What a difference a summer can make. At the end of June, at the close of the second quarter, the market for luxury homes was booming. The median home value in the top 10 percent of the Manhattan market — deals above $2.75 million — was $3.73 million, according to the Corcoran Group’s quarterly report. That was an 8 percent jump over the year-ago quarter, when the median luxury price was $3.44 million.
Then suddenly, danger! Fears about high foreclosure rates causing mortgage lenders to go bankrupt, coupled with worries that banks’ stinginess with credit would freeze takeover deals, sent the stock market into a tailspin.
Jitters from the financial district are being felt throughout the top-drawer Manhattan property market. Real estate veterans say there’s a strong link between their fortunes and those of the hedge fund and private equity managers who make up a sizable portion of their customer base. This year, Wall Street bonuses are expected to shrink, dimming prospects for a vigorous first-quarter sales spike.
It’s understandable, then, some brokers are nervous that New York’s top-of-the-line properties won’t change hands with the same ease as in recent years.
Dolly Lenz, the vice chairman of Prudential Douglas Elliman, for example, has already seen a drop-off in the number of buyers interested in homes priced $15 million and up, which she ascribes to the credit crunch.
“People are taking their time setting up appointments to look at a place; then, after they see it, they don’t call me back as quickly,” Lenz said. “They’re not afraid of losing the properties.”
Conversely, there’s been a rush on properties priced under $5 million from similar types of buyers. She says that traffic is up at open houses from the Upper East Side to Tribeca, as bankers realize that they may not be getting big bonus checks this year, or perhaps even hanging on to their jobs, and they’ve readjusted accordingly.
Also, lining up financing at favorable terms may be more difficult. Buyers may have to pony up more cash and borrow less, but at higher rates.
“After they see three apartments, they will call me immediately and say, ‘What are the next steps?'” Lenz said. “They seem to be seeing a deadline that may not exist.”
But within the subcategories of pricey Manhattan properties, brokers say the negative effects won’t be felt uniformly. Lenz says youth-marketed new condos like the William Beaver House, which early on targeted young Financial District workers, will actually do all right, since their price points can appeal to various kinds of entry-level buyers.
Co-ops, especially those located in venerable prewar Uptown buildings, meanwhile, don’t usually expose themselves to the risk of foreclosures to the same degree as condominiums. Down payments of 20 percent or more are standard for most co-ops.
Still, co-ops are taking a stricter stance toward the applications from financial services workers, according to Fritzi Kallop, a managing director and senior vice president of Brown Harris Stevens.
She said demand, however, seems consistent with any other late-summer period, which means slow. And in the last few weeks, no buyers so far have tried to back out of a deal and take back their down payments. “But this is August, so perhaps it’s coming,” she said.
If there’s any slowdown in sales, it’s purely seasonal, say developers like Rex Hakimian, a vice president of the New York-based Hakimian Organization, which is developing 75 Wall Street. The combination hotel and condo will feature 251 hotel rooms and above them 349 condo units, whose closings are set to begin in the second quarter of 2008.
Twenty percent of his units were sold in mid-June, and “we’re well north of that now,” Hakimian said, though he declined to provide an updated number.
“I have had one buyer come in and say, ‘What happens if I can’t get a mortgage?’, but that’s it,” he said.
Although banks will tighten their lending standards, it shouldn’t affect his buyers, who tend to be high-net-worth individuals, he said.
Plus, “if you have strong product in a great location, you won’t have a problem,” Hakimian said.
Many will refrain from crystal ball predictions until they see what happens this winter, when bankers traditionally receive their year-end bonuses.
If those checks are based on performance for the first six months of 2007, when the market was roaring and setting new highs, Wall Street should be fine, said Lawrence White, an economics professor at New York University’s Stern School of Business. He’s studied both the brokerage industry and secondary mortgage markets.
Also, historical perspective may help get past the fear that seems to be permeating parts of the market, according to White. In the beginning of August, the Dow Jones dropped 7 percent, “but we saw a 20 percent drop in a single day in the crash of 1987,” he said. “Seven percent over three weeks is not a lot of fun, but still.”