From a reader:
If this virtually frozen market proves anything it is that Greenwich is a town full of people who don’t need to sell their house. There are 594 houses on the market. Some of them, very few, have owners that must sell, the overwhelming majority do not. The current record-holder for time on the market is a Lake Avenue listing on for 14 years. Do you think that seller will consider your low offer? He will not. There are spec houses that are entering their 2nd or even 3rd year on the market. Surely if any group was going to dump property it would be the builders, but even they manage to hang in there.
Many people would like to live in Greenwich for the usual reasons: close to NYC, good schools, low taxes, golf courses, beaches, parks, , etc. These reasons continue to exist. So if buyers are waiting for Greenwich to go “on sale”, they will wait a long time. And that’s just fine with most Greenwich sellers. They have time, they don’t need the money, and the only ones hurting are us brokers!
To the contrary, I predict we brokers are going to busy as heck by September and probably sooner. Dow closed at its October, 2002 low yesterday and is set to burrow down further in the next weeks. Where the Dow goes, we will follow.
Or that’s what I think. Obviously, others differ.
For What It's Worth 
If the construction loans for spec builders in Greenwich are similar to construction loans in other parts of the country, then these loans are structured to have an “interest reserve” which allows for the builder to continue to pay interest to the bank while the property sits on the market. Think of it as the bank lends the money to the builder so that they can pay the money back to the bank….genius, right? However, none of these banks anticipated that these properties would sit on the market for the length of time we are seeing now. Once the interest reserve period expires, you see a massive increase in loans going into delinquency / nonperforming status, which is part of the reason regional banks elsewhere are imploding. I think we will see a wave of properties rapidly coming down in price very soon – either due to builder panic or due to short sales – as the builders hit the wall and the interest reserves expire.
Here is a little sumtin’ I came up with for all those sellers who don’t have to sell:
See the lonely man there on the corner,
What hes waiting for, I dont know,
But he waits everyday now.
Hes just waiting for something to show.
And nobody knows him,
And nobody cares,
cos theres no hiding place,
Theres no hiding place – for you.
Looking everywhere at no one,
He sees everything and nothing at all – oh.
When he shouts nobody listens,
Where he leads no one will go – oh.
Hes a lonely man, there on the corner,
What hes waiting for, I dont know,
But he waits everyday now.
And hes just waiting for something to show – oh.
Nobody knows him,
And nobody cares,
cos theres no hiding place,
Theres no hiding place – for you and me.
Are we just like all the rest,
Were looking too hard for something hes got
Or moving too fast to rest.
But like a monkey on your back you need it.
But do you love it enough to leave it – ah.
Just like the lonely man there on the corner,
What hes waiting for, I dont know – oh.
But he waits every day now.
Hes just waiting for that something to show – oh.
Whos the lonely man there on the corner,
What hes waiting for, I dont know.
But hes there every day now.
And hes just waiting for something to show – oh.
Whos the lonely man there on the corner,
What hes waiting for, I dont know.
Oh but he waits every day now.
Hes just waiting for that something to show.
****Okay it’s not my song****
Artist: Genesis
Song Title: Man On The Corner
Released: 1981
There you have it! Enjoy
Good Schools? Who is she kidding!!! Why pay a premium for a Greenwich house when the school system is average at best. Furthermore, do you think the hedge funds which represent the majority of business taxes in this town will continue to subsidize the low tax rate?
When the bank OREO’s hit the market in multiples the new market values for everything else will be set by those sales. In past down markets I would have clients argue that those are “distress sales” and really don’t count. Alas, my friend, they do count because the market is “distressed”, for any number of reasons, and these are the only properties selling and therefore setting the market value benchmarks!
And those so called “distress sales” will be the market values until the next great economic expansion featuring cheap credit allows prices to rise once again. True no matter where you are, be it Greenwich CT or East Bumf–k VT. Brokers would be well advised to bone up in the art of distress sales. Actually, they are easy sales as we know such listings have the one ingredient absolutely necessary to all sales, i.e., a motivated seller.
During the last severe real estate downturn, in the early ’90’s, we had a grand old time selling off OREO’s for the FDIC and area banks. It sobers everybody up, the new benchmarks are set, and then when the M-1 spiggot is turned on again, the good times roll once more. So, in the interim, as the song of that early ’90’s era went, “Don’t Worry, Be Happy”.
Chris,
I posted this late last night on an earlier post of yours but I think it’s relevant for this broker to understand what a potential buyer is thinking. We’re nervous about the economy and taking on more risk is the last thing one wants to do now.
That broker is seriously in denial of what has happened to the local economy (check out Citi’s stock price, or Bank of America) or is just a complete idiot. Here’s what I said last night… I would LOVE to hear a response from this broker.
I am sitting on my hands… As a patient buyer here’s my thinking…
Why would ANYONE buy now if they work for a bank, broker or hedge fund? Tomorrow anyone can be out of a job and one’s bank or brokerage stock could be a zero. (not like anyone has any equity in stock) Way too much uncertainty and not enough price cuts to warrant taking the risk of buying.
I figure there will be massive supply that will hit during the “Spring selling season” thus hitting prices down and don’t forget the stock market hitting multi year lows while Citi and Bank of America are nearly nationalized (read: equity is worthless) adds up to do nothing for me.
