Gregory J. Heym
Executive Vice President, Chief Economist
Despite fear of a fall-off, waters remain calm
For some players in the real estate game, the third quarter of 2007 was a nightmare. The summer headlines screamed of a near-apocalypse in the mortgage industry, with Wall Street firms like Merrill Lynch and Bear Stearns reporting record losses and homebuyers across the country suddenly poised on the edge of foreclosure.
But here in New York City, at least in the townhouse market, the waters remained calm.
"It's a bit of a surprise," said Jed Garfield of Leslie J. Garfield & Co., a boutique brokerage that specializes in townhouses. "We've been busier in the last three weeks than we have in several months."
Garfield, who "expected a massive fall-off" in deals, said he currently has seven townhouses in contract.
Jeff Wolk, CEO of Fenwick Keats Goodstein, said he too has been pleasantly surprised at how well the townhouse market has held up to the prevailing paranoia within the real estate world.
"We haven't seen any let-up in the townhouse market," said Wolk. FKG just closed the sale of 22 West 75th Street for $14.5 million. The extensively renovated single-family house, which sold in just two weeks [after the end of the third quarter], boasts 11 fireplaces, an elevator and outdoor space on each floor.
Indeed, according to Halstead Property's third-quarter townhouse report, which tracks one- to four-family non-commercial townhouses in the city, townhouse sales are actually up 6 percent from third quarter 2006. The report, gathered by Halstead's chief economist, Gregory Heym, lists 57 townhouse sales between July and September, precisely the months the subprime credit crisis and its Wall Street fallout were making news.
"Subprime mortgages have nothing to do with the real estate we sell," said Garfield, who credits (among other things) the fact that many of the transactions in the townhouse market are all-cash deals, keeping that part of the market above the fray.
Wolk agreed. "In a super-hyper market like Miami, you could buy a place with no money down, but it's not like that in New York City. Even co-ops require a 20 percent deposit. With those subprime loans, sometimes it was less than 10."
Another reason the townhouse market may be holding so steady is that while new developments bring new co-ops and condos onto the market each year, there is a fixed number -- about 6,000, by Heym's count -- of townhouses in Manhattan.
"The townhouse market is relatively tight," said Jonathan Miller, a real estate appraiser with Radar Logic. Miller estimated that at any given time, only about 60 townhouses are available for purchase, far less than the thousands of co-ops and condos changing hands and being built throughout the city.
"The action in the townhouse market is dependent on what's available," said Heym. "It's a very strong market. You'd sell more if you had more."
That said, townhouses are a niche market, and may be less attractive to some kinds of buyers. For example, Miller said townhouses tend to see less interest from foreign buyers, who are currently riding high on the weak dollar and mostly buying condos, because "it's hard to have absentee ownership with a townhouse.
"You have to find someone who doesn't want the convenience of a doorman," explained Miller. Having to take care of an entire building, he said, "just adds another layer of complexity" to home ownership that some people don't want.
Manhattan's co-ops and condos were no slackers in the third quarter, showing a still-healthy market. According to Prudential Douglas Elliman's third-quarter Manhattan Market Overview, the average price for a Manhattan co-op was 2.8 percent above third-quarter 2006, and condos are up 9.2 percent from last year.
The bonus factor
Unfortunately, just because the third quarter was strong doesn't mean the townhouse market is necessarily out of the woods created by the credit crisis quite yet. A major concern, said Miller, is that if Wall Street bonuses are down this year, sales will be off in 2008.
"Bonuses," said Miller, "correlate with high-end housing." Miller also predicted that the shock of the summer's subprime mess will have a potentially long-term effect on lending.
"Bankers who got burned on subprime will have to reevaluate everything they're doing," he said.
Because many third-quarter sales had been in negotiations before news of the credit crisis broke, Halstead economist Heym said third-quarter numbers may not be the most accurate indicators of the townhouse market's reaction to the scandal and its fallout.
"The credit crisis has made credit harder for everyone to get," said Heym. "If there's any sustained impact, we won't see it until at least the fourth quarter."
Despite this, the city's townhouse players seem relatively optimistic about their specialized market.
"There are still plenty of people closing on real estate," said Garfield, whose firm just closed a $16 million deal for a commercial townhouse at 24 East 64th Street. A European investor paid just below the asking price of $16.5 million.
"While there are a lot of people in the city whose incomes will be down this year," said Garfield, "there are thousands whose incomes will be up."
Saturday, December 01, 2007