Manhattan, London Housing Markets Are Suddenly Reeling

When the latest reading on the Case-Shiller 20-City Composite printed within 1% of its record highs from 2006 a little more than a week ago, we asked a question that's seemingly on every real-estate investors' mind: Is this a "top" or a "breakout"?

Case

And with the effects of the Trump tax reform plan - which is expected to hammer real-estate markets, particularly in high-tax blue - having yet to take effect, already states - one early indicator that softness might be entering one of the country's most iconic (and expensive) real estate markets was reported by Bloomberg today. To wit, the trend of landlords handing out rental concessions continued to intensify in January, as landlords are increasingly being pressured to hand out incentives like rent-free months or gift cards to entice potentially renters to sign on the dotted line. Concessions jumped to a record in January, with 49% of newly signed leases coming with some kind of incentive, according to appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate.

Manhattan

That share surpasses the previous peak of 36% set just a month earlier.

All of these concessions have caused the median rent to drop 3.6% from a year earlier to $3,141 - the biggest decline since October 2011 - interrupting six years of near-constant growth.

"Landlords have finally realized, 'OK, we have to adjust these prices because the concessions aren’t doing as much,'" said Hal Gavzie, who oversees leasing for Douglas Elliman. "Customers are looking past the concessions being offered and just looking for the best deals they can find."

Rents fell last month in almost every Manhattan neighborhood, including some of the borough’s priciest, Citi Habitats said in its own report. On the Upper West Side, the median was $3,450, down 2.8 percent from a year earlier. Rents in the West Village dropped 4.5 percent to $3,700, while on the Upper East Side, they declined 5.3 percent to $3,185, the brokerage said.

"The dynamic has shifted,” with Brooklyn, Queens and the New Jersey waterfront becoming viable options to many renters," said Gary Malin, president of Citi Habitats. "Tenants are looking for value, and they’re open to suggestions."

While these data strictly apply to the rental market, we pointed out last year, the commercial real-estate market is having problems of its own: In September, we noted that sales of commercial real-estate plunged 50%, bringing commercial property purchases to their lowest level since 2012. And that problem isn't isolated to NYC: Sales of commercial real estate are plunging across the US, and have been since peaking at $262 billion nationally in 2015.

And of course this was before HNA announced this morning that it would be liquidating $4 billion in US commercial real estate across New York City, San Francisco and Chicago and Minneapolis.

* * *

But Manhattan isn't the only high-end luxury market showing signs of softness. In London, according to the Financial Times, the gap between what sellers are asking and buyers offering for high-end homes is greater than it was in either 2008 or 2009.

But according to one real-estate market analyst, reality is beginning to set in for sellers.

Marcus Dixon, head of research at LonRes, said buyers were becoming more confident in demanding discounts and sellers were ore likely to accept lower offers. "People are going in with relatively cheeky offers, and sellers are accepting them," said Mr Dixon. "There's a bit of realism creeping in about what properties are worth."

LonRes's data cover London's most exclusive districts, including Kensington and Chelsea, as well as prime parts of the capital extending from Canary wharf in the east to Richmond in the west and Hampstead in north London.

Outside the most expensive "prime central" areas, discounts to initial asking price stood at just over 9% - the highest level since 2009.

 

In a phenomenon that's also manifested in some of America's toniest zip codes - namely, Greenwich, Connecticut - some sellers are opting to take their homes off the market to wait for another day.

 

Many sellers have resisted dropping the prices of their properties, instead choosing to withdraw them from the market. Transaction volumes fell across central London in 2017, with the number of properties sold down 3.6% over the year as fewer homes were put to the market.

LonRes said people were still taking their homes off the market if they could not achieve their desired price. More than half the homes leaving the market in the fourth quarter of 2017 were withdrawn rather than sold.

To be sure, some sellers are still accepting lower offers - but the post-crisis boom times are over, one real estate analyst said. And, as of now, there are few signs to suggest an imminent return.

"There have been some transactions - but it's not boom time," said Mr. Scarisbrick. "It's becoming obvious that you don't set foot in the London market unless you really need a London house."

Foreign buyers, who are attracted by favourable exchange rates between sterling and most currencies, were an exception, he said."You can do well if you roll your sleeves up and get involved in a proper negotiation," he added.

"But I can't see any catalyst for a resurrection in the market."

Some sellers are opting to cut their losses.

"Sellers are saying, 'if I get a buyer at a reasonable level, I'll do a deal,'" said Charles McDowell, who runs a prime London estate agency.

"There are deals being done- quite big ticket deals - but this is certainly a market where buyers perceive value."

If there's value to be found now - just wait another 14 months until April 2019, when the UK's departure is expected to be complete.

And with cryptocurrency prices tanking after last year's bubble, the great crypto-fueled property boom has seemingly fizzled before it even began.

Comments

junction pier Thu, 02/08/2018 - 23:42 Permalink

35 years ago, Manhattan was a great place to live, before overbuilding jammed too many people into the place.  Back then, organized crime was responsible for the overbuilding, helped by their guys Koch and Carey.  Now you can write Manhattan off for everyone but trust fund babies and people who had apartments there before prices skyrocketed 25 years ago.  This time, if the Wall Street collapse lasts long, a lot of real estate investors are going to wind up in Chapter 7.

