Gregory J. Heym
Executive Vice President, Chief Economist
As the summer ends amid record housing prices, brokers expect a market
Correction, not a bubble
By Tom Acitelli
Leonard Steinberg and Hervé Senequier ask in their August newsletter a question that’s preoccupied New York real estate all summer: “Bubble B.S.?”
The Prudential Douglas Elliman duo, who specialize in higher-end Manhattan real estate, declare in their monthly Luxury Letter that the notion of a housing bubble is an indefinable mish-mash of too many statistics or just so much unsubstantiated pop psychology.
“There appears to be absolutely no tangible indication (so far) of any bubble-popping market behavior,” the newsletter read. “In fact, quite the contrary. All of a sudden we are seeing more and more properties with asking prices hovering around the $2000/sf mark… this just a few months after $1000/sf pricing appeared average.”
Recent figures about the Manhattan residential market would seem to buoy these conclusions, a welcome development for New York real estate bulls. While few have ever contended that today’s market closely resembles that market of the late 1980’s, which famously imploded, many acknowledge that some correction is in the offing. That correction will not constitute a bubble burst like the one of the early 1990’s, however.
That means prices of $1,000-plus a square foot and a more than $1 million average for a Manhattan apartment should linger. With low inventory and record prices, the notion of a bubble and any subsequent burst become like the old riddle about a tree falling in the forest: If there’s a real estate bubble and no one notices it because they’re too busy buying and selling, does it truly exist?
“I would say that with the escalations we’ve had in the last two years, the obvious conclusion is bubble,” Steinberg told The Real Deal. “But, sometimes, that which is obvious is wrong. What I think you see at the moment is an inflated bubble, but to know if it’s really a bubble or not is to determine whether it deflates. Who cares about a bubble if it never deflates, right?”
It may be a while before anyone has to care.
The average sales price of a Manhattan condo or co-op was more than $1.1 million in July, 4 percent higher than the same month last year, according to a monthly report from Halstead Property. (Appraisal firm Miller Samuel found the number to be an even higher $1.3 million in its second quarter report released in July.) Halstead’s numbers represent a 16-percent decline from June, however, but the report stresses the fluctuation of prices from month to month. The median price, a longer-term figure, was $725,000, the third-highest figure ever and a 12 percent increase over the past year, according to Halstead.
The median price per room for a prewar co-op in July was nearly $200,000, 24 percent higher than in July 2004, according to Halstead. For postwar co-ops, that price was nearly $183,000, a 27 percent jump over last year. For condos, the July numbers were, as usual, even higher. The median price per square foot for a prewar condo was $1,036 and, for a postwar, $1007 – both increases over July 2004.
These numbers show no signs of ebbing after the traditionally slow summer, even in less coveted areas of the city.
Downtown listings are fetching some of their highest median prices ever, according to Halstead. The median price for a one-bed-room there was $625,000 in July, 30 percent higher than last year. Two-bedrooms in Downtown hit a median price of $1.15 million in July, up 24 percent over July 2004.
These increases come as inventory decreased in Manhattan. The number of new listings in Downtown as well as on the East and West sides declined, generally, during July, according to Halstead. On the East Side, the decline overall was 20 percent from July 2004; on the West Side, it was unchanged from last year, though both one- and two-bed-rooms, staples of the Upper West Side, declined by 7 and 8 percent, respectively. In downtown, new listings declined by 6 percent over July 2004.
While scoring the market is difficult by month, the long-term upward trend could be the sum of buyer (and investor) confidence in Manhattan real estate, low mortgage rates in a relatively strong economy, and the absorption of new housing as it comes on the market.
Halstead chief economist Greg Heym said he doesn’t see a current situation in which people have to sell – the necessary precursor for a bubble burst – especially compared to the last housing bust in the early 1990’s, when job losses and a recession spurred selling at often weakened prices.
Unless the economy suddenly tanks or interest rates rise sharply, the bubble you’ve heard and read so much about may never materialize.
“It’s like with some stocks,” Heym said. “If people keep saying ‘bubble,’ they may start to believe it, despite any evidence.
Thursday, September 01, 2005