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