Manhattan Co-Ops and Condos Hold Values

The Beige Book is a report issued by the Federal Reserve which details the economic health regionally throughout the United States.   The latest report which was released on March 6 showed consistant drops in home values and sales throughout the country.  At the same time, it also showed increasing price pressure for non housing products and services.     

The one exception was the Manhattan real estate market, which posted a price increase over last year.   Looks like Manhattan is one of the last remaining real estate markets with any sign of health.

The Credit Crunch Will Not Hurt Manhattan Real Estate – 5 Reasons

1.  Co-op boards prevented anyone incapable of repaying a loan from buying, despite the fact  that greedy mortgage brokers may have approved.

2.  The dollar continues to be weak and shows no sign of letting up, continuing to make New York City the location of a global shopping-spree for foreigners.

3.   The stock market shrugged off a credit crunch reaction last week and is rallying again.

4.   The recent spike in jumbo mortgage rates is a result only of a temporary liquidity issue on Wall Street and not a reflection of real increased risk perception.  Defaults for jumbo loans continue to be less than 1%.

5.   Living in Jersey is still not an option for most. 

NYC: Astronomical Home Ownership Rates

Today’s New York Times cites a new Queens College demographic report showing homeownership increasing by a never before seen rate over the past few years in New York City. The article states:

Propelled by a building boom, co-op and condominium conversions, the lifting of rent regulations and the availability of low-interest and risky subprime mortgages, the rate of homeownership in the city increased more from 2000 to 2005 than during all of the 1990s, according to the analysis, conducted by Queens College demographers for The New York Times.

Put that together with astronomical rents and unrealistic expectations of prospective tenants, and we have an unsustainable situation. We have people who can’t afford to rent competing with people who can’t afford to own.  Too many people are living on tomato soup to make their housing payments.  In past markets, NYC had a more healthy ratio of renters to owners.    When things got bad, landlords did the reasonable thing: burn down their buildings.   (Just a joke to all those who remember the South Bronx of the 1970s and 80s.).  Its too early to do what blight will mark this era’s dip in value, but as far as I can see the only thing to cushion the fall of Gotham’s values is a weak dollar abroad and plenty of foreigners still happy to take a piece of the Apple, at a discount.

Mortgage that earns American Express Points

American Home Mortgage and American Express announced yesterday a partnership that would enable consumers to earn American Express Rewards points when they make their mortgage payment.   The program, which carries a $395 fee, will enable eligible cardholders or new cardholders who want a new purchase mortgage or who need to refinance their existing mortgage, to be able to earn points when they sign up for automatic payments via their card.

Dugan speaks in New York; Blames No-Doc Loans

John C. Dugan, the comptroller of the currency, spoke on Wednesday to members of the not for profit housing assistance group

Neighborhood Housing Services in New York.  The top federal banking regulator spoke on the topic of the foreclosure and subprime loan problems plaguing the mortgage and housing sector currently, and suggested that guidance is now being written for subprime lenders which should deal with the widespread use of state-income loans.   In his commentary, Dugan stated he believed that the misuse of these types of loans has helped drive foreclosures in the subprime sector.

He referred to data that the Mortgage Asset Research Institute provided, showing 90% of borrowers reporting incomes higher than what they reported to the IRS.   Add to income overstatement, the fact that lenders and borrowers are complicitly counting on the fact that homes will appreciate in value.   This, he said became “the perfect petri dish to incubate the widespread practice of stated income loans.”

Dugan’s organization, the OCC, is one of a few federal bank regulators who are trying to draft guidance to improve the subprime underwriting process.

 

New York State Supoenas MMJ and Manhattan Mortgage

Bloomberg reported Friday that NY State is investigating Manhattan real estate, specifically price inflation.

Attorney General Andrew Cuomo issued subpoenas to leading NYC appraisal firm Mitchell, Maxwell & Jackson as well as leading NYC mortgage broker Manhattan Mortgage.

From Bloomberg: “Y. David Scharf, an attorney at New York law firm Morrison Cohen LLP, who is representing Mitchell, Maxwell & Jackson, said his client has been told it’s not a target of the investigation.

“The information that is being requested is whether or not pressure has been brought to bear on appraisers to change their appraisals,” Scharf said. The firm is “continuing to gather information” in response to the subpoena, he said.

“We did not change appraisals in any circumstances,” he said.”

If anything this news is not good for the health of the Manhattan housing market and its ability (per the REBNY report in my prior post) to continue to buck the national trend and most quarter after quarter improvements in housing prices.  If the report finds anything serious, it could be disastrous to NYC home values, if not – it should scare the industry into very conservative appraisal practices, never before seen in Manhattan.

Values could be at their tipping point.