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Tide Turning On Manhattan Real Estate?

Until recently, Manhattan, an island borough of New York City and the most densely-populated county in the United States, appeared to have weathered the housing bust sweeping across the United States. In the fourth quarter, the average price of a Manhattan apartment soared 17.6% from a year earlier to $1.44 million, according to Prudential Douglas Elliman, New York’s largest real estate services company. The addition of two high-end condominiums (The Plaza and 15 Central Park West) to the Manhattan market contributed to this price rise. The median apartment price rose 6.4% to $850,000, while the average price per square foot rose 18.2% to $1,180. Prudential Douglas Elliman added that the number of apartments for sale fell 13.5% to 5,133.

Back on February 19, Pamela Liebman, chief executive of the Corcoran Group, a New York City real estate company, told Reuters’ Jonathan Stempel that a lack of supply and significant demand by foreign buyers taking advantage of a weak U.S. dollar has meant that Manhattan and New York City has “absolutely stood alone” in avoiding declining home prices. Liebman said demand remained “very healthy,” especially for the largest, multimillion dollar apartments, but realized the situation could change. She said:

If Wall Street has a terrible year, and the press is really talking negative
about the economy and the election, I think things could really slow down at the end of the year. I don’t see New York City crashing or coming to any kind of a standstill, because the product is too good and there’s too much belief in the city. What will stall this market is a negative economy, nervousness and skittishness about job security, consumer spending, layoffs, and sellers with unrealistic prices.

Unfortunately, it now appears New York City no longer “stands alone” in avoiding falling home prices. Yesterday, data released by Standard & Poor’s for its S&P/Case-Shiller® Home Price Indices showed that prices of existing single family homes in New York City declined 1.3% in the fourth quarter from the previous one, and fell 5.6% over a one-year period prior to December 2007.

Speaking about the Manhattan market, Jonathan Miller, director of research at Radar Logic (a data and analytics business that produces a daily “spot” price for residential real estate in major U.S. metropolitan areas), told Reuters on February 19 that the Manhattan housing market was “definitely going to see weakness” within a year or two. Yet, Patrick McGeehan of the New York Times wrote on February 3 that:

But lately, more cracks in the housing market have begun to show, and the trend is reminding some analysts of the severe downturn in the region during the recession that followed the boom years of the late 1980s.

Even in Manhattan, signs of weakness have appeared beneath the headlines about ever-rising average sale prices of condominiums and co-ops.

A report last week found that rents in Manhattan declined in January, by more than 7 percent in some neighborhoods, according to the Real Estate Group New York.

The latest set of numbers “reinforces our sentiment that the market has, in fact, turned,” Daniel Baum, the chief operating officer of the company, said in the report.

As for the significant demand by foreign buyers that Ms. Liebman referred to earlier, that situation may have changed as well. On January 30, Emily Friedlander of the Wall Street Journal wrote:

For months, observers of the Manhattan real estate market have been crediting foreign buyers for Gotham’s strong market. But that may be changing. New York Magazine is reporting that foreign interest in Manhattan real estate is finally waning.

“We’ve had nine clients we’d been working with since October, and they’ve stepped back,” says one broker quoted in the article. “I have one prominent family from Singapore who were about to make an offer, and they decided no.” The magazine cites turmoil in the global markets, as well as tightened lending standards as factors. Another broker quoted in the piece says his buyer walked because a bank told him he had to put 40 percent down.

Flashback: NYC, 1994
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