While Manhattan residential brokers are now being forced to navigate the world of broken deals and slow sales, their suburban counterparts in some high-end areas may be a good source of information. That’s because they’ve been dealing with a tanking market for even longer.
For as bad as the market is in Manhattan, it appears that areas like northern and central New Jersey, the Gold Coast of Long Island, Westchester and parts of Connecticut such as Greenwich were hit earlier and harder.
In this month’s Q & A, brokers and company heads in New York City’s closest suburbs told The Real Deal that the biggest price cuts they’ve seen have been in the priciest segments of the markets they work in and that job security is the leading factor stalling market activity at the moment.
One CEO of a New Jersey brokerage said there’s been a slowdown in the sale of $1 million-plus homes in the northern and central parts of the state, largely because so many of the towns are bedroom communities for Wall Street. Meanwhile, a Westchester broker said that in addition to dropping the price, one of her sellers is offering to pay the buyer’s mansion tax fees to sweeten the deal.
Other challenges that the suburbs are seeing include the collapse of deals at the last minute with buyers leaving deposits on the table and homeowners stuck with properties that are valued less than their mortgages — a phenomenon found more often in the city’s outer boroughs than Manhattan.
Many brokers said the silver lining to the tanking economy is that the areas they do business in will become more affordable and accessible to first-time buyers. For more we turn to our panel of experts.
Pearl Kamer, chief economist, Long Island Association
How severely is the downturn hitting your area? Which towns are holding up best and which are getting hit hardest?
We already have one of the worst mortgage foreclosure problems in the state in the poorest communities. I suspect that high-end residential housing has some of the largest declines in price, simply because there is more room to lower the price, whereas if you have a home for $500,000 or less, you are not going to be able to lower your price much. So far, from the peak in mid-2007, we’ve seen a decline in home prices of 18 percent in Nassau and 20 percent in Suffolk. I suspect before the housing market bottoms out at the end of this year or sometime next year, we’ll see an overall decline totaling 35 percent.
Are sellers willing to drop their prices?
Long Island was about 10 months later in slipping into recession [than the rest of the country]. I think sellers initially assumed it wouldn’t be that bad and were holding their prices, but now they’re reducing them. We also know that homes in contract, which have not yet closed, are at lower prices than recent closing prices. That would indicate that reductions are continuing.
What do you expect the biggest challenges to be on Long Island in the coming year?
The challenge will be to keep credit flowing to potential homebuyers. My biggest concern is that home prices will continue to fall, and that you’ll have more homeowners underwater with the market value of their home less than the size of their mortgage. That is motivation to default and walk away from the home. If we have a lot of homes boarded up, particularly in some poorer communities, which is what we’re seeing now, it leads to neighborhood blight, it puts further pressure on home prices and it will depress consumer spending.
When will the market get better?
It’s happening as we speak, but it is going to take another 12 months.
Nahid Akins, executive director of North Shore group, Prudential Douglas Elliman
How severely is the downturn hitting your area in Long Island?
Since the credit crisis, it’s more difficult to obtain a mortgage for properties in the $2 to $3 million price range, so the high-priced towns are getting hit harder.
What are the most severe price drops you’ve seen?
For 2008 in my neighborhoods, over the period of six months, which is the duration of a listing, I would say about $100,000 to $150,000 on high-end properties over $1 million. For properties less than $1 million, I would say $50,000 to $70,000.
How is the brokerage community responding in your area? Are brokers leaving the profession?
I have seen many brokers leaving the industry. Those are the people who came in thinking it was so easy to make money, which at the time, it was.
Can you cite an example of a recent deal that illustrates what’s going on in the market?
We have a lot of co-op boards rejecting people. The boards don’t have to give any reason and every board is different, but they demand a steady job so the [buyer] can pay the maintenance and that [buyers] have good credit. Many boards are also not allowing parents to buy for their children.
P. Gilbert Mercurio, CEO, Westchester County Board of Realtors
How’s your area holding up in this economy?
There’s no doubt that the recession finally has a tight grip on our MLS area, which includes the Bronx, Westchester, Putnam and Dutchess counties. Realtors are reporting that transactions are falling apart at the last minute because of the uncertainties in the economy or the credit-worthiness [of the buyer] or employment.
What’s overall sales activity like now compared to three months ago, six months ago and a year ago?
