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Thursday, December 20, 2007

Manhattan real estate continues to defy gravity

"co-ops, condominiums and town houses are flying off the shelves in brokerage firms across the city"
JOSH BARBANEL, NEW YORK TIMES

market trendsAfter looking at The London property echo last week, we've landed back in Manhattan today and looking at another reverberation in the echo of these vigorous real estate markets. Josh Barbanel wrote in the New York Times about the most recent indication that the Manhattan marketplace is still alive and well in a piece simply titled Manhattan Market Remains Stable. He writes, "Last month, the number of closed sales just about matched the number closed in November 2006, and prices were considerably higher, but roughly flat compared with the prices in the previous quarter, according to a review of sales records filed with the city." That sounds about right to what I'm experiencing and hearing from my colleagues. There has been a fairly consistent number of deals being made and inventory in any particular property size is pretty slim in any one neighborhood, causing a modest, but equally steady rise in prices.

how to price a home right now
Sellers who really want to shoot themselves in the foot, can do so by simply ignoring the most recent comparable property sales and overreaching for the the highest, most unrealistic pricing advertised by a competing property. Asking prices are almost irrelevant in this market. Recently sold and closed data are the most important measurements. I heard recently about an agent who received 30 bids on a Greenwich Village co-op apartment which was under priced to attract a number of qualified candidates to pass some stringent Co-op Board requirements. The perception was that a "deal" existed. The property was quickly bid up to its true market value. In this more price sensitive market, the mindset that says price higher because you can only negotiate downward, is destined to do so. Using attractive pricing to stand out from the crowd, will still get an enthusiastic response if the home is exposed widely. The buyers are out there, waiting and wondering where it is all going, give them a reason to come see your property, and try to buy it.
the manhattan market's pulse
I must admit that the deals have been taking longer to produce, and the bidding is more cautious now. Buyers are concerned about overpaying. In truth they always were, but in 2005, feeling the market accelerating beneath their feet, they often bid at asking or above. Now customer sentiment is a little less confident. We are seeing more negotiating, and bids moving in smaller increments. The net result is often at, or within a few percent of asking. Overcautious buyers, who've believed that the market will slow, have consistently lost out on really good properties by underbidding in 2007. That hurts. Overpriced sellers can always choose to correct course, drop price, and reinvigorate a listing. Buyers cannot reproduce a desirable home to buy as easily.

The market sentiment and market data seemed fairly aligned. Things are flattening and it is a matter of who blinks first. Christine Haughney wrote recently in Between Buyers and Sellers, a Stalemate that "Brokers say it is the buyers...who are now growing concerned about the impact of the weak national housing market and the effect that Wall Street losses might have on Manhattan apartment prices. So they’re lowering their bidding or stopping their searches altogether until they have more confidence in the market", she later adds, "for every bearish buyer there remains a seller brimming with confidence" telling of an $8.45 million Park Avenue home which sold in two weeks. Buyers often feel as though they are paying a little too much, and sellers usually wonder if they could have gotten more. It's human nature. Is this even news? Confidence in the marketplace is the lubrication that gets deals to happen. Without it, the deals get a bit squeaky.

where are we headed in 2008?
The honest answer is that no one is really sure. It certainly helps to understand the surrounding environment of consumer sentiment, inventory, and market momentum. To me it feels cautiously optimistic right now. Inventory is down and the momentum is holding steady. There is still a solid pool of qualified buyers out there, and as I pointed out above, not a huge amount of properties to choose from. These are not conditions which sound like they are leading us toward a big market correction. Bloomberg reported that Wall Street firms will pay out a record $38 billion in bonuses in the first quarter of 2008. That's an average of $201,500 per person. That's the spark which in past years has ignited a rally, but we may see it have a less frenzied pace, tempered by the overall more cautious environment at hand.
a market is a market is a market— do they all operate alike?
Looking at the media's analysis of the stream of macro economic and housing data would lead one to think that there is a national real estate market, and that everything, everywhere, is tanking. Forget about a national, regional or a Manhattan real estate market. They are market forces which could be modeled like concentric circles surrounding a hyper-local core— one that's influenced greatly by local conditions. Rates of appreciation and consumer demand vary by neighborhood, property size, age, type, and amenities. When I consider just the downtown market below 23rd Street, demand and prices for similar units in the Financial District, Soho, Tribeca, Lower East Side, Greenwich Village, the East Village, Chelsea, Flatiron or Gramercy can be staggeringly different. I advise people about putting their properties up for sale, and about their offers to purchase, so understanding the micro economic environment is very much my job. It is informed both by the big picture, and a bit of well worn shoe leather.

I'm cautious too when people speak of housing markets as if they operate just like the capital markets. The trading has a different sort of logic to it. Residential property has utility. People actually have to live somewhere. When a real estate market declines, rather than loose equity, many choose to hold the property, not dump it cheaply. Inventory tightens up— eventually. What's different in many regions now is that subprime lending has added a new layer of people selling because they have no other choice, and that is a point of pain for many today. However the exposure to subprime mortgage products in Manhattan is almost non-existent; largely because of the more conservative and fiscally responsible standards of cooperative apartment buildings. Few permit financing of more than 80% to 75% of the purchase price, and higher levels of post-closing reserve funds are required for Board approval than by banks. Prospective shareholders must disclose their assets (confidentially) in full, no stated income mortgages allowed. People with good credit and enough assets to play, are getting their mortgages at what are still pretty favorable rates. The higher barriers to entry, along with the fact that people simply want to live in one of the world's most exciting cities, are some of the hyper-local conditions of our more "stable" marketplace.