Autumn has returned to New York. Where is the New York residential property market this fall? Rumor says there is an uptick. What does that mean? What exactly has happened to residential property values in the dramatic year following the collapse of Lehman Brothers on September 15, 2008? How badly did plunging global financial markets, a United States recession, and mounting unemployment affect the housing market in Gotham, a Wall Street town? Where are we now, what led to the current market, and where are we going in the last quarter of 2009?

This past year has been a tumultuous roller coaster ride in New York residential real estate. New York City went into a complete state of shock after the events following September 15, 2008. As banks failed and equity markets plunged, New York residential real estate deals came to a virtual standstill. Deals already in contract came under intense scrutiny. Some buyers who believed in the long term intrinsic worth of New York property bravely honored their contracts and closed. Others chose to negotiate a reduction in their previously agreed upon price; many succeeded and others failed. Deposit money was disputed, or simply left on the table as some buyers chose to walk from their deals, abandoning deposits often as high as one or two million dollars. Tension was high as worries mounted about the health of banks, financial institutions, insurance giants, federal agencies, and the growing reality of a United States recession. Confidence plummeted, and thoughts of residential purchases were put on hold.

If the fall of 2008 was fraught with collapsing deals, the month of January 2009 was strikingly bleak. The residential property market was frozen. The concerns of the last quarter of 2008 resulted in practically no closings in January 2009, and any potential new buyers were waiting until after the inauguration to ascertain if the overall horizon would be more auspicious. This standstill resulted in a glut of inventory that piled up from the moribund fall market and spiked at 11,000 units in March 2009, according to a report by the appraisal firm of Miller Samuel, Inc. This represented a 34.7 percent increase in listings in that month versus August, 2008. Meanwhile, for those buyers who actually wanted to purchase, the lack of available mortgage money killed many potential deals. To obtain a mortgage, credit ratings had to be stellar and additional equity had to be posted. Applications of many first time buyers for mortgages were rejected. At the same time, banks created new stringent requirements for buildings in which they would finance. Cooperative buildings had to have proper reserve funds and insurance, and new condominium developments had to have a high percentage of closed or under contract units to qualify for bank financing. Thus, some transactions were thwarted. Concurrently, many cooperative boards raised the bar of their admission guidelines. Boards demanded additional assurance that applicants were financially solvent with substantial after-purchase reserves, and that their jobs were not in jeopardy. Board turndowns due to strict financial scrutiny became more common.

However, New Yorkers are practical and forge ahead with their lives in the direst of circumstances. Transactions continued to occur, necessitated by estate settlements, job transfers, divorce proceedings, financial exigencies created by the decreasing equity markets or the Madoff scandal. As prices were lowered, or in some instances slashed, contracts were signed by equity buyers or financially stable mortgage-backed buyers. However, every transaction was fragile and many shattered before contract signing. Each deal was fraught with difficulties as both sides placed more and more demands on each other; brokers have never worked harder to handhold an offer to contract signing and closing. With roadblocks everywhere, the traditional busy spring market was far from robust in 2009. Interestingly, the normally active spring market became the summer market this year. Contract activity peaked in August versus the usual month of May. The website of streeteasy.com reported a 27.2 percent rise in accepted offers in August 2009 versus the same month a year ago. Accepted offers accelerated as pent-up demand prompted buyers to negotiate transactions that were perceived to be deals.

Let me immediately state that if sales activity is currently up, this is not an indication that prices are on the rise. Such a conclusion would be far from the fact. What is true is that inventory appears to have stabilized. Today’s market is not in a continuing freefall but appears to have reached a plateau due to significantly lower prices. According to the surveys of nytimes.com and streeteasy.com, the 450 new listings that entered the New York residential market after Labor Day of this year were basically the same number as a year ago. This is good news, as it indicates that sellers are optimistic about selling and yet does not show a falling market where an unusual amount of inventory has suddenly entered the marketplace. Indeed, the large number of summer transactions reduced the surplus of units that had piled up in March. According to Miller Samuel, inventory was back to 8,423 units in August 2009, comprised of cooperatives, condominiums, and townhouses, which was only 2.8% higher than August of a year ago. That said, a “shadow inventory” of condominium units that are ready for sale but not yet listed by developers looms on the horizon. Hopefully, these additional units will only be listed as others are sold, thereby not significantly raising the inventory level.