At the start of last year, sales were down 30 percent from 2007, down 27 percent in the second quarter and stayed there for the balance of 2008.
Are sellers willing to drop prices?
Westchester sellers resisted price cuts through most of 2008, with average sales prices of single-family homes down only 3 to 5 percent from 2007 levels. At the end of the [year], however, we saw an 11 percent price decrease among single-family houses, indicating that there was more of a willingness to price to market as the year progressed.
What are prices like now compared to three months ago, six months ago and a year ago?
At the close of the year the median sales price of a single-family house in Westchester was $570,000 compared to $640,000 in the fourth quarter of 2007 and $630,000 in the fourth quarter of 2006.
What are your biggest concerns about the market in your area?
The impact of unemployment in the financial services center is yet to be felt in the northern suburbs of the city. It could generate new, unneeded inventory from unemployed residents, and simultaneously depress buying activity.
What are the most surprising developments you’ve witnessed since the beginning of the downturn?
The rapidity of the downturn from a good market in 2007 in the economically healthy lower Hudson area to such a poor market in 2008 caught us all by surprise.
How’s the brokerage community responding in your area? Are brokers leaving the profession?
We’ve seen an increase in consolidations, mergers and acquisitions among small-to medium-size firms. Our association membership is often [a reflection of how many brokers are licensed]. We expect at least a 6 to 7 percent membership fall-off.
Are there any silver linings in this market?
Westchester residential real estate prices were getting out of hand. There wasn’t a bubble, but the average pricing was definitely overly feverish and presented major barriers to first-time buyers and lower-income buyers generally. If the recession cools prices for a while, that will create buying opportunities.
Claire Civetta, associate broker, Coldwell Banker Residential Real Estate
How severely is the downturn hitting your area in Westchester?
For many years, our properties, in particular the high-end luxury properties, have traded for the most part to those who work on Wall Street. When Wall Street is impacted so are we. Value-driven deals are being made, though at a slower pace.
What are you finding among sellers? Are they willing to drop their prices?
Motivated sellers are prepared to offer ‘buyer bennies’ as I call them. For example, one of my sellers is offering to pay the mansion tax and grieve the taxes in addition to adjusting the price of their home. The most severe drops in listing price usually start with an unrealistic price for this market. I have a seller who was convinced by many non-professional real estate people that her house was worth over $3.5 million. The owner insisted on listing the house at that price and I consequently sold similar houses on the street that were priced realistically just under $3 million. Her house is still on the market and is currently asking $2.1 million. In this area homeowners have been used to hearing and seeing people double their investment.
How are you changing the way you do business because of the downturn?
I’m spending my marketing dollars more prudently and positioning my properties as strategically as possible. Though I have continued my mailers and have kept my ads on the local community calendar, I’ve shifted the focus for my marketing almost completely to the Internet. Each of my listings has its own Web page.
Is the high-end of the market holding up better or worse than the lower or middle?
In Scarsdale, the low end is the high end in other markets. Our ‘starter homes,’ which typically are in the $700,000 to $1.4 million range, are selling. But negotiations are taking longer and buyers are pushing sellers hard. The median price for a home in Scarsdale in 2005-2006 was $1.35 million, in 2007 it was $1.42 million and in 2008 it was $1.32 million. I think the impact is felt in the incubation period of the deal … buyers and sellers are nervous and more than a little prudent in their negotiations.
Patricia Hoferkamp, president/CEO, Burgdorff ERA
How severely is the downturn hitting your area?
I have 14 offices in northern and central New Jersey … The downturn has affected us, but all it’s doing is restoring affordability and creating a sense of balance, so it was absolutely needed. We are off about 12 percent.
How much harder is it to get deals done in this market?
Actually it’s somewhat of a Catch 22. The buyers are starting to come back into the market and compared to six months ago there’s an easing up of credit. But the issue now is job security. Mortgage rates are now 5 percent, so the mortgage rates are the lowest they have been in years. We’ve got inventory and we have homes priced below what they’ve been in years. It truly is a buyer’s market and I suspect there is a pent-up demand.
What are you finding among sellers? Are they willing to drop their prices?
What we’ve been saying lately is that you can price your home to stay or you can price your home to move. I think going into 2009 sellers understand that it’s all pricing and if they truly want to sell their home they have got to price competitively.
What are prices like now compared to three months ago, six months ago and a year ago?
