Manhattan prices fall most in 5 years

Source : Business Times - 5 Mar 2009

Number of 2008 sales falls 23%; units put up for sale jump 41%

Manhattan apartment sellers cut prices by the most in five years last year and unsold inventory rose to the highest since 1999 as the economy retreated.

The average listing discount climbed to 4.1 per cent, the highest since 2003, as buyers negotiated for reductions off the asking price. The number of condominiums and co-ops for sale jumped 41 per cent last year to 9,081 even as the median price reached a record US$995,000, appraiser Miller Samuel Inc and broker Prudential Douglas Elliman Real Estate said on Tuesday.

New York City is bracing for a drop in property values after three of the five largest investment banks collapsed. In the Hamptons, on the eastern end of Long Island, prices are already falling. Banks and securities firms have cut more than 180,000 jobs in the past year, according to Bloomberg data, as the recession entered its second year and the global credit crisis forced writedowns and mortgage-related losses of US$1.18 trillion.

‘There clearly was long-running irrational exuberance out here in real estate,’ said Diane Saatchi, senior vice-president for broker Corcoran Group Inc, in East Hampton. ‘It’s gone full circle from people who would pay any price because they had to have the house, to people who pick a price and take any house at that price as long as they think it’s discounted.’

The median price in the Hamptons, New York’s summer playground for the rich and famous, fell almost 13 per cent last year to US$850,000, the first decline since 2000. Discounts on Hamptons homes rose to 11.1 per cent in 2008, according to Miller Samuel-Prudential data.

Wall Street firms are expected to lose US$47.2 billion in 2008 and further shortfalls are expected in 2009, Mayor Michael Bloomberg said last week.

Budget officials assume the city will lose 294,000 jobs from mid-2008 through 2010, including 46,000 in financial industries. The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.

The firings mirror the national recession that has driven unemployment in January to the highest since 1992 and pushed home prices down the most since the Great Depression.

The securities industry accounted for 51 per cent of the growth in wages in Manhattan’s private sector from 2003 to 2007, according to the US Bureau of Labor Statistics. ‘Prices have to drop,’ Dottie Herman, chief executive officer of Prudential Douglas Elliman, said in an interview. ‘They have to, have to, have to - and they have.’

In Manhattan, the number of sales declined 23 per cent last year from 2007, Miller Samuel and Prudential said. Falling sales and rising inventory preceded lower home prices nationwide.

The increase in inventory in Manhattan was largely driven by a slowdown in transactions in the second half, said Jonathan Miller president of Miller Samuel.

The median sales price for the entire year rose 11 per cent to a record US$955,000, according to the report. The gain mostly reflects deals from the first half of the year, before the collapse of Lehman Brothers Holdings Inc, and closings from new condominium developments.

The Miller Samuel-Prudential report also shows the heights that Manhattan’s real estate market achieved over the last decade, a period of easy credit.

In 1999, the median sales price of all Manhattan apartments was just US$310,000.

By 2004, it almost doubled to US$605,000. The average price per square foot rose from about US$400 in 1999 to US$1,251 last year, the report said.

The median price of two-bedroom apartments rose 178 per cent since 1999 to US$1.6 million last year. One bedrooms rose by 200 per cent over that time, to a median of US$750,000 last year. Three-bedrooms sold at a median price of US$3.79 million, a 161 per cent increase from 1999.

Prices have also skyrocketed for Manhattan townhouses. In the past decade, the median has risen 156 per cent to US$4.995 million.

They jumped even higher for the category known as ‘luxury townhouses’, which Mr Miller defines as the top 10 per cent of all sales. The median jumped last year to US$31.8 million, up from US$6.5 million a decade ago.

Now the market is making an about face. Prices for luxury apartments in Manhattan, defined by Ms Herman as units selling at US$3.5 million and above, are now selling at discounts of about 25 per cent off the asking price, she said.

A three-bedroom, three-bathroom condominium on Tribeca’s Hudson Street is now selling for US$4.6 million after being lowered almost US$1.3 million since August, according to Streeteasy.com, a property data service. A condo in Trump Tower on Fifth Avenue in midtown was cut 16 per cent to US$4.95 million since it was first listed in November.

The Financial District, which saw the largest year over year price increase for co-ops in 2007, was the neighbourhood with the largest price per square foot decline in 2008, according the report.

The price per square foot for co-ops there declined by almost 19 per cent to US$857 in 2008, the result of lowered demand spurred by Wall Street layoffs, the report said.

‘You’re going to see stronger, less attractive numbers’ in the first quarter, said Ms Herman.

The reported available inventory tally does not include new developments where units have yet to go on sale, Mr Miller said. ‘That is definitely an undercount,’ he said. ‘There’s a lot of shadow inventory in the background.’

The trend is likely to continue, said Damon Liss, an interior designer who is now trying to sell a three-bedroom cottage in East Hampton with a swimming pool for more than US$1 million.

‘There’s a big disconnect between buyers and sellers,’ Mr Liss said. ‘Buyers want 50 per cent discounts and sellers don’t want to reduce the price at all. That’s why transactions are down. Both buyers and sellers are being equally unrealistic.’