market turn? HMMMMMMMM???? Might you miss the bottom? Unfortunately we'll only have the hard evidence months after it occurs.
Posted by Noah
Sat Apr 18th, 2009 10:19 PM
well RobNYC, its hard to ignore the lagging deteriorating fundamentals that lie ahead. So, the concern is a valid one considering where this market came from, why, and what has changed since.
but yes, the market will turn. The question is when? Since we wont know until after it happens and using the luxury of hindsight, I say the time when prices are increasing from deal to deal is way down the road. We have to correct first, likely overshoot, and deal with side effects of the nature of this crisis, and the policy that was taken to stem it. There are no free lunches, watch out for the unintended consequences of our gov't taking on such questionable polciies.
Posted by paul.b
Sun Apr 19th, 2009 09:47 AM
congrats Jeff! well deserved
Posted by cfranch
Sun Apr 19th, 2009 10:27 AM
Would be interesting to hear where Noah, Jeff and other posters think at what point we are in the Psychology Asset Cycle. I think we are somewhere between denial and fear in the under 1Mil properties with the cycle further along as the price of the apartment rises.
Posted by Noah
Sun Apr 19th, 2009 10:38 AM
about right cfranch although even for sub $1M properties I would say we are a bit farther along, closer to fear stage for many. Combine fear with depression for those that cant seem to sell, but have to, and it seems the next stage of panic may not be far off. That is when a bid gets hit. Only those that do everything they can to delay selling for X, or to remain in the property with hopes that job situation or financial situation changes, and capitulation comes on real fast. I know people who are tapping their home equity lines of credit to continue to service debt because they are holding out hope a perfect buyer will show up at next OH, and offer a strong bid.
Its very emotional when you sell your home, and if its under distress situations where you need money, it gets even more emotional because some people have a level that they feel they need to achieve to get themselves out of a hole. If bids come in under that, they dont take it, although that may end up being the best bid they get for the remainder of the listing history.
Since housing is illiquid, emotion plays a bigger role. Its not like many sellers have a choice to sell at X right now, like a stock or commodity may offer. There just are not many bids for many that need to sell. It sucks, its sad, but its the end game of a parabolic credit/housing boom.
Posted by wendy&joe
Sun Apr 19th, 2009 03:03 PM
Noah/Jeff, this blog is by the far the ONLY voice of reason when it comes to Manhattan RE. We sold our property in early 2008 (in contract from late 2007) mainly because of the arguments brought up here when the wall street crisis seemed to be gaining steam. THANK YOU, THANK YOU, THANK YOU!
Please keep up the great work! I hope at least half the content here remains related to Manhattan real estate. Sometimes it gets a bit too macro and too monetary for my small brain, but at least now I know why following those trends are extremely important for anyone exposed to it! For that education, I am grateful!
Posted by jeff
Sun Apr 19th, 2009 03:18 PM
Wendy&Joe,
That makes my day. I am glad we added to your thought process. That is all we can hope to do. We are not trying to tell people what to think.
CFranch
My feeling is that we are seeing some developer capitulation with an auction here and there, but there is more to come on the new development side. Obviously, the lack of confidence and shrunken bonus pool has hit the high-end market and we will see a bit more downside as liquidity starts to improve and there is a little bit of a race to get priced where you can sell for the people who need to. I am on the record for a 40% drop in the $2MM to $5MM market and in "growth markets" like Williamsburgh, Harlem, LIC and downtown, where a lot of supply has come on all at once. Anything more than that I think would have to come from further significant economic weakness RE a double dip recession (concensus is we botttom out this year, if only due to government spending worldwide kicking in) or if quality of life really takes a hit due to cuts in services, increased crime, a flight to the burbs. I don't currently see signs of the latter but we will be watching for them. We will also be looking for signs of a bottom and a time to encourage people that from an investment standpoint it's a better time to buy in New York City. This would be prompted by employment turning up in the city or on Wall Street, with no significant rise in interest rates. In my book, a big rise in interest rates is the potential spoiler for NYC real estate prices a year out, which people are not yet too worried about.
