August 1st 2011
Mann Report Residential
This spring, as the real estate market rebooted, there were signs of recovery and stability everywhere in Manhattan. A little over three and a half years after the worst financial tailspin in recent memory, activity and sales were robust again. As buyers and sellers grew more in sync, the spread between asking and closing prices narrowed, and the numbers of signed contracts and closings increased. Confidence was up in Manhattan during the second quarter of 2011.
When the year began, the pace of trading started tentatively picking up steam towards the end of February. By March, April and May, competitive bidding had surfaced again, and some deals were being made as much as 5% over ask. For much of spring 2011, brokers were humming in rhythm with buyers and sellers as renewed optimism spread.
For the most part, Manhattan is a need driven market, and sales are accomplished when buyers make quality of life choices. This spring, prices were driven up for properties over $2 million primarily because of limited supplies and pent up demand. High end sales were particularly strong with 28 recorded closings over $10 million between April and June. Previously the highest number of recorded sales over $10 million was 38 in the second quarter of 2008.
It’s instructive to review the stats offered by Noah Rosenblatt at UrbanDigs.com in an analysis of the numbers of pending sales (signed contracts) according to submarkets by price. Using real time statistics, his figures not only confirm that activity in the second quarter was significantly higher than in the first quarter, but that the market tilted up favoring sales of higher priced properties and percentage increases rose proportionately with price:
• Pending Sales <$1M market— +8.9%
• Pending Sales $1M-$2M market— +15.1%
• Pending Sales $2M-$5M market— +27.8%
• Pending Sales $5M+ market— +50%
This year the rental market has also shown significant strength with the lowest vacancy rate in years. Rents are up, and landlords are no longer offering incentives to tenants with free month concessions, perks or give-aways. More renters are considering purchasing options since the edge today is to buy and not to lease. For the high end tenant, fifteen thousand dollar and up properties are proliferating, and the pool of tenants is widening to include high income earners who want to hold onto their liquid assets. Condition and amenities are driving this particular segment of the market.
At the same time, foreign buyers have returned in increasing numbers to New York. Seeking residential as well as commercial properties for their mostly all cash investments, foreign nationals continue to view Manhattan as a relative safe haven and the US as a stable government with a recovering economy when compared to their own.
On the other hand…
The pace of deal making in June decelerated from April and May—perhaps more the result of European economic instability and the caution it engenders than because of a seasonal summer slowdown. As of this writing, Greece is averting default, as European finance ministers prepare a complicated $17.4 billion first installment bailout.
Challenges in the US economy remain despite the rebound in manufacturing and the seesaw stock market where the Dow closed at 12,582.77 on the first of July at a two year high. With unemployment hovering at 9%, however, reports continue to describe limited job growth and more expected layoffs. Many financial institutions are again announcing broad cutbacks in staffing amid worries about how banking regulations will affect earnings and profits. The widespread industry job cuts, not seen since early 2009, will streamline bottom line operations. Anticipated pink slips before the end of this year have already been announced by Goldman Sachs (230), HSBC (700), Morgan Stanley (300), and Credit Suisse (600).
Uncertainty can cause volatility, but it can also uncover opportunity. Credit has eased, and banks and other financial institutions are lending again. Interest rates remain historically low and may go even lower before 2012. While it’s still taking longer to vet borrower applications, the good news is that loans have become obtainable again. In the next several months, there will be a flurry of sales activity in properties priced under $1.5 Million as principals rush to close before October when new limits for Fannie Mae and Freddy Mac government backed lending will fall from $725,750 to $625,500 in New York.
Overconfidence is certainly not to be encouraged—it’s what got us into trouble in the first place. However, there are solid reasons to stay positive moving forward. We’re in a stable period—sellers who are wise are not overpricing, buyers who are prudent are not overleveraging, and brokers who are astute are making deals happen. Happy summer!