Lowballing turns predatory
Offers 20 to 40 percent below ask seem to accelerate drop in prices December 30, 2008 01:19PM By Candace Taylor
Richard Hamilton of Halstead
At the dizzying height of New York City's real estate boom, apartment owners commonly put their homes on the market, then watched as the flood of offers — often at or above the asking price — streamed in. Buyers, meanwhile, waited anxiously for the seller's verdict, preparing to heap tens of thousands of dollars on top of the original offer.
Now, the opposite is true, brokers say. Potential buyers are now putting very low offers — often 20 to 40 percent less than the asking price — on multiple properties at the same time, a strategy that was virtually unheard of only a few months ago. Sellers, increasingly desperate to unload their property, are countering offers they once would have considered insulting. And as lowball offers become the norm, this back-and-forth seems to be accelerating the downward slide in prices.
The strategy of simultaneous lowball
offers is "definitely becoming the trend,"
said John Gomes, a vice president at Core Group Marketing. "It used to be the reverse — one seller had multiple offers for one apartment. Now, one buyer has offers on several apartments.
"Gone are the days when the seller had a choice. The buyer is in control," he said.
During the height of the real estate
boom, sellers typically received three to four offers in the first month, said Richard Hamilton, a senior vice president at Halstead Property, who said a client of his once received 13 offers in two days. While the offers were often a mixed bag, bidding wars were a common occurrence.
In addition, many potential buyers started with offers above the asking price.
"I have sold units many times above ask where there was only one person making an offer," Hamilton said. "Agents encouraged their buyers to go in above ask."
Moreover, buyers almost never made
offers on more than one apartment at once, explained Frederick Peters, president of Warburg Realty. "They didn't do it in the past because there weren't as many apartments on the market at the same time,"
he said.
That has changed. While representing the seller of a one-bedroom apartment in the Financial District, Gomes was startled when a potential buyer's broker told him that her client planned to make offers at
several nearby buildings.
"She said, 'We're putting in multiple offers in the Financial District,'" Gomes recounted. "'We're looking at 20 Pine and 88 Greenwich.'"
In these situations, the starting points are often extremely low, said Gomes, who said he's recently received offers as much as 40 percent off the listing price.
Hamilton has coined a term for these bargain hunters: "predatory buyers."
"They're looking for dead meat out in the desert," said Hamilton, who recently fielded an offer 20 percent lower than the asking price for a condo at West Chelsea's 555 West 23rd Street. "They're looking for a desperate seller, for something they can pick up really cheap."
Many of these buyers make offers before deciding if they're really interested, said Corey Wecler, an associate broker at City Connections Realty. One of his clients submitted an offer in a new development before visiting the sales office. "He'd never been to the development, and wouldn't see it until I'd submitted the offer," Wecler said.
Even when lowball offers are accepted, many buyers are trigger-shy. Gomes represented the seller of a one-bedroom in Chelsea where a low offer was countered by his client. The potential buyers — a couple looking to purchase an apartment for their daughter — raised their price and the seller accepted, but then the couple backed out. When the owner dropped back down to the original offer, they still weren't interested.
At the heart of this behavior is the fear that prices will continue to drop. "It almost scares the buyer to know they can get it
for such a low price," Gomes said. "They think, 'If I can get the seller to come down to this price, what does that mean? Maybe I should wait.'"
Peters chalks it up to simple economics. Now that inventory is building as apartment sales slow, he said, buyers can
bargain shop.
"The buyer who wants a generic apartment in a marketplace in which many of them are available is shopping for price, just as if they were going to Wal-Mart and comparing paper towels," he said. "They can make an offer on three different properties, then see who does the best for them on price."
Whatever the motivation, the practice has become so common that Gomes has taken to listing apartments higher than the estimated sale price in anticipation of lowball offers.
"We've got to price things a little bit higher, because people are going to be looking for a 15 to 20 percent discount off the bat," he said.
The strategy creates a dilemma for brokers, who are trained to prevent buyers from making wildly unrealistic offers. Up until very recently, an offer of 20 percent — or more — below the asking price was considered unrealistic.
"I had a buyer who was jumping from apartment to apartment, and asking me to submit offers all over the map," Wecler said. "I told him I wouldn't do it unless he was more educated about comps. In most cases, he stepped up to things that were realistic."
Lowballing or not, buyers' stubborn refusal to pay listing prices appears to be having an impact on the market. Fourth-quarter market figures were not available as of press time, but Jonathan Miller, president of real estate appraisal firm Miller Samuel, estimates that co-op and condo prices in Manhattan have fallen 10 to 20 percent since mid-summer.
Perhaps in recognition of this fact, more and more brokers are encouraging sellers to consider offers at percentages that would previously have been considered ludicrously low.
