« New Four-Unit Building For 4th Place Checking In On the Cherry Hill Tree Condos »

January 28, 2009

Knakal: Supply, Not Demand, the Problem This Time

When comparing 2009 to the recession of the early ‘90s, a striking difference is that today there is a tremendous amount of patient capital waiting on the sidelines eagerly awaiting buying opportunities. The reduction in sales volume in the early ‘90s was primarily a function of lack of demand, as supply was significant. Today, the reduction in volume is much more a function of supply constraint as all of the negative news about the economy and our market has many sellers feeling as if they should not be voluntarily selling. — Robert Knakal of Massey Knakal




Posted by Brownstoner at 10:42 AM | Comments (23)
Categories: Market

Trackback Pings

TrackBack URL for this entry:
http://www.brownstoner.com/mte/mt-tb.cgi/8163

Comments

overall, i will remain convinced that supply will always be a problem in NYC. in 1996 when i was looking, the broker said that "i have a lot of you people" meaning buyers, but "not enough property."

i agree with the post, that when the economy levels out whenever, that there will be a lot of pent up demand, and if the supply is affected by condos going rental, then, it will be a seller's market all over again.

Posted by: wine lover at January 28, 2009 10:56 AM

patient capital - Miss Muffett?

Posted by: dittoburg at January 28, 2009 11:07 AM

This article relates to investment properties (of under $100 million), and states that most owners of such properties are choosing not to sell at this time. It also states that capital (that is, big money) is being patient. As a result, volume is low.

The article has nothing to do with the average Joe or Ms. Muffet who are waiting to buy a reasonably-priced home to live in. As for that kind of property, supply continues to grow due to over-construction, while on the demand side there is not so much "patient capital" as there is "lack of capital".

Posted by: Paul C at January 28, 2009 11:12 AM

And how long do you think the Fed is going to leave interest rates at 0.5%? What happens when mortgage rates go to 8 or 9 percent? I will tell you if home prices are falling while mortgage rates are near all time lows then only one thing can happen when interest rates go up and that is home prices falling even more.

Posted by: hannible at January 28, 2009 11:30 AM

They can't hold out for much longer. It'll be -0.5% in a couple of months.

Posted by: dittoburg at January 28, 2009 11:34 AM

hannible ... you are exactly right. there will be whipsaw unlike anything that's been seen before. when credit begins to flow again we will be staring at an inflation threat unseen for many decades. the ONLY way to head that off will be by jacking rates up very very quickly. and then BAM! house price declines will resume their declines. in real dollar terms you could realistically see 2012 NYC home prices at 1990 levels. i'm not saying this scenario is guaranteed but its a real possibility.

Posted by: martis at January 28, 2009 11:36 AM

"...in real dollar terms you could realistically see 2012 NYC home prices at 1990 levels. i'm not saying this scenario is guaranteed but its a real possibility."

Posted by: martis at January 28, 2009 11:36 AM

In my opinion that would be great...
In 1990 the building 2 doors down was offered to us for $800k. In 2003 it sold for $3 mil. In 2005 it sold for $4.4 mil.

I realize that wont happen exactly (the $4.4 mil building will not list/sell for $800k in 2012, etc...) but to see things listed/sell for even half of what they are now would be a very good thing imho.

Posted by: christopher at January 28, 2009 11:43 AM

Did any of you ever receive Massey Knakal's sales report in the mail? Over 75% of their closings seem to be cash deals.

Lately I've noticed a few owners of 6 to 8, 20 to 40 unit apartment buildings unloading their property, sort of like a last hurrah since prices are slated to go down. Every now and then a see a little spike like that but I think it may have as much to do with individual owners aging as market conditions.

Posted by: Bessie at January 28, 2009 11:55 AM

Massey Knakal can try to paint it whichever way he wants to make his sellers feel better. Supply constraint? Blah, blah, blah. Yo Knakal, financial jobs are evaporating in this city, how is that for a demand function...

Posted by: Dora Chica at January 28, 2009 12:04 PM

Supply is hidden. The foreclosure process is chronically slow (If it was faster and less tenant-friendly like other states, voila! We wouldn't have this thread). And banks don't want to move that fast anyway because they know it'll depress prices on holdings they're already trying to sell. You'll see. An inventory glut will be front and center very soon.

***Bid half off peak comps***

Posted by: Brownstones Half Off at January 28, 2009 12:11 PM

the report is a classic example of attempting to give an air of authority through statistics (to 2 decimal places) but completely missing the point.

