Condo Expectations May Be Rethought As Prices Plunge
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A sharp drop in the average price of Manhattan condominiums could revive concerns that the luxury condo boom, which has been seen around the five boroughs at an increasing rate since 2002, could result in a glut of apartments or developers rethinking their pricing expectations.
The second-quarter price drop versus last year is to be disclosed today when some of the city’s largest firms release real estate statistics.
Much of that concern, according to some real estate analysts, is the byproduct of the 1980s, when thousands of new housing units hit the market as housing demand was softening. They say that an economic recession, rising inflation, high unemployment, and high mortgage rates led to serious housing price declines and an absorption rate of new units measured in years, not months. That cycle is now visible in other national housing markets – particularly those infiltrated by short-term investors – such as Miami and San Diego.
Real estate experts said yesterday that while demand for apartments in New York City is slowing and the supply of new apartments continues to grow, strong economic conditions will forestall a potential glut.
An appraiser, Jonathan Miller, who produced a quarterly report for Prudential Douglas Elliman, said some of the apartments now coming on the market are suffering from bad timing. If they had been completed over a year ago, when lower mortgage rates fueled record demand, they would have appreciated more quickly. Now, he said, higher mortgage rates have lowered demand and buyers are taking their time.
“Mortgage rates were what created the frenzy, and mortgage rates are what ended the boom,” Mr. Miller said.
His analysis shows that the overall inventory of listed Manhattan apartments is up more than 50% versus last year.
“Sixty percent of condos in inventory right now are from new development,” Mr. Miller said. “It’s coming off the pipeline at a steady pace and it is backing up.”
“The difference today is that the economy is good,” Mr. Miller said.
In the city’s co-op market, which makes up about 75% of the for sale housing stock, the reports show steady appreciation – between 9% and 19% – versus the same period last year. Much of that growth was driven by Wall Street bonus money and a typically active spring quarter, according to real estate analysts and brokers.
The average price of condominiums, which represent the vast majority of the new housing stock entering the market, decreased between 7.4% and 17% since a year ago. The reported median sales prices decreased at a slower rate, or in one firm’s report, in creased slightly.
Last year, there were more than 31,000 residential building permits issued citywide, and more than 8,000 in Manhattan, the most since 1988, when records were first kept by the city’s department of buildings. Through March of this year, that building trend has continued, and Manhattan is on pace to exceed last year’s totals.
An economist for Brown Harris Stevens, Gregory Heym, said the condo price drop was due primarily to the small size of the units being sold and the popularity of studios and one-bedrooms, which skew the average price downward. Mr. Heym said the average size of the condos dropped 11% since last year.
Mr. Heym said developers of new apartments are typically slow to publicly report when prices need to be trimmed down, but he said there is “some concern that some of the projects will be able to get the prices they need.”
The CEO of the Corcoran Group, Pamela Liebman, said condo developers have tempered their expectations.
“Most of the developers don’t feel the pressure. They don’t expect to open a building and sell it out within six months,” Ms. Liebman said. “We are not in the craziness of spring ’05, when you could raise the price 10 times and sell out in two months.”
Messrs. Heym and Miller said that so far the decrease in prices of new condos is less than had been feared, and they are looking to see if the downward trend continues next quarter.
“In this transition period there is more inconsistency,” Mr. Miller said. “It is the transition from a housing boom to a period of modest to flat growth.”