New York home prices seen plunging as crisis bites

NEW YORK (Reuters) - The economic crisis is finally crashing New York's real estate party, forcing the city's residents to start sharing the rest of the country's pain.

And with so much of the city's financial well-being and its citizens' psyche invested in both Wall Street and the prices of its homes, the decline is triggering fears of a return to the dark days of the 1970s and 1980s. At its worst that triggers images of trash piling up on the streets and a higher crime rate.

In a few pockets of the city, prices have already fallen as much as 30 percent from their highs, according to some brokers, and the declines will spread to other areas by January as job losses mount and as bankers come to terms with vanishing, or at least diminishing, bonus checks because of the financial mayhem of the past year.

"There's going to be even more supply, people are going to have to drop their prices even more," said Elaine Clayman, a broker at the high-end realty group Brown Harris Stevens, which has operations in the Hamptons and Palm Beach as well as New York.

She is already advising sellers of Manhattan apartments to slash their asking prices by 10 percent to 15 percent compared with prices on similar properties, and will not work with sellers who overprice. "It's just going to be a bad relationship. I don't need that."

It is the end of a chapter in the storied annals of Manhattan real estate. Until about three months ago, the real estate industry was issuing calming noises and pointing to figures that showed the average price of an apartment in Manhattan was still climbing.

OASIS NO MORE

"New York was an oasis," said Bob Toll, chief executive of Toll Brothers Inc, the largest U.S. luxury builder, which has projects in Manhattan and Brooklyn. "New York had its own separate market."

Now, Toll is saying layoffs in the financial sector, 16,000 from securities companies in October alone, means that New York has lost some of the advantage it had.

"In another market, this apartment would be gone," said broker Maureen Smith as she walked up the sunny stairs of a $799,000-priced one-bedroom duplex in an Upper West Side high-rise. Two years ago, Lynna Gott, Smith's partner, sold a similar unit in the building for $860,000.

Smith was there last Sunday afternoon to show the apartment, but traffic is thin, Gott said. "It's a slow season," Smith said. "But it's also the market."

Inventory is piling up because of the falling numbers of sales, and the move by some people in financial distress to put their homes on the market. A strong dollar is also damping foreign demand.

Manhattan's October listings were up 37.3 percent compared with last year, said Jonathan Miller, president and CEO of appraisal firm Miller Samuel.

While the median price of a Manhattan apartment, $928,263 in the third quarter, still rose 7.4 percent compared with a year earlier.

That might not hold true in the fourth quarter, Miller said. Today's typical apartment is often worth less than it was a year ago.

The latest Standard & Poor's/Case-Shiller home price indices released on Tuesday showed that prices in the larger metropolitan New York area fell an annual 7.3 percent in September. That was before the worst of the stock market meltdown in October.

Prices in parts of the city have been sliding rapidly. In Harlem and East Harlem, areas that had been gentrifying quickly, they were down 20 percent in the third quarter from a year earlier to an average $440,000, according to Miller Samuel.

In the areas of Hamilton and Morningside Heights, which are in and just south of Harlem, the drop has been an even steeper 30.1 percent to $397,500 median price for co-op apartments and condominiums.

Even the average price in Soho and Tribeca, two of New York's toniest neighborhoods, fell 21 percent to $1.9 million.

ROOM FOR NEGOTIATION

And while some neighborhoods have seen prices hold up or even rise that may be deceptive, said Jed Cohen, a vice president at brokerage Cooper & Cooper.

More and more, developers are paying closing costs, which can amount to 6 percent of the sales price. For renters, landlords are often paying the broker's fee and up to two months' rent, Cohen said.

"I'm encouraging all of my clients at this point, 'Hey, make an offer.' Some landlords are more desperate than others," Cohen said.

And no neighborhood is immune from price declines, Miller said. "I guess the way I'd characterize it is: all bets are off."

Certainly, some glitzy New York addresses are feeling the chill. The home of the late Brooke Astor, grande dame of New York's oldest money, is going for $34 million, down from $46 million, according to listings website StreetEasy.com.

A weakened luxury market might even force the co-op boards that vet applicants' books to relax their famously high standards, Miller said.

Brokers are hoping that will happen. Their bosses are already encouraging them to bring a wider selection of potential buyers to the co-op table, Clayman said.

A strengthening of the dollar in the past few months and the spreading global downturn are also hurting foreign demand, long touted as a crucial prop to the Manhattan real estate market, said Bill Staniford, the chief executive of real estate research website PropertyShark.com.

"We're not getting any real activity from overseas," he added, while Miller said foreign buyers are still active, but in less of a "frenzy" than before the dollar's rally.

Avid foreign interest is just another way Manhattan used to be special, and is now less so.

Wall Street's convulsions could cost the city 225,000 jobs and $6.5 billion in tax revenue over the next two years, said New York State Comptroller Thomas DiNapoli. Lower revenue from real estate transactions is only adding to the budget woes.

Both the city and that state have already been planning cuts in services to address forecast budget deficits, exacerbating the concerns about New York's prospects over the next few years.

"I've always been told New York is different, we are unique, we are the center of the universe and this is a fatal problem of New Yorkers, including myself," said Staniford, a Manhattan native. "We have not always been invincible. Is crime going to rise? Services are going to be cut. What about sanitation?"

(Reporting by Helen Chernikoff; additional reporting by Joan Gralla; Editing by Tim Dobbyn)