Q&A: Sounding off on the health of the market

<i>Senior brokers say Manhattan is holding its own</i>

The mortgage meltdown and subsequent credit crunch have battered the national real estate market. But as it has so often in the past, the Manhattan real estate market felt the effects unevenly, proving its exceptional nature once again.

In a Q & A this month with senior-level brokers, most of them with decades of experience, The Real Deal asked about how the New York market has held up.

While there is no doubt that lending standards have tightened, Manhattan has mostly held its own against the subprime turmoil. Sales have slowed down a bit, according to some brokers, and price reductions are being seen on stale properties, but buyers expecting a lot of price reductions aren’t necessarily finding them, brokers said.

Though much has been made of the anticipated cuts in Wall Street bonuses and their effect on the upper end of the market, brokers say the high-end segment appears to be faring better than less pricey properties. They say entry-level buyers have been hurt more by lenders cutting off the flow of easy money.

While New York has resisted some of the turbulence dragging down real estate markets elsewhere, it wouldn’t be New York without media hype. Negative press draws scorn from insiders who say it misrepresents the local market’s strength.

Here’s what brokers had to say:

Debra Kameros
president, Debra Kameros Company

What is the most negative trend in the market today?

Buyers are starting to ask questions about the possibility of the market starting to slide. I understand it because there has been lots of scary press. Over my time in the last 27 years, I have seen a lot of market cycles. Markets are created by perception, and the scarier the headlines, the more it affects people. In New York magazine last month, there was a scary headline, but if you actually read the article, it was not so scary; it gives the best-case and worst scenario of different neighborhoods. Nobody knows what is actually going to happen. I do believe that if there were mountains of negative press, it eventually has an impact; so far, we are fine.

Have buyers’ mentalities changed?

I’ve heard talk about buyers expecting more negotiation, but I’m not necessarily seeing them get more negotiation. Properties are still selling quite close to the asking price.

How significant a factor are changing mortgage rates and tightening lending standards for buyers?

The biggest change is that there are a lot less products available, but there is still a lot available. You have to have a good mortgage broker who knows how to find the best product that the buyer can get. A good broker can match what is available to what you can actually qualify for. There is nervousness, but the reality is not as scary as perception. Also, co-op boards are getting more difficult because they are afraid.

What is the market like now for buying into new condo development?

I am seeing some small incentives here and there, but not a lot. It depends on the developer’s needs to sell the development at a certain pace.

Kenneth Scheff
executive vice president and director of Downtown sales, Stribling & Associates

Since the credit crunch, what is the most surprising aspect of the New York City residential market?

I have not heard from any of my agents of a single instance of someone who already owns a home in Manhattan having a problem with the credit crunch and mortgage fallout that has been affecting the rest of the country. The news of the day about a mortgage meltdown, while real in much of the country, has not affected our market.

How big a factor are changing mortgage rates and tightening lending standards for buyers?

Rates have gone up for certain products at certain banks. Our customers are being directed to the portfolio lenders who have great rates and very reasonable, but stricter, guidelines than were sometimes seen before.

What part of the market is faring best?

We have seen notable strength for large properties above $5 million.

Linda Fenn
senior vice president, Prudential Douglas Elliman

What is the most positive trend in the market?

There is a lot of new development inventory, [but] we are seeing that there is consistent absorption. There is not a glut of new development on the market, which was a concern. Chelsea alone has 20 buildings, though they are smaller buildings.

Are you seeing price reductions? Do you expect to?

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I see price reductions on stale properties, but see properties that buyers think are appropriately priced for the market selling very quickly.

What do you expect to see going forward?

I believe that the first quarter of ’08 will remain strong, and then there may be a softening — though we have been saying this for years now — and we may see a momentary blip and then a strong rebound.

Laura Matiz
executive vice president, Bellmarc Realty

Since the credit crunch, what parts of the market are faring best? What’s faring worst?

The high-end is faring the best; it takes a lot to shake that market. The middle-market is faring the worst — those people are counting every dollar to make a purchase, so the slightest jump in price or interest rate affects their monthly payment big-time.

Are there groups of buyers or sellers who’ve left the market?

I don’t see too many families trying to trade up right now; it’s just gotten too expensive and too tight of a market now. I also see sellers, who know they want to move in the next couple of years and think the market is going to come down, now start to list their property and rent to wait and see.

How about the level of sales activity?

I do think the level of sales has slowed a bit.

Have you seen any notable deals that exemplify the current state of the market?

A three-bedroom, 1,850-square-foot condo on the eighth floor in a new construction building, the Lucida at 86th Street and Third Avenue, went for $3.7 million, [or $2,000 a square foot]. Gotta love that green living!

What do you expect to see going forward?

If rates do go up, prices may come down a little, but then I think there will still be so much demand that if it drops enough, the people that have been on the sidelines would now buy in. Otherwise, we would need something drastic to happen to shake this market. I think it’s going to be normal for a while.

Timothy Melzer
senior vice president, Prudential Douglas Elliman

Since the credit crunch, what parts of the market are faring best? What’s faring worst?

The lower end of the market is faring worst as those buyers generally have less money to put down, and with higher rates, they can borrow less. I remember times when mortgage lenders could almost get your dog financing! I also see that co-ops seem to be not moving as fast as condos are Downtown.

Are you seeing price reductions? Do you expect to?

Even in the strongest markets, we can see many price reductions if something is originally overpriced. You can’t really say that price reductions mean anything. The price per square foot of sold apartments is holding strong. I still do think this is the time of year to buy, because once bonus season hits in the beginning of ’08, the market will do its yearly normal jump in activity and prices.

Jane Bayard
executive vice president, Warburg Realty Partnership

What is the most negative trend in today’s market?

There’s a lot of negative talk. So it’s more important than ever to have a broker help buyers and sellers in understanding the implications of the credit market as it applies to the New York residential market. Both buyers and sellers are asking more questions and requiring more detailed research.

What’s open house attendance like?

I polled the brokers in our offices, and while they are not seeing buyers lined up in the lobby, they are experiencing consistent traffic of eight to 20, sometimes much more. People are not lined up around the block as they were in the spring, but we are seeing a strong response.

Since the credit crunch, what parts of the market are faring best? What’s faring worst?

The higher end is more sensitive to proper pricing. Very aggressively priced apartments going for $10 million and over are languishing. There really isn’t a “worst,” as the market overall is still best described as active.