Gea Elika

It’s widely agreed upon that the sale of Bear Stearns was the pivotal transition moment in the Manhattan Real Estate market. Over the previous six months or so, things had been gradually shifting away from the strong seller’s market mentality that had pervaded Manhattan and New York City as a whole.

Even immediately before Bear Stearns, a buyer’s market in NYC was subtly beginning to show itself. However, the general perception still held of a market that had reached something akin to what the New York Times called a “buyer-seller detente.” With the astounding collapse of one of the Big Five, however, that mentality was instantly dashed, and talks of an actual dive in luxury market prices became commonplace.

Fortunately, that hasn’t happened yet. Inventory has shot way up, though, and it is likely that the market will soon be seeing not just the precursors to negative numbers, but actual negative numbers themselves.

Forbes, which does particularly strong New York real estate research, has put together a list of the ten sections of Manhattan that have seen the greatest increase in average on-the-market time spans.

Sales times are only a rough indicator of future price changes, at best. Sometimes it just means an unusually hot market has calmed down a bit and returned to its normal, fast-paced growth in value. Nonetheless, Forbes’ list is particularly instructive, because they have analyzed the market by dividing it into two different eras, pre and post-Bear Stearns. So, it should do a good job at capturing some of the most recent market dynamics – dynamics that are likely to be only exacerbated by this week’s market activity.

The Lower East Side comes in at number ten, with a 35% increase in average days on the market, from 146 to 198. Grammercy and Chelsea are both tied for the eighth position, with a 45% increase . Similarly, the TriBeCa region showed a 56% increase. At number six, though, the numbers become more extreme. Apartments on the Upper East Side (10028) used to be on the market an average of just 100 days. Now they are typically on the market for 175 days: an increase of 75%.

The Upper West Side saw largely the same change, falling from a shorter 82 day average sale time to 146 days; an increase of 79%. Soho and Murray Hill both had similar increases, of 82% and 84% respectively. Another Upper East Side area code, 10128, saw the second largest increase, growing an average of 89%. Finally, the West Village saw the single biggest difference, with massive 90% change, from 132 days to 250.

So, expect sellers in these areas to start seriously re-evaluating their price schemes in the downward direction, and soon. The events of the past two weeks have shaken nearly everyone in the city to some extent, and it’s doubtful that agents that have seen average sales times increase dramatically will be too resilient against price drops in the context of 700 point drops in the Dow. Especially for the areas on the top half of that list, price decreases are likely coming, if not already here.

A Breakdown of Changing Market Conditions in Manhattan [Elika Blog Post]

Surprising some analysts, prices continued to rise in the 3rd quarter, according to recently released numbers. The average sales price in Manhattan climbed by 8.1% to roughly $1.5 million. The average price per square foot increased 4.1%.

The disparity between the two numbers is a reflection of the fact that new luxury apartments fueled much of the price increase in Manhattan.

These numbers however, are incidental in comparison to the changes in inventory and the number of sales. Manhattan saw a decrease in sales volume of 24.1%. While some of this decline is surely buyers sitting on the sidelines while the macroeconomic situation sorts itself out, the larger portion of the decline likely comes from a longer-term softening of demand.

The national recession and the current financial market madness plays are both major factors in the reduced demand the New York real estate market. Today the Dow briefly dipped below -800 for the day before rallying back to close at a 3.8% loss for the day. It is hard to imagine many buyers seeing a -800 next to the sign for the Dow Jones Industrial Average on CNBC getting up from in front of their TVs and saying, “Well, honey, let’s go real estate shopping.”

Similarly, today was especially bad news for Mahattan real estate market in terms of foreign demand, with the euro falling to its current level of $1.35. Still, it’s important to not confuse the dramatically horrid news of the past two weeks with the current state of the New York City real estate market.

Today’s events were not in response to new events so much as the world’s financial markets waking up to the fact that Europe’s major economies are also in serious trouble, just as much as the US is. No one – other than, perhaps, John McCain – would say the “fundamentals of the market are strong” when talking about the short term of the NYC real estate market.

In many measurements of the market’s 3rd quarter performance – especially those including surrounding suburbs – the year-over-year numbers saw a significant increase, but the quarter-on-quarter numbers showed an equitable decline. That’s always a bad sign in terms of the capacity for prices to fall at a rapid pace.

Looking beyond 2009, however, the picture does not look especially bad, so long as no near-depression breaks out on the national level. As the government begins its bail-out program in full earnest, many of the jobs lost in New York City’s private sector financial industry will be absorbed by a government which will need thousands of new financial analysts to manage its expanded role in the financial markets.

The macroecononmic picture is indeed bleak right now, but New York City will do far better than most cities in the coming years.

3rd Quarter of 2008 Expected to be the Final Quarter of NYC Housing Boom [Elika Blog Post]

Let us take a step back: The proposed government bail out will involve at least half a trillion dollars of the public's money; the AIG bailout was $85 billion; Bear Stearns, around $20 billion; the Fed has pumped in well over half a trillion into the credit markets by this point; interest rates for treasury bonds are significantly lower than rates for bank-to-bank loans.

A lot of that money will be gotten back to the taxpayer eventually. The opportunity cost – that is, the metric economists use to analyze the true cost of all that money – however, will be huge. In the end, the taxpayers will almost certainly end up spending thousands of dollars for every man, woman and child in this country.
It's an infuriating situation, largely because it doesn't have to be this way. The executive branch of this country has nationalized a significant portion of the financial industry. It will continue to do so for some time. However, congressional Democrats have huge leverage over the process at this point. With or without their help, the federal government could end up turning many of these forced purchases into solid investments that pay large dividends for the American taxpayer.

