Summer Doldrums? Sales Of Condos Down Sharply

As we approach the end of summer, the sales volume of New York City condominiums is way down, and it is harder than at any time in recent history for purchasers to qualify for residential mortgages, most developers and brokers say. Still, many are hopeful that the situation is merely a case of the summer doldrums, and that activity will pick up again in the fourth quarter of 2008.“The indicator which sticks out most for condominium sales for 2008 is that the total number of transactions are down 21% in Manhattan and 26% from 2007,” a broker at Prudential Douglas Elliman, Christopher De Weaver, said. “The number of days on the market has blown out from 117 to 135, so it’s taking almost a month longer to sell fewer apartments which are inventory. Nevertheless, prices continue to hold up. But having said that, we are still selling at sales volume of 2006 in terms of number of transactions.”He added, “We are selling less, and working longer with a product that hasn’t yet adjusted downward in price, while having to navigate a mortgage landscape that changes weekly and daily.”The CEO of Coldwell Banker Hunt Kennedy, David Michonski, said, “Sales are down about 32% and open business, meaning contracts signed, is down about 40%. This means the closed sales figures will get worse.”“Sellers of condos in this market are coming to realize that sales are slow, and they are looking at the fall selling season as a litmus test of how much discounting they will have to do in 2009,” the president of the Troutbrook Company, Marc Freud, said. “In this market today, if the product is not in the right location, there is little incentive to purchase in a slowing market, especially with fewer mortgages or credit readily available, and today as opposed to a few years ago there is little potential of a run-up in appreciation of pricing in the next several years.”“The Manhattan market has definitely slowed considerably, but it could be the summer doldrums,” the president of the City Investment Fund, Thomas Lydon, said. “Existing contract holders are closing per terms of contracts signed up to 24 months ago. Once in a while I hear a mention of financing difficulty, but it has not caused the loss of a sale.”One developer who is completing a number of condominium developments in Manhattan, who requested anonymity, said: “Sales are slower than I would have thought. The summer makes it an unfair comparison. Let’s see what happens in September, but my gut tells me that if there is not stability in the stock market, and we continue to see the types of swings and lack of traction, people will be hesitant to pull the trigger unless they really have to. This is why we are keeping our prices below what I would originally have put them out and have spent tons of dollars on finishes.”He added, “Negative press on the Manhattan real estate market does not help, either. Many people are waiting for the shoe to drop, which, despite a small dip, I do not feel will happen.”A general sales manager at one of New York’s largest brokerages said: “In general sales throughout the New York City marketplace are limp at best. Developers in general all still believe, as I think they must, that they have the best product, and that despite what is going on all around them, that their product should be selling at a fast clip, and do not understand when it doesn’t.“There are a few bright spots in the Manhattan market, but in general traffic is way down, as is sales activity, and marketers are pulling out every trick in the book to try and drive traffic to the sales offices. Again the ability to negotiate and make deals stands out far and above as the best incentive to get people to purchase. The pendulum has clearly swung in favor of the buyers, and in my opinion this is actually a great time to buy if someone is looking to purchase and is qualified to do so,” he added.The president of Alchemy Partners, a development company with five projects under various stages of development in Manhattan and Brooklyn, Kenneth Horn, said: “Current buyers are not acting immediately, and they often come back several times before making decisions. This is a large shift in buyer mentality from several years ago, when potential buyers moved quickly because they feared that units would sell quickly and prices may go up. The market is there, but buyers are being cautious and patient as they are looking at many units and projects before signing contracts.”“It is a bit different than in the past, when buyers would often go out longer and execute contracts based on floor plans and renderings,” Mr. Horn said. “As we know that buyers are being more cautious, this alteration in market mentality is something that we have had to adjust to. We feel, though, that although the impetuous buyer is no longer around, there are buyers who do not have to leverage up to 90% and have the ability and desire to purchase. However, we are optimistic that good, high-end units at fair pricing will attract qualified buyers.”The dislocation in the credit markets, subprime mess, and general economic times are making it harder and harder for individuals to close on the purchase of a condominium. No longer can a purchaser obtain financing with as little as 5% or 10%. The bar today requires at least a 20% or 30% down payment and higher credit scores.Getting mortgages at the lower end of the market is difficult, affecting “sales in Williamsburg, other parts of Brooklyn, and Queens, but above the selling price of $500,000 we are just not finding that,” Mr. Michonski of Coldwell Banker said.