Benefiting from Facebook’s flop

Brokers say NYC real estate could get a boost as investors recoil from stock market
By Leigh Kamping-Carder | June 01, 2012 07:15AM

Amidst a storm of hype and conflicting expectations, Facebook went public last month, allowing average investors to buy a piece of the social networking juggernaut at $38 per share.

In the days that followed, however, the company’s stock price slid, newly minted shareholders launched a class-action lawsuit claiming underwriters kept damaging information from the public while tipping off favored clients and federal regulators pledged to investigate the alleged improprieties.

The news came about a week after JPMorgan Chase CEO Jamie Dimon admitted that his bank, largely unscathed by the economic crisis, had lost $2 billion on a risky trade, once again underscoring the fallibility of the nation’s financial institutions.

The whole mess had some real estate brokers taking comfort in the perception that investing in New York City homes is a refuge from the stomach-churning lurches of Wall Street.

“Any blip in Wall Street, such as the JPMorgan story [last] month, reinforces real estate as the place to secure your equity,” said Eddie Shapiro, CEO of Nest Seekers International.

In fact, a new feeling of optimism has recently taken hold of some brokers (already an optimistic bunch), fueled by the sense that buyers are moving quickly, sellers are confident they can get good prices and inventory has yet to exceed demand.

“About six weeks ago, it seemed as though someone had thrown a switch and the market heated up overnight to a degree we have not seen in many years,” said Michael Signet, director of sales at Bond New York. “Something new has been added to the equation that we have not seen in a long time — a sense of urgency.”

But is the optimism warranted, or is it Facebook-style hype?

Sales have picked up in the last few years, only to tumble a few months later. In 2009, for example, the federal first-time homebuyer tax credit sparked sales at the low end of the market only to have the effect wear off when the credit expired.

More recently, stable sales last summer dropped off in the winter after Standard & Poor’s downgraded the U.S. debt and the European debt crisis rocked the financial markets.

Some brokers say this time is different, and many of the leaders of Manhattan’s largest brokerages reported a flurry of sales activity in the last few months (see “Top Manhattan firms”).

Gordon Hoppe, a senior vice president at Corcoran Sunshine Marketing Group, noted that the outlook for new development, where demand outpaces the supply of new condominium units, is particularly rosy. The number of signed contracts is up 29 percent compared to the same time last year, he said.

“Consumers are starving for good news,” said Douglas Heddings, founder of the Heddings Property Group. “The current market activity is positively influenced by the combination of strengthening housing numbers, seasonality, historically low interest rates and a sense of hope that local housing has not only recovered, but may start appreciating again.”

Still, others would say the good news, while welcome, is misleading — or at least temporary.

Jed Garfield, the owner of Leslie J. Garfield & Co., dismissed the claim that properties are flying off the shelves as “typical broker bullshit,” although he acknowledged that properties under $5 million may be moving faster than the high-priced townhouses that dominate his firm’s listings. Indeed, studios and one-bedrooms led transactions in Manhattan in the first quarter of 2012, making up the greatest market share since 2009, while sales of properties over $10 million held steady, according to the most recent figures from appraisal firm Miller Samuel. That was a departure from the recent past when luxury properties were dominating sales.

Perhaps more significantly, low interest rates — a factor that brokers routinely emphasize as a reason to buy now — may just be forestalling a drop in sales, as Brian Dusseau, director of rentals at Barak Realty, and others have pointed out.

While Ben Bernanke, chair of the Federal Reserve, has committed to keeping interest rates low for the foreseeable future, the housing market could be adversely affected when the rates inevitably go up, Dusseau said.

“Even though bank financing has gotten tighter, the Federal Reserve and the banks are still putting out [an] ‘easy money’ policy that got us into this housing mess in the first place,” Dusseau said, pointing to the low rates and Federal Housing Administration loans that allow for down payments of less than 5 percent.

“I do not believe the long-term fundamentals have been fixed,” he added. “I hope I am wrong, but I feel a bit like we are in the eye of the storm, and it is only a matter of time before the second half of the storm hits us.”