Buyers beware (or just wary): The Manhattan market isn’t on your side, and hasn’t been for years. But could that change soon?
Perhaps.
“We’re way due,” Barry Hersh, associate director of the Newman Real Estate Institute at Baruch College, said of the chances for a buyer’s market. Interest rates keep rising and time on the market lengthening as sales prices stay generally flat after record highs in early 2005. Plus, if the Wall Street bonuses don’t hit with the hoped-for ferocity this spring, the housing market could, indeed, tip decisively toward the advantage of buyers.
It, after all, continues to cool. A market report from Halstead Property showed that the average sales price of a Manhattan apartment in November was up only slightly from November of 2004, 2 percent to just over $1.1 million, – and essentially the same as in October, when the average price was just below $1.1 million. The median price, a better market indicator, was $695,000, the same as last November and slightly less than October’s $699,000. The Halstead report’s cooling conclusions mesh with other recent reports, including those analyzing the third quarter of 2005, which show the days of record-breaking Manhattan sales prices have subsided, at least for a while.
That could mean a buyer’s market looms.
The last buyer’s market was relatively short-lived; in the weeks following September 11, many homeowners, especially Downtown, sold fast at below-market prices. Before that, a seller could name his or her price, just about, all the way back to at least 1991, when earlier changes in tax laws gelled with a national recession to create a buyers’ advantage. “I remember, in particular,” Hersh said, “smaller apartments were heavily discounted.”
Smaller apartments now sell faster than bigger ones. Studio and one-bedrooms, according to Halstead, accounted for 63 percent of all apartment sales in Manhattan in November, up from 57 percent in November 2004. Prices on one-bedrooms and studios also generally increased – the median price for a studio on the West Side, for example, increased 27 percent over the year ending Nov. 30 to $349,900. So it’s unlikely that the spike in smaller unit sales presages the advent of a buyer’s market; quite simply, people are still willing to pay steadily increasing – or, at least, increasingly steady – prices.
What, then, would show a buyer’s market on the horizon?
Three indicators: A spike in mortgage rates, a drastic jump in time on the market, and an increase in average listing discounts (the percentage difference between the final list price and the contract price). So far, none show signs of reaching levels that truly signal a buyer’s market – but each is increasing.
The average time a Manhattan property spends on the market stands around 133 days now, according to a third quarter report from appraiser Miller Samuel. Historically, times on the market in Manhattan between 120 and 150 days, says Miller Samuel CEO Jonathan Miller, signal a balanced market. “I think if we start pressing 150 days,” he said, “I think the pendulum starts to swing.”
Interest rates would have to shoot up faster and more drastically than they are now. The Federal Reserve in mid-December hiked the federal funds rate for the 13th straight time, and mortgage rates, generally, have increased since the summer. The average rate on the 30-year, fixed-rate mortgage stood at more than 6 percent as 2005 ended, even with slight dips week-to-week.
Finally, the average listing price discount would have to widen. Miller points out that, in the last long-term buyer’s market, Manhattan was experiencing listing discount increases of 15 to 20 percent. And days on the market in 1991? “When you sold your apartment,” Miller said, “typically, you expected it to sit for six to nine months on the market.”
The Manhattan market seems a solid distance from these realities. But just as the 1991 buyer’s market had its genesis in tax law changes of a few years before, the market now could be in the midst of a gradual shift toward the buyer’s general advantage.
And even a healthy dose of buys fueled by Wall Street bonuses may not be the panacea some are hoping for, but merely a bump in the spring that peters out into a so-so summer far from the record prices of mid-2005.
“Those are Wall Street bonuses,” Hersh said. “If there’s anyone in this world capable of looking at asset allocations and saying ‘Maybe it’s a better idea to be in stocks right now,’ it’s those people.”