Et tu NY Times - Housing Slump Hits Manhattan

April 9, 2009
Housing Slump Hits Manhattan

By JOSH BARBANEL
While sales have picked up a bit in some suffering housing markets in the West, creating a glimmer of hope that home prices nationwide may be approaching a bottom, the Manhattan real estate market has just begun a steep slide. It parallels the decline in New York’s financial services industry, and housing analysts say it may continue long after other markets heal.

Apartment prices have once more become the talk of the town in Manhattan, but this time the talk is of uncertainty and falling numbers. While brokers say they are seeing more activity lately, especially from first-time buyers taking advantage of lower interest rates, housing analysts are predicting a prolonged slump in prices and sales that could last as long as four or five years.

In this year’s first quarter, sales of co-ops and condominiums in Manhattan plunged nearly 60 percent from the first quarter of 2008. Average co-op prices fell as much as 24 percent in the same period, according to various market reports released last week.

Condo prices have held up so far, but only because buyers who went into contract long before the downturn were closing on newly completed condominium buildings. But now few new contracts are being signed on unfinished condominiums, and some buyers have been renegotiating contracts or are trying to back out of them. Co-ops and condos make up 98 percent of the residential properties for sale in Manhattan.

The stress is most severe at the high end of the market. There are 350 apartments and town houses for sale in Manhattan with asking prices of more than $10 million, and inventory has been growing. It would take about six years at the current sales rate to absorb all those listings.

“For the last three years, it was the bigger the better,” said Dolly Lenz, a broker at Prudential Douglas Elliman. “Now the key words are smaller, livable and affordable. Before no one asked what the maintenance was. Now everyone wants to know.”

Manhattan was spared some of the housing problems the rest of the country faced during this downturn. The mortgage foreclosure rate in Manhattan remains low even today. While thousands of condos were built here, most were bought by homeowners, not speculators, as was common in Miami and other oversaturated markets.

But Manhattan housing prices were driven higher by record earnings and bonuses on Wall Street, and they fell hard when the music stopped last fall.

The quick fall in prices is shown in the experience of Abigail Disney, a philanthropist and documentary filmmaker, who a year ago put her sprawling 17-room co-op on West End Avenue on the market for $13.5 million.

With trophy homes commanding ever higher prices from the titans of finance, Ms. Disney priced the apartment at 20 percent more than she had paid for it only a few months earlier. Harry Belafonte, the singer and actor, had created the huge space many years earlier by breaking through the walls of two smaller apartments.

After a series of price cuts, Ms. Disney has finally found buyers for the property, for just under $7.5 million, a 46 percent discount from her initial asking price. But to make a deal she agreed to restore the walls and convert it back into two apartments and sell it to two buyers.

Despite government efforts to ease credit around the country, the market in New York is being starved by a limited availability of credit, especially for jumbo mortgages, which are loans of more than $729,750. More than half of all apartment sales in Manhattan are above even the expanded limits of conventional mortgages, which carry lower interest rates.

Jonathan J. Miller, an appraiser who prepares quarterly reports on Manhattan, said the market could continue to fall through this year and next, especially if credit remained tight for most buyers. After that, he said, it could take several more years to work through the excess inventory.

The housing recovery will also depend on the state of the economy, which many forecasters say will take a disproportionate toll on New York City before the recession ends. In New York, the financial industry accounts for more than 30 percent of all wages, and at least some of the wages of half of all very high income households, according to the New York City comptroller’s office.

While employment fell nationwide last year, the number of jobs actually grew in New York City until September. Since then, the city lost nearly 85,000 jobs through January, and the comptroller’s office has forecast a loss of 121,000 jobs in 2009 and another 83,000 in 2010.

Condominiums under construction have been hit particularly hard, especially because new mortgage rules have made it difficult for buyers to get conventional loans unless 70 percent of the apartments in a building are in contract.

This has left many developers scrambling to convert condominium projects to rentals or provide alternative financing.

At 99 John Street in Lower Manhattan, where the Rockrose Development Corporation is converting a 27-story prewar Art Deco rental building into hundreds of condominiums, buyers were offered a chance to “rent to own,” and a promise that Rockrose would buy back an apartment after five years at 110 percent of the purchase price. The developer also began offering the apartments in bulk to investors, in packages of 15 apartments.

In the late 1980s, a surge in condominium construction in New York created a glut of condo apartments. Prices peaked in 1989, declined steeply in 1991, bottomed out in 1993 and stabilized in 1995 and 1996.

Shaun Osher, the chief executive of Core Group Marketing, said he had begun to see more activity this spring, but at much lower prices, with luxury apartment prices off as much as 40 percent.

