Halstead Property

Mentioned in this Article:

Gregory J. Heym
Executive Vice President, Chief Economist

Finding Bright Side Of A Downturn

If recession takes hold, impact on market may take time

By Lauren Elkies

Falling Wall Street bonuses and fears of a nationwide recession may affect demand for Manhattan homes, but local market watchdogs maintain, albeit cautiously, that Manhattan real estate is still a solid investment.

"Quite obviously, if the country goes into a recession, New York City real estate would logically be affected," said Elizabeth Stribling, president of Stribling & Associates. "That said, the perception that real estate in New York City is a better investment than placing money in the stock market continues to be a stated reason for buying for many of our customers."

Naturally, lower bonuses and record losses among some of the largest companies will temper activity, particularly among those dependent on their bonus to purchase an apartment. But bonuses still ranked the second highest since at least 1985, at $33.2 billion or an average of $180,420 a person, according to data from the state comptroller.

They are "still very hefty numbers," said Diane Levine, brokerage manager of the downtown office of Sotheby's International Realty. The "market in New York City is still active."

Frederick Peters, president of Warburg Realty Partnership, was more circumspect.

"We have so far not seen much change one way or another in the marketplace," Peters said. "Clearly, there has been a large injection of capital into the portfolios of many in the financial industry. There is of course some offset of apprehension about the fear of recession and the continued weakness in the national housing market. For the moment, these two forces seem to be holding one another at bay."

If the country sank into a recession, it would take time for the effects to take hold of Manhattan's residential real estate market.

"How much time would really depend on how deep the recession goes," said Gregory Heym, executive vice president and chief economist at Terra Holdings, parent company of Brown Harris Stevens and Halstead. "You have to remember that homes are not like stocks; their prices can't move as fast. The concern over the next few months will be the effect of a possible recession on buyer confidence."

And looking further out, there's unease over what bonus payouts will be next year.

On the surface, sales in December ended with a bang, but the data, the most recent available at press time, were skewed by a spike in closings in new developments fetching eyebrow-raising prices.

The number of co-op, condo and cond-op unit sales in Manhattan increased to 779 in December from 720 in November, according to research by Heym of Terra Holdings. The median sales price increased in December to $928,378 from $836,250 in November.

"The rise in price, and to a lesser extent, sales, can be attributed to 15 CPW, which had more closings in December than November," Heym said. "Also, there were closings at the new development 823 Park Avenue, four of which were for over $10 million. Forty-five Park Avenue also had a lot more closings in December. So, basically I'd attribute both increases to new developments."

December saw a drop in inventory, consistent with years past. Inventory fell to 5,415 from November's 5,677, according to data from Jonathan Miller, executive vice president and director of research for Radar Logic. Sellers typically take their homes off the market in order to re-list them in the stronger spring market.

While brokers said that the sales market is chugging along with buyers who can withstand greater loan scrutiny, the rental market seems to be taking a big hit, though December data from Citi Habitats show that rents averaged $5.25 more in December from November to $3,219.

"Even with less rental buildings being constructed, the lack of demand is almost unprecedented in my 35 years in the business," said Marc Lewis, COO of Century 21 NY Metro.

"Landlords, across the board, are reporting this, and only the ones who sharpen their pencils and reduce rents, pay fees or offer other incentives are rapidly renting their units," he said.

He forewarned, "The market is returning to where it was during the recession of 2001."

Effects of the credit crisis could be more apparent in Manhattan this quarter than the third and fourth quarters of last year, since closings in the first three months of the year would likely reflect deals from the latter part of last year, following the eruption of the credit market.

In terms of current activity level, this month will be telling since generally there is a burst of contract activity at the end of February, Miller said.

"That's something to look for as an early warning sign of what's going on," he added.

Friday, February 01, 2008