Posts Tagged ‘inflation’
Friday, May 3rd, 2013
Posted by Leonard Steinberg on May 3rd, 2013
The one thing that almost guarantees that real estate will continue its upward pricing trend is the fact that big city inflation is quite different from the rest of the country’s (I believe artificially deflated) inflation figures. Did cab fares go down during the recession? Food prices? Health care? Rent? Of course not……in fact the GREAT RECESSION saw some of the biggest increases in inflation numbers ever…..many in areas that our beloved government does not consider of being worthy in their inflation calculations. Can you really believe they omit the cost of housing from their inflation figures, surely the biggest expense any New Yorker deals with?
This week we opened a window into the costs of operating New York City as Mayor Bloomberg revealed his final budget: health-care expenses are expected to jump a staggering 38% over the next four years while pensions are consuming $8.3 billion next year. The deficit for fiscal 2015 — the first budget that would be overseen by the next mayor — was estimated at $2.2 billion. When he took office in the aftermath of 9/11, Bloomberg was staring at a hole of almost $5 billion in a $42.5 billion budget…..this years budget is $ 69,8billion. So the budget has risen an average of over $ 2billion per year over the past 12 years…..or over 4% per year……thats close to double the ‘official’ inflation rate.
Gasoline cost in the year 2003: $ 1.66/gallon………2013: $ 3.85/gallon…..that’s over 7% per year.
1 bed apartment at 39 Fifth Ave: $ 670,000 in 2003…2013: $ 1,2m+……..thats over 6% per year.
So they say our inflation rate is around 2%…..don’t believe it. And while the discrepancy between government estimations and reality is pretty startling, this inflation makes ownership a very good prospect as the real estate escalates with inflation and you avoid those pesky rent increases…..the again maintenance, common charges and real estate taxes don’t ever go down either!
Saturday, April 20th, 2013
Posted by Leonard Steinberg on April 20th, 2013
Has a new pricing insanity set into the New York uber-luxury market with 33 official listings (with many more un-official ones!)above $ 30 million and three over $ 100 million: Is $ 100 million the new $ 50 million just within a matter of months? It appears so, and I call that hyper-luxoflation!
In this morning’s New York Times an entire article is dedicated to a developers quest to create a massive apartment on top of a rather mediocre building by buying up all the owners of the top floor units. The Times wrote a similar article a few months ago about another $ 100m listing……is this reporting or simply excessive Kardashian-style publicity-seeking? There are other examples of ’trophy’ apartments for sale on top of mediocre buildings……and they are not selling. There are too many mediocre properties priced into the stratosphere that simply do not warrant their asking prices, no matter how crazy-active this market is. Yes, there certainly are some outstanding properties asking very high prices……but those prices can be justified. Satisfying the ego of a seller is a dangerous precedent that seems to have found a place in our manic society: just how many Russian oligarch’s are there to buy these properties?
With gold’s plummeting pricing explained by lesser concerns about inflation, why exactly is the very top end of pricing in Manhattan inflating at a pace that is simply outside the realm of reality?
Tuesday, December 4th, 2012
Posted by Leonard Steinberg on December 4th, 2012
Our beloved Government claims that the US inflation rate is currently somewhere around 2.25%…..remarkably they do not include the cost of housing in this figure, probably the single most expensive line item cost in every American’s budget. As we all know the cost of housing is rising dramatically, especially in New York.
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time. So if you exclude housing from all of this, INFLATION is really not being measured valuably.
I would suspect the inflation rate in Manhattan is somewhere around 7-8%, based on the rental hikes, insurance cost hikes, rising staffing costs, raised MTA fares, raised cabfares, food , etc: I guess we will never know since the government has chosen to exclude the largest single cost to us all…..the cost to keep a roof over our heads.
Friday, October 5th, 2012
Posted by Leonard Steinberg on October 5th, 2012
New York is poised for one of the greatest building booms of all time in 2013, fueled by the awakening sleeping giant of residential new construction. There are literally hundreds of buildings where already the roar of machinery and activity are firing up. This is what I predict as a result of the 2013 NEW YORK BUILDING BOOM:
1) With this very sudden burst of energy, finding skilled (and less skilled) construction workers will become tougher and more expensive, but unemployment will drop.
2) Materials will become more expensive as masses of Sub Zero refridgerators, Miele stoves, hardwood floors, sheetrock, steel, concrete, glass, etc, etc will be needed almost all at once.
3) I predict an individual renovation will be about 10% more expensive in 2013.
4) Construction noise will torture us all, not to mention traffic congestion caused by the numerous constructions sites. And these sites start early.
