Halstead Property

Diane M. Ramirez
President
dramirez@halstead.com
(212) 381-3203

Gregory J. Heym
Executive Vice President, Chief Economist
(212) 546-1069

Breaking The Bubble

For months, economists and housing experts have been dissecting housing reports, searching for signs of a slow down in the torrid real estate market. Now it appears that the five-year fever has broken, with many cities and suburban areas experiencing sharp increases in housing inventories, declining sales figures, and modest price appreciation, if any at all. So what about Manhattan? Has the so-called real estate bubble lost its fizz?

Well, yes some of it, at least. Most experts agree that the rampaging seller's market, with prices increasing 25 percent a year, has come to an end, but buyers haven't taken charge. It's kind of a balanced market, said Dottie Herman, president and chief executive of Prudential Douglas Elliman Real Estate. "Sellers will get a fair price. You're not going to steal something, but it's not an overheated market anymore."

Last quarter, the number of co-op and condo sales in Manhattan fell 14.8% from a year ago while the supply of homes for sale rose almost 54%, according to Miller Samuel, a real estate appraisal and consulting company. Still, prices remain high. Miller Samuel found that the median apartment price in Manhattan rose to $880,000 in the second quarter, up 13.4% from a year ago (condo prices increased only 1%). Terra Holdings, the parent of Brown Harris Stevens and Halstead Property, reported a 3.4% gain in the median apartment price while the Corcoran Group reported a slight drop of 3%.

The resilience of prices in the face of sharply rising inventory reflects a certain stubbornness among sellers, says Miller Samuel president Jonathan Miller. "There is such a high proportion of properties not priced properly," but that's likely to change. "Sellers are going to start getting realistic. We're going to meet in the middle in the fall," he says, predicting that price appreciation will be flat or in the single digits for the rest of the year.

For buyers, the psychological turning point may have been Hurricane Katrina, says Jeff Wolk, principal broker at Fenwick-Keats Realty and president of Manhattan Multiple Listing Service. "Everyone suddenly realized they were susceptible to hurricanes," Wolk says. Gas prices shot up, accelerated by the impact of Katrina, and they didn't come down. "People thought, Uh oh, the economy may be slowing down, and started getting cautious." The uncertainty following Katrina did not drive down prices, but as buyers hesitated, houses began to stay on the market longer and inventories grew. Yet, as the market has cooled, Wolk says he also began hearing from more buyers who previously had been sitting on the sidelines.

Even as the market cools, several experts acknowledge that the city's high prices have actually helped stabilize the housing market by discouraging outside investors. "We have low investor presence," Miller says, compared to cities like San Diego and Miami. Not only are condo prices too high for many spec investors, but the sizable co-op market presents many hurdles for those want to buy and quickly flip properties.

Most observers say that the biggest issue now facing the market is growing inventory, especially in new condo developments. "There's still good demand, but buyers have a lot more choice," Wolk says. The properties that may have trouble selling are the 'vanilla properties' " those generic two-bedrooms with 1,000 square feet.

Herman agrees that higher inventories will lead to a flattening out of prices, but she doesn't see a glut of properties yet. "The fundamentals of New York City are still pretty good," she says. "People are still making money here. The city is very popular, prime locations are still selling, although you need to price your house in a way that makes sense."

Tuesday, August 05, 2008