Aug. 30, 2009 - quote for the day / NYT The Hunt
who is out of touch now?
The Sunday Real Estate section of the New York Times regular feature by Joyce Cohen, The Hunt, today profiles a woman who seems to have spent much of the last 18 months looking for a 2 bedroom with light on a narrow slice of the Upper West Side. She eventually found her light slice of Manhattan (as always happens in this feature) and closed last month.
Among various other adventures, she made a bid on another apartment that also closed last month. The article implies that the offer was made when the apartment was asking $1.6mm, which helps narrow the time frame considerably (below). The fun stuff is in bold.
Nearby, on West 111th, was a beautiful three-bedroom co-op on sale for $1.6 million. Ms. Gooding offered $1.05 million. Her only concern was the possibility of construction nearby.
When she finally heard back, the agent said the offer was so low as to be “out of touch.” The apartment sat on the market for a year and finally sold this summer for $1.075 million.
a better quote that I'd like to have overheard
Zing! That “out of touch” is a good quote, but the conversation I would like to see reported is the one between that agent and that seller. Maybe the seller agreed about the touchiness of the $1.05mm offer (which presumably would have been raised); but maybe not. I sure hope the seller knew about the offer.
on further review
I dislike short posts (I need to get over that), so -- having written this much -- it took only a little digging to find the apartment, which was offered for $1.6mm for only a short while. I will not identify the unit because this is a snarky post, but here is the listing history:
| May 3, 2008 |
$1.6mm |
| June 20 |
$1.495mm |
| October 18 |
$1.395mm |
| December 11 |
$1.25mm |
| March 27, 2009 |
contract |
| June 2009 |
closed $1.075mm |
In defense of the agent, the real story is not quite what the NYT story implies -- though The Quote is priceless. In reality, agent and seller recognized in 6 weeks that they were at the wrong price, although it did take six months to get to a price that would generate a (deeply discounted) contract. I wonder at what point they tried to find Ms. Gooding and her $1.05mm ....
If the oh-so-quotable listing agent has half a brain, she will refrain from defending herself publicly.
© Sandy Mattingly 2009
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Aug. 21, 2009 - risk, revisited / I am still a coward, but the 'brave' did not sell (yet)
checking back on the Spring
I recently had a conversation with a former shareholder in one of the Manhattan loft buildings that I visited in my March 25 lengthy rumination, am I a coward? assessing + bearing risk in a risky world, as she was curious about how her former neighbor's loft was (was not) selling. So I went back to look at the listing history of the three lofts I used as the specific scenarios that generated this conclusion:
whose risk is it anyway?
Agents are supposed to explain risk; sellers bear nearly all the risk. If courage is measured by the potential consequences one is willing to (knowingly) assume, these sellers are more brave than most. In addition, these agents are more brave than I am, as I would be very afraid of wasting my time with a listing at a price with a small prospect of finding 'the' buyer -- unless I had a firm commitment to 'take a shot' then address the price 'accordingly'. So there's risk all around.
More for the seller, no?
bravery is not rewarded
None of the three lofts has sold, but each has reacted to The Market a little differently.
One took one (very mild) shot at a price drop, reducing the asking price by 3% after 2 months. It went off the market "temporarily" a few weeks later. Perhaps it will come back after Labor Day. My guess is that it won't be back any time soon, or (if it does come back) that it will come back at a much sharper discount. This seller does not look like someone who
really
wants to sell.
That one appears to fit this profile, as they have made
no
serious effort to 'catch up to the active market':
To be even more pedantic about it, the law of supply and demand requires that some of these lofts priced above The Market will never sell -- not just that they will sell for fewer dollars. The ones that are over-priced today may be nimble enough to catch up to the active market, but they will be competing with an increasing number of new-to-market lofts. Some will simply never catch up.
The second one has tried, and tried, and tried. In fact, that one nearly fits one projection I offered on March 25:
Again, I assume that the sellers mentioned here have discussed all this with their experienced and professional agents and that the sellers have decided to run the risk that their unique lofts will do better than The Market would indicate generally, because their lofts are better than the general lofts. But if these sellers really want to sell, I assume that they have a plan in mind to adjust their prices if (when) they learn that The Market disagrees.
To me, if they have a $2mm listing, that means I expect them to be prepared to drop the price every month or so by six figures until they at least reach a point of serious interest from buyers. I hope they would consider a 'ridiculous' low ball offer if one came in early in the listing, but I suspect we will not see an immediate negotiation to a clearing price 25% off the ask. [Emphasis added]
That one started a bit under $2mm and dropped the price 3 times, changing the second digit each time. Problem (for them) is that they have dropped 20%+ and they have a 'tired' listing (about half-way to a birthday, so far). They may yet be willing to negotiate to a deal, but they have yet to attract a serious bidder. That female dog --
Hindsight, here, Hindsight
-- is barking that if they had started in February where they are now they would probably have struck a deal long since.
The third has taken yet another tack, sort of / kind of midway between the other two. That one has dropped twice, but mildly (about 7%, total), in nearly 6 months, with no price change in about 2 months. Manifestly, they have not found the part of The Market where the buyers are (
i.e.
, they have not been able [willing?] to 'catch up to the active market').
These sellers have seriously upgraded the loft since they bought it some years ago. Perhaps they are overmuch in love with their renovation, fitting this profile in my March 25 rumination:
Yet these well-served sellers decided to start marketing their lofts as if some serious buyers would be attracted by a price that most buyers would see as too high. Perhaps because their lofts are "unique"....
Loft snob that I am, I am ready to believe that many lofts are "unique", at least as that tired word is used in the real estate industrial complex, and certainly as compared to "apartments". So the temptation is for a seller to think that -- since "it only takes one" (buyer) to make a sale -- someone will agree with the seller that this loft, with this dazzling light, in this beyond triple mint condition, with landmark (protected!) views, with a gracious layout and spacious feel, on the best block in [insert nabe here], and that that someone has the means to buy the darn thing today, near the asking price.
Their problem -- to date -- is that no one else provably loves their loft as much as they do. Thus, no one has bought it out from under them. Even at the current price (down 7% in nearly 6 months) no one is likely to. Perhaps they plan to drop again after Labor Day, in a more significant way. If they
really
want to sell (like the second loft mentioned, but unlike the first), I can only hope that my assumption is correct that they have fully understood what they have been doing here:
As I said, I assume that these sellers understand the risk in asking these prices in these times. But I will be explicit, because readers who have not had to do this analysis may not -- and because Manhattan Loft Guy is just ... wordy (repentant, but wordy). Of course there is a risk that these sellers will end up selling for fewer dollars after a longer time than if they had priced closer to The Market to begin with, and that the number of dollars and additional months will be determined by their speed in dropping the price when they are unsuccessful. Of course, if current trends continue in the near term, the more months it takes, the fewer dollars there will be. But (in the immortal) words of late night television, that's not all!
I assume that these sellers also understand that there is a serious risk that their pricing will prevent them from getting any dollars for these lofts, not merely fewer dollars.
