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Wary of the rebound
Is uptick in activity creating false hope for brokers?
The summer of 2009 has turned out to be a confusing time for New York City real estate. While Goldman Sachs reported record earnings and Fed Chairman Ben Bernanke talked optimistically about green shoots, the bleakest, leanest winter in recent memory gave way to an uptick in contract signings, filling brokers with hope that the worst days of the downturn have passed.
At the same time, unemployment surged to 9.5 percent in the city, and second-quarter market reports proclaimed double-digit declines in real estate values. The Department of Buildings published a list of 362 stalled construction sites in the five boroughs, evidence of the continuing stranglehold of the credit crisis.
How to make sense of these seemingly contradictory forces? No one seems quite sure, but many experts are hesitant to call it a true recovery, pointing to the weak fundamentals underlying the market.
“Brokers’ newsletters are very optimistic and very encouraging, but there are a lot of people on our site who are skeptical and are wondering if this is just a seasonal rebound,” said Sofia Kim, the vice president of research at StreetEasy.
This month, The Real Deal took a closer look at these mixed signals, separating the true signs of improvement from the many red herrings stirring false hope in the hearts of brokers.
Inventory is falling, experts say, in part because of the flurry of sales, but also because of sellers’ reluctance to accept lower prices, which has led many to take their properties off the market. Meanwhile, many in real estate are finding out that Federal Housing Administration loans, often touted as the white knight of the home mortgage industry, aren’t all they’re cracked up to be. In some cases, seemingly easy transactions are falling through as buyers find out at the last minute that they don’t, in fact, qualify for FHA-insured loans.
Similarly, new federal guidelines aimed at reining in appraisers’ unethical behavior are, in many cases, backfiring as purchase appraisals come in lower than the agreed-upon sales price. Brokers say these low appraisals are causing deals to disintegrate when buyers discover they’re not eligible for as much financing as they’d thought.
While some new construction condos appear to have sold enough units to qualify for lenders’ 50 or 70 percent presale requirements, some buyers are making under-the-radar attempts to terminate their sales contracts by seeking mediation through state Attorney General Andrew Cuomo’s office. By choosing this method rather than litigation, they’re hoping to get their deposits, or in some cases, their down payments, back.
Finally, while the current bounce in activity may be keeping brokers busy for now, many fear their once-extravagant lifestyles may be gone for good.