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Illustrating The Ongoing Disconnect

Two reports from Curbed Hampton‘s in New York. “Former talk show host and television personality Dick Cavett has reduced the price of his iconic oceanfront Montauk property. After the recent price cut, the estate is now listed for $33.95 million. The nearly 20-acre property came on the market in June of 2017 for $62 million before dropping the price down to $48.5 million in August of 2018. This week, $14.55 million was cut from the asking price, and it’s come down more than $28 million in total since Cavett listed the property a year and a half ago.”

“After two and a half years on the market and several multimillion-dollar price cuts, the bayfront estate at 64 Holly Lane in Water Mill is now $9 million cheaper than the original $24.75 million asking price. The listing is currently on the market for $15.75 million.”

From The Real Deal. “It’s rare to see private equity hotshots take one on the chin, but one former KKR executive appears to have suffered a loss on the sale of his full-floor Soho condo. An LLC that lists Jonathan and Claire Ziegler Smidt as members sold unit 6A at 10 Sullivan Street for about $10.3 million, according to a public record filed with the Department of Finance. The Smidts picked up the 10 Sullivan Street unit in 2016 for about $10.6 million, according to a public filing.”

From Real Estate Weekly. “December apartment vacancy rates continued to climb, despite landlord efforts to tempt end-of-year renters. According to Citi Habitats’ year-end market report, the Manhattan vacancy rate rose to the highest level in nine months in December.”

“The brokerage said the rise in vacancy is also due to continued price-sensitivity by apartment seekers. ‘In December, many property owners in both Manhattan and Brooklyn lowered rents slightly – in an attempt to spur activity during the traditionally slow holiday season,’ said Citi Habitats president Gary Malin.”

“‘Despite these adjustments, the vacancy rate continued to climb, illustrating the ongoing disconnect between the rents that landlords want to achieve and the pricing tenants are willing to pay,’ he said.”

“However, Malin believes there are great values in today’s market for apartment seekers — if they are willing to explore new neighborhoods and building types. ‘Now more than ever, it pays to keep an open mind,’ he added.”

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  1. ‘The nearly 20-acre property came on the market in June of 2017 for $62 million before dropping the price down to $48.5 million in August of 2018. This week, $14.55 million was cut from the asking price, and it’s come down more than $28 million in total since Cavett listed the property a year and a half ago’

    Cut in half. But you won’t hear about this outside of little known blogs and Curbed. Look at the photos. Nice house, but $62 million? You could buy a pretty big company for that. One that generates lots of income every year, as opposed to bleeding cash like this shack would. So in what environment did someone pick the $62 million number? And what has changed?

    Again, pick any definition of a bubble and a bubble popping and the Hampton’s fits it as does New York City.

    FYI, there is a link to the RSS feed for this blog at the bottom of the sidebar, or you can subscribe here:

    http://housingbubble.blog/?feed=rss2

    1. All of these mega-mansion wish prices are shedding Yellen Bux valuations like a snake sheds its scales. Unless the Fed launches QE4 – which I fully expect – trillions more in fake valuations are going to evaporate from the Fed’s Ponzi markets and asset bubbles.

      1. ‘Unless the Fed launches QE4 – which I fully expect’

        Based on what? Despite the fact that global central banks are doing the exact opposite?

        Yesterday I posted a pretty hefty desk clearing post. It could have been three times as long. The common theme was overbuilding. Actually, we see more of that every day (shack glut in Orange County, anyone?). When prices are artificially inflated, more of that thing are overproduced. Newly created money doesn’t make those half empty towns in Nigeria better off. It doesn’t fill those 3/4 empty Chinese towers.

        I said recently that QE had failed and a poster replied “oh they got what they wanted.” What I was saying was it had failed based on what it had been stated to achieve – to make the markets more stable. If you look at this blogs information, things have never been more unstable. At turning points like we are in, it’s my opinion most people are too quick to assume we’ll see a mirror image replay of last decade. I think we can all agree the year is 2019, not 2009.

        1. “I said recently that QE had failed and a poster replied “oh they got what they wanted.” What I was saying was it had failed based on what it had been stated to achieve – to make the markets more stable.”

