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Wednesday, December 31, 2008

That resilient New York City

Wall Street is just about to finish the worst year since 1931. American housing markets are finishing their worst year in recorded history. New York’s economy is highly dependent on Wall Street...These three facts should have created the mother of all price crashes in New York City real estate...Yet New York’s housing prices are doing remarkably well relative to elsewhere in America.
Edward L. Glaeser, Harvard University.

economyA little light shone through the bleak economic news that I've been reading and posting to Newsreal lately. I ran across New York, New York: America’s Resilient City on the New York Times' Economix Blog, when it was tagged by a member on StreetEasy. Their commenters had a predictably negative take on it, since it points out that the name your own price Manhattan marketplace, is probably not anywhere close to a reality. In it, Harvard economist Edward Glaeser focuses on the historic resiliency of New York City in hard economic times, which he attributes to its ability to attract talented people, and the density in which we live. He puts his faith into the free exchange of ideas and the process of reinvention through innovation.

I hope that in the coming new year, economic stimulus and innovation go hand in hand. From the car manufacturers, to financial services and the oil companies, in 2008 we saw a business culture that fell asleep at the wheel because of entrenched market positions, hubris, and manipulation, rather than the creation of real value in their products. How could that not crash and burn eventually?

It took a national economic crisis to take the wind out of the sails of the Manhattan real estate market, even as the rest of the country was correcting for two years. I don't think that people should confuse that with a sinking ship. The wind eventually picks up again. Glaeser notes that Case-Schiller housing prices indicate a 7.5% drop in New York City prices compared with an 18% drop nationwide last year, faring much better than the rest of the country. Note that Case-Schiller tracks a more regional average of housing prices based on single family homes; so Manhattan coop/condo pricing may not be accurately reflected as a submarket. It would not surprise me if when our local market reports are released in January, the year over year picture is better than that. It is feeling pressure in 4Q 2008, but after looking at my year end bank statements, my money would have been better off being tied up in Manhattan properties rather than in stocks and bonds. The numbers indicate that Manhattan is still a place where people want to live, and unless that changes, housing will be in demand. Buyers looking for the "right" moment, should consider the favorable interest rates right now, the ample supply of apartments, the return of incentives and negotiating to our marketplace, and step boldly ahead.

New York, New York: America’s Resilient City »

Wednesday, December 31, 2008

Happy New Year!

beauty lives everywhere

Thanks to all our clients and customers for making 2008 the best one ever.

Thursday, December 11, 2008

The Son Also Rises: Donald Trump, Jr., on Real Estate Opportunities in Emerging Markets

I've been working on the last few deals of the year and started a re-write of some of the top level web site sections on buying and selling real estate to address the challenges and opportunities of today's market, these will post in January. So I've been distracted from posting to the center column of the blog for the past couple of weeks. Feed subscribers know that the latest stories on real estate from various media sources continue to be clipped to NewsReal in the right column, as I read them; and I'll be resuming regular postings soon. For the moment, I thought that you might enjoy this recent podcast with Donald Trump, Jr. from Knowledge@Wharton. It's a Manhattan centric interview that talks about the international investment market for real estate too.

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professional investorBack in the heady days of the real estate boom, property prices in New York City soared along with those in the rest of the U.S. When the subprime mortgage crisis hit and prices collapsed, the city's market held out longer than others— for two reasons. First, it is a major financial center with strong demand; and second, the weak dollar made it possible for international buyers and investors to find deals at discounts as high as 40%. Where will the New York market be in 2009? Where are the most attractive deals to be found in emerging markets? In a podcast recorded at the Knowledge@Wharton Real Estate Forum on Emerging Markets on December 2, Donald Trump, Jr., executive vice president of development and acquisitions at the Trump Organization, speaks about those questions and more. He also discusses how he views his unique contribution to expanding the Trump brand overseas, building on the foundation laid by his famous father.


Friday, November 28, 2008

The Fairness Issue: Coping with the Flood of Foreclosures

Is the cavalry coming to rescue troubled homeowners?
mortgage tightrope

economyDespite soaring foreclosure rates, President Bush and other Republicans have not made this a top priority, and Treasury Secretary Henry Paulson has refused to draw on the $700 billion rescue fund to help homeowners, saying that saving financial institutions is more important. But this could change next year: President-elect Barak Obama and fellow Democrats say reducing foreclosures is crucial to attacking the financial crisis and economic downturn.

"The financial sector weaknesses all originate in the housing market," says Jack M. Guttentag, professor of finance emeritus at Wharton. "If we don't solve the housing problem, then the weaknesses in the financial sector are going to continue to multiply."

Testifying November 18 before the House Committee on Financial Services, Sheila C. Bair, chairman of the Federal Deposit Insurance Corp., agreed: "Minimizing foreclosures is essential to the broader effort to stabilize global financial markets and the U.S. economy." According to Wharton real estate professor Susan M. Wachter, it is essential to break the vicious cycle of foreclosures driving down home prices, spurring more foreclosures. "The housing crisis is still a major source of the broader economic crisis that we find ourselves in."

Other experts are not so sure. "I wouldn't bail out people who made stupid mistakes," says Kent Smetters, professor of insurance and risk management at Wharton, arguing that borrowers and lenders should suffer the consequences of risks gone bad. Trying to mitigate the consequences won't stop the financial train wreck, just shift it to slow motion, he argues. "The alternative is to say we're going to let the train wreck happen. What that does is to allow us to clear the tracks sooner."

On November 26, the Federal Reserve and Treasury Department announced an $800 billion infusion in the credit markets, including $600 billion to buy debt issued by mortgage giants Fannie Mae, Freddie Mac and the Federal Home Loan Bank. The move immediately drove the interest rate on 30-year fixed-rate mortgages down to about 5.5% from 6%, and there were reports of a flurry of loan applications from people looking to refinance mortgages or buy homes.

Wachter said the move is a key step to reviving the housing market and eventually stopping the downward spiral of home prices.

The lower rates could help some homeowners cut monthly payments by refinancing, perhaps allowing some to stay in homes they otherwise would lose. But lower rates alone will not help many homeowners who owe more than their homes are now worth, because these borrowers will not qualify for new loans big enough to pay off the old ones. Reducing the number of expected foreclosures would probably require efforts tailored to this problem, such as a recent program proposed by the FDIC's Bair. Even if such programs are enacted, it is not clear how well they would work.


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