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In A Declining Market, The Sellers Are Late To The Party

Two reports from the Real Deal on New York. “For Westchester’s residential real estate market, the fourth quarter wasn’t the season for giving. In the final three months of the year, the median sales price of luxury homes in Westchester slid 12.2 percent to $1.8 million from $2.05 million a year earlier, according to Douglas Elliman’s latest market report. At the same time, the number of sales in the luxury segment plummeted 32.2 percent.”

“The broader market saw some pronounced shifts, too. Overall, the median sales price dipped 11.8 percent to $470,000, while sales fell 22.2 percent. In the single family market, the price dropped 11 percent, with sales declining 29.9 percent. That marked the sixth straight quarter of year-over year declines.”

“‘It’s a steady erosion of activity, said Jonathan Miller, author of the report and CEO of appraisal firm Miller Samuel. ‘In a declining market, the sellers are late to the party — and in a rising market, they’re ahead of the party.'”

“Amid an overload in the Manhattan luxury market, Cary Tamarkin and High Line Development Group have switched marketing strategies and cut prices at their 19-unit West Chelsea condo project.”

“Sales for ‘the first handful of units’ at 550 West 29th Street are launching Wednesday, according to Nest Seekers International’s Ryan Serhant, who took over marketing from CORE. The mix of three- and four-bedroom units will be priced in the ‘low $3 million range to $7.5 million,’ and more units will hit the market as sales are made. Sales for the condo first launched in fall 2017 with prices ranging from $4.6 million to $13.5 million.”

“Serhant said he was not concerned about moving the units amid a broader slowdown at the higher-end of Manhattan’s residential market as Manhattan is set to see 20,000 new units come online. ‘I think buyers are just value conscious… but buyers are still buying apartments everyday,’ he said.”

From Broker Pulse. “I had the pleasure of speaking with Aleksandra Scepanovic, managing director of Ideal Properties Group, about what forces will influence Manhattan’s real estate market in 2019 and the trends we will likely see more of.”

“There are many things to consider: median prices are falling, buyers are hesitant, and financial uncertainties are causing properties to sit on the market for long periods of time. So what does this mean for 2019? And how do buyers and sellers alike adjust their strategies to progress in this shifting market?”

“Q: In 2018, the number of sales of Manhattan apartments declined along with the average price. Will this continue? A: I don’t think we’ve seen the bottom yet. The market has been strained from a variety of forces that exert significant pressure on it. Interest rates are on the rise, for example, inventory is saturated, financial markets in flux. These forces will continue to press on.”

“Q: What is your take on the oversupply of high-end apartments on the market? It seems more lavish amenities and incentives are being offered to attract buyers.”

“A: Oversupply is an extension of a bullish market, combined with shifting (both buyer and seller) confidence landscapes. It is also to a degree a result of previous over – confidence that the high-end market would jump on any product. Offering more lavish amenities and incentives to attract the changing buyer is a good technique, the question being to what extent the buyer will consider the extravagant incentives over pricing. In this market, the more the seller gives, the faster the property is likely to sell.”

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  1. ‘Oversupply is an extension of a bullish market, combined with shifting (both buyer and seller) confidence landscapes. It is also to a degree a result of previous over – confidence that the high-end market would jump on any product’

    The mania in NYC is distant now, but it should be remembered that the truly believed in the safe deposit box in the sky.

    1. “The mania in NYC is distant now, …”

      How’$ about the pain$? Oh look, just.in.time, $science to the re$cue!:

      “It’s really hard when people can’t see how much pain you’re in, because they have to take your word on it and sometimes, they don’t quite believe you,” she said.

      Scientists testing experimental device that allows them to mea$ure pain

      MarketWatch / Published: Jan 10, 2019

    2. Perhaps they’ll decide that they’d like those safe deposit boxes to earn some income and put them on the market.

      Most of those flight capital units are condominiums. There is nothing to stop their owners from renting them out, unless there are deed restrictions.

      Most older high end NYC apartments, in contrast, were converted to co-operatives. Any renting out had to be approved by the co-op board.

      A libertarian is a liberal who was mugged by a co-op board (or homeowner’s association).

