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There Was Shock And Horror, But No Longer

A report from the Wall Street Journal on New York. “It is deal time for buyers looking to purchase an apartment in one of New York’s new condominium buildings, brokers said. As sales of new apartments have stalled this year, many developers are cutting asking prices and agreeing to go even lower—at a pace not seen in years, brokers said. ‘Everybody today comes in and expects a discount,’ said Ziel Feldman, chairman of HFZ Capital Group, who has half a dozen condo and co-op projects on the market.”

“The third quarter is usually a peak period for apartment sales, but new development sales plummeted in this year’s third quarter, down more than 30% compared with the same quarter in the previous three years, according an analysis of sales records by The Wall Street Journal.”

“Though some buildings still report solid sales activity, many buyers are making demands for deep discounts or simply waiting on the sidelines, brokers said.”

“‘Not all buyers appreciate the level of discount they can get today and are hoping prices will drop further,’ said Pamela Liebman, president of the Corcoran Group. ‘We won’t know whether or not they will be proved right or not’ for a while, she said.”

“At 100 Barclay, many listings have sold slightly below asking prices. But that discount grew steeper during the past year or so, according to StreetEasy. The five sales listed in 2018 averaged a discount of more than 10%. A four-bedroom on the 20th floor with large windows, 10-foot-high ceilings and a 30-foot-long living room was listed for $10 million and sold in August for $8.13 million, an 18.7% discount.”

“Many in the industry see the slowdown as a healthy shift, especially in the long term. Frances Katzen, a broker with Douglas Elliman, said there was a time when there was ‘shock and horror’ when a developer cut prices, but no longer. ‘It bodes well for the market,’ she said.”

From Crain’s New York Business. “They’re not all fat cats. Complaints about ‘greedy developers’ trace back to ancient times, but the city’s real estate business is littered with builders toppled by recessions, cost overruns and disputes with lenders and partners.”

“Ruddy Thompson’s downfall can be traced not to just one such catastrophe but a combination of them.”

“Beyond causing the probable demise of the Upper Manhattan condominium project into which he has sunk more than a decade of his life, the saga has left his once-flush bank accounts empty, his family torn apart, his health in tatters and his future bleak.”

“Thompson’s story reveals the ruinous potential of a business in which markets can abruptly shift, partnerships can end in betrayal and construction glitches can stymie even the most sophisticated builder.”

“‘The narrative about developers making tons of money isn’t always true,’ said David Scharf, a lawyer at Morrison Cohen who became involved in the condo project at the behest of Thompson’s ex-wife. ‘In the case of Ruddy Thompson, this project has become his Waterloo,’ Scharf added. ‘It ruined his marriage, split his family and has left him destitute. It’s tragic.'”

“His only assets are a Range Rover and a Mercedes—leftovers from the days when he lived an affluent life with his family in Westchester. ‘I’m worth less than zero if I get nothing from the site,’ Thompson said. ‘I’ll probably move to China. I was there once, and I know they can use people like me who know English and who are honest.'”

From The Island Now. “Those who have homes at the higher end of the spectrum locally and in NYC, are experiencing much less traffic and a serious slowdown in the market. I see the major issue is how much of the ‘higher end’ inventory was constructed over the last six years in NYC. What else could a developer do but to construct over the top condos for the rich and wealthy consuming public, who devoured units faster than they could put them up.”

“Land values were so great, the only choice was to build those type of units and price them accordingly at the upper end of the spectrum (I say the stratosphere) in order to turn a profit that the developers expected, after paying their hard and soft costs.”

“One bedroom apartments in certain areas of NYC had been selling for one million or more. Two and three+ bedrooms were (and some are still trying) selling in the multiple millions, again depending on their location.”

“I believe the glory days are over for now. The ten thousand dollar cap on real estate taxes (S.A.L.T. — state and local taxes) has also exacerbated the reduction in prices on all those homes or properties with very high taxes. I also see an increase in the number of people coming out of NYC and its outlying areas.”

This Post Has 34 Comments
  1. ‘there was a time when there was ‘shock and horror’ when a developer cut prices, but no longer. ‘It bodes well for the market’

    https://grief.com/the-five-stages-of-grief/

    ‘We will never like this reality or make it OK, but eventually we accept it. We learn to live with it. It is the new norm with which we must learn to live.’

    Plus this attitude helps move the airboxes. Never mind those suckers who borrowed 3 months ago. We have to let go, right Frances?

  2. “Beyond causing the probable demise of the Upper Manhattan condominium project into which he has sunk more than a decade of his life, the saga has left his once-flush bank accounts empty, his family torn apart, his health in tatters and his future bleak.”

    Cry me a river. Greedy landlords and their jacked-up rents made housing, a basic need, unaffordable for increasingly pauperized and debt-ridden middle and working class families in these bubble markets. It won’t bother me one bit to see the speculators get burned and their buildings to go into foreclosure if that’s what it takes to make housing affordable for the masses again.

