NYC real estate defies gravity - so far

Manhattan home prices increase despite the financial market's turmoil, but it doesn't look like they can buck the national trend much longer.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all RSS FEEDS (close)
By Les Christie, staff writer

How will the Obama stimulus proposal affect the economy?
  • It will end the recession quickly
  • It won't end the recession, but will soften its impact
  • It will make the recession worse
  • No impact
Mortgage Rates
30 yr fixed 3.80%
15 yr fixed 3.20%
5/1 ARM 3.84%
30 yr refi 3.82%
15 yr refi 3.20%

Find personalized rates:

Rates provided by

NEW YORK ( -- Home prices in Manhattan held up remarkably well in the fourth quarter, despite the economic crisis.

Reports released Tuesday by four of the city's biggest real estate agencies showed that the average price of condos and co-ops sold during the three months ended Dec. 31 actually increased compared with a year ago.

But signs of weakness are beginning to emerge; sales volume was down a whopping 40% from the fourth quarter of 2008, according to New York brokerage the Corcoran Group.

"We're starting to see the market erode," said Jonathan Miller, of Miller Samuel, which compiles the market analysis for Prudential Douglas Elliman. "The fourth quarter didn't capture the full brunt of [the financial market turmoil]. We'll see that in the first-quarter statistics of 2009."

The median sale price of an apartment in Manhattan jumped 8% from a year ago, to $895,000, according to brokers Halstead and Brown Harris Stevens. Prudential Douglas Elliman pegged the increase at 5.9% to $900,000, while the Corcoran Group put it at 3%, to $937,000.

But according to Miller, much of these increases reflected sales in new, high-priced developments. With a median price of nearly $2 million, these units are generally pricier to begin with than existing Manhattan apartments. And many of these apartments were presold a year or two ago, when the real estate market was still red hot.

On average, the new construction deals that were closed in the fourth quarter of 2008 went into contract in November 2007, when the economy was in considerably better shape, according to Halstead's chief economist Gregory Heym.

A more accurate gauge of the Manhattan real estate market's health are sales of existing apartments.

"The focus should be on resales," Miller said, "rather than new developments, which skewed the data higher."

He pointed out that prices of resold existing homes dropped 3.6% during the fourth quarter compared with the same period in 2007. And sale prices for homes that went into contract during the fourth quarter but have not yet closed are down 20% since August, the last month before the financial markets got clobbered.

Plus, the average time that an apartment sat on the market waiting to sell climbed to 100 days, up 16 days from the fourth quarter of 2007, according to Halstead.

Wall Street woes

A severe slump could be around the corner, since New York's economy and the health of its housing market rely heavily on the financial sector.

In September, Lehman Bros. declared bankruptcy and, since then, several other investment banks have been sold, announced huge layoffs and slashed bonuses.

"A little over 20,000 securities industry people have disappeared from the payrolls so far, about a third of the projected layoffs," said Heym.

Despite these events, New York's economy is still reasonably strong, according to Pam Liebman, CEO of the Corcoran Group. For example, although the city's unemployment rate has increased to 6.3%, it's still lower than the national rate of 6.5%.

"Fundamentals haven't changed that much, but the psychology has," she said. "There's more fear now, of price drops, of job losses, of bonus cutbacks and of losing money in investments."

Stagnant prices alone can alter market psychology. During the boom, rising prices gave potential buyers a sense of urgency and confidence that's lacking in today's market.

"The feeling was 'Buy today and it will appreciate tomorrow,'" said Liebman. "That feeling is gone."

Now, buyers are holding out for better deals. Meanwhile sellers are still seeking the same kinds of prices paid at the height of the market.

"This disconnect is worse than I've ever seen it," said Miller. "Typically, when the market turns, sellers are two quarters or so behind. Now, sellers are a year behind. Meanwhile buyers are waiting for the economy to shake out."

Reasons for optimism

On the plus side, many of the forces that have hurt other housing markets have had little impact on Manhattan, according to Heym.

Few New Yorkers used exotic mortgage products to buy apartments, for example. These were the kind of loans that led to the huge foreclosure problems in California, Nevada, Florida and other boom markets. Co-op boards and even many condo owner associations simply don't allow them, and they often reject potential buyers with weak financial profiles.

That means that most apartment owners in New York have substantial home equity, and will still retain equity even if home values decline 10% or so. That helps stabilize the housing market.

And New York has been spared the kind of overdevelopment that left housing inventories in Sun Belt states bloated. There's simply very limited opportunity to acquire land to build new housing on a 23-square-mile island that is already the most densely populated county in the United States.

Add to that a population that continues to expand and it's understandable that Manhattan has not yet suffered a more severe reversal.

"We're a year and a half into the credit crisis and the Manhattan housing market and the New York economy have held up pretty well," said Heym.

But 2009 may be an entirely different story.

Talkback: Have you successfully negotiated a mortgage work-out with your lender? E-mail and your story could be included in an upcoming article.  To top of page

Find mortgage rates in your area

They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.