Manhattan Property Price Decline During Recession of 2009

One common questions asked by our investor clients about Manhattan property is the price decline during the past recession. 

Manhattan, New York proved the to be the U.S.'s strongest property market during the recession of 2009.  While the rest of the country saw price declines of an average 35 percent, Manhattan property prices were down about 12 percent, from a peak of $1,183 per sqft in 2008 to a bottom of $1,051 per sqft in 2009.  Several factors explain why Manhattan was so resilient.

Landlocked Island

Manhattan is an island that has been built upon for the past 200 years.  There is little left to build upon to cater to every growing demand.  In the typical U.S. city that is not an island, developers keep building further and further away from the city center hence increasing the supply of property.  But in Manhattan, there is limited land hence supply is limited as well.

Strict Coop Board Reviews

About 70 percent of property in Manhattan are cooperative buildings which means buyers have to undergo board reviews.  These boards only approve if the buyer shows financial strength, among a list of other things.  The coop board review process hence make it less likely for a highly leveraged buyer using teaser mortgage rates to purchase an apartment.  A lot of foreclosures in the U.S. were driven by borrowers who used mortgages with low teaser rates and who would not have been able to afford the property once the teaser rate period ends.

High income, high credit

Given the median price of around $850,000 back in 2009, Manhattan is about 4.5X the price of the median U.S. single family home.   Buyers able to afford in Manhattan hence have higher income and usually higher credit scores, which the banking industry define as prime borrowers and hence lower likelihood of default.

The Destination

Manhattan has always been the destination for high achievers.  Globally, ask any new millionaire and chances are they would want to visit New York.  Within the U.S., many college graduates would want to come pay $2,500 to live in a studio in Manhattan the size of their parent's living room.  This is because New York represents the dream.  It's a symbol of achievement which comes with hard work and success.  This means demand is always there, a key reason why Manhattan prices keep increasing. 

Wei Min Tan is a Manhattan buy-side condominium specialist focused on investors and foreign buyers.  He is often interviewed by media such as CNN, CNBC, The New York Times and WSJ MarketWatch on Manhattan property as an investment.  He can be reached at tan@castle-avenue.com