My guess is that they have gotten similar advice from their agent that the second loft owners got, but have been too stubborn to take it (so far). Absent a more aggressive price, I see this one as lingering on The Market until the listing expires.
more brave than I
In the first case, the more-brave-than-I agent made a 2-month investment of time and effort. In the second case, the more-brave-than-I agent had a seller with a Plan B, but has invested a lot with no return (yet). In the third case, the more-brave-than-I agent has (perhaps) been sucked into a great deal of effort and no reasonable expectation of making a sale until (unless) the sellers change their approach.
To repeat (again!):
these agents are more brave than I am, as I would be very afraid of wasting my time with a listing at a price with a small prospect of finding 'the' buyer -- unless I had a firm commitment to 'take a shot' then address the price 'accordingly'. So there's risk all around.
More for the seller, no?
I just hope the sellers understood what they were doing, way back when they started these marketing campaigns.
COUNTDOWN: 10 ... 9 ... 8 ... 7 ... 6 ... 5 [oops] ... 4 ... 3 ... 2 ... 1 ...
© Sandy Mattingly 2009
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May. 29, 2009 - 644 Broadway loved that first bidder: sells within 15 weeks, contract in 6, 1 price, 14% discount
[update: apologies for the weird formatting; I think I fixed most of it]
yes, "museum quality" around $1,000/ft, but there's a larger point, + 2 bromides
When I hit the Manhattan loft #2E at 644 Broadway on April 27 (price of 'museum quality' in Noho = $1,000/ft / 644 Broadway closes quickly), the focus (and snark) was on the difference between "museum quality" and "triple mint" in broker-babble. (And I had some snark about consistency in sizing.) I did mention the quick deal, and commended the sellers for being negotiable:
The goal in setting the asking price is to attract serious bidders with whom one negotiates the best deal available. In this case, that worked, as the seller got a contract within a 40 day period that included Christmas and New Year's. But the price worked because the seller was negotiable, ending 14% off that asking price, at $3.45mm.
Following on yesterday's post about a quick sale at 155 Hudson (how to get cash in 10 weeks / negotiating to close at 155 Hudson Street), I want to re-visit 644 Broadway as #2E is another instance of sellers proving they really wanted to sell. In contrast to the 10-weeks-all-done experience at 155 Hudson Street (6% drop after 30 days, contract 2 weeks later 13% off that price), the #2E sellers needed only one price to get a contract (also within 6 weeks), by negotiating to 'only' a 14% discount.
A tip of the Manhattan Loft Guy hat to these sellers, and to their Corcoran agents Lauren Muss and Michael Orme.
the First Bidder bromide prevails
Agents often tell sellers "your first buyer may be your best" -- I certainly have told Manhattan loft sellers that. It is one of those pieces of accepted wisdom (at least among agents) that seems to me both valid and impossible to prove. (We are never likely to get a perfectly matched pair of for-sale lofts to test the hypothesis with.)
Even though I can't prove it, the logic of The First Bidder Bromide is -- to me -- compelling. It starts from the premise that there is a pool of potential buyers for a given unit that is (a) limited, (b) ready, and (c) informed.
That pool is the largest and most likely source of a buyer, because other buyers will either dribble onto the market as new buyers and/or are not ready (qualified) and/or have not been paying attention. If the logic holds, that initial pool is the pool a seller wants to attract, by setting an asking price that (as I said in my original post about #2E at 644 Broadway, quoted above) will "attract serious bidders with whom one negotiates the best deal available ".
In the case of #2E that was a two-step process: they set an asking price of $3.995mm that attracted a sufficiently interested buyer that within 40 days they negotiated to a contract at $3.45mm. In the case of
#4N at 155 Hudson (yesterday's post), they needed the third step of an intermediate price reduction from $2.395mm to $2.25mm to provoke the contract at $1.95mm that closed ten weeks after they started.
if a seller is motivated, and confident
In order for a seller to take advantage of The First Bidder Bromide, the seller must be both really interested in selling, and willing to trust the market response the initial marketing generates. In other words, the seller has to be confident in the agent's judgment.
Of course, I know nothing about the actual negotiations for either #2E at 644 Broadway or #4N at 155 Hudson Street, but I will use them as examples of what may occur, based on their brief histories. In a scenario like #2E, the sellers were likely to have had only one expression of significant interest between the December 20 launch and the January 30 contract. Given that they ended up nearly 14% off where they started, they were likely to have been
very disappointed at the offer made by the only interested person with real money. But they were very motivated to sell, so they sucked it up and fought for a deal. Perhaps the bid started at $3mm and they essentially split the difference; perhaps it started at $3.3mm and they were only able to force another $145k out of the bidder. Wherever it started, this negotiation could have been a long one. (Many are, these days, as buyers can credibly play the I-have-other-choices card and sellers are loathe to accept deep discounts.)
The #4N 155 Hudson Street scenario implies a different sequence. Based on the price drop followed quickly by a contract, it is likely there was no interest at the original price (no bidding at all, and anemic showings or inquiries). The price drop after 30 days of 6% was modest, but it did the job: it probably generated an offer that was disappointing but the trigger for the sellers to lower their expectations to accept about 20% off their starting point.
In both cases, the sellers must have been peppering their agents with questions, and relying upon the answers and analysis. In both cases, the sellers accepted much less than they had asked for, and possibly much less than they were prepared to accept when they started marketing their lofts. But they came to conclusion that their respective (solitary?) bidders presented their best opportunities to sell, and they capitalized on those opportunities.
While these scenarios seem simple -- perhaps even obvious, in retrospect -- it does not always work this way. Indeed, these days I suspect it does not often work this way (which is one reason I highlight these quickly-discounted-sales when I notice them). The opposite end of the spectrum from The First Bidder Bromide is inhabited by seller who follow the It Only Takes One Bromide. The "logic" here is that only one person needs to buy the loft for the seller to be happy, so the seller is tempted to wait for that buyer to show up. That seller may start at a price little different from #2E and #4N, but because they are waiting for One Buyer rather than responding to the First Bidder they are (typically) not flexible at the time it would do the most good.
There is another bromide for that. (This one is easier to prove.)
if you (over) think that "it only takes one"
Chasing The Market Down, is the timely bromide for sellers who set prices like the #2E and #4N sellers, but who don't trust the market data (or their agents) the way the successful early negotiators did. One could say, as I did on May 3, that such "sellers" are a day late and a dollar short (recidivist edition). #4N shows that a seller can strike a quick deal even starting at a price 20% above the market. But the key is to respond when The Market ignores you and to strike when The Market offers a positive response. In The Market of the last 12 months (and the next ?? months) not being flexible and responsive can be fatal.
