Gregory J. Heym
Executive Vice President, Chief Economist
by Elisabeth Butler Cordova
As Wall Street’s financial crisis deepened, real estate insiders on Monday predicted that Manhattan’s residential market could be dealt a severe blow.
Investment brokers and their million-dollar year-end bonuses helped sustain apartment prices in the borough over the past few years, even as the rest of the country endured double-digit price declines. However, now that Lehman Brothers Holdings Inc. is headed for liquidation and Merrill Lynch & Co. has been sold to Bank of America Corp., much of that bonus money is uncertain. Many of Lehman’s high-paid employees have already started packing up their desks, and Merrill Lynch will not retain all of its workers.
“Bonuses will be much smaller and the layoffs will continue,” said Jonathan Miller, chief executive of real estate appraisal firm Miller Samuel Inc. “The extent of this problem is mind-boggling.”
Right now, Manhattan is the most vulnerable in the city, said Mr. Miller, whose most recent quarterly report indicated sluggish pricing and a slide in the number of apartment sales. The average apartment price hit $1.7 million during the second quarter, down 3% from the first quarter of 2008. The number of sales dropped 22% to 2,282 during the quarter, compared with the year-ago period, while inventory surged 31% to 6,194 units.
“It (Wall Street) is one of our key economic engines in the city, both for our tax base and demand for residential real estate,” Mr. Miller said. “The ’09 market, and possibly 2010, are going to be characterized by lower volume and some weakness in price levels.”
News of the Wall Street turmoil will likely scare buyers away, at least temporarily.
“People who may have been on the fence are more likely to stay there now,” said Gregory Heym, chief economist at real estate firm Halstead Property. “It’s an uneasy time for people right now.”
Despite the negative implications spewing from Wall Street, there may be a couple of silver linings. First, the worst may be over. “Investment brokers have been releasing bad news in dribs and drabs,” Mr. Miller said. “This is the first step in getting this behind us.”
Second, the city would likely weather a residential turndown well because it doesn’t have a lot of inventory.
“We don’t have the supply problem that other areas have,” Mr. Heym said. Markets such as Washington, D.C., and Miami, which have years’ worth of speculative build-outs sitting vacant, have much higher inventory levels than New York City.
Monday, September 15, 2008