The Story Behind the Headlines: NYC Housing Market is Looking Better All the Time

The media have been having a field day describing the doom and gloom in the real estate market. According to the Wall Street Journal, the decline in home prices is continuing and sales prices have fallen to levels not seen since 2002. The story reported dramatic declines in cities such as Detroit and Las Vegas, where the decline has been particularly profound. It even reported a decline in New York City. We disagree. The current Manhattan real estate market was fine until the media said it wasn’t. Here is our perspective:

Timing: Media stories cited the Case-Shiller index, which evaluates the level of activity in closed transactions for the prior month or quarter. Given that a typical real estate transaction takes 90 days to close from inception of the signed contract, the state of the market at closing can be much different compared to state of the market at the time the buyer signed the contract. This delay is significant. The Case-Shiller index is based on deals that were agreed to during an extremely cold and snowy winter, when the press was pounding out reports about the pending financial catastrophe in Europe. This is not the case today. In fact, the current performance of our company in May was the strongest one we have had in over one and one-half years, based on registered offers and acceptances.

Price Declines: The Case-Shiller index’s finding that prices continue to fall is also extremely deceptive. As many of you know, last year the banks put on hold a large number of their foreclosure proceedings as a result of various issues about irregularities in mortgage paper work. Most banks did not move forward with foreclosure proceedings until the later part of 2010 and the beginning of 2011. Thus, there emerged a considerable backlog of properties in the foreclosure pipeline, which burst onto the market in a rather short period. This huge surge of foreclosure offerings created a crescendo of declining prices in selected cities, as opportunistic investors grabbed up bargains at pennies on the dollar. It is these foreclosures that are generating the reported price drops, not ordinary sales by sellers and buyers. It happened in 1990 and it is happening again. The law of supply and demand – you have a huge amount of supply without a lot of buyers and you get a tumbling market.

We compared asking prices for all properties offered for sale in Manhattan from July 2010 through May 2011, and found a minimal decline of 3% to 4%. Manhattan continues to be a strong performer relative to the rest of the country. There are a number of reasons for this, including:

Wall Street: The stock market has trended up considerably and even though there has been some variation from week to week, overall performance has continued rather firm. Wall Street firms are reporting sizeable bonuses to employees, and with stable prices and low interest rates it’s a great time to buy.

No Foreclosures: We should thank all those Coop Boards that have put buyers through a gauntlet to ensure that they meet the Boards’ financial criteria and put down a substantial amount of equity. The result has been a minimal level of foreclosures in Manhattan, with no downward price pressure as a result of foreclosure sales.

Price of Gas: The other day I was overjoyed to find a gas station where I can fill my tank at $4.29 cents per gallon. The enormity of this cost increase over the prior year is creating a shift in consumer buying habits. The media are reporting that SUVs are out and small compact cars are becoming more popular. Good news for city dwellers, who are in an energy efficient environment.

When you add all the pieces together the result is a compelling argument for New York City and particularly Manhattan. We are seeing this. We are seeing an increasing level of activity because buyers know they can get their best value now. Buyers know there are no fire sales and that Manhattan represents a secure real estate investment when compared to anywhere else in the country. Buyers are seeing the lowest interest rates in 50 years. They are seeing a limited level of inventory and future that is bright for New York City.

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