I am 30% below the recent ask on 2 houses listed for now over 1 year. I have not put in a bid since I am in no hurry and really don’t need to piss off the current owners (it’s a small town you know). The two houses are 4m (mostly done but needs cosmetics) and 3m (needs everything.)
So there you have the mindset of a buyer in the Greenwich market. I’ve heard the bitter sellers on this blog rant to hold prices but until prices come into equilibrium with other assets and incomes, I am waiting VERY patiently.
Delusional sellers deserve delusional realtors
Its not the hedge funds in town that subsidize our low taxes, its the fact that a large portion of our population attends private school. Each child in private school saves us 15k or so a year in.
Furthermore, our schools are just fine. In some respects they are rather extraordinary when you consider economic and social diversity of the student body.
How many recall the Greenwich RE market back in the early 1990s? My wife and I (almost newlyweds) had cash and were looking at homes beginning in early ’93. We worked with “The Shark” (you know her CF), were astonished by prices, bid on one old Vitorian that needed a ton of work and then quit looking. In August ’93, we see something in the paper that caught our eye. Nice ’50’s era elevated ranch on the water in Riverside. It has been on and off the market for three years and was owned by a nearly retired exec who was looking to move to Florida. He had grudgingly dropped his price twice and was then listing it at 25% below his original asking price from 1990. We bid low and after several rounds, we had a deal at 15% below his adjusted asking price or 33% below his original listing price. Sound familiar?
What happened then was worth recalling. Wall Street had gone through several tough years following the 1987 crash and the original Gulf War and total comp had been light. The national real estate bubble had popped in the late ’80s as well. For The Street, 1992 was not a bad year and 1993 was shaping up to be good.
Within weeks of our going to contract in August 1993, the Greenwich market picked up. Wall Street knew there would be bonus later that year and the pent up demand came into the market. The Shark told us that inventory dried up rather quickly after Labor Day ’93 and the market rose from there. In fact, she called us in August 1994 and told us we could sell it for a 40-50% gain if interested. We held on for another ten years and made 400% instead (yes, that is crazy).
The take-away? Eventually, those in finance will get paid again but it will not likely be in 2009 and maybe not even 2010. The level of pay will not be as extreme at the highest end but the “worker bees” will do well. There will be enough folks who continue to have total cash comp in the $750k-$2.5mm range who have been the past buyers in the $4-6mm price point (2007 prices). Also, hedge funds will find their grove again and pay well, maybe not the 8-figures of the past but low to mid-7s are possible.
Yes, there will be fewer of them and they will be more cautious. However, as in the 90’s there will be a bottom, there will be pent up demand and excess property will be taken out of the market. In the interim, many current owners will have to go through the same process that the guy in Riverside went through: adjusting price once he decided he wanted to be a REAL seller.
>>Furthermore, do you think the hedge funds which represent the majority of business taxes in this town will continue to subsidize the low tax rate?>>
What a short memory you have. Greenwich had low tax rates long before the term “hedge fund” was even coined.
25+ years ago, there were holes in the carpet at North Street School and potholes in the roads at Greenwich Point. That was the result of “pay-as-you-go” budgeting, which keeps taxes low because there’s no debt service required.
My best guess is that property taxes will be held at the current 3-4% annual increase, but that services will decline markedly.
A frugal Yankee mentality will once again rule the town, the glitz will be gone, and we’ll be able to park once again in front of a boring old mom-and-pop store on Greenwich Avenue, even on a Saturday afternoon.
Surely I’m not the only one who would welcome the change.
flyangler… the BIG differences between now and 93 are debt levels are MUCH MUCH higher and incomes are dropping. Throw in massive layoffs (not even close to 90’s) and enormous wealth destroyed. And it was about 4-5 years from 1987 that the real estate market came back. I’d say this is 4th inning of the decline and this crash in the markets will be closer to 1930’s depression vs 1990’s recession.
FlyAngler, thanks for a very insightful post. Your long perspective is completely absent from virtually all real estate brokers.
Kidding Really:
I don’t dispute your points and I am no Polyanna (I currently work on the sell-side and am long a big Greenwich house so I have my share of pain). The debt levels are enormous and I read my share of Rubini, Shiff, Faber, Whitney, Davidovitz so I appreciate how “it is different this time”.
The thing is, my psyche can only take so much. To keep a grip I have to come up with these theories to give me some solace that my family is not going to appear in a grainy black and white Cartier-Bresson-style photo on the cover of Time magazine. Without some modicum of “there will be a bottom” it is tough for me to look into my 4-year old’s face and not weep for the world we are leaving to him and his older brothers.
So, I am not the type to see the glass half-filled even though it is turned upside down. I just need to keep a grip. But, if you want a story to fit the worst case scenerio, check out the line of thinking represented in this article:
http://nymag.com/news/features/all-new/53372/
The original reader replies (and why he can’t figure out how to post his own damn comment escapes me). I disagree with his sentiments, at least in major part, but here (he) goes:
FlyAngler – I would dump that big house before it goes to land value or maybe you have enough $ that a big loss in Greenwich real estate in the future is OK. Maybe these large houses turn into what many smaller houses around the country have been for years – “just a home to raise your family in.”
For once in your life, Chris, you’re right.
I concur.
Wealthy sellers will hold out till the bitter end.
The Monkey lives…..
I think I’m in love……
I can introduce you two. I’ll set up the mood music, turn down the lights and leave you to … discover each other. Hope you don’t mind a little stubble!
Damn you Fountain!!!!!