If 2005 was the year of the bubble that wasn’t, how will this sixth year of the second millennium play out for buyers, sellers and brokers?
Last year, boom and bust stories about the real estate market dominated the press with dramatic headlines. For the most part, however, the reports were conflicting, and the media spin on medians and averages proved to be confusing ultimately for readers. There were contradictory interpretations of statistics as data was misread and facts were distorted—particularly in the year’s last quarter which saw a decided drop in the volume of sales, though not in the price of transactions.
Indeed, the spikes of early 2005 were spectacular. In nearly all segments of the real estate market, bidding wars drove prices up by leaps, setting record breaking milestones. In the first few months of last year, prices jumped as much as 35%, and the pace of trading became frenetic. Fueled by low interest rates and easy credit, ever-rising plateaus contributed to a sizzling and overheated market. When a modest slowdown began in mid-July followed by a seasonal summer deceleration in August, journalists were trumpeting that a real estate bubble was about to burst. As urgency was replaced with caution, the pace of activity slowed, and the numbers of deals were fewer, but prices remained level. By November, activity had picked up despite the beginning of the holiday season, and December sales were surprisingly robust.
How then are we to view 2006?
Taking small liberties with the title of an endearing children’s classic, all indicators point to Manhattan’s real estate market in 2006 as the mighty engine that should! Leaving the heady atmosphere of 2005 behind us, with its historic highs for price appreciation, and equally historic lows for mortgage interest rates, there is a decided shift to balance and moderation in the marketplace this year. Transactions in 2006 will be all about readjusting, realigning and repositioning.
Usually, the first few weeks of a new year are a good predictor of things to come. Following a strong new year’s equity rally, the Dow tipped the 11,000 mark, with gold topping $550 an ounce and copper nearing an all time peak. Our economy is relatively healthy despite the fallout from two major hurricanes, and concerns about gas prices, inflation and the Iraq war. Wall Street bonus money will have a definite impact on New York’s economic picture, though it’s still unclear at this writing whether this extra discretionary money will be going into securities or real estate.
Chief economist for the National Association of Realtors David Lereah has predicted a “return to normalcy” for 2006. Anticipating a better balance between supply and demand, he forecasts more balanced trading with modest price appreciation this year.
There are benefits to slower growth. While it’s tough to keep up with double digit jumps, price increases in the single digits can be sustained in both the long and short terms. The difference between dramatic rises and modest increments is largely as much about time as it is about numbers. Today, it’s taking longer than last year to sell a property because it’s taking longer for purchasers to make their buying decisions—there’s considerably more inventory to consider, and new construction is competing vigorously with resales.
The rebalancing of supply and demand should keep trading humming at a steady clip and prices even with the highs of last year. New York is flourishing, and Manhattan real estate is not tanking. Buyers are advised not to fear jumping into the market at any point this year. Sellers are cautioned to price realistically. Overpriced apartments leftover on the market from last year will need to be reduced so they can be absorbed or removed from inventory. Expect a slowdown in price increments and a leveling of market activity. Barring the unforeseen, New York will continue to thrive; quality real estate will retain its value and endure.
Chug, chug, chug…. The mighty train steadied itself on the tracks. In 2006, we know we will, we know we will…