True Gotham

As far as who is more realistic in terms of their expectations in today's Manhattan real estate market, the scale has definitely tipped toward sellers.  Before you get all crazy on me, here me out. I'm not AT ALL suggesting that it is a seller's market...because it's not.   That said, it also is NOT the buyer's market that many believe it to be.

With prices down between 10 and 40% from peak levels across the city, buyers are again sweeping in to snatch up what appear to be bargains relative to the recent housing boom.  But navigating today's real estate market has become incredibly confusing for buyer's and their agents as media reports trumpet that "now may be the time to buy."  That may indeed be the case for some but the major obstacle that I'm observing today is the misinformed buyer.

Most sellers and their agents have already adjusted asking prices to reflect recent depreciation.  Of course some are still delusional but it seems to me that asking prices are down almost the same 10-40% from peak levels.  Buyers bidding another 20% below these already adjusted prices are experiencing overwhelming frustration at the inability to negotiate with sellers.   Few are successful and most can't understand why their ultra low offers aren't being at least countered.

It has never been more important than it is today to analyze an apartment's price and how it compares to peak pricing levels as well as recent sales and contract signings.  If a property is priced properly based on recent market depreciation, an ultra low bid is likely to be met with silence from the other end. 

The recent increase in sales volume is largely in part to more reasonable sellers finding sophisticated buyers who recognize a property's value relative to the recent boom.  Although I personally think we are likely to see another 5-10% decline in prices before stabilization and sideways movement for a few years after that, a psychological bottom is being explored. Anecdotal evidence is showing that aggressively well priced properties are receiving multiple bids which may indicate that we are nearing the "bottom."  Just last week a buyer of mine had an offer accepted only to be gazumped by another bidder a day later.  That property had languished on the market for 6 months.  Once the price reached what buyer's perceived as "bargain level" (20% below the original ask and 35% below peak pricing) the sellers received 3 bids in 2 days.  

So despite the fact that we have witnessed one of the most rapid price declines in housing market history, buyers must take into consideration that many sellers have finally accepted this fact and adjusted prices accordingly.  That said, buyers need to do their homework and bid appropriately if they want to own a piece of the Big Apple.  

While I don't doubt your "man on the street" experience with the current manhattan market is completely accurate, I believe you're missing the bigger picture. These properties are increasingly reasonably priced for the current market, but as a buyer, I believe that the current market is vastly overvalued and am bidding accordingly.

Apartments that rent for $3k are selling for $700k. That doesn't make sense. The fundamentals don't match up. Ergo, still overpriced.

Rodalpho,

I hear you loud and clear and we could go back and forth until the cows come home regarding "value" as that term is quite relative and subjective, particularly when it comes to someone's home.

During the boom, thousands and thousands of people purchased what they believed to be value. In the late 80's and early 90's people also bought "value." I appreciate your desire to analyze fundamentals but I can tell you first hand that the psychological aspect of residential real estate far outweighs fundamentals and makes the market very subjective.

You are bidding "accordingly." Any luck with that? Your "fundamentals" won't likely get you an accepted offer so you may be better off renting or moving to Phoenix or Las Vegas.

Doug, thx for the insight. That 10-40% price decrease is a pretty big range. Is that b/c of the studio vs luxury mix? Practically every report indicates the lower end has been stronger than the upper end. Is that the case here? Maybe you only deal with luxury I don't know. can you give us some specific info on the studio/1 br markets. Thanks!

No luck, but I'm in no hurry to buy. I look at my apartment as a place to hang my hat, not as an investment, financial or psychological. If the market fails to reach what I feel to be the right price, I'll rent until the day I die.

Bob,

That 10-40% range accounts for different neighborhoods as well as different price points. In order to break it down specifically, we would have to analyze each specific price point within each different neighborhood. I do NOT only deal with luxury and most of my transactions are in the $1M-$3M range with a large chunk now below $1M as that market is the most active.

Rodalpho,

I have a few friends just like you who have chosen to rent and also perhaps until the day that they die. And even so, they are STILL my friends :-) I hear you!

If you are correct, then why is sales activity down 40%?