"It's really insulting," Gomes said. "But
at the same time, it's all about creating a
dialogue. Anytime you have someone who's interested, you do the best you can to play nice and negotiate the deal."
"If you can engage the buyer in conversation, you can tease them out," Peters said, adding, "In this marketplace, buyers who are making offers are not to be treated lightly."
Tedious though the process may be, Gomes said, it's an inevitable part of the down cycle. "It's the process that we all have to go through before people start making these deals," he said. "Nobody wants to be the first person to buy in this declining
market. We just have to continue to show and be patient, and eventually, people will start buying."
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Comments
Anonymous
These are not predatory buyers, these are smart buyers. Has anyone heard the word DEFLATION? Yes, we had a bubble and now real estate prices will drop very dramatically.
Comment #1 Posted By: Anonymous 01/01/09
Anonymous
What is insulting about making an offer at 50% off ask? In most cases, that's still far above any fundamental value calculation. Do sellers think that bubble prices are a matter of honor? Manhattan prices need to drop at least 50% to be comparable to rents -- and rents are dropping too.
Comment #2 Posted By: Anonymous 01/01/09
Anonymous
Really...insulting? Then don't sell.
Comment #3 Posted By: Anonymous 01/02/09
Frank
I agree with Comment #1. These buyers are not predators - they're realists. In my opinion, it's predatory to set ridiculous asking prices in the hopes of attracting a foreigner who knows nothing about NYC or a stock broker who just got a million-dollar bonus. Oh. Wait up. Scratch that. They're gone. Just like the folks who were getting mortgages for homes they could never afford.
Comment #4 Posted By: Frank 01/02/09
ASH
I do agree with #1 and #2 but please don't confuse DELEVERAGING with DEFLATION. Prices have been declining in everything, stocks.. commodities.. consumer goods.. real estate.. but not do to any fundamental monetary pressure.. instead it is a MASSIVE deleveraging process which should wind down by the end of 1Q 2009. Basically, deleveraging is reducing the amount of debt (or leverage) that a company, fund, or person has. Especially banks and hedge funds but also families are reducing debt and saving money or paying off immediate bills. How does one reduce debt? Well they sell assets to raise cash to pay down the debts. What assets have they been selling? EVERYTHING! Real estate, stocks, commodities & futures on all sorts of things. The immediate result was ironically that the US Dollar became very strong relative to the Euro/Pound and other currencies. But this was only because most of the assets being sold were denominated in Dollars. This made dollars attractive during the process.. Now u see the Euro has significantly bounced back to somewhere inbetween its recent low and the old high and will continue to creep back up as deleveraging stops.
Comment #5 Posted By: ASH 01/02/09
ASH
PART 2-- So what else happens when deleveraging stops? Well first of all the gov't (and foreign gov'ts too) have been printing money, issuing bonds, and spending on bailouts like its going out of style. The money supply has ballooned in the past 6 months and is continuing to accellerate. This is fine and good when deleveraging is going on as it provides a sort of liquidity for those assets to be unloaded. But what happens when there is a new equilbrium of debt and risk reached? Well then there will be WAY too many dollars (and euros etc) in existance and the supply will far exceed the demand of the currency. This will devalue the true value of a dollar. Devaluation of the currency = inflation.
Comment #6 Posted By: ASH 01/02/09
ASH
PART 3-- So while prices in everything are dropping now.. in both REAL and NOMINAL terms, fairly soon.. maybe 6-12 months from now I believe we will suddenly snap back to inflation, and it will be a massive one. Prices will go up in NOMINAL terms but whether or not real values will also follow suit is yet to be seen. Wages will probably not keep up with the inflation and if real prices do not keep up either there is going to be some massive hurt, poverty, unemployment much worse than what's going on right now. So what can we do to protect ourselves.. assuming we agree with this outlook. Well first of all buying inflation-protected assets such as Gold is an obvious hedge but perhaps not ideal. TIPS (govt bonds) will not keep up with the real inflation but is pegged to PPI/CPI and won't be a good proxy. The stock market is probably a decent choice assuming you choose solid companys who could actually benefit from inflations.
