Accepting the ‘lunatics’

While lenders stay strict, buyers have come to expect complications

It should come as no surprise that resale brokers are reporting an uptick in activity after a slow summer. But in this month’s issue, The Real Deal also reports on an uptick in sales in the new condo market, which has been notoriously sluggish for the last two years.

How can this be, in today’s still-difficult lending environment?

One answer, experts say, is that buyers are exhibiting a drastic shift in attitudes toward getting a mortgage. While lenders still require larger down payments and reams of paperwork, buyers, it seems, have come to expect lending complications and are no longer being scared away.

“Buyers are not as worried about getting financing,” said Rich Bouchner, the owner of Bouchner & Co. Real Estate, and as a result, “people are buying instead of looking.”

Meanwhile, the industry has also changed its tune: Lawyers, sponsors and brokers have stopped resisting the new, stringent lending standards.

“It appears the industry en masse has grown accustomed to the inconsistent lending environment,” said Luigi Rosabianca, the principal attorney of real estate law firm Rosabianca & Associates. “Last year, we were all a bit resistant to what appeared as unreasonable lending underwriting requirements. This year, we are all aware the lunatics have taken over the asylum; thus, we merely acquiesce to their terms for the sake of the client’s prospective loan.”

Not only have real estate professionals accepted the new environment, but they’ve had time to hone the skills now required to get deals done.

While larger down payments are a necessity and deals take longer, “we’re not having any problem with people getting mortgages,” said Stephen Kliegerman, executive director of Halstead Property Development Marketing. Such a statement would have been unthinkable only a few months ago.

Of course, lending has been gradually loosening for a while now amid still-tight standards, but it appears that the word has finally gotten out and attitudes have changed.

And buyers have a major incentive to put up with the tedious mortgage process: lower prices and continued low interest rates, the importance of which cannot be overstated in the current climate, experts say.

Quite simply, “Low mortgage rates are getting buyers off the sidelines,” said Bouchner.

Late last month, 30-year, fixed-rate mortgage interest rates averaged around 4 percent, and 15-year, fixed-rate mortgage rates averaged 3.82 percent, matching a record low set in August, according to Freddie Mac.

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These low rates are helping “bridge the gap between selling price and reasonable offers,” said Pauline Evans, a senior vice president and associate broker at Sotheby’s International Realty.

Perhaps in light of these changes, the New York market appears to be continuing its slow recovery, despite continued mixed messages about unemployment and the broader economy.

A slow summer has been followed by an expected spike in contracts being signed in early fall, experts say.

“After Labor Day, there was a nice uptick in activity,” said Noah Rosenblatt, founder of the property consulting and analytics company UrbanDigs.

Evans agreed. “Business exploded after Labor Day,” she said. “Our team, in the space of one week, received multiple offers on two properties that had been on the market for five months.”

Mark Griffith, a senior associate salesperson at Citi Habitats, said: “My customers [who] took the summer off now seem to be back in the hunt.”

Apartments are now selling faster and closer to their full asking price, according to Michael Christopher Graves, a sales associate at the brokerage Core. He said last month he closed on an apartment for $5.85 million, up from its last sale at $5.02 million in April 2008.

Rosenblatt estimated that Manhattan prices have increased between 5 to 10 percent in the third quarter of this year compared to the third quarter of 2009, when the downturn was in full force. (Market reports came out just after press time.)

Jonathan Miller, the president and CEO of appraisal firm Miller Samuel, agreed that activity is up from this time last year, but noted that any price increases are more of a reflection of the trends towards larger apartment sales than true price appreciation.

But, he said, the slower sales activity over the summer likely won’t appear until the fourth-quarter market reports. “I think fourth quarter is where we’re going to see a little weakness,” Miller said.

In one somewhat dispiriting development (well, at least in the insular world of real estate), celebrity twins Mary-Kate and Ashley Olsen closed on the sale of their One Morton Square penthouse last month for $7.7 million. The apartment first went on the market in 2007 at $11.995 million. The sale price was just $300,000 more than they paid for the apartment in 2004. And while there’s no reason to feel too sorry for the fabulously wealthy Olsen twins, it is a reminder of how much things have changed since the mid-2000s.

For now, “the market is in somewhat of an equilibrium,” Rosenblatt said. “I think we’re going to go sideways for a while until the macro economy starts to show a breakout, on the upside or the downside.”