  3. “Q: In 2018, the number of sales of Manhattan apartments declined along with the average price. Will this continue? A: I don’t think we’ve seen the bottom yet. The market has been strained from a variety of forces that exert significant pressure on it. Interest rates are on the rise, for example, inventory is saturated, financial markets in flux. These forces will continue to press on.”

    Larry “No Bubble” Littlefield, meet reality….what happen to the trillions of people who want to live in NYC lol????

    1. Cut the price and see.

      Same thing with retail spaces here. Sky high vacancy. Asking rents at $200 per square foot and up. They’ll get nothing until they cut the price.

      The bubbles here are always price. You can always fill the units, but not at a price that lets you get your money back — especially if there was a bubble in the price of development sites and you overpaid.

      1. “You can always fill the units, but not at a price that lets you get your money back —”

        That price that fills the units is known as the market price, and FBs in denial have trouble recognizing that they need to lower their asking price to that level in order to fill their units. A Dutch auction works wonderfully in helping FBs discover the market price.

        1. So what can we do to fix the problem when the “market price” is unfair to new landlords who have been unexpectedly inconvenienced by higher than expected expenses? Nobody is a bigger capitalist than me but I’m not in this business to lose money…knowwhatImsayin’?

          1. Well nothing, you lose $$ I suppose you hope the rent market recovers before you go broke. Other option is go BK (like our Prez) if you are a big enough borrower maybe you can renegotiate with the bank, a little guy forget it.

            The market doesn’t concern itself with “fairness” no one is guaranteed a profit.

  6. Good old Westchester County.

    Close enough to NYC to commute by train and pay NYC taxes on top of insane NYS taxes.

    Far enough away to pay $20,000 per year in property taxes so you have a decent school to send your kids.

    Can’t wait until they do their 2018 taxes….

    1. I grew up in Westchester Co. and you couldn’t be more accurate… You didn’t even need your little equation to illustrate your point. BRAVO!

      Just to clarify, the schools were good (20+ years ago) now? Not so much.

  7. Given the “everything is awesome” economy plus the Fed’s scheduled rate hike rollback, why are traders so gloomy?

    1. Worst may not be over for stock market, technical analysts say
      By Chris Matthews
      Published: Jan 10, 2019 2:03 p.m. ET

      Markets were oversold before Christmas, now they look overbought
      Overbought?

      The stock market’s rebound from what was the worst Christmas Eve on record for the Dow Jones Industrial Average in history has been nothing short of incredible—but markets may sour after a bullish stretch, some market technicians say.
      …

    2. “… why are traders so gloomy?”

      On account$ they’$ $uffering from $ticky.finger$ syndrome$

      quant$ [kwänt]
      NOUN, finance, informal

      short for quantitative analy$t.

      “quant$ use computer$ to tell them what to buy and $ell”

    3. There’s nothing gloomier than a bearish robot. Why can’t the robots figure out that the stock market can only go up from here? Perhaps they missed the news articles about the recent reconvening of the Plunge Protection Team.

      The Wall Street Journal
      Algorithms Veer to Bearish Bets
      by Stephanie Yang
      Thursday, January 10, 2019
      As global growth falters, trend-following algorithms are selling risky assets at a rate not seen since the financial crisis.

      Investors have started to shake off last year’ steep losses, helping markets regain some ground in 2019. But the robots are still almost uniformly bearish.

      Trend-following investment strategies — a computer-based way of trading that has become a major force in some markets — have gone from bullish to bearish to a degree not seen in a decade, according to an analysis of algorithms that buy or sell based on asset-price momentum.

      Funds that use such strategies likely went from holding net long positions, or betting that prices would rise, in four major asset classes — stocks, bonds, currencies and commodities — in the third quarter of 2017 ,to being short, or wagering against, everything but bonds by 2019. And even their embrace of bonds is bearish, signaling a flight to haven assets.
      …

          1. One almost has to suspect that the fantastic early-2019 U.S. stock market rally underway is the last good chance for Da Boyz on Wall Street to offload a bevy of stocks on unsuspecting muppets before the upcoming reaping.

    4. Did anyone else notice how the inverted Treasury bond yield curve mysteriously vanished overnight?

      The Wall Street Journal
      Markets
      Treasury Yields Hold Below 2018 Highs as Rate Doubts Mount
      U.S. government-bond prices fell but finished off their lows Wednesday after a number of Federal Reserve officials expressed further caution about the pace of future rate increases
      By Akane Otani and Daniel Kruger
      Updated Jan. 9, 2019 5:23 p.m. ET

      U.S. government-bond prices fell but finished off their lows Wednesday after a number of Federal Reserve officials expressed further caution about the pace of future rate increases.

