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October 2, 2008

Buyers Cooling to Brooklyn

williamsburg_0908.jpg
The Brooklyn condo market is not longer hot, hot, hot, reports the NY Observer, but just kinda luke warm. Condo sales dropped 11.3% percent in the second quarter, from 778 to 690. "Although prices continued to rise, the average condo sales price increased by only 4.9 percent from the quarter before—$573,060 to $601,280—compared to 8.6 percent from the same quarter last year," they write. So, what's that mean for you? Fingers crossed, the Wall Street meltdown will result in a buyers' market, or at least in developers trying very, very hard to please potential customers. As our own Mr. B says in the piece, "Anything that can make a project stand out right now, whether it’s the design or the finishes, that’s more important in a tough market.” Some projects seem to still do well, including the Edge and One Brooklyn Bridge Park. As one broker notes, “We have seen a slowdown but we haven’t seen it stop.”
Hurricane Wall Street Hits the Boroughs [NY Observer]
Williamsburg Bridge, Williamsburg Savings Bank. Photo by Vidiot.




Posted by lisa at 9:03 AM | Comments (27)
Categories: Market

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Have any stats been done as to how many condo projects are in the works and how many units are coming into the market?

A realtor colleague ( someone I only 1/2 trust ) that 500-1 thousand condos are sitting in Brooklyn unsold and 2-3 thousand are coming into the market in the next 2 years. Unless he was including Atlantic Yards, I find these figures highly questionable.

Will there be that much inventory glut?

Posted by: Prodigal_Son at October 2, 2008 9:10 AM

From today's Gartman letter...

Fitch tells us that 42% of all adjustable-rate mortgages
sold in '06 were option ARMS... twice the rate of the year
previous. Further, Fitch estimates that on the order of
$100 billion of option ARMS will be reset over the next
two years. Further, and most ominous of all, monthly
payments for those homeowners will increase by a
stunning average of 63%! In other words, someone
holding an option ARM on a $250,000 mortgage could
see his/her monthly payment on that mortgage leap
skyward from $804 to $2,027.

Posted by: daveinbedstuy at October 2, 2008 9:13 AM

I just cant believe that thes condos will condtinue to do so well. There are just too many of them and they're in shitty neighborhoods...I just dont understand why someone in this market would drop 600,000 on a condo in Bushwick thats a ten minute walk to the subway. I dont care how nice the bathroom fixtures are, its idiotic to me.

Posted by: clintonhillbuyer at October 2, 2008 9:58 AM

I have an ARM and it was adjusted down to 6%, which is the lowest it can go. Interest rates are pretty low now. that's not the problem.
Inflation is going to be the problem. Perhaps in the next couple of years two million dollars for a house will seem like a bargain.


Posted by: sam at October 2, 2008 10:13 AM

We have been looking on and off for the last year in Brooklyn (Prospect Heights / Crown Heights / Lefferts). There are a bunch of new smaller condo projects that I have visited, and they always seem empty. I walk by every few weeks to check things out, and there is no activity, just a quiet building, with empty units. I'm usually the only person at Open Houses. The developers always have banners saying "50% sold!" but I just can't believe that's the case. Can they misrepresent that? Anyway, maybe prices will come down a bit. I'd be happy to put a dent in the supply of condos... at a very very reduced price of course.

Posted by: theandrewlee at October 2, 2008 10:19 AM

You are correct Sam. Warren Buffet was on Charlie Rose last night, and he said exactly that...inflation will be a problem in the coming years because of this crisis.

He also said that while the immediate prospects are bad (he said the economy could turn in as early as 6 months and as late as possibly 2-5 years) but that his overall prospects for the country were great. He said think about the last 100 years...2 world wars, the Great Depression, 9/11, and the country has moved leaped and bounds in that time despite those obstacles.

Really interesting to hear his take on all of this.

Posted by: 11217 at October 2, 2008 10:30 AM

sam - I think you got it backwards - we are experiencing massive de-leveraging, and are facing a tremendous recession if not depression - the issue is DE-flation, not inflation.