5) Lawsuits will rise as neighboring buildings, workers, passers by, contractors, developers, brokers and all those affected by the 2013 CONSTRUCTION BOOM will seek financial gain.
6) The City will see a surge in real estate transfer taxes (later of course when these units close) and then real estate taxes…..this could impact revenues very positively and mor immedfiately this time….without 421-A tax abatements, the real estate taxes will be high and immediate.
7) I see a large, bold, class action suit being filed by new condo owners who (rightfully) feel they are being unfairly assessed. Now it will be more obvious without the abatement programs disguising this injustice.
8) Real etstate prices for new condominium buildings will rise noticeably: its happening already.
9) All this activity will be good for the economy overall, lowering unemployment, creating more consumer dollars, and stimulte spending.
10) More people who lost jobs in other industires will become real estate brokers in an attempt to cash in on the get-rich-quick mood that will emerge.
11) While $ 2,000/sf is the new $ 1,000/sf, will 4% be the new 3% or 2,5% commission currently being paid by the few new development buildings on the market? They probably won’t have any option as the competition grows.
12) If you think the DOB is slow now, brace yourself for an even slower government process. Remember they cut back their staffing during the recession, so knowledgeable service will be in short supply.
THE SCARY PART: Hopefully this, combined with other increasing prices, doesn’t fuel inflation too much (its here already, btw!) so that the city becomes even less affordable for many.
Wednesday, January 25th, 2012
Posted by Leonard Steinberg on January 25th, 2012
Some good news for the real estate markets (and markets in general): To-day the Federal Reserve pushed back the likely timing of an eventual interest rate hike until late 2014, much later than it had previously said, as it nurses a still-sluggish economic recovery. In a historic step toward greater transparency, the Fed announced an official inflation target of 2 percent. Three of the 17 policymakers expect rates will need to rise this year and two others did not see any increase until 2016.
Low interest rates are historically good for the residential real estate market, and this indication for the future is healthy, although it certainly will remove any urgency a buyer may have had they believed a rates rise was imminent. For new developments it is especially important, as a buyer committing to-day to buy in a new building that could only close in 2013 or 2014 has some measure of re-assurance that rates will not rise, or rise significantly at the time they are ready to close.
Now lets hope that 2% inflation target can be maintained: all indicators in Manhattan lead me to believe otherwise. Then again, the official inflation rate does not take into account the cost of housing, fuel or food (believe it or not!) even though rents and food costs rose close to 10% in 2011 in New York.
Monday, January 23rd, 2012
Posted by Leonard Steinberg on January 23rd, 2012
A recovery is under way. And now there is absolutely no doubt about it. I hear it from my very wealthiest clients most of whom are scrambling to put deals together before prices rise. I even heard one say the other day he was willing to pay more on a deal he was structuring because he felt the markets were improving enough to give him confidence. I believe many of the buyers in this busier-than-normal January are buying because they believe a hard asset like prime real estate is poised for gains, and may be a safe-haven for wealth in inflationary times.
The housing bubble began deflating almost six years ago; house prices across the US are back to 2003 levels, yet in many areas of the New York luxury real estate market they have surpassed the highs of 2007/2008. After a protracted slump in housing starts, we now look seriously underprovided with apartments and houses, at least by historical standards. In Manhattan this shortage is fueling pricing escalation, which I feel may be a bit artificially inflated in certain areas because of acute shortages.
This January, already we are witnessing the New York luxury real estate market booming: So why aren’t there more buyers out buying across the country? Because the depressed state of the economy leaves many people who would normally be buying homes either unable to afford them or too worried about job prospects to take the risk. This affects the lower end of the market mostly, although the more recent financial markets philosophy of trimming back and cutting costs could affect the higher end too.
The economy is depressed mostly because of the housing bust, which immediately suggests the possibility of a virtuous circle: an improving economy leads to a surge in home purchases, which leads to more construction, which strengthens the economy further, and so on. If you analyze the recent data, it looks as if something like that may be starting: home sales are up, unemployment claims are down, and builders’ confidence is rising.
Furthermore, the chances for a virtuous circle have been rising, because we’ve made significant progress on the debt front. There are four things that stand in the way of a strong recovery:
1) The oil price is very high: this is a form of high taxation on the masses, making an essential monthly expense (transportation) a bigger chunk of their income.
2) The banks are impossibly incoherent with some of their demands. They blame the government, but where did the government require banks to hire incompetent appraisers to provide valuations that simply do not make sense? I have written on this subject before, but no bank read what I said or cared.
3) Politicians who are committed to power over and above the welfare of the country will continue to fuel divisiveness and claim the economy and country are down the toilet: no-one ever wins an election by saying things are getting better.
