Despite record days on market for the average apartment in New York in the third quarter “Not Yet A Bottom, But Turning A Corner as Sales Surge“, turns out that not all deals happen below offering price. Residential brokers across the city are finding that bidding wars are coming back, and apartments priced correctly are actually commanding prices above list price, according to the New York Times. Bidding Wars Resume Furthermore, because of the tightness in credit, a lot of the bids are coming in as cash.

Jonathan Miller of the appraisal firm Miller Samuel believes that two-thirds of the estimated 4,000 apartments for sale in Manhattan are overpriced. But those apartments priced 20 to 30 percent the highs of early 2008 are attracting multiple buyers willing to outbid each other, on everything from starter one-bedrooms in Brooklyn to Central Park West luxury enclaves. One two-bedroom on the Upper West Side, for example, sold within two weeks by Halstead Property in October for $1.8 million—at over $200,000 more than the listed price—following a bidding war among nine suitors. Brokers are attributing the phenomenon to pent-up demand and a shift in the confidence of buyers entering the market since Labor Day. The weak dollar also helps, attracting foreign buyers.

According to Halstead’s Amelia Gewirtz, those that are pricing for 2009 or 2010, i.e., “for buyers who think prices might go down another 5 or 10 percent,” are the most likely to attract better bidders. And according to Genifer Lancaster of Prudential Douglas Elliman, pricing below market value can actually result in the apartment being sold far above fair-market price.

Speaking at the Economic Club of New York, Federal Reserve Chairman Ben Bernanke said that, despite the falling value of the dollar, the U.S. central bank is likely to keep interest rates exceptionally low for an “extended period,” reiterating the same statement the Fed made back in December when short-term interest rates were originally cut close to zero. While the decline in the dollar has helped steer commodity prices higher, increasing the risk of inflation, Bernanke insisted that the Fed expects inflation to “remain subdued for some time.” There are also concerns that raising rates to prop up the dollar may hinder economic recovery.

The combo of low interest rates and a weak dollar bode well for the real estate market in New York, however, attracting buyers both local and foreign. The dollar has fallen 16 percent since March when investors went looking for safer vehicles. Bernanke said, “These safe haven flows have abated, and the dollar has accordingly retraced its gains.”

He added that the Fed is open to changing its policy to respond to significant changes in economic conditions, but that the country’s main challenges now are tight bank credit and high unemployment. In addition, he added that while recent evidence of an economic recovery may be attributable to the government stimulus, “continued growth next year is likely.”

The first-time home-buyer tax credit is due to expire at the end of the month, and it’s producing a frenzy. More data released by the National Association of Realtors on Friday shows the highest pending home sales level since December 2006, having already risen for eight consecutive months–the longest streak since the index came out in 2001–and the largest year-on-year jump in activity on record: compared to September 2008, the pending home sales index rose 21.2 percent this September.

Compared to August this year, the index rose 6.1 percent to 110.1 this September. It’s not all good news, of course: For one thing, the index actually fell in the Northeast month-to-month by two percent, although it’s still 16.9 percent higher than September 2008.

The biggest gains were in the West–10.2 percent–and the Midwest–8.1 percent. Analysts are also cautious about the expiration of the $8,000 first-time buyer tax credit, which many say will lead to yet another slump in sales activity, although many suspect that the credit may be extended to continue the government’s stimulus. However, the index is based on contracts signed in September, and there is a one- to two-month-long lag between a signed contract and a completed deals, so the index is inflated by an increasing number of short sales, which may not result in actual sales due to sellers walking away from unsatisfying appraisals, according to the Financial Times.

To cap the sour facts off, while resales jumped 9.4 percent in September, new home sales dropped for the first time in six months. That said, NAR chief economist Lawrence Yun said, “Home values will stabilize sooner rather than over-correcting. That, in turn, will mean wealth stabilization for the vast number of middle-class families and lay the foundation for a durable economic recovery.” Yun also estimates that 3 million renters are now “financially well-qualified to buy a median-priced home.”

The bit of bright news is that Congress is expected to move ahead with extending the credit, with some Representatives shooting for actually expanding the stimulus package by adding a further $6,500 credit for second-home buyers as long as they have resided in their previous home for at least five years, according to the Associated Press.

Existing-home sales activity across the country is at its highest since July 2007, according to a report released Friday by the National Association of Realtors. Current housing supply is at its lowest in two and a half years. Much of this, according to the NAR chief economist Lawrence Yun, can be attributed to the first-time buyer credit, prompting him, like many others in the industry, to hope for an extension—and even a possible expansion—of the credit past its deadline next month. First-time buyers accounted for more than 45 percent of the sales during the past year.

