Manhattan's Correction Now Front Page Media

Posted by urbandigs

Mon Feb 23rd, 2009 09:54 AM

A: Just like they did to support and enhance the upside, with articles focused on the weak dollar, a surge in foreign investment, tight supply, and bidding wars, the media is now putting the Manhattan adjustment on its front page. The latest is Barron's Cover, 'Manhattan On Sale', covering the high end recession discussed right here on UrbanDigs almost a year ago.

barrons.jpgDon't say I didn't warn you about the coming impact of the media! The media plays a role both in booming markets and in busting ones. The only problem is that when a market rolls over, the uneducated start blaming the media for causing the downturn!

In booming markets, the media enhances the validity of the up move and argues why it will last for much longer; fooling many into buying at or near the peak. In falling markets, the media enhances the deterioration and tends to depress buy side confidence; causing what sellers/brokers claim to be an adverse feedback loop. Any broker that argues the downturn is the result of negative media, simply doesn't understand the macro forces at work here. Besides, if media enhances the boom side of the asset cycle, of course it should be expected to affect the bust side as well! And it does.

I tried to warn my readers about this in my 'Preparing For Price Reports w/out New Devs' piece way back in July, 2008:

Price data is lagging and misleading, and just as it mislead on the upside and brought unwarranted happiness to many homeowners out there, it will also bring unwarranted depression and media headlines!
According to Barron's Cover Story titled, "Manhattan On Sale":
First came Miami, Las Vegas and Phoenix. Now Manhattan's high-end housing market is cratering. With Wall Street firms stepping up layoffs, and money for big-ticket mortgages drying up quickly, prices for new york apartments and townhouses of $5 million or more have been falling and may well drop by another 30% before finally bottoming out. That could help turn the Big Apple into the ugliest housing market in America.

Streeteasy.com, a Website that pulls together listings and insights from a variety of brokers and buyers, now shows 795 New York apartments offered for $5 million or more, up from 518 a year ago.

Realty brokers, the industry's natural cheerleaders, are now unabashedly glum about the high-end market. "The $5 million-and-above market is inventory-rich and buyer-poor," says Dolly Lenz, a broker to the stars and vice chairman at Prudential Douglas Elliman.

One of the thorniest issues for the New York market is mortgage availability. Though high-end buyers historically have paid mostly or entirely in cash, more now need to borrow -- just when large mortgages have all but vanished.
I would have been more impressed with Dolly Lenz if she was on record for predicting this downturn a year ago. But I guess that is not good business for one of the best producers, in a sales based industry. And here is stupid me, spilling my guts on UrbanDigs trying to tell it like it is! I digress.

I'm sure we will hear calls for bottoms & recoveries from all the top brokers and firm executives, who never saw this downturn coming to begin with; or at least, who publicly wouldn't acknowledge it to begin with. This industry is a changing, you can count on that. Today we get news that BrownHarrisStevens is acquiring Edward Lee Cave boutique realty, via The NY Times:
"I would assume that almost every firm has a negative cash flow," said Hall F. Willkie, the president of Brown Harris Stevens. While the number of closings filed each week is still plummeting, he said that the pace of new deal making had picked up a bit in January and February.

For consumers, this changing landscape could create some nervousness, but the best brokers, those with the strongest deal-making skills and deepest knowledge of the market, will no doubt continue to thrive and offer useful advice throughout the downturn.
That's quite a statement from Mr. Willkie, president of BrownHarrisStevens. I tend to agree that most brick & mortar based realty firms are being squeezed, from the drop of sales volume and prices that started with the collapse of Lehman Brothers last September. And I would also agree that the most established and seasoned agents will gobble up what's left of sales volume amongst themselves, making it especially hard on new agents that are yet to learn the ropes of this industry and build a solid referral base.

Expect more innovation as time goes on, more transparency, virtual realty firms, new models, new buy side / sell side services, etc.. as this market continues its adjustment. It is virtually impossible to get away with broker spin and dirty real estate sales tricks to convince buyers to pay peak prices; without making the broker look like an idiot. Those with the deepest connections, networks, referral base, consulting expertise, sales savvy, and vision will succeed. The rest of the brokers will have to adjust to a new, slower world where more work is needed to make less money. Nobody likes slow markets, especially in a commission based sales industry like this one; but the future can be exciting if you envision it that way!

Add a comment

29 comments

CAPTCHA Image