Have Manhattan Prices Actually Come Down???

not seeing this yet -- at least not compared to same time last year -- I often read that the high end is skewing the price trends -- this can be true for the average price but the MEDIAN is unaffected by the high end -- unless we are selling >50% high end properties, so often when I read an item that says that the median price inclreased by 20% due to the high end properties showing a crazy appreciation I feel that I should jump in and straighten the person out. However, this is the first time I have actually posted this since people who make those sort of posts or react to them are likely to read your post -- unless of course they have the ignore this person flag set for you

"the MEDIAN is unaffected by the high end -- unless we are selling >50% high end properties"

That is, in fact, what happened.

"That is, in fact, what happened."

Whoa, where did you come up with that one? What exactly are we defining as high end here? I know 35% of last quarter's sales were new dev, and I wouldn't exactly call all new dev "high end," but even if you did, I don't know if this is really what happened.

Steve's perspective is probably right. The median is flawed because unless you can say for sure that the median property (i.e. the one which establishes the median) represents the same type of property this year and last year then the comparison isn't perfect. It doesn't have to be all high end. If for instance, last year's median was a 1,100sqft property and this year's median is a 1,150sqft (all other things being equal) then it's not like for like.

All you can do is look at multiple true comparables and gauge and I don't believe anyone's doing this in anything like a scientific way. Steve will cherry pick a property selling at $700psft in the UES and someone else will cherry pick a property which has been flipped for a 20% profit in 3 months at $1,500psqft in midtown. Both are based on a sample size of 1. Both are statistically irrelevant.

Even Streeteasy's method of showing the typical $ per sqft for a studio or 1 bed in a particular area of Manhattan is flawed as the sample size is sufficiently small to be skewed by new builds (or the absence of new builds).

There will be people getting bargains, there will be people paying too much money. There will be people getting a comparable for cheaper than last year. There will be people paying considerably more than last year.

All in all, this is not, I sense, a Miami or Vegas waiting to happen. There is simply not enough pipeline of inventory (in Manhattan at least) to result in a sufficiently large imbalance between demand and supply to result in steep drops in prices. Economics 101. Someone can argue that the developers massage the real inventory figure but looking out until 2010, I'm not seeing huge numbers of apartments coming on to the market.

Your Economics 101 is wrong. Supply-Demand matters but so does the price level. The higher the price level vs incomes the tighter the required supply-demand to support that price level. You can have a market go from very tight to neutral on supply-demand and have a bigger drop than a market that goes from tight to oversupplied. It all depends what supply-demand outlook was factored into prices in the first place. I would suggest that optimism rages strong in NYC than just about anywhere else. Anything less than an ultra-tight market will result in a significant price drop.

Smallmj, I agree this is not Miami or Vegas. The problem here is different. There is a moderate supply problem, especially in emerging neighborhoods, but more importantly there is going to be a demand problem. And that will be driven by severe reductions in Wall Street compensation (20-40% by many estimates) and a reduction in job security (all combined with weaker financing options). Even without oversupply there can be a big change in prices.

"Steve will cherry pick a property selling at $700psft in the UES"

I didn't cherry-pick that property (somebody else did) and we have all agreed that the price is far higher than that since the unit is about 1300 square feet, not the 1700 claimed.

My analysis is based on multiple market rental units versus property prices, the price at which a single property is offered for both sale and rent, and the price of the same or virtually the same unit over time.

"All in all, this is not, I sense, a Miami or Vegas waiting to happen."

This is not about "sensing." In fact property prices in Manhattan have increased at the same rate as they did in Miami: 114% over 5 years. That is unsustainable, especially considering that we have a new factor that Miami didn't have: the decimation of our economic engine, Wall Street, which accounts for 30% of Manhattan income and property sales.

"There is simply not enough pipeline of inventory (in Manhattan at least) to result in a sufficiently large imbalance between demand and supply to result in steep drops in prices."

There is approximately a 1-year supply of apartments listed on streeteasy based on historical absorption rates. Much new development is not listed here. Anything over a 6-month supply is considered a buyer's market.

"Economics 101."

Not.

"Someone can argue that the developers massage the real inventory figure but looking out until 2010, I'm not seeing huge numbers of apartments coming on to the market."

Then you haven't looked out your window at all the cranes, have you?

And TenthStreet, bonuses paid in restricted stock, not cash, which doesn't vest for years.

Steve, I'm being optimistic about WallSt comp! I didn't want to overshoot what has appeared in sober estimates from the city and state, but I think the cash compensation might be down more than 20-40%.

I believe that high end is generally considered anything over $3 milllion. While nobody knows for sure as to whether prices have come down, I think it can be safe to say that prices right now are flat. Also, there have been several examples of apartments being sold for less than they were bought for posted on the thread "Demonstrate Market Movement with Comps." I know there is one apt. that was sold by the owner of the Minnesota Vikings, who took a $700,000 loss. But these could be extreme examples, or they could eb the reality.

