Bidding Wars? . . . WTF?
One of the weirder things about writing for an outside publication is that the Headlines to your articles are typically written by someone else.
Whether its a bored, detached editor, or just the opposite — someone trolling for salacious spin to capture page views — very often the title slants the point of the article. Sometimes, it misses it entirely.
Such is the case in a Sunday NYT Real Estate article about apartment sales in New York City: Bidding Wars Resume.
Had the editors paid closer attention, they might have picked up the more nuanced story within the story. Following a few anecdotal examples 0f dubious value, they actually get to the meat of the article:
“In many cases, the jousting buyers start and end below the asking price. But in others, multiple bidders are pushing prices well above list price. To add a confounding twist, many of the bids are being made by buyers willing and able to pay all cash.
Brokers say that bidding wars are almost always set up by listings that are “priced well,” and by that they mean 20 to 30 percent below the high-water marks of early 2008.
Jonathan J. Miller, the president of the appraisal firm Miller Samuel, estimated that two-thirds of the roughly 4,000 apartments for sale in Manhattan are priced too high for the current market.
“So,” Mr. Miller said, “you have this weird situation right now where you have above-average inventory, but people are fighting over the ones that are priced correctly.”
Our man Jonathan Miller drops the truth bomb, and to make sure no one will miss it, I shall repeat it here in bold print: Two-thirds of inventory is priced too high for the current market.
That is the key lesson that I have been hammering on for nigh over 3 years now; it is why the big 4 foreclosure states (CA, NV, AZ, FL) have seen a huge surge in activity, why foreclosure moratoriums are counter-productive, and why most mortgage mods are doomed to failure: PRICES REMAIN TOO HIGH.
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Previously:
Residential Real Estate Price Freefall (January 27th, 2009)
http://www.ritholtz.com/blog/2009/01/residential-real-estate-price-freefall/
Homes: Still Too Pricey to Stabilize (February 18th, 2009)
http://www.ritholtz.com/blog/2009/02/homes-still-too-pricey-to-stabilize/
No Housing Recovery Before Further Price Declines (February 21st, 2009)
http://www.ritholtz.com/blog/2009/02/no-housing-recovery-before-further-declines/
The Elusive Housing “Fair Value” (April 24th, 2009)
http://www.ritholtz.com/blog/2009/04/housing-fair-value/
Median Income vs Median Home Price (April 23rd, 2009)
http://www.ritholtz.com/blog/2009/04/median-income-vs-median-home-price/
Updated: Case-Shiller 100-Year Chart (July 1st, 2009)
http://www.ritholtz.com/blog/2009/07/update-case-shiller-100-year-chart/
Source:
Bidding Wars Resume
VIVIAN S. TOY
NYT, November 13, 2009
http://www.nytimes.com/2009/11/15/realestate/15Cov.html
November 14th, 2009 at 3:37 pm
the editor and reporter often are as shocked when they see the headlines in the paper. the copy desk writes them, but then copy editors suppose to read the story, copy edit, then write the headline. it’s a practice derived out of typesetting, layout. when the story is written, they have no idea where it will appear in the paper, as in across 6 columns or just one or two.
November 14th, 2009 at 3:56 pm
what happens is the follwing-
bank owns property- lists property well below owner occupied resales- buyers attempt to buy below asking price- but soon finds out that there are many bidders- so next time on another bank owned property buyer goes in full price- but again many bidders and some above asking price- so next time around on bank owned property buyer goes in above asking price- but finds out many of those bids he is up against are 100% cash-
that’s the dynamic going on-
most folks w/ resales are not realisitic on price and their property doesn’t sell- so it is pulled off the market-
let’s see what happens this Spring- douche bag NAR got what they wanted -an extension and expansion of the taxpayer funded tax credit- and are anticipating 4% appreication in home values-
doubtful- also-
congress- being the brain dead dumb fucks they are- use TP money to support the NAR, MBA, NAHB to increase demand for housing when thay had to do nothing at all- a clearing price would have been found-
and think about it- do yu want $8,000 from Uncle Sam and pay more for your house or do you want your house to be 15 to 20% less in price?
i’ll take the latter-
never underestimate the stupidity of the Federal Government
November 14th, 2009 at 5:23 pm
Recall that if the “clearing price” is way… way below LTV, then FDIC ends up with more banks. So you’ll pay either way, folks, either way.
