Gregory J. Heym
Executive Vice President, Chief Economist
By Nicholas Yulico
TheStreet.com Staff Reporter
Reports on the Manhattan market came out from major real estate brokerage and appraisal houses this week, and the new data suggest a possible cooling in the borough's apartment sales market, as average sales prices dropped in recent months.
But the market is still strong, and all eyes look to Wall Street year-end bonus tallies as a possible measure of future demand, since much of the city's real estate market is tied to that wealth.
In the third quarter, the average sales price for Manhattan apartments declined for the first time in 10 consecutive quarters, falling 3.9% from the previous quarter to about $1.09 million, according to Mitchell Maxwell & Jackson, New York's largest residential real estate appraisal company.
Not only did prices drop, but so did overall sales, the firm says. "The biggest story is this sustained and significant drop-off in sales volume. You're seeing demand dry off rather quickly," says Jeffrey Jackson, chairman of Mitchell Maxwell & Jackson. The firm's sales volume index dropped 32% from the second to third quarter. The data also show that sales of condos and co-ops peaked in the second quarter of 2004 and have been declining ever since.
For high-end apartments, more prospective buyers are choosing a wait-and-see attitude with regards to where prices might be going, Jackson says, while on the bottom rung of apartment sales, more people are being priced out of the market. Plus, the high-end market is being affected by the plethora of new state-of-the-art luxury condos popping up across Manhattan. Sales have been strong for the new offerings, cannibalizing some of the demand for older luxury units on the resale market. "There is a huge movement in demand for newer more technologically advanced apartments," Jackson says.
Jackson says the last few quarterly trends suggest supply and demand have reached parity throughout most of the city -- and that is good news for buyers.
Third-quarter numbers from Halstead Property, whose data set is different from that Mitchell Maxwell's, say Manhattan apartments averaged $1.14 million in the third quarter, 12% higher than a year earlier but down nearly 11% from the second quarter.
The discrepancy in data among different research houses is because New York City doesn't have a multiple listing service, so prices are tracked through different broker channels, along with the filing of property deeds. Co-op sales numbers, which make up about two-thirds of the sales market, can also be hard to come by since co-op owners don't buy deeded property but rather shares in the company that owns a residential building.
Gregory Heym, chief economist with Halstead, says the average sales price also fell from the second to third quarter last year; this isn't uncommon.
"The first half of the year in general was a tremendous period because of a couple reasons," Heym says. "Wall Street bonuses were pretty good last year. ... That money gets spent in the first half of the year." Plus, Heym says Manhattan also had an inventory problem in the first half of the year, with fewer apartments on the market.
"There are a lot of numbers in the report that show the market is still growing," Heym says. He points to his firm's data that shows the average sales price for studios and one-bedrooms both rose from quarter to quarter. He said the dropoff in overall average selling price likely had to do with fewer high-end apartments being sold in the third quarter, which dragged down the overall average price.
"If you look at our market fundamentals, they're still very strong," Heym says "The city's economy is great. Unemployment in August just hit a 17-year low." The real question for the market might be where Wall Street bonuses are heading, since the city's real estate market is so dependent on these income boosts to fuel prices. Firms report the bonus levels in the fourth quarter.
For 2004, bonuses for Wall Street firms' New York City employees totaled more than $15.9 billion, according to data from New York State Comptroller Alan Hevesi. This marked the highest level since 2000, when the dot-com boom sent bonuses to a record $19.5 billion.
With third quarter profits looking strong at Goldman Sachs, Morgan Stanley and other big securities firms, the industry is on pace for another fat paycheck. Alan Johnson, president of Johnson Associates, a Manhattan-based recruiting firm, says bonuses will be strong for Wall Street publicly traded firms and hedge funds this year. He expects bonuses will likely be up another 5% to 10% in 2005.
Mitchell Maxwell's Jackson says the greatest risk for a bursting bubble in Manhattan would be increasing inventories coupled with rising interest rates and weak year-end bonuses. Otherwise, if the underlying economic fundamentals remain stable, he believes prices should enjoy a soft landing.
Tuesday, October 04, 2005