Halstead Property

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

Manhattan Housing Prices Cool

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