Manhattan real estate cools off
Fourth-quarter prices inch down in New York, but fundamentals are still strong.
NEW YORK (CNNMoney.com) -- The once-bulletproof Manhattan housing market suffered a minor setback during the fourth quarter of 2006, according to the latest figures from two of the leading New York City real estate brokers.
The Corcoran Group and Prudential Douglas Elliman both reported that home sellers had rung up slightly lower prices compared with the third quarter of 2006.
The median apartment price was $799,000, according to figures from both brokers. Corcoran reported that was down 6 percent from the previous quarter and Elliman had it off 5.5 percent.
"Right now, prices are weakening across the board," says Jonathan Miller of Miller Samuel, the real estate appraisal firm that compiles the statistics for Elliman. "Each segment showed negative numbers from the previous quarter."
The city spin
The good news is that prices are still up for the year, 5.5 percent according to Elliman and 11 percent according to Corcoran.
Even the quarter-to-quarter downturn can be interpreted as good news. Miller says prices nearly always slip in the fourth quarter, traditionally the slowest season in New York.
Part of the reason is that the third-quarter reports include many sales made originally during the spring buying season, the hottest time to buy.
Fourth-quarter sales cover many of the sales negotiated during the summer months, when markets are slower. In any event, the brokers themselves seem unruffled by the downturn.
"I'm very pleased with the market," says Dottie Herman, Elliman's CEO. "I talk to industry colleagues around the country and they can't believe what's happening in New York City."
Indeed, another broker, Brown Harris Stevens, reported that median Manhattan prices set a new record for the company. Their median price was $760,000 for a condo or co-op apartment - a slight bump over second quarter 2006 and 9 percent higher than the fourth quarter of 2005.
The numbers do indicate that the Manhattan market is much more balanced than it had been a year or two ago, when prices were still sizzling and bidding wars were common. At that point, people were worrying that they'd never find anything to buy, according to Herman.
If any factor has the potential to have a big negative impact on the Manhattan market, it is the bevy of new buildings coming on the market. The years of spectacular price growth encouraged a spike in co-op conversions and a building boom.
Many new developments came on line this year but not nearly enough to send prices tumbling or inventories soaring, according to Pam Liebman, CEO of Corcoran. She reports inventories rose slightly from last year but fell from their levels earlier in 2006.
"The absorption rate [of new apartments] has been very strong," says Liebman. "And there are a ton of new buildings going up."
She adds that some planned new buildings will go away. The slowing market has caused many builders to delay projects or convert them to hotels, rentals, even office space. But even the reduced number of new building could dampen price growth.
"Not all the new development will be absorbed immediately," says Miller. "That will mean the market will move sideways for a while."
"New development has been a concern for the past year or two," says Greg Heyms, chief economist for Brown Harris Stevens. "But clearly, the market is not saturated yet. Demand continues to grow."
And, long term, the signs seem pointed in the right direction.
"I'm very confident about 2007," says Liebman. "The city is doing very well economically. Unemployment is low and Wall Street bonuses have hit records."
Bonuses paid to financial-sector workers reached more than $29 billion this year, according to Heyms.
Herman adds that the city's market has stayed strong because, "It's not investor-driven." That takes the speculation out of the equation.
And Miller says that overpricing has, to a large degree, become much less of a factor in the marketplace. "That has dropped negotiability (the difference between asking and selling prices) to 2.8 percent from 4 percent," he says.
"That means the price points were more realistic," he says.
Of course, the old cliché about Manhattan prices is, "They're not making more land."
Manhattan is only 20 square miles and nearly every inch of land was developed decades ago. And now, Brooklyn real estate, which acted like a pressure valve, drawing off some steam from over-heated Manhattan, no longer performs that function as efficiently.
Corcoran reported that Brooklyn prices climbed by 10 percent for the year to a median of $550,000. The best Brooklyn markets - Park Slope, Cobble Hill and Brooklyn Heights among them - no longer offer big discounts off Manhattan prices. According to Liebman, people can't simply cross the East River for a bargain anymore.
"Now, the river they'll have to cross is the Hudson [to Jersey]," she says.