Don’t blame the messengers and don’t blame the repairmen. Blame the guys that let the ibanks lever 40 to 1, so the ibanks could resell more of the mortgage bankers “product.”
November 14th, 2009 at 5:25 pm
I publish UrbanDigs.com which discusses pretty much on the front line of Manhattan Real estate. I hope after 4 years as a broker/blogger discussing macro, credit crisis and Manhattan re that at least I gained some credibility.
I can tell you that the market is very active for this time of year. We overshot to downside via fear trades in FEB/MARCH/early APRIL. Since then, there has been an improvement in bids and a significant rise in sales volume. Pipeline contracts signed will make the next 1 or 2 quarterly reports look good, especially compared to weaker periods in the prior year.
As for bidding wars, all depends on pricing. I lost probably 4-5 apartments that my clients were seriously interested in because they dont do bidding wars. Then I have 2 contracts signed for properties that we did get aggressive for, not peak pricing, but acted fast and bid appropriately to land a solid product that has features that are not so easy to find without being so overpriced.
Yes its true that more than half the market is likely overpriced, but over the last 4-6 months, sales volume has been healthy and inventory came down a bit.
Since Im building a suite of analytical tools with my new data source direct with REBNY broker sharing hub of this market, I can see it in the data that is in beta now and not publicly launched. Another 2-3 months for that. I can tell you a ton of listings have been removed from the market in the last 4-6 months, yet this number has declined a bit recently – making me wonder if the increase in traffic and sentiment due to reflation mentality is making some sellers stick out there a bit longer with the hopes of getting that strong bid in the near future. I lost a Chelsea 2M condo deal after 4 days of negotiations and buyer/seller 10K apart which was nothing – and seller decides to remove from market out of nowhere. Why? Im told by seller broker after soul searching the seller really wasn’t happy with the bids the deal would happen out – sucks, as it was my client and a reasonable bid given the price point and where trades seem to be occurring in todays market.
Emotions are a crazy thing in this market. Anyway, I have total active inventory at 8,920 or so, down from 10,500 area only 7-8 months ago. I have 5,000 pending contracts of sale, up from 3,500 or so 7-8 months ago. Use caution with exact numbers here as we are fine tuning how we calculate this based on agents’ updating their internal listings with broker sharing systems. In a perfect world, status updates would be a daily or at very worst a weekly thing – umm, not so in this market. So, we have to hook into closed data feed as biggest flaw I see with my new data source is a lack of motivation of the agent to update a CONTRACT SIGNED listing to CLOSED. I guess they are too busy processing commission checks and selling existing active listings. So, I expect the above to change but the trend I think is still clear. We’ll recompute going back 5 years or so for over 180K records and 12M status updates. Data was a mess, and I clearly see now that nobody too the time or energy or money to clean it up! Time to end that!
As for bidding wars, its relative but I cant discount the improvement in bids from the overshoot earlier in year. So a 2M peak property, traded at 1.4M in feb/march fear months, and is not back to around 1.55-1.6M or so. So seller prices at 1.595M or so, and it sells for 1.625M over ask. Bidding wars and deals over ask I guess can be skewed a number of ways for headlines.
In the end its about pricing. You price right, it should move. There is a lack of priced right listings with superb sell side features such as high quality views, flooded sunlight, raw space, desirable layout, and recent renovations. Especially in classic 6/7 market where most of my clients are.
I can name a bunch of listings that were priced right and are now in contract:
67 Riverside Drive, A-line
11 Riverside Drive, 12JW
62 Beach Street, 3E
110 W 86, 4A
250 W 90th, 17H
253 W 73, 12E
I also know a dozen more or so just for one client I have been focusing on in past 3 weeks only in 2-3M range that have contracts out and broker is no longer showing – not an advisable practice but it happens all the time here. If its priced right and still not selling, chances are it needs a good amount of work or is limited in views/natural sunlight or a 4th floor walkup or something. The point is the market is active, cant deny it, but that leads to one major problem that I am starting to see: It seems this is the beginning of when sell side optimism starts to outpace the improvement in buy side bids/confidence. It takes two to tango and I wonder if sellers are just getting too optmistic to sustain the sales volume we saw in the past 5-6 months or so of between 900-1000 contracts signed a month; down from about 500-600 contracts signed a month in Oct-March freeze up period after Lehman.