Comment #7 Posted By: ASH 01/02/09
ASH
PART 4 -- People should buy property/homes.. NOW is the time and here is why: 1st interest rates on a 30 year fixed are 4.50-5.0% right now. Inflationary pressure will cause the fed and lenders to raise rates despite what the economy overall is doing. Also you are locking in todays "stronger" dollars... say you buy a $1MM condo putting down 20% so you have a loan for $800k. Let's say in 5 years we inflate such that a loaf of bread now costs $10k *i am exaggerating here to illustrate the point* .. u could now pay off your mortgage for 80 loaves of bread. not bad eh? Landlords likewise will benefit from an inflation as they will conitnue to owe say $2000 on a mortgage a month for 30 years while they can keep increasing the rent to keep up with inflation. The people who usually get screwed during an inflation are: -those who lend/leant money -those who rent -savers/hoarders of money -wage workers The people who usually come out ahead: -those who borrowed money -those who own real property or hard assets -farmers
Comment #8 Posted By: ASH 01/02/09
ASH
PART 5-- One last point: the gov't debt and trade deficit are at record high levels and will only continue to balloon and it will only be so long before foreign countrys stop buying or debt. Our gov't will be forced into a policy of active inflation so that we can inflate our way out of debt. (For the same reason u can pay off ur house for 80 loaves of bread, the gov't can now pay back interest and principal on its bonds for very little). Just keep this all in mind. Don't get clouded by the present situation.. analyze the present and its causes but look ahead too and see how the accumulation of events will pan out. Have a happy 2009. -ASH
Comment #9 Posted By: ASH 01/02/09
UrbanDigs
it is NO shock that sellers would rather list with a broker that rationalizes why a higher listing price is better to start at. However, it is outright silly how the broker that pitches this and then doesn't talk about the LACK OF FOOT TRAFFIC + STARTING WAY BEHIND THE CURVE + CHASING A MOVING TARGET THAT RESULTS, given the current environment. This is the exact consulting that sellers fall for and later on wonder why they cant sell!
Comment #10 Posted By: UrbanDigs 01/02/09
Anonymous
Losers take notice. ASH is the only one on this thread talking sense. So sick of these ignorant naysayers...all of you sound just totally bitter...like you got priced out of a studio and can't get over it...ever. Please shut up already...before we all lose our minds listening to your ranting. UrbanDigs...you should try and study up and offer something more than your typical regurgitated broker babble...look at ASH and learn about what a true voice of understanding sounds like. Shock2009
Comment #11 Posted By: Anonymous 01/02/09
UrbanDigs
hahahhahahahh - buy now or be priced out forever! Yep, got it. True voice of reason.
Comment #12 Posted By: UrbanDigs 01/02/09
Anonymous
Ash needs to take a macro-economic class. That has to be the worst economic analysis I have ever seen. I agree there is strong potential for inflation, but now there is both deleveraging and deflation. The government cannot print money fast enough to replace the money that is being absorbed by the deleveraging of the economy. Further deflation is inevitable during deleveraging, especially in Manhattan which everything runs off of leverage including credit cards at restaurants to investment banking/hedge fund profits. Renter's don't lose in inflation, just break even. Saver's don't lose as their interest rates will rise with inflation. If you are lucky perfectly timing a fixed-rate loan just before hyperinflation begins, then you will make out. However, the consequences of being wrong is a proud ownership of an upside-down mortgage.
Comment #13 Posted By: Anonymous 01/02/09
Anonymous
Have you ever heard of rats locked up and starved and stressed together in a cage ? What they do is attack each other. This is what these comments are all about every time I read them. ASH you are the exception. Noah you too of course. Anyway... I say this is all part of a spiritual evolution. Seek the light. If the Apocalypse comes it will be great as this planet is ruled by EVIL - just look around with yur eyes open and then pray.
Comment #14 Posted By: Anonymous 01/02/09
Anonymous
Since when does Jesus blog?
Comment #15 Posted By: Anonymous 01/02/09
Anonymous
Since today
Comment #16 Posted By: Anonymous 01/02/09
UrbanDigs
ASH - you completely ignore: 1) rising unemployment 2) perception of job insecurity 3) negative wealth effect from sinking stock prices 4) much tighter lending standards 5) credit deflation 6) decline in confidence of the asset 7) affordability 8) lack of demand that was active for the boom (i.e. foreign buyers, parents buying for kids, second home buyers, etc.) Deleveraging & deflation are tied together. And the deleveraging that occurred for much of 2008 was that of banks ridding themselves of MBS and other structured investment products that saw their ratings and value decline. HFs delevered as redemptions rose, financing dried up, fed actions to save the system (i.e. BSC rescue on holder of CDS had to delever to meet calls after their position went virtually worthless by that MON morning), sinking equity prices, etc.. To ignore deteriorating macro/micro forces for this local housing market, and to say it is all deleveraging, is way off.
Comment #17 Posted By: UrbanDigs 01/02/09
UrbanDigs
oops sorry, just reread. Meant to say, "idding themselves of MBS and other structured investment products, and all other asset classes to raise capital as securities ratings and values decline."
Comment #18 Posted By: UrbanDigs 01/02/09
pablo
What are the current buyers who are getting 5% interest rates gonna do , when the people who buy 5 years from now , are paying 8 ,9 or 10 % interest . I do believe we will face inflationary times , but I highly doubt income will grow at more than 10 % a year (job market for one) A similar sized mortgage , payment will be a lot higher if the interest is 9% ,which we may see with high inflation. I would rather buy a home with high interest rates , and sell into a low interest environment . unless GOVT is gonna guarantee 5% mortgages forever , how can some be so sure prices will be higher in the near future!