Sales in single-family, townhomes, condos and co-ops jumped to a seasonally adjusted rate of 5.57 million in September, up 9.4 percent from 5.10 million in August, and the highest since the 5.73 million sold in July 2007. In the Northeast, existing-home sales in September rose 4.4 percent to an annual level of 950,000, or 11.8 percent higher than September 2008. This is well-reflective of the market overall, as existing-home sales typically account for 85 to 90 percent of total home sales, according to the NAR.

Unsold inventory in existing homes is 15 percent below a year ago, and fell 7.5 percent from August to September, to 3.63 million units, which represents a 7.8-month supply at the current sales pace, vs. a 9.3-month supply in August. However, the median price for existing homes in September was $174,900—8.5 percent lower than September 2008, although NAR attributes the low number in part to distressed properties—29 percent of transactions in September were in distressed homes. In the Northeast, median price was $234,700, down 7 percent from last year.

NAR President Charles McMillan, a residential broker in Dallas-Fort Worth, pointed out that home price-to-income ratio has fallen below the historical average and said that “affordability conditions this year are the highest on record dating back to 1970.” McMillean, as Yun and many others, also expressed concern about the first-time buyer credit expiration.

The Federal Reserve Board came out with its third-quarter report for New York on Wednesday, and amid “scattered signs of a pickup” since the last report across the rest of the economy, residential real estate is faring slightly better than other sectors.

As outlined in previous reports on this blog, the signs are mixed.

1. Not Yet A Bottom, But Turning A Corner as Sales Surge
2. Tide Turning, Condition Still Critical
3. The Fall Inventory: A Possible Return to Normalcy

FRB states that, especially in the high-end sector, the residential real estate market is generally weaker: prices and rents, while up from the worst levels of the second quarter, continued to slide. Delinquency rates are rising, on both commercial and consumer mortgages. But while credit is still becoming tighter, loan demand for residential mortgages has actually inched up while declining in other sectors: 38 percent of bankers reported higher demand, while only 16 percent reported a decrease, despite the tightness of standards.

Sales in the Manhattan apartment market rebounded since the lows of the second quarter, but are still lower than last year. To compound it, prices continued to decline and are 18 percent lower per square foot compared to last year. Inventory has tightened, but days on market have increased, and landlords reported having to offer more perks, like one or more months free rent, on rental units, already fetching 10 percent less than last year. Vacancy rates, while finally coming off their highs, are expected to rise again in the winter season. While meager, these results are slightly more encouraging when compared with the rest of the economy: in commercial real state, Manhattan vacancy rates continued to rise through the third quarter, and rents are 20 percent lower from last year, not 10 as in residential-and don’t account for perks.

Elsewhere, auto sales have dropped sharply, although that partially corresponds to the end of the cash-for-clunkers program. Retailers said sales have improved slightly, as did consumer confidence, but tourism remains slow. The labor markets continue their slump, aside from the manufacturing sector, which reported moderate increase in activity. There’s no hiring across sectors, aside from finance-there, however, compensation not counting bonuses has “fallen sharply.” The report does, however, come across as cautiously optimistic: most of the people contacted for the information, while not exuberant, do anticipate a better fourth quarter.

The average for a 30-year jumbo loan has just fallen below 6 percent, according to research firm HSH’s Market Trends newsletter, to 5.96 percent. That is the lowest interest rate since September 2005. Meanwhile, the average conforming 30-year fixed-rate mortgage with no points averaged 5.9 percent last Wednesday, one of its lowest this year, while the overall average, which includes conforming, jumbo and agency jumbo for 30-year fixed rates, lost 0.06 percent, pulling HSH’s Fixed-Rate Mortgage Indicator (FRMI) to 5.35 percent, and the FRMI 5/1 Hybrid ARM dropped 0.07 percent to 4.67.

Whether that’s good news or a time to be wary remains to be seen: more high-end homeowners are undergoing foreclosures, according to the Wall Street Journal: 30 percent of foreclosures in June were on homes in top third tier of housing values, from 16 percent three years ago, while the bottom one-third is now only 35 percent of foreclosures, down from 55 percent in the the same timer period.

HSH seems to believe that things are improving in the private non-conforming mortgages, noting that “jumbos have sported a lower average rate in just 49 of the 509 weeks which have elapsed since Y2K — and that the “bottom of the bottom” noted during that period was only about 40 basis points (.40%) below this week’s figure.”

BusinessWeek points out that appraisers are following more stringent standards, making it more difficult to get qualified large loans. Meanwhile, they cite data from the Mortgage Bankers Association that home purchase prices are up 13 percent, and 18 percent for refinances. It’s a mixed bag, but maybe lightening up with better news soon.