November 14th, 2009 at 5:30 pm
sorry for typos, sick and typing fast here:
last sentence should be: “UP from about 500-600 contracts signed a month in Oct-March freeze up period after Lehman.”
November 14th, 2009 at 5:54 pm
Barry, agree with all but one of your sentiments, that being that foreclosure moratoriums are counterproductive.
If the goal is to produce a slow deflation of housing prices and/or to allow inflation to provide a counteracting effect, then foreclosure moratoriums are serving their purpose, by keeping millions of homes off the market. While an immediate correction of housing prices, short but painful, may sound great in the abstract, it’s also likely to create a pretty sharp downturn in confidence in the US economy, both by consumers and investors, while also putting tons of new renters into a market that has insufficient rental supply (and for those who might counter that the foreclosed homes could be converted to rental, that seems to be me to be one of those arguments that’s great in theory, but not what’s happening in the real world, where REO homes are just sitting there because the banks and trustees that “own” them have no idea what to do with them, or infrastructure to manage them).
The prospect of millions of foreclosures + millions of households entering the rental market is a pretty frightening one. Anything that slows that or delays that is in my mind a good thing.
~~~
BR: I guess I’m just a tear the band aid off quick kinda guy . . .
November 14th, 2009 at 6:43 pm
Great set of eagle eyes, BR!
The Times’ editor is probably trying to sell his home before a reset occurs…
November 14th, 2009 at 7:24 pm
“guess I’m just a tear the band aid off quick kinda guy . . .”
couldn’t agree more BR
November 14th, 2009 at 8:23 pm
Sounds to me like when the S&L’s went down…and speculators bought up Golf Courses and premium other properties for “cents” on the dollar…and made billions. Many resorts like Kiawah Island, SC were bought up in that deal.
Sounds like a new Round of Investors flush with cash from other speculations are now in on the new game. Buy a gated community in FLA…and figure that you can buy the McMansions from folks like Tiger Woods and others out of their failed investments and hold it and then sell it off higher when the “expected Boomer Retirees” can get out of their homes in Ohio and elsehwere and will retire and pay more for the properties “after the lull” in housing.
It’s a model that worked before…but I’d not bet on that same model working once again…just like I don’t thing that “Depression Model” Bernanke and Obama’s folks are using is going to work out once again in this scenario…at THIS TIME in America when the circumstances are so different.
What do I know, though. Not a trader ..nor an economist. But it would seem to take a tremendous tweaking to fit the circumstances of the 30’s or even the 70’s or 80’s recessions on this as a replay and a model to follow. We have to hope it works…but, it would be a stretch given how different America after DeReg and demise of Glass-Steagall is. Plus Computer Trading by an “elite,” which makes a huge difference in the speed and volume/velocity of what is going on in Wall St. and our fragile Economy.
November 14th, 2009 at 8:55 pm
I will purchase a one ounce silver coin if anyone can watch this entire Youtube clip and go without laughing. I am trying very hard to concentrate on a poignant reply to Barry’s post but for some reason, this Italian SpiderMan thing has rendered my thought process to be shoddy.
http://www.youtube.com/watch?v=UhHhXukovMU&feature=player_embedded
November 14th, 2009 at 9:08 pm
@urbandigs Says:
November 14th, 2009 at 5:25 pm
I publish UrbanDigs.com which discusses pretty much on the front line of Manhattan Real estate. I hope after 4 years as a broker/blogger discussing macro, credit crisis and Manhattan re that at least I gained some credibility.
I can tell you that the market is very active for this time of year. We overshot to downside via fear trades in FEB/MARCH/early APRIL. Since then, there has been an improvement in bids and a significant rise in sales volume. Pipeline contracts signed will make the next 1 or 2 quarterly reports look good, especially compared to weaker periods in the prior year.
