Manhattan Apartment Prices Hit Record High

By CHRISTINE HAUGHNEY
New York Times
April 2, 2008

While most of the nation plods through a housing slowdown, Manhattan is experiencing its highest prices in history.

The average price of a Manhattan apartment in the first three months of this year was $1.7 million, up 33.5 percent from the same period last year, according to the real estate appraisal firm Miller Samuel Inc., which processed the numbers for the brokerage firm Prudential Douglas Elliman.

But the record prices do not tell the entire story of Manhattan?s real estate. Although prices are rising, sales are slowing, and executives of the four largest brokerage firms in Manhattan said they see some trouble, though not disaster, ahead for Manhattan?s real estate.

The huge price increase reflects the sale of an unusually large number of very expensive apartments, which skewed the average. In this year?s first quarter, 71 apartments sold for more than $10 million, compared with 17 apartments in that range for all of 2007. This year?s first quarter also included the sale of dozens of apartments at the extremely high-priced 15 Central Park West and the Plaza Hotel.

A number of brokerage firms released data about the first quarter that generally showed the same trends. All showed that the median price of an apartment grew. According to Miller Samuel, it was up to $917,000 from $840,000, suggesting high prices for many types of apartments.

The median price for studios rose by 22 percent, to $490,000 from $401,000; and the median price for one-bedroom apartments grew by 12 percent, to $750,000 from $669,000, according to the Corcoran Group, a real estate brokerage firm.

The firms disagree, however, on the extent of the slowdown in sales in the first quarter. According to Prudential Douglas Elliman, the number of sales fell by 34 percent in the first quarter, to 2,282 apartments from 3,474 last year. Data analyzed by Brown Harris Stevens and Halstead Property showed a 1 percent drop in sales. Corcoran also said it saw a slight drop.

No one disputes the fact, however, that inventory is rising, and after a wave of bad news in the financial world, a crucial underpinning of New York?s economy, fewer buyers are signing contracts. ?We?re starting to see a hesitancy in the marketplace,? said Diane M. Ramirez, the president of Halstead. ?What I look at very carefully is the signed contracts, the deals that are coming to us right now. I?m starting to see a slowdown.?

So far, wealthy Wall Street executives and foreign buyers have stayed in the market, paying record prices in a range of buildings. The high average price of Manhattan apartments reflects the popularity of luxury condos. The average price of a co-op rose to $1.3 million in the first quarter of this year from $996,000 last year, and the average price of a condo rose to $1.9 million from $1.3 million during the same period, according to Halstead. Corcoran and Prudential Douglas Elliman reported similar figures.

The value of a co-op with four or more bedrooms rose an average of 86 percent this past quarter, to $12.9 million from $6.9 million the year before, according to Halstead.

The rising prices are not just concentrated among Thurston Howell III types who want to live near Central Park. Apartments in less expensive areas like Inwood, Harlem and Hudson Heights also saw price increases, according to Halstead?s data. The average price of a studio rose by 2 percent, one- and two- bedroom apartments by 9 percent and three-bedroom apartments by 57 percent, according to Halstead.

Gregory J. Heym, an economist who prepared the reports for Halstead and Brown Harris Stevens, said that in Harlem, prices rose in new condo projects like the one at 111 Central Park North. In Inwood and Hudson Heights, the prices of co-ops increased.

?In Inwood and Hudson Heights, that just shows you it?s a decent resale market,? he said.

Contrary to the trend in Manhattan, in Brooklyn, overall prices have started to drop. Median and average sale prices dropped by 2 percent in the first quarter of this year, according to data tracked by the Corcoran Group. Median prices in Brooklyn dipped to $549,000 from $560,000, according to the data. Pamela Liebman, president of the Corcoran Group, said this pattern was typical of any slowdown. ?When buyers become more cautious, the first markets to feel it are those that have been considered to be emerging neighborhoods,? Ms. Liebman said.

All five boroughs are also facing an escalating number of foreclosures. The number jumped by 65.7 percent, to 918 foreclosures in the first quarter of this year, compared with 554 during the same time last year, according to PropertyShark.com, a real estate data company based in Brooklyn.

The numbers make up a small percentage of New York City?s three million households, according to PropertyShark.com. The foreclosures are concentrated in Queens neighborhoods like Jamaica and Howard Beach, and Staten Island?s Mid-Island and North Island.