          I have to completely disagree with you on this premise. QE was never about “stabilizing markets,” it was about protecting the wealth of the moneyed special interests, but sold under the guise of “this is what’s best for the country and economy.”

          Somebody posted an article the other day which was an interview of an ex Wall St. banker. The guy was pulling down like a $3.5 million bonus, but was upset because it wasn’t $8 million. He mentioned that only on Wall St. does somebody feel like an $800k salary is poverty level.

          He talked about the bailout and how nobody went to jail, nothing has changed, and the entire interview highlighted how detached from reality those people really are. Yet, they’re the ones who have captured the government and are calling all the shots which are supposedly best for the people? No, not even for a second.

          1. Ray Dalio said it pretty well the other day:

            Capitalism basically is not working for the majority of people
            CNBC
            16 Jan 2019
            Catherine Clifford

            “”Today, the top one-tenth of 1 percent of the population’s net worth is equal to the bottom 90 percent combined. In other words, a big giant wealth gap. That was the same — last time that happened was the late ’30s,” Dalio said. (Indeed, research from Emmanuel Saez and Gabriel Zucman of the National Bureau of Economic Research of wealth inequality throughout the 20th century, covered by The Guardian, bears this out.)”

            “Further, Dalio points to a survey by the Federal Reserve showing that 40 percent of adults can’t come up with $400 in the case of an emergency. “It gives you an idea of what the polarity is,” Dalio said. “That’s a real world. That’s an issue.” And Dalio says the income gap will only get worse.”

          2. “Further, Dalio points to a survey by the Federal Reserve showing that 40 percent of adults can’t come up with $400 in the case of an emergency. “It gives you an idea of what the polarity is,” Dalio said. “That’s a real world. That’s an issue.” And Dalio says the income gap will only get worse.”

            Yet the very people who benefit from these policies are the ones in charge because, you know, they know what’s best for the 40% of adults in the United States who don’t even have $400 to their name. It’s “go time” as far as I’m concerned.

          3. “Capitalism basically is not working”

            We don’t live under capitalism and haven’t for a long time. We live under a combination of a command economy where prices (the price of money/interest rates, which effects all other prices downstream) are set by technocrats rather than the free market, and fascist corporatism where companies and industries favored by and closest to government can use the power of that government to stifle competition.

            This lack of capitalism has worked out very well for people like Ray Dalio. Not so much for you and me.

          4. “Capitalism basically is not working”

            Finance is broken too. For the past ten years I have yet to hear or see a credible economist pointedly discuss the disparity between household income and median house prices in the press or televised presentation. The silence is deafening!

        2. “that global central banks are doing the exact opposite?”

          Ben, you’ve been the only commentator pointing out the worldwide efforts of governments to pop their own bubbles, esp Australia and Canada. It’s certainly a dramatic reversal of 40 years of government bubble inflation policy, and a lot of people just can’t wrap their heads around the idea. But I think you might be on to something that this crash will be handled differently than ’87, ’01 and ’08.

          Personally I think the Fed is a lot more concerned with their credibility than with the economy, and that credibility has never been more in jeopardy. It’s possible they will do anything to preserve that credibility, even if it means Volker-style 20% interest rates, popped bubbles, etc.

    2. Most of these mega-prices never even made sense at peak bubble. It’s a mental fantasy on part of the owners and their listing agents.

  2. More rewriting of history:

    “The acting director of the Federal Housing Finance Agency has told the agency’s employees that the regulator will announce a plan within weeks to take the government-sponsored enterprises out of conservatorship.”

    “Fannie and Freddie were rushed into government control at the height of the financial crisis. Then, in 2012, the terms of the 2008 bailout were amended to steer the quarterly profits of both enterprises to Treasury.”

    https://www.marketwatch.com/story/fhfa-acting-director-discussing-plan-to-take-fannie-and-freddie-out-of-conservatorship-2019-01-18

    It wasn’t 2008:

    February 07, 2005

    Fannie/Freddie Regulator Preps For Bankruptcy

    “The Office of Federal Housing Enterprise Oversight is pushing legislation through congress that prepares for the insolvency of the mortgage giants. Patrick Lawler, OFHEO chief economist told a forum “Receivership is a valuable thing”.