“With regard to getting a mortgage, it now takes longer and requires more paperwork. Yes, a purchaser is required to put 25% to 35% of the purchase price down. So what? So we are back to the way we did business for 30 years. It’s only a shock to those too young to remember,” he said.Mr. Horn said, “It is important to note that while 95% end-loan financing is not available anymore, it has been rare that buyers have leveraged to this extent in our developments. While financing is undoubtedly harder, it is still available for conservatively leveraged buyers.”Not all aspects of the condominium sales market are filled with doom and gloom. “On the positive side, there are plenty of buyers out there,” Mr. Michonski said. “Every week our agents tell us they have many buyers. The issue is they are not buying, but hoping to buy, or thinking of buying, or intending to buy. In other words, they lack an urgency to act. When they get that urgency, there will be a flood of buyers, as they are waiting in the wings. They all want a bargain, so unless you can convince them that something is a bargain, they don’t bite.”He added: “The other good news is that bottom fishers are out in force. They are everywhere. There is no lack of confidence to buy on their part. They are relishing the prospect of buying and searching everywhere for bargains. It is not a market without buyers, a very critical distinction. Rather, it is a market full of buyers who want a bargain and can wait and are waiting. Thus, they waste a lot of time for brokers because they want to see everything and then more of everything, and they put in low-ball offers that require endless negotiations.”A principal at Muss Development, Jason Muss, said: “I cannot speak for other projects, but our Sky View Parc condominium development in Flushing is doing extremely well. We just had a grand opening of a new tower three months ahead of schedule because of popular demand. We have sold 15 apartments in the past few weeks alone, in the heat of summer, to push our project well over 100 sales.”The managing director of Prudential Douglas Elliman, Jacky Teplitzky, said, “The big question for the following months will be: What is the amount of new inventory coming to the market in the fall? Condo owners that did not get their wish prices decided to rent their apartments and wait. The rental market got stronger deeper in the summer, so condo owners could still rent them out at favorable prices. This in turn is helping reducing the inventory.“I can say about the current market conditions that apartments are staying longer on the market, there is a lower volume of showings per apartment, but the people that are out there looking are serious buyers. Everybody is doing more due diligence and want to see a greater amount of properties,” she added.The condominium sales market would be really at a low point without the large number of foreign purchasers seeking to own property, Ms. Teplitzky said. “The Manhattan condo market is doing better than other segments of the market because of the great presence of foreign buyers. A large number of foreign buyers have been trying for the last five years to buy in the city, but they have been priced out of the market. Now because of the exchange rate and more negotiability, they can actually buy. The foreign buyers believe in our market and want to have a pied-à-terre or an investment property here. We also have new nationalities buying here now: Russians, Indians, Chinese.”Mr. Michonski of Coldwell Banker said: “My office is flooded with foreigners. Yesterday it was wealthy Turks and Spanish. The day before it was Singaporeans and Malaysians. Last week, two German funds sat in our conference room at different times. The Italians e-mail us weekly with Italians who want to buy. We are creating direct feeds of our listings to Dubai and Egypt and Russia to get our product in front of utterly insatiable demand. The world has not lost confidence in America and they see this as the buying opportunity of a lifetime.“We are all exhausted by all of the foreign buyers, but they are real, they have the money, require an adviser and counselor to help them get into the market, and they are providing real support for the sales market,” he added.Looking at my crystal ball, I am trying to be an optimist and believe that New Yorkers and all Americans remain bullish on the residential condominium market. I concur with Mr. Michonski’s assessment of foreign purchasers: “Their enthusiasm for our market, their confidence in our economy and the America can-do spirit, their hope in us, all drives them to bet their money on people who have been the best hope for mankind in this century. We should not forget that. They haven’t, and that is why they are here.”Mr. Stoler, a contributing editor of The New York Sun, is a television and radio broadcaster and a senior principal at a real estate investment fund. He can be reached at mstoler@newyorkrealestatetv.com.

Summer Doldrums? Sales Of Condos Down Sharply

Summer Doldrums? Sales Of Condos Down Sharply

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