© Sandy Mattingly 2009
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Mar. 25, 2009 - am I a coward? assessing + bearing risk in a risky world
a rumination (bear with me)
I tell owners in this market that my job is to protect their equity and get them on their way (to whatever is next in their lives) with as much money in their pocket as possible. I tell them I do not determine The Market price for their loft (nor do they). I give them my best professional judgment as to the asking price that will attract the best price available in The Market in the time frame they want. I believe that (nearly) all sellers in (nearly) all markets are afraid of 'leaving money on the table', so they are (sorely!) tempted to price high 'to see how that works', but many sellers in The (current) Market are at least as afraid of bleeding equity, by being one of the Manhattan lofts that does not sell, even after serial price drops.
not my call
Of course, it is the owner's assessment of risk that determines where a loft is priced. An owner who is more afraid of leaving money on the table than of lingering unsold in a declining market is free to make that choice (though I may choose not to work with an owner with a different assessment than I have).
brass tacks
What am I talking about?? I noticed a Manhattan loft recently to market that (a) is a pretty spectacular loft, (b) in a building I am pretty familiar with, (c) in which there is a fairly timely and extensive set of market inputs (i.e., closed sales), (d) that is offered through a very experienced and professional agent, and (e) that is priced well above where I think The Market for that building is in March 2009. I then noticed two other lofts in buildings I am well familiar with, also with fairly timely and extensive sales history, also offered through experienced and professional agents. Yes, also priced well above where I think The Market is today.
temptation is ... tempting
I assume that these experienced and professional agents have as much information about The Market as I do, so that their sellers were well informed about recent activity and -- more importantly today -- recent inactivity. I hope that they understand that (to put it softly) there is a good chance that their lofts will be perceived as outliers by potential buyers, if they are seen at all. I assume they know that many buyers will demand that these lofts demonstrate some significant plus factor (view, condition, light), beyond what is described in the listing in order to be credibly priced. Yet these well-served sellers decided to start marketing their lofts as if some serious buyers would be attracted by a price that most buyers would see as too high. Perhaps because their lofts are "unique"....
Loft snob that I am, I am ready to believe that many lofts are "unique", at least as that tired word is used in the real estate industrial complex, and certainly as compared to "apartments". So the temptation is for a seller to think that -- since "it only takes one" (buyer) to make a sale -- someone will agree with the seller that this loft, with this dazzling light, in this beyond triple mint condition, with landmark (protected!) views, with a gracious layout and spacious feel, on the best block in [insert nabe here], and that that someone has the means to buy the darn thing today, near the asking price.
Maybe.
They might be right.
I can't prove them wrong (at this point).
the risk is not just in dollars
As I said, I assume that these sellers understand the risk in asking these prices in these times. But I will be explicit, because readers who have not had to do this analysis may not -- and because Manhattan Loft Guy is just ... wordy (repentant, but wordy). Of course there is a risk that these sellers will end up selling for fewer dollars after a longer time than if they had priced closer to The Market to begin with, and that the number of dollars and additional months will be determined by their speed in dropping the price when they are unsuccessful. Of course, if current trends continue in the near term, the more months it takes, the fewer dollars there will be. But (in the immortal) words of late night television, that's not all!
I assume that these sellers also understand that there is a serious risk that their pricing will prevent them from getting any dollars for these lofts, not merely fewer dollars. How can that be? Because it is the law.
Back in the day, Supply and Demand got along well enough for their [there] to be a broad and deep Market. Back in the day, Demand was sufficiently robust that even an over-priced loft would sell eventually, because the seller would have the time to adjust and still "do well", or because the rising tide floated that boat eventually. Back in the day, time was not an enemy of above-market property the way it is today.
I fought the law and the law won
As I noted yesterday , there were 973 lofts offered for sale in Manhattan between $500k and $10mm as of Sunday, which is 293 more lofts than have been offered at any time since I started counting in June 2008 (the low was reached in mid-August). Since I started counting Manhattan lofts reported as new to market and as sold in October 2007, there have been 18 weeks in which the number of lofts reported as sold was in single digits; five of those weeks were spread from Halloween 2007 to Thanksgiving 2008, but since then thirteen weeks have shown single digit sales (and only four weeks have ten or more). I have every reason to believe that the overall Manhattan real estate market will show similar trends and similar scale when the market reports for the first quarter of 2009 come out in a couple of weeks.
To be even more pedantic about it, the law of supply and demand requires that some of these lofts priced above The Market will never sell -- not just that they will sell for fewer dollars. The ones that are over-priced today may be nimble enough to catch up to the active market, but they will be competing with an increasing number of new-to-market lofts. Some will simply never catch up.
Again, I assume that the sellers mentioned here have discussed all this with their experienced and professional agents and that the sellers have decided to run the risk that their unique lofts will do better than The Market would indicate generally, because their lofts are better than the general lofts. But if these sellers really want to sell, I assume that they have a plan in mind to adjust their prices if (when) they learn that The Market disagrees.
To me, if they have a $2mm listing, that means I expect them to be prepared to drop the price every month or so by six figures until they at least reach a point of serious interest from buyers. I hope they would consider a 'ridiculous' low ball offer if one came in early in the listing, but I suspect we will not see an immediate negotiation to a clearing price 25% off the ask.
whose risk is it anyway?
Agents are supposed to explain risk; sellers bear nearly all the risk. If courage is measured by the potential consequences one is willing to (knowingly) assume, these sellers are more brave than most. In addition, these agents are more brave than I am, as I would be very afraid of wasting my time with a listing at a price with a small prospect of finding 'the' buyer -- unless I had a firm commitment to 'take a shot' then address the price 'accordingly'. So there's risk all around.
More for the seller, no?
© Sandy Mattingly 2009
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Mar. 18, 2009 - why be that negotiable in secret? 25 Ann Street closed nearly 25% off ask
what if they had advertised a willingness to deal?
There must have been some epiphany on the 4th floor of 25 Ann Street in August: the owner tried to sell this "2,300 sq ft" loft for $2.5mm starting in June (for two months and one price drop to $2.35mm with a firm I have never heard of), then switched to Corcoran at $2.35mm until finding a contract just before Labor Day. That contract price was revealed after it closed in November (though it took quite a while to hit the public air) as $1.8mm -- 23% off the last asking price.
Maybe the owner's attitude changed overnight from not-a-penny-less-than-$2mm to will-take-any-offer, but it seems more likely that the owner took enough time in this dramatic change of heart to update the agent community that low-ball offers would be entertained (hell -- not just entertained -- that they'd be put up at the Waldorf). I have no idea why they did not; it probably cost them some money.
broader point about psychology
Using this painful Manhattan loft story as a jumping off point, this scenario shows the danger of coming to market at a price far removed from where buyers are: you don't get any offers and you probably get little or no open house traffic or phone call inquiries. Then a low-ball offer comes in and a (now, very motivated) seller deals with the only person willing to pay any money for the loft. The owner then runs the risk of losing this low-ball-bidder if they publicly adjust the price and continue marketing, so the temptation is to simply strike the best deal possible with the only one interested.
Had the owner priced closer to The Market, there might well have been other bidders (even if throwing low balls); had the owner priced at The Market, there might well have been higher bids than the solo low ball.
Manifestly, if a low ball bidder was willing to pay $1.8mm (off an ask of $2.35mm), that bidder started even lower ... maybe $1.65mm. Other people who may have been interested in the loft if they knew the owner would entertain around $2mm would probably have emerged if only they had been aware. This kind of a spread between Bid, Ask and Clearing is very dangerous to sellers.