Comment #19 Posted By: pablo 01/02/09
Anonymous
Funny I don't remember hearing the term "Predatory Sellers" when it was a sellers markets. How would you not make a low offer if you had read one paper or watched 20 minutes of news in the last 3 months. If you don't like the offer then keep trying to pay the mortgage. Oh wait that's why you are selling in the first place.
Comment #20 Posted By: Anonymous 01/03/09
Anonymous
Well there is just about zero activity and there will remain zero activity until and unless prices drop 50%.
Comment #21 Posted By: Anonymous 01/03/09
UrbanDigs
the point is there are very real reasons why buyer confidence is low, and declining. Discussing this openly should not be considered an 'attack'. Bids are low for good reason, as Manhattan properties rose 100%-200% depending on price point since 2000. Did incomes rise in the same manner? This was a result of: a) fed's micromanaging of interest rates (greenspan) b) deregulation on wall street leading to quantity/fee based securitization model c) deregulation for banks encouraging risk and use of leverage d) fractional reserve lending system e) lack of lending standards to take advantage of fee based securitization model This is all over now and the system collapsed on itself. Securitization model is all but extinct, banks still hold tons of Non-Performing assets, and the credit boom has gone bust. 7 years of boom, so far, 12 months of correction. We are in the phase of the cycle where we see who was swimming naked.
Comment #22 Posted By: UrbanDigs 01/03/09
Rob
Predatory Buying!? I'm sorry but since when are you entitled to astronomically high prices? Is it somehow a Constitutionally enumerated right to be able to have real estate prices rise 2-3x in only a few years? It's very disappointing to see that people have fallen hook, line and sinker for the RE shpiel about "intrinsic value". Get over it people, there is no such as thing as intrinsic value in real estate. A stock has intrinsic value because if the company is making more $$$ then the stock is selling for, then it may adjust to reality. A house does not make any money, it just sits there. So just like UrbanDigs says, it's only worth as much as anyone is willing to pay for it. If wall street has major job losesses, if you can't get a liar-loan anymore, if everyone starts saving you will have huge price falls. As a seller you can set any price you want, no one will take it. You will be outpriced by more desperate sellers and eventually the consensus price will just go lower and lower. Repeat after me, consensus. That's how prices are determined.
Comment #23 Posted By: Rob 01/04/09
Anonymous
Urban Digs: You should read a book called "An Analysis and History of Inflation" by Don Paarlberg.. he makes a very convincing argument that inflation is mostly monetary and has been since ancient times even! Your points are true and point to recession but flooding currency will make things worse cuz there will be STAGFLATION!! The dollar will surely devalue.. prices will rise.. and the economy will lose jobs and real prices will definitely go down.
Comment #24 Posted By: Anonymous 01/05/09
ASH
@ #13 -- just some clarification on my analysis-- I am not talking abt the NYC Real Estate market (or real estate at all) specifically but to the US and world economies as a whole which will see the inflation.. not localized.. tho it will certainly impact nominal (and not necessarily real) home prices. To address ur point on: "Renter's don't lose in inflation, just break even. Saver's don't lose as their interest rates will rise with inflation" -- Renters lose because their rents keep up with inflation while the landlord's mortgage payments are frozen at pre-inflationary dollars and interest rate. Savers' interest rates historically have not kept up and have lagged inflation.. sometimes dramatically. So even if your ING Orange Acct rate goes up to 5% but inflation is 8% u effectively earn a negative 3% rate of return. Additionally any money held in cash will become "wallpaper".
Comment #25 Posted By: ASH 01/05/09
ASH
Now to address Urban Digs and his point: well 1st look at #24 because this is correct. YES the values may very well be lower in real terms but if a dollar devalues let's say by 1/2 for the sake of argument and a $1MM home drops to $850k due to the fundamentals that you mention (in todays money).. then that home is still valued in $1.7MM in future dollars. THAT is my point. you buy a mortgage for 1MM pay it off for $500k in todays money (and lock in a lower interest % also)
Comment #26 Posted By: ASH 01/05/09
UrbanDigs
ASH - your missing some very important dynamics that are taking place today and which make this situation different from previous recessions. I agree that inflation is a monetary phenomenom, and I discuss the adjusted monetary base, velocity/M1 Multiplier, reserves, etc.. on UD for the past few months. But you are just ignoring the level of destruction in wealth of the shadow banking system and the current attempt to recapitalize the banking system so that later on they can rebuild the structure of the debt markets/credit markets where loans were packaged, rated, sliced and dice and resold to investors everywhere. You just assume that all this printing is about to be flooded into the system, and that is very very wrong. CONTD
Comment #27 Posted By: UrbanDigs 01/05/09
UrbanDigs
ASH - (contd) - We have over $1 Trillion in losses across the globe, the feds BS has ballooned to 2.4Trln from 900Bln as lending facilities seek to liquefy the short term debt markets , and DI excess reserves have spiked to about 580Bln telling us that 640Bln in real deposits are held, 10% required. Now the fed is paying interest on reserves, giving more incentive not to lend to deteriorating credit quality borrowers. But more importanttly, the recapitalization process is NOT DONE! You wait for this money to enter the economy, I am waiting for it to catch up to losses in shadow system. So far the losses OUTWEIGH the printing.
