By Alan J. Heavens
Inquirer Real Estate Writer
First-time buyers racing toward a Nov. 30 deadline for the $8,000 tax credit boosted the Philadelphia region's October sales of previously owned homes 25.8 percent over the level from the same month last year.
Data released yesterday from Prudential Fox & Roach's HomExpert Market Report showed 4,625 houses went to settlement in the eight-county region last month, 949 more than in October 2008 and just seven fewer than in October 2007, at the end of the area's housing boom.
What's more, the data indicated, would-be buyers signed agreements of sale for 4,456 homes and condos during the month - a whopping 53.1 percent more than last October and only 43 contracts fewer than in October 2007.
It's in sale price, though, that the overwhelming influence of first-time buyers is reflected. The sweet spot, area real estate agents say, is in the lower end of the market, and the preponderance of such houses in the sales mix pushed October's median price down 6 percent from the same month in 2008 - to $202,000 from $214,900.
"The market has improved dramatically," said Art Herling, regional vice president of Long & Foster Real Estate. Resales are "back to 2007 levels, with homes priced between $350,000 and $425,000 doing well."
Though U.S. sales numbers for October won't be available until Nov. 23, what's happening locally mirrors the nation. The National Association of Realtors reported yesterday that first-time buyers accounted for a record 47 percent of sales in the last year, up from 41 percent in its 2008 survey.
The Realtors' survey also showed that the median age of first-time buyers was 30 and their median income was $61,600. The typical first-time buyer purchased a home costing $156,000, down from $165,000 in the 2008 survey, and plans to stay in the house for 10 years.
The first-timers' buying spree intensified as Congress debated extending the credit. The extension, now official, will end April 30, providing the $8,000 tax credit to those purchasing their first homes after Nov. 30. It also expands the program to offer credits of $6,500 to buyers who have lived in their current homes for at least five years.
Income limits have been raised from $75,000 for a single purchaser to $125,000, and from $125,000 to $225,000 for a couple. Credits are available on a diminishing basis above those limits.
Over the last few months, first-time buyers have whittled down the historically high levels of housing inventory in this region to nine months' supply at the current sales pace, from 16 months' worth last year, said Philadelphia economist Kevin Gillen, vice president of Econsult.
That, plus the drop over the summer in the average time a house spent on the market - 88 days, down from 97 - indicates that "the region's housing market may be nearing a turning point," Gillen said.
Low mortgage-interest rates also have helped, with 30-year fixed rates averaging under 5 percent for the last seven weeks. Freddie Mac reported a 4.91 percent 30-year fixed rate Thursday, down 1.23 percentage points from the same week a year ago.
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By VIVIAN S. TOY
A TWO-BEDROOM apartment on the Upper West Side is listed at $1.595 million and sells within two weeks after nine prospective buyers race to outbid one another, ultimately pushing the price to nearly $1.8 million.
Sound like the pandemonium of the last real estate boom, when anyone with a pulse could get a mortgage and it seemed as if prices could go only up?
It wasn't. Try last month.
A year after the economy headed into a tailspin and at a time when most New Yorkers are still wondering whether real estate prices have hit bottom, brokers say that bidding wars are back. They are breaking out in all sectors of the market, from $400,000 one-bedrooms in Brooklyn Heights to $7 million apartments with grand park views at 15 Central Park West, and from stately Park Avenue prewar apartments to new condominiums in Williamsburg.
In many cases, the jousting buyers start and end below the asking price. But in others, multiple bidders are pushing prices well above list price. To add a confounding twist, many of the bids are being made by buyers willing and able to pay all cash.
Brokers say that bidding wars are almost always set up by listings that are "priced well," and by that they mean 20 to 30 percent below the high-water marks of early 2008.
Jonathan J. Miller, the president of the appraisal firm Miller Samuel, estimated that two-thirds of the roughly 4,000 apartments for sale in Manhattan are priced too high for the current market.
"So," Mr. Miller said, "you have this weird situation right now where you have above-average inventory, but people are fighting over the ones that are priced correctly."
