Residential market plagued by price cuts, contract breaks

By Sara Polsky | October 03, 2008 05:00PM

Price cut and contract break statistics for the third quarter of this year reflect economic upheaval, a market report released today suggests.

According to Streeteasy’s third-quarter Manhattan market report, price cuts increased significantly last quarter. There were 2,900 cooperative and condominium unit listings in the third quarter with price cuts from the original prices, averaging 6.6 percent.

Price cuts in condos increased 152.5 percent over this time last year and 2.1 percent over last quarter, the real estate data site found. The largest price cuts were at 1120 Fifth Avenue, where a unit originally on the market for $20.4 million was listed for $12.9 million in the third quarter, a decrease of 36.8 percent; and at 18 West 48th Street, where a unit first listed at $1.2 million was then on the market for $790,000.

Frances Katzen, a senior vice president at Prudential Douglas Elliman, said she is seeing higher-percentage price cuts in the $1.5 million to $2 million range. She has seen some properties with cuts of more than10 percent off the purchase price.  

The co-op market held up better. The number of price cuts in co-ops decreased in the third quarter 3.1 percent compared to a quarter earlier, but increased 177.5 percent over the third quarter of 2007. Sofia Kim, vice president for research at Streeteasy, said co-ops may be selling better than condos without price cuts because they appeal to more established buyers, while condos attract more first-time buyers.

Kathy Braddock, co-founder of real estate consultancy Braddock and Purcell, said condo prices may be decreasing because they are often investment properties. “You may have seen more price cuts because they’re more aggressive to begin with, because it’s an investment opportunity,” she said.

Home buying slowed down in the third quarter with 291 broken contracts. The number of contract breaks increased 17.1 percent between August and September. Braddock said the increase was steeper than usual but was a logical reaction to economic unease. “I think [it’s] for obvious reasons.” She said the broken contracts probably came from “people who possibly worked at companies that no longer exist, people walking away from a deposit because they’re afraid or they’ve lost their job or they want to be particularly cautious.”

Elliman’s Katzen said financing is also more of a problem now, because lenders are uncomfortable lending even to buyers who don’t work in finance. “Due to the financial sector and the jitters, the banks are uncomfortable lending,” she said.

In the luxury market, which for a while was impervious to market conditions, the median price dropped 8.9 percent since last quarter, but increased 5.9 percent since this time last year.

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