Numbers unveiled recently by Miller Samuel for the third quarter Manhattan co-op and condo market paint a mixed picture: the median sales for re-sales rose 3.4 percent, to $750,000, and is the first quarter increase in over a year–but that remains 8 percent lower than the prior year quarter’s median of $815,000. New development sales rose to $1,150,000, or 7.5 percent higher than the second quarter, and are actually 1.3 percent higher than prior year quarter’s $1,135,000; however, as percent of market share, new sales now only account for 22.2 percent, the lowest in two years, causing overall median price to be $850,000, just 1.7 percent higher than the second quarter, and 8.4 percent lower than prior year quarter. The average sales price rose 0.8 percent from the second quarter, which is 10.6 percent lower than prior year quarter. More troublesome is the average price per square foot: at $996, it is 5.7 percent lower than the second quarter, and 16.5 percent lower than the prior year quarter. This is the first time price per square foot is below $1,000 since the fourth quarter of 2006.

Number of sales overall rose a whopping 45.6 percent, to 2,230, compared to 1,532 in the second quarter, significantly higher than seasonal trends–but that is still 16 percent less that prior year quarter’s. Due to the increases in sales, inventory fell to 8,389 units, or 10.5 percent lower than the second quarter, and is 4.6 percent lower than the prior year quarter. The surge can be attributed to the $8,000 first-time home-buyer credit, low mortgage rates, and increased confidence from the 24-percent rise on the Dow Jones Industrial Average over the past six months–but the rising unemployment, continued layoffs in the finance industry, the expiration of the buyer credit at the end of November, and restrictive mortgage practices signify that that it’s not yet time to celebrate. To drive the point home, there’s one more stat to take into account: Days on market rose slightly compared to second quarter, from 162 to 167. Bu that is almost 25 percent longer than the 134 days on market in the prior year quarter.

In the co-op market, median sales price was $630,000, 2.9 percent lower than the second quarter, and 8.4 percent lower than prior year quarter. Average sales was $1,005,744–5.9 percent lower than second quarter, and 13.4 percent down from prior year quarter. Per square foot, the $866 is 5.6 percent less than second quarter, and 18 percent lower than the $1,056 in the prior year quarter. It’s the first time the indicator is below $900 in 10 consecutive quarters. By region, the east side remains highest, at $916 per square foot, but 19.8 percent lower than prior year quarter. Downtown was $847, down 18.3 percent; west side was $867, down 18.8 percent; and uptown was $594, down 13 percent.

Co-op sales surged 36.7 percent from second to third quarter, to 995, and were significantly better than the 414 sales in the first quarter of 2009, the lowest since 1995 - but this quarter sales are still 26.2 percent below the prior year quarter. Listing inventory, at 3,840 units at the end of the this quarter, was 9 percent below the prior year quarter, and 12.7 percent below second quarter ‘09. Days on market were 134, a week less than the 141 days in the second quarter, and only slightly higher than the 126 days in prior year quarter. But listing discount is now at 12.5 percent, compared to 8.7 percent in the second quarter and 3 percent in the prior year quarter.

In the condo market, the media sales price of $1,015,124 is 1.6 percent higher than second quarter, but is down 16.8 percent from the prior year quarter. The average sales prices was $1,579,438–3 percent higher than second quarter, but 12.7 percent lower than prior year quarter. Per square foot, however, $1,101 is lower both compared to second quarter and to prior year quarter, by 6.8 and 17.5 percent, respectively. The larger declines occurred in the higher-end units, resulting in an increase of market share in 3-bedroom apartments from 5 to 15 percent year over year.

Not accounting for units ready for sale but not yet listed, inventory fell 0.6 percent compared to last year–but, at 4,549 units, is 8.6 percent lower than second quarter this year. Sales rose sharply from the second quarter, from 804 to 1,235 units in re-sale and new developments, or 53.6 percent higher. That is still 5.4 percent below the 1,306 units sold in the prior year quarter. Days on market continue to rise, to 194 days, or above six months, compared to 181 days and 143 days in the second quarter and this period last year, respectively. Split up, the days-on-market numbers reveal more: Re-sales stayed on market 133 days, similar to the 134 days on market for condos. But new developments were on market an average of 293 days (excluding shadow inventory)–significantly higher than the 192 days in the prior year quarter, reflective of the continued turbulence in new development underwriting in the city. The report further cautions that the “shadow inventory” is estimated to be larger than the current total of both re-sale and new development listings.

In the luxury market, trends were similar to the overall market, with double-digit declines compared to last year and mixed results compared to the second quarter. Median sales price was $3,905,000, 6.7 percent higher than the second quarter and 2.9 percent down from last year. It’s the second lowest level in two years. Average sales price was $4,881,561–2.6 percent higher than the second quarter, and 15.7 percent below last year’s. Per square foot, however, the $1,655 price is lower than both the second quarter and the prior year quarter, by 10.4 and 20.2 percent, respectively.

