Go to chart: How Manhattan compares to the U.S.
While the subprime mortgage
meltdown has roiled many real estate markets across the nation, New York’s pain has been less about housing and more about the woes of the financial services industry, which sets the tone for Gotham’s fortunes.
New York property values once seemed immune, as if the real estate bubble would never burst: Prices continued to rise, if at a slower pace, while many other markets saw sharp drops, if not an outright collapse.
Now, the aftermath of the Wall Street meltdown is bringing New York more in line with the rest of the country, and the disparity between here and everywhere else may be coming to an end, at least as far as a real estate comparison is concerned.
On the local employment front, the situation appears dire enough that New York City Comptroller William Thompson Jr. last month nearly doubled job loss projections for the city over the next two years to 165,000 from a July projection of 85,000. Of those jobs lost, 35,000 are expected to come from the finance industry.
In New York, the finance industry accounts for about 9 percent of city tax revenue and 20 percent of state tax revenue, making the city particularly vulnerable to job losses in the sector.
Unemployment in the city rose to 5.8 percent in August from 5 percent in July and stayed there in September, according to the state Department of Labor. The jump was the largest increase on record, going back to 1976. Still, the city’s unemployment rate is lower than the national rate, which increased to 6.1 percent in August from 5.7 percent the previous month, a rate the country hasn’t seen since September 2003, according to the U.S. Bureau of Labor Statistics.
The firm Marcus & Millichap predicts that job losses will help push the apartment vacancy rate in Manhattan up to 2.8 percent in the final quarter of the year.
Nationally, the vacancy rate for apartments increased to 10 percent in the second quarter, the most recent data available, from 9.5 percent a year earlier, according to U.S. Census data.
The slowing economy has already hit the New York office market, with Manhattan vacancy rising to 9.1 percent in September from 6.8 percent a year earlier, according to a report by Colliers ABR. The report forecast that the Manhattan office vacancy rate could rise to 12 or 13 percent through 2009.
National office vacancy rates rose, too, hitting 13.6 percent in the third quarter, up from 12.5 percent in the third quarter of 2007, according to a report by Reis, a
commercial real estate information provider.
In the condo and co-op market, Manhattan prices have begun to fall but remain higher than a year ago, according to a market survey prepared by appraiser Miller Samuel for Prudential Douglas Elliman. The median sales price in the third quarter fell 9.4 percent to $928,200 from $1.03 million in the previous quarter. That median price was still 7.4 percent higher than the $864,390 of the third quarter in 2007.
Nationwide, the figures look bleaker. The average U.S. existing home price in August, the latest figures available, was down 8.9 percent from the year before, to $245,000, according to the National Association of Realtors.
Still, Manhattan has shown bigger increases in inventory and a quicker slowdown in sales than the national numbers recently, perhaps because the national market got weaker earlier. Manhattan inventory is up 34 percent compared to a year earlier, in contrast with a 2.3 percent decline nationally.
According to another measure of the market — the Standard & Poor’s Case-Shiller home price index, which measures single-family homes in 20 metropolitan areas — the greater New York metropolitan area was down 7.4 percent in July compared to a year earlier, a considerable contrast to Manhattan’s year-over-year performance and more in line with the national figures. The index doesn’t include condos or co-ops, making it a better measure of the areas around Manhattan including parts of Long Island, Westchester, southern Connecticut and northern New Jersey.
Overall, the Case-Shiller composite index of 20 areas around the U.S. has dropped by 16.3 percent, and in areas hit the hardest by the bursting real estate bubble, the Sunbelt cities of Las Vegas and Phoenix, it has been nearing 30 percent. Miami and Los Angeles prices fell by more than 25 percent.
“What happened in those markets that didn’t happen in New York was both relatively over-inflated price increases — home prices going up 30 percent to 50 percent in a year — plus overbuilding,” said Maureen Maitland, vice president of index services at Standard & Poor’s. “When the bubble burst in those markets, there was a sharp decline that happened very quickly.
“On a relative basis New York is doing better than the rest of the nation,” she said.
Nationwide, foreclosure activity was up 12 percent in August compared to July and up 27 percent compared to a year ago with around 303,900 filings reported, according to RealtyTrac.
About a third of the foreclosure filings — 101,700 — were in California, while Nevada earned the dubious distinction of having the highest foreclosure rate for the 20th consecutive month, with one in 91 households receiving a foreclosure notice.
Among metropolitan areas, the New York City area ranked 84th nationwide for foreclosure activity, according to RealtyTrac.
While the number of new foreclosures in the city jumped by 60 percent to around 1,100 in the third quarter of 2008 compared to the same period last year, it pales in comparison to a city like Los Angeles, which saw more than 15,700 foreclosures in the third quarter, according to a report by Property Shark.
Jessica Davis, president of Profiles Publications, which publishes foreclosure data, estimated that foreclosures in the city have doubled since last year, hitting mostly in the boroughs. But that’s changing.
“Brokers in Manhattan were kind of smug, saying, ‘Manhattan is insulated, it’s not happening here,'” she said. “But now it is starting to happen.”