On the first days of April as I write this column for May publication, it’s important to acknowledge that we’re in a much improved position than last fall when overwhelming uncertainty gripped the Manhattan marketplace. With the tipping point of the Lehman Brothers bankruptcy in mid September 2008, real estate activity came to a near halt until the end of last year. Open houses were quiet, some buyers who were already in contract renegotiated prices, while others walked away from deposits, leaving everyone else on the sidelines waiting to exhale.
Not surprisingly, the number of actual closings for the First Quarter of 2009—whichreflects last fall’s inactivity and scarcity of signed contracts—is down nearly 50% from a year ago. The press has sensationalized this dramatic statistic, which tells only part of the story of what is occurring in these first months of 2009. A more important marker, though a more difficult stat to track, is the number of contracts signed during this period. Tempted by falling prices and new entry levels, buyers negotiated with realistic sellers, and there was a significant uptick in the number of signed contracts beginning in mid January and continuing at this writing: so Second Quarter of 2009 data for closed sales will be much improved.
Real estate transactions this year may have started slowly, but the number of signed contracts for Manhattan apartments increased steadily in the first quarter, though February fared better than March. At the same time, there were better than expected gains for both new and existing home sales throughout the US. While in the early weeks of March, stock market declines were in the dizzying triple digits, by mid month, the Dow had rallied significantly. Similarly, the number of contracts signed zigzagged during March.
We’re turning a corner
Despite the downturn, there are scores of examples throughout the city of properties that are finding their sales threshold. Many apartments that have been on the market for 6 months or longer, with repeated price reductions, have reached new value levels and are attracting the attention of buyers with pent-up demand. In a number of instances, where the price was perceived to be below market, there have been multiple bids. Similarly, handfuls of newly listed properties at perceived bargain prices are also securing full or near asking prices.
In this climate, competitive offers need to be handled skillfully since much is at risk in this challenging environment. A certain degree of humility needs to take the place of the bravado of past years. Operating in a buyer’s market, today’s purchasers have time on their side and numerous alternative choices to consider. Broker expertise and judgment are valued highly, and good relationships between brokers are all-important so trust can be engendered to further negotiation and facilitate the deal.
In this market as in any other, the ethics of a verbal handshake speaks volumes. Once an offer is accepted, it’s best for a seller to stay with the deal and continue to show for back-up only. Sellers are cautioned also not to lose momentum: to issue a contract within 24 hours; to set an agreed upon time for a buyer to return a signed contract; and to have all required documents for review at hand, including the last two years’ financial statements, house rules, proprietary lease, transfer requirements, alteration agreements, and if appropriate, offering plan and amendments. With angst on both sides of the table, lengthy delays with contract signing can jeopardize the deal.
Adapting to the new landscape is especially painful for those who bought at the height of the market, when prices were inflated and double digit appreciation was expected annually. These sellers are counseled to wait if they can or to bite the bullet and price below what they paid. Even after the market stabilizes, price appreciation will likely be modest for the next several years.
Sponsors of new developments with unsold inventory are also hurting. Financing continues to be problematic in these buildings. Additionally, unlike individual sellers, developers are bound to their offering plans and have limited flexibility with end pricing. Price adjustments would not only impact any earlier sales, but in many instances, they are prohibited by the project’s lender. Instead of rebates, developers are providing upgrades, and offering to pay closing costs to attract and retain buyers.
Last fall’s somber mood has lifted this spring. We’re not out of the woods, but we have turned a corner. Credit is easing and mortgage rates are still dropping, but because of the surge in refinancing, applications are stalled and banking standards remain very tight. While it’s tough to predict and pinpoint the moment of recovery for our economy, it’s safe to say that some time this year Manhattan real estate prices will find a bottom. Many believe we’ll bump along an uneven terrain until 2010. It will take time for the national and local economies to stabilize, but solid residential real estate deals are being made in Manhattan.