The hot summer has turned into a cool winter as we enter the month of December. The summer rental frenzy has come to a close and sales are slower than in the past. Is this to indicate that the state of the market is taking a turn for the worse and the bubble has finally burst? Numerous economists argue both sides, but only one issue is clear; Manhattan prices may not be at their peak, but they are far from down.
According to Daniel Baum, COO of The Real Estate Group, NY, rental vacancies are still at record lows since the increase in availabilities. Prices have stabilized for the moment, but keep in mind; they are still 15% higher than last year. It is still a landlords market as there are not enough apartments for the influx of new residents that seek the city lifestyle. Once Spring and Summer 2007 roll around again, the frenzy will return due to new hirings and students entering post-secondary schools.
According to The Real Deal, JP Morgan hires 500 graduates every year and NYU and Columbia report surges in applications. Additionally, the majority of these people can not afford to purchase a home and will be forced to rent an apartment, reinforcing the tight market.
On the sales end of the market, prices have dropped as there is a disconnect between sellers and buyers. Sellers find themselves unwilling to reduce their price for their home as their neighbor was able to close at that amount. Buyers are unable and unwilling to pay such excessive amounts for a home and are waiting to see if the prices will drop.
To add to this unbalanced equation, two key sources of the housing demand are locked out of the market, avows Mark Zandi, chief economist for Moody's Economy.com. First time home buyers can not afford to buy given the mix of rising interest rates and still-high home prices. The other source is the speculators who can no longer benefit from dramatic assessment by flipping real estate.
Of course real estate in New York, according to some, is exempt from the bubble and follows a different set of rules. It is all about location and despite certain less desired neighborhoods may see a drastic decrease, there are only so many Fifth Avenue addresses available creating residences that will remain in demand. Such inimitable properties consist of the Plaza which offers buyers the potential to own a part of history. With that said, history can be repeated but not recreated, learning these properties the right to charge obscene amounts.
For those hopeful buyers seeking foreclosures and a dramatic downward slope in prices, stocks are still on the rise. The correlation? The stock market is famous for looking ahead according to BusinessWeek, indicating the market is still strong based upon investors not withdrawing their funds. In addition, Bob Carey, chief investment officer for the First Trust Advisers, says the stock market is 20% to 25% undervalued and will reach appreciation by next year.
According to Carey, the housing market is driven by income and jobs, and since corporate profits are extremely strong, the outlook for income and job growth is good. Therefore, with all the new hirings and end of the year bonuses, sales have slowed, but have not come to a halt. Sales are just becoming more realistic.