2011 May 18th

The Weekly Wednesday Wrap Up – Hoboken Condo Sales & Activity for the Week of May 18th

Hoboken Condos Sales & Activity – Week of May 18th, 2011

Inventory is building up a bit again as we stretch towards the 400 unit mark. At the same time, certain properties are attracting multiple offers and fetching substantially over asking. I had buyers make an offer $15,000 over asking on a nice 3 bedroom last week.  There were 4 bids, and I was told by the listing agent that we “weren’t even close” to the winning number.  This is happening more and more often in this particular market segment.baby parade

What’s going on? There are a bunch of young families out there looking for 3 bedroom properties with parking, an elevator and similar amenities.  They want a home located on a nice block where they will feel save walking their babies or coming home from work late at night.  They want to be near a park or playground.  There simply are not enough of these type of condo units for sale in Hoboken today. If a buyer thinks that they can get one of these prime units today for a “bargain”, disappointment is likely.

At the same time, the older, not-so-renovated 1 and smaller 1 bedroom walk-ups in less-than-perfect locations are selling for less and less.  I liken these units to “bruised apples”.  Few people will buy them unless they are quite a deal.  Which brings up an interesting conversation I had with a buyer the other day.

What determines value? Is it based merely on the lowest comparable sale for a similar property in the recent past?  Or is it what a real buyer is actually willing to pay for the property today?  The buyer I had the conversation with insisted that the past sale in a similar building was all that mattered and absolutely determined what the condo was worth.  Yet when she made what I thought was a low offer for the property, someone else came along with a much higher number. Guess who got the deal?  Did the second buyer “over-pay” or did their willingness to pay what the seller was asking set the new value?  I’d love to hear your opinion.

  1. (valid email required)
  2. (required)
 

This Weeks Condo Sales & Activity

Century 21 listings are indicated with a “C21″ after the address. Other listings are from the MLS and are identified with “MLS” after the address. Information is deemed reliable but not guaranteed.

Studio & 1 Bedroom Hoboken Condos:

16 new listing

2 dabos

5 Sold

14 price reductions

161 Total Active 1BRs

Two Bedroom Hoboken Condos:

14 new listings

6 Dabos

11 sold

11 price reductions

195 Total Active 2BRs

Three Bedroom and Larger Hoboken Condos:

6 new listings

1 dabos

2 sold

4 price reduction

37 Total Active 3BRs

Hoboken Condo Open Houses

If you are in the market for a Hoboken condo, our Hoboken Open House Google Map is your best source for locating every open house in Hoboken. It is the single, most complete listing available and we were the first ones to do it. We compile the information by hand from all possible sources to provide you with all the information you need in one spot. It’s posted on Friday every week.

Want to Receive New Listings & Price Reductions Daily?

If you would like to be eee new listings and price reductions each weekday in either 1br, 2br or 3br categories just email us at [email protected] letting us know which size(s) you would like and we’ll add you to the  list.

For more information you can always contact us at 201 993 9500.

Thanks for reading and, as always, we welcome your comments!

FacebookTwitterGoogle+Share
  1. Craig

    Value is based on whatever buyers are willing to pay today. The lowest comparable sale for a similar property in the recent past gives the seller an idea of what price to expect to get – but it’s no guarantee in the present. The highest amount a buyer is actually willing to pay sets market value in real time. Comps give you an idea of market value, but if a particular unit can’t sell in real time at the comp price of past sales, then the market has spoken once again.

    As for 3 bedrooms in good areas with elevators and parking, how many of those are in Hoboken? Not many. So the law of supply and demand is at work here. Many of shoppers looking for that type of space typically fled to the burbs, where you get much more house for what a 3BR will cost. But now some of these people are staying urban for whatever reason. If I was a developer in Hoboken right now, I’d be putting up buildings that are all 3br units with all the trimmings.

  2. BP

    So are those “bruised apples” anywhere near price points that would start to make them attractive as to small investors who’d buy and rent them out?

