The bad news for the global economy that has been coming out of New York City has been good news for those looking to buy apartments in the city’ real estate market. Long a seller’s market, the recent downturn has finally given buyers a chance at finding apartments at more reasonable prices, and on less onerous terms.
The credit crunch has curtailed demand in more ways than just reducing the financial sector’s employment levels, though. More importantly, it has become considerably more difficult to find loans without a near-perfect credit score.
Indeed, even those with perfect credit histories have been turned down just because their credit histories aren’t long enough. This practice is especially prevalent in New York City banks.
For those who already own, it has become exceptionally difficult to use their current home as collateral for a new mortgage without having already sold it.
Co-op boards have similar standards. Many are even more stringent than the banks. The co-op boards have saved the city from the considerable economic harm resulting from the subprime crisis by effectively erecting a second, private layer of regulation on top of the federal guidelines that “missed” the subprime problem. (“Missed” is put in quotes here as it was a regulation that was intentionally overturned in 2000.)
Now, however, the co-ops are harming the city’s economy by denying many potential buyers who have a perfectly valid credit history and collateral. By demanding they sell their homes first, they have effectively trapped some buyers in their current homes.
A particular source of harm for many potential buyer’s credit score is credit cards sold by gasoline companies. These often have meager limits. Banks are wary of credit card users who are beyond 35% of their total credit limit. So, even if you have never passed your threshold, cards with meager limits can make you look less attractive vis-a-vis mortgage applications.
For younger buyers, banks are now in the practice of requiring full financial disclosure from parents that act as co-signers.
Fortunately, it seems likely that prices are not going to hit bottom for a considerable amount of time. The third quarter numbers will be fascinating, but they won’t tell us much about the full impact of the recent credit freeze that began with the bankruptcy of Lehman Brothers.
As the federal government spends around a trillion dollars in what amounts to a socialization of financial risk for the world’s wealthiest citizens, it won’t be until the end of the year numbers come in that we will be able to tell if the market is really in a free fall, or if the adjustment within the city’s lines will be milder.