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Expect These Price Declines To Continue As Sellers Adjust Expectations To Meet The Market

A report from the Wall Street Journal on New York. “Gary Barnett was sitting in his Manhattan office one morning in the fall when his old-fashioned flip phone started to buzz. On the line was a real-estate agent who was marketing the New York developer’s latest condo project known as Central Park Tower.”

“The agent had bad news. Mr. Barnett had agreed to reduce a condo’s asking price, but now the client refused to sign a non-disclosure agreement concealing the details of the deal. Mr. Barnett’s response: Turn him away. ‘If we’re going to give someone a special deal, we don’t want them saying it all over the market,’ he said.”

“Extell is also leveraging the roster of billionaires it accumulated during One57’s glory days. But the strategy could backfire, especially as sellers who bought condos there a couple of years ago are suffering losses. In one instance, Canadian billionaire Lawrence Stroll sold a One57 unit for $54 million, over $1 million less than what he paid in 2014. In 2017, an apartment that had been owned by shell companies linked to a Nigerian businessman sold in a foreclosure auction for $36 million, far less than the $50.9 million purchase price in 2014.”

“Today, the builders of pricey mega-towers ‘are going to find themselves in a lot of trouble,’ said Andrew Gerringer of the Marketing Directors, a development-marketing firm. ‘Those are just going to be really difficult to sell.'”

From Crain’s New York Business. “Townhouse sales in Manhattan suffered during the second half last year, according to a new report by Stribling and Associates. The report, which covers one- to three-family home sales in Manhattan and northwest Brooklyn, found the market had an increase in inventory and contracts but a decline in sales as prices fell.”

“The market also saw a trend that has affected many other industries: discounts. ‘In Manhattan alone, the average discount was 14%, twice that of northwest Brooklyn,’ Garrett Derderian, Stribling’s director of data and reporting, said in the report.”

“The average discount on the Upper West Side was 23%. Downtown Manhattan saw an average discount of 15%. ‘There is no question the housing market in New York City has slowed,” Derderian said. ‘Townhomes, often older and requiring more maintenance, are at a comparative disadvantage when compared to new-development condos at the same price point.'”

“Midtown East experienced the steepest price drops. The average price dropped 40% to about $5.38 million, and the median price plunged 45% to about $4.67 million. ‘Expect these price declines to continue,’ Derderian said, ‘as sellers adjust expectations to meet the market.'”

From Mansion Global. “Frenzied home sales in downtown Boston eased in the fourth quarter. The median sales price in downtown Boston was $838,500 in the fourth quarter of 2018, virtually unchanged from the year before, according to data Douglas Elliman published Thursday.”

“Meanwhile, the median luxury home, defined as the top 10% of sales, sold for $2.8 million, marking a significant 12.5% decline from a median price of $3.2 million at the end of 2017—one of several signs that Boston’s market is preparing to take a breath.”

“There are other signs that the market is cooling, particularly in the million-dollar-plus condo market. The number of downtown sales recorded in the fourth quarter plummeted nearly one-fifth compared to a year ago. For the top 10%, it’s now taking 40% longer to sell—roughly eight months compared to 5.6 months at the end of 2017.”

“The recent slowdown is part of a broader trend in luxury markets around the U.S., including New York City and Miami, where affluent buyers are taking pause amid more talk of recession and tumultuousness in financial markets, said Jonathan Miller, chief executive of Miller Samuel and author of the Douglas Elliman’s inaugural Boston report.”

“Elsewhere in New England, the same pause at the highest echelons of the housing market has meant fewer megamansion sales in Greenwich, Connecticut. The median luxury price in the posh New York commuter town slipped nearly one-fifth over the past year. The average sale price across all price points in Greenwich was $1.5 million in the fourth quarter, down 17% from $1.8 million recorded the prior year.”

From Bloomberg. “With New York City apartments selling for less, urbanites pining for a suburban home in Greenwich might have to daydream a bit longer. In the last three months of 2018, purchases of single-family houses in the Connecticut town slipped 2.2 percent from a year earlier, the first decline in three quarters, according to a Thursday report from appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate.”

“‘The weakness in New York City has definitely played a role in some of the weakness that we’ve felt here,’ said David Haffenreffer, brokerage manager of Houlihan Lawrence’s Greenwich office. Sellers who got less than they wanted for their city apartments ‘are in turn then dialing down their budgets when they get here to look at homes. Or, it’s just flat-out delaying their ability to buy here.'”

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  1. ‘The average discount on the Upper West Side was 23%. Downtown Manhattan saw an average discount of 15%…Midtown East experienced the steepest price drops. The average price dropped 40% to about $5.38 million, and the median price plunged 45% to about $4.67 million’

    I’ll say it again: take any definition of a bubble and New York City meets it. Take any definition of a popped bubble, New York City meets it.

    1. We’ll see if the city decreases the presumed full value of my Brooklyn rowhouse down from insanity to lesser insanity this year.

      God help those buying in at the top. There are a bunch of old timers trying to sell while the getting is good.

  2. As for the “it’s spread from New York to Greenwich” thing:

    Greenwich Is the Worst US Housing Market, Sternlicht Says – Bloomberg
    https://www.bloomberg.com/…/starwood-s-sternlicht-says-greenwich-is-worst-u-s-hou…

    Sep 13, 2016 – “You can’t give away a house in Greenwich,” Sternlicht said Tuesday at the CNBC Institutional Investor Delivering Alpha Conference in New …

    1. Sternlicht is full of beans. It is true that the “high end” is getting hammered in Greenwich, by multi-million price cuts in some cases. But sales are still being made, and people are taking some major losses.

