Transcript of 12/15/08 Webcast

"Hello, My name is Leigh Zaph. I’m a real estate broker with Manhattan Homes Incorporated in New York City , a job which I’ve held for over 30 years.

Recently, many of you have contacted me to discuss the present economic climate and how it is affecting the value of your homes.

What Manhattan Homes and our fellow brokers have experienced since this "crisis" began could most accurately be described as a virtual halt in the market.

To be perfectly frank, we’ll be very surprised if contract volume exceeds 1/4 of what it was during this same period last year.

As a third generation real estate broker who has worked during similar, but less intense, market downturns, and having benefitted from the advise of my grandparents who brokered and invested in real estate during the Great Depression, this situation is not that unfamiliar to me.

The present environment is not so much a market condition as it is the lack of one. It represents a state of suspended animation that we feel is unsustainable.

Clearly at some point activity will need to resume, and exactly what that activity will entail both quantitatively and qualitatively seems to be the question on most people’s minds, and I’d like to review of some of the factors influencing its answer.

Some of these are well known, and a few have even gained mythical status as descriptions of what's happening, but like many myths, they often distort the truth.

The first is the notion that the lending market has dried up. Unfortunately, this is an opinion that has been heavily expressed in the media.

Initially, the banks' response to the flood of bad loans was indeed to contemplate suspending all lending activity without considering a further analysis of where their vulnerabilities lay, and where viable opportunities still existed.

Fortunately, cooler heads prevailed and some proper adjustments were made by resetting the parameters used for qualifying potential borrowers.

Not only is money available to those who qualify but it is now available at the lowest rates in over half a century, for example 30-year fixed rate mortgages are being offered for around 5% APR and we feel these rates will drop even further.

Another notion being advanced by many, including some members of the brokerage community, is that the market has dropped by 30% or some similarly disturbing number.

This MIGHT be so, but at this particular time it simply CANNOT BE KNOWN and assigning any relevancy to such numbers should take this into account.

When asked to give an appraisal, we as brokers are able to accurately render an opinion as to what a property was worth just prior to the downturn but as to what it is worth today, the data necessary to make this determination is not available or includes numbers within sample sizes too small to provide pertinent conclusions.

What has always been a process of interpolation has been replaced by extrapolation and is subject to the errors that often accompany this second method.

Anyone who says they can tell you the value of your property without this caveat is giving you a number that has no proper foundation. In seeking an answer, we feel it’s best to wait to determine the most accurate valuation once sufficient data becomes available.

Regarding the future, we don't have a "crystal ball" but we do think there are some important thoughts and ideas for you to consider when formulating your own opinions.

For those of you who anticipate inflation as a descendant of deflation or as the ultimate byproduct of the solutions being presented by government economists, real estate prices have historically performed well under these conditions and have been among the first assets to adjust to the true value of the dollar.

In addition, there has always been a tendency for real estate to assume the properties of a hard asset, which it is and like others in this category, such as gold and diamonds, it usually performs well during times of inflation and instability.

Even in the present financial context in which so many assets have lost value it’s interesting to note that where equities have depreciated by around 50%, real estate—should it really prove to have dropped 30%--has not performed badly relatively speaking,

This is a reality that will not go unnoticed by anyone searching for investment opportunities when the upswing occurs--and it will.

Finally, to speak to the most common inquiry we've had: "How long do you think the recovery will take?", I can give my own thoughts and a prediction.

From what I've observed through the years and during past financial crises, there seems to be a function in place that echoes Moore's Law and the rate of development in digital technology.

To re-phrase this with a vernacular twist, "1 year is the new 3 years". That is to say how these things evolve follows old themes, but the speed with which they do so continues to increase with each successive occurrence.

If you feel that this particular crisis will reach Great Depression proportions, please note that the reversal of that crisis started within 5 years, and a full recovery was achieved 5 years after that.

If I'm right, our bottom should be reached approximately 20 months from early September--that being around May of 2010, and full recovery by the end of 2011.

Also, given that my statement "1 year is the new 3 years" is itself subject to the same forces it implies, these time periods may prove to be even shorter; and of course, if you think this crisis is of a lesser magnitude, even shorter than that.

I hope all is well with you and best wishes to you from all of us at Manhattan Homes during this holiday season and the coming new year.

And as always, thanks for listening."

--Leigh Zaph. (any comments can be emailed to us at, thanks).

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