Take advantage while rates are low

It’s no news to many that mortgage rates are about as low as anyone has seen in many decades. At the same time housing affordability is also at a record low, with price declines of as much as 25 to 30% in many areas, including New York City, since the housing bubble burst two years ago. Many experts think that a further decline of 5 to 10% this winter is likely. The occurrence of these two events, while not good news to some, make for an extremely opportune time for those looking to buy a place in New York City that had previously been beyond their financial capability.

Consider mortgage rates. A conventional (under $417,000) 30-year fixed rate loan comes with an interest rate under 5% for condos and co-ops in New York, while a jumbo (over

$729,750) 30 year fixed is just over 5%, to about 5.5%. Adjustable rate loans (ARMs)

are even lower – under 4%. While ARMs were the bad guys in the sub-prime housing

crisis, they should seriously be considered now for conventional or jumbo amounts. A recent New York Times article noted that “borrowers with excellent credit who need a $2 million loan, for example, can qualify for a 3/3 ARM, in which the rate resets every third year, at roughly 3.125 percent. That saves the borrower around $100,377 over three years, and when the loan adjusts in the fourth year, the rate can increase to no more than

5.5% – the same as the prevailing fixed rate jumbo loan today.” Thus an ARM borrower,

in the short term, may have lower rates than the fixed-rate borrower, and can always refinance into a fixed rate when rates start to increase. Of course, everyone’s financial needs are different, but with rates so low there are many choices to be had. Just like with apartments during this period of price decline.

A well-know real estate expert recently noted that this is a great time to buy, citing excellent interest rates and prices. She also noted that trading up is a good bet – you might get less than a few years ago for what you’re selling, but you’ll pay a lot less for what you’re buying. And lower priced apartments in Manhattan have started to move a little faster, based on the absorption rate – the number of months it would take to sell all the inventory on the market. Those places in the $5 million and above range are taking longer to sell. Bottom line: the market is obviously very price sensitive, and those properties priced well will sell and those that are priced too high will languish until the owners get realistic and throw in the towel.

-Erica Bunin

EXTELL, THE RECOVERY, AND THE FOREIGN BUYER

In a recent New York Times article, it was reported that a prominent New York City developer was about to start construction on what is supposed to be the tallest residential apartment building in New York City. It will be 1,005 feet high located on west 57^th Street across from Carnegie Hall. The completion date is expected to be sometime in 2013 and it is the first major construction start since the collapse of Lehman Bros. in the fall of 2008.

Even though the New York City economy is recovering, with unemployment at 10% and only a modest return of some of the jobs lost in the recession, the developer, Extell Development, is touting its new project as being comparable to 15 Central Park West, one of the most expensive and exclusive new condominium buildings in New York. It expects its new apartments will be the most expensive and luxurious in town.

Extell and other developers say that real estate in the city is on the way back, citing fewer incentives offered by landlords, an uptick in foreign investor activity, and continued tourist visits and hotel occupancy (what we see are a lot of sandaled tourists, maps in hand, comparing prices between MacDonald’s and Burger King as well as waiting in line for buses to Woodbury Commons to catch the bargains which are evaporating in the face of their now softer currency). Extell sees some significance in the rise in tourism planned before the most recent problems in Europe with increased rates. We feel that if a developer is depending on on the foreign buyer, maybe they should wait. But with a completion date way out, who knows?

BOTTOM LINE: We are high on the perception is that the real estate market is coming back.  Alfred Real Estate notes the 81% increase in apartments under contract – first quarter 2010 over first quarter 2009 – solid numbers which reflect a far more positive buyer attitude and more realistic pricing by sellers.. BUT It’s going to take some time to see how fast the foreign buyer market continues to come back given the economic reversals in Europe, and, most particularly, the drop of the Euro, down to 1.22 now from 1.51 in November with a almost half of that drop within the last month. It’s a go ahead on the American buyer and a yellow light on the foreign buyer.

Erica Bunin

TO BUY OR NOT TO BUY (OR PERCHANCE TO RENT). . . .

That is the question. Given that the first time homebuyer’s tax credit of $8,000 is about to expire if sales contracts are not signed by April 30 and closings do not occur by June 30, this is a particularly important question to consider at the moment.

A recent article in the New York Times suggests that one way to answer this pressing question is to use what is called the rent ratio in order to determine whether it is more beneficial to purchase an apartment now as opposed to renting. The rent ratio involves a simple calculation: dividing the purchase price of a home by annual rent (either actual if you’re already renting, or probable if you’re thinking of renting).If the calculation yields a figure above 20, renting should be strongly considered, as it indicates that purchase prices are very high. If the ratio is well below 20, buying may be the way to go. Obviously every situation is different – e.g. if you’re going to have to move within 5 years, say, even with a low ratio renting may be more practical.

