The top end of the real estate market is flagging a bit, thanks to a lull in real estate activity, economic jitters from the potential fallout from Hurricanes Katrina and Rita, and rising energy prices.
The slackening could be a sign of an overall slowdown, but market observers also say this may be nothing more than a sensible reaction to factors that would reasonably influence a decision to spend more than several million on a place to live.
“I think we’re going to see a lot of negative economic news, especially concerns about inflation and a catch-up related to the hurricanes, so I think that’s going to create a more cautious atmosphere,” said Jonathan Miller, CEO of appraisal firm Miller Samuel. “I guess I am saying I am a little more optimistic about the first quarter [of 2006] than the fourth quarter.”
Prices for larger units contracted, according to the widely cited Miller Samuel report and other market studies. A report by Halstead Property found the average selling price of two-bedroom apartments actually slipped about 3.5 percent to $1.37 million in the third quarter from $1.42 million in the previous quarter; three-bedroom apartments fell around 5.6 percent to $2.83 million from just under $3 million; and four-bedroom apartments slid about 29.3 percent to $5.13 million from $7.26 million in the second quarter.
People shouldn’t agonize about the possibility of a slowdown or decline in prices based on the third quarter numbers in the luxury segment, said Gregory Heym, chief economist for Halstead. But the top 10 percent of the overall market can have a big influence on the average price, he said.
“There can be a tremendous sway. You can have a quarter where you have a lot of $10 million and above apartments sell,” Heym said. “Average price can be influenced by a lot of activity at the high end.”
Still, there are other factors that have brokers and agents monitoring the market, including an increase in the average time it takes for an apartment to sell and an increase in buyers’ ability to negotiate a price. The number of days it takes to sell an apartment increased by a month to 133 days, or about four months, as compared to the prior quarter average of 102 days, according to the Miller Samuel report. While pricing negotiability remained limited, it rose slightly to 2.2 percent in the third quarter, up from 1.7 percent in the previous three months and 0.8 percent from the prior year quarter.
Brokers say it’s been tough to get a sense of how sales will fare in the fourth quarter. Warm temperatures through September and in the first days of October encouraged some potential buyers to spend weekends enjoying a last taste of summer. Moreover, with the Columbus Day holiday and the fact that many New Yorkers observed Jewish holidays Rosh Hashana and Yom Kippur, activity in the first half of October was somewhat light, brokers said.
Some agents and brokers say there’s been a big enough shift in activity that they are taking a wait-and-see attitude and are looking forward to winter when Wall Street bonuses may fuel market activity.
“People are a little more apprehensive with Hurricane Katrina and all the bubble-bursting hype,” said Sara Rotter, sales manager at Citi Habitats. “The market could make a correction, but I don’t think it will be as dramatic as people think it will be.”
Still, Rotter said the conditions have shifted enough that some sellers should set offering prices slightly below market rates to draw more attention to their property.
“At this point sellers should be cautious in the way they price. They shouldn’t think about pricing at that unattainable price they think they could get,” Rotter said. “Apartments are still moving if they are in a hot area and priced just right, you get multiple offers, but if you have a pie-in-the-sky price, they don’t always get the attention they should get. Buyers are smart. They want to know it will be a sound investment going forward.”
On one recent weekend, Rotter said Citi Habitats had a “handful” of open houses and afterward most agents reported slower-than-normal traffic. At an open house where the seller priced the property a little below market rate, at least 30 people attended and the seller got eight bids over the asking price, Rotter said.
Some brokers and agents view a slowdown in appreciation or a slight pullback in prices as positive for the market because it may entice people who thought they were priced out of the market or felt that prices had risen too high to take another look.
“Some price competition would be good for the market it may indicate to potential buyers that they could get a little better of a deal than they could have six months ago,” said Jorden Tepper, managing director of Manhattan Lofts, a division of Manhattan Apartments Inc.
Tepper said he thinks there is still enough liquidity in the market to fuel activity and that the tax benefits 1031 exchanges could keep the market strong.
“Real estate, like anything else, is a cyclical thing,” Tepper said. “I believe a little contraction [in prices] of about 5 to 10 percent could be a healthy thing. It’s nothing to be afraid of.”