Luxury inventory has declined 12.4 percent from the second quarter, to 1,616 units, which is 0.6 percent lower than the prior year quarter. New developments are taking a larger share of the luxury market–39.9 percent compared to the 32.6 percent in the prior year quarter, while new development inventory overall has dropped from 30.6 to 25.7 percent in the same period. Days on market for luxury listings is now 181 days, or two months longer that in the prior year quarter, and one day less than the second quarter. Listing discount was 4.1 percent, compared to 8.6 percent in the second quarter, but just 2.9 percent in the prior year quarter.

The loft market saw declines across the board: median sales price was $1,500,000, 19.5 percent lower than the second quarter, and 21.9 percent lower than prior year quarter. Average price of $1,778,140 was 8.5 and 19.6 percent lower compared to second quarter and prior year quarter, respectively. Per square foot, $1,027 is 14.2 and 19.6 percent down from second quarter and prior year quarter, respectively. Sales were up 72.2 percent from second quarter, to 124 lofts, which is 44.9 percent lower than the 225 in the prior year quarter. Inventory fell to 623 units, 15.5 and 25 percent lower compared to second quarter and prior year quarter, respectively. Days on market rose from 130 to 137 days compared to last year, but are just one day less than the second quarter. Listing discount rose to 7.7 percent, compared to 7.2 percent in the second quarter, but almost tripled compared to the 2.4 percent last year.

This week has wrapped up with a bang: following the S&P/Case-Schiller and the National Association of Realtors numbers released earlier Tide Turning, Condition Still Critical on a turnaround in New York house prices, as well as good news about the fall inventory The Fall Inventory: A Possible Return to Normalcy, more reports released today indicate Manhattan home sales rising 46 to 69 percent from second to third quarter, according to data analyzed by the Associated Press.

It seems buyers who sat out the first half of the year were finally emboldened to step in: sellers got 95 percent of their asking price in the third quarter, from 93 percent in the second quarter, according to Brown Harris Stevens and Halstead Property, and the number of unsold apartments on the market has dropped from a peak in April, according to StreetEasy.com. And while median prices in the third quarter fell 2 percent from the second quarter, ranging from $760,00 to $850,000, or down between 8 and 18 percent from last year, Prudential Douglas Elliman reported a 2 percent increase in the third quarter.

Analysts still caution against celebrating a bottom, however: 6,000 condos are ready to go on sale by developers wrapping up projects started during the boom, and the Nov. 30 expiration of the $8,000 first-time home-buyers credit will likely cool the buying spree, despite over a dozen bills introduced in Congress in an effort to extend the credit in some shape. Nonetheless, this should be a weekend to breathe a sigh of relief for the trampled but resilient New York real estate industry.

The tide is turning nationwide, according to the S&P/Case-Shiller index, and New York real estate is doing better than average: from June to July, U.S. house prices rose by 1.6 percent, with 18 out of 20 U.S. cities reporting gains, with New York reported to have the seventh best housing market measure in the study. This was the third consecutive month-to-month gain and the biggest monthly gain in four years, although prices are still far off from the 2006 peak. Overall home prices are now at 2003 levels, still off by 32.6 percent from 2006.

Moreover, data released by the National Association of Realtors showing deals signed but not yet completed indicated that pending sales rose by 6.4 percent in August, up by 12.4 percent from last year. In the northeast, sales rose by 8.2 percent. The rise is partially attributed to the $8,000 tax credit to first-time home buyers–which expire next month–as well as the Federal Reserve’s buying of mortgage-backed securities–which is now being slowed down. This prompted Dallas Fed President Richard Fisher to caution that “this is a sector on life support.”

New York metro home prices rose 0.8 percent in July, making them 10.3 percent down compared to last year, dragging back up from the 12.4-percent drop in 2009 thus far. San Francisco, Minneapolis, Chicago and Atlanta saw the biggest rises, while Seattle and Las Vegas were the only cities surveyed with home prices falling. Compared to January 2000 levels, New York has kept 74 percent of its price appreciation, or the second highest among the cities tracked, after Washington, which has kept 76 percent.

After a bleak 12 months since the collapse of Lehman Brothers, New York real estate market is suddenly doing something few had expected: it’s behaving much the same as it did this time last year. While there was little activity during the winter, and the usually bustling spring season proved disappointing, the summer was uncharacteristically busy, with contract signings finally picking up. Since Labor Day, however, the market appears normalized, if only in the number of units entering the market.

According to listings data analyzed by The New York Times, the number of listings added since Labor Day in Manhattan was remarkably close to the increase last year. StreetEasy.com, for example, had 462 additional apartment listings after Labor Day, compared to last year’s 472. The asking price, however, is still almost 25 % lower, prompting industry professionals to speculate that we are not yet in an upswing, although it is likely the beginning of a sideways market.