  3. Lori Turoff

    Units like 527 Jeff (above) a 1 bedroom that sold for $235k might rent out for a market rent of $1600 a month – but what you can legally charge depends on what the rent calculation is as per the Hoboken Rent Control office. I have no way of knowing what that number might be. Let’s assume you could get 1,600. If you put down 20% you would have about $1,000 a month mortgage payment (based on the investor rate of 5.35%) plus 206 in maintenance and 300 in taxes – total monthly expense about $1,500. Let’s call it $1,600 to include insurance and a small “reserve fund” for upkeep. This is not taking into account any tax benefits, such as depreciation. Sounds good to me but it depends on what kind of return you want on your 20% equity. With interest rates as low as they are on CDs right now, you can’t expect too much without a lot of risk. You also have to assess your potential for future gains or losses. That depends on what you think the market is going to do in however long you intend to hold the property. No simple answer here.

  4. stan

    Some one paid 427k for the 553 sq foot place @ 73 garden (2005).

    egads!

  5. laki

    Speaking strictly from an investment point of view:

    If Lori’s numbers are right and assuming that you can rent your unit out right away and never have it empty, the numbers translate into:

    12*(1,600-506) / 235,000 = 5.6% Unleveled rental carry.

    The fact that this 5.6% yield is very close to the mortgage rate, tells me that leveraging that investment with borrowed money (mortgage) really doesn’t “kick up” your carry at all.

    What borrowing money does in this case is it amplifies the return on equity that is achieved by asset value appreciation. So if you choose to leverage your investment up by putting 20% down and take out a mortgage on the rest, then 1% move down in value of your home will erase all the profit you made from collecting rent. Or if value of your home went up by 1% you would double your rental profit.

    In other words, given these numbers, for all people who buy with a mortgage, and consider it an investment, what happens to home prices is much more important than the rental yield of 5.6%

    All of this said, if Lori’s numbers are right, Hoboken is significantly cheaper than Manhattan. In Manhattan that 5.6% number looks more like 2.5%. So in Manhattan (most likely you’re looking at a Jubmo Mortgage) your cost of borrowing is around 4% higher than the income your asset can generate, so with 20% down, you need home prices to go up by 1% or so per year just to break even on your leveraged investment. Any growth that is slower than that will result in negative return on equity.

  6. laki

    Also, for BP and other investors out there, here is some more food for thought:

    Imagine there were no mortgages. Imagine you had to buy with cash (and you had enough cash to do so). Would you ever buy an investment property in Manhattan that gives you 2.5% positive carry per year? This 2.5% positive yield assumes the following:

    1) Your unit never sits empty (i.e. you always manage to find a tenant right away)
    2) You never get in a legal dispute with your tenant (i.e. they stop paying)
    3) Your unit doesn’t experience any wear and tear over the years

    If any combination of the above were to occur (and they’re guaranteed to over the years), that 2.5% return easily gets reduced further.

    Does this sound like a good investment to anyone? I think it is pretty clear that the answer here is NO. I mean you could put your money in a CD and generate a higher return without any hassle. So, why bother?

    So, if an unlevered asset looks unattractive from a yield perspective, how can it possibly make sense to leverage it up where the cost of debt is significantly higher than what the asset yields to begin with? Once you think through this logically, you will realize that every single landlord in Manhattan is in fact a highly leveraged speculator on real estate prices. If condo prices don’t go up, the investment looks AWFUL based on any metric compared to just about any other income producing investment you could make.

  7. Lori

    Thanks for your analysis Laki. I found it very interesting. Wanted to note a few things:
    – This was an exceptionally low-priced unit
    – Without having seen it my estimate on rent potential may be a bit high given that the sales price was so low. It makes me think there had to be a reason for the low sales price.
    – How do you account for time horizon? How do you account for rising rents over time? Let’s say I purchase today for $225,000 with 20% down. I live in the property for the first 5 years (which is common with condo buyers today who find they can sell so they decide to rent instead). In year 6 I rent it out and my initial rental income is $2000. Over the next 15 years my rent raises by a small amount each year so that in year 21 I’m getting $3,900. Assume I’ve never had a vacancy. Let’s also say the market rate of the property is now $850,000. Still a bad investment? How would the calculation chance if I paid off my mortgage in year 6 but everything else stayed the same?

