Warburg Realty Market Review
It has been a unique and eventful first quarter in the New York City real estate market. We began January with the market completely in the doldrums, as the stand off between buyers and sellers which characterized the last quarter of 2008 continued. Buyers were mostly waiting and watching from the sidelines, while sellers had yet to accept that the prices of 2007 were simply no longer attainable. The only deals being made were for studio, one, and small two bedroom apartments, where demand remained slow but consistent.
January was a slow month. While a few marquee deals were done in the upper end of the market, the market required capitulation. And little by little the capitulation began. Sellers began reducing prices. Buyers were still not forthcoming, but a handful began looking again. Hope re-entered the national vocabulary with the Presidential inauguration, and while deal volume was still at between 50% and 60% of what it had been a year before, there was a sense that the market was stirring.
With February, deals began to be made more briskly. While many buyers were still waiting on the sidelines, convinced that the market would bottom later in the year, an increasing number subscribed to the belief that the market was down “enough”: enough to make it possible for them to afford the property they had hoped for but given up hope of owning, enough to make them comfortable not searching for a bottom they knew would be visible only in retrospect.
These buyers purchased from sellers who had also had “enough”: enough months on the market, enough waiting for the elusive buyer who would pay 2007 prices for their properties. These sellers realized that in this environment no buyer is careless with money. Every buyer is offering 20%, even 30% below the asking price and sellers need to respond. Those sellers who accepted the new reality – that New York, a seller’s market for so many years, had become a buyer’s market – made deals.
The top of the market remained slow in February. Most buyers in the $10,000,000 and up range do not have to buy. They can usually stay where they are, at least for a while. And so they did, indicating a willingness to wait out the prices they saw as excessive. In February, the mid-sized apartments, five to seven rooms, began trading again after months of inactivity. The buyer for those units bid low, and sometimes stayed with his first bid, either responding slightly or not at all to the seller’s counter. And some of those buyers got those apartments for 15% or 20% below the asking, at prices not seen since 2003 or 2004.
Warburg saw February 2009 deal volume at 90% of February 2008. Then, in the first week of March, the stock market plunged again. Buyers rushed back to the sidelines, and deals struck in late February were re-negotiated down before the buyers would sign. With no sense of urgency, buyers sat on contracts for weeks without signing, waiting to see what would happen next.
As the market rose in the second half of March, so did buyer activity. The February national real estate numbers came in unexpectedly strong. At all levels of the market, prices are being reduced and sellers acknowledge the reality that everything is highly negotiable. In response, buyers are making offers. And they are making deals. The process is arduous. Financing remains difficult to come by. It is a two steps forward, one step back environment, but now, after months of paralysis and months of confusion in the wake of the Lehman collapse, at least the market is moving forward.