That's not going to happen however. And the scale of the loss is beyond criminal. We've entered a realm of importance and damage to our national and collective well-being wherein the offending actors could be accurately characterized as treasonous. Within the confines of what is possible for any given actor, it is almost like, at each step of the way, the executive branch's actions have been directed by the world's largest financial firm, Goldman Sachs. It is little wonder, then, that the Treasury secretary is the ex-CEO of Goldman Sachs.

What does all this have to do with the Manhattan real estate market? There are two major points to be made: First, the government has to spend so much on activities that will have a negligible levels of stimulative effects – in comparison to, say, a major public works project – that the economy will almost certainly enter a full recession.

This will lead to a significant decline in housing prices, even in New York City.

However, the picture for the city's real estate market has brightened significantly from yesterday. The doomsday scenario for the New York City housing market was that the city's financial industry would be largely on its own to absorb the damage it has done to the world's economy. Life's not fair, however, and the country as a whole is going to absorb those losses, not New York City's most important industry.

So, the market will do much better than many people thought at the beginning of the week. Many expected the Fed to blink and eventually cave to the industry's demands, at least partially. Few foresaw, however, the government's complete and total retreat from its earlier position.
In short, the bail out is a horrible thing for the country, but a very, very good thing for the New York City real estate market.

Already deals abound. My favorite is a quote from a New York Times article earlier this week: "Mr. Petterson" who purchased an apartment in the Aura for under $600,000, "said 'it was an upgrade' from a studio on the Upper East Side to a one-bedroom with a balcony in a sleek modern building of glass and brick with a gym and a garden with a hot tub."

Time to start looking for deals.

Original Blog Post from Elika Real Estate Blog

There has been little doubt recently that the Manhattan real estate market has been slowing down recently. Inventory is up, and sales are down. While average prices have remained strong, it is clear that the days of the superman-like invulnerability in the market is a thing of the past.

If a year of horrid national economic news has finally proved to be the market's kryptonite, though, there has been no lack of Louis Lanes as of late, pulling our fabled hero to areas of safety and respite, to suffer little harm as the danger slowly passes.

While many in the industry were expecting a sharply negative turn this summer, many real estate agents have reported experiencing, if not a record summer, a stronger-than-expected season.

The weak dollar has greatly aided the market, as otherwise bored and possibly unemployed real estate agents in the city have found themselves with ample interest from holders of euros and the British Pound.

Indeed, the luxury market as a whole has continued to expand, even as its largest source of demand – the New York City financial industry – has taken a serious hit in the form of a global credit crunch and the closing of Bear Stearns. The dollar has played a huge role in this, as has the surprising resilience of domestic demand for New York City's apartments.

Supply, too, has helped considerably. Unlike most major American cities, which have experienced a significant condo glut, building in New York City has been significant but moderate in pace.

This fact is particularly apparent when one looks at where many of the sales have come from in recent months. While sales of units in middle-aged buildings – built after World War II, but not in the recent past – have declined significantly, many of the high profile new units have been moving at a brisk pace.

The Superior Ink units close to the water are perhaps a prime example. The sales numbers from this large collection of new luxury apartments has displayed the strength of both the super-high end luxury market and the market for new condominiums.

The super-high end has been particularly strong as of late. Indeed, Superior Ink was supposed to be 68 different units, but may end up being just shy of fifty units, after wealthy buyers combine units.

The city is also leading the way with a number of luxury green apartments near completion; a set of buildings that will experience their own unique source of demand from buyers, and should help prop up future numbers somewhat.

While no one is saying the city's market is experiencing its best days, there is a consensus that if this is the worst there is, then the market will experience a recovery from the recent negativity with perhaps record speed.

Original Post at Elika Blog

The first quarter of the year was a bad one for the national housing market. Nothing much new occurred, however it was an unabated continuation of last year, which was one of the worst years for the national market on record. In that environment, however, the Manhattan real estate market continued to do OK.

Seemingly against all odds, the average price of New York apartments improved almost twenty percent from the same time last year. The increase in prices was largely driven by the luxury market, which saw several new high end buildings go on the market.

Underlying the effect that the strong numbers from the luxury sector had on the market as a whole, rents actually declined in the first quarter, even as the average price of New York City apartments increased. There were a some signs of a new weakness in the quarterly numbers – inventory, for example, increased substantially – however, the unexpected large increase in the average price buoyed confidence in the market for yet another quarter. New York apartments, it seemed, lived in a different economic universe than the rest of the nation’s housing units.

The fate of Bear Sterns, however, has combined with the continuing negativity in the national market to finally put a damper on the New York housing market. Nonetheless, the Spring quarter is typically the best quarter for the market, so once again, no one is really sure what the exact fate of home values in the New York market will be. This very uncertainty has given pause to a number of potential buyers and sellers.

Most analysts expect prices to decline somewhat, especially among sellers who have had their home on the market for more than a month. Activity is expected to decline from what it was a year ago, though quarter-over-quarter numbers won’t seem quite as bad.

Rents are expected to continue to decline, though not at as fast a pace as they did in the first quarter. All in all, the second quarter numbers for the Manhattan real estate market will be truly fascinating. Until the quarter is finished, and the data is released, however, a sense of uncertainty will place a drag on the market.

Certainly, any number of events – mostly negative ones – could clear up that uncertainty. If another Bear Sterns were to occur, for instance, it would be all to clear which direction the market is headed in.

For now, though, the only thing that is clear is that the market is not moving in a particularly strong direction one way or the other. Even if the second quarter numbers are negative, they will be nothing like what the city experienced in its last major housing downturn.