Gregory J. Heym
Executive Vice President, Chief Economist
Prices keep rising, but the city is now full of soft spots.
For all the gloomy talk surrounding New York City's real estate market, prices still seem to be heading in just one direction - up.
According to numbers from the Corcoran Group, the average sales price of a Manhattan apartment rose a robust 27 percent, from $1.315 million to $1.615 million, when you compare the second quarter of last year to the second quarter of this year. During that same time, the median price climbed 13 percent, from $860,000 to $975,000. And the average price per square foot was up 16 percent, from $1,084 to $1,262.
However, a closer look at the numbers suggests they might be hiding as much as they reveal.
High-end closings at new developments have propped up overall sales prices, but take those properties out of the mix and the picture becomes less rosy. In fact, according to the Corcoran Group's numbers, the median price for resale properties actually dropped 2 percent since the same time last year.
"It's a tale of two markets," says Jonathan Miller of the appraisal firm Miller Samuel, which puts together market reports for Prudential Douglas Elliman.
"You have the resale market that's flat, and then you have the new-development closings that have been weighted toward higher-priced properties. The resulting skew from these new developments has painted a picture of a market with prices increasing aggressively, when really it's just trading sideways."
There's also the fact that many of these new-development sales were actually made months ago. Because there's typically considerable lag time between the purchase date and closing date in new developments, such sales often don't show up in market reports until long after the deals are struck.
According to Gregory Heym, chief economist for Halstead Property, new developments accounted for one-third of the current sales numbers, and the average sales date for those new properties was June 2007.
"That means there's a third of these sales that you could argue are dated," Heym says.
In other words, instead of providing a snapshot of the market as it stands today, these sales numbers in large part reflect what was going on more than a year ago.
For a more accurate picture of the current housing scene, people should concentrate less on the average and median price increases and more on numbers such as inventory, time on the market and sales activity, Corcoran Group CEO Pamela Liebman suggests.
And those numbers aren't looking so healthy.
According to the Corcoran Group, sales activity fell to its lowest level in five years - off 38 percent compared to the same period last year. Inventory, meanwhile, sat at its highest level in eight years, and increased 21 percent in one year.
Time on the market was actually down slightly compared to last year (90 days versus 94 in the second quarter of 2007), but even this bit of seemingly good news could be misleading, Heym says.
"Properties don't show up in that number until they sell," he says. "If properties are spending a long time on the market and haven't sold, they won't have shown up in that number.
"We're in the second year of the credit crisis. Activity has slowed down. The question is, when does that start to show up in average and median price?" Heym adds. "I think it's going to show up soon. I wouldn't be surprised to see average price dip a bit."
Certain types of units have seen significant inventory buildups in the past several years, Liebman says, making them particularly vulnerable to such a dip.
"If you're looking for, say, a one-bedroom in the Financial District, you have a lot of inventory," she says.
In particular, she notes, inventory for small two-bedrooms and large one-bedrooms has grown considerably in recent years.
"These are interest-rate-sensitive products, as well," Liebman says, noting that many buyers are struggling to qualify for loans (especially the jumbo loans many Manhattan apartments require) under banks' once-again strict lending practices.
As for what areas might be most affected by the shifting market, neighborhoods such as Midtown West and the Financial District have seen a large amount of inventory added in recent years, making them susceptible to softening.
"Any place where there is a tremendous amount of new product certainly becomes vulnerable," says Miller. "That's not to suggest that Midtown West is like Miami, but it's just a little more vulnerable if we have an extended downturn."
Also potentially vulnerable, Miller notes, is northern Manhattan, where neighborhoods such as Harlem have seen dramatic run-ups in price the last few years.
"In Harlem, the appreciation rates have been double what it's been south of there," Miller says. "Typically with the neighborhoods that saw that greatest gains, you then see a greater retrenchment as things move back towards the center."
At the other end of the island, questions surround foreign buyers and the health of the financial sector. In recent years, wealthy jet-setters have famously helped to boost Manhattan's condo market, particularly in downtown neighborhoods such as SoHo and the Financial District. These days, however, foreign buyers are having to contend with a stronger dollar and weakening economies in their home countries - leading some to wonder if they might cease to be such reliable customers.
"I see a temporary slowdown in international sales," says Rodrigo Nino, president of Prodigy International, which markets properties in New York, Miami and overseas.
And then, of course, there's Wall Street.
As Liebman says, it's about time for talk to turn toward what this year's bonuses will look like. And as goes Wall Street, she notes, so go nearby neighborhoods like TriBeCa. Although bonuses last year were only 2 percent off their record highs, this year, with the collapse of Bear Stearns and now Lehman Brothers, things are looking much grimmer.
Liebman is hoping the city can avoid what she calls the "triple whammy" of bad jobs numbers, low Wall Street bonuses and high interest rates.
"That," she says, "would hurt."
Thursday, September 18, 2008