© Sandy Mattingly 2009
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Dec. 26, 2008 - bringing (a lot of) cash to closing / news from the top of the market at "Madison Square North"
waiting to close, not for contract
I realized when I did my post of 30 days of actual loft sales on December 18 that 15 East 26 Street (15 Madison Square North) was a very successful new Manhattan loft development, with many contracts signed quickly in 2006, some of which are just closing now. Last week PH-B was reported as closed there off the $9.6mm asking price (dded was filed dated December 9 for the full asking price, typical of this building's sales). While the contract was signed on November 21, 2006 (after 4 months on the market), it is now somewhat newsworthy when a big one like this actually closes.
In fact, when I confirmed some details about PH-B in our listings data-base I noticed that PH-D also closed recently (with a December 9 deed, for $5.8mm). That listing history is a little weird: offered at $5.5mm on February 14, 2007, we show an accepted offer off an asking price of $5.8mm on April 7 but no contract signed until November 21, 2007 (just a delay in reporting, most likely). Again, they got the full ask (apparently enhanced) here, as is true of all the 15 Madison Square North sales that i have noticed. This unit is "3,402 sq ft" plus a terrace, with only north views (from the 20th floor); #PH-B is "4,766 sq ft" with north, south and east views but no terrace (alas).
© Sandy Mattingly 2008
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Dec. 15, 2008 - my job does not include magic tricks / pondering pricing puzzles
sometimes "impossible" means just that
I stumbled across a NY Magazine piece today that compared Manhattan coop listing prices in 2007 to Manhattan coop listing prices in 2008 to assess how optimistic sellers are now. There's a table, but here's the overview (with a comparison to a similar condo seller asking price analysis two weeks ago, which I missed, and have not located):
Co-ops’ asking prices are down slightly, too, but the drops are generally a little smaller than among condos. The only marked decrease is in Upper Manhattan, where asking prices fell 6.31 percent. ... In traditionally high-demand downtown areas, the prices are even up a bit, by 1.36 percent [my bold].
Yes, using average listing prices is a gross measurement, but the implication of this gross comparison is that sellers and agents have not adjusted their approach to the single most important factor in marketing a Manhattan apartment -- the asking price. That's a real head-scratcher for me, unless I am the only one who has noticed a drumbeat of news (not just articles, but some actual facts) indicating that the Manhattan real estate sales market has ... how to put this delicately?? -- changed since 2007 ....
The head-scratching caused me to ponder what sellers think the job of their agent is. Do they think we can do magic tricks? Do they think we can cause an apartment to be sold above its fair market value? Yes, when we do well we help a seller get the best price available in The Market. But more than that is (almost always) impossible.
One more question along these lines that is painfully relevant to the sale of Manhattan lofts and other apartments: If a seller really really really wants a price that is impossible to get in The Market, does that seller think the agent's job is to tell the seller that the price is unachievable?? (I have no doubt that the seller expects the agent to know whether a price is possible, or not.)
does this look impossible to you?
Having begun to ponder, I was truly puzzled about pricing when I saw a new re-sale listing in an all-but-brand-new Manhattan loft condo conversion. I don't want to get too specific about which building, and I will use round numbers in discussing that new listing and other units in that building, but The One I am talking about is a 1-bedroom unit asking roughly a million bucks (roughly $1,200/ft).
People who really like the view, the amenities, the finishes and the layout might also consider buying the unit immediately below this one, or the same unit a few floors higher up, each of which has been available for sale for some weeks for $50k less than The One. The only difference among these three units (apart from how high in the building they are) is that The One has higher ceilings than the other two, but that difference did not persuade the developer to sell The One originally for more than the higher floor unit also now available as a re-sale.
(some [numbing?] detail)
People who like the amenities and the finishes might also consider other 1-bedroom layouts in the building. There are five different 1-bedroom layouts available in this building for less than The One, all of which are on higher floors, all of which are larger than The One. These obvious competitors range in size advantage over The One from 50 sq ft, 100 sq ft, up to 250 sq ft; they range in asking price advantage over The One from $175k to $120k to $100k to $50k to trivia; and they range in price advantage over The One on a dollar-per-foot basis of $225/ft to $175/ft to $125/ft.
In short, all three sellers in this line think this smaller line commands a premium over the larger lines but neither of the other two think the premium is quite as large as for The One. And these five larger units on higher floors are all offered at prices below The One -- some rather significantly lower. The other five 1-bedroom sellers are probably very pleased that buyers will see this more expensive trio.
magic required, not optional
Regular readers know I almost always temporize (he said, temporizing) but I must say that it will prove to be impossible to sell The One so long as two others in that line are available for $50k less. I would not (yet) say that it would be impossible to sell The One while all the larger units on higher floors are available at the same or lower prices, but I might conclude that after studying the different views and layouts. In other words, I do not believe that any rational buyer would prefer The One to these various alternatives, so much so that I don't see why a rational buyer in The (current) Market would even bid on The One until all other alternatives were exhausted.
full circle
Why would a seller hire an agent to "sell" an apartment at a price that is impossible to sell? If the asking price for The One succeeds in causing anything to sell, it will be another unit in the building. Why would an agent (or firm) expend any energy or expense promoting a listing that cannot sell until the others do?
What am I missing here? (Yes, I will add this building to my too pushy thread tracking....)
© Sandy Mattingly 2008
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Dec. 12, 2007 - 18 E 12 St so hot it is going best & final today
going, going, gone
I noticed #6A at 18 East 12 Street when it came to market a week ago, but did not comment on it. They held a barn burner of an open house this past Sunday and should be done today when Best & Final bids are due at 5 PM.
90 minutes = 60+ people
I was speaking yesterday to an agent at another firm with whom I am doing a deal about everybody's favorite question (what is The Market doing now?) and he mentioned taking a buyer to see this loft on Sunday. By his estimation, there were more than 60 people at the open house (which only lasted 90 minutes). He reports that Best & Final bids are due today by 5 PM.
At this trajectory, it is reasonable to assume the loft will sell above ask.
At this trajectory, it is reasonable to assume there is a great deal of pent-up buyer demand for a 1 bedroom Village condo in move-in condition.
meticulous loft?
I guess they mean it has been "meticulous[ly]" renovated, as the Smiling Blumsteins describe this as "meticulous, quiet, sunny" with "flowing southwestern light". The loft is only "969 sq ft", which is small for a loft but large for a straight 1 bedroom. The asking price is $1.1mm with $1,171/mo monthly (condo).
anecdote can be datum, not data
It is tempting to consider facts such as this oh-so-brief-oh-so-successful marketing campaign as indicative of strength in The Market (at least, of this segment). (One of my favorite comments from Curbed may not have been original to the Anon who posted it: "the plural of anecdote is not data".) But until we get hard real-time data about what is going on in the market, data points like this one will stick out for me, and suggest directionality.
well-priced lofts sell, as before
The last unit in this line in the building sold 26 months ago; #4A took less than four months to sell in 2005, clearing at $1,087,500 off an asking price of $1.16mm (and an original price of $1.299mm). The most recent sale in the building was #6B next door, which traded on July 30 at $1.95mm for "1,700 sq ft", off the ask of $2.195mm. (#6B had been marketed from January until its April contract also as a potential combination with #6A.)
not-too-greedy as a marketing plan
With the 2 year old history of #4A selling at $1,122/ft and the recent history of #6B selling at $1,147/ft, it is no wonder that bringing #6A to market at $1,135/ft would attract attention. Without intending to jinx the deal. congratulations to the Realistic (motivated!) Owner and to the Smiling Blumsteins.
