END OF YEAR MUSINGS

Following are excerpts from my “Manhattan Market Watch” to appear in the December issue of Mann Report Residential.  You’ll find the column in its entirety at  http://www.warburgrealty.com/about/press/353.

From “Manhattan Market Watch” for December 2008 Mann Report Residential

Year End Musings

By Shirley Hackel, Senior Managing Director, Warburg Realty Partnership

The world is not coming to an end, and we are not headed to the final Armageddon, but the mood going into 2009 is sober. . . .  If excess, greed and folly brought us to this place, then moderation, reason and old fashioned common sense will guide us into the New Year. . . .

For the moment . . . consumers will tighten their belts, halt leveraging to the max, stop using mortgage and equity lines of credit like ATM machines, and live within their means.  It’s been a tough year of painful declines in stocks, jobs, retirement portfolios and home values. . . .

Nonetheless, Manhattan real estate continues to fare better than the rest of the nation.  Thankfully, foreclosures are few in Manhattan, though they are on the rise in the other boroughs.  The predominance of co-ops in our marketplace with their restrictive financing limits turns out to be a built-in protective blessing. . . .

. . . there’s real worry concerning Manhattan’s new condo projects that have yet to finish construction, where buyers went to contract as many as two years ago.  Lenders today are taking another, more stringent look at these new developments, and they are scrutinizing the merits of both the projects and the borrowers before making loan commitments. 

During the record breaking years of 2006 and 2007, rapidly escalating prices were fueled largely by spectacular though false Wall Street profits, by remarkable though obscene bonus awards, and by easy though risky credit.  As it turns out, the overheated, runaway market of our recent past sat on a precarious foundation.  Today’s market is correcting itself, not crashing. 

The stats of 2008’s fourth quarter will not dazzle.  Volume is down, but sales are not eroding.  However, we are seeing some new buyer and seller behaviors.  Sidelined purchasers are keeping watchful eyes on prices, but so far bargain basement deals are few and far between.  Those who had been priced out of the market before are wondering whether new entry points will appear.  We’ve seen a fair amount of buyers walk away from 10% deposits, and others who have successfully renegotiated with sellers up to 10% off deals already in contract. . . . Some sellers are offering to provide financing; others are considering rental options, offering to apply rental expenses to a future purchase.  A handful of Internet companies have sprung up trumpeting to “sell and rent back your house.”  Attorneys for buyers are beginning to insist on contractual financing contingencies—which for years have been crossed out of standard contracts–and a couple have added a clause to insure that the lender brings the committed funds to the closing table.

For real estate, it’s important to take a long term view.  Unlike stocks, bricks and mortar don’t lend themselves to panic selling, and most sellers are not motivated by fear to take action. . . .

I’d love to hear your thoughts.  Click below to comment. 

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