Sales prices, however, are dramatically down from previous years. Third quarter reports indicate that while the number of sales in this quarter surged over the previous quarter, they also were lower than the same quarter of 2008. Fueled by pent-up demand, rising consumer confidence, a stronger stock market, and most importantly, lower asking prices, buyers began to strike deals in noticeable numbers in the months of June through August 2009. Sales surged 45.6 percent in this quarter over the second quarter according to the October 1, 2009 report prepared by Miller Samuel. However, this was still down 16 percent from the same quarter of last year. According to this report, the average sales price of a cooperative apartment for third quarter 2009 was $1,005,744, which was 13.4 percent lower than the prior year average price of $1,161,302 and 5.9 percent lower than the prior quarter average price of $1,068,726. Similarly, the average price of a condominium in the third quarter was $1,579,438, which was 12.7 percent lower than the previous year’s quarter’s average of $1,809,684 but up 3 percent from the previous quarter’s average sales price of $1,531,031. These figures represent an approximately 30 percent drop in average sales prices of cooperatives from the peak in early 2008, as well as a decrease of approximately 16 percent for condominium apartments from the height of the market in 2008. Clearly, sales transactions are rebounding from the stagnant market of the first two quarters. Sales of lower priced apartments under $500,000 are leading the pack as first time buyers take advantage of low mortgage rates, an $8,000 tax credit and, at this price point, obtainable mortgage financing. Summer sales of apartments under $500,000 rose 23.6 percent over the summer of 2008. Meanwhile, sales of luxury properties of $5,000,000 and up dwindled in the first two quarters of 2009. However, there has been a recent noticeable increase in both interest and actual sales in the upper echelon market. Asking prices have tumbled, and actual contract prices are even lower.

This past summer brought several important high-end sales, albeit at figures much lower than the asking prices. Madonna paid $32,000,000 for a double width, 12,000 square foot mansion on East 80th Street off Lexington Avenue, with a garage and enormous garden. The original asking price was $45,000,000. A Russian billionaire closed on an 8,300 square foot Time Warner Center condominium penthouse at $37,000,000, down from an original asking price of $65,000,000 which was subsequently reduced to $49,000,000. Former Lehman Brothers chief executive Richard Fuld sold a 16-room Park Avenue cooperative for $25,900,000, $6,000,000 less than his original asking price. Recently, at 15 Central Park West, a 40th floor, 5,276 square foot four bedroom penthouse condominium fetched $37,000,000; it was originally listed at $80,000,000 and later lowered to $48,000,000. Super-affluent buyers are demanding hefty price cuts to entice them to place their sought-after signatures on contracts of sale. That said, multimillion dollar sales are finally returning to the Big Apple. In all categories, low to high, it is price that is the driving force in recent sales activity.

Today’s residential market has become a two-tiered market: an individual owner’s resale market and a developer’s initial first offering market. The first may be a resale of a cooperative, a condominium, or a townhouse, while the second is primarily a condominium. An individual owner generally has more flexibility in price negotiation than a developer who most often has an equity partner with a specific set of guidelines. Unless a purchase occurred in the last two years, an individual seller will probably still make a profit on their resale as prices skyrocketed in recent years until the current downturn. However, to sell well and quickly, many homeowners are choosing to renovate their properties to propel their home to the top of current offerings. Smart sellers are spending anywhere from $20,000 to fix up a kitchen to sell an apartment offered at $525,000, to $100,000 to $150,000 for offerings listed between $1,000,000 and $2,000,000 to create new baths and a new kitchen, enhanced by the sparkle of fresh paint and the glow of newly polished floors. Today, time and money are spent to clinch the deal. In previous heady markets, this was not the case. Buyers prefer a turnkey transaction in which they do not have to spend any extra dollars on costly and time-consuming renovations. Also, a new vocabulary has entered our residential arena. In today’s economic climate, gone are the words luxury, trophy, and prestige. Today, the emphasis is on value, condition, and location. Today’s buyers not only want value for their money, but they even feel cheated if they do not get “a steal”. Equally, the age old adage of “location, location, location” is back in favor. Trendy, edgy areas are out, and the bastions of the Upper East Side, West Side, and the old core neighborhoods of Brooklyn are favored as safe havens. The downtown residential districts of Greenwich Village, Chelsea, Gramercy and SoHo are still popular. Sales in the farther downtown areas of Wall Street and TriBeCa have experienced more of a halt. As these areas were extremely popular with young bankers and hedge fund managers, this may merely reflect a temporary slowdown as the financial industry reorganizes. Rumors of 2009 bonuses may fuel more purchases in these previously highly sought-after neighborhoods.