Comment #28 Posted By: UrbanDigs 01/05/09
ASH
UD - ur right the timing i have in mind is 1-2 years but when the inflation comes it will come suddenly and strong. Either way we're all screwed! haha
Comment #29 Posted By: ASH 01/05/09
UrbanDigs
ASH - well ben is trying to inflate, but this is a structural problem. The system needs to be rebuilt, reorganized, re-policed, re-regulated, etc.. This takes time. For a long time, we have reached peak credit. We still have so much debt to roll over. Lets just hope the global system holds up without too many unexpected hiccups. If there is a time for suprise, this is mix of ingredients in which could make it happen. I still think CITI is f**ked, or at least in much worse shape. I wonder how many more rescues they will need, or if they will have to go the way of AIG or GSEs...no big bank will be allowed to fail after we saw what happened with the first test subject that was LEHMAN
Comment #30 Posted By: UrbanDigs 01/05/09
Anonymous
I've been putting in lowball offers on multiple apartments at the same time for years. I always pid cash and now own a portfolio of a dozen or so apartments that I am renting at 6-12% cap rates. I plan on giving the portfolio to my children and letting their children cash out after the market goes through several cycles over the next few decades. Trust me, it's going to be a win-win for the grandkiddies.
Comment #31 Posted By: Anonymous 01/05/09
Anonymous
this guy gomes sounds like a total jerk. he admits to pricing things too high and then says offers are insulting when they come in low. hypocrite
Comment #32 Posted By: Anonymous 01/06/09
Anonymous
you are entitled t ohigher prices when as a seller, it costs you about $400 per Square foot to build in a luxury building. Plus, at least $300 per Square foot to buy. Anyone making an offer at $600 per Sf is rediculous. And there are several of these people out there
Comment #33 Posted By: Anonymous 01/06/09
Anonymous
You are not entitled to higher prices just because you spent too much to build a project. If you time a project right and make huge profits do you give some of those back. Developing real estate is a game for big boys. First off, don't overpay for the site. That $300 isn't a hard figure...it's what people have been willing to overpay. Building costs will also decline as shortages of materials and labor turn into surpluses. Also, let's not pretend every piece of overpricing garbage is a new luxury unit.
Comment #34 Posted By: Anonymous 01/06/09
TheRealist
ASH: Some of your points make sense but UrbanDigs' way of thinking is more in line with what's currently taking place and/or what's to unravel in the very near future. Frank
Comment #35 Posted By: TheRealist 01/07/09
Anonymous
Look! For the last 7 or 8 years people have been flipping properties and made at least a 10% equity on it when they sold it 1 year after. Meaning a building that cost you $500K in 2000 was selling for $1,060.000 in 2008. Do you find that logical? Sorry i don't. Wages in NY have not raised that much every year, and people should not be paying more than a week salary to pay their rent or monthly mortgage payment. But lately, it's more like 1/2 your salary goes for rent or mortgage. It's totally irrational. I'm sorry for the one who bought his property in 2007 when the prices were the highest, but this guy is an idiot. He should have follow the voice of reason, not the voice of the real estate broker. Prices are still way too high, they need to drop at least 40% of what they currently stand. People! Don't feel the pressure, don't buy now. Wait! Just wait ! You'll get what you deserve at the right price.
Comment #36 Posted By: Anonymous 01/07/09
PRL
Ash - the biggest issue that you ignore is that the the deleveraging of private balance sheets, namely commerical/retail banks, households, credit card issuers, auto finance issuers, and other financial institutions is, in aggregate MUCH larger than the expansionary policies of Ben and Hank. The federal balance sheet has grown from about 900 billion USD to 2 trillion USD in calendar year 2008, but the contraction in private market balance sheets is massively overpowering the expansionary policies. When deleveraging stops, the federal reserve policies will begin to agitate inflation, at which point an intelligent federal reserve would aggressively remove liquidity from the money supply in open market, but until then, deflation in all asset classes will be the prevailing trend. Deleveraging ending in 1Q 2009 sounds way too optimistic. Hope this helps people understand how federal reserve practices interact with private market balance sheet contractions.
