The financial seas that we currently navigate are murky.  According to economists, some more bad news is expected in this second quarter of 2008, before the nation recovers in the second half of this year.  What began last July as a crisis with subprime borrowers, spread quickly through turbulent credit markets, causing cascading waves of ever-deepening and tangled problems on Wall Street and at global banks and corporations.  


With the exception of Manhattan, nationwide a declining housing sector struggles, seeing month after month of diminishing values.  Last January, RealtyTrac reported more than 150,000 foreclosures around the country, with a preponderance in California and Nevada.  Meanwhile, in our own local Manhattan real estate marketplace, we are holding our own.  Despite unsettling economic news highlighted by job losses and stock swings on Wall Street and confounded by an ever-weakening dollar and soaring commodity prices, the Manhattan housing market continues to be resilient.  Although the volume of transactions may be lower this first quarter than in 2007, prices are not.  


Operating in a class by itself, Manhattan’s upper end is flourishing.  As an example, at the preeminent Rosario Candela building at 1040 Fifth Avenue at East 85th Street, two trophy re-sales tell a compelling story.  Apartment 14A, an 11 room overlooking Central Park sold in mid January for $21 million, nearly 70% above the last trade of $12,375,000 recorded in September 2005.  One wonders how another recent purchaser will fare:  on January 18, 2008, Edgar Bronfman Jr. paid $19.5 million for Apartment 10A in the same building, and less than 10 days later, with an apparent change of heart before ever moving in, he re-listed the property for $24 million, asking a cool 23% more. 


At the market’s upper end, a high proportion of the inventory is being absorbed quickly by a pool of demanding "uber" buyers.  Consider the carriage house on East 75th Street between Lexington and 3rd Avenue, designed by Mica Ertigan that went to contract in mid February in a matter of days for more than 10% over the $10.9 asking price.  Or the fabulous duplex at 775 Park with the equally fabulous asking price of $24 million whose contract was signed in less than nine days.  At 800 Park, a full high floor achieved the asking price of $11 million in less than twenty days.  At 888 Park, an 11 room with a $17.8 price tag sold in less than three months.


Not every multi-million dollar property is flying off the shelves, however.  A quick search of east side co-ops over $10 million shows 29 offerings, and more than half have been on the market for six months or longer.  On the west side, only 4 co-ops are available in this product category; the oldest dates from the fall of ’06, two from fall and winter ’07, and a 4th has been listed since February 2008. 


Today’s most challenging segment of the market is the $5-10 million range.  In this category, indecision reigns.  With media headlines trumpeting the demise of real estate, more are not buying than buying in this sector, and uncertainty has taken a strong foothold as apartments in this category linger on the market.  Of 36 co-ops currently available on the upper east side in this price range, nearly a third have been on the market for over a year, another third since the fall of 2007, and only 10 since January 2008.  On the west side, a significantly smaller stock of 15 properties is available:  in this category, three have been listed since this past February, two since January, five since September ’07 and another five since the summer of ’07.   


Considering Wallflowers and Bottom Fishers


The recommendation to sellers of wallflower properties is to listen to your broker.  After three months of marketing, if a home fails to yield a bidder, a price adjustment is in order.  The recommendation to buyers in this category is to resist the temptation to bottom fish.  Since only in hindsight can we pinpoint a cycle’s highs and lows, the bottom can only be located in retrospect.  Those who are prepared to search for value are finding it.  


Today the ideal purchaser is one who is unencumbered with another property to sell before buying and can proceed with an all cash transaction, or with a contract not contingent on obtaining financing.  This group comprises first time buyers for whom renting no longer makes financial sense, and also mature buyers looking to trade up or down who don’t need the funds from a sale in order to buy.   


Changes in lending practices, a direct result of the credit squeeze, have impacted current market conditions adversely.  Today, it’s more difficult to secure financing, as underwriting guidelines are being modified.  Banks are requesting more documentation and even second appraisals, so it’s taking longer to review applications, causing considerable delays.  Underwriters, lenders and mortgage brokers are under enormous pressure not to make bad decisions and to reverse images of past recklessness.  All the while, however, interest rates remain extremely favorable.  


In this troubling financial environment, the advice to buyers and sellers is to choose a broker who will help to plot a realistic course and manage to steer full speed ahead to successful closings.