As Wall Street falls, so do apartment prices

By Helen Chernikoff and Ilaina Jonas

NEW YORK (Reuters) - Already softening New York City apartment prices could be hit much harder by the struggles of financial investment houses, whose bankers, researchers and brokers helped drive record prices.

Prices could fall between 4 percent and 20 percent, some experts said, in response to the job losses and bonus cuts from the failure of Lehman Brothers Holdings Inc LEH.N, Bank of America Corp's (BAC.N) acquisition of Merrill Lynch & Co Inc MER.N and the head winds facing insurer American International Group Inc (AIG.N).

"We can't say if New York will go into the toilet or will continue to prosper," said Robert Toll, chief executive of Toll Brothers, which has built a 12-story plus penthouse condominium project in Manhattan's Murray Hill neighborhood. "It depends very much on the continued interest from overseas and all those people who want to move to New York."

But oversees buyers may not be able to offset the thousands who may be squeezed out by the shrinking financial industry, said Jonathan Miller, president and CEO of appraisal firm Miller Samuel and author of the Prudential Douglas Elliman Manhattan Market Overview quarterly reports.

Miller, who for the past year has been warning the Manhattan market would be weak in 2009 due to evaporating bonuses and layoffs, said prices could deteriorate over the next two years.

"I don't see a sharp decline," Miller said. "I see more of a gradual erosion. There's going to be pain over the next two years, but not much more than we've already anticipated."

The U.S. financial services sector, already suffering from a glut of unemployed talent after shedding more than 100,000 jobs this year, must now brace for up to 50,000 more job losses, headhunters and consultants said.

The New York apartment market has held up fairly well as most the United States suffered from the worst housing market since the Great Depression. Last quarter, the median sale price reached $1,025,000, up 14.5 percent -- about 11 percent if two very high-end projects were stripped out, according the Prudential Douglas Elliman Manhattan Market Overview.

But the carnage on Wall Street might narrow the gap between New York and other cities harder hit by the housing downturn.

"When the financial sector hurts, everybody feels it," said Bill Staniford, chief executive of real estate data website PropertyShark.com, who sees price declines of 20 percent before supply and demand realign.

The prospect of so many home owners and potential buyers in financial distress had an immediate impact on seller psychology, said Pamela Liebman, chief executive at The Corcoran Group, which specializes in luxury homes in the metropolitan area.

"We're seeing sellers get a lot more real," she said. "I have seen that today."

One seller who was holding out for $1.5 million on his property ordered his broker to accept a $1.3 million offer.

"Until we see the pricing adjustment people will keep their money in their pocket, under their mattress, in the bank," said Liebman, adding that, even a 5 percent price drop would generate sales, while a 10 percent drop would create a "herd mentality" of buyers jumping in.

"You're not going to see any appreciation," in 2009, said Dottie Herman, chief executive of Prudential Douglas Elliman, the state's largest real estate firm. "You might even see a 5 percent slip in prices."