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Market conditions best they've been in decade.

Barbara Corcoran is the E.F. Hutton of the New York residential real estate industry: When the President of The Corcoran Group talks about the state of the residential market in Manhattan, people listen.

Such was the case when Ms. Corcoran addressed a gathering of the Young Men's and Women's Real Estate Association in October at the Waldorf Astoria. Although the majority of the audience members made their living in the commercial property field, many had a stake in the improvement of the residential market, either owning apartments, condos or co-ops as investments or homes.

Corcoran identified four areas of concentration: a snapshot of where the market stands; a description of the kind of recovery we're experiencing; major changes in the market before and during the recession; and projections for the future.

Where the Market Stands

According to Corcoran, prices have fallen considerably from peak of market in 1988, by about 30 percent. For example, a luxury co-op or condo that sold for $250,000 five years ago, now is down to about $175,000.

While prices are still failing on the smaller units, they are now rising on larger units. Prices for 1-bedrooms are down 5 percent and 2-bedrooms are down 2 percent.

The good news for those working in the residential market is that market activity has been very strong. "The last 24 months has witnessed phenomenal sales activity, 15 percent higher than it was at the peak of the market," said Corcoran, noting that the surge in activity over the last two years has absorbed almost the entire stock of excess of apartments. Three years ago, Corcoran cited 8,500 units available. The current 5,100 units available is the "shortest supply I've seen in 10 years."

There is also a shortage of units of 6-rooms and more, and fewer lofts to choose from, driving the prices of these apartments.up, but leaving buyers disappointed with the lack of choices in what they're seeing in this market.

The Baton is Passed

Corcoran sees a shift in buying patterns, which she likens to a relay-race in which the baton is now being passed from the buyers to sellers hand. "Buyers are getting far less of a deal than they were getting a year ago," Corcoran said.

The time it takes to sell an apartment continues to decrease, from 30 weeks two years ago to 27 weeks last year to 24 weeks this year. "We are experiencing very quick sales on apartments that are priced right," she said.

Different Kind of Recovery

Corcoran said the current residential recovery is different from the other two she has witnessed in her career. Like the others, this one has started at the top end of the market, and will work its way to the bottom. But this recovery is working in slow motion; everything about it is cumbersome.

The reason for this, Corcoran explained, are the horror stories experienced by I in 6 people who had a cash loss in the sale of their property in the last few years. Still others have a perceived loss, not making as much of a profit as they expected on their sale. Although they may have made a small profit, psychologically they have taken a loss,

Another reason for the slow recovery of the residential market is the abundance of smart buyers currently out there who are not apt to jump into market until they are totally convinced the market is turning around.

A third reason for the slow recovery is the continuing bad news from the daily media about corporations laying off workers in both management and blue collar positions.

These combined factors have led to an almost total absence of discretionary purchasers, who aided other recoveries.

The Good News

Despite the slow recovery, the market still is moving forward because of one thing: people see they can get value for their money. "If you could envision the best possible real estate market, you would ask for prices from 10 years ago, and interest rates that are low," Corcoran said. Well, prices have come down to early 1980s levels and interest rates are at record low levels at the very same time. This, Corcoran said, equals value for buyers.

There is a strength to the market that you just can't dispute," Corcoran said, adding that first-time buyers are accounting for 1 in 4 sales, and wealthy people and those getting out of certain de-controlled units are returning to the market in numbers for the first time in years.

The next great group of buyers are coming from stock market people, who are also representing 1 in 4 sales. This, Corcoran said, is the result of huge bonuses on Wall Street which translate into quick buyers stepping up to bat with strong cash positions. They are aggressively competing with each other, further adding to the upsurge in prices in the high end of the market.

Another strong group of buyers is coming from the suburban market, which now accounts for 20 percent of total sales, up from just 4 percent last year. Many of these buyers are suburban empty-nesters returning to the city after selling their homes in places like Scarsdale. They are buying alot of 2 bedroom apartments, leading the slow turn-around in that market.

Another 10 percent of buyers are foreigners, up from 4 percent last year, and these investors are largely responsible for the salvation of luxury condominiums which were in trouble, especially along the Third Avenue corridor "Foreign investors are solely responsible for absorbing excess condominiums, many of them looking for a once in a lifetime opportunity," Corcoran said.

The missing 20 percent of buyers in the market are the discretionary buyers, who Corcoran said "only will come out once god himself comes down and says the recession is over."

Changes Because of Recession

Corcoran identified five changes in the market as a result of the recession of the late 1980s. They are:

*Buyers Have Changed: Many buyers have evolved from emotional to logical purchaser. They have become a hard sell, leaving their "emotions back on the farm." Buyers are acting more like investors analyzing everything. "I haven't heard |I must have it!' in 4 years," Corcoran said.

*Sellers Have Changed: Sellers have become more cost conscious. The rule of thumb, Corcoran said, is "Overprice it and you're dead!" Overpricing has come to mean within 10 percent of the trade value. However, the show to bid ration has never changed. On average. if you show a property 7 times, you should get 1 bid. If not, the apartment is overpriced.

*Boards Have Changed: Burned by foreclosures, or afraid of the specter of default, more and more building boards are exercising extreme caution. Actually, the fear of default is greater than reality. But the questions have changed from "How much are your assets?" to "How good are your assets?"

*Banks Are Tougher: Despite plummeting interest rates, banks are setting new and tougher rules on mortgages. There is also trouble getting certain buildings through the bank because of past problems.

*People More Content: There is one happy change, according to Corcoran. Recent poll say people are happier now versus four years ago. While 65 percent still say living conditions in the city are worse, people have gotten accustomed to the crime the dirt etc. People are adjusting. Very few people who threatened to leave the city have.

Pre-Recession Changes

Corcoran also recalled changes which occurred by for the most recent recession, which still are having an effect on the market. Among them were:

Gradually, a higher percentage of foreigners are owning real estate in New York City. These buyers had initially overbid Americans, but are shopping more now. However, these foreign buyers rescued us from foreclosed properties, such as the Palace. There has also been an obliteration of the value line between the East and West Sides. The West Side used to be 50 percent cheaper, but today they've moved very close in value, even through the recession. Also, the concept of Midtown has erased east and west lines.

Overall, declining interest rates, increased market activity and a halt in new construction spells an improving market for residential property in Manhattan, where buyers can find value, and sellers can finally get the price they've been waiting for.
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Title Annotation:Residential Properties; president of Corcoran Group Barbara Corcoran addresses Young Men's and Women's Real Estate Association on New York, New York residential real estate market 1993
Author:Gerard, Eric R.
Publication:Real Estate Weekly
Article Type:Column
Date:Nov 17, 1993
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