New York, N.Y., July 6, 2009 – The average Brooklyn home price declined 18 percent in the second quarter of 2009 compared to the same period last year, but sales volume picked up slightly in the second quarter compared to the first quarter of 2009, according to Brooklyn-based real estate appraisal firm HMS Associates.

The average home price in Brooklyn during the second quarter of 2009 was $548,560, 18 percent less than $670,419 in the same period last year, the HMS report showed.

There were a total of 545 sales during the second quarter of 2009, an 8 percent increase in activity over the first quarter of 2009.

“Prices continued to decline, which is no surprise, but there was a slight pickup in the sales activity from the first quarter to second quarter of this year so far,” said Sam Heskel, an appraiser and executive vice president of HMS Associates. “Because sellers have been more realistic and prices have come down, we are seeing more activity as buyers feel more comfortable making offers.

 “This could indicate that the market is bottoming out and that the downward trend is approaching its end,” Heskel said.

Volume is still dramatically down from last year, HMS reported. The 545 sales in the second quarter of 2009 is 52 percent less than the same period last year, when there were 1,145 sales.

The price drop was consistent in virtually every neighborhood in Brooklyn, marking a difference from just a few months ago when the borough’s average price fell but some neighborhoods were still seeing modest price increases, the HMS report showed.

In Carroll Gardens/Cobble Hill, where prices were still increasing last quarter, the average home price was just 1 percent higher compared to the same period last year, and sales volume was down 62 percent. In Greenpoint, which also showed price increases last quarter, the average home price dropped 20 percent and sales volume was down 15 percent.

“If you are able to come up with the financing, there is a lot of inventory out there and lower prices in neighborhoods that are still very strong, so it can be a good time to buy,” Heskel said.

The home price figures and sales volume come from HMS’s comprehensive quarterly study of 15 representative neighborhoods in Brooklyn and include one-, two-, three-, and four-family homes, condos, and co-ops.  The neighborhoods included in the report together are deemed a fair reflection of what is happening in the Brooklyn real estate market as a whole, according to Heskel.           

Almost every neighborhood saw a price decline, the quarterly report showed. The only exceptions were Carroll Gardens/Cobble Hill, with its 1 percent increase to an average home price of $933,438 and Fort Greene, where the average home price remained statistically the same at $911,538.

The steepest price declines were in Dumbo/Downtown Brooklyn/Boerum Hill, where prices fell 22 percent to $754,000, and Sheepshead Bay, where prices also fell 22 percent to $263,200, according to the report.

The complete report will be posted at http://www.hmsassociates.net/marketingreports.cfm

According to appraisal firm HMS Associates, residential sales volume in Brooklyn was down 65 percent in the first quarter, compared to the same period last year. Prices in the borough were off 8 percent compared to last year, but neighborhoods were affected differently. According to HMS, prices were up in Greenpoint, Carroll Gardens and Sunset Park, while Brooklyn Heights, Sheepshead Bay and Fort Greene saw prices drop. “For two years, sales volume has dropped, but prices have not,” said Sam Heskel, executive vice president of HMS. “Now … prices are falling into line with the reality of diminished sales volume.”

Read more at Brownstoner.

The newly revised Home Valuation Code of Conduct goes into effect on May 1st, but it remains to be seen whether the new provisions will resolve troubles that became apparent last year. The revisions require lenders to obtain appraisals through a third party, so-called Appraisal Management Companies, rather than order the appraisals directly through their own sourcing. The goal here is to create a firewall between the lenders making loans for properties and the appraisers, who are valuing the properties, thus eliminating any kind of pressure to influence the outcome of the appraisal.

I completely agree that there needs to be a way to prevent lenders from putting pressure on appraisers to produce favorable property valuations and am in favor of a firewall between the lending industry and appraisals. But the provision to require a third party to order appraisals is problematic.

Appraisal Management Companies (AMC’s) add another layer of fees to the process, which will either be passed on to buyers or will force appraisers to operate as such reduced margins that it will become too difficult to attract and retain appraisal professionals of high quality and experience. Appraisals these days are more complicated than they were  a couple years ago, when the market was constantly rising. A thorough, professional appraisal is a complex process, and it would be an unfortunate development if the appraisal industry was forced to raise fees in order to stay in the business.

Further, there are bound to be loopholes in the new provisions that still allow lenders to work directly with appraisers, defeating the purpose of the revisions to the code.

I’m curious to know what lenders and mortgage brokers think about the changes in the code, and how this will pan out for all professionals involved in the industry. Please feel free to share in the comments section below.

This week I’m featured in a Real Deal webcast on the sale of distressed properties. Please have a look:

Sam Heskel on Real Deal Webcast

… In this week’s Webcast, appraiser Sam Heskel of HMS Associates also tells The Real Deal’s Jill Gardiner that investors are beginning to look …

So we’ve all returned from the holiday season with no small degree of apprehension for what the coming twelve months might hold.  Anxiety prevails almost across the financial board.  Of course, we are awaiting the “change” that comes with a new US presidential administration.  Just days ago, Barak Obama gave his first major address on the economy with broad pledges about the things we as a nation will need to do to address the current crisis.

