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Bubble debate still a hot topic.

Industry experts continue to squabble over whether or not a bubble exists in the market. Despite the fact that many still adamantly deny the existence of such a bubble, more and more are taking the opposite stance.

"I do believe there's a bubble," said Raymond Torto, principal and chief strategist at Torto Wheaton Research during a press briefing arranged this week by CBRE.

"Home ownership has jumped from 64% to 69%. This has happened due to subprime mortgage growth being about 25% a year. Higher credit risks can now own homes. There's also an excess supply. There were 4.4 million new homes put on the market between 1996 and 2000. Now there's a slowing of new households because of condo conversions and single family prices starting to adjust 15-20%."

At the African-American Real Estate Professionals of New York third annual symposium earlier this month, Charles Gatewood, vice president of JP Morgan Chase Bank, told the audience, "It's a cyclical industry. We have ups and downs. It's been up a long time, so it's logical to expect it to go down. When a veteran [like myself] is admitting there's a softening, it must be worse than it is."

Others, however, staunchly disagree, blaming the media for the recent bubble frenzy.

Pamela Liebman, president and CEO of the Corcoran Group, told guests at the Braddock+Purcell's recent seminar held at the 92nd Street Y: "The crash of the real estate market is not immediate. It's not a bubble. The press uses the word [bubble] to get attention. The press is looking for a negative story and found a couple of stats to blow up how the market is."

At a recent REBNY panel entitled, "Crossfire: Market bubble?", Scott Latham, executive managing director at Cushman & Wakefield, said, "The press likes to focus on negative stories. They don't seem to care what the topic is. Most people in the industry believe it's not a bubble in the classic sense. In residential, there were five million projects last year and they were all taken up very, very fast."

William Macklowe, president of Macklowe Properties, was among the panelists who said they believed a bubble exists nationally, but feel New York City is impervious to a crash.

"The concept of the bubble is real; it exists outside of New York," said Macklowe.

"But the concept of the bubble is predicated upon speculation and there's no rampant space in New York; it exists outside of the city."

Robert Rosania, partner of Stellar Management, agreed, saying, "Nationally, as far as single family homes or condo conversions, there's definitely a bubble, but not in New York City. Outside of New York, residential is in a speculative state. Fundamentally, there's a financing bubble in real estate."

According to Latham, outside of New York, 75% of the residential market is owned and 25% is rental. "It's reversed in Manhattan and this suggests a huge demand potential in the residential sector as the baby boomers age and there's a change in demographics due to an increased desire to live in an urban area."

According to Jonathan Miller's Manhattan Market Report, average sale prices dropped by 12.7% from the second to third quarter. However, Miller, president and co-founder of Miller Samuel Appraisers and the report's creator, said this can be easily explained: "In reality there was a change in the mix of apartments [being sold]. There was a surge in one to two bedrooms at the expense of apartments with more bedrooms. There was very little high end product that moved. The shift in the mix brought down the median and average sales prices."

In fact, the price per s/f went up 6%, hitting an all-time record of $984. There's also been an expansion of the number of days a home stays on the market. During the last two years the number of days has been in the 90s, but now the market is at approximately 130 days.

Miller said, "We typically see 60 to 90 days during a hyper market. A balanced market is 120 to 150 days. We're at the low end of the normal range of marketing time."

Despite the many and varied explanations, some in the industry still believe that New York is entering a bubble.

According to Gatewood, "When prices are going down or stabilizing and numerous market reports are saying there is a decrease, that's the time to beware."

Even those who don't believe there is a bubble admit to a lull in the market.

"Several brokers have said it's slow out there. Sellers are too high and there's no rush for buyers. The psyche has changed," Liebman said. "Before buyers weren't worried about what they pay because [the price is] going to keep going up, up, up. Now buyers are [realizing] it's not going to go up like this forever. There's some stalling because sellers are too aggressive in their pricing. There is great product, but it's too much money."

She added, "There's more inventory on the market. Any broker or buyer will say that last year there was nothing to see or show. In September 2004, there were 6,300 new listings hitting the market. In September 2005, there were 8,200."

The question now is where exactly is the market going?

Geoff Flournoy, principal of BRP Development Corporation, told the AAREP seminar, "We'll see a flattening of prices, as well as a large decline in the market of 5-10%. But it will be less in the affordable housing market. There's a strong demand for affordable units."

Gatewood added, "We need to focus on financial projects that are affordable, less than $600 per s/f. That market will be the strongest and have less of a loss factor. People will always need to buy housing."

"The market has been so abnormal," Alan Rogers, former chairman of Douglas Elliman, told the 92nd St Y audience.

"We need to focus on a normal market and normal absorption."
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Author:Razzano, Tiffany
Publication:Real Estate Weekly
Geographic Code:1USA
Date:Nov 23, 2005
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