———–
Do you think it’s that Wall St. is getting their Bonuses and that the fear of last year has subsided? Many folks thinking that they’ve escaped the “bullet” and they are feeling flush because no one but Madoff has gotten prison time and it seems that Congress will be watering down any strict reforms?
Could be a gasp of euphoria about this? Prices were up so high in Manhattan it would seem that even with the dire news of possible CRE implosion in Office Space…that folks who were looking for bigger, more upgraded digs in Manhattan, Brooklyn Heights, etc. might be feeling that “it’s all going to come back” and they want to get in now?
I would think your caution about what you are seeing is probably wise…but given these times, the craziest things seem to happen.
Glad to hear you are doing well, though, even though many of us out here in the rest of the country are feeling very unsettled.
November 14th, 2009 at 9:34 pm
Nothing goes straight up or down. Those buying now will wish they hadn’t when the next down leg hits and they find themselves under water with those who bought at the very top. Anyone who would bid above the asking price for any house in this market didn’t learn much in the last year and a half.
November 14th, 2009 at 9:41 pm
“guess I’m just a tear the band aid off quick kinda guy . . .”
couldn’t agree more BR
—————
Dreaming in technicolor. If you added up the number of top head honchos who themselves dabbled in expensive real estate market and currently have their own home up for sale, you would not hold your breath.
November 14th, 2009 at 9:45 pm
Do you think it’s that Wall St. is getting their Bonuses and that the fear of last year has subsided? Many folks thinking that they’ve escaped the “bullet” and they are feeling flush because no one but Madoff has gotten prison time and it seems that Congress will be watering down any strict reforms?
———–
Something tells me it’s the bonuses + the people who have been waiting on the sidelines.
They make me think of the portfolio managers who finally jumped on the opportunity to go market weight when Nortel fell to 55$, only to see the stock drop to 2$ soon after.
November 14th, 2009 at 10:24 pm
OT:
Defense Secretary Robert M. Gates ruled on Friday that 44 photos that reportedly show abuse of detainees by the U.S. military in Iraq and Afghanistan cannot be released publicly. The Obama Administration notified the Supreme Court on Friday evening of this action by the Pentagon leader, and urged the Court to set aside a lower court ruling directing release of those photos. The new brief was filed in Defense Department v. American Civil Liberties Union (09-160).
The Court may act on the new filing as early as next Monday.
The Pentagon had appealed the case to the Supreme Court, to get a ruling on whether the photos at issue are exempt from mandatory disclosure under the federal Freedom of Information Act. The government was relying on Exemption 7(F) of the Act, which protects law enforcement records that, if released, could be expected “to endanger the life or physical safety of any individual.” The Second Circuit Court, however, ruled that this exemption only applies if a government agency identities at least oen specific individual who would be endangered, and it concluded that the Pentagon had not done so.
While the Pentagon petition was pending at the Court, however, Congress passed an amendment to FOIA, explicitly to overrule the Second Circuit ruling so far as it applied to the 44 military photos, some of which have been made public and some of which have been used in criminal prosecutions within the military. The new law, signed by President Obama on Oct. 28,…
http://obamboozled.blogspot.com/2009/11/secretary-gates-signs-order-barring.html
November 14th, 2009 at 11:07 pm
“Nothing goes straight up or down.”
Yup. Because the rally since March has gone pretty much straight up, it won’t be a 10% correction. The dip buyers will get crushed when it turns.
November 14th, 2009 at 11:46 pm
BR,
I agree with almost all that you said, however, the reason “why most mortgage mods are doomed to failure” is that banks/financial institutions will not negotiate with borrowers until all hope is gone. You will not get a mod until your credit report says you’re worthless and your situation is hopeless. This is by design, not accident, mods on modest homes [205,000 purchase price, current value 305*], with people who have good credit histories [720+], good work records, few luxuries and decent income prospects are turned down without consideration.
My note is less than 1/3 my HELOC, my total is less than 66% of value. My HELOC came from my business loan [BL]which leaned on my house. My [BL] had climbed to 10%, so…since it leaned on my house anyway, I moved it to a HELOC, at 4.5% which has now climbed to 7% in 1.5 years.