      Treasurys have weakened over the past few days as optimism around the U.S.’s and China’s trade talks has spurred a recovery in the stock market, diminishing demand for the safety of government debt. Still, bond yields ended the day well off their session highs, thanks in part to Fed officials’ comments on the 2019 rate path.

      The yield on the benchmark 10-year U.S. Treasury note settled at 2.728%, compared with 2.716% Tuesday. Yields rise as bond prices fall.
      …

      1. The Wall Street Journal
        Should You Fear the Yield Curve?
        Bond investors don’t know more than the Fed, but listen to them anyway
        You’ve Been Warned
        The yield curve—the difference between long-term and short-term Treasury yields—is falling to levels that have often predicted recessions.
        Source: Federal Reserve Bank of St. Louis
        By Greg Ip
        Jan. 9, 2019 9:30 a.m. ET

        There’s a new horror show coming to your screens: Set on Wall Street, it’s called “Inversion of the Yield Curve” and features a chilling, disembodied force that seeps into the minds of the public, triggering panic in markets and hand-wringing on cable news.

        As long-term bond yields fall close to short-term yields, we’ve been regularly reminded that an inversion—when long-term yields drop below short-term yields—has preceded each of the past five recessions. The yield curve—a chart of yields against bond maturities—is being mentioned increasingly on corporate conference calls, especially of financial companies, according to an analysis by Prattle, which studies language for investment clues. But how much you should worry depends crucially on whether an inverted yield curve predicts a recession, or causes a recession, or both.

        Short-term interest rates are set by the Federal Reserve, and long-term rates by bond market investors. The curve has been flattening for the past two years as the Fed has slowly raised short-term rates in hopes of a “soft landing,” a slowing in growth that keeps both unemployment and inflation low and stable. But in recent months the flattening has been driven by falling bond yields. The usual interpretation: Investors in their collective wisdom think the Fed is overdoing it with rate increases and could shove the economy into recession, in which case short-term rates will be lower in a few years than they are now.
        …

        1. I’ve been thinking that the only reason the 2 to 10 year spread hasn’t yet inverted is because folks are afraid Uncle Same might actually default on the 10. Governments de facto default by running the printing press, spawning inflation. So you need a higher 10 year rate to compensate for the risk printing-press inflation — not the (more) natural inflation from a roaring economy.

          Given that the US has

          1) unprecedented debt level
          2) unprecedented debt growth
          3) not demonstrated political will to cut the deficit in over 20 years

          I think there is a legitimate fear of such a de facto default. The higher 10 year yield could reflect this fear rather than the expectation that the economy will be better in 10 years than in 7. Right?

          1. “I’ve been thinking that the only reason the 2 to 10 year spread hasn’t yet inverted is because folks are afraid Uncle Same might actually default on the 10.”

            Are you assuming the President’s Working Group on Financial Markets had no role in smoothing out the kinks in the curve?

          2. “Governments de facto default by running the printing press, spawning inflation.”

            I completely disagree with this premise. That is NOT defaulting.

          3. “I think there is a legitimate fear of such a de facto default.”

            The ‘higher-than-anticipated’ inflation of the 1970s provided an example of this. Not the same as an outright default, but definitely redistributive from net-creditors to net-borrowers, and devastating to retirees relying on fixed income pensions or super-safe bond investments to pay living expenses.

          4. It’s definitely how Argentina defaults. And it’s why they have hyperinflation every 10 years.

            It’s not how Greece defaults, because the ECB prints their money. Greece defaults more like a business — they just don’t pay.

          6. If someone else prints your money, then you can’t default by printing away the debt. I know it seems obvious…

    5. The Wall Street Journal
      Markets
      Chinese Bond Yields Hit Two-Year Low
      Yield Dive
      Chinese bond yields have hit a two-year low on a weakening economy.
      By Shen Hong
      Updated Jan. 8, 2019 3:40 a.m. ET

      A weak economy has helped push Chinese bond yields to a two-year low. To some investors that looks overdone, given a likely surge in government debt issuance and a stabilizing stock market.