Other firms have experienced similar number: Prudential Douglas Elliman, for example, saw a 35 % spike the week before Labor Day compared to the same week in 2008, but a 30 % drop in listings the following week compared to 2008, keeping the overall numbers the same as last year.

This August’s overall inventory, according to data obtained by the Times, is 8,423 units, just 2.8 % higher than last August-but during the 12 months in between inventory has risen sharply, to over 11,000 units in March, or 35 % more than last August. According to StreetEasy’s Sofia Kim, two out of three real estate market indicators are positive: inventory is finally stabilizing, and this summer the number of transactions went up. However, prices, the third indicator, continue to drop: the median asking price as of the week ending Sept. 13 was $860,750, compared to $1,100,000 in 2008 and $1,050,000 in 2007. One other indicator to watch, however, is the unemployment rate, which reached a high of 9.7 % in August.

New listings in Manhattan since Labor Day are split 60/40 between co-ops and condos, with one-bedrooms taking the lead with 171 new listings (asking price of $675,000 this year, vs. $785,000 in 2007, $775,000 in 2008), two-bedrooms closely behind with 160 new listings ($1,250,000 this year vs. $1,412,500 in ‘07 and $1,599,500 in ‘08), 65 additional studios ($399,000 this year vs. $525,000 in ‘07 and $429,00 in ‘08) and 50 three-bedrooms. Only 16 new listings were for homes larger than three-bedrooms. No year-to-year data was available for boroughs outside Manhattan.

New York real estate has lost so much value over the past year that any rational investor should recognize that the market is bound to have under-valued opportunities there for the picking. Unfortunately, as Gary Keller pointed out in Realtor Magazine, the inherent irony of a buyer’s market is that the buyers are often too afraid of paying too much-precisely at the wrong time.

Buyers were most eager to clinch the deal last summer, when New York City real estate was at an all-time high, and smack in the middle of a seller’s market. Fear controlled the market then: wait too long and the profit train leaves without you. And fear still runs the game today: this time, the fear of overpaying. This type of buyer, who buys obsessively in a seller’s market and is afraid to pull the trigger in a buyer’s market, belongs to a category of investors convinced they can predict market tops and bottoms.

Those that think it impossible to outsmart the market instead go in for the long haul: not necessarily buying at the very bottom or selling at the very top, these investors do well over time by making calculated decisions, weighing risk and expecting a predictable, calculable return. They also depend on experts-not cocktail party chatter or talking-heads on TV-for advice. Seasoned agents and experienced mortgage professionals are the ones living in the market every day and can give the well-rounded perspective only an insider can have, and know how to sail through turbulent times.

What goes up does come down. What’s down now will eventually go back up, and nowhere is that more obvious that home values. Timing the peaks and valleys of the real estate economy is unrealistic-the only way to wealth in this business is equity buildup through mortgage debt paydown.

New data shows that an average Manhattan apartment now costs over 25 % less than last year—around $1.25 million. Sales are now down by more than half, and housing values are expected to plummet on average 29.5 % in 2009, according to Housing Predictor. Even rental vacancies are up, spurred no doubt by the scramble on the part of developers of many would-be condo projects all over the city to convert them into rental buildings.

But if these statistics seem dreadful, consider this: HP just upgraded its forecast for Manhattan by 3 %, while the fate of the other boroughs is, while perhaps not yet sunny, certainly less devastating. The Bronx, Brooklyn, Staten Island and Queens are projected to decline an average of 15.8 %. Further out of the city, where real estate prices did not gallop away quite as far during more prosperous times, the downswing is also not as steep: home prices in Buffalo, where almost half of all sales are foreclosures, is predicted to fall 12.2 % in 2009, while Albany is forecast to deflate 9.6 % and Rochester just 8.8 %. In Syracuse, despite rising layoffs, prices are forecast to drop 9.1 % and its homes are now some of the best values in the state. The buyers, it seems, are coming back, buoyed by low interest rates and emboldened by the first-time buyer’s tax credit doled out by the federal government.

Some of the more desirable markets, however, are still forecast for significant declines. Long Island homes are projected to deflate 20.3 % in 2009, while in Glen Falls, popular during boom times with bonus-laden Wall Streeters eyeing multi-million-dollar homes, prices are forecast to fall a total of 18.9 % for the year. Nonetheless, it appears at least the acceleration of the freefall is over, and a less tumultuous real estate market can be expected in 2010.

Two exceptional pieces of national economic news have buoyed the markets and raised hope for a recovery yet again. Combined, they show a picture of a national economy that has mostly recovered from the damage done to it by the financial sector.

The question now becomes if that recovery can be robust enough to outpace the damage that the financial meltdown did to the national labor market. The injury, that is, has proven easily healed, but was the blood loss too severe for the patient to recover?

Today, it was announced the economy shrank at an annualized pace of just 1% during the second quarter – a rate far removed from the roughly 6% of the first quarter.

