LuxuryBlurb

There seems to be growing consensus that the US real estate market has indeed bottomed out. Reuters reports today that the number of transactions, pricing and general mood indicate stabilization. Price increases are unlikely this year, but are expected next year. In Manhattan we are not seeing pricing rise, but we are seeing offers off asking eased upwards, closer to asking. The number of contracts signed at or over asking has increased dramatically over the past 6 weeks, but mostly on well priced properties.

The first time/trade-up home buyer tax credit will expire soon: Qualified borrowers need to sign contracts by April 30 and close loans by June 30 to get the $8,000 first-time buyer credit or $6,500 move-up credit. How will this combined with the Fed ending its mortgage securities buy-back program affect our market?  Probably not at all in Manhattan. With income earners above $ 150k experiencing 3% unemployment, the ails of Manhattan are very different to the rest of the USA.

What do you think?

Today’s CRAINS posts an interesting article about a distressed debt fund shutting down as they see an end to the deals associated with really bad times….this runs parallel to what we are seeing in real estate: the REAL bargain days are officially over. With more bidders emerging on well priced quality units, the single low-ball-bidder is being out-priced. Now its back to good old fashioned value hunting. Always more difficult. Click on this link to read the full article…

http://www.crainsnewyork.com/article/20100215/FREE/100219941

The Manhattan LUXURY real estate market is a market that addresses about 10% of the population….the very wealthy. The top 10% is experiencing what economists would consider full employment. Maybe this explains the very active real estate market we are witnessing?

According to a study from Northeastern University’s Center for Labor Studies, unemployment for those in the top income decile–individuals earning more than $150,000 a year–was 3% in the fourth quarter of 2009. That compares with unemployment of 31% for the bottom 10% of income, and unemployment of 9% for the middle decile. The differing rates of underemployment–including those working part-time for economic reasons–are also notable. Underemployment for the top 10% was 1.6%, while the bottom was 21%.

The report added that, “There was no labor market recession for the nation’s affluent.”

This would be news, of course, to the tens of thousands of people laid off in finance and other white-collar occupations. And it is unclear how the numbers compare with prerecession employment numbers.

Yet the numbers may suggest an emerging theme in our economy: The wealthy/luxury market is recovering while the rest of the country isn’t. As such, the data raise questions about the theory behind what is informally known as “trickle down” economics, since full employment at the top doesn’t seem to be translating into more jobs below. Of course, the current environment may be the exception, with the global financial crisis making the preservation of capital far more important than chasing even modest returns on investment. And real estate is a good money placement option when big returns are not expected…..especially if its your home.

We hear the Four Season’s Hotel is being actively marketed….The magnificent hotel located on 57th Street has room rates STARTING around $ 1,000/night. This made us think: For anyone visiting for 10 days or so per month, $ 10,000.00/month would pay the mortgage and monthly charges for an apartment that sells for around $ 1.75million. It is not surprising so many people buy a pied a terre in Manhattan, especially in full service buildings. What do you think?

The new building planned for the corner of Tenth Avenue and 23rd Street looks like it will happen! The project was recently sold to a Chicago based group. Most of the foundation work is completed already so the project could be completed a lot sooner than expected, depending of course on how fast or slow the builders and City take to put it together. Steps from the next entrance to the Highline Park and just a block away from the new CHELSEA COVE park that will open in Spring 2010, this will certainly be a welcome addition to this thriving neighborhood. We kinda like the building, although not nearly as creative as its neighbor HL23. Lets face it: it could have looked a lot worse!

The New York Times published a story about how the oldest New York families appeared dowdy and obsolete in the boom years, yet now they appear quite brilliant: “What distinguishes the families from other real estate players is that they buy property but rarely sell. They usually have relatively low levels of debt on their buildings, and they do a couple of projects every economic cycle rather than go on a binge”. The message here is important to the luxury real estate market: the very wealthy usually only sell when they want to. Rarely do they get cornered into forced sales. This is what can explain why pricing on the best Manhattan condominiums, co-ops and townhouses has remained relatively stable, obviously with a few exceptions. The co-op system also eliminates the Lottery winner buyer syndrome. We know of many wealthy people who never sell their properties and live in the same place for VERY extended periods of time. Often they gift these properties to kids, or rent them out before thinking of a sale. Not great for brokers, but good for a healthy real estate market.

With all the outrage about bonuses, we thought we should examine the subject further. What is fair?

Are banker bonuses unfair if they are paid as a result of strong performance? We don’t think so. Especially if the shareholders are compensated equally. They seem extremely unfair if they are paid out regardless of performance. The system we have, like it or not, rewards people for exceptional performance. Is it fair that OPRAH, Tiger Woods, George Soros, Madonna, Derek Jeter, Steven Spielberg, Britney Spears, Conan O’Brien, Jay-Z, Alex Rodriguez, Ben Stiller, Rush Limbaugh,etc  earn millions per month? Is it fair that the top 40 Hollywood earners (combined earned over $ 1.3 Billion in 2009) are paid so much for making movies even if they are bad? (Sometimes bad movies make big dollars!) Is it fair that sports figures earn millions even if they don’t perform well?

Lets remember where the money goes: big earners pay BIG taxes. They spend big and pay even more taxes when they spend in sales taxes. They own large, expensive properties (and pay LOTS of real estate taxes and hire LOTS of people to maintain and improve these properties). They also buy and sell lots of property, thus generating transfer taxes with each transaction. When they die, they have to pay more taxes…estate taxes. Yes, they have sophisticated accountants to create fancy loopholes (more jobs), but often the savings are held in trusts that generate income to heirs (who also spend lots, thereby generating tax dollars and jobs).

Should they pay more taxes? We suspect that if taxes are raised, so too will incomes, possibly at the expense of jobs. Worse, when rich people want more money, they usually charge more for their products, which is a form of taxing the little people who buy them. Example: If AVATAR’S Mr. Cameron has his taxes raised by 10%, what will stop him from charging an extra 50c at the movie theater? That’s a disguised tax on the masses, no?

What do you think?