I'm looking for a one bedroom and every agent I've tried to make a low offer (10%). They say "there is no negotiation."

"They say "there is no negotiation.""

Then walk, and when the broker comes back to you in 3 months, offer 30% less.

BTW by law if you submit an offer they must submit it to their client, not just say, "There is no negotiation."

Make sure they do that.

Julia - that is BS from the agent who clearly is a salesman and not privy to this changing market. I have a deal in contract with a bid 15% below ask, that was ultimately accepted and 10% below previous comps. I dont think this is the norm though, but its happening in right situations. empty unit, E40s, needs some work, desperate seller.

In my opinion, a 10% bid below ask is almost expected these days! Sellers that have been trying to sell, probably know that any bid that comes in will be from a cautious buyer. Interesting shift in psychology if you ask me.

maybe the agent has a really stubborn seller, and is just conveying the seller's lack of flexibility -- knowing full well that nothing will change the seller's mind but a lot of time passing without a bid

Alpine292: It was the owner of the Twins (William Pohlad), not the Vikings (Zygi Wilf) that took the $700K loss at 115 CPW. I doubt he lost much sleep over it.

I think the most trustworthy thread about this issue is the one West81st (I think) started about comps. The only reliable way to really see how the market is changing is to follow resales of the same or similar apartments in the same co-op or condo bldg. Worst case, similar bldgs. a few blocks apart. Fortunately, there's plenty of opportunities to do that in Manhattan. I personally have very little trust in median prices.

"It was the owner of the Twins (William Pohlad), not the Vikings (Zygi Wilf) that took the $700K loss at 115 CPW. I doubt he lost much sleep over it."

If only he had bought at 15 CPW and not 115 CPW, the outcome of the sale would hae been much different!

hrdnitlr: I agree - I have a hard time imagining brokers would not present offers to clients. Brokers realize that the market is slow. While brokers collectively have a vested interest in preventing declining prices, as individuals, they want (and need) to collect commissions. My guess is that the sellers are being stubborn. As the downturn progresses and sales volume declines, I would expect brokers to increasingly pressure clients to accept lowball offers.

buster2056-

"While brokers collectively have a vested interest in preventing declining prices,.."

Not entirely accurate. Transactions have a buy and a sell side, and as a buyer broker, I'm pleased when prices soften, as my clients can get more apartment for less money. Looked at another way, it serves to increase the number of people both who can qualify for a purchase and may want to buy.

Yes, a listing agent has to present all offers to the seller. But in the case of an intransigent seller, it's not unethical for a listing agent to convey to the buyer / buyer broker that the seller only wishes to entertain full price offers. Whether that's a wise course of action is another story.

I think it's pretty accurate. Buyer brokers benefit from higher prices as much as sellers' agents. 1) higher prices = higher commissions. 2) Declining home prices do not encourage demand - most people do not want to buy into what they perceive to be a falling asset.

> most people do not want to buy into what they perceive to be a falling asset.

Particularly when a huge chunk of transactions were from folks only buying (and/or being able to "afford") because of anticipation of huge increases...

I'll take the opposing point of view - that softening prices make purchasing easier, and increases the pool of buyers who can and want to purchase. That's good for buyers and buyer brokers alike.

"Declining home prices do not encourage demand - most people do not want to buy into what they perceive to be a falling asset." This one has me a bit puzzled - that people don't want to buy now because prices were higher, perhaps MUCH higher, several years ago. Everyone loves to buy at market bottoms, but you can only identify a bottom in hindsight. Nobody knows what prices will be a year from now, but we know that - generally speaking - for those inclined to purchase, now is a better time than just a few years ago.

John: How do "we" know that? Are you saying that prices are demonstrably lower for comparable homes than they were in 2005? I haven't seen much evidence of that, and believe me, I've looked. All I've seen so far is certain asking prices coming down to the level of 2005-2006 comps.

Ask every buyer broker if she/he prefers a) markets with strong demand and rising prices or b) weak markets with falling prices. 100% should rationally and honestly answer a). Both unit and $ sales volume will be higher.

So, based on what everyone has seen, has all the appreciation from 2007 been wiped out?

West81st - I can't attest to pricing / seller psychology in the stratified air of $1M + apartments. And none of my work is with new construction - or even Condo's, period. What I can tell you is that where I play - typically a studio / Jr-1 for a first-timer - pricing has been and continues to be weak. I'm at Open Houses every Sunday, and I would estimate that the average time on market is 60-75 days. There have typically been one, often two, and sometimes three price reductions. And when the time comes to make an offer, we (of course) negotiate from the new, lower price.

