Stock volatility makes real estate shiver

Buyers and sellers are second-guessing moves amid wild ride on the financial markets
By E.B. Solomont | September 01, 2015 07:00AM
From left: Ralph Modica, Thomas Kim and Susan de Franca

From left: Ralph Modica, Thomas Kim and Susan de Franca

Given how the 2008-2009 economic crisis rocked the New York real estate world, buyers and sellers can be forgiven for feeling jittery after last month’s stock market turmoil.

“Where there is volatility, there is fear,” said Julie Park, a Level Group agent. “Ninety-nine percent of my clients and people I know have money tied up in the market somehow.”

Spurred by China’s economic woes, the Dow plunged 1,000 points shortly after the markets opened Aug. 24, and despite a partial rebound, ended the day down 3.6 percent. Many of the top real estate stocks got hit hard. It was the scariest day of a week that saw broad swings in stocks, reminding many investors of 2008 and early 2009.

As trading stabilized, brokers weighed in on how the roiling stock market could impact the residential sales market.

Park said several clients who sold apartments in recent months were relieved they did so before the financial markets tumbled. “To my potential sellers, I advise them not to sell in a panic, but to sell because it makes sense,” she said. “Market inventory is still at an all-time low,” she added, noting residential prices should hold up, even if stocks don’t.

Several sources said the stock market’s volatility, particularly if it persists, could even boost apartment prices in the near term.

“When there is a flux in the stock market, we tend to see that the residential market becomes that much more active,” said Susan de Franca, president of Douglas Elliman Development Marketing. “People find buying real estate is a safe haven.”

Nonetheless, some brokers said their clients are worried about deals falling through.

Elliman’s Ralph Modica said one of his clients was supposed to sign a contract on a two-bedroom condo at the Edge in Williamsburg for around $1.85 million. Amid the stock market gyrations, she asked to delay that signing until after she closes the sale of her Upper West Side one-bedroom, which was asking $1.5 million. (The client is doing a 1031 exchange, which allows deferral of capital gains tax if sale proceeds are used to buy another property within 180 days.) 

“The stock market was making her nervous,” he said. “I guess she felt like anything could happen.”

Others see uncertainty as a reason to pull the trigger.

Miron Properties’ Thomas Kim described a client who wanted help finding a Brooklyn pad, and was about to accept an offer on his studio in the Financial District, listed for just under $1 million. At the eleventh hour, the seller hesitated, wondering if he should rent out the studio instead and, perhaps, sell it for a higher price in a few years.

Kim urged him not to wait. “I responded, ‘Have you seen the financial markets today?’” Kim said. “One or two years from now, we might be in a downward trajectory and the real estate market might be stagnant.”

A few days later, he went into contract.

Other brokers said more sophisticated clients were waiting for a market correction.

“The sense that financial instruments may be overvalued may have led to their [real estate] purchase in the first place,” said Warburg Realty’s Miles Chapin. Even before the stock market’s fluctuations in late August, Chapin said buyers and sellers were “touchy.”

“People are leery of anything that needs work, and worried that by the time their renovations are complete, the market may have turned,” he said.

Elliman’s Modica said he views the stock market’s slide as a correction, but he said he understands his client’s caution. In general, buyers and sellers are still rattled from the last crisis. “The market is a living, breathing organism and it’s all interconnected,” he said.

Several brokers said over the past year, the real estate market seems to have stabilized after pent-up demand from the recession drove record sales volume in 2013 and early 2014.

According to real estate appraisal firm Miller Samuel, sales volume in the first quarter dropped 20 percent from last year, to 2,674 units. However, prices were still trending higher, with the average Manhattan sales price up 11.4 percent from 2014’s second quarter, to $1.9 million, and the median price hitting $980,000, up 7.7 percent.

“The biggest fluctuations we expect are particularly in the high-end part of the Manhattan market as other currencies, like the Chinese RMB, are being devalued against the dollar,” said Andrew Barrocas, CEO of the brokerage MNS, in an email. Many clients have asked about the stock market’s impact.

Roughly 13 percent of buyers are international at Toll Brothers’ New York condo developments, including the 81-unit 400 Park Avenue South and the 108-unit Pierhouse at Brooklyn Bridge Park. CEO Douglas Yearley Jr. recently said it was too soon to tell if churning markets would hit sales, adding, “We’re obviously keeping a very close eye on it.”