My business had been doubling every year, until this year, I will be at ~25% of last years revenue. I have been dealing with this credit union for over 20 years…paying each loan off successfully. When I tried approach this institution, I was told that they won’t even talk to me, fill out paperwork and we’ll dictate terms.
Their terms: 7%, interest only.
THAT WAS WHAT THEY CONSIDERED RELIEF.
That is “the reason “why most mortgage mods are doomed to failure”. If the house has been well taken care of they figure to make more by going into foreclosure. During the good years I held fat savings and checking accounts with these guys. Now, they tell me to eff off.
*About 80,00 grand and 2,700 hrs spent on taking a neglected 60’s house into the 00’s
November 15th, 2009 at 5:12 am
“Two-thirds of inventory is priced too high for the current market.”
This ilustrates why the idea of equilibriating markets (say’s law) is a nonsense.
Because debt does not adjust in price with supply and demand, markets in which items are bought and sold with debt, or markets involving particpants carrying debt will never be able to adjust purely according to supply and demand.
All of austrian economics is complete bunk for exactly the same reason in the presence of a debt based money supply.
November 15th, 2009 at 8:12 am
http://finance.yahoo.com/news/China-Low-US-interest-rates-apf-4089984647.html?x=0&sec=topStories&pos=2&asset=&ccode=
China: Low US interest rates threaten recovery
BEIJING (AP) — China’s top bank regulator said Sunday the weakening U.S. dollar and low interest rates are spurring speculation in stocks and property, distorting global asset prices and threatening the global economic recovery.
The situation poses an “insurmountable risk to the recovery of the world economy,” Liu Mingkang, chairman of the China Banking Regulatory Commission, warned just hours before President Barack Obama was due to arrive in China.
November 15th, 2009 at 8:17 am
skepticus:
You came so close to the gem, but you overlooked it.
“All of austrian economics is complete bunk for exactly the same reason in the presence of a debt based money supply.”
The bunk is the debt based money supply. Our country hasn’t always produced more debt every year. In the past we used to pay this down. Now we don’t. THAT is what has changed, and if you don’t ever pay down debt, then Keynesian solutions are just your finger in the dike…
November 15th, 2009 at 8:21 am
@Bruce:
You just stole my post…was waiting for a good thread for it.
As I posted just yesterday, “foreign governments that own trillions in US paper would have to be mad to stand for this…wouldn’t they just print their own money and buy dollars?”
China, by pegging to the dollar, does just that…all other governments will start to do so as well, ushering in the next stage of deflation…competitive devaluation.
http://prudentinvestor.blogspot.com/2005/07/chart-of-day-deflation-cycle.html
November 15th, 2009 at 8:32 am
“All of austrian economics is complete bunk for exactly the same reason in the presence of a debt based money supply.”
—
What better system is out there?
Gold standard? Why would I want a currency where money creation is limited by the discovery of new gold? Anyway, a gold standard has not stopped nations from printing away and creating inflation.
Somebody PLEASE funs us a new & improved system. We see it all the time with shampoo, can’t they focus on more important goods?!
November 15th, 2009 at 8:34 am
TakBako4 – “Do you think it’s that Wall St. is getting their Bonuses and that the fear of last year has subsided? ”
I think its a few things, mainly lower prices. But lets start from when the action started in Late April/May or so.
1. Lower Prices – this market had a fast and furious move down after a frozen 7 months or so after Lehman and very few deals being done. Feb – March were the fear trades and best deals were signed then. For an example look at 490 WEA, Apt 9B, or any deal whose contract was signed in March or even early April
http://www.streeteasy.com/nyc/sale/283224-coop-490-west-end-avenue-upper-west-side-new-york
2. Delayed Seasonality – Our active season is usually around bonus season, late JAN – APRIL or so. May & June & July are usually transition months to a normally slower summer market. However, due to #1 above, our normally active season was delayed, in essence, due to the adjustment process yet to complete itself. This left pent up demand to come in once either two things occurred: lower prices + increased confidence in the asset. Prices seemed to bottom our early April for this first wave and confidence steadily rose, starting in mid April as a liquidity drive reflation trade sustained itself all the way up to today.
