Manhattan RE: The Sky Is Not Falling, People!

Posted by Toes

Thu Sep 11th, 2008 11:03 AM

I rolled my eyes when I saw the cover of the NY Times Real Estate section on Sunday, "Foreclosure Makes Its Move on Manhattan." Are they serious? The Times has clearly run out of things to write about. We all know negativity sells papers, but this article was really a stretch. If you actually read the article, it says that ONE in FIFTY THOUSAND apartments in Manhattan are in foreclosure. Foreclosures jumped from 52 to 93. The sky is not falling, people! sky-falling.jpg

Two good lessons can be learned from the article. You shouldn't pull equity out of your HOME to start a business or to invest in your business. It can be a quick way to go under. The article also reinforced an oft-repeated statement of one of my favorite financial gurus, Suze Orman. You should have SIX to TWELVE months of living expenses in reserves in case something negative happens in your life - divorce, disability, job loss. Besides those lessons, take this article with a grain of salt.

I attended the Real Deal New Development Forum last night. Although the panelists felt that we may be in for more short term pain, the consensus was that:

A) we are near the bottom, and
B) the fundamentals of NYC real estate are still strong for the long term

Although foreign buyers may only be getting a 20% discount on real estate, with the 421-a expiring & the difficulty getting financing on large projects, there's not much new development in the pipeline. So the supply that hugely exceeded demand in places like Miami and Las Vegas is just not going to happen here. Larry Silverstein reminded the audience that by 2010, another 200,000 people are projected to move to NYC, and by 2030, the city will house over 9 million people.

Andrew Heiberger suggested that people are moving back to NYC because living in the burbs is getting more expensive. The increase in oil and gas prices has caused heat & hot water costs to escalate. Commuting to jobs in the city isn't cost-effective with $4/gallon gasoline. Crime is low. There are more 5 year old children in Manhattan than there ever have been, indicating that families are staying here and moving back here.

Barbara Corcoran said that she worried in the past when Wall Street was down, or the Japanese stopped investing, or for various other reasons. But she has learned over the past 30 years to "never worry about NYC." (She also admitted that she was wrong about Red Hook being the next big thing but that Astoria is looking promising!)

The panelists agreed that Wall Street is going to have more layoffs. However, globalization has really hit NYC and there is a lot of wealth out there, both foreign and domestic. NYC is still "cheap" in comparison to the real estate in London and Paris. So Wall Street does not impact real estate values as it did in the past. If someone in finance is laid off and sells anything, it's more likely to be their Hamptons house, not their primary residence.

The panelists also said that if your after-tax payments are less than what you would pay to rent, then you should buy. This is why I am buying another apartment. The rent I was looking at was $3,000 for a one bedroom and to buy a similar apartment, my payments will be $3,200. After tax-deductions, my payments will be $2,200! To me, it's a no brainer if you are going to be in NYC for 3 to 5 years. Mortgage rates just took a nosedive and I could not be happier that I am buying at this time. I can't remember if it was Charles Kushner or Bob Knackel who said last night something to the effect of "when there is fear in the market, that is when fortunes are made."

Could prices dip a bit this fall because there is more inventory on the market? I don't have a crystal ball. But I have a lot of buyers out there looking every weekend, just waiting for the right deal. If prices dip even a little bit, they are going to pounce.

I had a buyer say to me over the weekend, "Christine, StreetEasy says that 400 new apartments have come onto the market in the last two weeks!" I said, "But how many of them are 2 bed, 2 bath, pre-war doorman co-ops in the west 80s in your price range? Three. So I don't think you need to worry about it." Sure, if you are looking for a post war doorman studio, alcove studio or one bedroom in a non-prime location from $350K -$575K, it looks from some of my customer searches that about 50 new apartments just came onto the market, which is great for buyers! Now they have more to choose from. But for unique properties like lofts, anything pre-war, an apartment with a terrace, great light, stunning views, in a prime location, beautifully renovated, or with something otherwise special about it, it is still going to do well. These apartments are not a dime a dozen.

If you have the money, stop putting it in someone else's pocket by renting. Buy something you love. Buy something that makes you happy. Find a seller that needs to sell and make an offer that you will be comfortable with even if the market comes down a little bit. Buy something because you need the tax deduction. The press is almost always going to write negative articles about real estate because that's what sells newspapers. I know you hear this from me ad-nauseum, but in Manhattan, time IN the market is more important than TIMING the market.

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