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New York's real estate hothouse feels a draft

NEW YORK (Reuters) - New York City’s famously overheated real estate market is shivering as the number of homes on the market reaches an eight-year peak and sales activity falls to its lowest level in five years.

A view of New York's Central Park from the observation deck at Rockefeller Center in a file photo. REUTERS/Seth Wenig

In the third quarter, inventory in Manhattan rose 26 percent to more than 10,000 units while the number of units sold fell by a third from last year’s third quarter, according to the Corcoran/PropertyShark report.

“Clearly, New York is taking a pause and I don’t imagine you’re going to see price appreciation next quarter, either,” said Pamela Liebman, CEO of high-end brokerage the Corcoran Group.

The average sales price for an apartment in Manhattan rose 8.1 percent from the prior year to $1.48 million, according to the Prudential Douglas Elliman Manhattan Second Quarter Market Overview.

The median sales price -- the level at which half the sale prices were higher and half were lower -- rose 7.4 percent from last year to $928,263.

That kind of growth is “respectable,” but a far cry from the double-digit year-over-year increases sellers and brokers relished in 2007, said appraiser Jonathan Miller, author of the Prudential report.

“We’re looking at modest growth in an uncertain time,” said Miller.

Until this year, Manhattan and indeed much of New York City escaped the declines in home prices afflicting the rest of the country amid an unprecedented surge in foreclosures fueled by the overextension of mortgages to risky borrowers during the 2004-2006 housing bubble.

In July, home prices in the 20 cities tracked by the S&P/Case-Shiller index fell a record 16.3 percent from the previous year.

BITING THE BULLET

In Manhattan, slower growth in the aggregate means prices are falling in parts of the market, Miller said.

“Right now if you’re a seller you’d better have either the best price or the best product,” Liebman said.

Sellers have to bite the bullet in order to pluck a buyer from a pool shrunken by fading consumer confidence, Wall Street job losses and bonus cuts, higher interest rates and more stringent credit standards, she said.

High-end downtown buildings are most vulnerable to price pressure because the bankers whose jobs are falling victim to failures and consolidations were their target audience, Liebman said.

“The cookie cutter apartments that traded along with the pack, they’re going to have to stand on their own now,” she added. Absent a great location or special features, the way to move a lackluster apartment is to chop the price.

But Manhattan’s real estate market, while hurting, will not collapse like those of Miami and Las Vegas where risky mortgages first inflated and then popped speculative real estate bubbles.

Manhattan has about eight months of inventory on the market while Miami has about five years, Miller said.

Manhattan’s co-op system, in which boards of owners vet prospective buyers using standards far more restrictive than those of banks, has protected the market from the speculation that has burdened Miami and similar cities with excess supply.

Reporting by Helen Chernikoff, editing by Brad Dorfman

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