Warren G. Harding, during his 1920 presidential campaign, pledged “a return to normalcy” for an America beset by the shocks of the First World War and an overly involved federal government. He won 60-plus percent of the vote.
Much like Harding’s sales pitch, the Manhattan housing market, buffeted for months now by uncertainty and rocked by changes few could have foreseen even a year ago, seeks its own normalcy.
What will it look like?
According to a slew of fourth-quarter market reports released earlier this week, apartment sales have dropped substantially—to a five-year low according to data from the Corcoran Group—and prices are falling as well, with reports noting a 3 to 4 percent drop in the resale market, the sector most Manhattan apartments fall into.
This gloomy news is tempered by the fact that the market has outperformed expectations and is holding up relatively well during the ongoing fallout from the financial crisis that exploded in mid-September.
Yes, sales are down, and yes, prices are falling, but that’s what happens after a peak market. There is nowhere else to go but down, right? As the Manhattan real estate market descends from the frenzied and unsustainable peak years of 2006 and 2007, the correction is looking less and less like an inglorious and violent tumble down the mountainside and more like a gentle stroll down a verdant, sloping hill; like something out of The Sound of Music.
“I think this market is a work in progress, but the sentiment has changed and the buyers are clearly in control,” Pam Liebman, Corcoran’s president and CEO, said.
THE CHANGING SENTIMENT is perhaps best seen in the flagging resale market. According to the Prudential Douglas Elliman market report, the median sales price for resale co-ops and condos in the fourth quarter was $732,500, a 10.1 percent decrease from the previous quarter and a 3.6 fall from the prior year quarter.
The quarter-to-quarter decline in the resale market, both in sales volume and prices, is attributable to the seasonal changes in the real estate market—the fourth quarter is always slow—but the year-over-year drop marks the initial reaction to the financial crisis, which occurred at the very end of the third quarter, in late September.
“We did see a drop in resale activity, that is not new, because for the last six quarters we have seen lower sales year over year; what we are seeing that is new is a decline in prices,” said Jonathan Miller, president and CEO of Miller Samuel and author of the Elliman report.
Mr. Miller predicts the trend of slower sales and lower prices to continue into the first quarter of 2009.
Perhaps the most surprising and, in fact, misleading trend in the fourth quarter was the price increase in the new-development market. According to Corcoran, the median sales price for new condos increased 33 percent from the fourth quarter of 2007 to the fourth quarter of 2008, jumping from $1.16 million in 2007 to $1.54 million in 2008.
Hold the cheers, because that median has been artificially inflated by old contracts that were signed 12 to 18 months ago, back in the days before “Troubled Assets Relief Program” became part of the popular lexicon. So it will take a while before we know exactly how the new-development market is reacting to the poor economy and restricted credit market.