NEW YORK (Reuters) - New York City real estate prices are looking increasingly shaky as instability in two of the city’s sexier submarkets — second homes in the Hamptons, and new condos in Manhattan — register the latest signs of a housing downturn.
Property prices in the Hamptons, a fabled playground of the rich on nearby Long Island, rose steadily for almost two decades, but the prices on almost 1-in-3 of current listings have been cut an average 11 percent from the initial asking, said Sofia Kim of real estate website StreetEasy.com.
Back in town, the number of sales in new developments dropped a whopping 71 percent in April from a year earlier as condo developers enmeshed in complicated financing arrangements have been slow to slash prices even as the market corrected all around them, Kim said.
But if prices on these new condo towers do not fall to match the rest of the market and stay empty as a result, then it could eventually trigger foreclosures of entire properties, forcing much bigger price cuts as lenders seek to reduce their liability.
“If you have a property not priced at market, is it going to sell? Something has to give,” said Jonathan Miller, author of real estate broker Prudential Douglas Elliman’s market reports.
The intensifying of the malaise afflicting New York City comes as housing in parts of the country that got hit hardest by the bust are showing signs of life. Home sales in California, Arizona and Nevada — states known for risky lending and speculation during the boom years — have risen as foreclosures and short sales lure buyers into the market.
In New York, it’s the opposite.
When the rest of the country was watching new neighborhoods begin to disintegrate into foreclosure ghost towns in 2007-2008, Manhattan landlords would still publicize new buildings by hosting parties featuring pop stars, sushi and girls twirling hula hoops in a bid to convert still-airborne Wall Street bonuses into down payments.
Today, that bonus pool has dried up amid job and compensation cuts in the financial services sector that drives the city’s economy.
“Things are much more subdued,” Kim said. “There’s no money for parties.”
The elite in the real estate industry had once hoped Manhattan could escape relatively unhurt as other housing markets suffered. But the collapses of financial powerhouses such as Lehman and Bear Stearns destroyed such thinking.
“What ended up killing us was the foreclosure crisis because that’s what killed Wall Street,” said Rick Hoffman, a regional senior vice president in the Hamptons for the Corcoran Group, a high-end brokerage. “It bit us in the end.”
Glass towers designed to appeal to finance industry hotshots had been shooting up across Manhattan as Wall Street’s bonus boom powered a surge of new development, said Barry Hersh, a former developer and a professor of real estate at New York University’s Schack Institute of Real Estate.
Now many developers are struggling to secure lender approval to cut unit prices, he said. Without that, they could face foreclosure and bankruptcy, he said.
Some lenders, wary of an announced foreclosure’s negative effect on sales, might opt for a more subtle scenario in which they quietly take control of a property.
“You walk in there as a potential buyer and there’s still a developer and a broker and a marketing person but in reality the developer has been eliminated from the equation and the bank is deciding whether or not to accept your offer,” Hersh said.
Of course, some condo developers are doing what must be done and lowering prices either in consultation with lenders or behind the scenes with buyers.
The developers of the Georgica at 305 East 85th Street, for example, in Manhattan went so far as to address its disappointing sales by relaunching the building in mid-May with a revised marketing and pricing plan, said Beth Fisher, a director at Corcoran Sunshine Marketing Group.
Her group advised the developers not to move forward until they had negotiated the necessary price adjustments with its backers, who agreed to a range of cuts, some as much as 20 percent.
“You’re not going to outsmart the market,” she said. “You have to give buyers what they want.”
Others maintain appearances but lower the real price — often about 5 percent — by using concessions such as extra storage or the payment of transfer fees as bargaining chips, said Brown Harris Stevens broker Elaine Clayman.
“They just don’t want to look like the prices are going down,” Clayman said.
Hamptons owners cannot hide that. The blood out there may be blue, but Wall Street’s bite is still spilling it.
The average sales price in the Hamptons and in the nearby North Fork market plunged 36 percent from a year ago and 25 percent from the fourth quarter to $1.1 million in the first quarter, and the number of sales were down by half year-over-year, according to Prudential Douglas Elliman.
“We track bonuses pretty closely in the Hamptons,” Hoffman said.
Fat bonuses whip up the market; skimpy ones flatten it.
Take one Southampton property: It offers 13,500 square feet on five beachfront acres, a pond out back, nine bedrooms, a “wine cellar/grotto” and a $20 million discount to $60 million from a previous price of $80 million, according to StreetEasy.com.
As of late May, another house was on the market for $2.6 million, which was down 40 percent from $4.4 million. And the price of a third was reduced 34 percent to just under $2 million.
Hamptons owners holding out for higher bids can rent their trophy homes instead of selling them. But because so many people are opting to do that, the rental market is weak too, Prudential Douglas Elliman’s Miller said.
Sellers loath to lower the price are putting more property on the rental market. Tenants smelling blood are demanding lower rents. “It’s a double hit,” Miller said.
Reporting by Helen Chernikoff; Editing by Gary Hill and Maureen Bavdek