On the one hand, the National Association of Realtors’ pending home sales index for contracts signed in November fell 16 percent from October. Alarmingly, the index dropped highest, 25.7 percent in the Northeast, on par with Midwest. In the Northeast it’s still 14/7 percent above November 2008 levels. On the other hand, that’s 15.5 percent higher than November 2008, prompting NAR’s chief economist Lawrence Yun to say that “the market has gained sufficient momentum on its own.” Yun predicts another surge in the spring, as buyers again rush to take advantage of the tax credit, which which was extended to April. According to NAR, in addition to the 2 million people that have already used the credit, another 900,000 first-timers are expected to qualify, as well as 1.5 million repeat buyers.

Yun also offered that “mortgage interest rates cannot remain at rock-bottom levels for a sustained period and will likely inch higher in 2010.” But just two days later, on January 7, Freddie Mac revealed in its weekly survey that the 30-year fixed-rate averaged 5.09 percent for the week, down from the 5.14 percent of the preceding week. Fifteen-year averaged 4.5 percent, down from 4.54 percent the week prior. FIve-year Treasury-indexed hybrid adjustable-rate mortgages remained unchanged, however, at 4.44 percent. One-year Treasury-indexed ARMs were down to 4.31 percent from 4.33 percent. Yun, of course, is almost certainly right in the long-term, as the Federal Reserve is likely to raise its overnight rate in 2010–but Freddie Mac’s chief economist warned that no Fed action is likely until the second half of the year.

Meanwhile, the Mortgage Bankers Association’s weekly survey found that the week ending December 25 has a 22.8-percent decrease in loan application volume, and the week ending January 1 the index stayed “relatively the same,” increasing a half a percent. Seventy percent of all mortgage activity, the report noted, was refinancing. The drop in loan applications may be due to holiday vacations for some–others, however, stayed as busy as ever all through the holidays, We certainly did here at Elika.

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The Real Deal also found that price drops in sales have decreased by 29 percent from the third quarter, and are 14.4 percent lower than in the fourth quarter of 2008. There was even an increase in sales happening above original asking price–20 percent more often than in the third quarter, and close to 50 percent more than in the fourth quarter of 2008. Meanwhile, activity is up across the board 9 to 10 percent compared to fourth quarter 2008. Elliman had 2,282 closings, or 11 percent more than in the third quarter. Halstead/BHS did 2,519, and Corcoran, meanwhile, reported a whopping 48-percent increase over the last quarter of 2009 (attributing to a different methodology in an interview with The Real Deal). Inventory is slowly being eaten up: Elliman had 6,851 listings in the fourth quarter, or 25 percent down from the third quarter.

Most of the apartments finding buyers are smaller–65.2 percent of fourth-quarter closings were under $1 million, according to The Real Deal–despite figures showing that larger apartments have fallen more steeply in price compared to 2008. This can be attributed in part to the demand surge among buyers availing themselves of the first-time buyer credit, usually seeking smaller starter homes, as well as the tightening in the mortgage market.

What happens in 2010? Unemployment is expected to climb, after all, credit is still tight, the first-time homebuyer tax credit is due to expire in April, and a weak dollar will most likely prompt the Fed to raise the interest rates at some point. However, here at Elika we’re finding that foreign buyers, spurred on by the same weak dollar, are stepping up to the plate, and buyers willing to come in with cash are often able to secure better deals, quicker. With uncertain stock, commodities and currencies markets, New York real estate may attract the more cautious investor to come in and scoop up well-priced apartments.

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“It was a difficult year,” said the president of Halstead, speaking to Crain’s New York. It was “one of the weakest markets in decades,” reads a report released by CORE. The first half was the worst: “everything stopped,” told a managing director at Prudential Douglas Elliman to Crain’s. The second half fared better for sellers, in part spurred on by the then-expiring tax credit for first time buyers, which, for better or worse, was extended to April and even expanded. But new Freddie Mac and Fannie Mae regulations have made it more difficult for buyers–despite rockbottom mortgage rates to get in without a substantial nest egg. And while we ended the year up from the very bottom, not everyone’s convinced there won’t be a second dip in 2010. One thing is for sure, however–2009 has been a year of reassessment.