    “None of this is reported on the official website of the regulator. Also mentioned in this story was this tidbit;”..a coalition of 37 federal, state, and local groups urged the federal government and Congress to cut ties with Fannie and Freddie Thursday. Warning that Americans are threatened by a potential taxpayer bailout of the two companies”.

    http://thehousingbubble.blogspot.com/2005/02/fanniefreddie-regulator-preps-for.html

    What’s important about this is prices hadn’t even started falling in February of 2005 and these two corporations, two of the biggest in the world, BTW, were broke. Fannie executives had been the subject of Justice Dept criminal probe in the fall of 2004, that just went away.

    Why are we being mislead on the GSE’s history?

    1. Why are we being mislead on the GSE’s history?

      This is quite simply inconceivable, Ben. The hard-boiled investigative Journalists at such 4th Estate flagships as the NYT and WaPo would surely pounce on such a story, given their indefatigable commitment to bringing real news and real truth to their readership.

      /sarc

    2. Real.e$tate le$$on$ cla$$ review before the BIG TE$T! (coming $oon!)

      “Why are we being mi$lead on the G$E’s history?”
      +
      ” …it had failed based on what it had been stated to achieve – to make the markets more stable. If you look at this blogs information, things have never been more unstable”
      =

      1. The maker$ of the drug$
      2. The pusher$ of the drug$
      3. The taker$ of the drug$

      ($ince it’$ addition, you can rearrange as you wish):

      Maker+Taker+$eller = “uh,ho!”

    1. At the height of the Enron mania the company’s market value was $65 billion. Once the dust settled its final value was $0.

    2. “Slick move, borrowing $1 Billion…”

      +1 Kick back and smoke a joint while your creditors scamper about looking for their money.

      1. The big question for Tesla will be how much demand in the US/Canada there is for their $55k model 3 and how much demand there is for these optioned up models in the Euro area. I think the top 5 trade-ins for a Tesla are a Honda Civic, Toyota Prius, Nissan Leaf, BMW 3 series, and Honda accord. Except for the BMW, those other cars are quite a bit less expensive for a model 3, which shows that many buyers are willing to spend quite a bit more for a car they perceive to be better. We fall into this camp since we have never spent more than $17k on a car (Honda Civic).

        Tesla is going to have a real challenge as the tax credit of $3750 is halved again by July.

        If they can’t sell a lower priced car with a profit margin, they will be relegated to a niche auto maker making high-end cars.

        1. a niche auto maker

          One thing that impresses me about all these manias is that they have to grow or die. It would take a miracle for a company with $10 Billion of debt, to quietly downsize into a niche. Magical thinking only goes so far.

          1. It doesn’t have to be binary. Look at the global smartphone market, which declined year over year last year. This is a big reason for Apple and Samsung’s big tumble in profits and why Apple stock is down big time. It doesn’t mean that Apple is dead, it just means that the smartphone market has reached saturation.

            The EV market is large and growing. It was 4% of total auto sales in China last year and Chinese government has mandated it be 20% in 2025. China is by far the biggest auto sales market, which is why Tesla is right to go there and build. US EV sales have almost doubled from just a year ago, but are still only about 400,000, so just a drop in the bucket. More than 1/2 of the US EV sales are Tesla, but that might change once other auto manufacturers bring compelling EV options to market.

          2. It doesn’t mean that Apple is dead

            No, but adding $100 Billion in debt in the face of falling profits is a sword hanging over their head. I think it makes them very fragile. It is a pandemic.

    1. “The bankruptcies serve as a fresh reminder of the elephant in the room during the recent market stress: US companies have binged on a ton of debt to expand, fund acquisitions and pay for massive share buybacks.”

      Waiting for history rewrite:

      ‘While the last crisis was caused by massive household debt and overleverage on Wall Street, corporate debt is the central area of excess today’

      Notice how they interject a “cause” for the housing bubble pop? Jeebus, there’s more debt today. What caused house prices to fall was they went up too much. And look at the “experts” today, fishing around for a cause of the new “housing slump”. “Oh, interest rates went up half a percent!”

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