Amelia S. Gewirtz, an executive vice president of Halstead Property, and her partner, Andrew Phillips, helped drive the $1.595 million two-bedroom to a $1.8 million contract price.
"If you price for 2009 or even 2010 - in other words, for buyers who think prices might go down another 5 or 10 percent," Ms. Gewirtz said, "there's a really good shot that you will get rewarded for pricing it to value." She said that the buyers who came to see the $1.595 million apartment "knew what the competition was, and they recognized that it was priced well. If we had priced it for 2008, we wouldn't have gotten what we wanted."
Five of the nine offers, including the winning bid, were all cash, she said, adding that the prospective buyers were a varied lot, including empty nesters planning to move back to the city from the suburbs, renters who had been waiting for the right moment to buy, and foreigners hoping to take advantage of the falling dollar.
Brokers say that the months of near inactivity that started with the demise of Lehman Brothers last fall and stretched into late spring also created a great deal of pent-up demand. Many apartment hunters re-entered the market after Labor Day with a steely determination to buy.
"There's definitely been a shift in the confidence of buyers in the last two months," said Jessica Cohen, a senior vice president of Prudential Douglas Elliman.
The sale of Jill and Jonathan Steinberg's apartment on the Upper West Side is a good illustration of the changing real estate psyche. The Steinbergs put their one-bedroom on the market for $699,000 on the day that Lehman Brothers collapsed in 2008.
"The timing couldn't have possibly been worse," Ms. Steinberg said. "It was an absolute disaster."
The apartment, a high-rise unit with a balcony and open city views, sat on the market for seven months. Even after they dropped the price to $649,000, the Steinbergs received only three offers, all around $585,000.
Disheartened, they took the place off the market in June. But by late summer, the market seemed to have leveled off, so they sought a new broker and found Ms. Cohen. She suggested they list it at $645,000 right before Labor Day, to avoid the post-summer rush.
Fifteen people came to their first open house, and someone made an offer that very day, Ms. Steinberg recalled. "Then another buyer came along and offered full price - it was so surreal," she said. The first buyer countered with $650,000, but later withdrew the bid. The Steinbergs are now in contract with the second bidder.
"We were beyond ecstatic to take our asking price," Ms. Steinberg said. "It was a much different experience than we had the first time."
In some cases, scarcity, or even the perception of scarcity, can spark bidding wars. At the Rialto, a new 31-unit condo in Williamsburg, Brooklyn, sales started 14 months ago. The building had its first bidding war in August, when there were only seven units left; two more bidding wars followed in October.
HighlyAnn Krasnow, an executive vice president of the Developers Group, said that in the current climate, in which developers are cutting prices and offering to pay closing costs to attract buyers, the multiple bids at the Rialto took her by surprise.
"It was a little bit unexpected," Ms. Krasnow said, "and I think it's a good sign for the market in general."
A more direct way to generate excitement in a property is to price it below market value, said Genifer Lancaster, an agent with Prudential Douglas Elliman. She advised some clients, sellers at 145 Nassau Street, an iconic building opposite City Hall, to list their 1,800- square-foot loft at $1.1 million. "This apartment was a jewel," Ms. Lancaster said, "but the financial district is not one of the stronger neighborhoods, and there have been very few transactions down here."
David Nemerson, who was selling the apartment as the executor of his father's estate, said that other brokers had suggested $1.4 million, "but Genifer persuaded us that if we generated a lot of traffic, you never know what might happen."
It turned out to be a gamble worth taking. Two weeks after the apartment went on the market in late May, there were 13 bids in hand, and the best and highest bid was an all-cash deal for $1.6 million.
"Needless to say, the outcome exceeded our expectations," Ms. Lancaster said.
The tentativeness of the credit market has given buyers with large amounts of cash a decided advantage over buyers who need a mortgage and are thus subject to the whims of lenders.
"There's a great deal of bargaining power in being able to close promptly without any hiccups that might occur with the borrowing process," said Luigi Rosabianca, a Manhattan real estate lawyer.