Developers of new condominiums, even with the restrictions of their equity partners and the regulations of their offering plans, have also been obliged to negotiate with buyers who are comparing these new condos with the resale market. Developers are either offering promotions of a limited number of units at a special discount, agreeing to pay transfer fees and taxes, or adding such perks as a free garage space to the sale. Many buyers who previously went to contract from floor plans as new condos were rising from a hole in the ground have either demanded a lower price to close, walked away with a legal suit over the deposit, or if the delivery date of a unit exceeded the contractual limit, opted to exercise a right of rescission. Again, mortgage money is hard to come by for new condominium offerings without a high percentage of sold units. It’s a tough market right now for new developments.

Some developers with buildings that were already in the pipeline before September 15, 2008 have made practical and smart decisions. Such is the case with Devonshire House at 28 East 10th Street at the corner of University Place in the heart of the gold coast of Greenwich Village. Devonshire House is a condominium conversion of a former rental building originally built in 1928 by famed New York architect Emery Roth. The developers are Sterling Equity Partners and the Cheshire Group. These new condominium apartments were placed on the market just after Labor Day 2009 at offering prices 10 to 15 percent less than were envisioned a year and a half ago when the conversion began. Within the first three weeks, Devonshire House had six accepted offers. Is this a sign of the current uptick or is it a reflection of already lowered asking prices? Whichever the case, the apartments at Devonshire House are exceptionally beautiful, ready to move into, and are in one of New York’s most coveted neighborhoods. Embellished with the Cavendish coat of arms on the elevator doors, the eclectic lobby with stained-glass windows, topped by gothic arches, opens onto a garden courtyard. The lobby has been freshened with lighter paint and new flooring, and the elaborate coffered ceiling has been cleaned. The garden has been redesigned by landscape architect Edmund Hollander into a traditional English parterre garden in a symmetrical pattern around a central flowerbed complete with stone benches on a bluestone walkway. With a small portion of rent-stabilized apartments still in place, an initial group of 39 newly designed condominium apartments has been created. Current prices range from $1,050,000 for a one bedroom, 806 square foot condominium to $5,200,000 for a four bedroom, 2,720 square foot eighth floor unit. These one to four bedroom apartments have been designed by interior designer Victoria Hagan as classic pre-war residences with up to the minute post-war functionality. The apartments feature custom-designed millwork, crown and base moldings, nickel-plated hardware from E.R. Butler and four inch white oak Jacobean stained floors. With air conditioning units already encased in custom millwork, kitchens with glass composite counters, and timeless bathrooms with basketweave tiles and Waterworks and Kohler fixtures, the condominiums at Devonshire House resemble pre-war apartments that have just been freshly renovated. A buyer can move right in with no fuss. The formula of already lowered asking prices, perfect condition, and a sought-after location appears to be a magic mix in today’s market.

Will the uptick in sales activity continue? Have we reached bottom? Naturally, it all depends on a continuing rise in confidence, a rebound of the national economy, and a decrease in unemployment. Banks must begin to make credit flow, and mortgage money must become more obtainable. Realistic pricing by sellers must continue. We are already seeing the return of multiple bids on well priced offerings. On the other hand, mortgage rates could increase and predictions of the collapse of the commercial investment property market could cause serious ripples in the residential market. Both could serve to deflate the present increase in activity. Also, some sellers may continue to hold properties off the market until a real rebound occurs. Selling high is great, but it also means buying high. It is the spread between sell and buy that counts. Psychologically, many sellers do not grasp this basic tenet, even if they expect to reinvest in another residence.

All in all, I would predict that continued pent-up demand will propel late summer activity into the normally slower fourth quarter. The return of investment bank bonuses may stimulate residential purchases into 2010. In a more cautious mood, most forecasters predict a slow national economic recovery. Reason would suggest that the residential real estate market in New York City should follow suit. However, a flat year in residential real estate in 2010 has a positive ring to it, if prices hold steady and deals are struck in fair market transactions. Today, the tide appears to have turned as prices have decreased and New Yorkers, once again as they courageously did after the devastation of 9/11, move forward with their lives.