  3. “‘Not all buyers appreciate the level of discount they can get today and are hoping prices will drop further,’ said Pamela Liebman, president of the Corcoran Group. ‘We won’t know whether or not they will be proved right or not’ for a while, she said.”

    Ya know, Pamela, I’m willing to bet that once all those grotesquely overpriced developments get sold at foreclosure auctions, unit prices will drop quite a bit further. So I’m willing to bide my time. I don’t feel the need to negotiate with greedhead sellers and landlords when real estate is still so overpriced.

    1. white el·e·phant
      ˌ(h)wīd ˈeləfənt/
      noun
      noun: white elephant; plural noun: white elephants
      -a possession that is useless or troublesome, especially one that is expensive to maintain or difficult to dispose of.

      1. As I mentioned before, the guy in charge of the asset recovery department at a TBTF bank said he would not take some of the properties offered for sale if they were free!
        HOA Fees and clubhouse/bar/restaurant minimums can be a killer.

  4. Went to some open houses over the weekend in Portland suburbs. I was pretty surprised to hear two realtors admit that prices are coming down. Of course that was followed by “Rates are going up and you don’t want to miss out on the low rates.” I had an early 20’s Realtor explaining to me her interpretation of macro economics and it’s impact on future home prices. It wasn’t pretty.

    It’s like a skeleton’s hands emerging from a grave-site throwing a FOMO gang sign, FOMO won’t die. My metric of visitors at open houses is cookie supply and the sign in sheet. Sign in sheets only had one name at both houses and the cookies hadn’t been touched.

    1. I was pretty surprised to hear two realtors admit that prices are coming down. Of course that was followed by “Rates are going up and you don’t want to miss out on the low rates.”

      A dollar’s a dollar no matter how you spend it. What these UHS willfully refuse to acknowledge is that we’ve seen this script before, with Housing Bubble 1.0, and know that after the unsustainable appreciation of recent years, downside risk in housing vastly outweighs any upside potential. So only a fool would buy now, regardless of interest rates or minor discounts. In addition, since the Fed has already blown its wad with ten years of QE, it seems far more likely that this time around the toxic waste that should’ve been flushed out of the system the first time around, will now be fully subject to true price discovery, without QE to artificially interfere in the process. House prices could easily drop 70% or more in the most bubblecious areas. So the prudent are going to stay on the sidelines until the carnage has played out in all its terrible glory.

      1. “…“Rates are going up and you don’t want to miss out on the low rates.”…”

        The REIC will tell you the sky is red if they could find someone stupid enough to believe them.

        Its going to be really interesting during the next few months and the Q1 of 2019.

        If 10yr treasury yields move significantly higher… (I think they will), then look out below.

        Add in student debt, increased restrictions on new capital flowing into USA from China, new federal tax law next year, Joe Average stretched to the debt max, the incredible cost of living in many areas, real estate values falling off a cliff will seem like a minor annoyance by comparison.

        What to do? Grab your 10 gallon hat and enjoy the show!

        1. I think the catalyst for the next global financial crisis will be cascading defaults that start with emerging nations like Turkey, but the contagion quickly spreads to the weaker banks in the PIIGS, overwhelming Draghi’s ability to play “extend and pretend.” Rising populism in Italy and Germany are going to challenge Frau Merkel’s ability to continue putting German taxpayers on the hook for bailing out the Eurozone banks who recklessly lent to deadbeats in Southern Europe assuming those loans would be backstopped by the ECB’s printing press and Northern European taxpayers. When the can-kicking gets interrupted, the whole Eurozone financial house of cards is going to come crashing down. Remember, Spain ad Italy are both too big to be bailed out.

          1. Whats really sad is the number of good, hardworking households that got caught in the middle of all this debt hysteria.

            Yes, they should of been more diligent.

            The sad fact is that many will simply not be able to payback all their debt (mortgage, student loan, general lines of credit) in their lifetimes.

            As many others have noted here over the years, debt really is a form of slavery.

          2. octal – that’s a main reason why foresee additional political instability in the country.

            A vast swath of working class and middle class people have realized that the status quo – both parties pre-2016 – were happy to sell them out and would do every time. The pallor that debt casts on them will continue to keep them keenly aware of how raw a deal they are getting.

            I don’t think the current administration will be that much help – it’s already co-opted by Wall Street and other special interest – so I expect the strong reaction against ‘establishment candidates’ to continue.

  5. California is the most impoverished state in the country:

    “Human waste has become such a widespread problem in San Francisco that the city in September established a unit dedicated to removing it from the sidewalks. Rachel Gordon, a spokeswoman for the public works department, describes the new initiative as a “proactive human waste” unit.

    At 8 a.m. on a recent morning, as mothers shepherded their children to school, we ran into Yolanda Warren, a receptionist who works around the corner from Hyde Street. The sidewalk in front of her office was stained with feces. The street smelled like a latrine.

    “Some parts of the Tenderloin, you’re walking, and you smell it and you have to hold your breath,” Warren said.

