Halstead Property

Mentioned in this Article:

Jill Sloane
Exec. Vice President
Westside Office

Amid Mortgage Woes First-Time Buyers Seek Solutions

First-time buyers in the city are facing something of a conundrum: While prices have dropped in some submarkets and given those who have never owned before a rare window to make a purchase, it's become harder to get financing for a mortgage.

As a result of the new financial minefields, many first-time apartment hunters in New York have changed their approach to securing affordable financing. In some cases, first-time buyers, who tend to be in their late 20s and 30s, are having their parents co-sign loans, or they are plunking down substantially more cash than required in order to get better mortgage rates.

In other instances, buyers who had their sights set on tonier Manhattan neighborhoods such as the Upper West and East sides have had to shift their search to the outer boroughs, where property prices have seen more softening.

"First-time buyers are getting hit pretty hard," said Michael Signet, director of sales for Bond New York. "There's a glut of studios and one-bedrooms because they're not buying as briskly."

Barry Brandt, director of sales and marketing for MJH Birchwood in Queens, said he's recently seen a lot of first-time buyers who were priced out of Manhattan and Brooklyn and are looking for more space and amenities for their money. These buyers, who account for about half of those checking out the broker's Bayside development, called the Towers at Water's Edge, are most often attracted to the price. One-bedrooms, Brandt noted, range from a little more than $300,000 to around $450,000.

"The one thing we're seeing with first-time buyers is they have done their homework," Brandt added. "They're well-armed with information."

While brokers generally say they are seeing interest from first-time buyers, who often purchase in the $350,000 to $550,000 price range, the numbers suggest those consumers are having a hard time getting a toehold in the market.

Throughout the first half of this year, the rate of sales for studio and one-bedroom apartments in Manhattan slowed — indicating that it's taking first-time buyers longer to settle on a place and obtain adequate financing. Corcoran's mid-year Manhattan report, which was compiled by Property Shark, said: "While no part of the market was entirely immune from buyer reluctance, perhaps the hardest hit was the first-time homebuyer market; 38 percent fewer studios and 34 percent fewer one-bedroom apartments traded this year."

In Brooklyn, the rate of sales of all properties declined substantially in the second quarter of the year, dropping 43.6 percent, according to a report compiled for Prudential Douglas Elliman by Miller Samuel.

One indication of the declining demand by first-time buyers in Brooklyn was a downtick in prices of one-bedroom apartments. A mid-year report by Corcoran focusing on Brooklyn showed a 4 percent decline in the median price of one-bedroom co-ops, and a 6 percent price decline for one-bedroom condos.

Financing difficulties

Brokers say some first-time buyers make it through much of the deal, only to drop out at the last minute after their mortgage falls through.

"We've had situations where buyers were ready to go but just couldn't get the financing," said Sara Rotter, a sales manager for Citi Habitats. "The bottom line for any agent working with a first-time buyer is that they have to prepare them for what's to come."

Roberto Gonzalez, a sales agent with Bond New York, said, "I always counsel clients on what they can afford" before heading out to look at apartments.

Early on in the sales process, he said, brokers should explain to prospective buyers the paperwork they will need to complete as well as the amount of cash they will probably need to produce up front.

Unlike a few years ago, when first-time buyers could lock in financing in a snap, now more loan applicants are getting turned down and buyers are being required to fork up more money up front.

Also, because it's increasingly difficult to get pre-approval for a mortgage, it's taking longer for nearly everyone to close on deals. Even when buyers have solid incomes and good credit profiles, they aren't always finding the 90 percent financing they used to rely upon — let alone the 95 percent or 100 percent financing that no longer seems to exist.

"I don't know any banks that are offering 100 percent financing," said Melissa Cohn, owner and chief executive of Manhattan Mortgage. While she said she's seen about the same number of loan applicants this year as last year, she noted, "The actual product of the mortgage has changed."

Mortgages are now almost exclusively geared toward people with good credit ratings, solid work histories and enough money to plunk down up-front to ensure they have a real investment in the property.

One buyer's tradeoffs

Jason Paulsen, who is in the process of closing on a 750-square-foot two-bedroom apartment in Williamsburg, said he and his fiancée originally looked at places in Manhattan, but quickly realized they could get much more for their money in Brooklyn. The apartment they settled on, which is part of a new development called Belvedere Condos, cost about $535,000, some 5 percent, or $15,000, less than the asking price.

"You pay less than half of what you'd pay in Manhattan," Paulsen said.

The couple currently rents a one- bedroom on the Lower East Side that would have cost them upwards of $1 million to buy. Their new apartment, which is in the final stages of construction, will include a private terrace and roof deck, as well as heated bathroom floors and iPod-driven sound systems.

Paulsen said the mortgage application process wasn't as difficult as the couple expected, but that they decided to put 20 percent down in order to get a better interest rate.

"If there's a sticking point in the whole thing, that's definitely the thing," he said.

Jonathan Miller, president and chief executive of Miller Samuel, said first-time buyers are beginning to get a boost from the decision to increase the size of loans that Freddie Mac and Fannie Mae guarantee. The maximum loans that the quasi-government entities agreed to back in most New York City neighborhoods rose to $729,000 from $417,000 earlier this year.

Miller said the policy change, which could cause 10 percent to 20 percent more properties in the metro area to be eligible for a guarantee, is just starting to help buyers. Loans backed by Freddie Mac and Fannie Mae tend to be cheaper for banks to fund and therefore have better terms than other mortgages available to first-time buyers.

Miller said there are probably fewer first-time buyers, but that the decline is not significant. He attributed the dip to their difficulty getting financing but said, "They have not been hurt more than others. I think the impact has been broad-based."

For now, brokers say they are seeing about the same number of new buyers streaming through their offices as they did this time last year.

"The buyers are there," said Jill Sloane, executive vice president at Halstead Property. "The things that are priced correctly will sell."

In general, Sloane said fewer people are showing up to open houses, but those that show up are more serious about buying.

Perhaps as a result, many apartment sale prices have remained fairly close to the asking prices in recent months.

For example, two recent Manhattan sales Sloane oversaw that included first-time buyers closed at $685,000 and $725,000, as compared with asking prices of $697,000 and $745,000, respectively.

Still, there's a perception that prices are more negotiable now than they once were, and some first-time buyers may be sitting on the sidelines waiting for prices to drop further.

Rotter of Citi Habitats said that, in general, for people planning on staying in an apartment for four, five or more years, it makes more sense to buy than rent.

Over the summer, Rotter added, she saw a sudden increase in sales to first-time buyers in Bay Ridge, Brooklyn Heights and Dumbo.

"Week to week, things can change," she said.

Monday, September 01, 2008