Mr. Miller said that during the last big real estate downtown, when studio apartments were so cheap that he considered buying one on a credit card, people thought the luxury market would never come back. “Conspicuous consumption was out of vogue in 1991,” he said. “The market was back by 1997 or 1998.”

this one is just brutal "housing analysts are predicting a prolonged slump in prices and sales that could last as long as four or five years."

Odd that Josh didn't cite 300 WEA by addrees in his Disney recap. Not as if it's a secret, especially with the picture.

The usual annoying short-term charts, going back only as far as 2006.

abby disney got shelacked on this one. the fact that she has to do extensive construction on the apartments (creating separate electric, etc.) on top of selling at a 30% loss off her original price, plus transaction fees....that just sucks.

A loss, yes, but not, shall we say, material.

Word is that aside from closing off two doorways, no work needed to split the combo. The Belafontes had never bothered remetering the place.

untrue. the renovation will be pretty extensive. but there is a bigger problem. work cannot proceed until ms. disney receives permission from the board. this means that it will be months before the work is completed, and in this market that is deadly. these deals could easily fall apart over that time. it is absolutely crazy that disney did not get approval from the board to divide the units as soon as she put the apartments on the market.

i'm not sure how an all-in 40% loss on a real estate transaction for an apartment someone got no use out of is an immaterial loss, but, ok.

My informant may have been misinformed, but on the plans there're just doorways between the two original dining rooms and the two original pantries. So, no big deal for the actual split, but of course there will be to get both halves up to par.

Immaterial to her, though any loss hurts, I guess.

This is plainly untrue. Prices are RISING in Manhattan. Ask JuiceMan.

i noticed one brokerage raising prices in fidi on multiple units yesterday. i mean take about hope in the face of utter defeat.

let's not feel too bad for walt's granddaughter.

Not Walt's granddaughter. Walt died childless. Roy's relative.

.... and reality starts to slowly seep in... drip.... drip.

they've probably implanted some of walt's frozen sperm somewhere by now

Walt did have a child and he also adopted one. But the one in the article is his grandniece.

one of the worst (and i mean painfully bad to point where is was anger inducing) movies i have ever seen was directed by a tim disney and i just looked him up and they are brother and sister. now i am actually kind of glad she lost some money.

So, I have a question, and you'll have to excuse my lack of knowledge, but since the biggest price drops are occurring in the high end market right now, can it be assumed that over time this will trickle down to the low end? If Abby Disney's $13.5M home went down to $7.5M, do the $7.5M homes go down to $4.2M, $4.2M homes go down to $2.3M, etc... until it hits the under $500K market? Or is that oversimplified thinking?

I stand corrected.

"So, I have a question, and you'll have to excuse my lack of knowledge, but since the biggest price drops are occurring in the high end market right now, can it be assumed that over time this will trickle down to the low end? If Abby Disney's $13.5M home went down to $7.5M, do the $7.5M homes go down to $4.2M, $4.2M homes go down to $2.3M, etc... until it hits the under $500K market? Or is that oversimplified thinking?"

I think your logic is right... but don't forget that there is still movement on the low end (even if less). So, yes, pressure from up top for sure, but even without it, bottom will still decline.

Any idea on how long it takes for it to trickle down to the bottom? Or is that too hard to say?

2 ways to answer that... already... we're down on the low end too.

And, 2 years. You'll see declines for at least that long.

drat i wanted an apartment sooner than that

when do the mass auctions start? what happened to that himwhoknows guy who told us ominously to watch out for april 6th

Yeah, rumor was that they were going to happen in april sometime. The month's not over yet...

himwhoknows seems to be trying to get a job as an English teacher now.

is it possible himdidntknow?

Very amusing.

Listen I just want to say that all these new stories say there was no speculation in New York like there was in Miami, Las Vegas, etc. But I do not believe that to be true.

There was PRICE speculation in New York. People who bought at the peak did live in their apts, unlike Florida, but their deals were speculative anyway because they were buying on the assumption that they would be able to sell for more than they paid sometime in the future.

And that is a kind of price speculation, because it assumes the value will be greater, but by an unknown aomount. That's the speculative part -- you don't konw how much more it will be worth but you are betting that it will be worth more.

Many purchases were made on the basis of this speculation; some buyers would not have bought if they thought there would be no price appreciation.

