Archive for February, 2010
Monday, February 22nd, 2010
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?
Friday, February 19th, 2010
Under pressure to do more for troubled homeowners, President Obama is expected to announce to-day a $1.5 billion program to help borrowers in the five states hit hardest by the housing crisis. The initiative calls for pumping money into state housing agencies in California, Arizona, Nevada, Florida and Michigan to fund programs to prevent foreclosure for people who are unemployed or who owe more than their homes are worth. Also, the agencies can assist homeowners having trouble securing loan modifications because of second liens, as well as promote affordable housing opportunities.
Obama is scheduled to unveil the initiative, which will be funded with money from the TARP bank bailout, at events in Nevada, which has the highest number of underwater homeowners at 65% and the nation’s second-highest unemployment rate at 13%. The president will be joined by Senate Majority Leader Harry Reid, D-Nev., who is facing a tough relection campaign…..maybe this is all designed to help Mr. Reid’s re-election efforts?
The funds will be allocated based on a formula that takes into account home price declines and unemployment. The agencies’ programs must be approved by the Treasury Department. The move is the administration’s latest attempt to fix its signature foreclosure-prevention effort, the Home Affordable Modification Program, which has been widely panned for not doing enough.
The year-old initiative, which lowers qualified borrowers’ monthly payments to no more than 31% of pre-tax income, has placed more than one million people in trial modifications. But it has given lasting help to only 116,000 homeowners, mainly by lowering their interest rates. Consumer advocates and housing experts for months have called on Obama to expand the program to help the jobless and those suffering steep declines in their home value, two sectors that have received relatively little assistance from the modification effort. Administration officials repeated as recently as Wednesday that they were working on the problem, but that it was a complex issue.
None of this affects the luxury market in New York, except to possibly add further debt to all taxpayers. It also highlights one of the biggest failures of the entire process: the unwillingness of banks and governments to re-value properties based on market realities. This ostrich-head-in-the-sand mentality is infuriating. But it is good for elections, although that remains to be seen.
Wednesday, February 17th, 2010
Today, reports came out on home groundbreaking. (Am I the only one annoyed at how figures are constantly ‘revised’?) So December’s figures were slightly inaccurate….why? And why the month-by-month-drama-queen reporting? I am a firm believer in watching pricing on a month by month basis, but it ceases to amaze me how many people formulate world-shattering conclusions from these monthly stats.
Groundbreaking activity for new homes increased 2.8 percent to a seasonally adjusted annual rate of 591,000 units, reversing the prior month’s weather-induced drop, a report from the Commerce Department showed on Wednesday. Analysts had expected housing starts to rise to a 580,000-unit pace. December’s housing starts were revised upwards to 575,000 units from the previously reported 557,000. Compared to January last year, starts surged 21.1 percent, the largest increase since April 2004. “It’s a positive surprise on all fronts and shows that overall demand has moved higher. That’s an important element to watch as we move through a cycle going from incentive-based to more organic growth,” said Craig Peckham, equity trading strategist at Jefferies & Co in New York.
In a separate report, the Federal Reserve said U.S. industrial production rose 0.9 percent, with manufacturing, mining and utilities all posting gains. The housing market has been a particular area of concern after a series of disappointing reports on December home sales. Some economists worry that with the Fed — the U.S. central bank — and the Treasury ending purchases of mortgage-related securities in the coming weeks, mortgage interest rates will rise, putting additional pressure on the still weak market.
In housing, groundbreaking for single-family homes rose 1.5 percent last month to an annual rate of 484,000 units after falling 3 percent in December. Starts for the volatile multifamily segment increased 9.2 percent to a 107,000-unit annual pace after rising 12.6 percent in December.
The housing market, which is at the core of the most painful economic downturn since the Great Depression, is crawling out of a three-year slump, supported by government programs. New home construction contributed to economic growth in the third quarter of 2009 for the first time since 2005.
While this is all good national news, do these figure have any bearing on the Manhattan luxury real estate market? In my mind the only effect it could have is on manhattanites wealth creation and confidence-boosting: The New York luxury real estate market has very little, if anything, to do with HOUSING. What do you think?
Tuesday, February 16th, 2010
Barclay’s announced its profits doubled! The world is alarmed! Nothing about this alarms me…. Think about the market share Barclay’s picked up when they took over Lehman, buying out the company at a bargain price. Think about the money made as the world population increased their savings in the past 12 months, while Barclay’s gets money at some of the lowest rates in history….. it all translates to PROFIT.
The reality is: we live in a profit-driven world. While everyone talks about their disbelief at the unemployment rates, doesn’t the system we live in drives this mechanism? Politicians on the LEFT and the RIGHT point fingers, talk lots, but none of them address the realities. When recession hits, most companies turn to firing staff as it is one of the largest operating costs. They consolidate responsibilities, they merge and fire more staff…..all designed to go to the bottom line. When the bottom line improves, so do stock prices, dividends, salaries and bonuses. The theory is that when things improve, companies hire more people. But what if these companies become accustomed to their new efficiencies AND increased profits? Do they hire again? Can we have low unemplyment AND fast recovering markets. Its either one or the other in my humble opinion, and the system we have in place actually rewards staffing cuts. We live in a world judged by quarterly results.
So how does this affect the luxury real estate market in Manhattan? Well, the top earners have very low unemployment…. And now they will receive large bonuses and salaries. Possibly larger than pre-great-recession times.These salaries and bonuses are TAXED heavily…..which fuels State and Federal coffers thereby reducing the need to cut government jobs further. The rich spend LOTS: this translates to more jobs at the retail level (hopefully). Spending generates lots of sales tax revenue. More money for the high end real estate market means more transfer taxes, stabilized pricing, lower inventory, etc. We see this increased activity every day now.
So when Barclays posts a doubled profit, who really benefits?
Monday, February 15th, 2010
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…
Monday, February 15th, 2010
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.
Thursday, February 11th, 2010
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?
Wednesday, February 10th, 2010
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!
Tuesday, February 9th, 2010
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.
Monday, February 8th, 2010
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?