Haunted Houses? The 5 Scariest Things About the RE Market Right Now

Happy almost Halloween.

When did Halloween become such a major holiday, anyway?
Since it’s top of mind, I am using it to share my thoughts

on the state of the market right now.
Is it scary?

A little.

But that’s probably sensible, given the mixed messages we’re getting every day. Massive sales across the New Development landscape.

Bidding wars for condos and coops, from 1- to 5-bedrooms.

Properties sitting on the market.

Sellers overpricing their properties.

How do we make sense of it?

Can we make sense of it?

We shall see.

I’ve put together a short list of what scares me about this market.

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INCONSISTENCY
Some bankers

tell me that

the stock market is running out of steam. Colleagues

are telling me that sales have softened at the top of the market, confirming something

I

have seen myself.
Mortgage rates are significantly lower than they were 6-9 months ago, even a year ago.

Bidding wars.

Things on the market.

What is true?

Is there a trend?

Fewer high end sales in the 3rd quarter meant a lower average price, per our most recent report.

And quarterly reports reflect activity from the quarter before.

So odds are that at the high end, softening will be more pronounced in year-end numbers.
And yet, while sales volume is likely to be down year-over-year, 2015 still will be the 3rd or 4th best year the firm has ever had.
So, really, not only is there not

a trend, but there isn’t consistency.

There is little information that would guide anyone about a

market trend.

This is probably the scariest notion, from

my point of view.
A colleague

and I were speaking

at the REBNY Deal of the Year Gala last night.

Her prediction: “It’s going to be a great quarter.

Sellers will finally realize that they are overpriced, and we’ll see price cuts, and a TON of business will get done.”
The problem has been that the strong quarterly numbers and overall strong prices have given sellers overconfidence in their pricing.

We

probably will come back to earth, and perhaps this colleague will be right.
If a trend forms, buyers and sellers will have a better platform on which to come to terms and make deals happen, even if pricing is trending flat.
__________________________
STILL NO INVENTORY
What scares me about the lack of inventory?

There aren’t enough transactions happening

to

help with pricing, really.

It feels like the demand is being driven by borrowing costs alone, rather than quality of product.

And if everyone decides to put property on the market at the same time, right when rates tick up, it could

get

interesting.

We need inventory, desperately, to help temper

seller expectations.
__________________________
GLOBAL ECONOMIC WEAKNESS

Is that true?

Is borrowing cost the only demand driver?

I think that it is, probably,

for co-op purchasers.

But current global economic weakness

seems to be another major

motivation for

condo purchasers.

Countries in bad shape are seeing their wealthy

citizens

park money here

as a flight to safety.

I worry that there is only so much money globally that will pay any price for safety.

Dropping returns on condo investments have rapidly approached 2% cash-on-cash.

This seems laughably low to many, and perhaps it is.

But I worry that NYC simply will

run out of wealthy investors. Further, will bank bonuses be lower in 2016?

It is growing harder and harder to make money without biting off way too much risk.
Oil is just one factor that has crushed some countries’ economies.
Russia has dried up. China is still going strong, but Europe far less so.

Europe is doing terribly.

It will be curious to see if South American and Middle East investors can pick up the slack.

They still play no role in co-op demand.

South America can’t get out of its own way.

Asia has a lack of transparency about what is really going on with its economy.

So, there is a lot to be worried about in the world, economically speaking.
_________________________
PSYCHOLOGY STILL PLAYS AN OUTSIDE ROLE
Just as in the stock market, psychology plays an outside

role in real estate: optimism this week when the s&p is up, depression in August when China was imploding.

I’ve seen psychology swings even in the last 6-8 weeks.

I fear that buyer fatigue will settle in at any time, that buyers could move to the sideline; any major stock market drop

causes some buyers to step back.

Buyer psychology seems a bit more fragile, without a trend line to fall back on.
__________________________
PENDING PRESIDENTIAL ELECTION
Maybe I’m imagining this, but I do wonder how the current silliness in the Presidential campaigns affects the real estate market.

I could see potential trouble if certain people on either side of the aisle were to win their nomination.

I’m not sure socialism or Trumpism will end up being a

net benefit to the national psychology, and ultimately the financial markets, trickling down, quickly, to housing.

So

this may be

a less scary hobgoblin to worry about, but

is perhaps

something that will get scarier over the next 12 months.
__________________________
IN SUMMARY
There is no way to predict how any of these monsters will end up combining to wreak havoc in the real estate market, but as dark news creeps out from many corners, it clearly provides many opportunities to worry.
Hopefully there will be some sunlight and some clearer skies to talk about in the coming months! -S