Jerry,

I think sales activity from same time last year is down more than 50% but those numbers haven't been reported yet. I am correct because I write what I see and disclose that it is anecdotal. Having said that, volume couldn't have possibly kept up at the pace it was prior to the bust and more deals getting done is relative to previous 2-3 quarters. Again, this is all relative and what I have written here would absolutely support a decrease in volume YoY and an increase from Q1 and Q2 2009.

Douglas,

I would have to concur with Rob. You don;t have as many suckers buying properties as you did during the boom years. If the fundamentals don't add up then it's not the time to purchase. The market will correct itself. Real Estate mavins were saying that the boom years were the years to buy in becuase those prices were also a steal. At the point in time the fundamentals didn't add up and the market set to correct itself. Even though house values are tempararily increasing, this doesn;t mean it's a good buy. Inflation is eating away at your dollar faster than the rate at which home prices are increasing. And that is the short term. Long term house prices will fall because median wages have been falling for the past 8 or so years, and is expected to continue to fall. With tighter credit markets, falling wages, rising unemployment, and rising monetary inflation, buyers will be limited. Therefore, prices will come down. I leave you with this: wise people were prudent to stay out of the boom market and wiser people will wait until the fundamentals make sense.

Anthony,

I agree with almost all of what you are saying. Almost all. That said, I'm telling it like I see it and what I see is an increase in activity and an unusual number of multiple bid situations in all price points in a market that seems to be still searching for it's direction. I do believe we may see another 10% drop after this "dead cat bounce" of sorts but I'm merely suggesting that the multiple bids may be an indicator that buyers (the one's who are actually buying...not those who talk about buying or even those who will rent until they die like Rob) believe we are at or near bottom. Just a thought.

As far as your last comment, I know MANY (including myself) people who bought and sold property during this past boom market and walked away with considerable cash. Some put that cash in the stock market and were hammered more than if they had held onto their property. Still others are living in those homes and see the property as a place to "hang their hat" or raise their family rather than a liquid piece of their portfolio. And of course others are very unfortunately upside down on their mortgages.

The problem with housing during the boom (as if there was only one problem...not) was that people were not only overextending themselves with the belief that prices could only go up but the psychology of homeownership shifted from "home-centric" to "portfolio/investment-centric."

I drank the Kool Aid too as most of us did. If you didn't, good for you. My wife and I bought a beach house in Bridgehampton with an 80% 1 month adjustable LIBOR...talk about insane. Fortunately for us, we sold 18 months later and walked away with a 25% profit. We were lucky, others not so.

I have sold over $200M in real estate in the last 10 years alone and I can tell you that most of those buyers and sellers were "wise" people. Whether a person waits for sensible fundamentals or takes a leap today is a very personal choice based on a multitude of factors.

The sole point of this post is that activity is picking up and I think (not know, but think) it is because sellers have become more realistic with prices.

Good article. I have become increasingly frustrated with hearing from MANY brokers "this is a buyer's market" as a way to justify extremely low ball offers. An investment property in midtown that is priced accordingly at a 7%-7.5% cap should not receive bids at 10-11%. Just because we are in the midst of a down market that allows easy entry for buyers does NOT mean people are giving away property.

Most housing experts have recently agreed that Manhattan and NYC housing will fall another 25-30% from current levels over the next year.

Previeweeeee,

Statements like that are just plain silly unless you back them up with some supporting evidence. Who is saying that? Even Nouriel Roubini the most bearish of all bears isn't saying that anymore.

I'm selling $20 bills.

At first, I was asking $40 for them, but no one was buying. So I adjusted to the market and dropped the price by a whopping 40% to $24.

These buyers aren't being realistic: I came down 40% but they still are offering me almost 17% off my heavily discounted asking price. Therefore, I am more realistic than the buyers of these bills.

So Manny, were you buying those $20 bills in 1992 when they were only $8? Your bidding strategy for a Manhattan residence would be met with silence. We accepted another all cash offer today at 4% off the ask (1 week on the market) and we have 3 all cash offers on another property. That's a lot of $20 bills...I wonder if they bought them from you? BTW...many were paying more than $40 for those $20 bills for quite some time and that doesn't necessarily mean that they will sell for $20 again.