In New York the ratio has been consistently higher than many other places. The higher prices here come as no surprise to those who follow the real estate market, and the cost of owning has therefore been, on average, greater than the cost of renting.

That being said, if you want to live in New York City, now may be the time to buy, regardless of ratios, the expiration of the tax credit, or other factors relevant to a purchase. While the ratio is still high, it is now much lower than it has been historically. And this may have much more to do with greater rental opportunities than with a ballooned sales market, since New York’s sales market pricing is on the low side compared to what it was before the housing bust.

The case for buying is not just the security we feel with owning our own home; it’s that prices seem no longer to be in freefall (they had dropped 25 to 30% in the City since the collapse of Lehman Bros. in the fall of 2008) and, in fact, seem to be inching up. The most recent report from the Real Estate Board of New York, which keeps track of quarterly developments in the real estate market here, notes that the average price of a New York City apartment was $850,000 in the first quarter of 2010, a 6% increase over all of 2009. In Manhattan and Brooklyn, the hottest boroughs in the City, average apartment prices rose 2% and 6%, respectively, compared to the last quarter in 2009. While there is obviously some variation from neighborhood to neighborhood in the figures, as the economy begins to recover, the housing market here will, too.

Erica Bunin, Principal Broker

Alfred Real Estate

Manhattan Residential Market Reports 2010 Q1

It is time again for Manhattan market reports. Here is a chart borrowed from Noah at Urban Digs, highlighting some important numbers:

There is no doubt that sales volume has increased greatly over the past 2 quarters. No surprise here as prices had come down to levels where buyers have begun to perceive value. (15-40% from peak depending on location, size, amenities, etc.)

Prices seem to have stabilized for the time being with no one certain of whether they will remain flat, increase, or decline further (I’m guessing flat to further declines particularly if mortgage rates increase next Fall).

So what does all this mean for you? After all, that is what matters most for buyers and sellers trying to navigate this bizarre real estate market. Here’s what many market experts are still seeing:

• Asking prices still all over the map with overpriced property languishing on the market.
• Buyers are infinitely more patient and their qualifications have vastly improved.
• Sellers are reading somewhere that the real estate market is poised for a rebound and they should “wait it out.” Could be a very long wait indeed.
• Inventory has shrunk considerably again from last quarter of 2009 but the Spring market should open that up.
• Bank policies like sending appraisers in just 2 weeks prior to closing are slowing down the transaction process.

The market has definitely improved from same time last year but let’s not jump the gun and assume we are in any sort of recovery yet. We definitely have a more active market where qualified buyers are purchasing properties for prices that appear much more reasonable than just 2 short years ago.

Homebuyers Scramble as Mortgage Rates Rise

Alfred RE Listings

The era of record-low mortgage rates may very well be over.

The average rate on a 30-year loan has jumped from about 5 percent to more than 5.3 percent in just the past week. As mortgages get more expensive, more would-be homeowners are priced out of the market — a threat to the fragile recovery in the housing market.

If you wanted to refinance at a super-low rate, you may have to move fast if you don’t want to miss your chance. Mortgages under 4 percent are still available, but only for loans that reset in five or seven years, probably to higher rates.

Rates are going up because of the improving economy and the end of a government push to make mortgages cheaper.

For people putting their homes on the market this spring, rising rates may actually be a good thing. Buyers are racing to complete their purchases and lock in something decent before rates go even higher.

It’s all about affordability. For every 1 percentage point rise in rates, 300,000 to 400,000 would-be buyers are priced out of the market in a given year, according to the National Association of Realtors.

The rule of thumb is that every 1 percentage point increase in mortgage rates reduces a buyer’s purchasing power by about 10 percent.

For example, taking out a 30-year mortgage for $300,000 at a rate of 5 percent will cost you about $1,600 a month, not including taxes and insurance. But the same monthly payment at a rate of 6 percent will only get you a loan of $270,000.

As of Wednesday, the Mortgage Bankers Association put the national average for a 30-year fixed-rate mortgage at 5.31 percent. One week ago, it was 5.04 percent.

Many analysts forecast rates will rise as high as 6 percent by early next year. If they go much higher, the already shaky housing recovery could stall. And that could slow the broader economic rebound.

In a normal market, with home prices steadily rising, a jump in rates doesn’t cause a big dip in demand. That’s because people know their homes will eventually rise in value, and are willing to accept a higher mortgage payment.

But now home prices are flat nationally and still falling in some places. Potential buyers are nervous about jumping in—but be careful, hesitation now could cost you!

Contact Alfred Real Estate Today

Foreign Buyers Return to Manhattan

Alfred RE Listings

Reacting to speculations of a rise in prices of Manhattan real estate, overseas buyers are starting to scramble to take advantage of what may be the end of their chance to cash in on the deal of a lifetime.

