U.S. News

Manhattan apartment prices fall, will drop further

NEW YORK (Reuters) - Prices of existing Manhattan apartments fell nearly 4 percent in the fourth quarter, two reports showed, and analysts warned of much deeper declines in coming months in the wake of turmoil on Wall Street and financial sector layoffs.

The moon rises over lower Manhattan in New York, September 11, 2008. REUTERS/Gary Hershorn

The median sales price -- in which half the sales prices were higher and half were lower -- of an existing Manhattan apartment fell 3.6 percent to $732,500, according to the Prudential Douglas Elliman Manhattan Fourth Quarter Market Overview.

“You could say it started the second week of September when Lehman (Brothers) filed for bankruptcy,” said Dottie Herman, chief executive of Prudential Douglas Elliman, one of the United States’ largest real estate companies.

“Up until then, New York City was holding its own and after that people were in shock. Things they trusted their whole lives just fell apart.”

Herman sees a possible price decline of 20 percent to 25 percent afflicting the entire Manhattan market in the first quarter.

According to the Corcoran/PropertyShark report, median existing sales prices fell 4 percent year over year to $759,000 in the fourth quarter.

Prices of existing homes, also called resale prices, fell in only one other quarter in the past five years, by 1.1 percent in the fourth quarter of 2006, and that was something of a blip, said appraiser Jonathan Miller, author of the Prudential report.

These numbers, on the other hand, are a leading indicator of more declines to come, because resale prices are not susceptible to distortion like sales figures for new construction, in which contracts are signed up to 18 months before the sale is completed.

The lag time between the signing and closing of a resale contract is much shorter, Miller said.

In this quarter, for example, the median sales price of new housing in Manhattan rose 33 percent to $1.54 million, but that number is not necessarily indicative of the current market because many of those contracts were signed months or even years ago, according to the Corcoran/PropertyShark report.

Such sales distorted this quarter’s figures altogether, Miller said, resulting in an overall rise in median sales prices of 5.9 percent to $900,000. Without them, the rest of the market would look more like the lackluster resale market.

A telling sign of further future price declines is Miller’s monitoring of contracts in the works, pre-closing. Current contract price levels show an average drop of 20 percent from August 2008, said Miller, who said such price declines are a real possibility marketwide in Manhattan.

Indeed, the first quarter will reveal the depths of the damage wrought by the implosion of the banking sector and tens of thousands of layoffs on Wall Street in a way the fourth quarter has not, said Gregory Heym, the chief economist for brokerage Brown Harris Stevens.

His fourth quarter report showed a very slight rise in the median sales price of Manhattan apartments, both new and existing, to $895,000 from $828,000, but more financial sector job losses could lie ahead for Manhattan, which means more pain for real estate.

“We’re just going to be living with a certain degree of uncertainty for a lot longer,” Heym said. “I know it’s been about a year and a half and people would like things to calm down a bit but it’s going to take a bit longer.”