Residential market holds steady, but first-time buyers feel pinch

By Lauren Elkies | November 16, 2007 10:23AM

The residential real estate market is doing well, according to real estate professionals.

As of last month, serious buyers were being more cautious but appeared to have shrugged off concerns over the tightening lending standards that emerged late this summer.

“What’s happening in the rest of the country is not happening in New York,” said Brown Harris Stevens President Hall Willkie.

The market held relatively steady in the third quarter, according to the most recent Prudential Douglas Elliman report available at press time. The average sales price increased 2.7 percent to $1.37 million compared to the prior quarter, and inventory dropped 0.6 percent to 5,204 apartments on the market.

The number of sales did drop somewhat, however, down 11.2 percent to 3,499 completed deals during the third quarter. The number of days on the market also increased 4.4 percent to 123 days.

Still, the local market is faring well compared to the national market. At the beginning of September, the U.S. median new housing price was, for example, down 7.5 percent from the year before, the biggest drop since 1970, and the number of purchases was at its lowest point in seven years, according to the Commerce Department. The Manhattan median price was up 2.3 percent in the same year-over-year period.

In Manhattan, buyers are asking probing questions about the market, which is actually a “healthy” thing, Willkie said.

But the scrutiny and questioning are not slowing down purchases, he added.

Stan Ponte, president of Coldwell Banker Hunt Kennedy’s Previews division, which focuses on luxury marketing, had a similar perspective.

“It’s forced a kind of conservatism, which isn’t bad,” said Ponte. “There can be some short-term pain, but it’s gone from kind of a speculative buyer to a more thoughtful buyer market.”

But some brokers said that effects of the mortgage crisis are evident among first-time buyers.

“We’re seeing the weakness in the one-bedroom market east of Third Avenue,” said Frederick Peters, president of Warburg Realty. “I think those buyers tend to be first-time buyers, and they tend to be more impacted by what’s going on with mortgages.”

Tighter lending standards are also hindering purchases by buyers who like to fly by the seat of their pants.

“The 10 percent-down, high-income, low-asset buyer is pretty much an extinct animal in New York,” Ponte said. “Banks are not approving those loans, and the buyers are reassessing what they can look at.”

But in many cases, serious buyers are just becoming more serious.

Ponte said, “We have fewer showings, but those showings are more qualified and are resulting in a higher ratio of second showings.”

Requests for appraisals are not down, said appraiser Jonathan Miller, executive vice president and director of research at Radar Logic.

“As near as I can tell, contract activity as opposed to this time last year is a little bit higher,” Miller said last month. “But it’s less than what we saw over the summer, so I guess what I’d say is, we’re not seeing a significant impact from the Wall Street credit situation yet.”

Inventory increased in September, when there were 5,490 units (co-ops, condos and townhouses) on the market; in August, there were 4,897 homes on the market, according to Miller’s research. The overall increase was 12.7 percent.

The August-to-September uptick is not unusual as sellers gear up for the fall season.

“Four out of the last five years, inventory increased from August to September,” Miller said.

The number of homes on the market is still down an impressive 32 percent from last year, however.

Real estate brokers have speculated that the credit crunch has benefited the city’s rental market because more and more would-be buyers are taking rentals upon realizing they can no longer afford to buy.

But rents averaged less, and the vacancy rate edged slightly higher in September than in the two months prior. The average rent for studios through three-bedrooms was $3,260 in September, down from $3,295 in August and $3,392 in July, according to data from Citi Habitats. September’s vacancy rate was 1 percent versus 0.85 in August and 0.81 in July.

Despite recent largely positive reports and feedback from brokers, the city’s residential market might not be out of the woods yet.

It could be in the fourth quarter when Manhattan’s residential real estate market sees the tangible effects of the credit crisis.

“We’ll see somewhat lower transaction activity in the fourth quarter” due to “credit
tightening for purchasers and bonus concerns,” Miller said.

Even Mayor Michael Bloomberg expressed pessimism about the market. Bloomberg said real estate prices would drop, but not “as much as any of the other places in the country because here, people don’t build or buy on spec,” according to the New York Post. “They build and buy and rent to live in them. And so, there’s much more stability here.”