The dollar’s recent rally, rather than putting off foreign buyers, is encouraging them to jump into the market before it rallies further and drives up prices, insiders say.

A Chinese businessman recently bid $33.2 million for a 5,500 square-foot apartment belonging to Italian film producer Vittorio Cecchi Gori, according to local media. U.S. billionaire Henry Silverman paid nearly $20 million for a Manhattan townhouse, setting a record for the neighborhood, other media said.

Two competing all-cash offers, one from an Italian buyer and the other from a French buyer, came in recently on a one-bedroom apartment in Manhattan’s sought-after Greenwich Village, said Drew Glick, a broker at Brown Harris Stevens. The asking price for the small apartment was $950,000, he said.

The euro has fallen nearly 7 percent to the dollar since the beginning of the year, and hit a 10-month low Tuesday, after having risen for much of the previous year.

With experts mixed on whether New York property prices are heading up or down, the outlook is still risky. City property prices have fallen 15 percent to 30 percent since 2008 in the wake of the global financial crisis, by some estimates.

While there are fewer overseas buyers now than two years ago, one broker estimates 15 percent to 20 percent of recent viewers of a two-bedroom, 1,525 square-foot apartment in Manhattan came from overseas. The asking price was $1.45 million.

Bid on the City, a online real estate auctioneer that specializes in Manhattan property, estimated a third of the people enrolled at a recent auction were from overseas and said foreign participants were more likely to join in.

Brokerage StreetEasy said foreign traffic on its Web site has more than doubled from a year ago with hits from Asia leading the way, up nearly one and a half times from last year.

Exact data on foreign purchases of New York real estate are difficult to get in part because there is no centralized source and because many buyers purchase through locally formed companies with U.S. addresses.

Heading into the peak of the market, ahead of the global financial crisis, foreign buyers in New York were as much as 30 percent of sales.

So, foreign investors take heed! This may be your last chance to get in on the best deals Manhattan has had to offer in decades. Contact Alfred Real Estate today.

April Market Update

Sales up, prices down in Manhattan housing market
The number of Manhattan sales dropped 45 percent to 7,430 between 2007 and 2009, according to The Real Deal’s 2010 data book but rose 8.4 percent between fourth-quarter 2008 and the last three months of 2009. The median sales price in the fourth quarter of 2009 was down 10 percent to $850,000 in the prior-year quarter. The average sales price in fourth-quarter 2009 was also down, by 12.7 percent to $1.3 million year-over-year. Meanwhile, there was a steep decline in inventory in the fourth quarter in the borough, attributed to pent-up demand, low interest rates and lower prices, according to the data book. “We saw fewer price cuts, and those price cuts were not as deep,” said Sofia Song, vice president of research at Streeteasy.

Jump in Manhattan condo sales
With prices down, Manhattan condo sales transactions have largely rebounded from their 2009 low, according to Radar Logic’s January 2010 neighborhood report for the borough. There were nearly twice as many transactions in January 2010 as there were one year earlier, up to 86 percent of the average transaction count over the past 10 years, but still nearly 50 percent below the number of transactions at Manhattan’s 2005 and 2007 peaks, the report says. January condo prices were down 0.2 percent month-over-month and 14 percent year-over-year as of Jan. 21. Of the additional condo sales this year when compared to last year, 73 percent were in the $750 to $1,125-per-square-foot range. Higher priced condos, at $1,500 per square foot and above, sold in smaller numbers in January than in January 2009. Similarly, sales of smaller units between 500 and 800 square feet, increased more year-over-year than did larger ones. Soho and Tribeca, the East Village and the Lower East Side, Chelsea and the West Village, and the Upper West Side appeared to gain in popularity, each experiencing an increase in condo prices per square foot in December 2009 and January 2010.

Home price declines letting up in NYC
The pace of home price declines slowed in New York City and nationwide in January, but fewer U.S. cities experienced monthly gains, according to the latest data from Standard & Poor’s/Case-Shiller Home Price Index.

The New York metro area registered a 0.3 percent month-over-month decrease in January, an improvement over the 0.7 percent monthly price decline registered a month earlier. Prices in the region were down 5.3 percent from January 2009, but in comparison to other cities, New York’s residential real estate market has held up well during the downturn, with prices still up 70 percent over their January 2000 levels.

When compared with January 2009, nationwide price declines were minimal overall, down only 0.7 percent on a year-over-year basis, according to the S&P/Case-Shiller 20-city composite index. Meanwhile, the 10-city composite index was unchanged since last year. It’s the first time since January 2007 that prices have been so close to increasing, rather than decreasing, according to the report, and they are now at approximately the same levels as in the fall of 2003. Still, the 10- and 20-city composites were 33.5 percent and 32.6 percent, respectively, off their mid-2006 peaks.

