The Real-Estate Paradox

Reconcile these two recent events.

On Oct. 30, Merrill Lynch, one of the world’s biggest investment banks, announced that its CEO Stan O’Neal would resign. Billions in losses tied to the subprime mortgage crisis precipitated Mr. O’Neal’s resignation. Charles Prince, CEO of Citigroup, the nation’s largest bank, followed Mr. O’Neal into unemployment on Nov. 4 for some of the same reasons.

Three days later, less than one mile from Merrill Lynch’s World Financial Center headquarters, marketer Michael Shvo opened the sales office of the W New York-Downtown Hotel & Residences, a 58-story tower at 123 Washington Street by developer Joseph Moinian.

Guests of the sales office were served martinis as they stepped through the door at 11 a.m., and a video on one wall boasted the opportunities to “eat, drink, flirt and play at the W restaurant.” Mr. Shvo’s eponymous marketing firm bragged to The Observer that 72 of the 159 unfurnished condos there had sold that first day for upward of $2,000 a square foot each.

It’s this sort of juxtaposition that will leave 2007 as the year of the question mark for New York housing, one as noteworthy for further triumphs as for signs of bad things to come. Happy events like the opening of the W New York-Downtown happen blocks away from the dour canyons of Wall Street, where mortgage-market crises are bringing layoffs; fearful forebodings about the economy—particularly that part that turns on the Street’s increasingly wobbly axis—co-mingle with news of record bonuses.

It was not always so difficult to find the right adjective about the housing market and its spurs. Some variation of “good” often sufficed.

For instance, in 2006, the state attorney general approved plans for 710 new condo and co-op developments—a 73.6 percent increase over the number in 2005, according to a report from the city’s Rent Guidelines Board. The 710 plans contained 26,474 housing units, 75.8 percent more than in 2005.

The plans spread into every borough, too, further changing neighborhoods, perhaps forever. Of the 710 plans, 397 were for Brooklyn developments and 224 for Manhattan; Queens claimed the next highest at 68.

The attorney general approved the plans amid one of the most robust sales markets in the city’s history, one that throughout most of 2007 defied the national housing slump. In early September, The Observer was able to report that Manhattan alone would record 10,000 home sales in 2007, the first year that’s happened since at least the late 1980’s.

Now, handicapping the market’s much tougher.

Top Prudential Douglas Elliman broker Dolly Lenz told The Observer in November that “… until August, I was able to get anybody a 90 percent mortgage, anybody breathing. … Today, it’s already 20 to 25 percent down, big change.”

But sales in the third quarter of 2007, which ended Sept. 30, were up 65 percent from the same quarter in 2006, according to appraisal firm Miller Samuel.

The state comptroller’s office on Oct. 30 projected that year-end Wall Street bonuses, a closely watched barometer for the future health of the housing market, would drop by as much as 10 percent this winter.

But, within three weeks, Bloomberg News projected year-end bonuses at the city’s five biggest investment banks, including Merrill Lynch, of $38 billion, a record.

The New York Building Congress, a trade group for the construction industry, concluded in a report earlier this fall that construction spending on New York City housing would increase to $5.6 billion in 2007, well above the $4.9 billion of 2006. This year should see over 35,000 new housing units built, nearly double what was built five years ago in 2002 (and including rentals as well as co-ops and condos).

But the report also concluded that home-construction spending would drop to $5.2 billion annually by 2009. Also, the number of construction permits for new housing units decreased 5.6 percent between the first quarter of 2006 and the first of 2007, according to the Rent Guidelines Board.

And on and on … the good with the bad, the grim with the gleeful, never all worst-case and never all record-setting anymore.

Prognostication about the city’s for-sale housing market rose to the level of competitive sport this decade in tandem with record sales, unprecedented new development and the sort of lifestyle marketing popularized by Mr. Shvo.

Most of the prognostication generally centered around one question: How high? The events of 2007, especially those in just the past couple of months, should have voyeurs asking: Now what? The Real-Estate Paradox