Europe's Souring Taste For Manhattan Property?

Posted by urbandigs

Wed Jun 16th, 2010 07:47 AM

A: Well I wouldn't call it that, but I would call it something else. The WSJ discusses this topic and basically concludes that, "a certain type of European buyer that left a strong footprint on New York during the boom years may be gone for a very long time: middle-class professionals from countries like Spain and Ireland". That is for sure. The boom years of 2006-2007 were outliers, fueled by rampant speculation and availability of all sorts of credit products and leverage. Those days are way gone, and with it, the days of e-z borrowing & leverage for big time Manhattan property purchases. As the credit crisis ultimately morphed into a sovereign debt crisis in the Eurozone, there are two forces worth noting that I think are hovering over new buyers today: declining confidence + declining purchasing power.

The WSJ.com discusses, "Currency Fall Curbs Europe's Taste for New York Property":

The euro's 25% depreciation against the dollar, to less than $1.20 earlier this month means that Europeans are paying a quarter more for New York property in dollar terms than they did two years ago when one euro was exchanged into $1.60.

"I'm spending a lot of time talking people off the ledge,'' says Dolly Lenz, a top-selling broker with Prudential Douglas Elliman, referring to Italian, Spanish and English clients who are getting cold feet about buying in the city. "I'm doing this daily. People are losing confidence that it's going to turn around quickly.''

Their reticence comes as the New York housing market is showing signs of a tentative comeback; ...however, much of the industry is growing anxious that European demand among the speculative or less well-heeled buyer may be softening. Brokers worry that some Europeans who bought New York property near the peak and took a hit of 20% to 30% may have made enough back in currency appreciation to cancel out investment declines.

A certain type of European buyer that left a strong footprint on New York during the boom years may be gone for a very long time: middle-class professionals from countries like Spain and Ireland.
I discussed how all/mostly cash euro investors who bought at the peak can cancel out some asset depreciation back in May. But the more important element in the European equation is what forces are affecting the buy side; because as many of you know, its all about the bids! When the bids change, the markets change.

When it comes to the conditions that led to a 25% decline in the Euro against our Dollar, my gut thinks the following is happening in the minds of these future buyers:

1. Declining Confidence - European markets adjusted with the sovereign debt worries and that always leads to a negative wealth 'effect'. Considering where we came from, its hard to think many high net worth foreigners were not 'in the game' before the adjustment; so there was pain to be felt. The 'effect' usually changes the motivation of marginal buyers (who would rather put their buy on hold) and the aggressiveness of higher net worth individuals (who would rather bid more conservatively).

Evidence of this came in the WSJ article when broker Suzan Bennet's Belgian client, "worried about Europe's plummeting stock markets and currency, pulled out". The high end buyer eventually came back but at a reduced price.

2. Less Purchasing Power - Discussed in April, this is also a big force entering the minds of Euro buyers. There will ALWAYS be foreign buyers of our property, at all times, but how far their local money goes is now in question. In short, their money buys a lot less house than it did only a few years ago and that means less purchasing power.

When I left, my 30-day broker status box in my new system showed 1,130 new signed contracts. When I checked for the first time this morning, it shows 869 new contracts signed in the last 30 days. My new platform is being designed from the ground up to help you get a pulse on the market, and there are both short term and long term trend tools available. I like to view the longer trends to understand the bigger picture of what this market is doing. I love watching the shorter term analytics to track how this market changes with a 30-day window. The slowdown in signed deals is both seasonal and normal considering the sustained pace of the reflation this market experienced. I dont think its because of the topic of this post. Rather, nothing goes up forever and this market simply 'needed a breather' at a time when this market normally slows for seasonal reasons anyway.

I'll end this discussion with a snapshot of this Broker Status Tool (as of this am) and a near term chart of the sharp decline in the Euro:

euro-manhattan-real-estate-contracts.jpg


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