Property Grunt

Wednesday, October 03, 2007

Wait For It

I just got this report on foreclosures from Propertyshark courtesy of Kelly Kreth. Although it is nowhere near LA levels, things are getting rough for New York City.

New York City (five boroughs):
· New Foreclosure Auctions: New York City saw an 8.55% quarterly increase in new residential foreclosures in the third quarter of 2007 (698 foreclosures) compared to the second quarter of 2007 (643 foreclosures), and a 64.24% jump over the third quarter of 2006.
· Foreclosures by Borough: Staten Island had the largest percentage increase in foreclosures (64.81%) compared to the prior quarter, but Queens and Brooklyn again comprised the highest number of new foreclosure auctions in New York City. The number of Manhattan foreclosures remained very low.

Once again Staten Islanders are still trying to figure out what an ARM is and how it operates. But there appears to be a mortgage learning curve in the other boroughs. Of course Manhattan is holdings its own. For now.

Curbed has begin coverage on the credit crunch and in their latest entry they discuss the luxury loft letter report. It’s not pretty.

We've been waiting on October's Luxury Letter—the monthly high-end market update prepared by Leonard Steinberg, Hervé Senequier and their team at Elliman—because while all those positive numbers for Quarter 3 were encouraging in light of all the mortgage/credit problems, they were inflated by deals that were agreed on in Q2, but not closed until Q3. Now we have some August and September sales intel, and it's an ugly sight.
The Elliman gang divides transactions into five categories of "luxury," from $1-$2 million smaller apartments up to big, single-family townhouses. When you total up the numbers for August, you get 371 sales. In September, that number is just 113, a sharp 70% drop. The $1-$2 million "Min/Luxe" sales dropped to 59 in September from 218 in August, and the $2-$4 million "Mid/Luxe" sales went from 115 to 34. Shocking stuff, and Leonard Steinberg isn't trying to spin it any other way:
Yes, the 3rd quarter was a strong one, but September was simply bad. And yes, overall if the entire year were calculated to-day, it has been a very strong 2007. We have always stressed that the most accurate assessment of the real estate market lies in signed contracts....many closings that are registering now went to contract months and years ago! We predicted this would happen.
Usually it's the summer sales season that's slow when compared to the fall, but it looks like the luxury market has yet to get off the ground this season. Or maybe everyone who wants an apartment already bought one. Um, yeah.

September is the kick off month of the sales season and sets tone for the coming months. So if this is what we are facing now, I am quite skeptical of any type of improvement in the near future.

And it gets better since it appears the commercial market is also starting to gas out.

Between July and September, leasing activity was down 28% for high-end office space compared with a year earlier, according to a quarterly report by Cushman & Wakefield. The numbers suggest companies are expanding and changing locations with less frequency, approaching large deals with a newfound sense of caution, brokers said.
Still, office rents climbed to record highs, hitting an average of $75 a square foot for high-end space, while vacancy rates dropped to 5.4%, the lowest point in several years. The soaring rents — which climbed past $150 a square foot in some deals — represent a dramatic jump from a year ago, when the Manhattan rents averaged about $54 a square foot.
"To a large degree, people are holding their breath," a vice president at the commercial brokerage firm Studley, Steven Coutts, said of the impact from the credit crunch. "Ultimately it's inevitable that it's going to have an impact on some New York firms to a certain degree, so it's a question of how much."

There is a growing Greek Chorus that is telling everyone to dive in now if you want to find the deals. My take is that this is not the time to jump in. This is the time to wait. Yeah, you heard me. I would wait. I would do research, I would visit properties, I would go to open houses and unless I was in dire need to buy or found the perfect deal, I would sit on the sidelines.

The first rule of real estate is not to overpay. That usually only happen when prices drop. Now that it is becoming more expensive to borrow money, sellers having to make compromises on their prices in order for buyers to justify the cost of borrowing. And sellers will only make those concessions once a significant period of time has passed and their properties have not moved.

So if you have the luxury to sit it out, I say go for it. You might find a better deal down the line.