Wednesday, October 22, 2008

Tumultous Times

It seems that the two most frequent questions I get lately are:
Bob, so what's your take on the Real Estate market?(as if I would know) and
Bob, when are we going to see a new blog from you?
So, now I get to kill two birds with one stone (apologies to my animal loving friends who know me better).
For the last few years we've wondered when we would see a "correction" in our local Real Estate market. Prices rose at alarming rates fueled by very generous bank appraisals. A typical middle class young couple could no longer afford to buy in most areas of Manhattan or some areas of Brooklyn.
As part of the financial collapse we've witnessed on Wall Street, the long overdue Real Estate "correction" has arrived. Most professionals involved in Real Estate will tell you that if this is "correct", bring back the "incorrect" times. The industry is suffering. Title companies and abstract companies related to them are laying off employees; many bank attorneys are likewise downsizing.

From my perspective and those of my colleagues with whom I've chatted, deals are somewhat fewer, more difficult to bring to contract, more difficult to obtain financing on and more difficult to close.

There is so much "psychology" involved. Potential sellers who might be "trading up" are afraid to commit to a purchase due to the uncertainty of their buyers financing and therefore the tenuous nature of their sale.
Buyers are facing more difficult mortgage hurdles and, where applicable, more difficult coop boards.
Is it all bad???

OF COURSE NOT.

Within these tumultuous times lie opportunities, especially for buyers (probably why we call it a buyers market, duh). At the height of the market, buyers were at a disadvantage and they knew it. In Manhattan, buyers were often coerced to waive their mortgage contingencies. Citywide, buyers of new Condos were required to pay NY City and NY State transfer taxes (generally paid by the sellers in arms length transactions) as well as sponsor attorney fees and miscellaneous "creation fees".

Recently, I've seen, particularly in new Condos, large price reductions, sponsor paying the above mentioned fees and even "incentives" like sponsor prepaid common charges, free parking spaces, storage etc.

In other words, if a potential buyer is confident that his/her job is secure, just as Warren Buffett is urging people to see the Wall Street free fall as a buying opportunity, a similar logic applies to our Real Estate market.
Prices are lower, interest rates are still very low; in the high "5"s or low "6"s. The lending banks are still interested in granting mortgage applications...they are just much more careful about the process.
Mortgages are available for people who can show W2 income and have 20% deposits available.
Perhaps the clouds do have a silver lining. Lets hope so.

2 comments:

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