Another Quick Check Into Manhattan Real Estate

Posted by urbandigs

Wed Nov 4th, 2009 12:30 PM

A: Just wanted to provide some recent thoughts on the marketplace as seen through this broker/blogger's eyes.

The Real Deal reports that "buyer are back to more rational behaviors":

A year after the financial crisis, Manhattan real estate brokers report that the market is finally returning to normal. But they don't mean the lightning-fast sales and skyrocketing prices of the recent real estate boom. They're talking about a more moderate, predictable real estate market, the likes of which hasn't been seen in Manhattan for years.

"The last three years have been very interesting," said Jill Bane, an associate at Leslie J. Garfield & Co. Before the market cratered as a result of the subprime crisis, "prices were very high and there always seemed to be several competing bids," she said.

Now, however, "a sense of normalcy has returned to the market," said Bane. Bane represented a townhouse at 17 Bank Street, on the market for $10.5 million, that recently went into contract. "People are buying; they are just not as irrational as the prior two to three seasons."

In the wake of the financial crisis, the last few quarters have been characterized by unpredictable swings in activity. The fall of 2008 saw the market at a virtual standstill; spring began to thaw, and summer -- normally one of the slowest seasons of the year -- brought an unusual frenzy of sales.

By contrast, the level of activity this fall seems to be relatively normal, settling back into its predictable seasonal pattern. Brokers, upbeat as always, say prices are at or close to their lowest point.
nyc-inventory-trend-6-month.jpgMy opinion on today's market is fairly simple. There was a surge in activity as prices fell far enough to peak buyers interest; this surge lasted about 4 months (May-Aug) or so and saw monthly contracts signed volume similar to peak levels in 2007. Over the last month or two volume declined a bit to more normal levels. Properties that are priced correctly for their price point, are trading. Inventory levels seem to be muddling in the mid 9,000s; although my new data source has it closer to the 10,300 level. My business the past few months has been on the stronger side.

I still believe that we have 1 or 2 more quarters of positive reports ahead of us, as deals in the pipeline close. These reports will be compared to beaten down reports in the same period one year earlier and likely provide support for broker statements that the market has indeed bottomed and is on the path to recovery.

My opinion on that topic is a bit different. Fundamentally, we still have a weak labor market and are yet to experience any of the unintended consequences from actions taken to stem the crisis we just went through. Higher rates is likely one unintended consequence. Higher taxes or change to the tax code is likely another unintended consequence. Restrictions/deferred stock on bonus pay and regulation on wall street are a few others. However, I do NOT see a jolt to the market like we had when Lehman failed. Rather, there are things that can play out that constrain our market from seeing longer term sustainable price appreciation.

What made me significantly less bearish in June than I was in late 2007 is the simple fact that the adjustment has occurred in a fast & furious way. Lehman failed and boom, the market froze and the adjustment took place. That was healthy. So healthy in fact that about 8 months later we started to see sales volume typical of the peak year in 2007! The main reason was lower prices, continued low lending rates and higher confidence in the asset class as a reflation trade mentality sunk in to buyers of Manhattan property.

As this trend continued and became clear sell side optimism started to outpace the improvement in bids
- discussed in the 'It Takes Two to Tango' piece in early August. That is when sales volume started to slow again! It takes two to tango and brokers hate when buyers' bids stop improving yet sellers optimistic expectations keep on rising!!

As a seller you get access to way more information then any one buyer does. Sellers know traffic levels and where interest is for their property; assuming they require real time reports from their hired agents. Sellers also know where the bids are coming in! After a while both the broker & seller should get an idea on where a deal is going to happen at - and sometimes a solid early bid will have been overlooked and regretfully dismissed!

Its not a surprise that when brokers discuss the increase in activity over the course of 4-5 months that maybe, just maybe, sellers are going to get a bit too optimistic on a stronger future bid to come in. This is where I see the market today. A slight healthy improvement in our marketplace as Armageddon was priced out from deals signed during the fear trade months of Feb-April - buyers react one way, sellers react another and here we are.

Since I am only one man and Manhattan properties vary so much, I can only estimate the improvement in bids lately; it would look something like this:


HIGH END ($5M+) - bids improved from down 25%-40% from peak to down 25%-32% from peak
HIGH/MIDDLE ($2M - $5M) - bids improved from down 28%-33% from peak to down 23%-28% from peak
MID END ($1M - $2M) - bids improved from down 20%-30% from peak to down 18%-23% from peak
LOWER END (Under $1M) - bids improved from down 17%-25% from peak to down 13%-18% from peak

Something along those lines and most of the action has been in the lower end. I can't deny the improvement in bids just like sellers shouldn't deny that there is a limit to this improvement. It's impossible for me to see the entire market and since the contract price is kept a secret until closing to protect the parties involved in the transaction, I have to estimate based on my experience in the field and talks with colleagues that I trust.

Every property is different and those with special features such as park/river views, private outdoor space, wood burning fireplace, or an exquisite renovation will retain their value better than properties without them. Dark apartments with little or no view and properties that require an extensive gut renovation are still hard sells. This is the most real time update I can provide; sorry its not more specific but you can't get too specific in a market like this where products have so many varying features attached to them! I don't see much in the way of major changes unless the tradable markets have a surprise for us down the road!

If you have any observations on where bids are coming in, feel free to share your stories!