Posted by: fsrg at October 2, 2008 10:31 AM

dave in bedstuy, i dont know where you get your numbers from but they make zero sense.

for a 250000 dollar mortgage to have a 804 payment it needs a mortgage with an interest rate 1%. how many people have these ??

for the same mortgage to go to $2027 it would have to adjust to over 9%. anyone who took a teaser rate mortgage at 1% that adjusts to 9% is an idiot who deserves to lose their home.

how man people in brooklyn do you think actually have this type of mortgage. this scenario is hyperbole at its best.

Posted by: mule at October 2, 2008 10:34 AM

so again as i see your source , your telling me 42 percent signed an option arm. but a rise of 63 % of 804 makes the payment approx 1500 dollars an interest rate of 6 percent. did a person who took a 1 percent teaser rate expect one percent forever?? i doubt most of these house will foreclose(unless flipping) given that i would think most buyers would understand they would reset within a year and know their future payment.

Posted by: mule at October 2, 2008 10:39 AM

mule...then you just don't know what an "option" arm is. But you're right, I don't think these are very prevalent in Brooklyn.

Posted by: daveinbedstuy at October 2, 2008 10:43 AM

Deflation? No way! The government is going to print money like there's no tomorrow to get out of this. Where do you think they're going to get 700 billion? By selling Alaska back to the Russians?

Posted by: sam at October 2, 2008 10:51 AM

So prices increase ONLY 4% and we are supposed to panic? When prices decrease more than 10% in a quarter then we can start to get a little sweaty and buyers will start to trickle in and if we are lucky banks will lend. It will slow down here without a doubt, but where is all the attitude of NYC is the greatest fucking place in the world.? Come on people this aint Dayton Ohio.

Posted by: billyboomer at October 2, 2008 10:53 AM

Sam said: Where do you think they're going to get 700 billion? By selling Alaska back to the Russians?

If we could toss Sarah Palin in it wouldn't be a bad deal.

Posted by: wasder at October 2, 2008 10:57 AM

If we sell Alaska back to Russian can we make sure Palin is included in the sale. The CIA could get her elected in Russia, and through her stupidity she could bring Russia to the brink of collapse, we could borrow money from the Chinese, McCain could swoop in on his white horse take over Russia and viola our energy crisis solved and we can all go back to driving HUMMERS. Yippeee!!!!

Posted by: billyboomer at October 2, 2008 11:00 AM

Um, prices rose 4.9% in one quarter...

So almost everyone here said that 2006 was the top, huh?

In that time, prices have increased another 20% roughly. Some neighborhoods/properties a little more, some a little less.

So if they drop 20%, we'll be...well back at the top...

Posted by: 11217 at October 2, 2008 11:02 AM

As I said, fsrg...Warren Buffet last night said that inflation will most certainly be a problem. I think I'll listen to him more than an anonymous poster on a blog.

Posted by: 11217 at October 2, 2008 11:03 AM

As I understand it, the steps we need to take to fight deflation (which will lead to a depression, which is worse than a recession) will likely lead to a recession. But we're already in a recession, FYI. The questions I have are: Can we avoid deflation with the bailout plan, if so, how long will the recession be? Buffet seems to feel like any plan is better than doing nothing. We need a huge capital infusion into the system, and a little bit of luck.

Posted by: MacD at October 2, 2008 11:16 AM

I'd love to see that quote - got a cite -

and while you can certainly take Buffet's word over mine - you find virtually no economists who believe that we are facing inflation and certainly not inflation in HOUSING


Yes the Govt will be printing money like crazy but it wont cause inflation until businesses regain pricing power, which will not occur until their is some economic recovery - and that is looking fairly far into the future...then you're right we may face tons of inflation - but again not likely for even longer in housing.

Posted by: fsrg at October 2, 2008 11:19 AM

Warren Buffet certainly knows about markets and money. He, like most "Captains of Capitalism" believes that the bailout is more of a buy-in. But for those of us on the ground it certainly seems like a bailout. After all it will allow many of these Wall Street loons to keep their jobs and kushy offices. That's kind of a bailout. As a New Yorker, I understand the importance of keeping these sharks alive, but I wish they wouldn't lie to us and say it's about "us" not "them" because it is about them too. They will not be out on the street without jobs, or at least not as many of them. In my opinion they all deserve to lose their jobs and every shred of professional credibility. All the heads and honchos of the tanking firms should be thrown off the island!

