Where are we in the real estate cycle?
I recall a cult-classic movie “That Thing You Do” in which the record label producer wanted to keep the songwriting upbeat and snappy…
I have lamented at times when there is not
that much snappy or peppy to say.
And of course there is the old saw, “If you don’t have anything nice to say, don’t say anything at all.”
But I’ve been through the real estate cycle before.
From 2002-2008 things were red hot.
Everything was selling, even new development that was poorly done.
Perhaps at $600/square foot that was okay.
And of course now we’re at $1500 per square foot for a lot of mundane condominium product.
New Development at the highest end can be up to $8000-10,000 per square foot.
Bear in mind that in the last cycle the MOST expensive price per square foot had been 15 Central Park West, which was around $2000 per square foot, and now walk-ups in the west village are selling for that much.
My firm will be marketing a lovely development near Columbia called the Vanderwater with pricing starting around $1800 per square foot and moving up for the units with views.
This is for 122nd street and Broadway!
Looking at current product, conversions like the Belnord has initially come out at pricing of $3500 per square foot.
These lofty asking prices are now coming back down to earth in the range of $2500 per square foot.
Can we please take a moment to think about this?
My reaction to some of the concern on the part of buyers or sellers looking at prices retracing to lower levels.
So what?
Is it so horrible that we seem to be moving back to earth a bit?
I really do think of it as a soft landing of sorts, though admittedly in pockets it’s less pretty.
I write about this month in my other post.
We could talk about the Financial District or many Upper East Side coops 3000 square feet or larger, where many things are at a standstill.
We can talk about listings on the Upper West Side, where buyers are absolutely pushing back on aggressive prices.
There seems to be a divergence between the pricing where listings are coming to market.
It seems to me that either asking prices are (a) slightly below value, in which case they see a lot of interest, bidding wars, etc.
Properties like this at 33 e 70th (bidding war with super low maintenance), and like this with river views…
On the other hand, we get sellers who seem unable to believe that the market has retreated and are (b) still pricing too high!
Townhouse closing prices of late have been surprisingly low, asking prices formerly in the $30-40mm range moving into the high 20’s, often closing in the low $20’s.
Price chops abound all across the city.
So the question, where are we in the real estate cycle?
The stock market is described sometimes looking like this:
I can’t decide if sellers are in denial, or if we’ve somehow skipped all the way down to capitulation.
I suspect that, like in many situations, some sellers are trying to move ahead of the pack and pricing in advance of the market. Others are still somewhat in denial.
So we have a little ways to go yet.
I write here about absorption rate as the most accurate measure of where the market is, the leading edge.
The way it has been measured at our firm is as follows:
- We look at the number of units sold per month by size and neighborhood
- We create a rolling monthly average of sales per month, based on a 6-month period of time.
(# units per month sold)
- We divide the current number of units on the market by that rolling average sales per month
This creates the absorption rate.
A number of months to sell everything on the market in a snapshot.
This works pretty well.
In a declining market, where either inventory is going up, pace of sales is going down, the six-month average smooths out the absorption rate a bit, but has a flaw.
What if the market completely dies?
What if it falls off a cliff?
Use whatever metaphor you wish, but when sales slow dramatically, the absorption rate is simply inaccurate.
What I’m gathering is that sales have slowed drastically, even when seasonally adjusted, and inventory is picking up drastically as well.
We are the moment when buyers who are prepared to commit for a while want to make an intelligent buy, are not urgent to make that move, feel the need to be fully educated on the market, so they can buy quickly when an opportunity presents itself.
Some buyers have gotten a bit sullen because of this divergence between higher prices (sellers in denial) and where they see the market.
It may take a while for more sellers to get real, or it may just take a ton of additional inventory to market for sellers to see their apartments get passed by.
Either way, it’s an interesting time.
That’s for sure.
It’s not that sellers are actually losing money from when they bought in 2007/2008, but I think for them it feels that way.
More recent new developments are seeing many resales selling below their offering prices.
Every situation calls for a specific analysis.
I’m never going to be one to encourage buyers or sellers to try and time the market.
Buyers are seeing great deals right now.
I’ve been harping on this for a few months now.
And sellers in many cases are still taking large gains from the sales.
Those who are upgrading apartments have great opportunities to buy, especially units that need work.
So there are vast opportunities for buyers and sellers.
It’s all about getting good advice.
Contact me or my team to get some…
Have a great month! -Scott