Jonathan Miller, of Miller Samuel Inc, points out in the Crain’s article that Manhattan inventory hit the decade’s peak in the first quarter, with 10,455 units–not counting the 7,000 or so estimated units in the shadow inventory, which developers aren’t actively marketing. Fannie and Freddie’s new lending requirements stopped covering anything less than 70-percent pre-sold, forcing some developers to consider alternate channels, such as the Federal Home Administration loan insurance program–which allowed buyers to put down as little as 3.5 percent–for the first time. Not everyone suffered–as pointed out on this blog, many cash buyers swooped in during the second half of the year, making life easier for everyone involved and speeding up signing the agreement to mere days. The foreclosures still hitting large-profile new and conversion projects all over the city are still going through, prompting many troubled assets to slash prices by up to 25 percent. Toward the end of the year, starting from September, inventories started going down, buyers did come back, and sellers, for the first time in over a year, could reasonably expect to receive their asking price reasonably being the operative word.

What 2010 holds for us is still uncertain, but the end-of-the-year reports coming out of major brokerages should give a clearer picture, both of the current market conditions and of the mood of the industry’ players entering 2010. Stay tuned–and Happy New Year’s.

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The trend is not only due to the difficulty of obtaining a loan, however: some sellers, according to the Real Deal, are willing to slash a further 5 percent off the asking price and to pick up transfer taxes to boot on cash deals. Furthermore, such deals can close within as little as 10 days, compared to the average two months when a mortgage needs to be arranged. According to the appraisal firm Miller Samuel, this is particularly true in the high-end market. Indeed, here at Elika, 75 percent of our clients have put down cash in 2009, including in a recent deal that Gea Elika closed at the Superior Ink building for $13.75 million. The low dollar value and the appeal of the New York City market, where prices are off 20 to 30 percent off their highs, have brought back investors and second-home buyers. New condos, which are particularly receptive to cash buyers since new rules from Fannie Mae and Freddie Mac requiring them to be 70 percent sold for suitors to qualify for loans, are becoming as a result mostly available to cash buyers only. A Tamarking property at 456 W. 19th St., for example, has all four of its sales in the 22-unit building go for cash since going on market a year ago. At One York in Tribeca, JANI Real Estate took four out of six deals in cash in 10 months.

The ascendancy of cash is not relegated to the luxury market, however: even school teachers are doing it, as are many middle-class buyers. Where does all the cash come from, considering the havoc wreaked on the economy in the last 18 months? According to a Prudential Douglas Elliman managing director, a lot of it has to do with people pulling out of the stock market, which, despite impressive gains, appears too volatile to many who weathered the storm of seeing their portfolios dwindle to 2000 levels. Furthermore, the drop in real estate prices has attracted many buyers willing to bet they are coming in at prices not seen in years now, even if these prices could fall further yet.

Finally, while the low interest rates mean cheaper mortgages, they also mean lower gains in savings account, making investment in real estate that more attractive comparatively. Some cash buyers, however, are apparently coming in expecting the moon, which developers are not always willing to deliver: while developers would avoid carrying costs, they can miss out on a city tax credit in the process. The sight of cash, though, still makes everyone more at ease.

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That may no longer be the case, at least in New York. A halt in new construction projects, complemented by a buying boom spurred on by the first-time home-buyer credit, which was extended last month to April, have dwindled the city’s supply of available stock. Stock market stabilization, respectable economic figures indicating a healthy recovery (despite the horrifying unemployment rate), and the lowest interest rates in most people’s memories have brought out buyers out of the woodwork, and they’re now competing against each other for the first time in a year and a half.

Brokers interviewed for the Real Deal report say that the stabilization in real estate prices has brought out buyers who so far have been sitting on the sidelines, which has raised competition for appropriately priced apartments. Sellers, as a result, no longer have to negotiate with added incentives, and offers above asking price are coming back. Furthermore, according to brokers at Prudential Douglas Elliman and Wohlfarth & Associates, buyers are complaining about a lack of inventory, although that is probably due in part to a slow-down in new construction over the last 18 months. Here at Elika Associates, buyers are now vigorously competing against each other, and are asking for more options. Price cuts in new developments, accompanied by the drying-up of supply, have brought a balance to the market, according to Corcoran Sunshine Marketing Group. Furthermore, a weaker dollar is attracting more foreign investors.

Overpriced properties, however, remain just as hard to sell as they were in the months following the Lehman Brothers collapse. Whether this new balance and healthy competition moves into 2010 remains to be seen, however: with Wall Street projected to dole out bonuses in stock rather than cash, a key ingredient for this season’s buyer push will go missing, and a buyer’s market may come back with a vengeance.

