The 1Q’09 Manhattan real estate numbers were published last week. Overall, number of transactions declined by 48 percent compared to a year ago, accordingly to Miller Samuel Appraisers. Median price increased 3 percent to $975,000. However, this is largely influenced by the sales of new developments. Excluding new developments, the median price declined 21 percent to $675,000. Recall that this was my prediction back in 4Q’08 and the media is now all over about Manhattan’s real estate downturn.
The median price of a coop apartment was $587,000, 22 percent lower than a year ago. The median price of a condo increased by 5.8% to $1.23 million but this is influenced by the new developments. Number of transactions for coops decreased 59 percent while transactions for condos decreased 39 percent.
Prices will continue to go down because the data we are seeing now are from contracts signed 6-9 months ago. The data for current transactions is very likely to be even lower given the overall pessimism in the economy over the past several months. In 2009, the Dow went to the 6000s and the debate about taxing bonuses of bankers does not increase enthusiasm.
The number of transactions shows the dramatic decrease in activity in the Manhattan real estate market. While the rest of the country started their real estate downturn reports a year or more ago, Manhattan’s turn is just starting now.
Based on the average price of housing relative to household income, prices in Manhattan are still much higher than the historical average. But the key point from the released data is that the official downturn has started in Manhattan.
Brokers are now turning into “buyer brokers” because there are virtually no sellers or sellers with realistic asking prices. The brokers and brokerage firms are now telling clients it is a good time to buy. During the bubble, it was a good time to buy because prices kept going up. Now, it is a good time to buy because prices are coming down. Obviously, the interest of the broker is with the commission and not the buyer. However, sellers are still not bringing their prices down enough for buyers to bid.
Sellers are still adamant with their asking prices, unwilling to accept the fact that prices in Manhattan has declined. Buyers obviously do not want to offer anywhere close to the asking prices. As result, a lot is on a stand still.
The buyers are the market because they represent the demand side of the equation. They are the ones forking out the money to make a transaction happen. Without buyers, there is no market because sellers will be left asking their non realistic prices.
Hence to make the market move again, the buyers need to see prices they think are reasonable. This basically means asking prices have to come down further. There are buyers whose current strategy is to offer at 20 to 40 percent lower than asking price. However, not all buyers choose to do this given the time and resources involved in making offers.
To buyers, I would advise starting the search process and tracking data closely. Sellers will get more flexible over the months. The correction period may take another 1 year but at least the market has acknowledged that prices do come down in Manhattan.
This is the time for buyers to be demanding. This includes asking for the seller to pay for closing costs, cash at closing to make renovations and asking for escrow reserves to be paid by the seller.