      What’s Happening

      The yield on the benchmark 10-year Chinese government bond has dropped to 3.14%, its lowest since January 2017. That is down from a three-year high of 4% a year ago. Bond prices rise when yields fall.

      The bond rally has coincided with growing evidence of a slowing economy. The latest slew of data showed Chinese industrial production slowed in November to its slackest since early 2016, while growth in retail sales dropped to the lowest in more than 15 years.

      China’s central bank has loosened credit conditions five times in the past year by cutting the amount of reserves banks are required to hold. The latest such move, unveiled Friday, is expected to free up a net 800 billion yuan ($116.8 billion) for lending.
      …

    6. fastFT
      American Airlines Inc
      American Airlines profit warning hits US airline stocks
      Pan Kwan Yuk in New York yesterday

      American Airlines set off a fresh round of selling in US airline stocks on Thursday after the carrier sharply cut its full-year profits guidance, news that further fanned concerns slowing global growth and trade tensions are sapping demand for air travel.

      American shares tumbled as much as 10.9 per cent per cent as it warned earnings this year would fall short of its previous forecast. It now expects adjusted diluted earnings for 2018 to come in at between $4.40 to $4.60 a share, down from the $4.50 to $5.00 range it gave just three months ago.
      …

      1. “GM says it will replace any lost market share with increased sales of the redesigned 2019 Chevrolet Silverado and GMC Sierra pickups, the new 2019 Chevy Blazer SUV launching now and several new Cadillac SUVs to go on sale through 2021.”

        GM is betting on big vehicles with starting prices north of $40k, and they are obviously counting on easy credit policies for their already stretched customers.

        1. GM seems to have written off buyers of basic auto transportation, since there is little profit to be made in that segment of the market. Not much in store for GM, IMNSHO.

    8. Maybe those stock trading robots know something about real economic activity that the human traders are missing?

      Markets
      From Jaguar to Macy’s, Global Gloom Spreads Across Industries
      By Cecile Daurat
      January 10, 2019, 11:47 AM PST
      Updated on January 10, 2019, 11:19 PM PST
      – Wave of profit warnings, plans to cut jobs in recent days
      – China, trade tensions, volatility loom large over 2019

      Global Gloom Spreads as Corporates Cut Thousands of Jobs and Predictions for Profit

      Trade wars, China’s slowdown, erratic stock markets: The outlook is getting grimmer for an increasing number of companies across the globe.

      Just Thursday, more than a half-dozen corporate giants either lowered their profit forecast, announced massive job cuts or pulled plans in the face of market volatility. American Airlines Group Inc., Jaguar Land Rover, Macy’s Inc. and BlackRock Inc. were among the biggest casualties, joining the likes of Apple Inc. and FedEx Corp. that have warned recently that the future isn’t looking as good as it did just a few weeks ago.
      …

  8. I have lost of hope of owning a house to raise my family, I keep renting. The stock market is UP and UP again.

    it’s like 2 steps UP and 1 step down… in the end it’s always up. Interest rates are lower again, with easy 3% down.

    I don’t hold my hopes. It’s sad. but I don’t see any changes in affordability.

    1. Hey $nap.out.of.it!,
      Maybee one day, yer great,great,great grandchildren descendant$ will see the wi$dom in yer patience of knot becoming a “True.Believer” in a Global Financial “Fal$ehood”!

      They will $mile & honor$ you!

    3. a house to raise my family

      My advice is that children when they grow up care little if you owned a house, they care about what you did with them. Don’t waste that time paying off a ridiculous loan.

      1. Yeah. Well I don’t want a palace. Just a modest 3/2, so I don’t have to share walls and hear crazy neighbors at all hours. I garage to keep the bicycles, and camping gear and a little area to BB a damn steak. … Sigh

        1. Hopefully for us there will be another housing price crash like there was < 10 years ago. I'd like to buy a modest home to occupy, but I ain't gonna spend over 50% of my income on the mortgage.

          1. Hopefully for us there will be another housing price crash like there was < 10 years ago.

            Some of us were here for that one too and didn’t buy. It was on its way to doing what needed to be done but was cut short by the Fed and their foam. We need actual price discovery with no interference. At that point we can actually start the economy from a solid foundation again. Everything else is smoke and mirrors to protect the guilty.