Our company was down 8 percent through November, which is really not bad since we had so many years of appreciation … we took the greatest hit in the fourth quarter of last year.
Is the high end of the market holding up better or worse than the lower or middle?
For the past eight months we’ve seen a slowdown in $1 million-plus homes. In some areas of [New Jersey], it has stalled completely. Many of our markets are bedroom communities for Wall Street so the lack of bonuses or smaller bonuses has been impacting us. Then there’s the loss of jobs. We are, [however], seeing more activity in sales under $1 million. Our average price is $600,000 and from $400,000 to $700,000 is where we’re seeing the most activity. The first-time buyer is the hinge to the market that allows the seller to move up. That energizes the market, so we should start to see more movement in the over-$1 million properties soon, over the next year.
How’s the brokerage community responding in your area?
In New Jersey, we’re down 7 percent this year in new licenses so there are fewer people coming into the business. I expected more people to leave. That’s not a bad thing because I truly believe this has to be a full-time career. There are agents from other companies taking part-time jobs to support themselves because it is purely commission based.
Can you cite an example of a recent deal that illustrates what’s going on in the market?
We’ve been seeing cancellations close to closings with a buyer backing out, leaving their deposit on the table, probably for fear of losing their jobs. It’s easier to walk away from their 20 percent deposit than to move forward under the threat of losing a job. That is new for us. Families losing their homes — that’s also new to us. What we’re seeing a little more of are short sales. That involves a lot of negotiating with the bank. That would be easily under 5 percent of what we do, it is just something we did not have to deal with in the past.
Jeffrey Otteau, president, Otteau Valuation Group
How severely is the downturn hitting New Jersey?
Extremely hard. What began essentially as a suburban housing correction in 2005 has become viral with the contagion having now spread to the financial markets, commercial real estate market and overall economy.
What’s sales activity like now compared to three months ago, six months ago and a year ago?
Because the suburban housing market began its descent earlier, we are beginning to see early signs of stabilization. In these suburban markets unsold inventory is slowly falling while the decline in sales pace is slowing. At the same time, however, the deterioration is accelerating in the commercial property markets across the entire metropolitan area. The only market segment that’s pretty much holding is rental housing, but even rental apartments will feel some effect since job creation is a key driver.
Are sellers willing to drop their prices yet?
Most sellers are reluctant to price their homes competitively. It’s an absolute reality in housing markets that overpricing a home in a declining market ensures the eventual selling price will be lower than necessary. This is because overpricing extends marketing time, which leads to eventual price reductions. As for the magnitude of price declines, suburban markets have seen anywhere between 10 and 20 percent so far.
What are prices like now compared to three months ago, six months ago and a year ago?
Prior to the financial events in September, suburban home prices had been declining at an average pace of 1 to 2 percent monthly, which doubled after September.
What are your biggest concerns about the market in your area?
In the short term my greatest concern is what plays out in the job market. If you were to draw up a list of reasons for not purchasing a home … primary among them would be fear of losing your job.
Nancy Healy, owner/broker, Shore & Country Properties
How much has the market slowed down your area in Connecticut?
Considerably. Year-end numbers are not in yet, but we know that it was a poor fourth quarter. There were very few closings in November and December. Since a typical closing takes 60 days, if there aren’t many closings in November, there were few deals in September and October. We usually see an influx of closings in November and December.
How much have prices fallen in your area?
I would say that the market price has dropped between 8 and 10 percent. But what usually sells well still sells well. That would be absolutely done houses, the ones that have been redone with today’s Greenwich upscale finish. Properties over $5 million are having a harder time, although there recently was a closing of a $10 million waterfront property.
How are you changing the way you do business because of the downturn?
We’ve cut back slightly in newsprint but have increased our Web presence.
Is the high end of the market holding up better or worse than the lower or middle?
The financial market mess has created a lack of confidence with people involved in that field. The upper end of our market has softened more than the rest, but sales are still occurring. Greenwich is called the hedge fund capital and probably 25 to 30 percent of the community is financial. But a number of hedge fund people commute to work here, they do business here but do not necessarily live here.
Can you cite an example of a recent deal that illustrates what’s going on in the market?
I just closed on something that had a long contract date. During that period the company the [buyer] worked for had a massive failure. The buyer had a lot of stock in the company, but fortunately he was able to still close.