Halstead Property

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

Real Estate In Bubble Trouble

By BRADEN KEIL

The bubble is in trouble.

Manhattan residential real-estate sales numbers for the last

quarter are in — and the picture ain't pretty, especially at the top

end of the market. Four separate reports released by top residential brokerage

firms yesterday indicated that in the three months ending in September,

prices were way off — even though there are still yearly gains. "The

numbers are disappointing, no matter how you spin it," admitted one

nervous broker.

In the Prudential Douglas Elliman report, which covers sales of

all firms in New York City, the average price of a Manhattan apartment

— including co-ops and condos — dropped 12.7 percent from $1.32 million

in the second quarter to $1.15 million. In the luxury apartment market — defined as the top 10 percent

of transaction prices — the number plunged 26 percent from $5.2 million

to $3.8 million in the three-month period.

"The market has tempered" said Jonathan Miller, president of

appraisal firm Miller Samuel, which compiled the numbers for Prudential

Douglas Elliman.

"Last quarter, when all market indicators hit new records, the

luxury market had 17 sales at or above 10 million. This quarter there

were only four such sales," he said. "There were no trophy properties that sold this past quarter."

Not that they aren't out there.

Still for sale is a $70 million penthouse atop The Pierre hotel,

and a penthouse at the blue-blood River House that's entered the market

at $50 million.

Meanwhile, the two-bedroom apartment market, long considered the

staple of the bullish market, dipped 3.4 percent to $1.49 million from

$1.54 million.

Miller attributes the nervousness in the market to unfavorable

market news that includes two hurricanes, nonstop talk of a real-estate

bubble, and interest rates rising.

Also weighing on the market is the record number of sales of

entry-level apartments that affected the average and median price drops.

"Fifty-five percent of all sales were studio and one-bedroom apartments," said Miller.

But there's an emotional component to the pullback, as well. "In

some cases, the inventory isn't moving quicker because sellers have

high expectations on what kind of prices they can get," said Corcoran

CEO Pamela Liebman.

"Their assumption of double-digit price increases every six months

isn't realistic, and it's a factor that can cause the market to stall."

Greg Heym, the chief economist for Brown Harris Stevens and Halstead Property,

points out that the numbers, while down in the short term, are still

higher than they were a year ago. "I wouldn't read anything to it just

yet," he said.

"A quarter does not a trend make. It's a big drop [in the luxury

market], but you have to remember that there is a lot of Wall Street

bonus money in play during the first half of the year."

Broker Dolly Lenz, who has nearly $800 million in high-end

listings, says she's not worried. "The summer is traditionally a slower

time in the real-estate market. I've seen a lot of activity in

September that would suggest that the fourth quarter should improve,"

she said.

Tuesday, October 04, 2005