TODAY – there is a lack of quality product that is priced right as there are many ready, willing, & able buyers out there who will pull trigger for a solid product as long as its near where it should trade given the price point. Here is a breakdown of where I see trades happening given price point and the improvement in bids that has occurred as Armageddon was priced OUT of the marketplace and a reflation mentality increased confidence in re here:
IMPROVEMENT IN TRADES FROM EARLY 2009 (by price point)
HIGH END ($5M+) – bids improved from down 25%-40% from peak to down 25%-32% from peak
HIGH/MIDDLE ($2M – $5M) – bids improved from down 28%-33% from peak to down 23%-28% from peak
MID END ($1M – $2M) – bids improved from down 20%-30% from peak to down 18%-23% from peak
LOWER END (Under $1M) – bids improved from down 17%-25% from peak to down 13%-18% from peak
I can only estimate because Manhattan products vary so greatly that any one individual unit may be subject to distortions from the above noted ranges for a number of reasons: i.e., high carrying charges, undesirable layout, lack of view, building financially mismanaged, need a full reno, etc..
Products with superb sell side features that are priced right are moving fast, Id say within 4-6 weeks of original listing. CRE has taken a BIG hit, Multi-Family has taken a big hit, Mixed Use has taken a big hit….Office has taken a huge hit. Concessions everywhere for new office and rental leases. Residential coops and condos seem to be improving the quickest so far, imho. Likely due to lack of quality product out there priced right. When you hear bidding wars people think peak market, buy now or be priced out forever, the foreigners are back, ect..that is bullshit. Fact is, pricing right is the best strategy you can do in this market if you are a serious seller. Price at or below market, and create a sense of urgency, and let the market price the product – if its a quality product this will work especially well as all you need is 2 motivated buyers who want your property and are tired of looking at subpar products that don’t have the features that sell in this market.
My big fear from now is that sell side optimism is outpacing the improvement in bids, as an improvement built on a foundation of a reflation trade (i.e. all tradable markets), is a very shaky foundation that can fall to the ground at any point. That may lead to another disconnect and lower volume.
November 15th, 2009 at 8:46 am
The problem with our system of money creation is not that it backed by debt, it’s that it is based on perpetual growth and the hypothesis that those doing the printing will allocate capital to the right sectors, when time and time again they have shown zero competence in that area.
If they had shown any competence, they would have said there was a bubble in home construction while our infrastructure was falling apart. They would have also said that it did not make sense to grow cotton and other stuff in bad locations, to overbuild in the desert when the country is a net importer of energy…
In fact, the opposite was said: “Bubbles can not be burst”. By stating this, Greenspan himself was aknowledging that bankers had zero competencies when it came to allocating capital. If that is the case, bankers are mere commodites and should be paid accordingly. Not reaping millions.
November 15th, 2009 at 9:21 am
Not only do we have a ‘Parliament of Whores’ (P.J. O.Rourke) but an ‘Industry of Whores’.
November 15th, 2009 at 9:36 am
Plus, the NYT Real Estate writers are about as objective as a broker. They get their revenue from advertisers selling real estate. It is always a bull market and the best time to buy for them. The market is always recovering or booming or on the verge of recovery. Funny, their travel section never finds a resort a poor value, or that an attractive old Europen city center is overrun with aggressive Roma panhandlers. Why would a newspaper report that stuff?
November 15th, 2009 at 10:02 am
danm-
you’re making too much sense my friend- stop what you’re doing- have a refreshing glass of Kool-Aid- and go out and buy something-
now that’s happiness
November 15th, 2009 at 9:57 pm
[...] my friend and bigger than macro Big Picture blogger Barry Ritholtz refers to me as “Our man Jonathan Miller drops the truth bomb” I am confident I nailed [...]
November 16th, 2009 at 5:50 am
Yes, it is rue that prices remain too high. An investor must really decide if they’d rather sell for less and take the money now, or sell for more later, but lose the use of the money for all that time.
In a way, it is similar to the stock market, and any market for that matter. That is why it is important to have access to good market timing signals to make educated decisions as to what to do.
Consider http://invetrics.com
Its daily DJIA index trading signal is up a respectable 68% for the year (as of November 1, 2009) and it is free of charge for individual investors.