A few short years ago, "starter" studios whose price began with a "2" were indeed rare - maybe a wreck in Tudor City. Now the Upper East Side has a decent supply of those (at least enough for my purposes) - some in elevator buildings, and some not that far from the subway.

buster2056- I'll concede that all brokers would prefer a large paycheck to a smaller one. And I'll even put aside the lofty argument that buyer brokers have an obligation to find their buyers the best apartments at the best prices. But I maintain that brokers prefer a "balanced" market to one where prices seem to escalate every week. What buyer broker wants to get involved in bidding wars chasing some over-priced apartment? The successful bidder may have a happy broker, but there may be two, three, or more who lost out. And many of the potential buyers, understandably, may opt out of the market, sometimes for good. From a purely business perspective, why would a buyer broker want to spend double or triple the time with his clients (regardless of how lovely they might be), looking at more and more apartments, because they're continually being outbid in some frenzied market?

In the end, apartment sales are down 40%. So soft, hard, brokers are *not* doing well in this market....

eddie are you angry at brokers?

apartment sales are down 40% ... ignore your other post about sales being down 22%

and ignore the implication that you drew, that with sales down 22%, prices were only down 3%. That is THREE PERCENT

> apartment sales are down 40% ... ignore your other post about sales being down 22%

Genius, Prudential said 22%, urban digs had 38%. Pick your poison.

> and ignore the implication that you drew, that with sales down 22%, prices were
> only down 3%. That is THREE PERCENT

Yes, and sales declines generally preceed price declines... AND, the 3% is a median, which is slanted upward by the fact that low end just isn't selling, and new construction closings from months ago are happening just now.

Beyond that, are you the idiot who thought there was no issue with the titanic because 5 minutes into the movie, there was only a little water at the bottom?

EddieWilson - 40% decrease in prices? In your post from yesterday you predicted much less of a decline in prices. You said, "I'm going with NYC 16% decline from peak".

Just saying....

"What buyer broker wants to get involved in bidding wars chasing some over-priced apartment?"

As I recall, all of them.

Because there is no such thing as a "buyer's broker" because the seller pays the bill.

It should be outlawed. Then watch property prices fall even further.

IMO, NY real estate has slowed, weakened a bit, and is in a state of detente (or cease fire, if you will). Seller haven't broken much, and buyers are largely on strike. Inventory is sitting around for long periods of time. Are those sellers well capitalized enough to 'ride out the rough patch'? We shall see. One thing for sure, the high flying days are over...for now.

> EddieWilson - 40% decrease in prices? In your post from yesterday you
> predicted much less of a decline in prices. You said, "I'm going with NYC
> 16% decline from peak".

Dude, take another read.. where did I say a 40% decline in prices?

I said SALES are down 40%... "In the end, apartment sales are down 40%. "

> Just saying....

I don't think anyone knows what you're saying...

stevejhx - I wish you would stop repeating this "no such thing as a 'buyer's broker' because the seller pays the bill" nonsense as if it's some amazing discovery that will get you a nobel prize. It's annoying and not true.

a) Buyers always pay both fees even if it's not explicit. Any economist will verify this for you.
b) Even if Buyers paid a separate fee to their broker, the broker would still be incentivized to push them towards a sale and a more expensive sale.

The problem is really a) most brokers are transactionally oriented and care more about closing individual sales than building relationships, and b) broker fees are tied to apt prices which inventivizes both buyer/seller brokers to push for higher priced tranasctions regardless of who pays. That is the real issue. If you want to hire a buyer's broker whom you will pay a flat fee regardless of whether or not you purchase a place, then you will get an objective broker. I highly doubt anyone would prefer this system.

check this
http://www.luxuryloft.com/files/luxuryletters/LUXURYLETTER_AUGUST_2008.pdf
if their numbers are meaningful they suggest (contrary to so many posts here) that the 1 to 2 million range property is still going up and the upper end is declining. Seems reasonable in a way since the demand/supply is potentially most unbalanced at the low end of nice

> if their numbers are meaningful they suggest (contrary to so many posts
> here) that the 1 to 2 million range property is still going up

No, read it more carefully.... they're specifically suggesting that *luxury* apartments in the $1-2 mil range are "up slightly compared to previous report".

You're buying the exact spin they're trying to sell you.

Because they are the ones who get to define luxury, they can leave out any apartment that is low PSF. Hell, they can put in only what they want, and make this say whatever they want.

But, of course they wouldn't do that... because they are brokers...

A buyer broker is duty-bound to represent the best interests of the buyer client, REGARDLESS of who pays the broker fee. Yes, there are situations where a buyer broker can collect a Real Estate fee directly from the buyer, but that is not a requirement for there to be buyer representation.

As far as who is ACTUALLY paying, take your choice:

- the SELLER pays, because the seller has a contract with the listing agent - the seller paid fee is then shared with the buyer broker's firm

- the BUYER actually pays, because he / she is the one bringing the $$$ to the table

- The Real Estate firms are paid from the proceeds of the transaction

This joedavis shill:

"I read an item that says that the median price inclreased by 20% due to the high end properties showing a crazy appreciation I feel that I should jump in and straighten the person out"

Exactly how would you straighten them out? Lie? Invent a new form of math?