Last year, as we moved into March 2007, there was a decided spring and great momentum in our steps.  Not so in the first quarter of 2008.   Our stride has become more tentative, and with good reason.  


The financial world is still reeling from the aftershocks of last summer’s subprime crisis.  Banks have reported staggering losses exceeding $133 billion from mortgage related structured investments, and more write downs are expected to occur.  Layoffs have resulted at many financial institutions, and the CEO’s have stepped down at Bear Stearns, Merrill Lynch, and Citigroup. 


Insiders report that we can expect another six months of complicated news and wild price swings on Wall Street.  Yes, they concur, there are problems; but these institutions, along with the federal government, are moving to correct them.  On January 30, the Fed acted boldly, cutting federal fund and discount rates by a half-percentage point, following an unprecedented three-quarter point reduction just eight days earlier.  In addition, as of this writing, Congress is reviewing a comprehensive $150 billion economic stimulus plan intended to revive a struggling economy with tax rebates for individuals and tax breaks for corporations.


With the exception of our own local Manhattan real estate market, home sale prices nationwide have been declining steadily.  Amid a glut of unsold homes, foreclosures are rising.  Hardest hit are some cities in Central Florida, Nevada and California where half finished buildings stand alongside idle cranes.  In an alarming cover story, Business Week declared on February 11th that prices nationally would meltdown 25% more before hitting bottom.  Meanwhile, others forecast that the housing sector will stabilize in the third quarter of this year.


In Manhattan, we occupy a unique slice of the real estate marketplace, protected by a variety of insulating factors.  We’re been immune to the nationwide housing slump for a very long while.  Compared to the rest of the country, our inventory is limited, not saturated, and our prices are holding, not falling.  However within our local Manhattan market, three separate submarkets exist–with the upper and lower sectors better oiled, at this time, than the middle.  


Opportunity Is Knocking


The high end submarket is performing extremely well.  In fact, there is precious little to show to buyers with budgets north of $10 million.  So when a plum corner estate apartment at 1060 Fifth was listed in November, within weeks, there were multiple bids and an offer accepted over the $19.5 million ask.  In late January, the Penthouse in the same building closed at $46 million.  


Clearly there is serious money in Manhattan.  Witness the newest Extell project to break ground on West End Avenue and 86th Street, where super sized apartments measuring 6000-8000 square feet will be offered to a niche “uber” market to the tune of $2,600 per square foot or an average $18 million per apartment.  For those who are willing to pay up, the new condo is a compelling product in a field of limited competition.  


Similarly, the submarket below $2 million shows strong activity and sales, with a good deal of competitive bidding occurring.  For the most part, these purchasers are choosing to buy rather than rent in order to build equity and gain some tax advantages.  


In the middle submarket, buyers seem to be most vulnerable, and they are hesitating.  Having lost confidence in the economy, they are moving with uncertainty, largely because they fear the unknown.  Unlike in years past, when those in this market stretched their budgets to buy as prices rose steadily, today’s buyers are stalled and proceeding cautiously.   


Despite the resilience of the Manhattan market, the pain felt by the rest of the country is sobering.  With the country wondering what’s going to happen next, there are challenges for buyers and sellers going forward.  


The advice to sellers is to price correctly and recognize that time on the market is stretching.  In a slower paced market, there’s less pressure for prudent buyers to act quickly, so it’s taking longer to sell a property.  Today’s buyers are not bidding unless the asking price is in range of their intended offer.  Pricing on target brings urgency to activity, stimulates interest quickly and yields the greatest return. 


The advice to buyers is to act responsibly, buy within means and avoid the temptation to outsmart the market.  At this writing, interest rates are at their lowest since 2005.  As long as a buyer’s time horizon is about five years, there’s no good reason to postpone buying.  Trying to find the market bottom rarely works.


May you live in interesting times, says the Chinese proverb.  Indeed, we do.