        2. The allure of house ownership and the boundless happiness it will lead to is strong in American folklore. It is reinforced by so many segments of our society and so many industries. And it leads so many down a path of financial ruin.

          It will not give you a better life. I have a 4-year-old and could afford to buy these inflated shacks, but no way would I do it. It’s fine raising my son in the condo we rent. It’s cozy and modest. Renting isn’t so bad really. Lots of neighbors and community. If the housing market doesn’t get back to sanity, I might never own a house, and I am okay with that. I rent, but I own my life. My best friend, on the other hand, has a wife that was so sick of renting while he was going through law school (her words: I just want somewhere I can paint the walls) that they finally bought at maybe the worst time. They have unexpected expenses galore in a place that they don’t really love. When he is honest, he wishes he could go back to renting.

          1. I have two in college right now, one at a university and the other at junior college. I am paying all of their invoices as they occur so that they will not experience the yoke of debt. I would be unable to do this if I were still paying a mortgage payment or renting. At the end of the day it’s all about cash flow.

          2. “If the housing market doesn’t get back to sanity, I might never own a house, and I am okay with that.”

            I feel your pain. Back in the day, we were predicting a housing bottom atound 2013. But by then, the Fed’s Quantitative Easing was in full swing, with a primary objective of reflating housing prices.

            Ben documents the ever-growing rental glut here on a daily basis, which is a predictable consequence of putting a floor under housing prices. Renting should remain cheaper than buying, so long as the Fed put backstops prices in the owner-occupied market, which by all indications may be forever, as they cannot complete punchbowl removal operations without precipitating a crash.

          3. I understand what you’re saying. Anyone you had money in 2010-12 should’ve bought then. prices have doubles since then.

            I didn’t have a down-payment and had some debt, and I was not married or had a kid then.

            I could buy, BUT that would be stoopid. Plus only the thought of paying double what the seller paid in 4-5 years makes nauseous.

        1. I love the “direct access” garage connected to my apartment! I don’t love hearing other people opening and closing their garage doors. (My unit is above three single-car garages, one of which is mine.)

        2. Come visit the complex we manage. We have lots of BMWs, Lexuses, Teslas, and Mercedes. It’s garage parking and heated. Lots of programmers working in “Silicon Slopes.”

  10. The Wall Street Journal
    Markets Heard on the Street
    Housing Market Is Canary in Interest-Rate Coal Mine
    Mortgage rates aren’t up by much but home sales are down, signaling how dependent on low rates the U.S. economy has become
    A builder works on a home under construction in Denver last summer. The past year wasn’t a good one for the U.S. housing market.
    Photo: David Zalubowski/Associated Press
    By Justin Lahart
    Jan. 9, 2019 8:00 a.m. ET

    The funk in the housing market could be an important signal about the U.S. economy’s sensitivity to rising interest rates. So could any rebound now that rates have retreated somewhat.

    Last year wasn’t a good one for housing. Through October (the most recent data available, thanks to the government shutdown), sales of new single-family homes were down 12% from a year earlier. Sales of previously owned homes were down by 7% through November. New-home construction slowed, home-price gains moderated and sentiment among home builders’ slipped to a three-year low.

    One important culprit appears to be higher borrowing costs driven by the Federal Reserve’s interest-rate increases. The average rate on a 30-year fixed-rate mortgage climbed to as much as 4.9% in November, its highest level since 2011, versus 4% at the start of the year. For a $500,000 mortgage, that boosted the monthly payment by $266 to $2,654. The mortgage rate has since fallen to 4.5%.

    Still, the market reaction was somewhat surprising. Today’s rate is still low by historical standards and most home buyers, benefiting from a strong jobs market, should be able to shoulder the increased burden. But since rates were as low at 3.4% as recently at 2016, some homeowners have a strong incentive to stay put, much as they might want to move. This suggests that housing may have grown dependent on the low-rate environment that has prevailed since the 2008 financial crisis.
    …

  12. Opinion: The Fed’$ murder weapon is hiding in plain $ight

    MarketWatch / Published: Jan 10, 2019

    The Fed’s murder weapon is aptly encap$ulated in the pictorial repre$entation of the yield curve, or term $tructure of intere$t rate$.

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