  8. FN

    Laki,

    On an average in Hoboken one gets at 6%-7% Gross yeild and 2.5%-3% cost of property tax + insurnace + HOA, maintainance and transaction cost on a 10 year horizon 1.5%. So Net yeild is approx 2%-2.5% + inflation (assuming apprecation @ inflation)

    Still seems better than
    1. 10 year TIPS @ 1.125 + inflatoin ?
    2. 10 year treasure 3.18%
    3. large cap Stocks 7 year GMO forcast -0.5% + inflation

    FN

  9. Lori Turoff

    FN

    Please enlighten us – can we see the math behind the calculations in your first paragraph? Thanks!

  10. laki

    Lori,

    In your example, you’re assuming that rents go up (inflation adjusted). This might happen, but it might not (rents might even go down)… If you started with some kind of an equilibrium, rents cannot be going up faster than the real growth in the economy. Otherwise theoretically you would reach a point where nobody can afford to pay these rents. So being able to up your rent is conditioned on “good things” happening in the economy. And if this is occurring, that likely translates into higher real returns on other competing investments you could make instead of purchasing an apartment. So this “benefit” would not be exclusive to this asset class alone.

    Also, you mention the possibility the apartment goes up in value. Well, yes in that case you make out like a bandit. If you’re several times leveraged, and your asset goes up in value, you’re gonna make a lot of money by definition. But that was my point. Asset price is by far the biggest determinant of your investment returns. The rents you collect are more or less noise.

    But the asset price goes both ways… It can go down just as it can go up.

  11. laki

    FN,

    It might seem marginally better on paper, but you’re comparing different classes of assets:

    1) An illiquid asset, with high transaction cost, owning which requires quite a bit of effort and has a lot of embedded risks in it (the asset can get damaged, legal risk, vacancy, property tax risk, etc.)

    2) The most liquid asset that you can get in and out of at will with virtually no cost or effort.

    So it is not exactly fair to compare the two straight up. A better question to ask is – would you like to own a business that generates 2-2.5% return on assets? How does this compare to other types of businesses you could own outright? How does this compare to public companies say those in S&P 500?

  12. Lori Turoff

    Laki,
    I agree with you. But let’s assume we are in a growing economic environment. Both rents and the real estate market are rising. This was indeed the case for a good portion of my lifetime. So say we recover from the past few years of turmoil and the “good times” return. I wonder if you would then consider real estate a viable investment alternative. Let’s further assume the investor knows nothing about investing in equities or other financial instruments. Isn’t there risk involved in that as well?

  13. laki

    Lori,

    “Let’s further assume the investor knows nothing about investing in equities or other financial instruments. Isn’t there risk involved in that as well?”

    Well yes there is a risk in everything, but the question is are you being compensated for the risks you’re taking? Owning real estate to achieve 2 to 2.5% return on assets hardly compensates for the risks you’re taking (unless you believe home prices will go up, but in that case, i go back to my point, you’re more of a price speculator than someone who makes money by owning and renting out).

    You can go to Ally Bank, and get a government insured 5 Year CD that yields 2.5% (last time i checked). Further, you can pull that money whenever you want and the only penalty you pay is you gotta return 2 months of interest to them. Here is an investment with no risk, very liquid and is guaranteed to return 2.5% or so (albeit nominally, but if interest rates go up you can always pull your money and re-invest in a higher yielding asset).

    No matter how you slice it, if you truly look at the entire investible universe, on a risk reward spectrum, real estate in the north east just does not look appealing, UNLESS one believes home prices will go up in value. Without this occurring, there are much much better alternatives out there for both risk averse and those who want to take on risk.

    My personal view is that in the next 20 years real estate prices (in real terms) are flat to down in the US. If you believe this cannot happen, look at prices in Japan they’re down like 75% over the past 20+ years. Also prices in countries like Germany and Italy are flat over the past 100 years as per the research of Robert Schiller from Yale.

    The fact that real estate prices have been going up in the US faster than inflation and above the cost of construction for several decades was mainly a factor of ever increasing leverage in the society. Once the Ponzi scheme stops (and i believe it has already) it will be tough to maintain these trends (and many others that we have seen since WW2).

Leave a Reply

Copyright © 2008 Hoboken Real Estate News     Login     Sitemap