Barack Obama is scheduled to be sworn in as the 44th president of the United States on Jan. 20. That real estate brokers and analysts are actually pointing to this date, historic though it is, as a crucial event in the recovery of Manhattan’s residential market tells you everything you need to know about its current state. In the words of an entirely hypothetical counterintuitive president, “It is not strong.”
The year is closing on a sour note, with some brokers calling the fourth quarter the most tepid and dismal market they have seen in recent memory. So it’s easy to imagine, and even easier to excuse, real estate professionals looking ahead to January and grasping for any silver lining they can find in the start of a new year; something, anything, that might herald a break from the dreary conditions of the past several months and a return to the halcyon days of 2006 and 2007, when the market was stronger than ever.
But January of 2009 will not be the typical month of wintry warmth in residential real estate, thanks to perceptions forming in the current quarter’s lethal frigidity. Both the rental and sales markets are likely to sputter well into the new year.
“The fourth quarter has had the lowest transactions of the year, lower than I have ever seen,” Jonathan Miller, CEO of appraisal firm Miller Samuel and author of quarterly market reports for Prudential Douglas Elliman, said of apartment sales.
In each of the past four years, the median sales price for a Manhattan apartment has increased from the fourth quarter to the following year’s first quarter, including a $65,000 jump in the median price from the fourth quarter of 2005 to the first quarter of 2006, according to Miller Samuel statistics. Sales also increased from the fourth to first quarters in three of the past four years, and spiked by more than 1,000 from the fourth quarter of 2006 to the first of 2007. (The lone exception the last few years was from 2007 into 2008, when sales volume dropped.)
Unfortunately, this January is likely to deviate from the standard seasonal vicissitudes of the real estate market. “We are coming off really tough third and fourth quarters, and I think it will definitely carry over; there aren’t going to be any miracles,” said Luigi Rosabianca, managing member at real estate law firm Rosabianca & Associates.
The major issue, of course, is the struggling economy. Layoffs were abundant in 2008, an unfortunate trend that is likely to continue into 2009. Equally troubling is the fact that the city is not expected to grow many jobs, thus robbing the rental market of the usual influx of relocated employees and the plentiful bounty of young, post-college job-hunters looking for work in New York.
“I can’t see a large amount of demand coming in January that will create a surge in the first quarter,” Daniel Baum, COO of the Real Estate Group New York, said of the rental market.
Other rental brokers are just as sanguine on the prospects of a recovery for Manhattan’s rental market, which can be euphemistically characterized as a strong tenant’s market after years in the favor of landlords. Owners and brokers are offering incentives and concessions to prospective tenants, giving away everything they can to lure renters into their units. “The concessions will continue, and I don’t see why it could change to a landlord’s market,” said Brian Stern, the head of Bond New York’s Columbus Circle and Upper East Side office.
Sure, the calendar is flipping to a new year, but that doesn’t change the same crummy market conditions.
“Almost all buyers need mortgages, and if you lower the interest rate on them, that will affect all buyers,” Michael Signet, director of sales at Bond New York, said. Mr. Signet is less concerned with year-end bonuses, which he claims only serve to benefit one segment of the market, Wall Street employees, and believes that lower mortgage rates will help a broader base of buyers afford new homes.
The rate on 30-year fixed-rate mortgages was down to 5.47 percent in the second week of December, according to Fannie Mae and Freddie Mac.
“If these things happen and credit markets loosen a little bit, it could bode well for Manhattan,” Jorden Tepper, executive director of sales for Century 21 NY Metro, said.
That is a big if.
“The direction of the market depends on the perceptions of the buyers; we are at the mercy of buyers,” Mr. Tepper said. According to Mr. Tepper, potential buyers are in a holding pattern, waiting to see the results of the year-end market reports, which will be released in January. In that case, a large price drop might be just around the corner, because many, including Mr. Miller, the author of the closely watched Douglas Elliman reports, are expecting low sales numbers from the current quarter.
“If those realities come to fruition, sellers are going to have to come to terms with reality, which might mean different pricing than the past year, when we were closer to the top of the market,” Mr. Tepper said.
If that is the case, it’s difficult to imagine anything would be able to change the course of the market.
“The real estate market is driven by positive energy,” Mr. Rosabianca, the real estate lawyer, said. And what could bring more positive energy than a new president who speaks so optimistically of hope and change? “In January, we are going to have a swearing-in ceremony, and statistics show that they always create positive energy,” Mr Rosabianca said.
So President-elect Obama, how much positive energy you got (and secondly, can you do anything about these credit markets)?