Manhattan real estate hits wall
Big Apple prices are treading water after years of big gains. Will the rest of the nation follow?
By Les Christie, staff writer

NEW YORK ( - Manhattan real estate may have hit a wall -- albeit a very high one. The last half of 2005 saw home prices lag, according to two new reports from Manhattan brokers.

According to Prudential Douglas Elliman, the median sale price for co-ops and condos in Manhattan rose just 1.3 percent in the fourth quarter of 2005, to $760,000. The Corcoran Group found that median sales price declined during the quarter, with a 4 percent slide.

Markets reversed
Cities where prices fell or stagnated in the third quarter of 2005
City % Change
Boston -2.0%
San Diego -1.5%
San Francisco -1.2%
Chicago -1.1%
Nassau/Suffolk Cos. -0.7%
New York -0.5%
Los Angeles +1.2%
Washington +1.3%
Source: National City Corp

Because Manhattan sales had soared during the first half of the year, however, gains for the full year were still hefty at more than 20 percent. In addition, both brokers noted an uptick in the market at the end of the year.

A two-bedroom apartment now costs a median average of about $1.2 million in Manhattan, according to Corcoran.

The Manhattan slowdown comes on the heels of similar drops in the third quarter in some of the nation's most expensive real estate markets. Boston and other Bay State areas, many California markets, the Washington D.C. area, and suburban New York counties, all recorded lower or flattening prices, according to National City, a financial holding company.

Late year rebound

According to Pamela Liebman, Corcoran's CEO, the Manhattan market began to soften in the third quarter, owing in part to rising energy costs and media reports of the real estate bubble.

Locally, a lot of new inventory came on the market. Some 5,764 residences were in the listing inventory, a huge 52 percent increase over the past year.

"Buyers got tired of paying more and more and took a breather," said Liebman.

But things began to turn a bit in the last six weeks of the year.

Much of that improvement came courtesy of Wall Street, according to Jonathan Miller, a real-estate appraiser and consultant who compiled data for the Elliman report. He said bonuses in the financial industry set a record this year.

"Wall Street accounts for only about 6 percent of the jobs in New York but 25 percent of the economic activity," said Miller. "Every time there's an up-tick in bonuses, there's an up-tick in the real estate market."

Elliman's CEO, Dottie Herman, said she doesn't expect the Manhattan market to return to double-digit appreciation. That will "weed out the segment of the market that likes to flip, buy properties and sell them six months later for millions of dollars."

Herman does predict modest price increases of five or six percent during the coming year.

As for the increase in inventories, Miller said the increase is in line with the historical average.

Liebman expects the luxury market to continue to cook this year, but the non-luxury market is in more iffy. "There's still a lot of demand but there's not a total willingness to pay any price except for trophy properties," she says.

Taking the broad view

"We can't extrapolate national trends from Manhattan markets," says Richard DeKaser, chief economist for National City Corp. But the turn in Gotham prices does mirror what has happened in many other pricey regions.

It's evidence of what DeKaser calls "the turning of the housing market."

The average Boston sale price declined 2 percent in the third quarter of 2005, according to data from National City's Housing Valuation Analysis. San Francisco real estate fell about 1.2 percent and San Diego 1.5 percent. Washington D.C. rose, but only by about 1.3 percent and Los Angeles went up 1.2 percent during the quarter. Prices in northern New Jersey and in Nassau/Suffolk Counties in New York also fell.

DeKaser expects price increases nationwide to continue to slow. "Demand and market price appreciation peaked sometime this summer. What we're seeing now is an orderly retreat," he says.

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