Comment #37 Posted By: PRL 01/08/09
MFI-Miami
I agree with the first comment. These buyers aren't Predatory, they're smart buyers.
Comment #38 Posted By: MFI-Miami 01/08/09
Anonymous
Anything, whether it's a piece of property, a diamond, a car, or a bagel is only worth what people will pay for it. If the price is too high, there are no buyers: End of story! Why is so hard for real estate "professionals" to understand this?
Comment #39 Posted By: Anonymous 01/08/09
Anonymous
We can't erase a decade's worth of binge credit with a few quarters worth of deleveraging. Ash's projection that the deleveraging process ends within the next 3 mos (1Q09) and we morph into massive inflation thereafter is naive. Substantial inflationary pressures within 3-5 years, sure, but this economy is too sick for that to happen in the near future. Before then, NY home prices will be 30% lower than they are today - in line with economic fundamentals, risk/returns relative to other asset classes and long term house price appreciation trends. Smart buyers recognize that - it is not personal, it is business.
Comment #40 Posted By: Anonymous 01/08/09
Anonymous
So what's the big deal? It's a buyers market and will continue be for some time. Same for stocks. For those with cash, and smart enough to make good decisions in the next 2 years, 10 years from now, what's going on today wont matter.
Comment #41 Posted By: Anonymous 01/09/09
ASH
This is a great report on shadwostats.com reinforcing what ive been saying on this thread.. they predict starting 2010: "Overview The U.S. economy is in an intensifying inflationary recession that eventually will evolve into a hyperinflationary great depression. Hyperinflation could be experienced as early as 2010, if not before, and likely no more than a decade down the road. The U.S. government and Federal Reserve already have committed the system to this course through the easy politics of a bottomless pocketbook, the servicing of big-moneyed special interests, and gross mismanagement. The U.S. has no way of avoiding a financial Armageddon. Bankrupt sovereign states most commonly use the currency printing press as a solution to not having enough money to cover their obligations. The alternative would be for the U.S. to renege on its existing debt and obligations, a solution for modern sovereign states rarely seen outside of governments overthrown in revolution, and a solution with no happier ending than simply printing the needed money. With the creation of massive amounts of new fiat (not backed by gold) dollars will come the eventual complete collapse of the value of the U.S. dollar and related dollar-denominated paper assets.
Comment #42 Posted By: ASH 01/09/09
ASH
Part 2- What lies ahead will be extremely difficult and unhappy times for many. Ralph T. Foster, in his "Fiat Paper Money" (see recommended further reading at the end of this issue), closes his book’s preface with a particularly poignant quote from a 1993 interview of Friedrich Kessler, a law professor at Harvard and University of California Berkeley, who experienced the Weimar Republic hyperinflation: "It was horrible. Horrible! Like lightning it struck. No one was prepared. You cannot imagine the rapidity with which the whole thing happened. The shelves in the grocery stores were empty. You could buy nothing with your paper money." This Special Report updates and expands upon the three-part Hyperinflation Series that began with the December 2006 SGS Newsletter, exploring: (1) the causes and background of the evolving hyperinflation and great depression; (2) why circumstances will differ from the deflationary Great Depression of the 1930s; (3) implications for politics and the financial markets; (4) considerations for individuals and businesses.
Comment #43 Posted By: ASH 01/09/09
ASH
part 3- "As to the fate of the developing U.S. great depression, it will encompass the fire of a hyperinflation, instead of the ice of deflation seen in the major U.S. depressions prior to World War II. What promises hyperinflation this time is the lack monetary discipline formerly imposed on the system by the gold standard, and a Federal Reserve dedicated to preventing a collapse in the money supply and the implosion of the still, extremely over-leveraged domestic financial system. The current systemic bailout being worked at all costs by the Federal Reserve and the U.S. government, as well as earlier efforts by the Fed to buy time, have made the circumstance worse. Pushing recent Treasury funding needs on foreign investors — stuck with excess dollars from the ever-expanding U.S. trade deficit — has created a huge dollar overhang in the markets that already has started to crumble. The more the crisis has been pushed into the future, the greater the potential for pending calamity has become.
Comment #44 Posted By: ASH 01/09/09
ASH
Part 4- "The Weimar circumstance is closer to the current U.S. circumstance, although, in certain aspects, the current situation is worse. Unlike the untapped economic potential of the United States 140 years ago, today’s U.S. economy is languishing in the structural problems of the loss of its manufacturing base and a shift of domestic wealth offshore. In the early 1920s, foreign investors were not propping up the world’s reserve currency in an effort to prevent a global financial collapse, knowing in advance that they were doomed to take a large hit on their investments in Germany. In today’s environment, both central bank and major private investors know that the dollar is going to be a losing proposition. They either expect and/or hope that they can get out of the dollar in time to lock in their profits, or, primarily in the case of the central banks, that they can forestall the ultimate global economic crisis.