Of course, not every all-cash buyer is a foreigner arriving with a suitcase stuffed with bills. Mr. Rosabianca said he had one client, a business owner, who had planned to secure 70 percent financing for an apartment on the Upper East Side, but decided against it when the bank withdrew the 5.5 percent mortgage rate it had offered him and raised the rate above 7 percent.
Rather than lose the deal and have the loan denied, the buyer ended up taking the unusual step of borrowing against his retirement plan to make it a cash transaction, and was able to close in two weeks, Mr. Rosabianca said.
Because the ability to close a deal quickly now ranks high in the minds of many sellers and their co-op or condo boards, the whole psychology behind bidding wars has shifted.
"At the height of the market, bidding wars weren't based on real prices," said Dottie Herman, the president of Prudential Douglas Elliman. "Twenty people wanted it, there was no inventory and it didn't matter what the number went to." But now, she said, "things are being bid up only when people see real value."
When Christopher Stanley, an agent with the Corcoran Group, got an estate listing for a Classic 8 corner apartment on Park Avenue, he knew he would have to price it to move.
The 3,200-square-foot apartment has three bedrooms, two baths, three maids' rooms and two maids' baths, and it had been impeccably renovated - back in 1971. Mr. Stanley thinks it would easily have sold for more than $5 million two years ago. But knowing that any buyer would want to renovate the space, he put it on the market for $4.2 million right before Labor Day.
Seven buyers put in bids. "Everybody came in under the asking price because that's what everybody thinks they have to do," Mr. Stanley said. "But the seller stood firm at full ask and the bidders all came up."
The bidding war lasted two weeks. The apartment is now in contract in an all-cash deal for about 4 percent above the asking price, or roughly $4.3 million.
To shorten the process, brokers faced with multiple offers will often set a deadline and ask buyers to submit their best and final offers in sealed envelopes. But they say they are careful not to create a frenzy.
"The way we negotiate a bidding war is different now," said Jordan Hoch, another vice president of Prudential Douglas Elliman. "You want people to feel comfortable with what they're paying and you don't want them to put out a number that's too big and then have them get buyer's remorse and back out."
When a bidding war develops, skeptical buyers often wonder if other bidders truly exist. Tristan H. Harper, a senior vice president of Prudential Douglas Elliman, had just such a client, Larry Ruskin, a retired oil and gas executive from Canada.
Mr. Ruskin low-balled a $7.9 million two-bedroom apartment at 15 Central Park West, offering $5.8 million.
"They didn't even want to talk to us," Mr. Harper said. But he convinced the seller's broker that Mr. Ruskin was a serious buyer. When that broker said another buyer had bid more and called for final offers, Mr. Ruskin offered $7.1 million. But he was wary: His bid came with a proviso that if the seller could prove there really was another viable offer, he would pay an additional $250,000.
The seller complied, with a signed affidavit. Mr. Ruskin, satisfied, closed on the apartment in August at $7.35 million.
""I didn't think the market had turned yet," said Mr. Ruskin, who had been looking for a New York pied-à-terre for about a year. "But I thought that if I waited, I might not have the same opportunities again."
Brokers say that buyers tend to become more aggressive if they have already lost a bidding war or two.
Emily Schultz and Wes Mallgren were devastated when they were outbid last June on a one-bedroom apartment in Brooklyn Heights. The asking price was $412,500, and their offer of $400,000 had been accepted when a higher offer came in.
The seller's broker, Jocelyn G. Turken, an agent at Warburg Realty, asked for final offers, advising both buyers "to come up with a number that will not overextend you and that won't leave you devastated if you lose, because you know you've given your best shot."
Ms. Schultz and Mr. Mallgren bid $420,000, but the apartment sold for about $422,000.
"I had friends who told us they had gotten their hearts broken, too, but that in the end we would find a better apartment," Ms. Schultz said. "All I could think was: 'No, that was the perfect apartment and now it's gone.' "
So the next time they found an apartment they liked, they made an offer immediately. When the seller demanded $20,000 more, they quickly agreed, only to withdraw the offer when they realized the 550-square-foot apartment was too small for them.
