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Fourth quarter drop in Manhattan home prices breaks 10-year streak

Pamela Liebman, CEO of Corcoran

This fall's Wall Street meltdown barreled into the Manhattan residential real estate market, ending a decade-long period of skyrocketing home prices, fourth quarter market reports released today show.

For the first time in 10 years -- with the exception of a brief blip in 2006 -- the median price of resale apartments fell from the prior year quarter, said Jonathan Miller, president of real estate appraisal firm Miller Samuel, and preparer of Prudential Douglas Elliman's Manhattan market report.

The median sales price of a Manhattan resale apartment in the fourth quarter was $732,500, down 3.6 percent from $760,000 in the fourth quarter of 2007, and 10.1 percent from $815,000 in the third quarter, according to Elliman's report. The Corcoran Group's market report, compiled by real estate analysis firm PropertyShark.com, recorded a similar decrease, with the median resale price falling 4 percent to $759,000 year-over-year.

Because market-wide figures include closings on new development condos purchased 12 to 18 months earlier, the resale market is a more accurate indicator of current market conditions, experts said.

"The new development sales are not necessarily reflective of what's going on in the market today," said Pamela Liebman, CEO of Corcoran.

Market conditions were actually even worse than the reports show, Miller the appraiser said. He estimated that the number of signed contracts, which show current activity and which are not counted in the quarterly reports, has declined anywhere between 35 and 75 percent from the same period last year. He also said that in the fourth quarter, contract prices showed an average decline of 20 percent since August 2008.

"This marks a change in the market that really began in September," he said, when the financial system fell apart. He added that prices will likely continue to decline in the first quarter of 2009 as a result of the slowing sales.

Overall, home prices increased slightly over last year, the market reports show. 

According to Elliman's report, the median sales price for all apartments increased 5.9 percent to $900,000 from the prior year quarter, while the average sales price increased 3.1 percent to $1.485 million. Corcoran's report found that the median sales price increased slightly less at 3 percent from the prior year quarter, while the average price increased a much greater 10 percent to $1.649 million. Brown Harris Stevens and Halstead Property -- both under the umbrella of Terra Holdings -- which released reports today, also recorded slight increases in sales price from the prior year quarter.

The reports also found that the number of overall sales continued to slow in the fourth quarter.

According to Elliman's report, the number of sales dropped 9.4 percent to 2,282 from 2,518 a year ago, and 14 percent from the prior quarter. The number of resales fell by 24.8 percent, though the number of new development sales increased by 35.5 percent, spurred by a surge in new developments that finished construction in the fourth quarter, appraiser Miller said.

Another grim indicator of the health of the real estate market was listing inventory, which leaped 39.3 percent to 9,081 from 6,518 last year, according to Elliman's report. That's the greatest inventory level since 1998, except for two quarters in 2006, Miller said. The absorption rate is now 11.9 months, up from 7.8 months a year ago.

Streeteasy.com, which also released a market report today, found that the number of price cuts on available listings for condos was more than 2.5 times what it was last year, while the number for co-ops increased 42.3 percent.

Elliman's report found that listing discounts have also grown to 7.3 percent, from 2.6 percent in the last quarter of 2007.

"That reflects the gross disparity between buyer and seller in understanding where the market is now," Miller said. "Sellers are behind the market by three to four quarters. That's the most I can remember [it being] in a long time."

The upside to the grim figures, said Diane Ramirez, president of Halstead, is that buyers are gaining the upper hand.

"We are clearly in a buyer's market," she said. "When all players understand the marketplace, there are going to be some great deals."