Comment #45 Posted By: ASH 01/09/09
ASH
Part 5- "It is this environment that leaves the U.S. dollar open to potentially such a rapid and massive decline, and dumping of U.S. Treasuries, that the Federal Reserve would be forced to monetize significant sums of Treasury debt, triggering the early phases of a monetary inflation. In this environment annual multi-trillion dollar deficits rapidly would feed into a vicious, self-feeding cycle of currency debasement and hyperinflation. Lack of Physical Cash. The United States in a hyperinflation would experience the quick disappearance of cash as we know it. Shy of the rapid introduction of a new currency and/or the highly problematic adaptation of the current electronic commerce system to new pricing realities, a barter system is the most likely circumstance to evolve for regular commerce. Such would make much of the current electronic commerce system useless and add to what would become an ongoing economic implosion.
Comment #46 Posted By: ASH 01/09/09
ASH
conclusion: A quote from Ben Bernanke: "Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation." The full text of then-Fed Governor Bernanke’s remarks can be found at: http : // federalreserve.gov/boarddocs/speeches/2002/20021121/default .htm .
Comment #47 Posted By: ASH 01/09/09
RealEstateProfessional
Want to thank TRD for shining light on yet another plainly unprofessional NYC brokerage, Core Group Marketing. But market has a way of correcting imperfections including brokerages that never provided services they should have. Mr. Gomes from Core Group Marketing clearly is a type of broker who buys listing, promising sellers inflated prices and treated buyers with contempt. We should all sympathize with him. How could he have known that it’s the buyers who actually set the price not the brokers? Why is he feeling insulted when people are willing to risk their hard earned cash as we stare into the uncertainty of endless further price declines? Since residential real estate was never your cup of tea, I would start looking for a new line of work where entitlement mentality still works in your favor.
Comment #48 Posted By: RealEstateProfessional 01/11/09
Anonymous
Insulting? We placed a cash bid on an apartment that was 25% below the asking price. It was refused, and not nicely at that, despite the fact that the seller needed to move ASAP and had paid only a few thousand for her originally HDFC unit. Six months later, it's still on the market without so much as a nibble, and we've moved on to a nicer unit for the exact same price. The "insulted" buyer is the one who lost out on this one--due to the machinations of her unrealistic broker, who refused to even pass on our offer.
Comment #49 Posted By: Anonymous 01/15/09
Anonymous
I believe it was complete and unadulterated GREED. Real estate brokers were the real predators who used scare tactics to falsely convince buyers to pay inflated prices. Brokers pressured buyers to buy at inflated prices by creating fictitious buyers who purportedly were willing to pay more than you were. Lets also pass some blame to the mortage brokers who popped up like weeds during the past eight years who convinced buyers that they could get interest only loans and encouraged buyers to get mortgages they could not afford to pay. Last but not least, lets not forget the builders who (working together with the real estate brokers and mortgage brokers)used high pressure sales techniques for their own greed.
Comment #50 Posted By: Anonymous 01/18/09
Anonymous
#50, You are forgetting one other party: stupid buyers.
Comment #51 Posted By: Anonymous 01/19/09
Mr. AIA
I'd call it predatory only if you're consciously trying to pay under fair value from a seller you know to be in distress. Otherwise, it's smart buying. As for real estate brokers, I feel most of them are just pond scum. Even more of them bring no value to the table other than providing a ride around town. It shocks me how their fee structure works, and I hope that in the future they start getting paid in relation to the value and service they actually provide.
Comment #52 Posted By: Mr. AIA 01/22/09
Anonymous
How embarrassing for some of the NYC real estate contingent, quoted in the article- buyers should have been the "target" a year ago- not when it's obvious to all that they own the market (in hindsight). The seller caboose left months ago.
Comment #53 Posted By: Anonymous 01/22/09
Anonymous
Anonymous What is insulting about making an offer at 50% off ask? In most cases, that's still far above any fundamental value calculation. Do sellers think that bubble prices are a matter of honor? Manhattan prices need to drop at least 50% to be comparable to rents -- and rents are dropping too. Comment #2 Posted By: Anonymous 01/01/09 wow, you really are retarded if you think prices need to adjust 50% - This isn't Florida, it's NYC.
Comment #54 Posted By: Anonymous 01/23/09
Anonymous
Mr. AIA I'd call it predatory only if you're consciously trying to pay under fair value from a seller you know to be in distress. Otherwise, it's smart buying. As for real estate brokers, I feel most of them are just pond scum. Even more of them bring no value to the table other than providing a ride around town. It shocks me how their fee structure works, and I hope that in the future they start getting paid in relation to the value and service they actually provide. Comment #52 Posted By: Mr. AIA 01/22/09 As long as we are on the subject of pay and value. Please tell me how traders/sales on Wall Street make the $$$$ they make? Don't tell me their job is any harder because it isn't. Ask any of them and they will be the firts to say they are VERY over paid.
