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Real estate record and builders' guide: v. 81, no. 2077: January 4, 1908: [Supplement]

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January 4, 190S RECORD AND GUIDE THE REAL ESTATE MARKET IN 1907. A REVIEW AND AN ANTICIPATION HE fact that stands out most prominently in any backward glance over the real estate mar¬ ket during the past year is that of a substantial decline in the number of recorded real estate transactions. The diminution has been very considerable. It amounts to a very large per¬ centage of the total number of transactions; and it just about restores the level of real es¬ tate activity to that which obtained in 1903. The flood of sales which rose gradually during 1904, which culminated in 1905. and which showed evident indications of a recession in 1906, has now finally spent its force. The transactions in Manhattan and Bronx real estate are about as numerous as they were during the early years of the great speculative movement, and a question as to the meaning of this recession is immedi¬ ately suggested. Perhaps the best way to put this question will he to make an inquiry as to what year since 1900 represents the normal level of real estate activity un¬ der prevailing conditions. Is the recession which has been taking place since the winter of 1905-1906 to be considered as a low level, which will be succeeded within a few years by a revival of the excited activity of 1905? Or was the excited activity of 1905 itself the evidence of an abnormal con¬ dition, which may not occur again for a great many years? We do not believe there is any reasonable doubt as to the way in which these questions- ought to be answered. The re¬ cession which began in 1906 and which has culminated during the past year, represents merely a return to a more normal condition of real estate trading. It was the higher level of 1905 which was the product of abnormal and unstable conditions, and the lower level of the past year merely points to a restoration of a more stable set of conditions wheretiy the activity of the real estate market in New York is determined. To be siire, the re¬ cession has amounted in certain respects to a reaction. To be sure, the real estate market in 1907 has been gravely injured by the serious but temporary financial handicaps. To he sure, the trading in real estate, particularly during the last fall, has been reduced by the financial crisis to abnormally small pro¬ portions. Nevertheless it is unquestionably true that the level of activity which prevailed late in 1906 and early in 1907 more nearly represents the kind of a market which real estate own¬ ers and operators have a right to expect than did the swollen totals of 1905. The speculation which caused the enormous number of transactions recorded in 1905 was justified by the conditions determining values which then prevailed, but those conditions were themselves only temporary, and they were hound within' a comparatively s-hort space of time to exhaust their strength. A brief analysis of the causes which led to the activity of 1905 will indicate their wholly temporary nature. The activity was due to an excited but legitimate speculation in tenement- house property, and in property which was available for im¬ provement with tenement houses and the cheaper grade of fiats. For a number of reasons properly of this class, wherever situated in Manhattan, had undergone a substantial although by no means uniform Increase in value. In the first place the new tenement-house law had caused a temporary suspension of the construction of new tenement houses which coincided with an unusually large percentage of increase in the tenement- house population. In 1904 there was almost a famine in the supply of available tenements, and this famine enabled land¬ lords all over the city, but particularly on the East Side and in Harlem, to raise their rents. The average income afforded by ordinary tenement hous-es and fiats was thus augmented not only by a decrease in the percentage of vacancies, but by the larger rentals which could he charged. Furthermore it was found that by means of a few alterations in the old five-story buildings their Income could be substantially increased; and many speculative operators mad? a business of picking up such buildings and increasing the." value by spending a few thousand dollars on these alterations. It so happened Ihat the whole movement in its effect upon, certain parts of the city was very much accelei'ated by the opening of the subway in 1904. The improved transit service afforded by the subway not only made large amounts of vacant land available for Improve¬ ment, but it tended to increase the value of tenement and apart¬ ment house property along its line. The result of all these causes was a general and substantial improvement in the price of all classes of property upon which tenement and apartment- houses had been and could be built, and speculators rushed in to take advantage of this improvement. The same property frequently changed hands sevei-al times, each time at a higher value; and the number of such transactions amounted to hun¬ dreds in the course of a week. At the same time, of course, a fair amount of activity was taking place In the other lines of real estate trading—particularly in the neighborhood of Fifth Avenue, so that the volume of business was further increased by a considerable speculation in real estate available for im¬ provement with business buildings. As, however, the Record and Guide frequently pointed out in 1905, these conditions were peculiar and could not be expected to continue. The time would come when it would be imposst-. hie to push up any further the value of the average tenement house and fiat, and when that time came the occasion for this speculative excitement would no longer exist. This time came in 1906. The inci-eased value of such property had resulted in an enormous building rhovement, which converted the famine, which had existed in 1904, into an over-supply. Then the higher rents charged for tenement-house accommodations had natu¬ rally induced many families to move to other boroughs, and stimulated an excited speculation in vacant property in Brook¬ lyn and Queens, and a rapid construction of cheap means of res-idence in those neighborhoods. The consequence was, of course, a rapid decline of the speculative movement in Man¬ hattan flats and tenements, just because the conditions which made It possible no longer existed. This decline culminated in the past fall, during which period sales of this class of prop¬ erty have been fewer than for many years. In a short time such extreme inactivity will disappear; but it is improbable that the New York real estate market will ever witness a simi¬ lar speculation in Manhattan tenement-house property. Rents cannot be pushed up any higher, because of the competition of similar accommodations in the other boroughs; and in any event it is real estate in Manhattan, used for business purposes-, which has a great future, rather than I'eal estate used for resi¬ dence purposes. With the trading in tenement-house property reduced to a normal basis, there will be no chance during an indefinitely long period for a volume of activity, such as that in 1905 and early in 190G. It was an opportunily for speculation which occurs only once in a generation, and a similar opportunity is not likely to occur in business property. A speculative move¬ ment in business property, while It offers much larger oppor¬ tunities of profit on single transactions, requires so much more capital that it is necessarily restricted to a comparatively few corporations and individuals. The speculation in tenement- houses on the other hand required very little capita!, and en¬ gaged the attention of thousands of small property-owners, who were familiar with local conditions and saw the chance for a profitable turn. A smaller volume of activity must, then, be definitely accepted as the pi'obable characteristic of the real estate market for some years to come, and this smaller volume of business must be considered as an evidence, not of any de¬ pression but of the recovery by the market of an equilibrium which had been temporarily disturbed by a group of very un- ■ usual conditions. Neither will the interests of the owner of real estate be in any way injured by a restoration in this respect of normal con¬ ditions, His interests only demand a volume of activity sufii- clent to absorb such offerings of real property as necessarily take place owing to the ordinary exigencies of business, and upon such a volume of activity lie can most assuredly depend as soon as money can again be easily obtained on good security. The best interests of real estate demand a steady and ad-