Exec. Vice President
Gregory J. Heym
Executive Vice President, Chief Economist
by Marilyn Alva
Manhattan held on as other housing markets fell like dominoes. Its home prices rose much of last year.
But now this priciest U.S. urban locale is slipping, as other spots buffeted by the housing downturn are starting to show signs of life. Average asking prices are off 15% to 25% from a year ago, data trackers say.
"We're a Wall Street town. When Wall Street catches a cold, New York suffers," said Brian Lewis, executive vice president at Halstead Property. "And Wall Street's got double pneumonia."
The Big Apple's supply of homes for sale started rising in early 2008. But the real pricing pressure came after Lehman Bros. folded in September and the stock market collapsed.
By the fourth quarter, average sale prices were down 20% from August, according to appraisal firm Miller Samuel. More telling, the number of sale contracts signed had fallen 40% to 75% from a year earlier.
Realtors expect a worsening.
"We're seeing price cuts everywhere," said Sofia Kim, data firm StreetEasy's research chief. "You have rising inventory, falling list prices and lower volume of sales."
Luxury housing is hardest-hit. Asking prices are being cut 40% or more.
Till 2008's third quarter, Kim says, Manhattan's high-end was thought credit-crisis immune. Not anymore.
"Everybody should expect to see terrible first-quarter numbers," said Kirk Henckels, executive vice president at Stribling & Associates.
Upscale Homes Drop
In early March Stribling cut late society doyen Brooke Astor's 14-room Park Avenue triplex from $29.5 million to $15.5 million, according to StreetEasy. Another Park Avenue apartment, listed at $12 million, sold after a markdown to $6.5 million.
Luxury brokerage Stribling got "more listings from the Madoff situation than from Lehman," Henckels said. These were from victims of Bernard Madoff's Ponzi scheme.
Most say Manhattan's housing market peaked last spring, about two years later than many other cities. One sign of softening before September was a pullback by foreign buyers, who'd helped fuel a Big Apple boom.
The early months in a year are usually New York real estate agents' busiest. It's when families buy to move before a new school year, and when Wall Street awards bonuses. So it's a time when cash-flush young investment bankers and traders would upgrade their digs.
"First they called their mother and then they called their broker," said Pam Liebman, president of residential property firm Corcoran Group.
The phones aren't ringing now. Wall Street bonuses tumbled 44% to $18.4 billion in 2008, according to New York state's comptroller.
Buying Pool Drained
What's more, many would-be buyers got laid off. January employment in New York City fell 60,000 from a year prior. Some 20,000 of the lost jobs were in financial services — 15,000 on Wall Street alone.
Wall Street will have shed 46,000 jobs from the third quarter of '08 to mid-2010, the city projects; 294,000 will have vanished across all sectors.
In the last downturn to hit New York, housing wasn't so impacted. The city lost 225,000 jobs early this decade, starting after the dot-com bust and stretching past 9/11.
"People flocked to real estate because it was a safe haven," said Gregory Heym, chief economist with Halstead Property. "Now the root of this problem stems from real estate."
A housing slump after 1987's Black Monday stock market crash lasted into the 1990s. About 350,000 jobs were lost, more than now.
"The difference now is income. You're seeing a lot of high-paying Wall Street jobs go this time around, and the bonus money," Heym said.
Before September's Wall Street shock, many thought Manhattan might avoid the housing ills of other markets. Its homeowners didn't get tangled up with subprime loans and foreclosures, thanks largely to the quirky nature of the housing stock.
About 70% of the homes are co-ops, their boards notoriously strict in vetting shareholders. They want a lot of liquidity, healthy debt-to-income ra
tios and at least 20% down.
New condo projects soared, but not the speculative investment seen in Florida and Nevada. One reason is the higher down payments required.
Still, many new Manhattan condos remain unsold, even as developers slash prices and add incentives. Last spring, trophy apartments went for up to $50 million. Now more of the sales activity happens at the low end.
"So much attention was paid to the heavy hitters on Wall Street that the rest who make up New York City got left in the dust," said Liebman. "Now it's back to basics with doctors, lawyers, teachers and writers. The under-$1 million (property) has become popular."
But buyers are "pricing in further downturn risk," said Noah Rosenblatt, publisher of Manhattan housing blog UrbanDigs.com.
"Generally, nobody likes to buy a depreciating asset," he said. "There are value-hunters out there. But the bids they are putting in are not where the seller at this point is willing to go ."
After the 1987 crash, it took years for Manhattan real estate to bottom.
"This time the fall was much quicker," Liebman said.
Observers speculate that the bottom might still be a ways off. "This adjustment is going to last two to four quarters," Rosenblatt said, expecting no fast, V-shaped recovery. "It's going to be a muddled L."
Thursday, March 26, 2009