I wonder if they ran out of show sheets on Sunday....
(THX Matt!)
(C) Sandy Mattingly 2007
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Dec. 11, 2007 - making sense is hard / NYT vs WSJ on The Manhattan Market
people are asking
Many, many, many people are asking what is The Market doing? and are as frustrated as I am that the 'answers' involve more anecdotes than data. Two major media pieces stoked that conversation recently.
The Wall Street Journal's November 30 article They'll Take Manhattan - For Less and the New York Times December 2 article Between Buyers and Selelrs, A Staltemate have gotten a lot of play in the blogosphere, as if they were drawing opposite conclusions about the current state of the Manhattan residential real estate market. In the first case, the headline suggests falling prices; in the second, aborted deals. And that is what people seem to have taken from these two articles, which is odd if you read the articles.
I'm flogging here
I am going to flog these articles to within an inch of their lives, which will take me a while and -- ultimately -- will not get me closer to answering The Question. In the next day or two I will try to find actual data that bears on The Question. But, for now, the flogging….
Two early quotes from the WSJ are (1) "So far, fall sales data in Manhattan suggest a flattening out of the market more than a sharp decline." (2) "Prices remain near record levels."
Data is (a) hard to get and (b) easily misconstrued.
Here's what the WSJ did:
To get a better sense of how prices are changing, many experts recommend focusing on existing-home sales. In New York, that means looking at the co-op market, which includes few new buildings. The average sales price of a co-op fell 2.8% to $1.12 million in third quarter of 2007, compared with the second quarter, according to Radar Logic. Even when condos are included, prices vary widely in different parts of the island; so far this quarter, the average price on the Upper East Side has risen 11% to $1.7 million, compared with the previous quarter, but prices downtown have fallen 18%, to $1.1 million, according to Terra Holdings.
I am not sure why looking at re-sales provides more insight about prices than looking at new developments and I think that looking at longitudinal data for resales of the same apartment would provide really interesting data - but no one has that data and apartments don't turn over often enough. And the WSJ did not read enough of the Miller Samuel / Radar Logic report about 3rd Quarter coop sales to get the point.
At page 2 of 4 of the 3Q07 report, there is that 2.8% decline in average coop price sale from the 2nd Quarter to the 3rd Quarter, but the explanation follows within the same paragraph: the size distribution of coop apartments sold in the 3rd Quarter was different than in the prior year 3rd Quarter, as 1 BR coops went from 35% to 42% of coop sales, and 2 BR coop sales fell from 39% of all coop sales to 33%. Meanwhile, the price per foot for all coop sales in the 3rd Quarter was up 3.9% over the 2nd Quarter. I.e., proportionately more smaller (less expensive) coops were sold, so the average coop price was down. No biggie.
But the WSJ also talked about price cuts, which have less to do with declines in value than they do with mistakes about value. They used one example of an apartment that had no solid offers despite dropping the price from $2.095mm to $1.995mm to $1.799mm.
The number of price cuts, at all levels of the market, is also growing. Blair MacInnes is handling the sale of her 85-year-old mother's Upper East Side apartment; she listed the two-bedroom co-op in September for $2,095,000, the price recommended by her broker, Dorry Swope of Halstead Property. "We were very worried about putting the apartment on the market," Ms. MacInnes says, "but we had been told by any number of people that the exception to the housing crisis had been Manhattan." The apartment drew little interest, however, and Ms. MacInnes and her mother agreed to cut the price, first to $1,995,000 and then again a few days later to $1,779,000 -- a total cut of more than 15%. Although the new price has generated more interest but no solid offers, Ms. MacInnes says she and her mother aren't in a rush to sell.
no rush = no sale
No offense intended to anyone involved in this sale, but the past sales data in the building suggests that it may still be priced too high. Checking the agent's listings, it is clear that the MacInnes apartment is 116 East 66 Street #11D, which has maintenance of $2,865/mo and a 22 foot terrace; the description and photos (only 2 interior pix) give no hint of any recent renovation (consistent with occupancy by an 85 year old). What should that apartment be worth, with the plus factor of the terrace and the minus of (likely) renovation needed, compared to the identical floor plan above, without the terrace but fully renovated??
Unless you are a huge fan of terraces, I don't see much reason to pay much more than the closing price for fully renovated #12D -- $1.4mm 2 months ago. Nor do I see why there'd be a huge premium for #11D over the (slightly larger, with a "stunning" renovation, but no terrace) #10B, which sold in May for $1.45mm. Whether the terrace is worth more than a triple mint renovation doesn't matter to me, as I am certain the terrace is not worth $300k more, plus the cost of a renovation.
Maybe if they were in more of a rush to sell they would price it a price in line with last sales in the building….
I think the WSJ used a bad example to suggest that "price cuts = falling prices".
NYT stalemate = good headline but article? not so much
I don't think the NYT anecdotes support their "stalemate" headline any more than the WSJ found evidence of declining values. They talked about the experience of Mr./ Epstein, the Davis-Wang couple, the Brodskys, and the Nelson-Onofrey couple.
Mr. Epstein and the "unrealistic seller" who took more money from someone else
So he offered the seller of a one-bedroom apartment nearby [nearly?] the asking price of $699,000, and then raised it to $745,000, even though the unit had no proper stove and only a half-size refrigerator. But the seller turned him down for a buyer paying $750,000 in cash.
After experiencing these and other setbacks in the Manhattan real estate market, Mr. Epstein has told his broker, Catherine Holmes of Barak Realty, that he might simply rent after he closes in February on the sale of his $1.1 million town house in Park Slope.
He said he would buy in Manhattan when sellers cut their prices. "Some of the sellers have to be a little bit more realistic," he said. "I would be happy with any percentage decrease."
Why would Mr. Epstein expect the seller to care about his $745k if he had another buyer willing to pay $750k in cash? Who is being unrealistic? Perhaps Mr. Epstein would feel better if the seller had started at $800k, there had been no cash buyer to out-bid, and Mr. Epstein could have gotten the same apartment with a 7% discount from the $800k asking price….
Davis-Wang remain cramped renters, for lack of 3-6% more money
Jeffrey Davis, a lodging industry consultant, and his wife, Betty Wang, who works in fashion, have been trying to find an apartment of at least 1,200 square feet before their first child is born this month. For the past year, they have worked with Nora Ariffin, a broker at Halstead Property, to find a two-bedroom condo south of 30th Street for $1.7 million. The only amenities they required were a doorman and an elevator.
