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Monday, October 6, 2008

Corcoran's Manhattan Real Estate report shows price increases, but a more challenging market ahead

have we seen a peak in the manhattan real estate market?
download the latest corcoran report on the Manhattan real estate marketcorcoran reportIt's the question on peoples' minds as the current economic climate puts Wall Street in the national spotlight and the global economy lacks confidence that things will improve quickly. Interestingly enough, the third quarter Corcoran Report on the Manhattan Real Estate Market shows that the overall median price of Manhattan apartments are up 10% since a year ago. Manhattan real estate continued to out perform the national housing and capital markets. Yet, the report also tells us about rising inventory and slowing property sales, giving us important information to adjust buying and selling strategies to meet what clearly seems to be a changing economic landscape. The report looks at new developments and re-sale as different categories, which gives it a bit more clarity about the state of the market in different parts of town. New developments may have gone to contract over a year or more ago and reflect a market which existed then. These were 43% of total sales volume in the quarter; whereas re-sale prices reflect transactions that have sold and closed in a much shorter time frame. Re-sales provide a more accurate picture of current activity. The full picture is broken down by East Side, West Side, Uptown, Downtown, Lofts, Townhouse, and Luxury sub-markets. property shark interactive map of Manhattan salesThe report was once again published in collaboration with propertyshark.com using the most accurate data set available. They have published a great interactive map plotting Manhattan sales by location, volume and price per square foot. Download your copy of the third quarter 2008 Corcoran Report here, and read on for my take on how to best use this data.
prices hold steady, sales are fewer
In the third quarter of 2008 the city's overall market held steady on prices. It did so with a significant dip in the number of transactions; down by a third from a year earlier. The sales which took place were generally at higher price points in both re-sale and new developments. Manhattan apartments reached an average sale price of $1.45M, a median price of $975K, and a price per square foot of $1,180; all substantially up. When taking the new developments out of the third quarter metrics, it shows that individual homeowners, hiring agents like me to represent their properties, did very well— with an average selling price of climbing to $1.394M, and the price per square foot rising to $1,152. The median price for re-sales was flat at $850K.

click any chart to enlarge

all sales (re-sales + new developments) market wide

re-sales only, market wide

housing inventory rises, economic uncertainty slows the market
The news in this report is not really the fact that Manhattan has continued to outperform the national housing market, but that the marketplace is less active. It's not really all that surprising considering the economic news. Many people have decided to wait on the sidelines to see what will happen next. It also takes a larger down payment to buy an apartment today due to tighter credit standards, 20% to 25% down is again the norm. This affects the co-op resale market a lot less since that standard has always been required. Co-op board oversight is one reason why the types of exotic, no documentation, mortgages which have gotten other parts of the country into trouble, are non-existent in the vast majority of Manhattan transactions.

In the charts below we see that sales activity has slowed down steadily since last year, and that apartment inventory is on the rise. Appraiser Jonathan Miller was quoted in the Wall Street Journal as saying that it's a "roughly 8 month supply". So moving forward, we will be seeing a smaller pool of buyers chasing a better selection of apartments.

click any chart to enlarge

manhattan absorption vs. new & total listings

five year trend of sales activity (number of sales)

Sales activity dropped off in the third quarter and inventory has built up to an eight year high. It increased 26% in Q3 2008 ending the quarter above 10,000 units of housing for sale. As mentioned above, this has not yet put downward pressure on prices, but it is clear that serious sellers need to price properly and bring on effective broker representation. There will be few winners in this sort of sales environment where every opportunity is not fully vetted, and creative marketing counts more than ever.

It is notable that unlike other national housing markets, Manhattan has a limited supply of land. Housing is expensive and complex to develop. The pipeline of new developments we've seen coming to market, have a couple of significant valves closing to restrict supply. First the credit crisis itself has slowed the pace of development since October 2007. Fewer projects have been started. Second, the amending of the 421 Tax Abatement program earlier this year has given developers less of an incentive to start new projects in prime areas of Manhattan. Sellers who do not need to sell, will take their homes off the market until the confidence in the economy comes back. So far asking prices are dropping past people's expectations, but in most cases not the most recent comparable sales. While I do see short term rising of supply, I would suggest that market forces are already working to restrict supply just a little further out.

so it's a buyers market?

Well not exactly, the Q3 numbers don't say that, but it would be fair to say that it is trending that way. It is the best opportunity in a few years for buyers to negotiate a great deal on a home. I remember people saying to me just a couple of years ago that there was hardly anything on the market that they wanted. Well they have a good selection now, and I've noticed that people are not shy about making offers below asking prices anymore. Inevitably, buyers and sellers will have different opinions as to value, and my recent experience is that buyers are cautious and trying to price in a safety net for themselves. While understandable, it is important to offer in a realistic range. Everyone thinks that they are overpaying when they buy, and getting too little when they sell— its human nature. It may be that an unprecedented global economic crisis will start to put downward pressure on prices in NYC; but the smart buyer will use this as an opportunity to actually secure a property at a good price, rather than talk themselves into inaction. We have a crisis in confidence right now that is largely perception, we polled consumer sentiment recently and found that 66% of the respondents thought that short term, the Manhattan market would be down; not surprising during a week in which the biggest financial crisis in recent memory was unfolding. Confidence is highly malleable. I think that the landscape fundamentally changes after the U.S. elections on November 4th; and whoever gets in, it will be an improvement over the current administration, and a begin a swing toward more certainty and optimism moving forward. It might seem counter intuitive to some, but I'd be out there looking right now.
how should a seller respond to the changing market?

You might be a seller with a truly unique home— a fabulous one of a kind penthouse with panoramic views, or a historic brownstone restored to mint condition— but if the scarcity of your product is not what makes it special, then you are going to need to compete on price. Sellers need to shake up the inertia in the market and get interest moving. Serious buyers will respond to a price that buyers will see as "attractive" and want to deal with a seller they regard as realistic. You will get offers when there is a perception of fair value. Sellers are competing with more, similar homes, on the market. Make sure that you price yours to stand out from the crowd. There is definitely buyer demand; but it is taking a greater effort from sellers to tap into it.

Look at the truly comparable sold and closed data and use that as your benchmark, not what people are asking. Get ahead of the curve, you'd be better off coming in a bit lower than your competition. Set a very fair price that will get a deal done quickly. I don't see the market conditions improving drastically in the next six months, so seize the moment, and get your property out in front of the crowd. Capture the attention of buyers now before they buy your neighbor's property.

download the third quarter 2008 corcoran report »