While foreign investment has helped sustain New York City real estate—particularly in Manhattan—growing economic stresses abroad and Wall Street layoffs will soften the market, Staniford said.
"We're starting to see foreign investment dry up, and there are big problems with the financial industry—not just the high-net people but the secretaries [and others] that support that industry," he said.
In fact, New York City had the highest increase (16 percent) in foreclosures from the last quarter, among four key metro areas (Los Angeles, Miami and Seattle), according to PropertyShark’s third-quarter foreclosure report. However, Manhattan foreclosure auctions remain virtually nonexistent.
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“I still don't think that we're going to see a lot of foreclosures in Manhattan, and the reason is people tend to work out those problems before foreclosure,” he said. “When someone goes into default into Manhattan there are a lot of investors that are looking at that property.”
Despite Manhattan’s resiliency, foreclosures in all four regions hit two-year highs in the third-quarter, with Seattle up 100 percent, New York City up 60 percent, Miami up 58 percent, and Los Angeles up 196 percent.
“There was a lot of speculation in that area [Los Angeles]; there were a lot of individuals of low socioeconomic status that were more susceptible to the subprime [crisis],” said Staniford. “It was almost the perfect storm out there.”
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Currently, some areas in Los Angeles have seen property values fall more than 50 percent from their peaks, making it an optimal time to buy, Staniford said.
Although the Los Angeles market is starting to pick up, recovery for the broader U.S. real estate market could take five years, he said.
“There's potentially going to be a lot of restricting on lending,” said Staniford. “It's going to take a whole lot of people that were potential buyers out of the mix. Supply and demand is going to dictate that this is not going to be a fast recovery.”
He also cautioned that if the government would not step in, foreclosures would accelerate.
"Foreclosures picked up last quarter," Staniford said, "because the economy is in the toilet."