Manny - brilliant and spot on.

I'm always amused by the "buyers don't get it" refrain. On the contrary, buyers dictate everything.

"BTW...many were paying more than $40 for those $20 bills for quite some time and that doesn't necessarily mean that they will sell for $20 again."

Correct, they might be selling for $15 at some point.... and I'm sure there will be brokers at that point, too, saying "the market is hot, they're work $25 still because this time is different".

"Unrealistic buyers" is just a funny way of admitting one doesn't understand the market.

C'mon Manny. Are you for real? First of all, housing is a "market" like no other as a large part of the decision making on both sides of the transaction is influenced by psychology and emotion. Additionally, there is not one single market but a plethora of micro markets within specific geographical areas. The "market" in residential real estate is the price at which a buyer is willing to pay. Nothing more and nothing less. You want a place for $15 and someone else will pay $2O. It's worth $20. And I KNOW ALL TOO WELL how frustrating that is to buyers who don't see the same value in the home. But it is reality.

You are correct that there will always be brokers using smoke and mirrors to try to get people to buy something that maybe they shouldn't. The "now is the right time to buy agent" is precisely the reason that I started this blog over 3 years ago and if you were a regular reader, you would understand that.

Truthfully, I think you completely missed the boat here on this post and don't think you understand residential real estate as well as you seem to think you do.

The very simple message here is that what I am seeing in the marketplace (and I speak honestly and from 18 years of experience as a very successful agent who deals primarily with referrals from past clients) is that sellers have made some very aggressive price adjustments to account for the 18 month slide in local real estate prices. Evidence of this is that many aggressively priced homes are seeing multiple bids. If you walk in and bid another 20% below an already aggressively priced home then you (the "unrealistic buyer" indeed) shouldn't waste your time. On the other hand, if something is not fairly priced, you should absolutely bid accordingly. I just represented a buyer who bid 40% below ask and got the apartment.

Navigating a real estate market can be incredibly frustrating. Particularly when a competing buyer has a different perception of a home's value.

well how about if I gave you some real numbers to look at. These are some properties sold at under $1,000 per sqft.

213 West 23rd Street #8S
$3,500,000
on 09/11/2009

Property Type Condo
Size 4,128 ft²
Price per ft² $847
---------------------------
125 West 21st Street #7A
$1,650,000
on 09/10/2009

Property Type Condo
Size 1,758 ft²
Price per ft² $938
----------------------------------
121 West 20th Street #2G
$1,300,000
on 09/03/2009

Property Type Condo
Size 1,850 ft²
Price per ft² $702
-----------------------------------
240 East Houston Street #4E
$790,000
on 08/13/2009

Property Type Condo
Size 1,037 ft²
Price per ft² $761
---------------------------------
205 East 22nd Street #5H
$767,500
on 09/03/2009

Property Type Condo
Size 855 ft²
Price per ft² $897

I hope this help give you a small idea on some of the deals buyers got out there.

Ivan,

I appreciate the effort but I'm not sure "under $1000/sf" constitutes "value."

Thanks for keeping us updated on Manhattan Real Estate. I find your blog very useful and I look forward to reading it. Thanks again and have a great day!

Thanks Nashville!!!

Doug - how many all cash buyers can there be in Manhattan? The unemployment rate in the city is 10.3% and rising. Bank lending standards are tightening, especially on jumbo loans. I hear you on seeing activity in recent months, but I don't see a massive amount of pent-up demand on the buyside.

WestSideMan,

I'm quite shocked by recent activity. It is absolutely amazing how many all cash buyers are out there. More than 1/2 of deals that my group is working on involve all cash buyers who will not be financing. From where does all of this cash come??? You tell me. A few foreign buyers in banking with cash and others who have been sitting around with large cash positions waiting for a buying opp. I don't think there is a "massive" amount of pent up demand but the number of multiple bid situations right now on aggressively priced properties is mind boggling given global economic conditions. I'm not an economist but this all seems odd to me too.