In reply to by pier

gregga777 pier Thu, 02/08/2018 - 23:55 Permalink

I attended a conference at Rockefeller Center and stayed in the hotel, many many stories above street level, in the early 1990's. The cacaphonous noise every night from the street below was deafening. I can't imagine anyone voluntarily living in a place like that. 

 

 

In reply to by pier

Anonymous (not verified) lloll Thu, 02/08/2018 - 23:34 Permalink

Simply put: if there is a God, Americans should be quite afraid ...

The millions we've killed in the name of the petro-dollar will greet us on the other side ...

They will ask, "so, were you thinking of us when you flipped your house?".

Or, there is no God - but reality is as big a bitch ...

And we are equally fucked.

In reply to by lloll

Anonymous (not verified) gregga777 Thu, 02/08/2018 - 23:53 Permalink

How many millions have we killed, in Vietnam, Korea, hell ... the war on terror?

How many Americans were illegally experimented on during the Cold War?

How many military bases do we have worldwide?

How many Americans work for agencies who have the purpose of SPYING on other Americans?

Gee dude - me thinks you protest too much ...

In reply to by gregga777

Anonymous (not verified) new game Fri, 02/09/2018 - 02:35 Permalink

That's why some of us don't enjoy living in this world - the possibility that you are right. Because in that world, despite wearing the uniform once and serving, I do not fit. I believe in liberty, live and let live, but you might be right ... it might be one big scumbag situation and I am literally the FREAK.

(thanks - something to noodle on in the twilight hours)

In reply to by new game

Anonymous (not verified) Thu, 02/08/2018 - 23:32 Permalink

"GET SOME MORE QE GOING!"

(we need to save the jet-set again ... don't forget their fellow travelers, the house-flipping normies)

(they deserve to be saved ...)

Or, maybe ... I will enjoy watching them suffer the pain that others have these last 8 years ...

That's a great reason to be alive, frankly.

Golden Showers Thu, 02/08/2018 - 23:58 Permalink

So what does this mean to me?

Well, there's people who know the value of a dollar and people who don't.

And there's people who don't know the value of tens of thousands of dollars, hundreds of thousands of dollars in a relative sense. But since there really is no money and a dollar is worthless paper, the only thing that matters is if you're a dick for a living or stupid.

Being neither gives one a chance to actually experience a world without being around dicks or stupid people as much as possible. You'll never avoid it entirely but you can sometimes almost feel real genuine authenticity and breathe air and feel good in your skin.

 

Anonymous (not verified) Fri, 02/09/2018 - 00:09 Permalink

I got some good advice from a reality-troll on ZH tonight:

"Sell everything ..."

And what, perchance, do you think is happening now?

Sell everything indeed ...

Most people I know have nothing, and are house poor or deeply in debt or both ... so, not much to sell ... unless they cash out their 401K's and "take the penalty" ...

(I wonder if the ENRON folks would have chosen the "penalty" in retrospect)

Hmmmmm.

Nelbev Fri, 02/09/2018 - 00:43 Permalink

There is going to be NO rental collapse as the Millennials will not be able to qualify for mortgage loans with their student debt, with interest rates rising, and run up in real estate prices, they will rent or live in parents' basements with their Gender Studies degrees.  I do expect a collapse in real estate prices in Londonistan, Vancouver, Toronto, and OZ which is now in a bubble like US in 2006.

Anonymous (not verified) Fri, 02/09/2018 - 04:11 Permalink

Well yeah if asking prices climb higher when incomes have stagnated, there's no mystery.  I heard an interview with a truck driver saying his wages haven't risen in 25 years.  The ratio between prices and domestic incomes is unsupportable.

The rise in house-prices has been driven by the "offshore class" piling into a "safe haven" such as "Prime Luxury Real Estate" (the phrase makes me wanna puke) because bonds were yielding nothing.  They've been paying "offshore prices" - that you can only afford with a tax-free, illicit fortune.  Joe Sixpack can't get involved.

Now bond-prices are heading down, suddenly the cost of carry becomes appreciable.  These offshore types have to get out of what they bought.  They're selling.

But they can't sell to other offshore types.  The world regime is tightening.  Governments are realising that if you sell all of your best property offshore (to people who don't live here, don't vote and don't pay tax), your electorate gets angry. Really angry.

So offshore owners have to sell at a price that "mere mortals" can afford: an "onshore price".  That's a price that a tax-paying worker can afford (not someone washing an "questionable" fortune).  And that means much, much lower prices.

Suddenly real estate isn't such a "safe haven" after all, is it?  No more than Bitcoin is "the new money".

Too many popular delusions all at once - cryptocurrencies, real estate, the "Trump Bump" and volatility products!  And it's all unravelling at once.

Make America Crash Again?

Easyp Fri, 02/09/2018 - 04:46 Permalink

Long overdue and since I do not live or have invested in either place not concerned.

Ask yourself this, if both London and Manhatten property prices dropped 30% next week who would it hurt?  Ordinary citizens who have bought a family home or the speculators?

toocrazy2yoo Fri, 02/09/2018 - 06:33 Permalink

Now if we could crash the DC housing market, and hard, we could do some serious damage to the Federal worker. It would be lovely for people to leave, go home and for the whole thing to contract. With every housing 'boom' in the DC area,  more shitty suburbs out to the Blue Ridge, more traffic, more liberal asswipes, more diversity. Rinse, repeat. Crash the market for all real estate in the DC region and we're making some progress. They're destructive leeches and far too comfortable. That that region sucks the resources of the rest needs to be addressed.