Go to chart: Median Manhattan apartment prices drop
As prices drop in Manhattan, sellers are inevitably feeling like they are losing money because they can get less for their apartments now than they could a year ago.
But while they may not profit the way they would have if they had sold while the market was booming, chances are that if they bought before 2005, they will still come out ahead.
According to data compiled by Jonathan Miller, the president of the appraisal firm Miller Samuel, the median price of a condo in the fourth quarter of 2008 was $1.12 million. That compares to $1.15 million during the same time in 2007, $1.16 million in 2006, $1.04 million in 2005 and $941,768 in 2004. Going back even further to 2000, for example, the median price was $913,027 — still lower than today’s median. These numbers are adjusted for inflation unlike the usual market report data the firm releases, thus showing bigger dollar declines than those reports.
On the co-op side the median price was $675,000 in the fourth quarter of 2008. And while it was higher than that between 2005 and 2007, it was lower in 2004.
According to the Miller Samuel data, an apartment owner who bought in the last quarter of 2004 and sold in the last quarter of 2008 could have made a profit of 3.4 percent.
That notion, that current prices represent merely a “give-back” of the last four years of gains, is cold comfort for many co-op owners, who may be facing drops of as much as 20 percent in price since August 2008.
“It’s not much comfort for sellers that present prices are still higher than they were [a few] years ago,” said Michael Serman, a salesperson with the Corcoran Group.
“Rationally, they still strive to maximize return — and there’s some denial, driven by how strongly they need to sell,” he said.
Lauren Cangiano, an executive vice president with Halstead Property, echoed that point, saying that the intellectual argument that prices are still higher than they were a few years ago doesn’t do much to buck up sellers. “What I can tell you is, nothing’s selling,” she said. “So it’s hard to say we’re going back to 2005 prices, because if nothing’s selling, I have no basis to even make that comment.”
In general, brokers said they’re skeptical of the data they’re seeing now because there have been so few transactions in recent months.
“It’s a little bit hard to judge that because there have been so few transactions over the last three months,” said Stuart Moss, a vice president at the Corcoran Group.
On the condo front, Miller said the data shows that all sellers in that market would have made money had they sold in December. However, he said, that may not continue to be the case.
He noted recent closings, which showed an increase in new development prices in the last quarter of 2008, could actually reflect sales that occurred 12 to 18 months ago.
He believes that the prices of condos are going to drop as new development dwindles. But, he said the first quarter of 2009 should be far more revealing when it comes to co-op and condo prices. “A lot of the change [in prices] we saw in the fourth quarter of 2008 wasn’t for the closed data, it was in the contract data,” he said.
Shaun Osher, founder and CEO of Core Group Marketing, recently began publishing the Core Real Time Report, a monthly report that uses contract data.
That report shows that during the fourth quarter of 2008, 552 units went into contract, on average about 14 percent below the asking price. The report also notes that on average, offers were being submitted almost 20 percent below the asking price.
Osher said the numbers reflect a return to “normalcy” in the New York market. “People have to understand that the essence of buying a piece of real estate traditionally is not for investment, even though you would like it to turn out to be a good investment,” he said. “Returns of 20, 30, 40, 50 percent year after year on a piece of real estate don’t happen historically, and for sellers to have that expectation now is very unreasonable.
“The historic information is somewhere between 2 to 3 percent year-after-year return on a real estate transaction as a primary residence,” Osher added.
As for “comps” — the comparable sales of properties used as benchmarks in home real estate appraisals — most brokers said they are not a useful tool in this market.
Cangiano said mortgage brokers have told Halstead agents they should recognize comps dollar for dollar only if they closed in the last quarter of 2008, and agents should shave 1 percent off the comp price for each month prior to that in which it closed, or up to 12 percent a year.
Cangiano, a broker of 23 years, said she believes that current prices are similar to those in 2005. She points to her own apartment.
“I bought my apartment in 1996 for $750,000, and at the height of the market a couple of years ago, I probably could have sold it for $2.6 million,” she said. “Now, in this market, I could probably get $2.3 million, which is comparable to what I could have gotten about four years ago.”
Cangiano said that, data aside, she has a gut feeling that prospective buyers are looking for prices to go back to 2002 or 2003 levels. According to the Miller Samuel data, that would mean a median price for a co-op of about $528,551.
With a new president in the White House and the possibility that the government might force interest rates even lower by buying up housing debt, many brokers say they are optimistic. They, of course, hope that the free fall in prices will come to an end soon and that apartment owners won’t have to “give back the gains” they made when the market was hot.
The average contract interest rate for 30-year, fixed-rate mortgages in mid-January had already decreased to 4.89 percent, according to the Mortgage Bankers Association.
But, not everyone is optimistic and there are plenty of bears out there.
Michael Gordon, a senior vice president with the Corcoran Group, said he sold an apartment he owned in a Midtown building in November 2008 for $990,000 by slicing 10 percent off the last comparable sale, which took place prior to the Lehman Brothers bankruptcy in mid-September. “Everyone told me, you’re crazy to price it like that,” he said. “But I have no regrets, and I think there’s more price declines to come.”
Gordon said some buyers have gotten a bit cagey with the realization that their money is worth more now.
“A broker in our office offered $19 million for a property at 15 Central Park West a while ago, and the sellers said no,” he said. “So now, the property has been reduced to $19 million, and the sellers called the guy who made the offer up and said, ‘Will you buy it?’ And he said, ‘No, my $19 million is worth a lot more now.'”
As far as the future, Gordon said he believes apartment prices in Manhattan will continue their downward trend.
“I do see further declines, and I think we’re going to see prices come down another 20 percent,” he said.