    Over the past five years the number of homeless people in San Francisco has remained relatively steady — around 4,400 — and the sidewalks of the Tenderloin have come to resemble a refugee camp.”

    https://www.wral.com/life-on-the-dirtiest-block-in-san-francisco/17900648/

    1. Would anyone else here be shocked to see a very strong grassroots-driven movement to crack down on ‘the homeless’ in the next few years?

      1. First we need a crackdown on politicians who enable and encourage social parasitism, personal irresponsibility, and dependency in exchange for votes. Then municipalities need to start treating vagrants and bums like the public nuisance that most of them are, while helping those who are salvageable.

  6. The “shock and horror” has moved onto the bond market, where the yield on 30 year U.S. Treasury bonds has risen to (gasp!) 3.4%! Gee, has it ever been that high?

    Next, shock and horror will move on to the stock market. It shouldn’t shock anyone, and is only a horror to those hoping to sell for more than younger generations of buyers can afford to pay.

  7. I’m new to this blog. Are you guys people who don’t want to ever own a home or just think that homes are overpriced and want to see a correction first? I’m in the second camp myself. So tired of living in apartment style accommodations but can’t afford the 500k+ single family homes in my area as a single person. I’m going to be living with family and saving up cash for the next few years in hopes that we see a major drop in prices and I can swoop in when the market has tanked.

    1. Speaking for myself only, I want and intend to own my own home (and have owned two, so far) but refused to buy into a bubble, i.e. overpay. I saw the first housing bubble with perfect clarity, and almost bought in 2010, but had no inkling that Bernanke and Yellen would take their Keynesian monetary lunacy to the lengths that they did, or that the central banker “No Billionaire Left Behind” policies would go on for a full ten years, unchecked. So now we have the biggest asset bubbles in human history, and I’m not about to buy when the valuations on real estate have been so artificially inflated. So the only thing to do is wait for the crash, which is pending. It is going to be severe, much worse than 2006/2007. I will pay cash, and buy in an established neighborhood where most residents own their own houses. The character of many neighborhoods is going to change due to the number of foreclosures and investor-purchased rental properties. Most of all, I do not want to overpay. I expect that after the next crash, which will be more like a Great Depression, public fury will force Congress, which has been in the pockets of the banksters and speculators, to finally reinstate Glass-Steagall and other regulation that should’ve been in place to prevent the reckless and irresponsible lending and housing-related policies we’ve seen in recent years. We also need a complete purge of the captured and complicit regulators and enforcers who turned a blind eye to massive, systemic fraud that put our entire financial system at risk.

    2. Hi Pete, and welcome to the blog!

      I’m in the third group – someone who bought an expensive .. (depending on how you look at it) home at start of the year, and endure the jabs and pokes from some of the other regulars here.

      I also used to work in wholesale mortgage 25+ years ago and credit Ben’s blog for giving me urgency to sell my house as the market was tanking 10 years ago.

    3. It is a mixed bag. I’m in the same camp as you. We could afford to buy right now, but hoping for a better price in the neighborhood we like.

    4. Welcome. For me it’s the latter. I’d love to own a house but I’m not rushing in and bidding $50,000 over asking while writing a letter to the seller about feeding their squirrels. We’ve stopped looking until 2020 and saving up for a DP as well.

      1. Welcome to the blog Pete. I’ve been here for over a year, so still relatively new compared to some old-timers. I’m an old millennial, just under 40. We could afford to pay cash on a very expensive house, but feel that prices are mostly stupid. Any way you slice it, housing is overvalued in almost any market, and dramatically so in most. Renting has been enjoyable for us and while we would buy if the price is right, we’re in no hurry. I’d rather be a renter my whole life than commit financial suicide buy buying in at these prices. On any given day when I do peck around on Zillow most of the homes I see seem overpriced by about 30-40% in my neck of the woods.

  8. “Though some buildings still report solid sales activity, many buyers are making demands for deep discounts or simply waiting on the sidelines, brokers said.”

    Why buy now when you can wait two years and get it at 50% off?

  9. ‘Rachel Gordon, a spokeswoman for the public works department, describes the new initiative as a “proactive human waste” unit.’

    The City of San Francisco Department of Human Feces Removal?

    Ewwwwwwwww!!!!!!!!!!!!!!!!!!!!!!!

    1. Can someone kindly remind me why San Franciscoans happily pay millions of dollars for the privilege of walking along feces-lined sidewalks on a daily basis?

  10. “‘Not all buyers appreciate the level of discount they can get today and are hoping prices will drop further,’ said Pamela Liebman, president of the Corcoran Group.

    Count me in the group that is not appreciative of the token price reductions. Wake me up when we get serious, say at around 30% reductions. That is pretty much the starting point for correction given how much home price gains have outpaced wage gains in the past 7 years.

  11. ‘I’ll probably move to China. I was there once, and I know they can use people like me who know English and who are honest.’

    That. Is. Hilarious.

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