We're poised in these last months of 2010 to finish the year with an improved 4th quarter. After a tumultuous 2009, our market rose slightly and hesitantly as 2010 began, picking up unexpected steam steadily through April, May and June, but then slowing and falling flat through much of the summer. Following on the heels of Labor Day, market activity resumed, and the mood is upbeat again. As of this writing on a crisp October 3rd morning, the possibilities loom that the spring momentum can be repeated in the next eight weeks before Thanksgiving.
On September 20th, the National Bureau of Economic Research announced that the recession that started December 2007, had ended this past June, lasting two and a half years. Economists identified June as the trough or low point of the economy, and reasoned that we were at the end of a declining phase and at the start of a rising phase. Doomsayers, some forecasting another double dip recession, were quick to point out that unemployment statistics are nearly the same now as they were at the start of the recession, holding relatively steady at 9 percent.
The ensuing press reports have been conflicting. What's a buyer or seller to think? Is another dip coming? Are home prices in Manhattan stabilizing? For sure, the U.S. recovery has been slow and uneven. But again, New York has fared better than the rest of the nation. Manhattan's housing sector is more stable than the rest of the country because of its preponderance of co-op inventory which sets limits on purchaser financing. Additionally, with improved profits at financial institutions and resulting increased hiring in financial areas, a recovering Wall Street—our local industry—is contributing to the city's economic health.
A New Normal
We’re decidedly past the market’s bottom which probably occurred some time in mid 2009. Although buyer mentality of maybe-we’ll-be-able-to-buy-for-less-next-week is fading out, it’s not gone entirely. Neither activity nor pricing is likely to become exuberant again any time soon. On the contrary, growth is expected to be slow and steady over the next few years. Recently Pimco’s Managing Director Bill Gross defined a "new normal" for future investment gains as “saying goodbye to double-digit returns.” Similarly, a “new normal” for residential real estate will mean modest near-sideways incremental price increases.
Often a herd mentality drives Manhattan’s marketplace. This spring, the $3-5 million category was most active with apartments trading at asking price or better in competitive bidding with prices jumping an astonishing 8% in isolated instances. Then in mid summer, a temporary push back came as some buyers exited the market, walking away from contracts about to be signed at $4.5 levels. In September, a record breaking price (reportedly at $15 million) for an eight room apartment in the South Tower of The San Remo buoyed the top end of the market. New offerings at this Central Park West icon have asking prices of $20 million for an 11 room corner apartment and $15 million for two apartments that can be combined into a duplex of approximately 4400 square feet.
Buyers with substantially deep pockets are coming out again to search for trophy apartments, breathing new life into the high end of the marketplace. As the top end resurges, confidence is spreading through all market sectors.
Supremely price conscious, buyers continue to hunt for value in all areas of the city. Price reductions abound for apartments that were mispriced, buyers are making offers and sellers are listening as brokers bridge the gap toward a meeting of the minds. Realistic pricing at the start of a new offering continues to be the best advice, as the first 3-6 weeks of marketing are most critical in identifying a buyer at the best price.
As transaction volume increases, our market gains a more solid footing with appraisers. Banks are lending again, though the process is still fraught with time consuming checks and balances. Historically low interest rates are motivating buyers to take action. Because of uncertainties, however, there are more and more contingent contracts, and more and more conditional co-op board approvals.
In the aftermath of the U.S. recession, the world economy remains fragile. With new concerns about global budget deficits and failing European banks, uncertainty lingers. The years ahead will be leaner than those with froth that came before, and there will be less leveraging.
Buyers with cash continue to rule the roost, able to buy with fewer dollars than those who offer to pay more with contingent bank loans. Sellers with plum properties in mint condition can expect to achieve superior results. Everyone else needs to be guided by market realities and demonstrate flexibility.