Brokers are not as optimistic, however, about the next few quarters in Manhattan. Sales in the first quarter were strong in part because nearly a third of the apartments that closed were for condos that buyers signed contracts for at least a year ago, according to data tracked by Brown Harris Stevens and Halstead.

Now buyers have more choices, with an inventory of 6,194 apartments compared with 5,923 at this time last year, according to Prudential Douglas Elliman. The brokerage firms reported that the number of buyers who went to contract in the first quarter was far lower compared with buyers last year.

Hall F. Willkie, the president of Brown Harris Stevens, said that in the first quarter, the number of contracts signed in Manhattan fell by 21 percent even though the average price rose by 3 percent.

Ms. Liebman said she had fielded calls from several Bear Stearns executives wanting to sell their apartments in the wake of the buyout of their firm. She said that a couple of Bear Stearns executives put their homes on the market.

?Wall Street?s pain is definitely real,? she said. ?We will see less transactions, but stable prices.?

But while the brokerage firms say prices may eventually decline, they do not expect Manhattan?s real estate market to suffer as much as the rest of the nation?s.

?I don?t think you?re going to see the next quarter being the end of the world,? said Dottie Herman, the president of Prudential Douglas Elliman. ?You?re going to see a market that?s a lot more conservative, and things are going to be on the market longer.?

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New York and the Subprime Mortgage Crisis

April 2, 2008
New York Times
By Sewell Chan

Confused about the turmoil roiling mortgages and the housing market? You?re not alone. A group of experts discussed the subprime mortgage meltdown on Tuesday evening at the Museum of the City of New York. Their pronouncements were sobering ? many New Yorkers have been and will remain at risk of defaulting on their mortgages and having their homes foreclosed upon ? and the worst may not yet be over. A summary of the discussion follows.

Constance Mitchell Ford, a 23-year veteran of The Wall Street Journal who is now the newspaper?s real estate editor, moderated the discussion. She made comparisons between the mortgage crisis and the junk-bond crisis of the late 1980s:

I actually came to New York 20 years ago to cover the meltdown of the junk-bond market, which some people would say is the corporate equivalent of the subprime market. It was a way for companies that didn?t have particularly good credit, or maybe they were very young ? this provided them with opportunities to grow and expand. To this day I will never forget some of the letters I would get from consumers who had their entire life savings in junk-bond mutual founds and lost it all or at least a good chunk of it.

Ms. Mitchell Ford, in her opening remarks, expressed the hope that the subprime mortgage market will survive ? with reforms:

There needs to be a way for people who don?t have pristine credit to buy homes. However, any future subprime market has to be substantially different than what we?ve had in the past. People can argue that we need more regulation, more truth in lending, less predatory lending ? there are a lot of things that need to change the market, but at the end of the day, I?m one of the people who feels and hopes that something happens that brings this market back.

Vicki L. Been, a professor of law and public policy who directs the Furman Center for Real Estate and Urban Policy at New York University, spoke next. She drew on research from the State of New York City?s Housing and Neighborhoods, an annual report the center produces (the 2007 version is about to be published).

?New York has been somewhat sheltered from the foreclosure crisis, from the cascade of foreclosures you?re seeing in other parts of the country, and in part it?s because the housing market is staying strong, we?re not seeing depreciation in housing prices,? Ms. Been said. (See a related article from The Times today.)

?But there are many danger signs,? Ms. Been continued. ?We?re starting to see a lot more notices of foreclosure. Between 2005 and 2006 the rate of notices of foreclosure increased in every borough in the city, doubling in many instances.?

Ms. Been proceeded to offer a litany of troubling statistics and examples:

* In the Highbridge/Grand Concourse community in the Bronx, the rate of notices of foreclosure doubled to more than 41 per 1,000 in 2007, from 20 per 1,000 in 2005. Similar findings have been reported for other low- and moderate-income neighborhoods in Brooklyn and Queens.
* Subprime mortgages reached a record-high proportion of New York City mortgages in 2005 ? 25 percent. In 1996, the comparable figure was only 3 percent. The figure dropped slightly, to 21 percent in 2006, but is still much higher than the national average of 14 percent.
* Subprime loans made up 27 percent of all refinancings in New York City last year, compared with the national average of 17 percent.
* From 2004 to 2006, the percentage of New York City homeowners who obtained a secondary or ?piggyback? mortgage at the same time as their first mortgage increase to 28 percent from 9 percent ? a worrisome sign, Ms. Been said, that local homeowners are ?increasingly leveraged,? taking out sizable debt in order to buy real estate.

