It’s a tough time for buyers and sellers. With financial news headlines about Wall Street’s meltdown ratcheting up the fear factor, both sides are cautious about plunging into the real estate market.
As a result of the turmoil, those who work at financial firms are backing out of deals because they are unsure of their job security. Meanwhile, sellers are seeing their units sit on the market longer and are pulling them off. Other buyers who want deals are holding out, thinking prices will come down further. And buyers who are willing to pull the trigger now face greater financial hurdles getting mortgages.
Many brokers said the worst is yet to come and do not expect the housing market to bounce back so fast. A number of brokers said they are not hopeful of a turnaround until third-quarter 2009.
“I think things will get worse before they get better,” said Barak Dunayer, president of Barak Realty. “Buying power is diminished because of rising unemployment, more restrictive borrowing guidelines and less bonus money. Wall Street is driven by irrational fear right now, which may take until the November elections to calm down and stabilize.”
Darren Sukenik, an executive vice president at Prudential Douglas Elliman, said he was recently working with a Citibank employee who wanted to buy a three-bedroom condo in Tribeca. Sukenik said the typical financing for this home would have been between 70 and 80 percent before the credit crisis, but his client’s bank only offered 45 percent financing, so the client was unable to buy the apartment.
As sales slow, one would expect inventory to grow.
“The recent troubles in the financial markets will further expand the sales inventory,” said Cindy Gise, a vice president at Prudential Douglas Elliman. “We may see as much as 20 percent additional inventory flood the Manhattan condo and townhouse market over the next six months.”
So far, that hasn’t happened yet, according to data from appraisal company Miller Samuel, which shows that inventory is actually shrinking in the city. Inventory of condos, co-ops and townhouses decreased between June and August. There were 6,423 total units on the market in August, including condos, co-ops and townhouses, down 5.5 percent from 6,796 in July. Between July and August, co-op inventory fell 7.5 percent to 2,819 from 3,046; condo inventory decreased 3.4 percent to 3,275 from 3,391; and townhouse inventory fell 8.4 percent, to 329 from 359.
As inventory decreased between July and August, so did sales. StreetEasy listed 1,131 Manhattan sales in August, down from 1,654 in July. The decreasing number of units on the market and slowing sales are a sign that sellers have been taking homes off the market. However, more recent data from September, received at press time, showed the inventory situation may be shifting.
Regardless, there are always buyers and sellers willing to take the plunge because they have to.
“The buyers/sellers who are in the market now are here because of the basics: birth, death, divorce and relocation,” said Max Dobens, a vice president with Prudential Douglas Elliman and a member of the Jacky Teplitzky team. “The other recreational buyers are waiting to see what happens.”
Rents in Manhattan fell slightly between July and August, according to Citi Habitats. The rental vacancy rose from 1.29 to 1.39 percent.
Landlords are offering more concessions, as fears mount that Wall Street renters won’t be able to take new leases or renew their existing ones — or may even have to bail out on their current leases.
Rental concessions include free rent and owner-paid commissions. Landlords would prefer to offer concessions than lower rents so they can “maintain the high rents [they’ve] been getting for the past year and a half,” said Douglas Wagner, president of Benjamin James Real Estate.
Uncertain times for the market
Buyers, sellers, lenders and brokers are all nervous or hesitant about the current market. Here is a sampling of what a number of brokers had to say about market conditions in response to The Real Deal’s monthly Manhattan residential survey:
Anne Buckley, salesperson at Fillmore Real Estate: First-time home buyers are more hesitant. Sellers who bought high, but who want to sell, hesitate to put their home on the market thinking that the market will return to that of a few years ago.
Douglas Wagner, president of Benjamin James Real Estate: The condo market priced under $1.5 million is active. In the rental market, apartments priced under $4,000 are moving. The weakest part of the rental market involves landlord pricing not yet adjusting to consumer confidence levels.
Barbara Fox, president of Fox Residential Group: Brokers are generally nervous about economic conditions and how they will be affected. There are a lot of brokers who aren’t busy now. These are the times that separate the successful and seasoned brokers from the pack.
Jon Varnedoe, associate broker at Prudential Douglas Elliman: Many lenders in new development now want to see that common spaces are completed before they will sign off on a loan. There are not many lenders for co-ops under 600 square feet. Knowing who is lending means knowing if the pre-approval letter you are holding means anything.
Michael Signet, director of sales at Bond New York Properties: Buyers want a deal, as always, and sellers want the prices they could have gotten eight months ago, although, we have seen more sellers lowering their prices than we have in recent history.
Cindy Gise, vice president at Prudential Douglas Elliman: Another considerable compounding factor is going to be the lack of bonuses on Wall Street which may lead to less transactions and a further increase of inventory. The biggest opportunities will be in the “distressed debt” arena.
Jed Garfield, managing partner at Leslie J. Garfield & Co.: Buyers of townhouse properties are more hesitant due to the fact that until you are in the market north of $20 million, most individuals are putting some type of note on the property and the banks for these loans are much slower in making commitments.