The couple visited 30 apartments in Chelsea, the Flatiron District and the Gramercy Park area, but the bids they made on five different apartments were rejected. Mr. Davis said he thought prices were $50,000 to $100,000 too high.
The couple are staying in their one-bedroom rental for now. "I have plenty of space for an infant for at least a couple of months," he said.
If the Davis-Wang couple (soon to be a triple!) did not know what The Market was after looking at 30 (30!) apartments, they should have figured it out after making five unsuccessful bids. The article does not say whether the five apartments they bid on were sold to people who bid more or not (that would be interesting to know), but the implication is that if they were wiling to spend about 5% more they could have gotten one of them.
Instead, they choose to remain in a 1 BR rental because (says the Totally Clueless [For Now] Dad-To-Be): "I have plenty of space for an infant for at least a couple of months." It is a free country, and these folks are grown-ups.
I wonder if the Times will check in with them in 6 months, after the baby is born. They won't have gotten any sleep yet, but may have some regrets about not buying now - even if the market drops by 5% or more in that time.
Where's the market 'stalemate' here??
Brodskys gotta have 25% appreciation or …
Arthur and Lisa Brodsky have spent the last year looking for a two-bedroom apartment on the Upper East Side or Upper West Side with their agent, Jason Haber of Prudential Douglas Elliman, and a maximum budget of $1.2 million. Mr. Brodsky, 30, who works in private equity, and Ms. Brodsky, 30, who works in marketing for magazines, want to buy something large enough to accommodate the family they hope to start within the next couple of years.
They also want to make sure their apartment will appreciate 20 to 25 percent during that time so they could cover their costs of buying and selling if they decide to move to the suburbs as their children grow older.
These folks seem to be able to buy 2 BRs on the Upper East or Upper West Sides for $1.2mm, as there should be enough inventory at this level in those areas. (After all, they've been looking for a year!) But the sticking point is Market Risk. They don't seem willing to buy because they have a short time horizon ("next couple of years"), which leads them to the unrealistic requirement that the apartment they buy now will appreciate 20-25% in the next couple of years.
Where's the market 'stalemate' here??
Nelson-Onofreys add money, find groove
Meaghan Nelson and Nicolas Onofrey spent the last six months looking for a prewar two-bedroom co-op on the Upper West Side for about $1.1 million.
Ms. Nelson, who works for a health-care market research company, and Mr. Onofrey, who manages the information technology group for a Midtown hedge fund, looked at about 140 apartments with their broker, Jessica Cohen of Prudential Douglas Elliman. They bid on four properties and were turned down.
So they increased their budget, and found a $1.4 million two-bedroom co-op at 514 West End Avenue, whose sellers had grown weary after three contracts with buyers had fallen through. Both sides signed the contract within 24 hours.
What do these folks tell us about a stalemate? They looked at 140 apartments (one hundred and forty apartments?!?), made four unsuccessful bids, raised their budget and immediately made a deal with a seller who had earlier been willing to deal with 3 other sets of buyers.
Where's the market 'stalemate' here??
© Sandy Mattingly 2007
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Aug. 14, 2007 - “jittery” = word for the day
bring down the duck
The really old among you will remember that Groucho Marx TV show from about (forty-five?) years ago (and the really old without CRS will remember the name of it – You Bet Your Life), in which one segment featured Groucho attempting to get an (innocent) interview subject to say The Word of The Day. When the Word was uttered, down came a quacking duck.
I heard a lot of quacking yesterday involving “jittery”. I had conversations or email dialogue yesterday with three sets of buyers, all of whom were somewhat ‘anxious’ about the “jittery” financial markets, all of whom asked “what does it mean for Manhattan real estate?” (Actually, they all asked “what does it mean for MY [Manhattan] real estate?”)
Judging from the news and blogosphere, these are not the only three people out there asking these questions.
my (unhelpful) answer
I tend to answer such questions in a way that sounds (at first) unhelpful: “it depends”. Because whether the immediate environment is going to lead to something else depends (d’oh!) on what happens next.
If mortgage rates rise precipitously or significantly, or if Wall Street heads towards lay-offs, there will have to be a negative impact. If the ‘only’ thing that happens is a continued tightening of lending standards, there will have to be some impact.
Since all three buyers are financial sector professionals, I tell them that they have better access than I do to professional data and interpretations about each of those macro factors. But Manhattan is clearly a different real estate animal than the rest of the country, driven much more by the cycles of “Wall St” than by the cycles of the national economy. (I tell them “we will have our market slump in real estate when Wall St drops”, but the national drivers are not as significant to us.)
buyer psychology
For our incredibly local real estate market I see the currently most risky factor as the ever elusive Buyer Psychology. If buyers get too jittery, they will put their wallets back in their pockets, the number of transactions will drop, and sellers will react by either taking the best price available in that market (a lower price than is available now) or by holding firm and not selling for a while. What happens after that ‘while’ depends on … what happens after that while (in psychology, and in the economy).
I believe we saw an instance of this in 2006, in the run-up to the Congressional elections. I am pretty sure the number of transactions in Manhattan were down (I will check Miller Samuel [later]) and prices were more or less flat. The smart people’s commentary after the fact was that buyers were nervous about the effects of a change in party control in Congress. Once it happened, it turned out not to roil the financial markets and Manhattan buyers took their wallets out of their pockets in greater numbers, leading to two quarters beginning 2007 with huge numbers of transactions.
telling stories, hidden numbers
One of the problems with assessing buyer psychology is that there is no direct and hard data – nobody surveys or indexes Manhattan Buyer Confidence. So we are left with anecdotes and happy talk (or gloomy talk) from Talking Heads who (a) all have an agenda and (b) have very little direct information themselves.
What is really happening in the market now is impossible to know broadly because the only public information (closed sale data) has such a long lag time. (Lofts that close this week probably went into contract in May or June.) No one has valid data about the number of Manhattan coop or condo contracts signed this week.
indirect data
But mortgage lenders and brokers have data about whether their mortgage applications are up, flat or down, which is some indication of the level of market activity – though not about the direction of prices. Unfortunately, this information tends to come out unsystematically and anecdotally.
best direct data
The best direct data about the level of market activity is from appraisal firms, as they should get a call within a week of a new Manhattan coop or condo contract for sale. Which is one reason I rely on Jonathan Miller of Miller Samuel and his Matrix blog. But if each appraisal firm only sees their firm’s business, there is the uncertainty of market share (are they seeing more business because they are taking it away from competitors, or because there is more activity in the Manhattan market generally?).I see that Miller Samuel’s business is up this August (“my own appraisal company set a record for sales in our first half of August”; from his blog yesterday), but is that because Jonathan does a great job marketing??
I follow Miller’s blog and Noah Rosenblatt on UrbanDigs for economic analysis relevant to real estate. They are both more interested and more competent than I am with the data. Check out Noah’s A Marketplace With Vulturesfrom yesterday for his analysis of the strength factors in Manhattan real estate and how they may weaken. He starts with these factors (a pretty good blogging summary, IMO), then considers what may happen if they weaken:
Fundamentals I see that are crucial in maintaining the NYC housing market RIGHT NOW include:
1. Very Tight Inventory
2. Strong Jobs
3. High Salary's & Bonuses
4. Weak Dollar Increasing Foreign Buyer Demand
5. Rental Vacancy Rates Below 1%
6. Skyrocketing Rental Rates
7. Trend To Live Closer To Where You Work
8. Urban Lifestyle Demand Very High
an impertinent question: so what?
