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Sunday, September 21, 2008

20/20's astigmatism

op-edIt's not surprising to see people who've profited from the business practices which have lead us to the biggest bailout of Wall Street ever, start to come under fire. ABC's 20/20 was quick to run with a lead story last Friday, "The Fall of the Gilded Age". Hats off to ABC for getting the timing just right on the segment, even if the 'facts' were really mostly anecdotes and opinions, strung together into a tone poem. It was filled with provocative statements like; "I talked to one guy who had to give up his private jet recently. And he said of all the trials in his life, giving that up was the hardest thing he's ever done." Really? What reaction could any of us without a private jet have, but a bit of a mocking 'boo-hoo'.

No doubt that Manhattan real estate, which has been largely spared from the real estate downturn, and fueled by Wall Street salaries, would be looked at in this segment. This is where the vision was not exactly 20/20. A well known NYC agent was on camera saying, "Because a month from now, that same $5 million apartment may be lucky to achieve $3.5 million" and that the average $5 million apartment has already lost 20 percent of its value. But no matter where you stand, buyer, seller, broker, or even bubble blogger, the claim simply doesn't hold up. Stories like this fuel false expectations. Buyers looking for those 20% discounts are surely not finding them.

The ABC News site posted "Top Broker: NYC Real Estate Already in Steep Decline" last Thursday; it was updated on Friday to include a quote from the agent's boss who "sought to distance his real estate firm from her comments. Hall F. Willkie, president of Brown Harris Stevens, said her views do not represent the views of Brown Harris Stevens "and are completely speculative, and at times factually incorrect." Corcoran's CEO Pam Liebman had this to say, “We have not seen a wave of panic selling; on the contrary, many homeowners have taken their apartments off the market until the economic news sorts itself out...
but we have also done some significant multi-million dollar deals in the past week.”

Indeed, with some homeowners taking their apartments off the market, the pace of new developments slowing due to the credit crunch, and the end of the 421-A tax abatement program in prime Manhattan, market forces are already working on returning housing supply to more traditionally balanced levels. On the demand side, Ms. Liebman went on to say; "... this is the time where in past financial cycles where we real estate brokers previously saw a renewed interest in people investing and putting their money into tangible assets like real estate. The current credit crunch is different than previous shocks to the financial system so making predictions about demand for housing is difficult, but we remain optimistic.”

In our Chelsea office, where I'm based, we saw an average negotiability factor in August of about 3%, and the average sale was $1.77M. These are not signs of a failing marketplace. It is reasonable to think that we will be affected in the short term, by some of the uncertainty and layoffs in the financial sector. Since your home is a long term investment, the real question is do you see the future of New York City brightly or not? If this is where you want to be, then there may not be a better time to strike a deal.