Warburg Blog

Now is the time to support each other and our local businesses

To the Editor:

Recently, in an effort to better assist my agents in our current market, I decided to implement a “word of the week” at our office sales meetings. I started with the word “fear.”

I wanted to know what my agents were feeling. Instead of being fearful, as I thought they might be, they described themselves as being somewhat contemplative, but often in the position of consoling and comforting some of their clients who were fearful.

Comfort often comes simply from knowing we are not alone. Now, more than ever, it is a time to unite, be compassionate, lend a helping hand, give some advice. This is important not only for us as brokers, but as people in the community we work and live in.

We are all personally changed by our current conditions. Let us hope and have faith that this change will inevitably be for the better. We are all affected; we are all in this together.

http://www.tribecatrib.com/pages/letters.htm 

Since January 2, as temperatures have plummeted in the metropolitan area, more New Yorkers have piled on their outerwear and attended week-end Open Houses.  The market, which has been functioning at quarter speed since mid-September, is thawing slightly, even amidst the doom and gloom of the current economic picture. Not only have more prospective purchasers been attending open Houses, some are even making offers!

Now I am not suggesting the market is booming. But many of Warburg’s exclusives have received offers in the past two weeks, and not such bad offers either. Of course, the meaning of “not so bad” has changed completely in the last year. “Not so bad” no longer means the buyer is offering the asking price. These days it means that the offer is coming in within 20% to 25% of the asking price, which already has to reflect the seller’s adaptation to the new realities if it is to generate any offers at all. And then the negotiating begins.

Another interesting fact: throughout the fall, the offers being received and deals being made were almost exclusively for units worth $1,500,000 or less. Now there seems to be interest in family apartments again. The larger two bedroom and three bedroom units are getting Open House attention and offers. These buyers seem to be taking the first steps towards appreciating that if you are buying for so much less than you would have paid a year ago, maybe that’s enough. You never know where the bottom is, they seem to be thinking, but this doesn’t look so bad.

By Frederick Peters, President, Warburg Realty

The second half of 2008 saw the quickest, deepest changes in New York’s residential real estate market which I have experienced in my career.   In the weeks following Labor Day, and accelerating exponentially after the bankruptcy filing of Lehmann Brothers on September 15th, credit markets froze, real estate transactions all but ceased, and prices began to fall. By the end of the year, buffeted again and again by stock market plunges, the Dreier Scandal, and the fraud perpetrated by Bernard Madoff, New York’s luxury marketplace had experienced dizzying drops of between 15% and 30% in value.

The conventional wisdom about New York City has been that the top end of the market would always remain strong. One of the most interesting phenomena of the past six months has been the profound weakness appearing in this sector. Very few properties for over $10,000,000 have sold since September, and those that have were substantially discounted. The deals which are being done (and there ARE still numerous deals being done) are mostly priced under $2,000,000. There are several reasons for this: the leverage between buying and renting still tips in favor of buying, especially at reduced prices; there is ample inventory now; buyers who were priced out in the past are returning to the market; and perhaps most of all, the buyer of the one or two bedroom apartment is usually non-discretionary. This buyer NEEDS a place to live. Conversely, the buyer of the larger apartment is already ensconced in at least some comfort somewhere else; and it is more likely to be a discretionary purchase which can be postponed for six months or a year.

Warren Buffett has famously said that he buys when people are fearful and is fearful when people are buying. Today the market offers unique opportunities to courageous buyers. At Warburg we are seeing an increasing number of buyers re-enter the market as they perceive opportunities to purchase the property they had hoped for, at a price more affordable than it has been since 2004 or early 2005. These buyers are cautious and they make low offers (in fact, one of the hallmarks of today’s marketplace is the willingness of buyers to make offers 20% to 25% below the asking price and the willingness of sellers to counter those offers). But at the right price they will buy, and we are seeing more of those deals being struck at all price levels.

As we move into 2009, I predict that some time in the first two quarters, real estate will find a bottom. I do not believe that real estate will go down as far as the stock market, and those buyers waiting for that to happen will simply miss their opportunity. No-one ever sees the bottom except in retrospect, so trying to time the market is always a mistake. Excellent values will arise over the next three to six months, and savvy buyers will be poised to take advantage of them. I foresee a stabilized and gradually re-invigorated market towards the end of 2009. That said, double digit year-over-year appreciation is gone from this market for now.

New York real estate, even in the current environment, is still an outperforming asset for users with an occupancy window of at least five years. It is less volatile than stock (albeit less liquid) and provides the additional dividends of use and enjoyment.  In this complex environment, the services of an experienced agent can be your biggest asset. Your agent can help you recognize value and strategize about the most effective way to realize it. In the business we refer to transitional markets like this one as “brokers’ markets”; today more than ever our skills are instrumental in bringing the disparate ideas of buyers and sellers together. We at Warburg look forward to working with you during this unprecedented, unsettling, exciting time.