The supply might not be significant yet but it will be soon.

Now this could be attributed to a vested interest broker who is motivated to try and keep prices up. However, he would probably be better served to tell it how it is and urge prospective sellers to try and sell now as a means of preserving capital or providing a cash cushion in the event of redundancy.

Posted by: the chicken at January 28, 2009 12:18 PM

"...in real dollar terms you could realistically see 2012 NYC home prices at 1990 levels. i'm not saying this scenario is guaranteed but its a real possibility."

Depends on the number you use for inflation, but if you use 4% then the factor is (=1.04^22) or about 2.4 x the 1990 price, 22 years later to get a "real dollar" number. That would mean christopher's 800k house would be about 1.9Mil, pretty much "brownstones half off" from the peak.

Posted by: Bklnite at January 28, 2009 12:36 PM

Once again, fox reports henhouse is secure...

Posted by: SnarkSlope at January 28, 2009 12:42 PM

I am experiencing exactly this in the high end. Brownstones/townhouses on the market in Park Slope are few, with the same ones being on the market for a few months. If these sellers are in a position to wait, that is what they are doing and being advised to do.

Posted by: broker at January 28, 2009 2:14 PM

In 1990 interest rates were very high. That is another piece of the equation. No one thought we would survive that. things were very very bad. New York Magazine wrote an article about someone who actually bought a house in Cobble Hill, because no one could believe that there was anybody buying anything anywhere.

Posted by: sam at January 28, 2009 2:51 PM

I don't get it -- what supply is constrained? The only constrained supply I see are the flippers and "Irish carpenters" thinking they can invest in NY real estate and make a mint. What about all those half-sold (at best) new condos all over the city? There is plenty of supply (albeit not brownstones). Coops/condos -- not selling -- no one is even trying unless they are are forced and pricing is down 20-30%.

Posted by: BH76 at January 28, 2009 3:10 PM

Brownstones are less than 5% of the Brooklyn market by volume. They are in a permanent and increasing state of scarcity. THis is not to say their desirability or price will increase permanently, but many of the traditional symptoms of oversupply simply don't apply to this kind of housing stock.

Posted by: Frederick Law Homestead at January 28, 2009 3:54 PM

Yeah, this time it's different.

;-)

Posted by: SnarkSlope at January 28, 2009 4:05 PM

"Brownstones are less than 5% of the Brooklyn market by volume."

Before and after the easy credit spigot was turned on and then off.

"this time it's different"

Famous last words.

***Bid half off peak comps***

Posted by: Brownstones Half Off at January 28, 2009 4:42 PM

People seem to think that markets react very quickly like the stock market. People forget that it took over 4 years for the city to hit bottom after the 1987 Crash. IsnIt will happen again now.

The thing is that the flipper market is dead and all recent buyers are now stuck with a small loss since the financial meltdown (say 5%). Most people are waiting it out. Give it some more time and people will be forced to sell due to relocations, divorces and job loss. The average person moves within 5-7 years in the US.

Sad to say that this is a natural phenomenon. However, home prices increasing 20%+ year is not natural in the long rrun.

Posted by: vinnie_barbarino at January 28, 2009 6:57 PM

Well there is a limit supply of homes because our wonderful mayor said not too long ago that there was room for 1 million more people in our city-I think he wants us to all sleep in bunk beds. If unemployment really starts to hit the city then you will see as much as half a million people leave the city. That will be more or less 200,000 high end apartments empty! Once severence pays and unemployment benefits run out so will the high rent money. Unless renters get TARP money I see alot of forclosures on the way!

Posted by: hannible at January 28, 2009 7:03 PM

Hannible, others, houses are cheaper to buy now than they were in 1990.

$4 million at an interest rate of 6.5 (with 20 pecent down) is $20,000 a month.

$1.9 million at an interest rate of 20 percent (with 20 percent down) is $25,000 a month.


Posted by: mopar at January 29, 2009 12:58 AM

Good Mopar but the problem is the 20-25,000 dollars a month. If that is suppose to come from the rent you will be collecting and that way the market is headed I don't see rents at 5000 dollars a month per floor. If rents are 2000 dollars a month your house income is circa 80,000 dollars gross. The banks not I will assess you house at about 700-850,000 dollars if you do not have proper collateral to cover the full value of your home. That is why I don't understand how people are asking 2-3-4 million dollars for investment properties.

Posted by: hannible at January 29, 2009 5:43 AM

Post a comment

Please be patient while your comment is published. It may take a moment.

Latest Restaurant Additions