Manhattan Residential Real Estate Now 'Reasonable'

1/6/10
By Dawn Wotapka
Wall Street Journal

NEW YORK (Dow Jones)--The weather in Manhattan may be in deep freeze, but the real estate market continues to thaw. With prices falling--co-ops have hit 2005 levels--buyers are pounding the (frozen) pavement hunting deals.

Median prices in the fourth quarter were down nearly 15% from a year ago. The average price per square foot fell 17%. Buyers defied the typical seasonal slowness and pounced, sending closings soaring by nearly 50% from a year earlier, according to fourth-quarter data from brokerage The Corcoran Group and PropertyShark.com.

Several market reports expected Tuesday detail a once high-flying market trying to recover from a housing crash and credit-crisis paralysis. While homes are taking longer to sell, there are early signs of improvement: Properties are receiving multiple bids, less inventory is hitting the market and, in the latest quarter, fewer sellers cut prices. International buyers, absent for much of last year, are returning.

"I just can't deny the improvement that we've had," says Noah Rosenblatt, a broker and publisher of UrbanDigs.com, a blog focused on Manhattan real estate. "There's been so much action...The risk of systemic failure has been priced out of the market."

The closings boost is expected to continue for several months, fueled by increasing buyer confidence as the economy shows improvement, interest rates remain low and the government dangles a tax credit to first-time and move-up buyers. But the market faces headwinds that could reverse recent improvement, including the risk of mortgage rates climbing, mounting unemployment and the expiration of the tax credit, which was extended from November until April. Credit standards, meanwhile, remain tight--particularly for those looking to get a "jumbo" mortgage--making it hard for even some willing buyers to close deals.

The market's lower end benefited from the credit in the fourth quarter, as affordability increased for those long priced out of the market. Properties under $500,000 made up nearly a quarter of total sales, up from 15% a year ago, according to Corcoran. At that price point, most Manhattan buyers likely snared a studio apartment--that median price fell 13% to $390,000 from a year ago.

Weakness, however, persists for new projects, which saw rampant overbuilding during the boom. Those median prices tumbled 23% from a year earlier to a median $1.19 million, Corcoran reports. It also has been tough for the luxury segment, hurt by higher interest rates on so-called jumbo loans, which saw median prices fall 22% to $3.9 million.

Some desperate sellers have resorted to dramatic price chopping. At 15 William St. in downtown, unit 43A has been cut by more than 45% to $1.7 million, according to StreetEasy.com. Farther uptown, at 444 E. 86th St., a three-bedroom unit measuring 1,400 square feet has fallen by more than 40% to $1.17 million.

That's quite the turnaround for Manhattan, which long seemed immune to the housing downturn thanks to an island geography that limits expansion. But the market weakened following the September 2008 bankruptcy of Lehman Brothers Holdings Inc. and the ensuing financial crisis that erased thousands of local high-paying jobs and slashed Wall Street bonuses.

Since peaking in the third quarter of 2008, co-ops have tumbled 13% to a median $622,250, while condos, which peaked the next quarter, have plunged 22% to a median $1.033 million, according to Corcoran. For co-ops, both median sales price and average price per square foot have fallen back to late-2005 prices.

Kyle Young recently looked at dozens of apartments before paying $635,000 for a one-bedroom on West 75th Street priced around $675,000 in December. The closing price, he said, is reasonable, "if you can use the word 'reasonable' in terms of Manhattan real estate."

-By Dawn Wotapka, Dow Jones Newswires; 212-416-2193; dawn.wotapka@dowjones.com