Manhattan For-Sale Market Continues at Record Levels

Tag : High Shrink Ratio
NEW YORK CITY-Manhattan apartment unit sales prices continue tohover near record levels, but it seems that they may be steadying.After reaching a peak in the first quarter, the average price of alocal apartment dropped 2% to $1.66 million in the second quarter.Still, that figure is up 36% over the second quarter of last year,notes Brown Harris Stevens.
In compiling the study, BHS obtained transaction data fromValuExchange, a proprietary database of the Manhattan residentialmarket. The data from this report came from 2,988 recordedapartment sales in the borough, an 18% decrease from sales reportedduring the same period in 2007. The findings, says James M. Gricar,executive vice president and director of sales at the locally basedfirm, is a continuation of trends of the past several quarters.
"When you’re talking about real estate, you really cannot gettoo far from supply and demand. At the end of the day, it’s aninventory-based business. One of the things that have madeManhattan so different from the vast majority of markets in the US,is a consistent shortage of inventory in the past 10 years," hesays. "Tight inventory is pushing prices a little upward,particularly in categories where there’s very littleinventory, such as three-bedroom units or larger. However, thezeitgeist of the market is the fear that we’re heading into apotentially very difficult economic period, and that’s reducedthe number of transactions. So we’re seeing a reduction in thenumber of transactions and simultaneously, the average and medianprices increasing slightly."
But what about the 2% quarter-over-quarter dip? Gricar attributesthat to inventory, calling it a normal cyclical dip in an overallupward curve. "I hesitate to say there’s a peak or valley," heexplains. "What tends to happen in real estate, and certainly hasbeen the case for the past 10 years, is a series of peaks andvalleys, but the macro line goes up. What seems to be happeningevery time is when we get into a little valley, it’s oftenrelated to something external like interest rates or inventoryissues."
The performance varies by type of property and size of unit, hepoints out. One and two-bedroom units traded for $799,066 and $1.79million, respectively, at midyear. That’s compared to $743,594and almost $1.48 million last year. Larger units saw a greaterleap: $2.77 million to $3.66 million for three-bedrooms and $6.56million to $7.68 million, from Q2 2007 to Q2 2008. Meanwhile, theaverage price of a unit in a Manhattan cooperative apartment rose38% from $1.06 million at midyear 2007 to $1.92 million a yearlater. At condominiums, which tend to be new product, the increasewas 22%, from $1.43 million to $1.98 million.
"One and two-bedroom buyers, they tend to be need buyers," saysGricar. "Because of interest rates, there’s nothing attractiveabout renting. There’s something quite attractive about movingto Manhattan as a young professional and buying an apartment, andwith prices going up, you can make some money on it. Or you couldrent an apartment for the same amount of money or slightly less butreceive no tax benefit and build no equity. That’s what keepsthe one and two-bedroom market alive. But at some point, I thinkyou reach a tipping point in terms of inventory, and then therebecome not enough buyers for all the inventory. Conversely, thereare fewer three to five-bedroom apartments, and fewer buyers, butthe ratio is still in the market’s favor."
Apartments in new projects--particularly at 15 Central Park Westand the Plaza--accounted for more than a third of all closings inQ2, which also helped to keep prices up. Removing sales at thosecommunities, the average per-unit sales price for the city wouldfall to $1.49 million, but it would still be 21% higher thanmidyear 2007. Don’t expect projects like these to continue toprop up the market, however; the impact will shrink as the sales ofthese units are closed on.
Indeed, unit purchases at new developments also helped to bring themedian price up 23% over the past 12 months to a record $979,000.And it seems that large price tags on some deals pushed the averageprice up significantly; BHS notes that more than half of thetransactions that closed in Q1 were in the six figures.
One does question the sustainability of the Big Apple’sresidential real estate boom, especially when the national markethas been taking a nosedive for the past several months. Accordingthe Gricar, Manhattan is somewhat isolated from the woes of mostparts of the US. One of the biggest concerns these days, he says,is the general public sentiment over the economy, mainly due torising energy prices. "We in Manhattan feel the national economiceffect less than the national market," he says. "Our cost forheating oil is divided among 70 to 100 of our neighbors, and interms of gas, most of us use mass transit and don’t drive. Oilis not as much of an immediate concern as it is for most people inthe rest of the country."
A larger impact, however, is massive layoffs. "If that happens, wewill see a definite shrinking of the market and a reduction in bothpricing and activity," he says. "That generally means Wall Streetlayoffs, and although they only make up 15 to 20% of the buyers,they have a huge psychological impact on the market."
BHS points out that even with the concern over Wall Street,conditions should remain the same for some time. Prices haveremained so high, the firm notes, because there is a lag time ofclosing deals of several months. The transactions that comprisedthis Q2 report, for instance, were initially put under contract inJune of last year, before the credit crunch. Plus, with the NewYork City employment rate at 4.8% in May--below the US average of5.5%--the overall economic conditions of the city are strong.