      The “low end” in Greenwich is a different matter. Low end in Greenwich is half a million to 2 million. And people are buying those houses. But Sternlicht shouldn’t take my word for it. Check out the lively little Chris Fountain Greenwich real estate blog: https://www.christopherfountain.com/ Sales, price cuts, and some very strange inventory. One of the first posts shows a horrible property in the three million dollar range that will sit and sit, for good reason.

      1. “Connecticut got too close to the Manhattan tax rates,” he said. “We used to have no taxes.”

        Sternlicht said that high income taxes made all of Fairfield County, Connecticut, a “terrible” place to live, and that declining home prices are reflecting that.

        ’nuff said.

      2. This is similar to what happened in the SF Bay Area after the tech stock crash of the early 2000s. High end properties around Silly Valley just stopped selling, thanks to the disappearance of buyers willing to catch themselves falling knives. The deepest pocketed buyers instead opted to snap up relatively inexpensive homes on the high end of the East Bay price range. So the East Bay bubble continued inflating after Silicon Valley ground to a halt.

        Of course it all came crashing down in the 2007-2009 financial meltdown.

  4. Mr. Barnett’s response: Turn him away. ‘If we’re going to give someone a special deal, we don’t want them saying it all over the market,’ he said.”

    Come on now, he isn’t gonna give it away for free!

  5. Yes luxury is fooked. But how long until it hits the sub-$500K segment in major urban markets and us mere mortals can buy a house again?

    1. You’re not going to see 15-23% drops in the sub-$500K market, but the slowdown has already hit my Cold War neighborhood in the MD burbs. Wishing prices aren’t moving, and I’ve seen one or two minor price drops cut off of a wishing price. However, prices drops have not been undercutting current comps. As an example, if a house sold in 2016 for $350K, in 2019 might be wish-listed at $390K and then cut to $370K, but it won’t drop below the $350K actual comp.

      Please note that it’s difficult to trend my nabe because inventory is still spotty, and because houses have been so upgraded/renovated over the years that houses aren’t quite comparable. I do anticipate a pretty interesting spring selling season.

      1. “if a house sold in 2016 for $350K, in 2019 might be wish-listed at $390K and then cut to $370K, but it won’t drop below the $350K actual comp.”

        And why is that Donk?

      2. “You’re not going to see 15-23% drops in the sub-$500K market…”

        Oh, yes, yes you most certainly are. I thought you already accepted and ate your crow?

        1. No, I think ate crow on the idea of same-complex apartment rents dropping, not SFH house prices in my neighborhood dropping. Also note that house purchase prices are [i]not[/i], dropping. The wishing prices are dropping, but looking at actual sales, those figures are still appreciating slowly. Depending on condition of the house, which is widely variable.

      3. “You’re not going to see 15-23% drops in the sub-$500K market,…”

        How did the sub-$500K market fare in the 2007-2012 period, before the Fed and the GSEs spiked the real estate punchbowl like crazy? Given turnover in FHFA leadership and Quantitative Tightening, we might expect a return to post-2007 lows some time soon.

  7. Grant Cardone is getting into the apartment game. He has a ETF type set up now. Sheeple are jumping in.

  10. So many up days for the stock market, so many gloomy reports on real business activity…

    ‘Tis a puzzlement!

    The Financial Times
    US banks
    Poor Morgan Stanley results end Wall Street winning streak
    CEO James Gorman says performance in bond trading unit ‘not satisfactory’
    Robert Armstrong in New York 46 minutes ago

    Morgan Stanley dealt a blow to Wall Street bulls at the end of a previously positive bank earnings season, missing profit forecasts as its trading business fell sharply behind rivals during a volatile fourth quarter in the financial markets.

    The investment bank’s shares were down 3.9 per cent in afternoon New York trading on Thursday, giving back their gains from the previous day, when they rose in the wake of strong earnings reports from Goldman Sachs and Bank of America.

    Lacking the consumer banking businesses that insulated many of its rivals from a grim December on Wall Street, Morgan Stanley bore the full weight of ugly trading and a sluggish environment for corporate capital-raising.
    …

    2. Another gloomy report on market conditions, another stellar up day on Wall Street…nothing to see here, folks, move along.

      The Financial Times
      Investing in funds
      US active funds suffer record $143bn ‘exodus’ in December
      Heaviest monthly outflows in 10 years as investors seek shelter in passive vehicles
      Kate Beioley 3 hours ago

      Actively managed investment funds in the US experienced a record $143bn “exodus” in December, according to data, with many nervous investors flooding into cheaper passive funds.

      For long-term US funds, which include a broad range of equity and bond funds, the outflows in December were the heaviest since the depth of the credit crisis, according to Morningstar, a data company. The funds finished the year with their lowest inflows in a decade, taking on less than half the $350bn annual average between 2008 to 2017. During 2018 active funds across all categories suffered outflows of more than $300bn, just shy of the $320bn shed in 2016.

      “This was an exodus,” said Kevin McDevitt, analyst at Morningstar. “The movement [in flows] was huge.”

      Active US bond funds suffered particularly heavy outflows, according to Morningstar, as investors, who were worried about rising interest rates, moved their allocations into shorter-duration funds — a trend that benefited passive investments.

      The shift mirrors experiences among UK active funds, which suffered consecutive months of outflows throughout 2018 while passive funds continued to attract assets.

      In the US, intermediate-term active bond funds alone suffered $17bn in outflows in December.

      “Until the fourth quarter active [bond] funds had been more competitive and had been experiencing inflows, but a lot of those funds invest in things like high-yield bonds and bank loans, for example, and take more credit risk than passive bond funds,” Mr McDevitt said.
      …

  12. The average price dropped 40% to about $5.38 million, and the median price plunged 45% to about $4.67 million.

    And still massively overpriced.

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