"That was just a psychological mistake," Ms. Schultz said. "We thought we wanted it, but we just really didn't want to lose again."
The third time was the charm. Ms. Turken helped them find another one-bedroom a few blocks away for $519,000, with a lower maintenance charge than the previous properties.
"Wes fell in love with it immediately, but I was more uncomfortable because I didn't want to make another mistake," Ms. Schultz said.
They sat down and made lists of pros and cons. "We took our time," she said. They offered $500,000, and after some negotiation, ended up paying $505,000. Losing the first apartment in a bidding war had come as a surprise to them, Ms. Schultz said, "but I wasn't worried this time, I just felt good about it."
They closed and moved into the apartment last month.
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By: Lawrence F. Flick, IV
People often ask me when our real estate market will hit bottom. And now I can positively say that not only has it done so, it is beginning to bounce back. The window of opportunity is open wide for those who would like to buy or sell a home. As I’ve said in previous reports, real estate is like the weather – it’s the local forecast that matters. In our market we have what appears to be a “perfect storm” of converging factors that benefit potential buyers:
• Affordability – prices are better than they have been in years.
• Interest Rates – mortgage interest rates remain at historic lows.
• Selection – there is a great selection of homes for sale, and sellers are both motivated and realistic.
• The home buyer tax credit has been extended and expanded.
The Law of Supply and Demand
The economic principle of supply and demand applies to the real estate market. When trying to determine if the time is favorable to buy a home, it’s important to look at the balance between the supply of houses for sale versus the demand for them. In a real estate boom, demand is high and supply low, so price rise. During the past few years, the supply of houses for sale outweighed the demand. Today, however, the tables are turning. In the second half of 2009, there was a rise in the demand for houses while the supply of houses for sale fell.
Let’s take a look at these supply and demand trends:
Demand for homes is increasing
Monthly home sales have increased. In 2008 and the first half of 2009, the number of homes sold each month was less than the year before. But this trend has changed. Since June 2009, more homes have sold each month than last year.
% Change in Pended Sales 2009 versus 2008
January -29%
February -25%
March -22%
April -22%
May -18%
June +1%
July +2%
August +15 %
September +29%
Supply of homes for sale is decreasing
The number of homes for sale has decreased. Since February 2009, the rate of supply has decreased each month whereas in 2007 and 2008 the supply of homes increased monthly.
% Change in Number of Homes for Sale 2009 versus 2008
January -0.8%
February -0.6%
March -0.7%
April -3.5%
May -6.7%
June -9.9%
July -10.6%
August -10.9%
September -11.9%
Another way to look at the supply of homes for sale is consider Months Supply of Inventory (MSI). MSI is determined by calculating how long it would take to sell all of the houses on the market at the present sales rate without any new properties coming on the market. In September 2008 there was an 11.4 months supply of houses for sale. A year later, MSI stands at 7.6 months – that’s a 33% drop! This is good news, but in a balanced market MSI would be five for six months. So despite a dramatic improvement, there is still an oversupply of homes available for sale, especially in the higher price ranges.
The Window Will Close
Trends of increasing demand and decreasing supply prove that our market has hit bottom and is now showing signs of growth. That’s why it’s important for home buyers to take advantage of this opportunity before the window closes. These favorable conditions will only remain for a limited amount of time:
• As the economy recovers, more buyers will enter the real estate market.
• There will be fewer houses for sale and prices will begin to rise.
• The Fed will begin to withdraw its current support of the mortgage market as the economy recovers. This will result in higher mortgage rates.
• The home buyer tax credit will expire.
The window will close – it’s just a matter of how soon.
Home Prices are Stabilizing
Despite the positive trends of increasing demand coupled with decreasing supply, home prices have dropped and the average sales price in our market has fallen. What does this mean?
Prices in our area have declined modestly. Changes in value of homes are determined by tracking the sales prices of properties that sell more than one time. These are called paired sales and are tracked by the Case-Shiller Home Price Index. The exact amount of decrease in value is determined by location and price range.