So in this sense it seems to me that New York was just as speculative as any other market in the country. And more speculative than some.

yup...really important article and one of many describing the real time crashing of the real estate bubble...its like watching a train wreck in slow motion that youre powerless to stop...all you know is that the cars are going to end up overturned, smashed and strewn alongside the tracks

another good one jasonkyle

i agree there was speculation. especially in pre construction new developments. some people never intended to live in these apartments. just to flip them. look at something like chelsea stratus. a lot of these people were broker's themselves though. so they are double screwed now.
thanks sirswinston. i try. i don't always succeed but i try :)

GraffitiGrammarian brings up an interesting perspective.

Yes, there has been rampant speculation in New York - it has just taken a somewhat different form than in other speculative areas of the country. Take a look at these price Case-Shiller Price increases for the period 2000 to 2006 (inclusive):

$1 Grows To:

Las Vegas: $2.32
Los Angeles: $2.71
Miami: $2.82
San Francisco: $2.14
Washington D.C.: $2.41

What about New York?

Here I go with Miller Samuel Manhattan condo/coop price per share foot for period 2000 to 2007 (inclusive). I added an extra year to Manhattan as it took at least an extra year to peak out.

$1 Grows To:

Manhattan condo/coop: $2.80

You might also be interested to see the comparable Case-Shiller figure for the New York metro area:

$1 Grows To:

New York Metro: $1.98

(I know the Miller Samuel numbers don't use the same methodology but I do think they do reasonably accurately show how much more robust the Manhattan market was relative to the New York metro market. And they also show how New York has kept pace with the leading speculative metro areas of the U.S.)

Last sentence should read:

And they also show how "Manhattan" has kept pace with the leading speculative metro areas of the U.S.

There are NYC condos on CS, in a seperate index, http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_csmahp/0,0,0,0,0,0,0,0,0,1,6,0,0,0,0,0.html

From 2000 to the 2007 peak NYC area condos went from $1 to $2.28.

Thanks, Jason. Keep in mind, though, that the CS Condo is for the "metro" area not just "Manhattan" which I do believe had significantly greater appreciation based upon the Miller Samuel data base.

"Listen I just want to say that all these new stories say there was no speculation in New York like there was in Miami, Las Vegas, etc. But I do not believe that to be true.

There was PRICE speculation in New York. People who bought at the peak did live in their apts, unlike Florida, but their deals were speculative anyway because they were buying on the assumption that they would be able to sell for more than they paid sometime in the future.

And that is a kind of price speculation, because it assumes the value will be greater, but by an unknown aomount. That's the speculative part -- you don't konw how much more it will be worth but you are betting that it will be worth more. "

well put, gg.

Sometimes there is a fine line between "investment" and "speculation."

"Speculation" is typically viewed negatively and "investment is typically viewed positively.

When put $10,000 into an S&P 500 index fund, is that "investment" or "speculation?" How about when you put $10,000 into a small-cap index fund? Or when you put $10,000 into a gold bullion ETF?

All three you listed are speculation. Investment is things that will enhance productivity: education, building transportation, buying computers, etc.

mmm well, with that kind of mindset you could have been a big tycoon, Topper, at some place like Lehman Brothers or Bear Stearns, where they unfortunately confused investment with speculation.

An investment is something you put your money into that has a clear track record, and that pays out a predictable return that comes from some sort of productive use of your money...like if you open a savings acct, it pays a pre-determined interest rate that the bank generates for you by putting your money to productive use.

But a speculation is more like a gamble, where you are betting that the price of something will go up, usually in a dramatic way, and you are going to buy in while the price is low.

Businessdictionary.com defines speculation as:

"Deliberate assumption of above average (but analyzed, measured, and usually hedged) short-term risk of financial loss, in expectation of above average gain from an anticipated change in prices."

If you're giving your money to somebody because they can use it productively to pay you a given return, that's one thing.

But it's something else entirely if you put your money into a venture or product that you think is going to undergo a big price fluctuation. That's usually a much riskier thing than an investment, because just a few elements can cause the price to change dramatically, and if those elements behave unpredictably, then you lose your bet.

When Long Term Capital Management made all those big bets on derivatives in the 1990s, that was speculation. They weren't putting money into a productive venture, they were merely betting that a handful of market factors would make the value of their derivatives go up or down during a given period of time.

And of course they lost that bet, big time.

Graffiti,

I agree with you 100%.

Happy Easter and/or Happy Holiday.

thanks, mutombonyc. Same to you.

I have to disagree that "buying computers" necessarily enhances productivity. I have several large projects that would probably be complete by now had I not been screwing around on the computer I bought instead. :)

Buying and S&P index fund and helping the companies that ARE our economy grow (with the capital them need) is almost the perfect definition of enhancing productivity.

Effective capital markers are what drive growth.