I have heard that drinking makes most things better.
Even vasectomies, apparently.
So, as I normally write these blog posts about Real Estate, let’s talk about drinking alcohol and drinking the Kool Aid.
It’s the middle of summer.
Usually things get a bit slower.
We have a moment to look around.
I’m reading articles about developers trying to get city ordinances changed to allow open container policies (something that I grew up with in my hometown of New Orleans).
Does that really add value?
I certainly thought that Epcot, with its open container policy, got a lot more fun around 3/4pm than Disney world…here’s a guide to that endeavor.
What I’m seeing in New York, though, is that buyers are drinking a lot less Kool Aid than sellers and developers.
Even in China, cooler heads are prevailing and pushing back on the prices being paid for, and therefore its lending against, overseas assets.
While this won’t impact the formidable pace of smaller purchases across the US, in New York we may see fewer deals like we saw with Anbang’s purchase of the Waldorf Astoria.
You may be surprised to note that New York City is
not seeing as many foreign buyers as other markets are.
Other markets are taking the lion’s share of the $150B spent on residential real estate in the US: Per the NY Times, “Florida, California and Texas accounted for 46 percent of the total, with
following at 4 percent each.”
Don’t forget that Canadians spent about 1/3 the amount that China did on US Real Estate.
So it’s quite diverse in terms of the buyer pool.
Does that mean that foreign buyers are less interested in NYC, or that prices have run up too high?
Or that sellers remain unrealistic?
Given that we’re seeing substantially more activity in Brooklyn than Manhattan right now,
I’m going to surmise that it has more to do with pricing than interest level.
With Real Estate taxes substantially higher in Manhattan, this also plays a large role.
It would seem that buyers are also coming back to earth as the new developments in which they are purchasing are closing, or a few months later.
These buyers aren’t even in the market anymore, given that they have closed on their purchases. But buyer lawsuits, so common back in 2008-2010, are popping up again.
Does that mean they are unhappy?
I see it as a sign that pricing may still have a little room to drop in the current market.
Which brings me to another issue with New Development.
If prices are down, and some contracts were signed 2 years ago, how does a developer manage the sales process?
If one buyer notices that another buyer bought the same unit for substantially less, it of course creates a potentially explosive situation.
We have seen lots of different ideas of how to keep everyone happy, but it’s a real issue, regardless.
The kool-aid fueled rage of apartment purchases of 2 years ago has certain subsided.
It has been replaced by a sober, calculating sort who is looking for value.
The buyers who missed the market of two years ago by luck or timing, have woken up to a far more plodding market, with less urgency.
I don’t know when the party will start again, but it’s a convenient metaphor for some of the excesses that we see from time to time in our market.
Certainly developers are coming down from a high, and are coming to grips with a new pricing reality.
Sellers of resale units will need to study the most recent closed sales to know what’s reality and what is hallucination.