WELCOMING A STABLE SPRING
The following Manhattan Market Watch column will appear in the April issue of Mann Report Residential.
March 5, 2012. What’s a buyer and seller to think when on March 1 we read on wsj.com about a “weakness in sales” and a deepening real estate slowdown during the first two months of this year, and then on March 2nd urbandigs.com highlights the highest deal volume since 2008 in February? Shut the front door, we say, as we proclaim that February was an especially strong month. We expect the first quarter of 2012 to finish on an uptick, signaling continued stability as we enter the spring market.
Josh Barbarnel’s reporting for the Wall Street Journal is based on closed sales filed with the city’s Department of Finance. Although these postings capture actual closing prices, they lack immediacy and less relevance in terms of timing, because not only do they lag behind actual closing dates as they are filed late, their numbers represent deals that were made at least 2 if not 3-4 months earlier, since it takes about 2 months after contract signing to secure financing and even longer to gain board approval in the case of co-ops. On the other hand, Urban Digs’ Noah Rosenblatt compiles statistics in real time for signed contracts which REBNY broker firms are required to submit within 24 hours. In February, Rosenblatt counted 871 new deals that went to contract in Manhattan. As a reflection of actual activity, Rosenblatt’s analysis is a more reliable indicator of the market pulse.
There are reasons to be optimistic. Last month, the financial sectors achieved significant milestones: the Dow closed above 13,000 on February 28 following 5 consecutive months of gains; on the same day, the S&P settled over 1,370; and on February 29th, NASDAQ reached 3000.
Bonus money may be down, but encouraging market indicators abound. Investment real estate sales recovered in 2011 with commercial property sales approximating $25.8 billion—a whopping 88% more than 2010. Unemployment is down to 8.3% in January from 9.1% last July, declining at a more rapid pace than expected. Consumer spending is up, and consumer confidence was at its highest in a year in February, according to the Conference Board. Car sales have improved by 16% to a pre recession peak in spite of rising gas prices, because of pent up demand. Likewise, retail spending is strong, attributable in large part to a warm winter—a factor which also led to lower heating oil needs. Homebuilder confidence was at its highest level in February since May 2007, according to the National Association of Home Builders/Wells Fargo sentiment gauge.
Sustained stability, balanced activity
In some parts of the city, we’ve seen a return to the pre-recession trend of buying from plans. At the Toll Brothers 15-story condo designed by Lagrange at the corner of East 65th and Lexington, 17 of the 22 units have reportedly sold, though the building won’t be ready for occupancy until next winter at the earliest. Extell’s One57, the 90 story tower being built at 57th between 6th and 7th Avenues, is attracting foreign buyers to the tune of $4000/sf for one bedroom apartments and over $6000/sf for 3 bedrooms. Recently the building’s duplex penthouse price was raised to nearly $100 million after 15 CPW’s penthouse realized $88 million in a resale. At 323 Park Avenue South, which is a hole in the ground at the moment at 24th Street, Tessler Development has opened an office to presell 18 units in a 10 story condo designed by Gwathmey Siegel.
Despite the upbeat news, however, it’s foolhardy to think that we might return to the heady days of a rapidly rising boom market. It’s important to keep any euphoria in check and acknowledge that the business of doing real estate in Manhattan has become increasingly complex. Securing financing is exceedingly complicated as Dodd-Frank reforms have created major impediments to lending in New York’s co-ops and condos. Although credit availability has improved, banks and mortgage brokers continue to adjust to new regulations. On top of that, it’s been a brutal year for co-op board difficulties. Turndowns and conditional approvals are on the rise as boards tighten their scrutiny or ask for huge escrow deposits.
While the problems of the European debt crisis remain, at present they are balanced by a steady upturn for the U.S. economy. In his semi annual report to Congress on February 29th, Fed Chief Ben Bernanke described a slow and “uneven” recovery and predicted “modest” growth for 2012. On the same day, the housing market was also characterized as “improved somewhat in most districts.”
In New York, the market is best depicted as stable and busy. With quality inventory still tight, buyer demand strong, and interest rates still at historic lows, there is every reason to believe that prices will stay steady or gain small increments over the next 24 months. Cautious optimism remains the hallmark for today’s sellers who are advised to use discipline to set appropriate prices to generate action and stimulate bidding, and not misinterpret confidence as a reason to set unachievable levels. More and more purchasers are stepping up to buy often to compete in multiple bidding for well priced desirable properties. A robust rental market is sending renters out to explore purchasing options. As the ducks line up on both sides of the trade, a more balanced and vibrant market has emerged with brokers working harder than ever to guide buyers and sellers to the closing table.