Case-Shiller Price Index Prices Q2 2009 versus Q2 2008
Camden MSA -7.66%
Ocean City MSA -15.34%
Philadelphia MSA -3.33%
Trenton MSA -6.14%
Wilmington, DE-MD-NJ MSA -7.30%
Average Sales Price on the other hand does not reflect the value of properties sold. Rather it is the average price of all the properties that have sold in a particular period of time. Average Sales Price in our market has declined about 10% in the past two years, but is still 31% above 2002.
September Average Sales Price
2002 $187,000
2003 $212,000
2004 $233,000
2005 $263,000
2006 $265,000
2007 $273,000
2008 $260,000
2009 $245,000
The decrease in the value of homes as noted above has played a role in the decrease in average sales price. But even more so, it is a change in the mix of business that has caused average sales price to decline. More properties in lower price ranges are selling than those in higher price ranges. There are two reasons this is happening:
• The first-time home buyer tax credit enacted by Congress has contributed to the increase in sales in the low to mid price range.
• A scarcity of jumbo mortgage outlets and loss in value of individual investments portfolios has negatively impacted the sale of the higher priced homes.
A Tale of Two Markets
Lower and mid-priced properties are selling at a reasonable pace. Higher priced properties are staying on the market longer and selling at a much lower rate. As a result, we have two markets: one is healthy with a relatively balanced supply and demand, while the other continues to be sluggish, with supply greatly exceeding demand. The following chart illustrates the difference between these two markets. Months Supply of Inventory for properties for sale in higher than those in the lower ranges. The market in the higher price ranges is taking longer to recover.
September 2009 Months Supply of Inventory by Price Range
All Prices 7.8 months
Over $1,000,000 53 months
$750,000 - $1,000,000 27 months
$500,000 - $750,000 16 months
$300,000 - $500,000 10 months
Less than $300,000 6 months
Risk versus Reward
Whether it be stocks, real estate, or other investments, we all wish we were able to predict when markets hit their peaks and their bottoms. Some are lucky and buy or sell at just the right moment. But most of us only know a change in direction occurred after it happens. The best long-term investments are made before they are obvious to everyone but after the bottom has begun to curve upward. That time is now.
Our economy has hit the bottom and is beginning to grow
It’s hard to believe that when we started this year, our country’s financial system was close to collapse. Large banks were being threatened with nationalization and the stock market was in a free-fall. Credit was all but frozen. Jobless claims were rising by 600,000+ a month. Consumer confidence was at an all-time low as talk of the next Great Depression traveled the airwaves.
Since then, our financial markets have stabilized, banks are repaying their taxpayer funded bailout, and the stock market is now 60% higher than its March 2009 low. Credit is becoming available once again, though it is not as free-flowing as we might like it to be. The number of monthly jobless claims is less than half of what they were. As we end 2009, consumers are cautiously optimistic that what is now being called the Great Recession has reached its end.
Most economists predict an “L shaped” recovery with prolonged, slow growth. The worst is over and we are beginning to see economic growth.
Our real estate market has hit the bottom and is beginning to grow
If you are considering buying a home, this is the time to act before the window of opportunity closes. Your Prudential Fox & Roach sales associate and Trident mortgage consultant will work together to help you acquire the perfect home.
If you are a seller, this real estate market can also work in your favor. Even though your property may not be worth as much as it was a few years ago, any home you buy will have also decreased in value. If you are downsizing, rising mortgage rates will offset any minor increase in the value your present home may gain. If you are moving to a more expensive home, you will come out ahead.
Sellers with properties in the low to mid-price range should take advantage of the present increased buyer activity. If, however, your home is in the higher price ranges, the excess supply dictates that your home be the best available in its price range. Your Prudential Fox & Roach sales associate will work with you to create a staging plan that ensures utmost appeal, and the pricing and marketing plan that guarantees maximum exposure. Don’t put your life on hold and wait for better times to make a move. Rather, be realistic now and take advantage of the increased buyer activity before their, and your, window of opportunity closes. Contact your Prudential Fox & Roach sales associate and a Trident Mortgage Company loan consultant today!!!!
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