NYT: As Some U.S. Markets Level Off, Housing Slump Hits Manhattan

By JOSH BARBANEL

While sales have picked up a bit in some suffering housing markets in the West, creating a glimmer of hope that home prices nationwide may be approaching a bottom, the Manhattan real estate market has just begun a steep slide. It parallels the decline in New York’s financial services industry, and housing analysts say it may continue long after other markets heal.

Apartment prices have once more become the talk of the town in Manhattan, but this time the talk is of uncertainty and falling numbers. While brokers say they are seeing more activity lately, especially from first-time buyers taking advantage of lower interest rates, housing analysts are predicting a prolonged slump in prices and sales that could last as long as four or five years.

In this year’s first quarter, sales of co-ops and condominiums in Manhattan plunged nearly 60 percent from the first quarter of 2008. Average co-op prices fell as much as 24 percent in the same period, according to various market reports released last week.

Condo prices have held up so far, but only because buyers who went into contract long before the downturn were closing on newly completed condominium buildings. But now few new contracts are being signed on unfinished condominiums, and some buyers have been renegotiating contracts or are trying to back out of them. Co-ops and condos make up 98 percent of the residential properties for sale in Manhattan.

The stress is most severe at the high end of the market. There are 350 apartments and town houses for sale in Manhattan with asking prices of more than $10 million, and inventory has been growing. It would take about six years at the current sales rate to absorb all those listings.

“For the last three years, it was the bigger the better,” said Dolly Lenz, a broker at Prudential Douglas Elliman. “Now the key words are smaller, livable and affordable. Before no one asked what the maintenance was. Now everyone wants to know.”

Manhattan was spared some of the housing problems the rest of the country faced during this downturn. The mortgage foreclosure rate in Manhattan remains low even today. While thousands of condos were built here, most were bought by homeowners, not speculators, as was common in Miami and other oversaturated markets.

But Manhattan housing prices were driven higher by record earnings and bonuses on Wall Street, and they fell hard when the music stopped last fall.

The quick fall in prices is shown in the experience of Abigail Disney, a philanthropist and documentary filmmaker, who a year ago put her sprawling 17-room co-op on West End Avenue on the market for $13.5 million.

With trophy homes commanding ever higher prices from the titans of finance, Ms. Disney priced the apartment at 20 percent more than she had paid for it only a few months earlier. Harry Belafonte, the singer and actor, had created the huge space many years earlier by breaking through the walls of two smaller apartments.

After a series of price cuts, Ms. Disney has finally found buyers for the property, for just under $7.5 million, a 46 percent discount from her initial asking price. But to make a deal she agreed to restore the walls and convert it back into two apartments and sell it to two buyers.

Despite government efforts to ease credit around the country, the market in New York is being starved by a limited availability of credit, especially for jumbo mortgages, which are loans of more than $729,750. More than half of all apartment sales in Manhattan are above even the expanded limits of conventional mortgages, which carry lower interest rates.

Jonathan J. Miller, an appraiser who prepares quarterly reports on Manhattan, said the market could continue to fall through this year and next, especially if credit remained tight for most buyers. After that, he said, it could take several more years to work through the excess inventory.

The housing recovery will also depend on the state of the economy, which many forecasters say will take a disproportionate toll on New York City before the recession ends. In New York, the financial industry accounts for more than 30 percent of all wages, and at least some of the wages of half of all very high income households, according to the New York City comptroller’s office.

While employment fell nationwide last year, the number of jobs actually grew in New York City until September. Since then, the city lost nearly 85,000 jobs through January, and the comptroller’s office has forecast a loss of 121,000 jobs in 2009 and another 83,000 in 2010.

Condominiums under construction have been hit particularly hard, especially because new mortgage rules have made it difficult for buyers to get conventional loans unless 70 percent of the apartments in a building are in contract.

This has left many developers scrambling to convert condominium projects to rentals or provide alternative financing.

At 99 John Street in Lower Manhattan, where the Rockrose Development Corporation is converting a 27-story prewar Art Deco rental building into hundreds of condominiums, buyers were offered a chance to “rent to own,” and a promise that Rockrose would buy back an apartment after five years at 110 percent of the purchase price. The developer also began offering the apartments in bulk to investors, in packages of 15 apartments.

In the late 1980s, a surge in condominium construction in New York created a glut of condo apartments. Prices peaked in 1989, declined steeply in 1991, bottomed out in 1993 and stabilized in 1995 and 1996.

Shaun Osher, the chief executive of Core Group Marketing, said he had begun to see more activity this spring, but at much lower prices, with luxury apartment prices off as much as 40 percent.

Mr. Miller said that during the last big real estate downturn, when studio apartments were so cheap that he considered buying one on a credit card, people thought the luxury market would never come back. “Conspicuous consumption was out of vogue in 1991,” he said. “The market was back by 1997 or 1998.”

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