Comment #55 Posted By: Anonymous 01/23/09
Tom D
I'm a recent arrival in NY from LA. Let me give you a picture of that market. Condos priced at 1.2M 2 years ago are now listed between 500 and 600K. These are in a high end area and some with ocean views. All constructed 3 to 4 years ago. You guys are about a year behind LA. So take the offer at 30 or 40% off your asking price. Because eventually your broker is going to be faced with the reality that this discount is what comps support. And while I guess the Wall Street guys were paying cash, now your buyer just might have to get a mortgage. And the bank is not going to lend at the inflated price, if they lend at all. Comps won't support that number. So Mr. Broker, be happy for your predatory buyers - they are the only ones you have!
Comment #56 Posted By: Tom D 01/23/09
Anonymous
Prices are dropping since they were artificially inflated. Income did not keep up with price increases (property needs to be maintained, longterm financial committment, etc). Yes, there were those few who could possibly compete, however as we've witnessed not the masses that jumped on the band wagon. The basic principles of old were vanquished, such as property exceeding more than 2.5 - 3 times one's annual income should not be ventured into. Prices need to fall and possibly those who are still employed and want to purchase responsibly may do so. It's amazing, none of this is rocket science. 1987 and the market experience prior would have forewarned speculators, however greed prevailed and waaala - here we are. Note: A ressionary climate is a time of restructuring, so hopefully the market that represents over a 3rd of our GDP can do so, benefitting future generations. How many people bought out of sheer desperation just so that they would not be completed shut out foreeevverr, as it appeared when the market was so called popping.
Comment #57 Posted By: Anonymous 01/25/09
Daniel
get real, you're not gonna get any real growth in manhattan housing, or stocks, or bonds. They are all too expensive, just do what Jimmy Rogers does and buy agriculture or other commodities. You know, things you can eat, or burn, or make stuff with. If you're gonna buy real estate make sure it's good value under fundamental analysis, look at rents, and try to come up with a realistic picture of the market and inflation. Inflation will kick in sooner or later, probably towards the second half of this year, and everything will go up in value from a gallon of milk to the overpriced house. Except maybe the overpriced house will stagnate from inflation, and go towards realistic value, but that's always better than declining below your mortgage principal. Basically, be smart, find some value, and enjoy the ride, because the biggest moron in the next decade will be the same guy that was the biggest moron in the last decade, and that's the person who holds his savings in cash, earning 3% interest.
Comment #58 Posted By: Daniel 01/26/09
Anonymous
predatory buyeres, bottom feeders, vultures, etc. sounds to me that many people are facing a reversal of fortune. my sympathy to all of you fools. i have been living with a roomate in a studio basement for 3 years because it is an incredible deal. i have cash and i will not touch this market for another year when it does catch up to fl, ca, az, nv, and oh, the rest of the world. the sellers who are insulted now will be bankrupt and i will be mortgage free. hey daniel, how much cash did you blow on bottle service and bimbo's while the biggest moron of the last decade was earning 3%?
Comment #59 Posted By: Anonymous 01/26/09
Anonymous
dumb
Comment #60 Posted By: Anonymous 01/26/09
Anonymous
Fine. Need to be realistic in today's real estate market. And who knows what tomorrow will bring. Sell for much less, like 15% or more. But I don't see real estate agents lowering their 6% commission accordingly.
Comment #61 Posted By: Anonymous 01/26/09
Anonymous
Real Estate Agents are dropping like black flies in Maine during winter, as are their commissions, 2% is the new black, if they can get it. Good luck, and I love whoever commented on the illustrious sellers that are insulted by their most recent offers. Brace yourself, it will be a hard landing.
Comment #62 Posted By: Anonymous 01/27/09
Anonymous
More like 8%.
Comment #63 Posted By: Anonymous 01/28/09
Bobo
Bump... -- I agree with Comment #1. These buyers are not predators..... So when the market is high are the sellers predators for bids above the ask?... bad title
Comment #64 Posted By: Bobo 02/03/09
Rich Hamilton
Wow....64 comments in a month...BTW we sold very close to ask on the unit I referred to. Very close. Activity and sales are way up this quarter, multiple bids and not a lot of deals far below ask. Those who were waiting on some further drops are now left on the side. Sure there are some deals here and there, some panicky sellers may have done deals they now regret. But the market has had some recovery, since the mortgage market loosened up.
Comment #65 Posted By: Rich Hamilton 06/30/09