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Residential Market Halts In Its Tracks

11/03/2008, By Candace Taylor

Residential market halts in its tracks

Stock market volatility paralyzes buyers and sellersNovember 03, 2008 04:45PM

Wall Street's recent wild volatility has caused the New York City real estate market to freeze in its tracks, with sales volume screeching to a halt and deals falling apart as potential buyers have watched their net worth evaporate. 

With the passage of the $700 billion financial rescue package on Oct. 3, analysts hoped the nationwide economy, mired in the credit crisis and housing slump, would show signs of improvement. 

Instead, the stock market saw wild volatility throughout the month of October, with frequent, jaw-dropping daily moves of 400 and 500 points. By late October, arguably the worst financial crisis since the Great Depression had gripped the nation, with more than $10 trillion erased from the market value of equities, credit-related losses topping $660 billion and the yield on the 30-year Treasury note falling to its lowest level in 30 years. 

"I feel like somebody just hit the pause button," said Halstead Property's Julia Boland. 

Though sales usually pick up between Labor Day and the holidays, this year was different, brokers said. 

"This fall's market is very atypical, because right now, there is no market," said David Berley, chairman of Walter & Samuels. "October has been extremely slow, and unless the credit markets settle down and open up, I don't expect November to be any better." 

The market's volatility paralyzed both buyers and sellers, who were hesitant to make or accept offers in the midst of so much uncertainty. 

"The fall market has been marred with fear, resulting in buyer hesitation," said Steen Rasmussen, a senior vice president at Warburg Realty. "I am aware of many homes currently for sale which would have received several offers this fall had it not been for the fear factor." 

The conditions worsened the months-long stalemate between buyers and sellers, with buyers looking for bargain-basement prices and sellers reluctant to drop their prices. 

"Buyers are putting in low offers on several properties at a time, so they aren't putting money at risk," said Steve Ganz, a managing director at CORE Group Marketing. "Sellers are hesitant to sell at these low numbers, having seen higher comps so recently." 

At the end of September, according to the most recent figures available, there were 7,345 apartments for sale in Manhattan — a leap of 33.8 percent over September 2007, and 14.4 percent more than the previous month, according to Jonathan Miller, the president of the real estate appraisal company Miller Samuel. 

Miller said it's normal for many sellers to take their homes off the market during the slow summer months. "We generally expect a rise in inventory over this period as the sales are outpaced by new listings entering the market," he said. 

Still, this year's increase in inventory between August and September was larger than normal. Last year, it was 12.1 percent, compared to 4.3 percent in 2006 and 18.6 percent in 2005. 

Rental vacancy continued its upward trend from 1.39 percent in August to 1.46 percent in September, according to Citi Habitats, while average rents in nearly all categories of apartments fell. 

Brokers and developers struggled to salvage the sales they'd already made, as banks tightened lending restrictions and many buyers panicked in the face of uncertainty. 

"Deals are difficult to hold together as on all sides of the transaction, there are nervous people," said Jacky Teplitzky, a managing director at Prudential Douglas Elliman. "If the Dow falls too much during the contract negotiation process, the buyers start having second thoughts." 

Other buyers are demanding lower prices for units they've already signed contracts for. 

"What has also been noticeable this fall is the number of buyers who have demanded to renegotiate their deal after their accepted offer and/or in the days before the closing, on average of 5 to 10 percent below the originally agreed-upon price," Rasmussen said. 

And even the most well-qualified buyers are continuing to experience trouble getting financing. 

"I have 10 deals on my desk right now, and you would have thought they would go one, two, three," said Ross Weinstein, a managing partner at Union Square Mortgage. "But they're taking forever. These are highly qualified buyers who are putting 40 to 50 percent down." 

Still, many brokers are finding reasons for optimism, reasoning that conditions can only improve as the stock market volatility subsides. 

"October was tough because of all the bad news stemming from Wall Street," said Michael Signet, executive director of sales at Bond New York. "November should be better because many of the government programs to stabilize things will go into place, giving investors and potential buyers of real estate more of a sense of confidence." 

"Humans can only remain in a state of fear for so long," Rasmussen said. "I expect November to be when both buyers and sellers come to terms with the new reality." 

Battening down the hatches 

This month, the nationwide housing slump hit home for New Yorkers for the first time, as Wall Street's woes gave New York City a major taste of the uncertainty that has plagued the rest of the country for months. Here's a sample of what real estate professionals had to say about market conditions in response to The Real Deal's monthly Manhattan residential survey. 

"It's going to be a cold winter, but we actually like it because it separates the men from the boys. Transaction volume is down, but the best agents know how to capture those deals that do happen." Barak Dunayer, president, Barak Realty 

"The good stuff gets gone, and B+ and below aren't even looked at. Only top-notch properties are doing well." Darren Sukenik, executive vice president, Prudential Douglas Elliman 

"Despite the challenges, everyone is trying to be optimistic. We talk about how you have to be creative to make deals happen in the current market. Unless your buyers have excellent credit scores and liquidity, many people do not qualify for mortgages." Lily Insogna, sales agent, DJK Residential 

"Brokers, like everyone else, are waiting to see how the market will pan out. No one has definitive answers as to what will happen with the economy." Andres Hogg, U.S. general manager, Espais Promocions Immobiliàries 

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