?Even as interest rates started to go back up again in 2003, we saw enormous numbers of refinancings, especially among blacks and Hispanics,? Ms. Been said. ?It?s not that the refinancings were being done to take advantage of lower interest rates. It?s often that those refinancings are being done to pull cash out, equity out, of their houses.?

William Carbine, assistant commissioner for neighborhood preservation at the city?s Department of Housing Preservation and Development, spoke next.

?Our focus to this point has really been on trying to create a vehicle to provide on-the-ground help for people that are already in trouble, and then secondarily, do market education,? he said, noting that the city began a $1.35 million outreach and education campaign to combat predatory lending in October 2005.

Last December, the mayor and the City Council speaker announced that private groups and the city would help finance a new Center for NYC Neighborhoods to prevent foreclosures. The new center, Mr. Carbine said, will have a budget of $5.5 million in its first year: including about $1.6 million from the City Council, about $1 million from the mayor?s office and the rest from private contributions, mainly from the Open Society Institute, which has pledged $1 million this year and $1 million next year toward the new center.

Mr. Carbine cited speculative housing developments in Far Rockaway, Queens, as a vivid example of how the market has gone awry. ?What happened in Far Rockaway, there was a lot of speculative construction of one- to four-family homes based on a market condition where the developer could sell the homes for $400,000 to $500,000,? he explained. ?The people who buy homes in Far Rockaway can?t really buy homes for $400,000 to $500,000, but these crazy subprime products were making them think they could afford a house for $400,000 to $500,000 and allowing them to buy them. As soon as the product was withdrawn, the market fell through completely.?

Gretchen Morgenson, a Pulitzer Prize-winning business columnist and reporter for The New York Times, spoke last.

?How did we come to the precipice so quickly?? she asked. ?How did we quickly find ourselves at the edge of the cliff??

To a large extent, ?people did what they were expected,? with one exception, as she explained the roles of the major players in the crisis:

* Wall Street. ?Innovation is a Wall Street specialty. ? It is what makes our capital markets run very smoothly and the envy of the world, but in this particular case, Wall Street really sowed the seeds of this problem when it created this pool of mortgages that really did a lot to take away from the due diligence that naturally would have occurred when banks made loans to borrowers in the old-fashioned sense of the word. What replaced it was a process of really almost a factory line of producing pools of mortgages, the more the merrier.?
* Investors. ?They were willing to pay for these loans, to buy them without a care for due diligence and whether or not due diligence was done. They were looking for yield and found it it in spades. They were eagerly buying these securities without knowing what was in them.?
* Rating agencies. ?Aiding and abetting this, of course, were the rating agencies, how were charged with analyzing these complex securities, to try and tell investors whether they were risky and not risky, or whether parts were risky, and grading them. These rating agencies fell down on the job considerably because, as it turns out, their computer models, their predictions, their assessments for what was going to happen with these loans, for what percentage of them were going to be money-good, were found to be extremely wrong and lacking.?

* Regulators. ?I would really reserve most of my dismay for the regulatory structure that fell down on the job. Wall Street is supposed to generate securities that generate fees and investments that people want to buy. Investors are also supposed to want to get the best possible returns. There?s nothing wrong with that. However, regulators are supposed to regulate, and the absolute laxity that the regulators approached the subprime problem with, from the very outset, is appalling. I think it?s a very, very unfortunate aspect of this. Really, the regulators were the dog that did not bark in this entire scenario. A lot of it was perhaps a bit predictable, but no one I think saw that this was going to have the ripple effects this was going to have ? including the demise of Bear Stearns.?

Ms. Morgenson added that a single institutional solution to the problem ? like the Resolution Trust Corporation that was created to buy assets of failed savings and loans in the late 1980s and early 1990s ? is simply not available this time.

?Any solution to this problem really must be done one by one, one mortgage at a time,? Ms. Morgenson predicted, noting that multiple parties ? homeowners, investors who own mortgage-based securities, loan servicing companies and law firms that represent the servicing companies ? all have a stake in the outcome.

?There?s a cast of characters and their interests are not necessarily aligned,? she said. ?It is a really big mess.?

http://www.nytimes.com/2008/04/02/nyregion/02prices.html

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