“The reports of my death are greatly exaggerated,” wrote Mark Twain in 1897 when his obituary was mistakenly published nearly 13 years before he died. Fast forward more than a century later, Ted Kennedy told well wishers to please “hold the eulogies” as he celebrated his 77th birthday in late February. In a similar vein, we respectfully request that the press refrain from sensationalizing the current new realities of the Manhattan residential marketplace. Our market is not dead, nor it is “cratering” or “rotting” as Barron’s February 23rd cover story would have us believe. Real estate values continue to decline, coming off highly inflated levels, and transaction volume is down considerably, but following last year’s most unusual 4th quarter of near inactivity amid grim global financial news, hints of optimism have been surfacing steadily in the first months of 2009.
A Tale of Two Markets
Essentially, any reporting about the Manhattan real estate market must distinguish between two diverging product streams: new developments and resales. A boom environment of too easy financing and too much leveraging led to explosive, unchecked growth of too much new condominium product too fast. It is this part of the market that is hurting the most.
A changing economic environment is causing hardships for many. Unable to meet a lender’s financing schedule, many development projects are in limbo, either stalled in mid construction, cancelled or reconfigured as temporary rentals. For those projects nearing completion, it remains to be seen how this market will fare when these condos begin issuing their 30 day advance notices to close. Faced with falling values, will their buyers—who went to contract well before Wall Street’s meltdown—close at the contracted price, negotiate a settlement or walk away from substantial down payments? With as much as 10-25% deposits at risk, some purchasers may have lost jobs, others may be facing future layoffs, and still others may no longer have their previously promised financing in place.
Cracks in the new condo market were apparent even before January 2008. In a deteriorating economic climate, an oversaturated inventory of similar over priced commodities simply could not be absorbed. Purchasers were stymied by demanding banks with restrictive approval requirements for borrowers as well as the properties they were financing. Pressured by lenders to jump start sales, some distressed condo developers are considering using auctions to generate activity. According to reports, five mid range to high end projects, as of this writing unidentified, will be auctioned in April at minimum reserve prices 40-45% below January ‘08 published prices. Successful in other parts of the country, particularly in South Florida, auctions—both live and sealed bid—are expected to stimulate sales activity at struggling condo projects and also set some much needed pricing benchmarks.
And on the Other Hand
Unlike the near inertia with new development products, there’s discernable activity and contracts are being signed in the resale market for both co-ops and condos throughout the city. Despite mounting financial uncertainties and increasing layoffs with new stock market lows in an ever bearish market, the first eight weeks of 2009 saw an uptick in deal making. Tempted by falling prices and new entry levels, buyers have been circling favored properties, making bids, negotiating with realistic sellers and signing contracts. The market is challenging to be sure, and probably still seeking a bottom, but buyers and sellers are moving to contract.
Using the Realplus search engine to count the number of contracts signed during the first eight weeks of 2009, I focused on the upper East and West sides—a key market indicator—and came up with the following snapshot.
By degrees, deals are being made—albeit unhurriedly. Five days ago as of this writing, Fed Chairman Ben Bernanke told Congress that it was “reasonable” to predict the recession will end this year and that 2010 “will be a year of recovery.” We look forward to more glimmers of decent news.