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Manhattan (New York City) -summer market wrap-up: Are We Out of the Woods?

By
Real Estate Agent with Keller Williams Prestige Properties

Now that the summer season winding down, I wanted to share my thoughts on how the Manhattan (NYC) real estate market has performed so far in 2009, what key factors are impacting it, and give you a sense for what price action we're likely to see going forward. Feel free to share your feedback!

Manhattan Real Estate Market-summer update: Are We Out of the Woods?

The question everyone's asking:

The Manhattan residential real estate market (resales, not new developments) is down about 23% since 2008, but we agents have seen a pickup in buyer traffic & transactions lately. Is the pickup sustainable, and are we out of the woods?

A fly in the ointment- job losses:

Yes, higher unemployment is definitely weighing down our market: ~24%-of NYC salaries are tied to the financial sector and we know that's restructuring, leading to fewer transactions. The City's Budget Office expects our financial sector to lose more than 33,000 jobs from the 2007 peak through 2009.

Of course, the recent uptick in our real estate activity could just indicate pent-up demand- like the S &P 500 surging in excess of 50% since its March 2009 lows- proving that yes, markets tend to have a real emotional component (not to mention the liquidity impact from gargantuan global government monetary stimulus packages that also propelled stocks indirectly!!).

But have stocks come too far, too fast (in light of the more cost-cutting-type earnings we've seen, vs. the  revenue-driven kind that's often more sustainable)?

The Big Apple's not bullet-proof:

No one really expects Manhattan to perform like Phoenix (down 50% from its 2006 peak), Las  Vegas (down 48%) or Miami (down 45%), BUT New York City  isn't immune from the impact of a national recession either. In fact Manhattan 2nd quarter co-op & condo sales volumes are down nearly 50% from 2008 levels, says well-known local appraiser Jonathan Miller of Miller Samuels.

Another key measure, I like, "absorption", (the number of months' supply) also deteriorated, and is now over 13 months, after averaging 9 months since 2000.

Now. unlike in 2007, when 30% of all Manhattan condos were bought by non-U.S. buyers, we no longer have a weak U.S. dollar to attract as much non-U.S. investment. Also capping demand: the International Monetary Fund predicts the world economy will shrink by 1.3% in 2009- ouch!! (2.5%-3% growth is healthy).

Focus on fundamentals: prices are just stickier in Manhattan:

On the upside, Manhattan's real estate market has a big supply/demand imbalance: Manhattan's population is ~1.6 million yet total current listings are ~10,211 units. Only about 30% of residents own their own home, and not too surprising: the median sales price of a Manhattan condo resale last quarter was $990,000, for co-ops: $649,000.

Co-op buildings' solid financials have also helped Manhattan avoid big price drops. The buildings' boards can scrutinize the daylights out of a potential shareholder and set a high bar for buyers: I know two Park Avenue buildings that require applicants to have at least 10 references & 4-5 times the value of their apartments in cash after closing. Even some of our most well-connected clients can get sticker shock!!

Bottom line:

So what's behind the recent uptick in activity? Buyers and sellers have had more frequent "meeting of the minds", owing to flexible owners/pricing, seasonal effects, and a sense that a broader national recovery could be forthcoming (check out the latest U.S. data on productivity, inventories, consumer confidence, secondary market thawing, existing home sales, Fed Chairman re-appointment, etc.)

Of course this market has many solid opportunities, and we'll help our sellers & buyers gain insight and navigate in the trenches. But don't be surprised if you see our real estate prices become a little more erratic with a sideways-to- slight downward bias in the short term, before we see more evidence of a full recovery sometime in 2010. So let's make the most of it ‘till we're really out of the woods!

Let me know your thoughts!