Perhaps just as importantly for the New York City real estate market, national housing in prices in May rose for the first time in three years. In one sense, this reflects simply a combination of a mild return to normalcy with seasonal patterns. Still, it is the fourth straight month wherein the pace of decline from monthly year-on-year figures have slowed.

If this proves to be the point of stability for the national housing market, then average housing prices will have declined roughly one third of their total value over the course of the collapse of the bubble. 2009 is now 2003, at least in terms of home prices.

While only economists on the fringe of the mainstream have been seeing signs of a recovery, these two important figures have led some at the Fed and other important institutions to describe the state of things as a genuine easing of the economic malaise.

While the national housing market is more an aggregate of many different housing markets than a true “market” unto itself, the growth in home values in May is an important indicator that the nation’s economic free-fall ended some time before the beginning of the summer. The second quarter GDP figures confirm that suspicion.

Both of these statistics are a long way removed from a direct connection with the New York apartment market. Nonetheless, like so many markets, New York’s real estate market won’t be able to recover until the national labor market stops its free-fall.

With GDP declining slowly, the declining housing market no longer siphoning off consumer demand from most sectors of the economy, and the bulk of the jobs money from the stimulus package about to enter the real economy, the stage seems set, at least, for a true recovery.

Mortgages rates fell for the second week in a row last week, perhaps demonstrating the power of the fed’s programs to ease mortgage rates.

The average thirty year rate fell considerably, from 5.32 percent to 5.2 percent. The average fifteen year rate now rests at roughly 4.69 percent.

The move downward in mortgage rates has led to a significant uptick in mortgage applications. The mortgage Banker’s Association reported an increase in its index of mortgage activity of roughly 11%. The bulk of this increase came from refinancing activity, though purchases of new homes also increased significantly.

Mortgage rates had been climbing in May, as concerns mounted that large levels of government debt would fuel future inflation rates. As the unemployment rate shot up to 9.5%, however, concerns over an over-heated economy seemed profoundly misplaced.

While demand for homes has been sluggish on both the New York and national level, questions have been asked of how much is attributed to the difficulty of buyers being able to find affordable financing. If the trend of the past two weeks continues during the next several months, a major impediment to a full economic recovery will have been removed. Such a recovery, of course, would still be subject to a rebound in the labor market, which has continued its sharp decline.

The fed’s plan involves the purchasing of roughly $1.25 trillion in mortgage backed securities. While there is little direct effect of this program on the New York real estate market, some economists doubt a national economic recovery can occur without such a plan in place.

The fed also predicts its key interest rate will stay below .5% for an extended period of time. A continued low rate at the fed will be a strong boon for both the national and New York real estate market.

In all, though the national economic news of the past two weeks has pointed towards a further prolonged, deep recession, developments in the financial sector suggest that the national housing market will rebound without the impediment of high mortgage rates.

Especially with Goldman Sach’s return to high profitability, it would seems the story of the economy is no longer that of a housing bust creating a finance bust creating a recession. Instead, the national economy, like the New York City real estate market, is now largely at the mercy of the national labor market.

Most of the talk in New York real estate circles these days has centered on the national recession, the pain it has caused the NYC apartment market, and when it’s all going to end.  The recent Deutche Bank report has fueled the debate, as have recent prognostications of a global recovery – most of latter having stemmed from perpetually overly-optimistic business writers.

While the perennial debate between optimists and pessimists plays itself out in the context of shrinking real estate valuations, the form that the eventual recovery will take is becoming clear.  The eventual construction resulting from the wretched attacks of September 11th with aid a revitalized downtown New York real estate market.  Manhattan is typically the strongest part of the New York apartment market, and changes in commercial real estate supply and demand will, in the long run, make the downtown area even more attractive to businesses and their employees.

A planned strengthening of public transport systems will also make the downtown area a more attractive place for businesses looking to headquarter themselves in New York City or relocate from other parts of the city.

Similarly, the strengthening of residential neighborhoods near the downtown area that occurred during the previous expansion has attracted additional retail activity.

In some ways, it seems like an odd argument:  In the downtown heart of business activity in the business capitol of the United States, additional business activity will help lead the Manhattan real estate market rebound more generally.

There are four major factors, though, that have pointed some observers towards such a conclusion:  First, the reconstruction of areas that were damaged or destroyed during the terrorist acts of September 11th.  Second, the changed market dynamics of residential neighborhoods near to the downtown area.  Third, a resulting further rejuvenation of retail activity.  And fourth, an uptick in supply and concordant downturn in demand for commercial real estate that, over the long run, will make the downtown an especially attractive place for new or relocating businesses.

The weak US dollar will similarly attract additional foreign demand for both the commercial and residential real estate market.  A disproportionate amount of that demand may end up being concentrated in the downtown area.

