Warburg Realty Year End 2010 Market Review

Posted by Frederick Peters — January 10, 2011

1294700974The New York real estate market was a study in contrasts during the fourth quarter of 2010. The ultra high end market, which had languished for much of the last two years, came gradually back to life (albeit at substantially reduced prices), while the ongoing shock waves from the recession and lack of confidence in the recovery, combined with inventory still higher than usual, depressed trading at the lower end. The six to ten room prewar markets, still hobbled by lack of inventory, saw brisk trading, sometimes at prices only a few percentage points off the highs. And many developers have begun tentatively moving the excess inventory they had rented back into the sales market. So many conflicting factors influenced the overall market, making it difficult to draw simple conclusions.

Properties above $10 million fared better than at any time in the last two and a half years. While inventory is always limited at this rarefied level, there still were a number of trophy trades, although in almost all cases these trades involved discounting of enormous percentages from the original asking prices. Perhaps the best example is the Brooke Astor apartment, occupying a high floor and a half at 778 Park Avenue, which apparently sold for less than half its original $46 million asking price (admittedly stratospheric) placed on it in early 2008, in a world we can now barely recall. A townhouse on East 70th between Park and Lexington also sold over the summer close to its last asking price of $14,900,000, but FAR below its original December 2009 asking price of $20.2M, and barely more than half the price ($28M at that time, $26M today) being asked for its neighbor next door. The increase in sales volume is attributable to two distinct factors: first the gradual and reluctant acceptance by sellers of the changed climate, especially at the highest price points, and second the willingness of buyers with the money to make these purchases to actually step up to the plate. Both uncertainty about the future and apprehension about ostentatious spending during recessionary times had restrained these buyers. Today, with more confidence that a recovery, albeit slow, is underway and that prices are sufficiently low to make purchasing attractive and not flamboyant, upper end buyers are back in the market.

At the other end of the spectrum a very different scenario has played out. Purchasers for under $1 million to $1.5 million simply backed away from the market in August and September. Although the stock market ascended throughout September, confidence about the economy, about the outcome of the November elections, about the security of jobs, made renting a more attractive prospect for many. Inventory in the studio, one-bedroom, and small two-bedroom markets is still high, especially in such newly developed areas as Harlem, Greenpoint, Wall Street, and Madison Park, developers have begun to re-price and relist their inventory. In this climate an increase in inventory slows absorption further, as buyers comparison shop by the numbers. My prediction is that it will be at least 12 to 18 months before we see real stability return to these markets where an overhang of newly constructed smaller units still needs to be absorbed.

In contrast to the inventory overhang characterizing the smaller apartment market, a continuing dearth of listings drove the market in the middle and upper middle price ranges. All over town larger two and three bedroom properties were scarce, and when appropriately priced were frequently the subject of competitive bidding. The return of competitive bidding is actually one of the most interesting phenomena of the second half of 2011. It generally unfolds over days or weeks, not hours as it did in 2006 and 2007, and all the bids are generally below or, at best, AT the asking price. But the lack of urgency does not signal a lack of interest. There is a deep market for these 1,800 to 3,500 square foot properties, all over town, since buyers see in them both scarcity and financial opportunity (they know sooner or later the prices will go up).

One final observation: condition increasingly plays a crucial role in marketability. Buyers are reluctant to renovate, and the apartments which linger on the market are more and more often those which require extensive remodeling. 2010 has been the year during which staging has arrived in Manhattan. Today brokers realize, and are persuading their sellers to realize, the extreme importance of first impressions. As I tell Warburg sellers, buyers don’t decide what they want to buy during the first thirty seconds but they do decide what they DON’T want to buy in the first thirty seconds. More than ever, if a property is to sell well, it needs to look uncluttered, clean, and bright when the buyer walks through the door.

I don’t see big changes ahead in 2011: minimal price appreciation, a balanced flow of deals with more demand than supply in the larger property market and more supply than demand in the smaller, gradual easing in credit offset by higher interest rates, a strong rental market at most price levels, and little in the way of new construction. Urgency has not re-entered the residential sales environment and probably 2011 is not the year when it will. Prices seem fair to both buyers and sellers with typical negotiability anywhere from 3% to 10%, but rarely more. And New York is still New York, the greatest place to live in the world. Happy New Year!

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