New York City Real Estate for Sale

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ARMs have also fallen: one-year Treasury-indexed average ARMs dropped to 4.25 percent, the lowest in four years. The five-year hybrids, however, rose from the previous week to 4.19 percent, which is still significantly off the 5.77 percent this time last year. While the low rates make mortgages cheaper, it remains to be seen what overall effect they will have on residential real estate markets, since the tightening of credit continues.

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Nationwide, sales are now 36 percent up from their January bottom, resales jumped 10.1 percent to a seasonally adjusted annual rate of 6.1 million in October from the 5.54 million in September, outpacing economists’ estimates of 5.65 million. All four region of the U.S. experienced growth, with the Midwest leading with a 26-percent increase and the Northeast closely following with 25 percent, without adjusting for seasonal factors.

Median sales price was $173,100, 2 percent lower than in September and still 7 percent down from the previous year. Sales are also still 15 percent below their peak in 2005, and some real estate analysts expect another 5 to 10 percent decrease in prices due to more foreclosures. Much of the sales activity has been attributed to the first-time buyer tax credit, which was originally due to expire at the end of the month. However, the $8,000 credit has been renewed by Congress, which actually expanded eligibility, allowing a $6,500 tax credit for home purchasers to buyers that have owned their current homes for at least five years. The NRA report reflects offers and sales under the assumption that the credit would end.

Analysts are also concerned about what may happen if the Federal Reserve, which currently maintains close-to-zero interest rates [ Bernanke Keeps The Course ], would shift policy: any increases in mortgage rates, in an already tight market, would threaten demand. Furthermore, recent reports are showing that many once credit-worthy potential home-buyers may be at risk of foreclosures—14 percent of current mortgage owners, according to recent reports, have either missed payments or are in foreclosure.

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Jonathan Miller of the appraisal firm Miller Samuel believes that two-thirds of the estimated 4,000 apartments for sale in Manhattan are overpriced. But those apartments priced 20 to 30 percent the highs of early 2008 are attracting multiple buyers willing to outbid each other, on everything from starter one-bedrooms in Brooklyn to Central Park West luxury enclaves. One two-bedroom on the Upper West Side, for example, sold within two weeks by Halstead Property in October for $1.8 million—at over $200,000 more than the listed price—following a bidding war among nine suitors. Brokers are attributing the phenomenon to pent-up demand and a shift in the confidence of buyers entering the market since Labor Day. The weak dollar also helps, attracting foreign buyers.

According to Halstead’s Amelia Gewirtz, those that are pricing for 2009 or 2010, i.e., “for buyers who think prices might go down another 5 or 10 percent,” are the most likely to attract better bidders. And according to Genifer Lancaster of Prudential Douglas Elliman, pricing below market value can actually result in the apartment being sold far above fair-market price.

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The combo of low interest rates and a weak dollar bode well for the real estate market in New York, however, attracting buyers both local and foreign. The dollar has fallen 16 percent since March when investors went looking for safer vehicles. Bernanke said, “These safe haven flows have abated, and the dollar has accordingly retraced its gains.”

He added that the Fed is open to changing its policy to respond to significant changes in economic conditions, but that the country’s main challenges now are tight bank credit and high unemployment. In addition, he added that while recent evidence of an economic recovery may be attributable to the government stimulus, “continued growth next year is likely.”

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Compared to August this year, the index rose 6.1 percent to 110.1 this September. It’s not all good news, of course: For one thing, the index actually fell in the Northeast month-to-month by two percent, although it’s still 16.9 percent higher than September 2008.

The biggest gains were in the West–10.2 percent–and the Midwest–8.1 percent. Analysts are also cautious about the expiration of the $8,000 first-time buyer tax credit, which many say will lead to yet another slump in sales activity, although many suspect that the credit may be extended to continue the government’s stimulus. However, the index is based on contracts signed in September, and there is a one- to two-month-long lag between a signed contract and a completed deals, so the index is inflated by an increasing number of short sales, which may not result in actual sales due to sellers walking away from unsatisfying appraisals, according to the Financial Times.

To cap the sour facts off, while resales jumped 9.4 percent in September, new home sales dropped for the first time in six months. That said, NAR chief economist Lawrence Yun said, “Home values will stabilize sooner rather than over-correcting. That, in turn, will mean wealth stabilization for the vast number of middle-class families and lay the foundation for a durable economic recovery.” Yun also estimates that 3 million renters are now “financially well-qualified to buy a median-priced home.”

The bit of bright news is that Congress is expected to move ahead with extending the credit, with some Representatives shooting for actually expanding the stimulus package by adding a further $6,500 credit for second-home buyers as long as they have resided in their previous home for at least five years, according to the Associated Press.

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