One thing that freezes some buyers is that they are reluctant to buy an asset that may decline in value (even if they put money in “growth” stocks). Periods of uncertainty make them … uncertain.
I ask about their time horizon for buying (or continuing to own) an apartment. For anyone with a moderate term time horizon (five years or more), I don’t think it matters much when they buy if they have made a decision that – in general – buying is better than renting for them. Timing the market is hard (or, impossible).
But the really impertinent question to ask “buyers” who say they won’t buy because the Manhattan real estate market is due for a fall is “if the real estate market here falls, what will happen to the rest of your assets?” So long as one buys with a stable cost structure (fixed rate for a long enough period) and one’s income remains stable, an affordable apartment that declines in value near-term is as affordable after the decline as when it was purchased. And is likely to recover value if one’s time horizon is long enough.
I suppose that if we are in a global liquidity crisis and Wall Street deal-making dries up, the impact may be limited to (a) lower compensation and bonuses for that industry’s workers, (b) even lay-offs restricted to that industry, and (c) a drop in Manhattan real estate values as The Engine dries up. But if that global liquidity crisis bleeds into the stock market generally, what then?
It is hard to see how national economic factors that might impact Manhattan real estate values won’t also impact stocks or other asset classes. Recession? Unemployment spikes?
Such a long meditation, so meandering. Well, that’s blogging for you! I will try to come back to this and add links to relevant articles and blog posts. But I wanted to get this off my chest this morning, so I could go to work!
© Sandy Mattingly 2007
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Nov. 11, 2006 - (no irritating Ps but) more seller psychology / are loft-sellers more prone to ego errors?
the Lake Wobegon effect?
Although my prior post talked a lot about ego-driven decisions for sellers, I am not suggesting that loft owners are more ego-driven than other Manhattan apartment sellers (really – I am not). But I think that Manhattan loft sellers (and Manhattan loft owners in general) are more likely to think of their lofts as “unique” or at least “special” that apartment owners who can see that the genius of their apartments is in the decoration (their personal taste is sublime) rather than in the four walls and floors.
all lofts are above average…
At least that’s my theory. And it is related to the reasons that I think it is harder with lofts than with apartments to get true ‘comps’.
Because apartment owners are much more likely to believe that they live in an apartment that is “just like” their neighbors’ apartments in the same building, except for the personal touches that make it uniquely theirs – most of which they will take with them when they move.
… or at least unique
Loft owners are more likely to live in Garrison Keilor’s Lake Wobegon, where all children are above average. In Manhattan, most lofts are “unique”, so loft owners are tempted to believe that the “general” market trends (flat or down, of late) simply do not apply to their above-average lofts.
Indeed, they may derive perverse pleasure in thinking that their loft is so special that only special people will appreciate its charms, and the longer it stays on the market the more they are convinced that it is more and more special. Perverse, as I say.
the longer it takes to sell, the more special it is (maybe)
With that mind-set, the data about greater inventory and longer days on the market can be rationalized as “problems” only for apartments that are not so special.
I will have to start paying more attention to lofts that have been on the market for quite a while without a single price change. Those may be examples of loft-sellers-with-ego (not that there is anything wrong with that). Or loft sellers who are waiting for the right buyer to pay the right place.
So long as their agent is patient – and they are patient with their agent – everyone will stay happy….
© Sandy Mattingly 2006
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Nov. 10, 2006 - pseller psychology pstuck pso psales psuffer?
Sellers are slow to adapt to current conditions, say some
Jonathan Miller on Matrix started a chat about seller psychology, expressing the view that (in general) sellers have not accepted the current market facts.
One of the interesting points he makes is that his experience is that it used to take sellers three calendar quarters to adjust to a weakening market, but this time it is taking five quarters (and counting, for some stubborn sellers).
Then, setting prices involves more ego than greed for sellers, which can explain why appeals to pure logic don’t work so well. The Washington Post article he cites says:
Economic researchers have found that emotions are a bigger influence than was previously believed in how people make financial decisions. For a long time, economists believed that human beings made decisions like robots, that people applied simple logic in making financial choices. But a body of research developed over the past two decades, known as neuroeconomics or behavioral economics, has shed light on how powerful a role the unconscious mind plays. New imaging technology, meanwhile, is allowing scientists to peer inside people's brains while they wrestle with financial decisions.
These studies have illuminated a few key concepts: Many people will pass up sure profits for illusory ones. Some will turn down profits if they believe someone else is unfairly profiting more. Some will even refuse to sell if they believe they may come to regret it, because fear of future regret can be as powerful a motivator as money in the pocket today.
In other words, people will cling to prices they recall from a brighter day, even when market conditions have changed; they will walk away from a sale if they feel the buyer is getting too good a deal at their expense; and they are terrified that [if they sell now] the market will rebound and they will feel like fools.
Miller’s “solution”?
Brokers need to continue to educate the sellers on the accurate value of their property and simply don’t take the listing if its not priced within the realm of reasonableness.
Easier said than done, especially in a market in which some agents will “buy” listings by over-promising on price, in ways that support sellers’ natural inclinations to be optimistic (as Miller’s comment from blogger Urban Digs illustrates).
But essential. Otherwise, why should they pay us the big bucks?
© Sandy Mattingly 2006
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Nov. 6, 2006 - NAR pumps up the volume / the politics of boosterism
The National Association of Realtors® ran the first of six full page large newspaper ads last week about now being a great time to buy or sell real estate, which has generated a lot of commentary.
“we’re sorry we’ve worn rose-colored glasses” (not)
I don’t expect the NAR to take out an ad that says “we’ve been too bullish”, but there are other ways for NAR to boost business for its members.
The first thing to realize about NAR, however, is that it is looking out for me and the other 1 million+ members (errr, thx but…). I suspect that the primary motivation for this ad campaign is that the members are so frustrated with the national media and have complained to NAR to do something!
I think it has had that morale boosting effect for many Realtors®, but at too great a cost.
hum along with Bernstein
I used the term “Pollyanna” in the Matrix thread, but I think a better reference is to Dr. Pangloss of Candide (“this is the best of all possible times in the best of all possible worlds”). NAR risks insulting everyone’s intelligence by insisting that one is a great time for all buyers and all sellers in all local markets.
If I were running the show I would (1) talk about some favorable data/trends, but (2) drive people to their local Realtor® for advice about determining whether this is the best time for them to buy or to sell given their local market conditions.
you need an expert in perilous times dadgummit!
Pump up the need for expert advice, rather than insist that everything is wonderful for everyone (why can’t we all just get along?). Something that says (1) the market has changed in most of the country over the last year or so, (2) conditions are favorable for many buyers and for many sellers in many places, (3) call 1-800-REALTOR to get the kind of expert help you need about an important decision in a complicated world.