It’s not enough to fuel a recovery by itself – or even come close.  But what is clear is that when that recovery comes, look to downtown real estate and related neighborhoods to help lead the way.

Total sales volume and the value of properties sold in the second quarter both declined dramatically from last year, according to the latest second quarter numbers. Inventory rose dramatically from last year’s numbers.

While there was little room for optimism while reading the 2^nd quarter numbers, there was also little room for harbingers of doom: Prices are falling, but in a fashion that reflects the market adjusting to new demand levels – not a market whose bottom has fallen out.

It would seem that the 2^nd quarter of 2009 reflected a continued adjustment from the events of the previous two or three quarters.

Median prices of sales completed during the 2^nd quarter of 2009 were down 18.5% from the same period last year. Counting only re-sales – that is, not including figures from New Development sales  – the decline was a solid 25.6%.

While the total volume of sales was dramatically lower than its 2008 equivalent, typical seasonal patterns did hold, with sales volume in the 2^nd quarter up roughly 28% from the previous quarter, according to Prudential Douglas Elliman. A separate report seemed to indicate that the bulk of that sales activity has come not from new New Developments, but from resales.

Perhaps the single most important question left unanswered by the report was what was the relative role of higher mortgage rates. Are natural demand rates being depressed by developments in the financial industry, or is the demand itself depressed due, presumably, mostly to changes in the labor market?

Whatever the sources of reduced demand, sellers are feeling the pinch right now: The average New York City apartment that was sold during the 2^nd quarter was on the market for 162 days – up from 135 days.

Accordingly, sellers were willing to knock an average of 7.8% off of their listing price. While this figure is lower than one might intuit, it’s important to keep in mind that discounts in final sales price do not include the many other details on which sellers and co-op boards are willing to compromise.

Anecdotes quoted in the press have pointed in part to the lack of tolerance for not getting a deal. Sellers that are unwilling to compromise are viewed as obstinate and unnecessary obstacles to a good deal for the buyers.

All in all, the 2^nd quarter numbers seem to show that buyers not deterred by mortgage rates are moving aggressively to capitalize on current weakness.

At times like this, when large fluctuations in prices are occurring quickly but not systematically, the art of spotting a good deal becomes a whole lot trickier - and a whole lot more important.

A number of factors complicate the matter. The first and foremost of which is the role of your home in your personal finances. For most people, even for many exceptionally wealthy people, their home is their single largest investment. Keeping this fact in mind complicates the buying process. Finding the best deal becomes not a process of finding the lowest price on a reasonable piece of property, but a search for a New York City apartment that is also a quality long-term investment.

Second, at the end of the day, no matter how many great search engines and housing listings there are, nothing can substitute for the actual visiting of apartments. Homes are idiosyncratic things, and you’ll often find something that you really cherish, but that doesn’t necessarily add much to the final price tag. These types of almost quirky New York City apartments are often where you find the best deals, when you find the one that is just right for you.

It’s this type of apartment-to-apartment, on-foot searching that is often the most crucial stage of the buying process. It’s also where working with a buyer’s broker can save you an incredible amount of time and effort. Buyer’s brokers know the market like the back of their hand and aren’t interested in selling you something from a limited inventory.

One statistic that is particularly helpful in determining whether or not an apartment is a great deal is the price per square foot, not as it relates to all apartments in the city - though that’s helpful, too - but how that price relates to similar apartments.

A particular point to remember when on the prowl for deals: 20% off of a New York apartment that was 30% over-valued is still a bad deal. In this city, prices shot sky-high before the crash, and they are going to take a while to come back to earth. Right now, a lot of the price movement has been movement off peak prices - not off a more objective measure of the actual value of the apartments. All this is to say that you shouldn’t be dazzled by the difference between the current and previous asking price.

Sellers all too frequently confuse their hoped-for price with the actual price. Real estate markets function: If no one was buying at the previous price, it was for a reason.

It’s a funny thing about New York City: It is such a big market that stories that would normally be found in the “local” news section gets somehow transported to the desk of national news writers.

It’s nice that the city gets so much more attention. When national reporters write about New York stories, though, they often write with a broad brush, national perspective. That can lead to particularly bad coverage of local markets, the New York apartment market being first among them.

Such was the case with the Reuters article from last week that caused such a stir in the New York City real estate market. While local real estate reporters have long been aware of the time-lag between the NYC and national markets, Reuters printed an article that, with alarm bells ringing, states that the NYC market is experiencing a totally different part of the business cycle than most other major urban markets.

Yep. Pretty much any local writer or real estate agent could have told you that the New York apartment market entered the decline later than the real estate markets that helped lead us into this recession; and so, we’re not yet in recovery mode.

Like most markets, the New York real estate market isn’t chronologically in sync with the national market. That has been clear for years. When Reuters publishes a major article on the market, though, it apparently sees fit to ignore the quality reporting that many local writers have been humbly working on throughout the recession.