4) If the economy improves too rapidly, the Fed will raise rates to curb inflation, and the governments may be too eager to cut spending. Spending needs to be trimmed, and government needs to be made more efficient, but it would be better to fuel this recovery through growth as the priority.
Wednesday, January 11th, 2012
Posted by Leonard Steinberg on January 11th, 2012
In a recent Wall Street Journal article a survey of those with investable assets of $ 30m+ revealed that the rich prefer commodities, real-estate, private companies in 2012 to place their investable dollars. 48% plan to increase their allocation to commodities in 2012, and 45% of respondents are looking to real estate….we see this already with the market starting off with a bang.
The message is all about the need to invest in tangible assets. Art, collectibles should do well to. Maybe this is the strongest argument that those in the know (and lets face it, the rich usually know first) feel certain that inflation is on the horizon…..we think its here already, quietly hidden by government statistics that omit critical factors when evaluating inflation. And real estate has always been a solid hedge against inflation, which bodes well for the New York luxury cash-driven market. With Metlife getting out of the mortgage business too, obtaining mortgages will be the challenge for the rest of the market.
I suspect pricing records for premium properties could be broken in 2012. We shall soon find out.
Monday, November 28th, 2011
Posted by Leonard Steinberg on November 28th, 2011
Retail insanity was the order of the day starting mere seconds after the turkey and stuffing had been digested. Reports of fist fights, pepper spraying, gun-shots, etc highlighted American’s intense desire for a bargain. Retail sales were up over 8% over last year, setting new records. These are my questions:
1) Were Americans more desperate to buy the bargains this year because for many the economy is so bad they cannot afford anything less than a bargain?
2) With over 100 million Americans out shopping, maybe those isolated incidents of violence were actually low compared to a normal day, inspiring the press to make it a story as it provides great imagery?
3) Is this a sign of a retail/economic recovery? The US economy is mostly based on consumption that has remained pretty stagnant during the recovery……have American consumers grown tired of the gloom and doom, holding back to the point of a breakdown? Is this a resurgence of consumer confidence? Remember US consumers increased their savings rate from 0% in 2008 to about 5% in recent years….that’s quite a bit of money saved waiting on the sidelines…..earning next to nothing in saving’s accounts, and shrinking in value in the equity markets.
4) Is this a flight towards hard, tangible assets, steering away from cash? Many of the wealthy have been buying Manhattan real estate (as witnesed by the Luxuryloft team)and gold for this exact reason.
5) Have Americans come to the conclusion that yes, Kim Kardashian is actually right: it’s all about STUFF, not that other stuff no-one can see and covet?
6) If sales were up over 8%, did buyers actually buy more, or did the merchandise simply cost more because of …….inflation?
Sunday, October 24th, 2010
NOT SEEN ON YOUR STREET, BUT COMING TO YOUR WALLET SOON.
The foreclosure mess could hurt homeowners in Manhattan in an indirect way: The costs of buying an apartment and paying off the mortgage are likely to go up, say housing experts.
The rising costs will come both during the closing and throughout the life of the loan.
At the closing, the cost of title insurance, which protects a property buyer from claims of ownership made by other people, is likely to rise, industry officials say.
“At a closing last week I witnessed an ‘additional title insurance fee’ to cover additional insurance.,” says Leonard Steinberg, managing director of Prudential Douglas Elliman and publisher of LUXURYLETTER.
The foreclosure mess has sent insurers scrambling. One of the largest, Old Republic Title Insurance, told its agents on Oct. 1 not to issue policies on homes that have been foreclosed by GMAC Mortgage or J.P. Morgan Chase. And on Wednesday, the nation’s largest title insurer, Fidelity National Financial, said lenders must vouch for the accuracy of their paperwork before it will insure properties.
Just like homeowners-insurance rates rise after a hurricane, the rates for title insurance are expected to rise, to compensate for the added risk.
The turmoil will likely lead to pricey premiums for new homeowners, says McLean, Va.-based housing economist Tom Lawler. Adds Cameron Finlay, chief economist at mortgage lender Lending-Tree.com: “Any time there is uncertainty in the market or risk implied, it follows that costs go up.”
Other costs could be felt during the life of the loan. Until the current mess, servicing loans was a low-margin, high-volume business. Servicers collect mortgage payments from borrowers and send them off to mortgage holders, and if the loan gets into trouble, they manage the foreclosure. Few doubt this process will get costlier now that it is under scrutiny from regulators and the courts. That higher cost likely will show up in higher interest rates for borrowers.
