Welcome to the buyer’s market: Supply is up, demand is down, and prices are teetering. Brokers say buy now – after all, there are deals to be had! But what if you waited?
Here’s four areas (and one borough) where buyers would be fools to rush in now.
In Manhattan, prices are falling. But several gauges indicate that, in the months ahead, they’ll fall even further.
For one, new development – which accounted for 30 percent of sales in the borough last quarter – continues to skew prices, according to the third-quarter market report from Miller Samuel and Prudential Douglas Elliman. For another, sales are slowing.
As of the end of September, it would take close to eight months to sell all of Manhattan’s current listings at the current pace of sales, according to Jonathan Miller, the report’s author. In a normal market, this would happen in five or six months. Finally, consider how much inventory is on the market: 7,003 units last quarter, up over a third from record lows during the same period last year.
A less tangible reason might be the "very wide" price gap between what buyers offer these days and what sellers will take. "Buyers tend to rely on national housing stats because they’re more gloomy," Mr. Miller said. "And sellers tend to rely on the past because it’s more positive. So there’s a disconnect on the parts of both parties. And that’s a market in transition."
In Mr. Miller’s opinion, the flow of new building projects won’t dry up until mid-2009, and "it’ll still take another 18 months after that to absorb that product completely," he said. He declined to forecast, but he noted that if the economy continues to weaken and the dollar strengthens, Manhattan prices will fall over the next year or two.
"In places where the developers have been aware there’s been a change in the marketplace, and they’ve given incentives, or they’ve given slight adjustments on the pricing, we’ve seen business pick up," said Frank Percesepe, the Corcoran Group’s Brooklyn regional vice president. "And I think that’s what we’re going to see through the entire market."
Mr. Percesepe is an optimist on the North Brooklyn market from its sales side, and he has reason to be.
Unlike in the rest of the borough, median sales prices are up compared to the same period last year, according to Miller Samuel’s report. The increase, however, is tied to the number of condo projects that have flooded Williamsburg-Greenpoint, and sales are down by roughly 20 percent since last year.
Isn’t it only a matter of time before prices fall?
"I think that there will be some price reduction," Mr. Percesepe said. "Whether there’s going to be a major number, I don’t know. I’m not projecting that."
His advice for buyers is to keep looking and shop around. "When sellers become aware of what’s needed in this market," he said, "I think we’re going to see a lot of deals beginning to happen."
3. THE SOUTH BRONX
There hasn’t been a better time to buy in the South Bronx in the last five years, according to Allison Jaffe, the owner of Key Real Estate Services.
Unless there’s a better time a year from now.
Apartment sales in the Bronx are dropping at an even greater pace than earlier this year, according to reports compiled by the Real Estate Board of New York. Third-quarter condo sales are down by half since the same period in 2007, a steeper decline than in any other borough.
"It’s fair to say that there’s too much inventory to keep prices at their peak," Ms. Jaffe said. "There certainly isn’t too much inventory from a buyer’s perspective. They’ve got lots to choose from!"
No wonder buyers are trying to negotiate better deals. But many sellers are "in denial" and holding firm, Ms. Jaffe said. Investors? They don’t need her listings: "An investor can sit on the county court house steps and scoop up foreclosures that will give them a much better return on their money," she said.
Although Ms. Jaffe believes sales will speed up after the winter, it’s not going to be a seller’s market come spring. She’s working with a developer to find a new building, one that would open for sales in two years, when the market has recovered. "Anybody who can put together the financing will be in a good position 18 to 24 months from now, when those units are ready," she said.
4. LONG ISLAND CITY
In recent years, shiny condominium towers sprouted across Long Island City, and until lately, buyers snapped them up. But now negotiation dominates most of Tom Le’s deals.
"Let’s just say, a year or so ago, you don’t see any negotiation," said Mr. Le, a broker at Corcoran who specializes in Brooklyn waterfront and Long Island City properties. "You take the price, or you don’t. But now you see the sponsors starting to negotiate," offering incentives to potential purchasers.
If the financial slump persists, the incentives will grow, as supply outpaces demand. ("It’s Economics 101!" Mr. Le said.) Sales in new developments in Long Island City and Astoria are down 37.3 percent from the same time last year – twice the drop of re-sales – according to Miller Samuel’s third-quarter report. Mr. Le wagered that if developers only sell 10 or 15 percent of the units in a building, they might "make life easier for themselves" and offer buyers a discount. (Although he stressed that developers would rent the units before they "lose their shirts.")
Should buyers wait it out and rent?
"I would advise any buyers to look at actually what their needs are," he said. "If they need to move, if they need to purchase a home, buy now. … If they want to stay in a place more than four years, buy. But if they want to test the neighborhood for the next little while, rent for a while."
5. BOHO BROOKLYN
In neighborhoods like Carroll Gardens, Park Slope, Fort Greene and the rest of northwest Brooklyn, sales are down 39.9 percent since the same period in 2007, slightly more than in the rest of the borough, according to Miller Samuel’s third-quarter report. Sales of brownstones have declined further than condo, co-op and luxury properties, by a whopping 59.8 percent since the same period last year. Lower prices will likely follow.
"Typically what happens in a weakening market," Mr. Miller said, "is prices continue to rise as the number of sales falls, as people that are either priced out of the market or are not willing to make a decision fall out, and people who are willing to continue to pay the prices stay in."
But the types of people willing to pay the prices in past years – young professionals who fueled BoHo Brooklyn’s growth – are losing their jobs. The city predicts 165,000 jobs will vanish from the private sector in the next two years. No doubt, this will affect the real estate market. We haven’t seen the end of the slowdown.