Property Grunt

Sunday, April 03, 2005

Bubble, Bubble, boy are we in trouble.

There has been massive media coverage about the real estate bubble. All one needs to do is look at and Inman news and see the laundry list of articles preaching us to repent for our sins in refinancing, buying and selling. And if you have seen my recent entries I touch upon the subject of the coming of the storm.

Do I believe the bubble is going to pop? Yes and it’s been a long time coming. All of the factors are coming into play, high oil prices; the election is over, a weak dollar and Greenspan hiking up the rates.

How will it play out for all of us? This is my take.

The buyers will dry up for obvious reasons. Low interest rates were an incentive to bend over for obscenely high prices in the Manhattan market. Without those incentives there is no reason for buyers to engage in the Battan death march of open houses every Sunday. The low inventory was already a barrier entry for foreign buyers but the weak dollar lured them across the Atlantic like Michael Jackson to a cub scout meeting. But once the dollar becomes stronger the foreign buyers will be fleeing Manhattan like an acquitted Robert Blake. God, I love metaphors based on current events.

There is the argument that it will turn into a buyers market because a significant portion of the apartments that have been bought were second homes therefore unessential and costly making selling a more viable option.

But the Grunt thinks this argument is moot. Manhattan buyers are not stupid. From the Grunt’s perspective the buyers are with great means with vast financial resources. Even in a down market it wouldn’t make sense for these new owners to put their property back on the market if they are going to lose money on the sale especially if they fought tooth and nail to find it. Instead they will pull their properties off the market and wait for a comeback.

Even in this seller’s market some sellers have begun to change their minds because what is out there is overpriced and does not fit their tastes. They would be better off just to wait.

Maybe they will be stuck with the mortgage payments and other costs. But if they were smart, and anyone who buys in Manhattan usually is, they probably did the numbers and figured out how to make it work so they can hold on to their properties without taking too much of a hit.

The casualties of this cannonade will be the brokers. Already we face a drought of inventory in the real estate market and the bubble bursting will simply exacerbate the situation. It’s hard for brokers to make a living when there is nothing to sell or buy.

Please understand that I have no empirical evidence to back this up. It’s a theory based on my own personal experiences and intuition. I could be completely wrong. Or I could be on the money. Bottom line, let’s be careful out there.

Btw, Eyewitness Up Close is on at 10:30 regarding the West Side Stadium