Posted by octavio
Sun Apr 19th, 2009 09:54 PM
Noah, this are my appreciations of the <$1M market, I've been and active bidder in the west village, Chelsea and Greenwich village. And if you want to identify a group of sellers that is on denial these are probably the best examples. Back in November I was faced with unsavory comments from brokers telling me that bids bellow x (usually x <5% ask) will be ignored. then in January and February some of my bids lead to counter offers, still most of them wide away from my bids. Then in February we got closer in some units and one was only $40K away. Then March and April lead to all this open houses and lots of traffic then some brokers told me that this is a different world and now I need to bid up. At this point, I started to wonder exactly what u mention about foot traffic, meaning at what level more views indicated better bids. Some of the units that I am interested are still on the market and April is almost over. I wonder if some of my overlooked offers will be returned more kindly in May or August. I also feel that some of the price chopping has eased at least due to this high level of traffic. So I think sellers are making exactly the same mistakes that u mention. In short I agree for now the psychology is of some optimism combined with fear and denial how long this stage will last and when capitulation will be start that's what I am wondering now.
Posted by john beck tax foreclosure
Mon Apr 20th, 2009 02:11 AM
I enjoyed reading your post. John Beck’s Real Estate program is slowly grabbing attention of people in real estate. Good luck to the users of John Beck’s program.
Posted by Out there looking
Mon Apr 20th, 2009 06:32 AM
[i][b]"Would be interesting to hear where Noah, Jeff and other posters think at what point we are in the Psychology Asset Cycle. I think we are somewhere between denial and fear in the under 1Mil properties with the cycle further along as the price of the apartment rises."
"My feeling is that we are seeing some developer capitulation with an auction here and there, but there is more to come on the new development side."[/i][/b]
There is really no such thing as 'developer capitulation.' The developer has no upside in capitulating to a price which is below his mortgage amount. When values drop below the mortgage amount, the developer will just sit there until the bank forecloses on the project. At that point the bank will either list the remaining condos and try to sell them one at a time, put them up at fire-sale prices to move a lot of them or go to an auction. Complicating this greatly is that there are often 2 or 3 layers of construction loans, and each lender must weigh his foreclosure option relative to what he will receive in a fire-sale price scenario. This process alone takes 6 months per lender. Adding further delay to this is the fact that most construction loans have 2 years of interest carry built into them to account for a 2 year sell out post-closing. So if you are waiting for a condo to be auctioned, assume you will have to wait about 3 1/2 years after the project is completed and that the lender thinks he is better off foreclosing than leaving the developer in place to perform the sales process at a revised equity level.
Posted by iven
Mon Apr 20th, 2009 07:14 AM
You hit it right on the head. Any bottoming process happens when people give up, stop trying to pick the bottom, things dry out, it becomes poor coctail conversation, everyone is convinced its going down forever, not interested, etc.
This is typical of equities as well, and humans are humans, this is how I've personally seen it play it in different parts of the world.
Thanks for bringing this out for people to see. Everyone is trying to be a bit too smart in calling a bottom less than 2yrs from the biggest peak in history.
Posted by Keith Burkhardt
Mon Apr 20th, 2009 09:05 AM
In my opinion the best the sales market can hope for, for sometime is a level of stabilization. Miss the bottom? People say that like it will turn on a dime like a bear market equities rally. Don't worry; it will not.
Regarding the NY Magazine piece, it will be interesting to see 2006/2007 buys v. 2nd/3rd q. 2009 sells, there we will see nothing but pain. What do you think Noah?
Posted by Noah
Mon Apr 20th, 2009 09:16 AM
Keith - for most part I agree. Real estate is like a tanker, once it turns it takes a whole lot for it to turn the other way again. It just doesnt work like stocks. Ill leave the bottom picking for proctologists, but I find most of my clients simply waiting for the bulk of the adjustment to be complete, and not necessarily pick the exact bottom. Thats impossible.
I think if we have another wave down, via another period of illiquidity, and we fall another 10-15%, I think most of my clients will be more than comfortable pulling the trigger, knowing that most of the adjustment likely took place. After that, I think they know that the market is likely to be pressured for a period longer and muddle around for years. That is not such a concern to them.
As you say, we are yet to see the real distress hit, and i think that is coming. Those that bought too much house, unfortunately lost their job, cashed out too much equity, or whatever. I think we still have some cleansing of excess to get out of the marketplace, and certainly we need a strengthening labor market to set the foundation for stability.