Posted by: sam at October 2, 2008 11:19 AM

It's New York City Survivor:

Let's start voting people off!!!

Posted by: 11217 at October 2, 2008 11:31 AM

Here is the broadcast of Warren Buffet on Charlie Rose last night:

http://www.charlierose.com/shows/2008/10/1/1/an-exclusive-conversation-with-warren-buffett

Posted by: 11217 at October 2, 2008 11:33 AM

the percent increase is no doubt from the huge amount of $30 million dollar condos on the market.

even if you had a shitload of million dollar condos drop to 800k the percentage would still go up with a few 30million dollar places.

Posted by: Santa at October 2, 2008 11:41 AM

eh

in manhattan that is

Posted by: Santa at October 2, 2008 11:42 AM

These numbers are for Brooklyn, Santa. Condos don't sell for 30 million on this side of the bridge. I think 7 million is the highest or something like that.

And when they take the Manhattan numbers, they typically omit 15 Central Park West and the Plaza where the bulk of the 30 million condos are bought so as not to skew the numbers too much...

Posted by: 11217 at October 2, 2008 11:45 AM

11217- thanks fro posting the W. Buffet interview. Good stuff.

Posted by: TownhouseLady at October 2, 2008 2:14 PM

I cant get the Buffet interview to play, but no matter - just look at Japan and the US during the Great Depression - DEFLATION not inflation was the issueand you will be hearing much more about it as the economy slows.

Just check out oil - its already flirting to go below $90.

I expect will see below $75 a barrel by the end of the year unless we have unusual weather.

Posted by: fsrg at October 2, 2008 3:15 PM

Sorry - never posted before (but read this site all the time) but I can't resist jumping in on this one.

The Warren Buffett interview is being taken somewhat out of context, I think.

It's true, he did throw out a one-liner warning about possible "inflation" as a result of the fiscal/monetary consequences from government intervention in the crisis.

However, taken in the larger context of the interview, I think it's pretty clear he was talking about the same sorts of inflation that we saw a few months ago (e.g., increases in the price of oil, gas and imports as a result of a weakening dollar). Not housing.

Here's what he actually said (the transcript is available on CNBC's web site):

-----------------------------
Warren Buffett: ". . . I would say the biggest single cause [of the crisis] was we had an incredible residential real estate bubble. I mean you can go back to tulip bulbs in Holland 400 years ago. The human beings going through combinations of fear and greed and all of that sort of thing, their behavior can lead to bubbles. And it may have had and Internet bubble at one time, you've had a farm bubble, farmland bubble in the Midwest which resulted in all kinds of tragedy in the early '80s. But 300 million Americans, their lending institutions, their government, their media, all believed that house prices were going to go up consistently. And that got billed into a $20 trillion residential home market. Lending was done based on it, and everybody did a lot of foolish things. And people really behaved in a fraudulent way or something, we'll go back and find the culprits later on. But that really isn't the problem we have. I mean that's where it came from, though. We leveraged up and if you have a 20 percent fall in value of a $20 trillion asset, that's $4 trillion. And when $4 trillion lands -- losses land in the wrong part of this economy, it can gum up the whole place.

Charlie Rose: And it continues with respect to the housing market.

Warren Buffett: It continues.
-----------------------------

He then says some other things about the game of musical chairs that has been going on in the U.S. housing market for the last few years and talks about his new favorite expression (the "triple I's" of any bubble - innovators, immitators and idiots).

Now, smart and reasonable people can differ (and I know that they have frequently differed on this site) as to whether Brownstone Brooklyn is a housing market that is somehow "different" from the larger U.S. housing market (I see both sides of that debate), but to imply that Warren Buffet suggested last night that "in the next couple of years two million dollars for a house will seem like a bargain" . . . with all respect, I don't think he said anything remotely like that.

Posted by: ajaxclorox at October 2, 2008 3:28 PM

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