We recently had the opportunity to talk shop with Gary Malin, President of Citi Habitats, and Melissa Cohn, President of Manhattan Mortgage. Below is a little synopsis of our conversation that we hope you will find helpful.
Have NYC’s fundamentals changed in your view?
“The city’s fundamentals are what they always have been, marked by limited supply and a vibrant transient population. People always want to come to NYC, and the city remains the prime choice of where to start their life,” Gary noted. He pointed out that observers often forget that housing inventory is 75% rental, of which 75% is comprised of studios and 1-bedrooms. “The rental component always drives people to Manhattan – the inventory lends itself to new blood coming in.”
What do you think is driving current demand?
For Melissa, lifecycles are a key component of perpetual demand. “Lifecycles don’t change: you graduate from college, get your first job, get married, get divorced … people will always have housing needs and their respective lifecycles will continue to drive the market.”
Both Gary and Melissa continue to see pent up demand from buyers sitting on the sidelines over the last 18 months as being a significant contributing factor to the transactions we’re seeing today.
What would you say to the argument that limited supply in the city is a fallacy, and that rezoning and rebuilding can always create more supply?
“Certain locations just can’t build more,” Gary disagreed. “You can be a pioneer moving far west or north of the city, but the number of units that can be brought to market versus the city’s projected population growth is a drop in the bucket. It takes time to tear down buildings and construct new ones … sooner or later everything gets absorbed, it just takes longer now.”
Melissa added that the material slow-down in new construction over the last two years will drive overall inventory down, referencing the recent pick-up in the number of new development sales since the beginning of 2010. Further, the potential for rezoning is very limited for in-demand neighborhoods such as the West Village.
How do you put the current downturn into perspective?
“The market had to come down,” Gary said. “Prices were getting out of control, so this is a natural, healthy correction. The reason the markets froze last year is because sellers were delusional and held on to their higher prices for a long time. Now, they have woken up. At these levels, the market is clearly telling us that buyers believe that prices make sense for them to transact.” He contrasted the slow adjustment time of sellers to the rapid shift of landlords: “Rental landlords have no choice. If the apartment doesn’t move, they need to lower the price. They therefore found more quickly that price-point at which a transaction could take place.”
“People need to remember that brokers and owners don’t set markets, markets set themselves,” Gary noted.
Melissa added that the shift she is seeing is not towards renting, rather towards more fiscally responsible mentalities in the quest to purchase a home. Instead of buyers stretching themselves beyond their means or to the maximum of their means, they are being more conservative with their decisions.
What are the biggest myths among your clients?
By far, both Gary and Melissa pointed to the myth that you can’t get mortgages today, especially jumbos. “Banks have just gone back to the fundamentals,” said Melissa. “You actually have to have skin in the game now and truly be qualified.”
Another myth is that technology-driven information from a Streeteasy or Property Shark will make clients know more than professionals in the business. “You go online and you think you become the master of the universe, but you don’t know whether the information is current or accurate,” notes Melissa. “Rates from a week ago are completely meaningless, as are tales from friends of 4.5% rates with no specifics behind them. Nowadays you can’t just shop for rates but also for the right product, vetting the building by the bank before you even vet the buyer.”
Gary further confirmed that clients often believe they know more than the professionals, noting that “raw data on a website is meaningless. Transparency is the big word of the day, but you have to know how to interpret the data you’re seeing. Sometimes you need to be out there and put in those lowball offers to understand that they’re not getting you anywhere. You need to be in the market to know the market.”
