Property Grunt

Monday, June 05, 2006

The Manhattan Report: What the hell?

As many of you have noticed I have switched gears by focusing on the national perspective of the real estate market. I am a big believer that what happens in one place will probably affect another.

As for Manhattan, at the risk of sounding redundant it is still a buyer’s market with more residents hitting the street it’s going to be for quite awhile. However things that are priced properly are selling. I have encountered at least one listing where there were two back up offers.

Several articles raised some eyebrows across the real estate landscape including the Office of Federal Housing Oversight on the real estate market. At first glance it appears to be a very positive report, however as Jonathan Miller has pointed out there are some inconsistencies.

The PR efforts that go into this report appear overly optimistic in their spin, along the lines of the releases by NAR each month. The premise and emphasis is on the change over the prior year. That does not give the proper impression of the current market to readers. In addition, the appreciation rate is boosted about 2.5% with the addition of refinance data (note: this is not sales data of the subject property used in the repeat sales analysis of the study).

· U.S. home prices were 12.54 percent higher in the first quarter of 2006 than they were one year earlier. Its a 10.04% increase if you exclude refi data.
· Appreciation for the most recent quarter was 2.03 percent, or an annualized rate of 8.12 percent, the lowest rate since the first quarter of 2004. The lowest since 2004? Thats barely more than a year ago - why is this important?

Another article that is making the rounds in brokerage offices is the NYT update on the residential market which in my opinion describes the market as bi polar. There are still interested buyers out there but a significant amount of customers are renting.

So far this quarter, which began on April 1, those most affected by the market are the people who are first-time home buyers or those just barely able to afford to buy. Because of rising mortgage rates, these would-be buyers (the kind who made up a good part of buyers in the real estate frenzy of the past few years) are often now renting instead.
"There's been a tremendous surge in people signing leases," Mr. Miller said. "Landlords, especially in new buildings, are ratcheting up rates and reducing enticements almost as fast."
The upturn in the rental market makes sense, he said, because mortgage rates and rental demand correlate almost directly.

As the I word becomes more prevalent people are starting to get gun shy and not even New York is invulnerable to that.

Unlike other markets, New York has always been somewhat insulated because of the range of buyers it attracts, from foreigners looking for pieds-à-terre to the superrich to artists and dancers with songs in their hearts and little cash in their pockets. Of course, if too many people become so fearful of a slowdown that they stop buying, they could create a self-fulfilling prophecy.
"The biggest unknown is what's going to happen with inflation," said Gregory Heym, the chief economist for Halstead Property and Brown Harris Stevens, adding that when it comes to interest rates, it is not so much the amount that they go up, but what an increase symbolizes. "As they creep toward 7 percent, it has an effect on the psyche of both buyers and sellers," he said.

Now I love hearing this.

While some people do not think the economy is as healthy as others have painted it, Mr. Heym is optimistic that New York's economy will grow, that schools will continue to improve and that the crime rate will further decline.
"There's still such a strong desire for homeownership in this country," he said. "People want to own something tangible that doesn't disappear overnight. Like Enron stock."

If hear another jabronis screaming the party line abut how real estate is a better investment than stock I will f**king scream. Ladies and gentleman, all investment vehicles have their strengths and weaknesses. Real estate, although quite viable, has several obvious weaknesses including its illiquid nature. If something goes wrong with the market, it is very difficult to dump instead of stock. As the 80’s demonstrated, appreciation can also disappear overnight.

Rich people can afford to make these types of purchases. Why? Because they are rich. They have the money to take a hit if they have to. That is one of the reasons why a lot of first time buyers are bowing out because they can’t afford to get their asses kicked in.

If there is one group that is coming ahead in this market it is landlords and investors of residential rental properties. NYT recently tried to find the $1000 apartment and found that they existed but they were far and few betweeen because demand is on high.

"They are out there, but they are good deals so they don't last long," said Mary Guevara, an agent at MQ Realty, which handles rentals in Queens and Manhattan. Two of her recent listings were newly renovated one-bedroom units for $1,100 in Astoria, Queens, both with hardwood floors, and a third at the same price in Sunnyside, Queens. That apartment was a walk-up, but it was just two blocks from the No. 7 train to Midtown.

This reminds of the state of the market two years ago when sales inventory was low and buyers were opting for rentals. I knew of one founder of a rental firm who declared a “rental perfect storm” where rental agents would be making money had over fist because of this new dynamic. Unfortunately, he overlooked one minor detail, those people who decided to rent simply to resigned their leases instead of looking for another place to live. Resulting in a shortage of rental apartments. It was a complete nightmare for rental agents and their clients as they saw prospective apartments literally snatched from them.

Joyce Cohen latest Hunt was about Elizabeth Anne Birch and Brendan McGrath, a lovely couple who learned that the rental market waits for no one.

AS they hunted for a one-bedroom rental in the East Village, Elizabeth Anne Birch and Brendan McGrath felt real estate agents were determined to teach them a lesson: he who hesitates is lost.
"All these guys made me feel so picky about stuff," Ms. Birch said. "I didn't need to be scolded. I got so ingrained in my head to be apologetic" for not leaping at every possibility, she said.

It seems the summer of 2003 is repeating itself.

Is the market on the verge of stabilizing or is this the sign of market prices dropping further? If there isn’t a spike in sales by the end of this summer, then I think that sellers should expect the worst. In fact all the bell weathers indicate rough seas ahead.

The economy has displayed some weakness in the last month, oil prices are as stable as Tara Reid’s movie career and if anyone thinks that Bernanke is done with interest rates, well I want to know what they're smoking. These conditions are going to impact the Manhattan market and not in a positive fashion.

On a personal note I have noticed that my email box has been carpet bombed with open house tours from the upper west side to Tribeca. Usually some brokers are not as open about their listings with other brokers in hopes of getting a direct buyer. However they have changed their tune because it is now co-broke or go broke.

Real estate is subjective. Everyone has different needs and means when it comes to purchasing a home. Especially during these times, buyers should be aware of they can or can’t afford. If the amount of new inventory continues to increase, the winter might be an opportune time for buyers since that is considered the dead time for the residential sales season and sellers are apt to make more concessions.

Those of you who own residential investment properties including condos, take advantage of this period because there are more people seeking rentals in Manhattan and due to the shortage of inventory, they will have no choice but to pay a premium.

I am not saying you should be a scumbag, just charge the appropriate rent and present your property in a positive manner, do your credit reports and you will find the right tenants. But if somone is trying to play deal or no deal, don't feel scared about telling them to f**k off. There are a ton of more clients out there.

Sellers, price your apartments appropriately and be patient with your brokers. They are undergoing one of the most stressful times in their careers. However, let them know that although you are aware of current market conditions, you are expecting them to put in every effort to sell your apartment. Also examine other ways to sell your home including craigslist or creating your own website. If you feel your broker is not with the program, ditch them and find someone else.

May the force be with you.