The Housing Bubble

A report from Kings County Politics in New York. “With Canarsie and East New York leading the way, foreclosures in Brooklyn doubled last year and were at their highest levels in over a decade, according to PropertyShark. The reports found that 827 homes were scheduled to be auctioned in Brooklyn during 2017, while there were 410 first time foreclosures in 2016. The previous record dates from 2008 when foreclosure cases peaked across the city and Brooklyn had 460 homes scheduled. The highest concentration of foreclosed homes is located in the eastern part of the borough, with zip code 11236 in Canarsie logging 113 new cases. Neighboring zip codes 11208 (East New York) and 11234 (Canarsie) follow with 94 and 86 cases, respectively.”

“‘A lot of people bought without a lot of resources and then something happens that collapses their plans. For certain there are a lot of real estate brokers that arranged for people to get houses that they just couldn’t afford,’ said City Councilman Alan Maisel (D-Canarsie, Flatlands, Bergen Beach).”

“There are a lot of people who come into the office that make around $50,000 and are paying on a $500,000 mortgage making them house poor and yet they don’t want to sell their house because they see it as their investment and retirement, said Maisel. Maisel said while he is not surprised that foreclosures are up in the neighborhood, there could be more coming as last year there were between 800-900 homeowners that were earmarked for liens against their property for failing to pay water and property taxes.”

From The Observer. “The Plaza Hotel remains one of New York City’s ultimate trophy properties. But as a real estate investment, The Plaza may be losing its luster. With its quirky prewar layouts and competition from a glut of glittering super luxury towers like One57, 220 CPS and 225 West 57th, sales of the hotel’s residences have been somewhat challenging, according to even the most optimistic brokers. And sellers are certainly not seeing the massive flip profits that can be seen at similar luxury buildings.”

“‘A lot of these apartments are overpriced,’ Chris Fry of Elegran, who is listing an 4,665-square-foot, four-bedroom unit in the building for $18.9 million. He says, however, that his listing is priced to sell. ‘But if you are Tommy Hilfiger you can basically let it sit there,’ at whatever price, he adds.”

“Hilfiger isn’t the only victim of what industry insiders refer to as ‘aspirational pricing.’ Although it’s not currently on the market, developer Harry Macklowe, of 432 Park fame, recently claimed in court that his seventh-floor Plaza residence is worth $107 million, which is $7 million above the price of the most expensive condo ever sold in New York, according to the Real Deal. Real estate appraiser Jonathan Miller of the firm Miller Samuel puts the value of the unit closer to $55 million, which is $5 million less than the Macklowes paid for the apartment in the heydays of 2007.”

“It’s certainly not a problem that’s unique to The Plaza. Sellers across the city, unwilling to face the realities of the current marketplace, brought the top end of the market to a virtual standstill in 2017. It is, however, an issue that is acute within the Plaza. Of the 11 apartments listed at the Plaza that are asking over $10 million, more than half of them have recently slashed prices—perhaps an indication that sellers are getting realistic.”

From The Real Deal. “Extell Development quieted naysayers betting against Central Park Tower by closing $1.14 billion in financing for its planned supertall. But now the clock is ticking for Gary Barnett’s firm — thanks to a loan clause that requires the developer to sell $500 million worth of apartments by 2020. Despite that three-year runway, luxury pads are taking longer to sell compared to years past: Properties asking $4 million or more spent an average of 433 days on the market in 2017, compared to 318 days in 2016, according to Olshan Realty, which tracks luxury units placed under contract.”

“Miller Samuel data show that discounts got steeper for more expensive properties: The average discount was 5.8 percent for pads priced between $10 and $20 million; 12.5 percent for $20 to $30 million; 14.9 percent for $30 to $40 million; and 26.2 percent for properties priced at $40 million or more.”

“‘There’s this false idea that nothing is selling; the issue is that most of the stuff in the $10 to $20 million segment is overpriced,’ said Brown Harris Stevens’ Lisa Lippman. She said one of her clients was recently bidding on a condo whose owners upped the price from $18 million to $19.3 million. ‘My client was willing to bid in the high $18’s,’ she said. But the higher price was simply ‘not going to happen.’”

“She said sellers (and developers) — got overly ambitious with prices in 2015 and 2016. ‘There gets to be a point where even the very wealthy push back,’ said Lippman. ‘If you price at 2013, 2014 levels, units will sell. There’s just not this 20 percent of fat on top.’”

“That’s especially true in new development, where supply far exceeds demand. The ratio of inventory to sales for properties above $30 million was six-to-one last year, according to data from StreetEasy. There were just 24 deals in that price category, but 145 for-sale properties on the market. (For the $10 to $20 million segment, the ratio was three-to-six; and for properties asking $20 to $30 million, it was five-to-eight.)”

“Grant Long, a senior economist at StreetEasy, said the pipeline of projects still being built gives him reason to believe the luxury market will remain soft this year. ‘Each new building is trying to outdo the next,’ he said.”

From The Cooperator. “There was a drop in average price for Manhattan co-op resales from $815,000 to $785,000, representing a 4 percent decline from third quarter 2017 to fourth quarter 2017, for reasons similar as condominium sales. Perhaps the most significant changes in the market are in inventory and months-of-supply. Market wide, the overall number of units available increased by 9 percent since fourth quarter 2016, jumping more steeply from the third to fourth quarters in 2017. ‘This represented the highest fourth quarter total since 2011,’ said Corcoran. ‘This inventory increase was fueled by increases in new development inventory at recently launched developments Downtown.’”

“Overall, closed sales remained virtually unchanged over fourth quarter 2016, though they declined 15 percent over third quarter 2016, a possible ‘canary in the mine shaft’ for 2018. This decline may be related to uncertainty over the new tax bill passed by Congress and signed into law before Christmas. The law severely restricts the deductibility of state and local real estate and income taxes from federal tax calculations going forward. That provision is seen by many as a possible ‘dampener’ on prices in tax heavy states and cities, such as New York.”

“‘The new tax law applies strongly to the New York City market,’ says Simon Seaton, an agent also with Halstead, ‘and will play a larger role in buyer decisions. Its ultimate affect still remains to be seen.’”

From Bloomberg. “Apartment rents in Manhattan fell the most in almost four years as landlords made deeper price cuts to lure tenants in a market brimming with choices. Landlords agreed to accept a median rent of $3,295 last month, or 2.7 percent less than the previous December, appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate said in a report. It was the biggest annual decline since February 2014. After concessions such as free months and the payment of broker’s fees are factored in, tenants paid a median of $3,208, down 2.5 percent from a year earlier. That decline was also the biggest since February 2014.”

“After two years of propping up apartment prices with behind-the-scenes offers of free months and gift cards, owners contending with a flood of supply could no longer hold up the dam. They still offered sweeteners — last month, in 36 percent of all new leases, a record share — but they also agreed to whittle what they charged in rents.”

“‘The concessions were working for a while, but the consumer is now really pushing more on the negotiating side of the rents,’ said Hal Gavzie, who oversees leasing for Douglas Elliman. ‘The price points needed somewhat of a correction.’”