Tuesday, April 15, 2008

First Quarter Snapshot

Wow! We are only three months into 2008 and there's plenty to write about. For a quick overview of the changes in the rental market this year, click here NYC Rentals 1st Quarter2008

Political scandal has resulted in a change in government. There was a major change in the financial sector from the "flea market" sale of Bear Stearns. These two things bear directly on my field and have resulted in a major change in the real estate sector.

There are four types of consumers in any sales transaction, particularly a real estate transaction.

The buyer-These are people who are financial able to commit, due to a change in living situation, they have some sense of urgency to commit and thus are extremely motivated to commit.

The window shopper-These are people who lack one or more of the above qualities. Understandably, they as a direct result, have "commitment issues".

The investor-These are people who have two of the above qualities, as they usually have no urgency due to their living situation being stable. They purchase for the purpose of building a portfolio of assets and equity in those assets. These people are always buying, as it's more of a personality trait. Think back to the people you knew who were always good at Monopoly as a kid.

The seller-These people are in the driver's seat. While they may or may not have a deadline or any urgency, they have the supply in a city where this is scarce. Even with all of the new development, if that is all market value, a seller with an older condominium, has a slight advantage in pricing for those buyers who can't afford new development.

Across the board, these changes in our city and state have affected all three in various degrees. There has been steady if not increased turnout at open houses so far this year. This happens every year when the weather changes to spring. While those who are strong buyers have still been putting in offers, some buyers and even a few budding investors are turning into window shoppers. Unless you have a deadline, many are taking the "let's watch from the sideline" approach. We all know that to win the game, you have to be in the game.

The Federal Reserve has lowered mortgage rates to all time lows, but with the US economy where it is right now, people are more concerned with asking prices. What they fail to realize is that even if asking prices were to drop, if mortgage rates rise from 5.75% to 9% or even back into double digits, you are still at the same place over thirty years. In my experience, I have found that sellers are more likely to negotiate a bit now on asking price as a result of this uncertainty. They would rather take a sure offer within 10% of asking now rather than wait and perhaps settle for less. Many buyers are missing out on good deals and even some things above their budget by taking the "benchwarmer" approach. I refer to this as the “Chicken Little” syndrome. The sky will never fall in the NYC real estate market.

Dips in pricing of 5-10% every two out of twenty years are common. Dips of 4-5% in mortgages over the last twelve months are not. Right now, we are just entering that two year period. What will the mortgage rates do over the next 18 months is the real question?