The bottom line: Yes, right now the New York market is weaker than most national markets, precisely because it has been so strong for so long. That current weakness doesn’t reflect an underlying shift in the fundamentals of the market. Rather, it simply means that developments in the New York real estate market lag the national market by at least two quarters.

That time lag comes in part from the city’s avoidance of the direct effects of the subprime crisis. The city’s co-ops’ higher standards for owners’ financing acted as an effective “second layer” of regulation, minimizing the number of New Yorkers with subprime loans. So, instead of the market being pulled down by the subprime mortgages themselves, it wasn’t until the securitized debt version of these subprime loans dragged down the rest of the financial sector that New York really started to feel the pinch.

That delay is ultimately a good thing. It means, though, that we got knocked down later, so we’ll get up a bit later, too.

in Manhattan real estate worst seen yet to come [ Reuters ]

The real estate market, in comparison to most markets, moves at a glacial pace. Housing and property are, after all, two of the most illiquid assets you can buy. That illiquidity makes sense: you can never move it; for most lots it’s hard to sell just part of it and keep the rest; holding it costs money; selling it costs money.

What keeps real estate looking so attractive to so many investors, however, are the potentially huge returns. All in all, though, the transaction costs are huge in any real estate market, and that keeps the market from responding as quickly as, say, stock or bond markets.

The glacial pace at which the national market moves is reflected in the New York real estate market. In fact, mainly because the New York market dodged most of the direct effects of the subprime crisis, a significant lag has developed between its price movements and other major national markets.

Like most markets, the real estate markets follow certain patterns. Economic geographic patterns of the business cycle being one of the most predictable. Usually, when the market is dragged down by macroeconomic events – like the New York apartment market was – marginal neighborhoods are hit first, then middle class ones, and then towards the end of the downturn, those luxury markets most insulated from the economic cycle take a hit.

This might be overstating the pattern a bit. All of this happens pretty quickly, but sometimes there is a lag of one or two quarters. We saw this happen with the New York apartment market, as Harlem and other neighborhoods watched property values plummet, even as new condo sales were keeping at least the average price of the luxury market afloat for some time.

Witness, though, the cold hand of time. Two major aspects of the high-end luxury New York apartment market, the Hamptons and new Manhattan condo sales, are coming back down to earth. Sales in April of new Manhattan condos fell roughly 70% from last year’s figures. This number was in part powered by developers and lenders’ unwillingness to lower their prices, relative to other sellers.

The Hamptons, the fabled summer playground of the wealthiest of New Yorkers – I’ve always preferred Martha’s Vineyard, myself – many properties are now selling for less than two thirds of their initial property values.

These markets are still stronger than many others within the larger picture of NYC real estate. The global recession, though, has finally, literally reached home – driving down the property values of those New York financiers that caused it.

The real estate market, in comparison to most markets, moves at a glacial pace. Housing and property are, after all, two of the most illiquid assets you can buy. That illiquidity makes sense: you can never move it; for most lots it’s hard to sell just part of it and keep the rest; holding it costs money; selling it costs money.

What keeps real estate looking so attractive to so many investors, however, are the potentially huge returns. All in all, though, the transaction costs are huge in any real estate market, and that keeps the market from responding as quickly as, say, stock or bond markets.

The glacial pace at which the national market moves is reflected in the New York real estate market. In fact, mainly because the New York market dodged most of the direct effects of the subprime crisis, a significant lag has developed between its price movements and other major national markets.

Like most markets, the real estate markets follow certain patterns. Economic geographic patterns of the business cycle being one of the most predictable. Usually, when the market is dragged down by macroeconomic events – like the New York apartment market was – marginal neighborhoods are hit first, then middle class ones, and then towards the end of the downturn, those luxury markets most insulated from the economic cycle take a hit.

This might be overstating the pattern a bit. All of this happens pretty quickly, but sometimes there is a lag of one or two quarters. We saw this happen with the New York apartment market, as Harlem and other neighborhoods watched property values plummet, even as new condo sales were keeping at least the average price of the luxury market afloat for some time.

Witness, though, the cold hand of time. Two major aspects of the high-end luxury New York apartment market, the Hamptons and new Manhattan condo sales, are coming back down to earth. Sales in April of new Manhattan condos fell roughly 70% from last year’s figures. This number was in part powered by developers and lenders’ unwillingness to lower their prices, relative to other sellers.

The Hamptons, the fabled summer playground of the wealthiest of New Yorkers – I’ve always preferred Martha’s Vineyard, myself – many properties are now selling for less than two thirds of their initial property values.

These markets are still stronger than many others within the larger picture of NYC real estate. The global recession, though, has finally, literally reached home – driving down the property values of those New York financiers that caused it.