Since the subprime crisis first erupted in the summer of 2007, we’ve endured a steady progression of one proverbial shoe dropping after another. What began last July as a U.S. housing debacle spread quickly into a complex tangle of interconnected crises at financial institutions worldwide. With both debt and credit markets in turmoil, the meltdown deepened and some hedge funds closed, a number of mortgage providers declared bankruptcy, and banks labored. When Bears Stearns, once the 5th largest U.S. investment bank, failed last March, and JP Morgan Chase rushed in with an emergency takeover backed by a $30 billion Federal Reserve loan, even thick skinned New Yorkers were jolted. Then in July, shares plunged at struggling financial institutions like Lehman Brothers, Citigroup and Merrill Lynch. After that came the near collapse of the two mortgage twin giants—Freddies Mac and Mae.
It’s been a complicated year to say the least. Too many factors are coalescing to bring down the economy: a fragile dollar, tightening credit, soaring commodity prices, skyrocketing energy costs, staggering job losses, increasing foreclosures, mounting credit card and car loan delinquencies, continuing bank write downs, eroding consumer confidence.
Remarkably, Manhattan real estate is displaying great fortitude as it weathers the economic storms and housing downturn. Of course, different segments of the market are behaving differently. The top end remains unchanged, if not slightly higher. The record breaking purchase price in July at the 1928 Rosario Candela building at 2 East 67 Street, also known as 855 Fifth Avenue, was a surprise since the apartment had been taken off the market in February when there were no takers at the then $40 million asking price. The full floor, 6000 square foot co-op with 11 foot ceilings, 5 fireplaces and Central Park views closed reportedly at $48 million. Another five bedroom beauty, this one at 1030 Fifth Avenue, a prewar designed by renowned architect J.E.R. Carpenter, went to contract in less than a week last May for just shy of 3% below the $34 million price tag—the 15 room trophy apartment overlooking the park has not yet closed as of this writing.
In other parts of the market, transactions are more price driven. It’s taking longer to sell, and volume and prices are down. A flood of new condominium developments are not only competing with each other for buyer attention but also with established postwar and prewar resales in proven neighborhoods. While some developers are cutting prices, many more are making concessions in the form of upgrades, paying a portion of closing costs or prepaying several months of common charges. On a daily basis, we read listing updates announcing that prices have been slashed, dropped, adjusted and improved. Many of these prices, however, are not so much coming down, as they are moving from unreasonable levels to more realistic targets.
Certainly the economic meltdown weighs heavily on our market psychology. With the country wondering what’s going to happen next, there are challenges for buyers and sellers going forward. Wary about job security and the direction of the economy, sellers are anxious, and buyers are skittish.
Patience and expertise are required to get deals done today. It’s taking longer to get contracts signed and longer to secure bank financing. There are fewer choices for lenders and mortgage products. Requests for more documentation and second appraisals are common. Underwriters and lenders are under enormous pressure to make judicious decisions to reverse images of past recklessness. All the while, however, interest rates remain favorable.
Buying and selling at the same time in this market requires skillful stress management. When the pace of trading was quick, there were more sellers who looked to identify their next move before offering their own property for sale or they risked finding themselves homeless. Today, when that happens, we are beginning to see a handful of buyers walk away from considerable deposits because of the anxiety level of owning two properties. For sellers unable to manage the angst, it’s better to sell first, and buy later.
In challenging times, co-op boards tend to get tougher so qualifying buyers is as important as ever. When bonus income can’t be relied upon, an offer of a strong guarantor or maintenance money in escrow can often provide the comfort level needed for approval. I see the latter as an insurance policy well worth the effort.
The next three months leading up to Thanksgiving 2008 and the new year of 2009 should present multiple opportunities. This September, we’re expecting a new crop of properties to come to market, since sellers have been waiting for seasonal summer deceleration to pass to list after Labor Day. Homeowners are cautioned to use discipline to set realistic prices. Testing the market with an inflated asking price wastes precious time—and the time for active looking and decision making is from now until the distractions of the holiday season. Buyers are advised to buy quality. Those who continue to nurse sideline mentalities will miss opportunities for we may have already hit bottom.
Three more quarters of difficult economic times are expected. We’ve dodged the worst and have outperformed the nation. Barring the unforeseen, Manhattan prices will probably remain flat for the balance of 2008 and into 2009. The advice is always to work with an experienced professional to navigate any choppy waters and steer you to the firm ground of your next port.