Yes. Why it's time to be afraid.
By Carl Swanson
1. Just ask the sellers.
Especially if they live in areas like Tribeca and Chelsea, where prices have already taken a dive. In 1998, Richard Laermer, a hyper-jolly publicist for such Websites as Kozmo.com and BigStar.com, paid $315,000 for a 1,050-square-foot Chelsea loft. He then lived happily as the value of his property soared—peaking last spring, when brokers told him he could get $1 million for his place. That was then. And now? The place just went on the market for $665,000. That’s almost a 33 percent drop from $1 million—in less than a year. Sounds like the bubble has already burst.
2. The economy is worse than you think.
The city has lost 176,000 jobs in two years, and a good portion of them may never come back. Bloomberg has to slash the city’s budget to break even, and the cash-strapped Feds and the state won’t be running to the rescue. Wall Street has laid off 23,000 people in the past two years, and bonuses for those still working have dried up: $19.4 billion was handed out in 2000 and only $7.9 billion last year. Those bonuses were the down payments that fed much of the housing orgy of the past two years. They’re gone; the party’s over.
3. Alan Greenspan can’t float us forever.
The only thing keeping the market from hemorrhaging is the Band-Aid of monetary policy. But low rates will work for only so long. If people don’t have jobs, or they’re worried about losing them, they won’t buy a home no matter how cheap a loan they can get.
4. We’re seeing the world through orange-colored glasses.
While Alan Greenspan puts it politely (“The intensification of geopolitical risks makes discerning the economic path ahead especially difficult”), others put it bluntly: dirty bomb. “A home is the most important investment that most people make, and traditionally, it’s the one thing you could count on,” says Bruce Ehrmann of Stribling & Associates. “But if there’s serious concern about biological attacks . . . ” He trails off.
5. The high end is not holding.
Super-rich buyers can be an indicator of market trends, all right. And while some are still buying, they’re making smaller bets than before. A $28 million, 11,000-square-foot apartment at the Ritz-Carlton at 50 Central Park South has been split in half (the pieces will sell for $12 million and $16 million). Half of the 10,000-square-foot penthouse at the AOL Time Warner Center is now available as well, for $16 million. “The show-off factor is out,” says Douglas Elliman broker Dolly Lenz. “It’s become about price.” While the Ricky Martins of the world may be buying, the market is also seeing plenty of Rosie O’Donnells who bought high—and can’t get their money out. Rosie paid $6.5 million in 1999 for her five-story Upper West Side brownstone. Now she’s trying to sell it for three quarters of a million less.
6. Not all brokers are optimistic.
As Bruce Ehrmann put it, “About two months ago, we all realized, It’s over. The market is over. A lot of brokers had never seen a market where there were more apartments than customers in Manhattan.” While brokers have seen some increases in foot traffic, that doesn’t mean anyone’s buying, says Ashforth Warburg president Frederick Peters. In fact, little is selling unless the price has been reduced and the buyer thinks it’s a bargain. “People are calling; they’re looking to buy. The big difference is that when you leave a showing, the broker will say, ‘They’re really looking to sell—they’re negotiable.’ ” Does that spell a crash? “It’s a challenging market,” says Corcoran’s Wendy Sarasohn. “It’s a challenging world.”