It’s interesting to note that the media at least in the form of this New York Times article is saying that in order to make these broad fiscal recovery plans possible, he’s going to need to delay at least some of the pledges that he made during the campaign.  Perhaps this is the nature of politics, but it still demands to be pointed out and I welcome your feedback as to whether this is legitimate criticism or whether we should just be saying desperate times call for desperate measures.

As for our local situation, all discussion indicates that the coming months and perhaps even years will lead to continued volitility for the New York Real Estate markets.  I came across this posting from a fast growing financial site called Seeking Alpha that describes the coming sittuation here in NYC as “shock and awe.”  Of particular interest was this piece from Crains New York called “Stress in the City” that claims we’re all gripped by fear and we’re about to embark on the worst period of buying (or lack there of…) and selling in decades.  It’s a pretty long and comprehensive piece but it lays out the sittuation in a clear way with some powerful numbers so I would recomend anyone looking for a strong handle of the sittuation please check it out.

Speaking about numbers, a sobering report released by Goldman Sachs came out in the Wall Street Journal in recent days indicating that condos would be shedding up to 44 percent of their value in the period ahead.  Ouch!  Here’s the concluding section of the report that leaves not too much room for optimism for right now:

So is there any hope for the New York apartment market? Apart from a dramatic turnaround in the city’s economic fortunes, the most plausible story is a drop in jumbo mortgage rates. So far, jumbo rates have not benefited much from the recent decline in mortgage rates, but this could change if the Fed (presumably in conjunction with the Treasury) decided in the course of 2009 to broaden its support from the conforming market to the private-label mortgage market. To make an extreme assumption, if the jumbo mortgage rate fell from the current 7% to 5%, this would reduce the “required” price decline from 35% to 19%. Of course, this assumes that affordability is the only measure that matters for home prices and there is no role for the “raw” price/rent or price/income ratio, and that Manhattan incomes stay at 3 times the national average.

In addition, it could be that societal and demographic changes will keep New York apartment valuations above the levels that prevailed in earlier periods. For example, one might argue that the memory of high crime rates was still fresh enough in 1995-1999 to make this period an excessively pessimistic benchmark. If crime stays low during the current economic downturn, perhaps Manhattan real estate will retain its higher valuation in coming years. Alternatively, one might argue that the aging of the baby boomers will continue to support the New York market as “empty nesters” want to live closer to the city’s attractions. These types of arguments are difficult to quantify and are often heard just prior to the start of a real estate downturn, but they do underscore that our analysis of the observable data on prices, rents, incomes, and interest rates only provides a very partial view of the New York apartment market.

As reported yesterday the numbers are looking even worse then we could have expected.  Unless you’re a buyer who’se in good financial shape there are very few positives that are coming out of these recent news cycles. A drop of 13 percent in the average sale price for homes around the country is a deeply disturbing trend and we’re fairly convinced that the end of this misery is nowhere in site. We will report here our annual Brooklyn Market Report in mid January of the New year.

The commercial real estate market has become the latest industry to begin actively seeking out help from the federal government according to this report in the Washington Post.

The Daily News reports today that the FBI upped its list of financial firms under investigation to 24 with the additions of mortgage finance giants Fannie Mae and Freddie Mac, insurer American International Group Inc. and bankrupted Lehman Brothers Holdings Inc. The collapse of these four major U.S. financial institutions helped trigger a $700 billion bailout plan proposed by the Bush administration. Over the past year, as the housing market cratered, the FBI has opened a wide-ranging probe of companies across the financial services industry, from mortgage lenders to investment banks that bundle home loans into securities sold to investors. In the past two weeks, the government has taken over Fannie Mae and Freddie Mac with a bailout plan that could require as much as $100 billion each from the Treasury Department to keep them afloat as mortgage losses mount. Last week, the Federal Reserve provided an emergency $85 billion loan to AIG, which teetered on the brink of bankruptcy. Lehman Brothers was forced to file for bankruptcy after attempts to engineer a private rescue fell apart. All the companies were laid low from bad bets on complex mortgage-related securities. Also appearing in the Daily News is a piece that details stricter lending requirements in the post-housing boom. Coupled with falling house values in many areas, these two factors mean that many homeowners will miss out on refinancing given current declining mortgage rates. The New York Post gets specific in illustrating the wavering New York commercial property market. Uncertainty, financing issues and increased space on the market all factor into to the lack of stability. The sales market is already off 10 percent to 15 percent from highs last year with an even gloomier future. Some estimates have the market falling 15 percent to 25 percent from 2007’s robust levels. But with most city tenants still so far under the current market rates, rents are still likely to rise for any tenant that moves or renews. On a more personal level, Braden Keil gets specific with the goings-on in real estate news and gossip of the upper crust. Bloomberg discusses a possible move by American International Group Inc to sell assets for repayment of a U.S. government loan. AIG, the largest U.S. insurer, agreed last week to an $85 billion federal loan to stay afloat and may seek buyers for some of its $16 billion in global real estate holdings. Potential properties up for sale include some choice holdings. The New York Times takes a look at Warren Buffett’s Tuesday announcement to invest $5 billion in embattled Wall Street titan Goldman Sachs as well as the institution’s future transformation within the financial services sector.