Buyers are back! Sidelined during 2008’s fourth quarter, they have returned to the residential marketplace in these first few months of 2009, visiting open houses again as they scout neighborhoods and evaluate inventory. Releasing pent up demand and testing the waters with low offers, they seek value and discover that prices are down as much as 20% from six months ago in all categories. Many who were priced out of the market previously can now afford to buy more for less, and deals are being made once again.
Some of the doom and gloom is lifting in Manhattan even as our national and local economies continue to struggle with mounting layoffs and still dysfunctional credit markets. Even as the downturn persists, buying opportunities are surfacing, and well priced properties are getting attention from multiple purchasers.
On January 18, a banner headline on the front page of the Sunday NY Times Real Estate section announced: “For the Brave, the Moment is Now!” The story reported that first time buyers especially were positioned to take advantage of “reduced apartment prices and interest rates that have fallen to the lowest levels in a generation.” Similarly, there is increased purchasing activity in the $2-3.5 million market as families demonstrate they can no longer delay gratification, and there is renewed and heightened interest in this sector.
Last September 15, Jim Cramer, New York Magazine’s “The Bottom Line” columnist predicted that on June 30, 2009, the nation’s housing market would turn around, New York would find its bottom and home prices would become “irresistible.” By mid year 2009, Cramer expects we will face “the best opportunity to buy since the 1989-1991 real-estate crash.”
For much of last year’s fourth quarter, seller expectations were misaligned with buyer perceptions, so transactions were stalled. We’re now in an adjustment period of sorts, having shaken off our market dependence on Wall Street. While some sellers remain in denial, others are demonstrating flexibility and are negotiating to make deals happen. Contracts are being signed, but we are returning to 2005 price levels. Those who bought after 2005 will undoubtedly lose money with a sale now. Those sellers who will also buy in this market—regardless of whether they are trading up or down—will make up any perceived loss with savings from a reduced future purchase.
Just hold your nose and jump
Current low interest rates are extremely appealing, but there are new reality checks with obtaining financing. Not only must borrowers have sterling credit scores of 720 or higher and be able to verify income with reams of documentation, but the building must also meet all fine print qualifications previously ignored by underwriters: like having enough cash reserves to cover 3 months of maintenance, having sufficient fidelity bond insurance, and in the case of new construction developments, having 70% of the building sold or in contract. Additionally, some lenders are beginning to discount appraisals by 5% because of Manhattan’s sudden new classification as a “declining neighborhood.” Confounding the financing process, national lenders like Chase, Wells Fargo, Citibank and Bank of America are no longer working with mortgage brokers. In this climate, delays and the unpredictable can occur. As a result, financing contingencies have returned to contracts, and many attorneys are also adding a contingency clause that the full amount of the loan is funded at closing.
In this environment, bottom fishers are unlikely to conclude a deal. Cemented in place with their low ball offers, these bargain hunters may regret a missed opportunity later, since only with the benefit of hindsight or a rear-view mirror, can the bottom be timed.
Sellers need to acknowledge that the playbook for 2009 underscores a buyer’s market with changing rules and tightening standards. They are advised to price realistically, paying attention to value and leaving room to negotiate. Most bids warrant a counter, because two months down the road, offers may be even lower. While well priced specialty products might fetch multiple interest quickly, there is a pile-up of inventory in many other categories where scores of similar products compete. When the product is interchangeable with the rest, only price can make the property compelling.
The buyers have returned to the marketplace this quarter, and hopefully I’ll be joining their ranks. “Just hold your nose and jump,” coached my boss and friend Frederick Peters in a supportive email. No different than other buyers who fear further price declines in a weakening market, I admitted I was hesitant. Suffering a mini identity crisis as both broker and buyer, I rationalized that even if prices came down more, I wouldn’t get hurt over time if I bought quality merchandise and I had a 5-7 year horizon. As of this writing in the early days of February, I’m positioned to take the plunge and offer this advice to others: We’ve neared the bottom, so if you see the property that you’ve been waiting for, don’t hesitate to begin a dialogue. Make a sensible purchase and acknowledge your opportunity costs. Come on in—the water’s fine.