reality-based educator

I posted last week how the vaunted Manhattan real estate market, thought by many to be impervious to the current national housing recession, could see a slowdown if the financial markets and Wall Street took a big economic hit from the subprime mortgage mess. Lower profits on Wall Street mean lower (or no) Christmas bonuses, possible layoffs at the investment banks and/or general anxiety on the Street, which means Wall Street types have less money to spend on high-end retailers and real estate.

Today, both Reuters and the NY Sun say there is some anecdotal evidence to show this is happening. First, the story from the Sun:

The Manhattan apartment market, long immune to national trends, could be cooled by the latest credit crunch and its effect on global markets, experts say.

With hedge funds collapsing and a stock market increasingly prone to wild swings, Wall Street bonuses, a major driver of the booming local housing market, could take a hit, especially when compared with the record awards at the end of 2006.

Taken with a hike in mortgage rates from wary lenders and a tightening of lending standards, the seemingly endless demand for Manhattan apartments could drop, putting an end to the rising prices that have characterized the local market for much of the past decade.

"I've been doing this 20 years -- I've never seen anything change this fast," a vice chairman for the brokerage firm Prudential Douglas Elliman who works with the high-end residential market, Dolly Lenz, said. Buyers feel far less rushed to snatch up apartments, and are taking a more cautious attitude toward buying homes of more than $10 million, Ms. Lenz said.

"The high-end market is one of confidence -- it's pure, pure confidence, and the minute the confidence isn't there, that's when the attitude changes," she said.

Now Reuters:

NEW YORK (Reuters) - At the end of July, Deanna Kory had a bidding war on her hands. Three potential buyers were vying for a luxury apartment the Manhattan real estate broker was selling for a client at a $4 million asking price.

On July 27, the end of a week when the Standard & Poor's 500 stock index suffer its worst one-week percentage drop since 2002, she called the winning bidder with the good news. The next day he withdrew his bid for the Upper West Side home.

There is no sign of a downturn in sales figures for now, but Kory's experience may be an early sign of weakness in the robust Manhattan market that could be vulnerable to struggling stock markets, hedge fun losses and newly cautious lenders.

"I guess he called his mortgage person and found it wasn't going to be as easy as he thought for him to get what he wanted. He got nervous and decided not to proceed," said Kory, senior vice president of the Corcoran Group.

She also suspects he may have feared his bonus was going to be hurt by the market's slide. The bidder, like much of her clientele, works in the financial industry.

If Wall Street and the credit market can shrug off anxiety over potential problems over the subprime mess and people can get financed for jumbo mortgages (those over $417,000), then the Manhattan real estate market should be fine.

But if the credit market remains tight and more hedge funds fail as a result of defaulting homeowners, I don't see how the Manhattan real estate market cannot suffer a slowdown.

My bet is, given that most of the really toxic adjustable rate mortgages issued in 2006 won't reset until 2008 (and we still have a total of $570 billion in potentially toxic subprime mortgages to reset in the next year and a half), we have not seen the worse of the subprime fall-out yet and therefore Manhattan brokers better do some business now while they can.

Because as Donald Trump said last week, the Manhattan real estate market can turn on a dime.