The End of Aspirational Pricing

Over the last few weeks, I have been asked from time time to sum up my thoughts on the market.

One recent morning I responded, “I think we’ve seen the end of aspirational pricing for some time.”
Something about that comment seemed to resonate with me.

What do I mean?

First, I do not intend to come off as negative.

On the contrary!

Mortgage Rates are down, inventory is low (but rising), and we’re still seeing serious interest below the $3mm pricing level.

New York City jobs are surging, DeBlasio is 25% of his way towards the creation or preservation of 200,000 units considered to be Affordable Housing.

I actually think that we are finally starting to see some sellers get less aggressive with their prices.

Adding 5-10% to last year’s comparables is over, as a pastime.

Instead, we are seeing more and more realistic pricing, 2015 pricing, even 2014 prices.
To explain this, I’ll tell you a short story.

A friend told me that though he had bought three years ago, he had never turned off his property search on a property site (okay, Streeteasy).

For a time, he was no longer getting any email alerts of properties that were fitting his search.

This makes sense- prices have certainly moved up in that time.

This Spring, into the summer, he told me that he was suddenly started to get email alerts on a regular basis.
Where I’m going with this is as follows.

With incredible infrastructure and public/private projects happening all over the city.

Think Pier 55, Pier 57 (the Super Pier), The Lowline, City Vineyard along the West Side Highway, Hudson Yards well underway, the completion of the Highline, South Street Seaport, all of the piers and parks popping up from Chelsea Piers and North, the revitalization of the Bronx and other ideas there, the expansion of parks in Greenpoint, I would go on and on…

There has never been a better time to be out and about in New York.

And now prices are coming down?

AND mortgage prices are coming back down to historic lows?
And yet.

There still remains a gap between what buyers want to pay and what sellers are asking.

Is there any question that buyers should be out and about making offers now?
This is quite a shift.

I believe that buyers are getting bolder in making offers where they see value.

Last year, buyers were still afraid of asking prices. I am seeing less of this.

Buyers are seeing asking prices, perhaps still too high, but are testing the waters.

Of course the pendulum will swing too far in the other direction, and buyers will undoubtedly get cocky.

I do not see “lowballing” as a very successful strategy.
There are other headwinds which will provide opportunities for buyers.

First, there is lots of rental property being built and hitting the market.

Rental prices have been softening, which will put pressure on investment property pricing.

Condo inventory has been creeping up.

I expect this to reach a significant inflection point in the Fall as real sellers start to get real.

Our July absorption report, hot off the presses is here.

The pace of sales is 21% slower than this time last year.

That is concerning, but not a surprise.
For other meaning of the word aspiration is “the act of drawing breath.”

Yes, sellers have been aspiring to reach new pricing levels.

And many buyers, in response, have been taking a big, deep breath, and pondering where prices really should level out to in the coming 6-12 months.
My expectation of a year filled with more sales volume and flat-to-down has yet to come to pass at the high end, as buyers seem to be holding off on purchases.

In a year filled with election cycle noise and way too much anger, global chaos and violence in the news every day, buyers do not yet seem to be in the mood to plunk down large downpayment.

I understand.

But under $1mm, the market continues to rage.
Looking for an explanation of strength at the low end, I believe that healthy inventory and reasonable pricing has driven the market.

My expectation of rate increases continues to get kicked further and further down the road as well.

I just don’t trust the Fed.

One new dip in the stock market and talk of rate rises seems to disappear.

Not really that healthy, is it?

I just cannot envision this holding pattern going on for too much longer in the $1-5mm range.

New Fall inventory will hit the market, and buyers may finally see the opportunities they’ve been waiting for for a year or two.

It should prove to be a very interesting Fall selling season, especially given the lackluster Spring we had, and slow Summer we’re seeing.