Is the Manhattan Housing Market Growing Up? Condo Party Busted

Look to the condos! Their once stiff sales are growing flaccid. Co-ops regain prominence, sonny!

The new condo was the ubiquitous symbol of Manhattan’s housing boom. Tens of thousands—as many as 9,000 in 2005 alone, according to an analysis at the time by The Real Deal—either were proposed for the borough or developed and sold.

Not surprisingly, condos eventually outpaced co-ops in sales—a not insignificant trend given that, even with the condo-building explosion, co-ops still outnumbered condos roughly 3 to 1 in Manhattan. In the second quarter of 2009, according to a new report from Douglas Elliman and Miller Samuel, condos accounted for nearly 53 percent of Manhattan’s 1,532 apartment sales; it’s a feat replicated similarly in several quarters over the last few years.

But! The second-quarter numbers are a distinct buzz-kill for this condo party. Not only that, but the bad economy has intervened to stall under-development condo projects—lack of financing—and to preclude new ones. The keg is tapped out.

First, the numbers: The Douglas Elliman-Miller Samuel report showed a 56 percent annual decline in condo sales—from 1,827 in second quarter ’08 to 804 in second quarter ’09. Aside from the quarter right before, when there were 781 condo sales, that’s the lowest three-month sum since the end of 2005. Second, dozens of condo projects citywide have stalled, been foresworn by would-be developers or gape empty, hoping, at best, for renters with passable credit histories.

Part of this is due to a lack of development financing and refinancing sources. But part is also due to a dearth of qualified condo buyers. Gone are the days when a buyer could get 90 percent—or more—of a condo’s price in creative mortgages. Gone, too, are the foreign buyers, particularly from Western Europe, who buoyed so much of the condo market (estimates during the boom pegged foreigners as making up as much as one-quarter of all Manhattan new-development condo buyers).

What replaces the condos and the condo buyers? The co-ops! And co-ops, by and large, demand more from their buyers, like an aging New Yorker swearing off the one-night stands and hunting for a stable mate.

Whereas condos, especially newer ones, might take 5 or 10 percent upfront from a buyer and the rest in exotic mortgages, co-ops, through their boards, usually demand 20 percent to 50 percent of the apartment’s price upfront. And a buyer’s financial—and personal and professional history—are fairer game in co-ops than in condos.

It’s not that condos, hard and fast, are for the immature or the less financially secure. It’s that co-op purchases tend to be more arduous by their financial nature. Buyers have to demonstrate a certain economic maturity, in terms of ready cash and steady income, that condo buyers generally don’t. And, it should be noted, no Manhattan co-op has ever used sex or new cars to market its wares. Co-ops are staid; condos are Saturday night on the town.

This is no accident and, in the twilight of the boom, the numbers, more and more, are reflecting the new maturity.

The number of new-development condo deals was down 74.3 percent annually in the second quarter of 2009, according to StreetEasy, and they made up only 21.5 percent of deals total. Co-ops, on the other hand, accounted for 53 percent of the quarter’s closings.

Is the Manhattan Housing Market Growing Up? Condo Party Busted