Those who know me know that I’m a realist and a straight shooter. Always, I speak the “emes”—pronounced em-es, or em-et, which is the Hebrew word for truth. So what are the realities of the current marketplace? Simply put, we’re a market in transition, and working with a pro and managing the deal are more important than ever.
Without a doubt, the pace of the marketplace has slowed, but realistically priced apartments continue to sell at high prices. Brokers have been able to hang up their roller skates, because we no longer need to race the streets to get our buyers to properties lickety-split. Apartments are staying on the market longer, so purchasers have the luxury of time to evaluate choices and deliberate over options. The truth of the matter is the market is changing. We’re moving away from the heady boom times of the last four years. Despite a cooling period, chief economist of the National Association of Realtors David Lereah forecasts that “2006 is still expected to be the third strongest [year] on record.... and slower appreciation will help to preserve long-term affordability.”
Across the country, new housing starts are down, in some areas nearly 8% from last year. As a consequence, related job losses in the industry have affected national employment figures negatively. Exacerbating the situation are continued stock market volatility, rising interest rates, escalating oil prices, and concerns about a sluggish economy and global unrest. At the same time, however, much of the financial industry is reporting significant earnings growth: profits at Morgan Stanley and Goldman Sachs have doubled, Lehman reported income up 47%, and at Bear Stearns earnings surged over 80%.
The Manhattan real estate market is blessed with a number of inherent strengths that protect it from external factors. To name a few… it is home to the financial industry, and much of Wall Street’s bonus money finds its way ultimately to the purses of the city’s real estate sellers. It is primarily a user market, unlike Florida and California which are flooded with investors and thus overvalued. Its housing inventory is predominantly cooperative ownership which requires user tenancy and which puts financing restrictions on buyers, preventing over leveraging. Its rental market is shrinking because of a renewed wave of condominium conversions, driving tenants to consider becoming first time buyers and refueling the bottom end of the market as a result.
Even though Manhattan historically behaves very differently than other parts of the nation, Manhattanites would have to be made of stone not to be affected by the conflicting dynamics of the marketplace and the accompanying media coverage. If interest rates continue to inch up, we will face tougher 3rd and 4th quarters.
Except for the frenzied days of 2005, when bidding wars were the norm, buyers generally proceed with caution as they negotiate their deals. Those with sideline mentalities, however, are missing opportunities altogether. Others who forge ahead to accepted offers sometimes become skittish and question their own judgments. Their thinking is… if the seller accepts my offer, then I’m paying too much. If an attempt at renegotiation follows, then it’s very possible that all may be lost for both sides, since one of the risks of trying to renegotiate is the seller will refuse to deal with an edgy buyer at any price.
Appreciation may be down, but prices are not eroding. The market has slowed to a sustainable pace allowing buyers to make informed decisions. With the urgency gone, it’s becoming increasingly important for sellers to recognize and appreciate real buyers. It’s up to experienced brokers to present buyers and their offers in the best light possible. Persuasively outlining the strengths of a purchaser lends validity to an offer, and encourages negotiation. Good brokers know how to prioritize needs and identify areas for flexibility and compromise. Vigilant during every step of the process leading up to a successful closing, they know how to anticipate and overcome obstacles.
The task of holding together the deal is always the responsibility of the broker. Good communication skills are essential, since the broker acts as liaison for all the transaction’s players—including attorneys, mortgage brokers, architects, reference letter writers and even mothers-in-law. In every market, deal making requires discipline and vigilance, and a good working relationship between co-brokers is critical. When I’m involved in a co-broke situation, I want an experienced professional representing the other side of the transaction. I want to be able to count on an equally skilled co-broker to manage emotions and expectations. Good manners always count, and I want calls to be returned promptly. A team spirit is essential, and I never want a big ego to get in the way at any point—not at the initial negotiating stage nor during board package review. Since time is the enemy of a deal, in every market, presenting information in a timely manner is key. Damage control requires a level headedness as well as an understanding of comparable values.
For the rest of the year, prices are expected to rise modestly. The summer months are not expected to be particularly momentous, and leftover overpriced apartments will continue to be reduced in price until they are absorbed or removed from inventory. The advice to principals is to work with an experienced professional who understands the market economy who will help buyers to evaluate purchase opportunities and who will guide sellers to set realistic prices. Ain’t that the truth?