Saturday, March 22, 2008

Bear Stearns Fallout

The most talked about topic in this city these days is Real Estate. Come to think of it, that is always a hot topic in this city. There has been much talk in the past two weeks about the effects that this fire sale in particular could have on the NYC real estate market.

First off, we must understand one major dynamic. The job of the press is to sell papers. There is an industry saying in the press, "If it bleeds, it reads!" This is something that we readers, may never notice until reading things with that thought in mind. Ninety percent of what we read in the news has a negative spin on it.

Secondly, I'll point out the obvious point. I am a licensed real estate professional. Of course, if the press is pointing out the negative aspects of the NYC sales market, I will point out the positives. In all honesty, I tend to look for positives in everything, but especially my business.

So in the interest of being a reporter, I will attempt to strike the middle ground between the two with this post. As when I am working with a client, I will simply make a list of the pros and cons of each side of the discussion. This way, we can all draw our own conclusions based upon our unique situations. To quote my godfather, "There's only one way to do things, the right way!"

The Bear Stearns situation has put everyone on red alert in the country. Stateside, gas prices have risen, we are five years into a war, this is an election year, then there was the Spitzer scandal here in NYC this month and as a result a major change in Government, so there is reason for conern for those with a cynical outlook. The Euro is still strong and so there are no worries there as Europeans make up roughly 30% of the market here. Historically, NYC runs insulated from the rest of the country in terms of it's real estate market. The numbers show that even when the rest of the country is suffering, the market here steadily rises over ten to twenty year perids. For every 5% dip in pricing over two to three years, there will be a rise of 5-15% directly behind that. This all begs the question, what makes the market in this city crash or rise?

To answer the question from above, the real estate market in this city does not crash. It may experience periodic corrections over a ten or twenty year period, but it just does not bottom out. Allow me to explain why this is the case. New York City is actually five boroughs, but most people think only of Manhattan when thinking of "the city". With this important fact in mind, realize that Manhattan is the smallest amount of acreage to develop out of all of the five boroughs, the most in demand and where most of the good paying jobs are. This makes it a cheetah in a land of camels. There is no doubt that there will always be an endless amount of interest, as Manhattan has that "wow" factor that no other area has. For decades, people have been drawn in by the skyline, the relative ease of getting around to all you can wish for, the endless supply of things to do, the simple ability to say "I live in the city!" There is only one city that comes to mind when this is said, so there is a certain aura that it has that can not be matched. This causes the market here to rise while the rest of the country will falter. There is always more demand than available supply. There is truth in the fact that with all of the new condominium development and the US economy in a recession (yes, a broker just said the dreaded "r" word!), the sales market may soften a bit due to a larger amount of inventory, but that will only make the rental market tighter and sellers smart enough to price somewhat lower than market in order to draw more interest the winners.

To present the flip side, 30,000 people are going to loose thier jobs in a job market which fuels the real estate market how can it not crash? This is simple. There will always be people with money, be it old or new, looking for a place in the city with the most to do. If we do get to a point where asking prices are 10% below the prior year's, which still has not happened even with all of the "when will the bubble burst?" talk, that would be offset in the following two to three years when enough people have snatched up the available inventory, so that there is a renewal of the lack of supply to offset the major demand model. This city has and always will be about that in every facet imaginable. Why do you think we spend $1000 more per month more to rent in Manhattan versus an outter borough and as a result, spend $1.00 minimum per item more on groceries or even just a cup of coffee. It's the mindset of "I want all of it now, even if I don't need it, just knowing that it's there and readily accessible, that makes me feel better!" that a lot of Americans have.

Our country is a consumer based economy and so people have an inherent nature to over spend. We are only now, with the Bear Stearns fallout, beginning to see the repurcussions of this after over eighty years of spending in America since the Great Depression. The federal government has been taking steps to stimulate the economy, though they are a bit too late to offset the Bear Stearns type situation. The bottom line is that this city has always been and will always be a sound investment for real estate for those looking for a gain over a five to ten year period. The days of the 15% increase in value over one year, are definitely behind us for a while. If you are a person who will make this city your home for that period of time, make sure that your current living situation is stable enough so that you can take your time with making a purchase. If you are a person looking for an investment with a fast turnaround, that requires more homework and also a keen eye for the most important factor in real estate in NYC. Location, location, location!

At the end of the day, this situation overall is not good for the real estate market here, no matter what any one says. It has caused a negative perception in the consumer's mind coupled with all of the spin the media puts on the housing market here. There will inevitably be more squeezing of the Charmin, or kicking of the tires so to speak. More people will take the rent and wait approach, which will cause a tighter vacancy rate than the historically low rates we have seen in the last three years. The only winners in that situation are the landlords who will be able to command higher rents as a direct result. People who take that approach are likely to hold out and miss the small window of opportunity that will come this year before the economy rebounds in 2009. They are the proverbial, "If it came that down that much, let's wait and see how much more it'll come down!" thinkers who don't know when it's time to crap or get off of the pot. This city is not going to bottom out, so any drops in pricing are likely to be minimal and short lived because of the unique nature of the market here.

Feel free to ad on with your thoughts.

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