The Real Deal New York

Manhattan home prices down around 20%

December 16, 2008 04:00PM
By C. J. Hughes

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The most rosy-eyed brokers said it couldn’t happen here. They said Manhattan was a different beast, and that its supply of apartments was kept in check by the island’s rocky shores, so demand for those units would always be strong, and prices elevated. They pointed out Manhattan’s sales prices hitting an all-time high last spring, months after the national housing market began collapsing, as a sign of its fundamental resilience.

But it turns out they may have overstated things.

As anecdotal evidence about fall sales seeps out, well before brokerage reports about fourth-quarter transactions are released, evidence is mounting that not only have Manhattan housing prices slipped, they have done so by around 20 percent, which is a much more precipitous plunge than expected.

“Both residential and commercial real estate markets have softened substantially since the last report, most notably in Manhattan,” said the edition of the Federal Reserve Board’s “beige book” that came out earlier this month.

The report, which looks at market conditions in various cities eight times a year, found that “the prices of Manhattan co-ops and condos are reported to have fallen by 15 to 20 percent since mid-summer, though it is hard to get a clear handle on prices due to thin volume. Much of the recent activity is reportedly from desperate sellers.”

Jonathan Miller, president of appraisal firm Miller Samuel, which provided data for the Fed’s analysis based on contract prices after a series of confidence-shaking bank failures and federal bailouts, said the drops are somewhat unsurprising. Prices historically fall after sales volume slows, and volume has ebbed considerably in recent months.

Indeed, sales have been off about 28 percent for the first three quarters of this year, versus the same year-ago period, Miller said.

“A drop in transactions always precedes a drop in prices, because it leads to [an]  increase in inventory,” he said. “It’s really a canary in the subway.”

And no sector of Manhattan seems immune, including high-end units, or those priced upwards of $10 million, which had previously propped up the market’s average prices, brokers said. Prices of resales, as opposed to new development, which had shown some resistance to price dips, now also seem to be slipping, brokers added.

Of course, many of those contracts won’t close until this winter, so the data is in many ways a preview of what brokerages will announce in April, after the first quarter closes.

When they are revealed, the market could deteriorate further, said Noah Rosenblatt, who publishes the Web site UrbanDigs, and who in November concluded that prices were down 20 percent from their 2007 peak, based on his own anecdotal reporting from his real estate business.

That downward pressure will result because potential buyers will suddenly have useful hard-and-fast yardsticks by which to base their offers. Once they realize a co-op in a particular Upper East Side high-rise sold for 20 percent lower than its $1 million asking price, at $800,000, they might submit a lowered bid, too.

“Just like in the derivatives market, there will be price discoveries, and new benchmarks will be set,” Rosenblatt said. “It could create an adverse feedback loop.”

Not all brokers are convinced that sales prices have slipped so far. Some also say that the market may have bottomed out in late November, as open-house attendance seems to have crept up since then, in historically quiet December.

And although end-of-year bonuses for Wall Street workers, who make up a quarter of most brokers’ clients, could be off as much as 50 percent this year, they will still be handed out, leading to some hope for January.

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