Both of these higher costs also would hit homeowners who refinance their loans.
How much the costs of buying a home will rise is unknown. Mortgage industry officials say it is too soon to tell. And no one believes the costs will significantly change the price of a home. So if you thought anyone was immune to the foreclosure mess, think again.
And no, Manhattan is not immune even though foreclosures are still extremely rare here. The only good news: all these rising costs equal INFLATION, not the worse option, deflation. Owning real estate during inflationary times is a good thing.
Tuesday, August 24th, 2010
Something very newsworthy is happening in the luxury Manhattan real estate market…….for the first time in many years we have experienced (while renting out an apartment in Tribeca) prospective, qualified renters withdrawing their applications after realizing that buying would cost almost the same as renting, and opting to buy. We have not heard this in YEARS.
“To-day, figures will be released for housing sales in July, and they won’t be great. New York is a different market though, so what is happening in the US is not necessarily what is happening in our area”, says Leonard Steinberg, managing director of Prudential Douglas Elliman. “Our recent rental experience leads us to believe we really have bottomed, and from here the market stabilizes and improves.” Recently released rental activity reports indicate a rise in rental property inventory: but these reports are not very specific. Some areas and property classifications are actually experiencing shortages which will boost the cost of renting. The days of cheaper rentals in prime Manhattan areas are fading fast, epecially for larger units. Combine this with the MTA’s quest for sharply raised fares and one has to wonder where deflation exists in New York. If anything, this is inflation.
In FORBES, columnist John Tamny says don’t fear the housing market……There’s a growing consensus that another economic contraction is likely if home prices in the U.S. dip. The thinking here seems to be that if prices decline, the resulting increase in foreclosures would weaken already shaky banks that would either fall into insolvency, tighten lending standards or both. With bank lending already down, renewed weakness would supposedly strangle a nascent economic recovery.
Scary stuff for sure, but also arguably overdone. Most would agree that heavy investment in the housing sector helped get us into the mess we’re in, so for housing worriers to suggest that an artificially enhanced property market is our cure is to get things backward.
More realistically, the mortgage defaults and resulting housing weakness a few years back signaled an economy on the mend thanks to markets correcting overinvestment in that space. If economic growth is the goal, the best thing we could do would be to let houses and mortgage securities find their natural, market clearing level.
To do otherwise, as in if Washington continues to use limited capital to prop up housing, would be for our federal minders to elongate what remains a painful economic downturn. A housing correction, far from limiting growth, would actually constitute economic revival for underutilized capital migrating toward more productive pursuits.
When an individual buys a home, there’s merely a transfer of wealth from one person to another. This is quite unlike the purchase of shares in a public company, or the deposit of funds in a bank where an individual is transferring capital to existing and future businesses eager to expand. To invest in housing is to essentially transfer capital into the ground, whereas when we save and invest we provide entrepreneurs with the means to expand.
This is important in light of the housing boom of not long ago. It’s once again assumed that a decline in prices from what remain high levels would be economically harmful, but it could more credibly be stated that the not-so-long-ago rally in home prices was the recession for limited capital flowing into unproductive assets of the earth over productive assets of the mind.
To make what transpired not long ago clearer, tomorrow’s Googles, Microsofts and Intels suffered a capital deficit amid the rush to housing, and builders gorged on the capital that passed them by. This was no accident; rather it was the predictable result of policy from the U.S. Treasury in favor of a weaker dollar.
History shows that during periods of currency weakness, available capital flows into tangible assets least vulnerable to the aforementioned debasement. Ludwig von Mises referred to this phenomenon as a “flight to the real,” and it’s what has always occurred when monetary authorities seek a decline the value of the unit of account.
Looking at the decade just passed, the dollar’s impressive weakness drove up the nominal value of all commodity-like assets, with housing a natural beneficiary. Not only did this “money illusion” distort home purchases, but it ultimately created a housing glut as faulty price signals tricked developers and lenders into believing that home prices could only rise. Evidence of the overbuilding that resulted from monetary mischief is everywhere at present, with unsold and uninhabited homes dotting suburban landscapes across the country.
For the federal government to then use capital borrowed or taxed from the private sector to put a floor under home pricesnow would be for it to continue to distort real market signals on the way to more investment in housing. We’d be doubling down on an economic bet that previously helped put our financial system on its back.
The logical response is that intervention in the property space is necessary to maintain the fragile health of a banking systemthat would suffer mightily from another round of mortgage defaults. Fair enough, but this thinking ignores what little good the savior of Japan’s zombie banks did for its economy during its two lost decades, plus it grossly overstates the importance of traditional banks when it comes to the accession of credit.