New York City apartments, long immune to the national housing slump, could see their first price declines in a decade, quarterly reports scheduled for release today suggest. If the credit crunch does not improve and Wall Street layoffs continue, experts say plummeting sales activity and rising inventory may lead to falling prices in segments of the market.
The Corcoran Group's quarterly report shows a steep 38% drop in sales, to 3,351 properties, in the first quarter of 2008, down from 5,404 in the same period of 2007, while Prudential Douglas Elliman records a decrease of 21.8%, to 3,081 properties, down from 3,939. Meanwhile, inventory grew 31.2% year-on-year and 10.9% versus the prior quarter, Elliman's report shows.
The slowdown spells trouble for next year, though prices are holding strong for now, an appraiser who produced the quarterly report for Prudential Douglas Elliman, Jonathan Miller, said. Unless the credit crunch lessens — which is unlikely in the short term, he said — "it will have the effect of tempering prices," Mr. Miller said. "In some markets, it suggests that prices will be flat; in some, declines."
The slowdown in activity can be attributed largely to fears of Wall Street layoffs, fears of a recession, and especially the credit crunch, which makes it harder for prospective buyers to get home loans, he said.
"I'm more worried about 2009 than I am about 2008," Mr. Miller said. "I don't see anything on the horizon that will create an increase in prices or demand."
Data from Prudential Douglas Elliman, the Corcoran Group, Brown Harris Stevens, and Halstead Property show that average home prices grew significantly during the second quarter of 2007, but declined from last quarter. In the reports, the average sales price of condominiums and cooperative apartments fell between 1% and 3% versus last quarter, but jumped between 25% and 36% from a year ago. Median sales prices — a more accurate indicator of overall market health, experts say — increased between 8% and 23%.
Much like last quarter, the closing of sales at two new luxury buildings, in this case 15 Central Park West and the Plaza, drove up average prices versus last year, analysts said. "We've had significant price skew caused by the closing activity at a number of high-end buildings," Mr. Miller said.
Those two buildings don't account for all the price increases. The high prices indicate healthy activity in the luxury market and among sales of new condo developments. "This is a two-tiered market — the luxury market and the rest of the market," the CEO of the Corcoran Group, Pamela Liebman, said. "That's one of the reasons the New York market has remained so strong."
She added that new development in particular is selling at high prices, with Corcoran's report showing a 61% increase in the average sales price, to $2.199 million from $1.367 million a year ago "Years ago, we were all about the co-ops," she said. "That's not what the New York market is about anymore."
Foreign capital also has been credited with driving prices upward. "The foreigners have done a good job of keeping the prices up," the president of Prudential Douglas Elliman, Dottie Herman, said. Still, she said, the increase in inventory and slowing of sales is worrisome, especially for certain segments of the market. "I do think credit, and the amount that people can borrow, will affect the middle market in New York City."
The founder of PropertyShark.com, Matthew Haines, attributed significant drops in the number of transactions to a particularly high number of sales last year. "2007 was a crazy year — it was a spike upward. 2008 looks like it's going to return to normal."
Next year, when more financial sector layoffs are predicted, may be another story.
"The big variable would be layoffs," the director of sales at Brown Harris Stevens, James Gricar, said. "If we start to see massive layoffs, that will start to affect average prices."
The Manhattan market has shown peaks and valleys in recent years, including the post-September 11, 2001, period, but the last time New York City experienced significant price declines was in the mid-1990s, he said.
"We'll be watching what happens on Wall Street very carefully," Mr. Haines said.
Meanwhile, properties spent 7.5% fewer days on the market than last quarter, but 15% more year-on-year, and the number of listing discounts increased to 3.6% from 3.2% last quarter, up from 2.2% in the second quarter of 2007.