Gregory J. Heym
Executive Vice President, Chief Economist
By STEPHANIE ROSENBLOOM
THE smoke may have cleared from the last of the Memorial Day barbecues, but two months into the second quarter, many New Yorkers are still hazy about the state of the local real estate market.
Real estate professionals say that many people have the money and desire to buy, but they are waiting on the sidelines, feeling skittish about the economy and confused by housing reports that take the temperature of the nation rather than of individual markets.
Some concerns may be well-founded. Inventory — the number of properties on the market — in Manhattan is up 67 percent for May 2006 over May 2005, according to Jonathan J. Miller, president of the Miller Samuel appraisal firm. Co-op inventory is up 53 percent and condominium inventory is up 87 percent, he said, adding that the condo figure is mainly attributable to new development.
Also, apartments are staying on the market longer. In the first quarter, the average was 138 days, according to Miller Samuel. It is now approaching 150 days, Mr. Miller estimated, adding that he thinks that a lot of the inventory is overpriced.
On the other hand, high-end multimillion-dollar properties are selling well. Pamela Liebman, the president and chief executive of the Corcoran Group, predicted there will be records this year on the number of sales above $20 million. Mr. Miller said he was struck by the number of transactions so far this year that are above $5 million, which he attributes mainly to residual Wall Street bonus money.
Additionally, sales have been stronger since the end of 2005.
"We took a real shellacking through January," said Neil Binder, a principal at Bellmarc Realty. "Now things are moving along O.K. From January on, there's been a considerable degree of constancy."
So far this quarter, which began on April 1, those most affected by the market are the people who are first-time home buyers or those just barely able to afford to buy. Because of rising mortgage rates, these would-be buyers (the kind who made up a good part of buyers in the real estate frenzy of the past few years) are often now renting instead.
"There's been a tremendous surge in people signing leases," Mr. Miller said. "Landlords, especially in new buildings, are ratcheting up rates and reducing enticements almost as fast."
The upturn in the rental market makes sense, he said, because mortgage rates and rental demand correlate almost directly.
Unlike other markets, New York has always been somewhat insulated because of the range of buyers it attracts, from foreigners looking for pieds-à-terre to the superrich to artists and dancers with songs in their hearts and little cash in their pockets. Of course, if too many people become so fearful of a slowdown that they stop buying, they could create a self-fulfilling prophecy.
"The biggest unknown is what's going to happen with inflation," said Gregory Heym, the chief economist for Halstead Property and Brown Harris Stevens, adding that when it comes to interest rates, it is not so much the amount that they go up, but what an increase symbolizes. "As they creep toward 7 percent, it has an effect on the psyche of both buyers and sellers," he said.
Mr. Binder of Bellmarc Realty pointed out that interest rates have not increased precipitously. "You can still get an excellent rate," he said. "I remember when interest rates were 16 percent and we were doing a hell of a business."
The wild card right now, he said, is new construction, which developers seek to sell at a premium. (Mr. Binder estimates that premium to be 15 to 25 percent over resales.) "A lot of this new construction stuff is going to have a daunting time," he said, adding that new condominiums can make resales look comparatively affordable.
Several new luxury condominiums are selling well, though as Ms. Liebman said, some "have taken off like crazy" while others "are floundering." Basically, sales are inconsistent and properties that lack the essential combination of location, amenities and attractive price will not sell.
Signs of scaling back seem to be manifesting themselves more in second homes and vacation rentals than in primary residences, according to Mr. Binder. "That's were the line is being drawn," he said.
At a 48-unit development in the Berkshires, in Massachusetts, where he owns a condo, he said there has not been a sale all year. "I'm trying to sell a place," he said. "I've owned it for 20 years and I'm going to own it for another 10, whether I want to or not."
Marketers are spending more money now than in years past in an attempt to capture the attention of buyers who continue to exhibit zero tolerance for overpriced properties. Some sellers, however, have yet to come to terms with that.
"We're starting to see a little more realistic pricing, but it still has a long way to go," Mr. Miller said, adding that sellers were buoyed by the spring market and are more likely to adjust prices this summer. "I think that's where you're going to see more accurate pricing," he said.
Like some other real estate companies, Corcoran enjoyed a strong spring, and it also reported the most gross sales volume in its history during March. But the number of transactions dropped 6 percent from April 2005 to April 2006.
While some people do not think the economy is as healthy as others have painted it, Mr. Heym is optimistic that New York's economy will grow, that schools will continue to improve and that the crime rate will further decline.
"There's still such a strong desire for homeownership in this country," he said. "People want to own something tangible that doesn't disappear overnight. Like Enron stock."
Copyright 2006 The New York Times Company
Sunday, June 04, 2006