Fact is, in every set of market conditions in every local market, the times and circumstances are right for some buyers and some sellers. But you gotta know what you are doing.
© Sandy Mattingly 2006
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Oct. 19, 2006 - Manhattan apartment prices / more like Tom Cruise than a truck
“economic rent” explained (it is not what you think)
Varian talks about the notion of “economic rent”, using Tom Cruise’s movie salaries as an example (quoted below). Which reminded me of the insistence of some real estate commentators to talk about the “fundamentals” in the New York City apartment market (as in “the recent price run up could not be sustained because prices outstripped the fundamentals”).
cost vs. demand
Here is what Varian said about The Couch Raver’s salary:
David Ricardo, who lived from 1772 to 1823, developed the theory of economic rent in his essays opposing the 19th-century English Corn Laws. These were tariffs ostensibly intended to protect British farmers from cheap foreign grain.
Ricardo observed that the tariffs had two effects: the obvious effect of raising the price of grain and the more subtle effect of pushing up the rent of land suitable for growing grain.
From the viewpoint of an individual tenant farmer, the rent he paid to the aristocratic landlord was a cost of production. But for the system as a whole, the land rent did not really determine the price of grain. It was the other way around: the price of grain determined land rent. So the real beneficiaries of the Corn Laws were not the tenant farmers, but the aristocrats who owned the land.
And so it is with Mr. Cruise. His salary, as that of other Hollywood stars, depends on the fact that large numbers of people will pay to see his movies. If, in the future, these people spend more time on YouTube and less time going to movies, Mr. Cruise’s compensation will probably fall.
This is not true for other sorts of goods used to produce films. The movie business uses a lot of trucks — but the price of trucks won’t change if people go to movies less. Why? Because the price of trucks is determined primarily by their cost of production — the labor, steel, rubber and other materials that go into making them.
It’s quite different with star salaries. It’s not the cost of production that determines actors’ wages but the demand for the product that they produce.
What does this have to do with Manhattan apartment prices? Here is how I would turn Varian around to face my market:
Manhattan apartment prices depend on the fact that large numbers of people will pay to live in Manhattan. If, in the future, these people prefer to spend their money on suburban houses Manhattan apartment prices will probably fall.
Seems pretty simple and obvious, right?
I have often wondered about what fundamentals people are talking about when they talk about real estate. But here is why Real Estate Fundamentals don’t apply in Manhattan they way they may apply in, say, Houston.
My guess is that real estate prices in Houston – and in much of America -- are much more directly related to costs of production (buying land and building materials and paying someone to assemble those materials on that land) than here. If a buyer in Houston has a real opportunity to buy-and-build within a reasonable commuting distance to a job, the relative values of resale homes is limited in some significant way by that choice.
But in Manhattan, there is essentially no equivalent build-or-buy choice.
I wonder if there is any data that would help rank different US cities on the degree to which Costs Of Production are relevant to market prices.
Probably, Manhattan and San Francisco are examples of consistent demand being the market driver; “frothy” markets with a lot of investors (Las Vegas, south Florida?) probably swing in the degree to which demand is the driver; most of America is probably more weighted to costs of production. Not sure what the data would be, but I wonder if it is out there…
© Sandy Mattingly 2006
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Sep. 10, 2006 - yikes they did it again / NY Times recent sales report suggests optimism?
Two of five listings went for the asking price; one went above, after multiple bids; one went for a $12,000 discount from a $4.5mm asking price, and the last took a ‘hefty’ $10,000 off a $298,000 asking price.
Bubble, what bubble?
Coincidence, or the Old Grey Lady is trying to keep our chins up?
© Sandy Mattingly 2006
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Aug. 31, 2006 - The politics (?) of press reporting on recent sales / NY Times picks two hot ones
I gotta wonder sometimes about the politics of press reporting on real estate….
I am not saying there is a grand conspiracy going on, or even necessarily a single editorial sensibility. And I have not paid enough strict attention to notice trends. But sometimes things jump out at me.
Like today, when the NY Times “Residential Sales” section of the Home & Garden section had exactly two Manhattan apartment sales in it and -- for reasons also unknown, but continuing an out-of-town trend -- six sales in Maine (!).
What struck me about the studio sale at 250 East 40 St (The Highpoint) is that it sold in ONE WEEK at the asking price. This was followed by a "25 King Street" two bedroom loft that took 14 weeks to sell, but sold ABOVE the asking price.
Is this a bubble-busting item? How many closed sales must the Times get each week to choose from? And do they look at their mix, or just pick “interesting” ones? I don’t know anything about real estate in Maine, but four of the six listings featured today sold at or above asking price (a fifth was $2,000 below). Hmmmmm….
And, while I am on a string of rhetorical questions – has the Times given up on their real estate blog? There have been two posts in August, for the newspaper of record…. Tsk, tsk, tsk.
And, while I am needling the Times … they got the address wrong on King Street. #25 is a rental building; 29 King Street is the former schoolhouse, now condo. And #3-I is the loft unit at 29 King Street that sold above asking price.
© Sandy Mattingly 2006
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Jun. 16, 2006 - Rah, rah, sis boom (or sis bah)? Too much happy talk from grown-ups.
Why do professionals in the real estate brokerage world feel compelled to spin all data toward price appreciation, rather than trying to be honest brokers of information and balanced analysis?
It is probably unfair to select any specific speakers on such a broad indictment, but Corcoran’s chief volunteered with this quote from the New York Times about Q1 06 data: "It shows that the New York market, after having a lackluster fourth quarter, is back in full swing with strong numbers across the board." [the article continued “She said recent transactions logged by her firm suggested that the stronger sales trend would continue into next quarter's figures as well.”]
Does Booster-ism Have a Price?
Leaders of other firms (including mine) have probably been guilty of the same kind of booster-ism. These leaders run the risk of alienating anyone who pays attention to the numbers, which are certainly not uniformly positive for price appreciation.
I noted this whopper from NAR’s President, Tom Stevens, just before Memorial Day, which made me want to gag: “Inventories levels have come up to balanced levels between home buyers and sellers, so the pressure has come off of home prices and most owners can expect steadier gains in home values for the foreseeable future.”
Forecasting the Future (continuing sunshine)
While this may be a defensible general proposition based on past national housing value trends and reasonable forecasts of future national economic trends, but “most” owners own a single home, for whom national and general trends may not apply. To suggest that Joe and Mary Apartment-Owner should comfortably expect to see steady gains for the foreseeable future strikes me as (a) unlikely to assist Joe & Mary if they are unsure about their local market, and (b) invite ridicule from anyone paying close attention to local data that suggests that maybe – just maybe – the near term trends in inventory, employment and pricing portends a possible rough patch ahead.
The boosters seem like reverse Chicken Littles, running around shouting “the sky is not falling for the foreseeable future, the sky is not falling for the foreseeable future.”
Consumers will stop paying attention, at best, and may count the boosters among the sleazy salespeople of ill-repute, at worst.
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on matters of interest to Manhattan coop or condo loft apartment dwellers, buyers, sellers, and others, especially about New York City real estate
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