Mixed messages on Manhattan home prices
Brokers disagree on whether Manhattan apartment prices are still going up. Either way, rising rates are beginning to have an effect.
By Les Christie, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Manhattan apartment prices have either stopped dead or have continued their upward trajectory. Two reports released Thursday gave conflicting reads, though both point to signs of softening.

A report by broker Prudential Douglas Elliman's showed a mean price gain from the first quarter to the second quarter of 6.6 percent, to $1.37 million. The median price gained 6.7 percent, to $880,000.

Mixed Message
One report says Manhattan apartment prices grew in the second quarter; another says they fell.
Prudential Douglas Elliman Corcoran Group
Mean $1.4 million $1.2 million
Change Up 6.6% Down 3%
Median $880,000 $775,000
Change Up 6.7% Down 3%
Signs of Weakness
Rising Inventory
The Prudential Douglas Elliman report showed 7,640 apartments listed for sale in the second quarter, up from 4,965 a year ago.
Time on Market
The Elliman report also showed that apartments sat for 144 days, up 6 days from the prior quarter.

For the year, Prudential Douglas Elliman showed 5.2 percent growth in the mean and 13.5 percent growth in the median.

A second report, by The Corcoran Group, showed that the mean sales price declined 3 percent in the quarter, to $1.247 million. The median fell 3 percent to $775,000. The Corcoran Group also showed 3 percent declines for the year.

One negative trend that both parties agree on is that inventory grew: There were an average of 7,640 apartments listed for sale in the second quarter, from 6,904 the prior quarter and 4,965 a year ago, according to Prudential Douglas Elliman.

Time on the market also lengthened, to 144 days - that's six days more than the prior quarter. Corcoran found a similar trend.

"It's the early stage of a buyer's market," said Jonathan Miller, of Miller Samuel, the appraisal firm that computes the data for Prudential Douglas Elliman.

"The growing inventories have made the market less frothy," says Pamela Liebman, Corcoran's CEO. "Last year, everyone was fighting over the same apartment. Now they can take their time."

When homes move more slowly buyers gain confidence. They no longer are as nervous that properties they want will be snapped up by another buyer if they don't make a high bid.

Prudential Douglas Elliman CEO, Dottie Herman, reports the Manhattan market is brimming with confident buyers - and sellers too are doing well, if they only listen to reason.

"The only things lagging," Herman says, "are properties that are not priced right. Some people got spoiled; things sold no matter what. Now it's a lot more balanced, but anything priced properly sells."

As a matter of fact buyers now often bid less than asking prices, almost unheard of during the height of the feeding frenzy. Miller says buyers negotiated a 3.5 percent discount, on average, during the quarter. "A year ago, there was no negotiating," he says.

Interest rates and outlook

Interest rate increases have been the single biggest reason for any cooling of the market. Many first-time buyers just cannot swing the high prices when interest rates push their monthly payments up as well.

"Analyses of rent versus buy equations are persuading people to go the rental route," says Liebman.

That has, in turn, forced rents up. The mean rent reached a whopping $3,970 for leases signed last quarter, up 15 percent in a year. Median rent was $2,900, up 9 percent.

And rental inventory is way down, according to Liebman, enough so that landlords have cut out the concessions - such as a month's free rent - that some were using to attract tenants last year.

There's no lack of optimism in the market's future among these real estate professionals. Miller, however, is carefully watching the Federal Reserve, which recently raised interest rates for the 17th straight time.

"I'm more concerned about 2007 than 2006," he says. "I'm worried that the Fed will overshoot and we'll start really slipping."

But Herman has few fears. "I'm looking at the consumer," she says, "and the demand for Manhattan real estate is still there."

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