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October 2, 2019 | High-End Realty Supply Weighing on Prices

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel (www.venablepark.com) Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog: www.jugglingdynamite.com

The third quarter saw a 14% drop in Manhattan property sales.  Some of the weakness is attributed to a fall in foreign buyers and a new “mansion tax” on apartments over $2m which came into effect July 1st and pulled some transactions forward into the second quarter.   As prices soften though, the supply of listings is likely to accelerate further, see Manhattan real estate prices take the biggest tumble since the financial crisis:

“…the number of apartments coming onto the market suggests a continued oversupply and softening prices — especially at the high end. The supply of luxury listings — or those in the top 10% by price — hit the highest level since data started being recorded 15 years ago, Miller said, with nearly 2,000 apartments listed for over $3 million. There is now nearly a two-year supply of luxury apartments.”

Because half of Manhattan apartment buyers typically use cash with no mortgage, the market is less susceptible to interest rate changes there than in most other places.  But that doesn’t mean the market is insulated from downturns and selling pressure.

As explained so vidily in Robert Frank’s 2011 must-read book The High-Beta Rich, at the end of long-asset price expansion cycles, asset-intense owners, economies and government revenues tend to be less stable and diversified than most imagine.  As revenue streams fall, the need for cash liquidity intensifies and sellers become more and more motivated (needy).  The liquidity crunch tends to go global, as owners are concentrated in the same asset markets globally.

In this recent segment, Robert Frank reports on knock-on effects now weighing on commercial real estate too.  Here is a direct video link.

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October 2nd, 2019

Posted In: Juggling Dynamite

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