Friday, September 7, 2007

Market Update: Little Down Now, Big Up Later?

Well, I'll readily admit that the Fall Season is very young, and it is far too early to make judgements or draw conclusions, but the feel I am getting from recent emails is that the NYC market may see just a tad of anxiousness building in. August, of course, is no indicator of real market activity, as those that have the money are largely out of town. So, in light of the recent "credit crunch", September will be quite a revealing and telling month.
Well, we are One week in and I can dutifully report that the vibe I am getting from my couple Hundred email listings per day is that I am seeing a number of listings with the title "new price", "improved price", etc.. I have also noticed that a couple of condo sponsors are starting to ratchet up commission incentives (raising broker commissions to 4% from 3% for instance). We saw the same pattern last October/November before the great Wall Street bonus tide rolled in, and we all know what has happened to prices since then (way up, in case you weren't paying attention).
We certainly have a variety of dynamics working in this market. The positives, as mentioned before which include the cheap dollar and low relative prices compared to the likes of London and Tokyo clearly continue. The negatives have picked up some ground; we have a credit crunch, a possible national recession lead by housing, and most prominent and new is that Jumbo rates have jumped.
But what of this rate jump? Is it a permanent feature? I think not. At the same time, I think this is the hidden bonus for buyers who may find a more buyer friendly market over the next few months. Here's the scoop. Rewind to May of this year. Jumbo rates were sitting at around 6.125%. At the same time the 10 year treasury (my best indicator of long term rates) was simultaneously just over 4.6%. A 30 year Jumbo was 1.525% higher than the 10 year. Throw the credit crunch in, and suddenly the spread between the Two has grown to 2.6%. Clearly, this is a market out of whack. If there was no "credit crunch" and related spike in rates, you could assume that the Jumbo 30 year should be at 5.9%. Consider these two things.
One, If the National housing market is as bad as it sounds, demands for loans will drop dramatically and the local banks that actually hold the paper and not resell and repackage it into some sort of slip shot collateralized security will be anxious for business, and if capitalism actually works (I believe it does), rates will become as competitive as they were before and drop dramatically. Second, considering the national economy, the seeping impact of higher oil and related commodity prices, drop in employment, and the fact that Wall Street clearly looks to be the tail wagging the Fed dog, it seems exceedingly likely that the Fed will lower rates a minimum of 1/2 % to 1% over the next several months. So, the number one negative to the New York Market could easily become number one positive over the next 6 months. I would expect that Jumbo rates are likely to drop from 7% to under 6% and possibly as low as 5.5% to 5.75% by Spring. A move from 7% to 5 3/4 % translates to a 17.8% reduction in mortgage expense, a huge plus for potential price appreciation (everywhere). So if you can get a deal now, while a few are quaking in their boots, you may see substantial benefit by refinancing just a few months later.
As usual, I will keep you posted with real-time reflection on market conditions.

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