Local Real Estate Market Heating Up, But Will it Last?

By Victoria Finkle
A surge of sales has transformed the Upper West Side real estate market in recent weeks, as brokers suddenly find open houses packed, buyers willing to make realistic offers, and even, at times, bidding wars. Indeed, the local housing market appears rejuvenated through the first month or so of the new year. And yet, brokers, economists, and appraisers do not sit easy. The market has been lifted, in part, by temporary factors. In short, prices could see another messy drop in the second half of the year.

The rebound, at least in the short term, has breathed new life into the real estate market. A year ago, Klara Madlin, the president of Klara Madlin Real Estate on West 80th Street, was getting a lot of reading done. “You’d sit at an open house and read your book and nobody would come.” Not anymore. Open houses in the neighborhood have been “packed the last couple of weekends, even with the pouring rain and cold.”

With potential buyers and sellers returning, it appears that Upper West Siders may have survived the worst of the housing slump. The first quarter of 2009 sent a shock through the market, with the number of closings on the Upper West Side falling 65 percent from the third quarter of 2008 (prior to the Lehman Brothers collapse), according to data from StreetEasy.com. Neighborhood prices hit their nadir a few months later, with average sales prices falling 18 percent between the third quarter of 2008 and the second quarter of 2009.

The second half of 2009 suggested the beginnings of a turnaround, as contract activity increased. Though average prices for the neighborhood are still down about 8 percent relative to the third quarter of 2008, the number of closings is actually up 4 percent from just before the crash, according to data from the fourth quarter of 2009.

And one month into 2010, the burst of activity continues, according to brokers Noah Rosenblatt, founder of UrbanDigs.com, and Malcolm Carter, Senior Vice President at Charles Rutenberg Realty. Carter counted 88 signed contracts in just one week last month; apartment closings are also up, reflecting increased activity over the last few months. Rosenblatt pointed to apartments like this 3-bedroom at 490 West End Avenue that suddenly went into contract last month after languishing on the market for nearly a year.

Such sales activity shows that buyers and sellers are not only out testing the waters at open houses, but also are coming out of financial hibernation. Further, both buyers and sellers seem to be adjusting their pricing expectations, creating a more stable market.

Now that sellers have cut prices, brokers are seeing multiple bids on properties and even bidding wars in some cases, according to both Carter and Madlin, as well as several other Upper West Side brokers interviewed. “When good inventory becomes available or good properties have their prices cut, that’s when they fly off the shelves,” says Carter.

There are several factors currently drawing potential buyers to the market. In part, those who may have been uncertain about buying in 2009 are turning out, releasing some pent up demand. Additionally, mortgage interest rates remain at near-historic lows, and Congress extended and expanded the First-Time Homebuyer’s Tax Credit, a fully refundable credit worth up to $8,000, in November 2009 for homes purchases completed by June 2010.

The tax credit convinced one potential Upper West Side buyer to look at properties. Melissa Tan, a 27-year-old finance worker, emphasized that “the tax credit is a very attractive incentive,” as are the low neighborhood prices, compared to earlier years.

Tan has already visited more than 20 properties since the beginning of the year, looking to find “a place I love to call home” on the Upper West Side, an area she credits for its diversity and its “nice mix of people.” While she acknowledges that prices might not have reached their lowest point, Ms. Tan says she doubts that there “will be another big drop” given how well prices here have held up relative to many other parts of the country.

At the same time, the inventory of homes for sale is showing signs of leveling off, which could further stabilize the market and increase competition among interested buyers. “Inventory levels are higher than they were five quarters ago, but the rate at which they come onto market has slowed down,” according to Sofia Song, Vice President of Research for StreetEasy.com. The number of listings on the Upper West Side is up about 22 percent since the third quarter of 2008, as recorded at the end of 2009.

Nevertheless, while the situation may look promising in these first few weeks of 2010, “the second half of the year is much more of a question mark,” cautions Jonathan Miller, a prominent appraiser described in a 2007 New York Magazine profile as the “Wikipedia of Manhattan real estate.” Prices might again slip following the spring season, which is typically the busiest in the housing market, according to Miller.

Song remains similarly cautious. “The rate of descent in prices is slowing,” but it is too early to know if they have bottomed out.

“Miki” Fiegel Picinich, owner of Miki Fiegel Real Estate, located on West End Ave, is wary about the coming year as well. “My sense is that we’re still going to see an erosion, though not like last year. But I don’t think we’ve hit the bottom and I don’t think we’ve leveled off quite yet.”

Why the less-than-optimistic forecasts, despite increasing market activity?

First, the very low interest rates and the homebuyer tax credit are not expected to last through the end of the year. The Federal Reserve has signaled that it is going to withdraw from the mortgage-backed securities market, possibly by the end of March, which could potentially cause a material rise in interest rates. And Congress has signaled that it does not plan to further extend the tax credit beyond this spring.

Second, access to credit remains extremely tight, significantly restricting the number of serious buyers. According to a Federal Reserve survey released this week, 17 percent of banks further tightened credit standards for approving prime residential mortgages in the past three months. While this figure is significantly below the peak from July 2008, when about 75 percent of banks reported tightening standards, less than 4 percent of banks reported actually easing restrictions in the most recent survey, which suggests that banks remain very cautious about lending.

Miller notes that lending practices have also become a bit of a moving target in the last few years. “The standards for lending requirements change all the time. So you may think at the time of application that you qualify, and then two weeks before closing you don’t,” he says.

Financing issues are restricting sellers as well. Banks have “ratcheted up their requirements not only for the buyer, but for the building itself,” according to Fiegel. “They ask far more penetrating questions for the buildings than usual, and then the buyers have to be triple gold-plated.”

Fiegel says that she recently lost three deals in a pre-war condo conversion on the Upper West Side, thanks to increased bank scrutiny of the building’s finances. After the lending bank reviewed the deal the developer had struck with her buyers, it demanded a 15 percent increase on the sale price, “and my buyers balked and walked,” according to Fiegel.

Of course, there are some who remain more optimistic about the coming year. “I don’t think it’s either a buyer’s or a seller’s market. But it threatens to go in either direction,” says Carter, in surveying the year ahead.

“I think it is somewhat a reduction of prices, it’s the interests rates, and it’s the stability of knowledge” that are attracting buyers right now, says Michael Goldenberg, Executive Director of Sales for the Westside of Manhattan for Halstead Property. Based on open house attendance, “we have no reason to believe the demand part is going to go down.”

Nevertheless, as Goldenberg points out, whether or not current demand sustains itself over the next eleven months is really “the $64,000 question.” (top photo by ShellyS via flickr. Other photos by Jamie of From Me to You.)