Resales vs New Developments; Rates vs Prices; Patience is Key.

I think Heraclitus wrote: “The only constant is change.”  Much better than I would put it, and apropos of what’s shifting in the NYC housing market.

As I experience and watch the housing market in Manhattan and Brooklyn, travel from neighborhood to neighborhood, I realize the challenge that even I face to be able to see the forest for the trees.  How much more difficult must it be for buyers and sellers who either think they know what’s going on in their neighborhood or read way too much of the New York Times?  And have they noticed how much the market has shifted in the last 2 years?

Buyers feel empowered by newer websites and news sources, drawing conclusions either too large or too small.  Sellers do the same thing.  And so we run around in circles, trying to convince buyers either that prices are indeed appropriate in a certain building due to factors they cannot understand or haven’t considered: Why that particular building is a good investment; what factors will be a drag on resale down the road; some of the intangibles that I see and often have a hard time articulating.  We try to convince sellers that sale prices are down to flat using data; that new closing prices will be a drag on their apartment if it isn’t selling; that mortgage rates haven’t risen that much or that fast, and that buyers feel less urgency than we expect(ed); that their apartment needs more work than they themselves (the sellers) can see.

I liked pulling my boat up to River House before the FDR happened.

All of it boils down to the “Unknown unknowns” that Donald Rumsfeld was so ridiculed about.  Buyers and sellers can’t know each others’ minds, not fully at least.  I try to describe what they each communicate to me.  But we don’t have to be mind readers to see what’s going on:

  • Sellers want to get the highest price, buyers want the lowest price.
  • Sellers think that their apartment is the best; buyers feel that their all-cash offer deserves a 15-20% discount (sometimes, if rarely, true).
  • Sellers want their resale to be sold at the same price as the new development down the street.
  • Sellers don’t understand why New Development achieves such high prices.
  • Buyers want brand new, and cannot always afford to carry two apartments.  Yet they don’t want to pay for new, and don’t understand why New Development achieves high prices either – directly due to this combination of factors: New and easy = premium.

It then, maybe most importantly, becomes a matter of the time dimension.  That is, buyers may be able to hold out longer than sellers.  Or sellers don’t need to sell and can hold on until the market for their neighborhood, apartment size, or other factor improves or clarifies.

So then, my big takeaway here is that patience on either side usually wins out, unless a buyer completely misses a market on the upswing, or a seller waits so long that he/she could have made more money selling earlier and putting money to work elsewhere…

Hence, the value of someone like myself to guide and advise in each situation….

What I’m seeing right now, in the big question, then:  Who is winning the patience war?

Right now, buyers.  Sellers are scrambling to sell their apartments, and I am seeing some terrific deals getting hammered out over $2mm that seem to be amazing values.  Below $2mm?  Lots and lots of bidding wars, still.  These are the need buyers who will get crushed if rates jump too much, who are expanding families etc.

This puts a ton of pressure on sellers who are downsizing from the slower sales cycle bigger apartments into a competitive market.  Not particularly pretty.

I know that I’m mostly speaking in the abstract this month, but the anecdotes  of what I’m seeing don’t seem to paint a clear enough picture of the market right now.

  • Bidding wars on West Side properties that sat for 6 months less than a year ago, even though they were priced not $50,000 lower then ($1.25mm to $1.2mm)
  • Units sitting on the market asking $150k less than the same units that sold not 6 months ago on the East Side (asking price now $2.35mm)
  • Sellers not willing to cut prices along Central Park West even though all evidence would argue that they are 20% overpriced  (asking $3.5mm, should be a $2.75mm sale price)
  • Brokers along Park Avenue encouraging offers on properties when their sellers won’t put a lower asking price, but telegraphing lots of flexibility (asking price $10mm)

I’m not inspired to write big reviews of New Developments this month, either but here are a few things I’ve seen over the past month:

I saw the remaining units at 212 Fifth, a gorgeous building on Madison Square Park.  High ceilings, lovely finishes, great views downtown.  Better than 10 Madison Square West,  with bigger rooms, but also a lot of transition spaces with add onto the square footage, and therefore the pricing.  Unclear how much they’ll need to negotiate on a per-deal basis.

I also saw 287 East Houston– one of the Lower East Side projects that features $2000 of charges for a $1.4mm one bedroom unit.  I don’t claim to fully understand how those numbers work today for a buyer considering rental vs purchase.  Contemporary, interesting, great location.  And what it offers is smaller apartments that have been very rare in new buildings in the last few years.   I expect to see a swing away from the mid-century modern downtown back into more of the modern.  But as I’ve said, it’s easier to value engineer the modern look than some of the mid-century woods and such.  Not blown away other than by what’s happening overall on the Lower East Side.  It is nearly unrecognizable already. In five years, utterly different.

272 West 86th Street. Great Developer and Boutique Project.

272 West 86th came back to the market, too, finally.  Lovely large units, some maisonettes, penthouse with incredible outdoor spaces.  9-units overall with an attended lobby, between West End and Broadway on 86th street.  Convenience to subway and shopping?  Check.  Pretty finishes?  Check.  Central air and freedom from co-op hassle factor?  Check.  Near the bus stop (in front of the building)?  Check.  I do think the pricing is set to overcome some of the challenges the location faces.  With big windows, lots of light and air, my hope is that it’s successful.

On the other hand, resales.  If you search in the $4-10mm range on the Upper East Side for 3-bedrooms, you can look at 68 apartments that are available (not in contract).  This represents over a year’s worth of inventory, up about 75% year over year.  Yes, not much demand.

I also recently went to see six (6) units on offer at River House, a stunning 1931 building on the East River at 52nd Street.  This is a picky cooperative that has recently made their process slightly less pickier.  But those buyers who want light, amazing river views, and probably the best apartment layouts in all of New York City- I don’t think it gets better than this.  Yet they sit for months and years and have seen many price chops.  Some is small buyer pool, some is a lack of action in the price range, some is very tough vetting process.

New Developments, though, continue to win due to the issue with buyers who have great income but haven’t accumulated much in the way of liquid assets.

So then we see another staredown- what will happen first?  Will coop prices have to drop much, much further before building rules become less onerous?  Or will buyers magically start to accumulate wealth faster?  My guess is that for cooperatives to become more competitive with the growing percentage of condominiums, they’ll relax their rules first.  Otherwise, the argument for buying in a more expensive condominium project remains quite compelling.

Too much changing, not enough staying the same.  Makes for plenty to discuss month in and month out.  -Scott


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