The perfect storm of low interest rates, declining inventory and high demand continued in May and the first weeks of June to power the omnipresent concern that a housing bubble is hovering above New York and the rest of the nation.
Surprising few, the average price for a condo or a co-op in Manhattan cleared a new record this time more than $1.2 million, according to a Halstead Property report and the federal government announced New York metro area home prices had jumped by double digits during the last 12 months ending March 31. The National Association of Realtors also raised its forecast recently for home sales in 2005. The trade group now expects home sales to hit a record 8.13 million units this year, up 1.8 percent from 2004.
Finally, Federal Reserve Board Chairman Alan Greenspan, the Svengali behind the nation’s low interest rates, twice shrugged off concerns over a housing bubble in testimony before Congress once in May and once in early June. The Federal Reserve chairman seemed to imply that the good times in the housing market could roll on indefinitely so long as the economy continues to improve, with only some local housing markets he didn’t say which rising to “unsustainable levels.”
Still, bubble talk increased in May, much of it fueled by a breathless media one New York Times report during the second weekend in June was tagged, simply, “Pop?” and it seems the residential market for the city can increasingly only be discussed in the bubble’s shadow, thrilling few in the real estate business.
“There’s been a lot of bad press about the market lately and a lot of singing of tales of woe about a housing bubble,” said Neil Binder, principal of Bellmarc.
Binder and others, however, have seen only what they term a pause or a slowdown in the residential market in recent weeks far from a full-on burst. Inventory dwindled again in May and early June, according to broker reports, while demand remained high. Mortgage rates in May slid to a 14-month low, and the economy kept improving. Call it a housing bubble, if you’d like, but whatever it’s dubbed, the residential market remained geared to benefit sellers.
“For one thing, the favorable conditions driving the market continued to improve,” said Halstead’s chief economist Greg Heym. “You would have to expect one of those conditions to change dramatically for the market to change dramatically.”
Heym cautioned against finding trends from only month-to-month data, but did offer comparisons based on lengthier time periods.
“Inventory continues to shrink,” he said, “most noticeably on the Upper West Side, but also on the East Side. We’ve seen growth in all markets. If you look at the previous May, inventory’s down 20 to 30 percent from a year ago.”
Since May of last year, Heym said the biggest changes he’s seen have been in the Downtown market. Not surprising, he said, considering the amount of residential development in neighborhoods there, including ones traditionally more affordable than others, such as the rapidly gentrifying Lower East Side. Lofts most of them Downtown hit a record median price per square foot of $871 in May, according to Halstead data, up 12 percent from May 2004.
Pick other stats as well: The median price for an Upper West Side three-bedroom reached nearly $2.5 million in the past year. The median price of a one-bedroom on the East Side hit $557,000 in May, which is 30 percent higher than the May before, Halstead claimed. Donald Trump and his investment partners in early June sold a stretch of land, plus three residential high-rises, near the Hudson River for $1.8 billion, the city’s largest-ever residential deal. The buyers, a partnership of private equity firm the Carlyle Group and condo developer Extell Development Corp., didn’t prosper by buying high and selling low.
Inventory in Manhattan since May 2004 has shrunk 14.4 percent, said Jonathan Miller, CEO of Miller Samuel, a Manhattan appraisal firm. It’s dropped 28.8 percent since the same month in 2003. Miller said he expects inventory to rise throughout the summer, similar to the pattern in 2004.
There are more numbers, all buoying the notion of a robust residential market. Signs of a slowdown exist in New York, but have little to do with the numbers. It has more to do with skeptical media reporting on the numbers, brokers and appraisers said.
“We’ve seen a slowdown in the past month or so,” Miller said. “I think buyers have been spooked by all the bubble talk in the media.”
Binder said buyer activity is down about one-third in terms of showings, and that’s due more to the media than the market. Showings of homes more than $5 million have been particularly slow lately, Binder added.
“Media has created the perception of a bubble,” he said, “and people buy into that perception.”
The residential market remains hot, but the slowdown should continue as fresh inventory from new developments stabilizes the balance.
A bursting bubble, then, is less likely than a cyclical correction. The market, after all, has fluctuated in the last few years, and usually without the speculation of a housing crash that seemed to reach fever pitch in May. Heym noted that the average apartment price in Manhattan, for instance, dipped below $1 million in December, only to rise again the following month on its way to the newest record.
“This kind of growth, most people would say, is unsustainable for more than two months at a time,” Heym said. “You would expect, historically, for things to change.”