Contact Alfred Real Estate Today.

Boom Brought 170,000 New Units to NYC

The city’s building boom resulted in 170,000 new housing units between 2000 and 2008, according to a new report from NYU’s Furman Center for Real Estate. 

Of those, 46 percent were apartments in multi-family buildings, while 40 percent were either single-family or two-to-four-family homes. Condominiums accounted for 14 percent of all new units. Building activity rose by an average of 7 percent each year between 2000 and 2003, and 17 percent each year between 2003 and 2006, the report says. In 2007 alone, 25,659 new units were added — the largest single-year housing spurt in two decades. 

 Housing stock went up 7 percent in Manhattan, 5 percent in the Bronx and 4 percent each in Brooklyn and Queens.

While there was a significant increase in properties, the city’s limited supply of vacant real estate stifled what could have been. In Washington, D.C., Miami and Las Vegas, for example, the housing boom was even more pronounced. But that may have been to the city’s advantage: building has fallen off dramatically since the downturn, the report says. New building permits fell by 90 percent during 2009, to 3,275, from 30,947 in 2008, indicating that activity in the near future will be all but stagnant.

“There was pent-up demand for housing resulting from the low rates of building in the 1990s, and from the city’s increasing popularity, so this high level of building was necessary and important for the city,” said Vicki Been, faculty director at the Furman Center. However, she added, “much of the building was targeted at the higher end of the market, and is unlikely to sell at the prices originally expected…even if there is an over-supply of high-end units, that doesn’t necessarily mean that housing will be more affordable to middle and working class New Yorkers.”

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Manhattan takes a VOW

The word that has been on the tip of the tongue of anyone involved in Manhattan Real Estate is VOW. VOW is an acronym for Virtual Office Website—meaning the ability to browse every available listing without having to browse through hundreds of pages. This new system lists every property in Manhattan, regardless of representation, on a single page. Search engines like StreetEasy, Natefind, Trulia, etc. do a pretty good job, but are not 100% comprehensive.

Home-hunters have long desired to see what brokers can see, and the Real Estate Board of New York has done right by its members by fighting against complete market transparency. However, a lengthy court battle and legal settlement forced REBNY to funnel listings directly to VOWs that meet certain guidelines and pay fees.

So far the impact for consumers has been minimal (VOWs aren’t as data rich as brokers’ MLS systems, and they’re a bit annoying with all the registering and logging in), but many big brokerages are hurrying to get VOW up their websites. For now it’s mostly still a little guys’ game!

Contact Alfred Real Estate Today!

New Home-Buyer Tax Credit to Expire Soon

Time is running out to cash in on the federal home-buyer tax credit. The government’s gift of up to $8,000 was designed to jump-start a stalled housing market. There are just about five weeks remain for buyers to get buy and sign contracts.

Those who are just starting the home search and want the credit have got to jump to it. “You’re going to have to move quickly,” says Walter Molony, a spokesman with the National Association of Realtors, one of the trade associations that pushed hard for this credit and its two extensions in February and December 2009. “You’ve got to be prepared to make quick decisions.”

In honor of the countdown, Dawn Wotapka of the Wall Street Journal has compiled a list of six things to keep in mind:

• This round is actually an extension, but it doesn’t just cover first-time buyers. Move-up buyers are also eligible, though they only qualify for up to $6,500.
• Only the contract has to be signed on or before April 30. The home purchase must be completed by June 30. Real-estate experts advise signing the contract as soon as possible and leaving plenty of time for closing, given lenders remain extra careful these days. Don’t try to squeeze in a July 1 deal. It won’t work.
• The definition of a first-time buyer isn’t as limiting as the words indicate. In this case, the “buyer” hasn’t owned a principal residence in three years. For married taxpayers, both parties can’t have owned.
• It might seem genius to “buy” a home from your parents, but skip any such notion. You can’t purchase a home from most family members: Parents, children, grandparents and grandchildren are excluded.
• Consider that prices might fall after the credit expires: Buyer traffic will undoubtedly decline once this enticement goes away. As sellers adjust to this slower new reality-they’ll be more than likely to shave prices.

Of course, there’s talk of another extension, given housing’s recovery remains choppy. (Mr. Molony says the NAR isn’t advocating for a third round.) Some think the time has come to end the program. Mark Zandi, chief economist at Moody’s Economy.com pushed to extend the tax credit last fall but he said last month it’s time to let it expire. “It’s worn out its benefit,” he said. “If you extend it again, it isn’t going to do much, and what you’re doing is providing a tax break to folks who bought anyway.”

Think about it. Contact Alfred Real Estate Today.